October 07, 2011

Robert J. McMynn and Joanne J. McMynn (Appellants) v. Her Majesty the Queen (Respondent)

95 DTC 329
Tax Court of Canada
July 22, 1994

(Court File Nos. 92-2189(IT)G and 92-2187(IT)G.)

Investment tax credits (“ITCs”) — Taxpayers leasing buses to corporations in business of transporting passengers — Whether taxpayers’ “principal business” still constituting “passenger, property, or passenger and property transport”, even though taxpayers themselves not directly involved in transporting passengers — Income Tax Act, S.C. 1970-71-72, c. 63, ss. 127(5) and 127(9).

In computing their income for their 1985 to 1989 taxation years, the taxpayers claimed investment tax credits and refundable tax investment credits in respect of new buses purchased by them for use in their bus leasing business. In assessing the taxpayers for the taxation years in issue, the Minister disallowed the deduction taken by them for investment tax credits. The taxpayers appealed to the Tax Court of Canada.

Held: The taxpayers’ appeals were allowed. The buses in issue were new and it was agreed by all parties that they met the definition of “prescribed equipment” in the Act. At issue, however, was whether or not they met the definition of “qualified transportation equipment” in subsection 127(9) of the Act. Since the taxpayers were not corporations, the question was whether they fell within the purview of subparagraph 127(9)(b)(ii) of the Act, i.e., whether they were taxpayers whose “principal business” was “passenger, property or passenger and property transport”. Clearly, the taxpayers were leasing buses to individuals or corporations involved in transporting passengers and/or property. In addition, the word “transport”, in the context of subparagraph 127(9)(b)(ii), could be taken as referring to a broad industry involving various modes of transportation, including the use of buses. This broader definition, moreover, did not require the taxpayers to be the ones actually involved in the active, physical transporting of the passengers and/or goods (any more than the taxpayer had to be physically involved in the actual harvesting of trees in order to be engaged in logging in accordance with the reasoning of the Federal Court of Appeal in Lor-Wes Contracting Limited v. The Queen (85 DTC 5310)). For these reasons, the taxpayers were entitled to the investment tax credit being sought and the Minister was ordered to reassess accordingly.