October 07, 2011

Her Majesty the Queen (Appellant) v. Robert J. McMynn and Joanne McMynn (Respondents)

97 DTC 5325
Federal Court of Appeal
May 30, 1997

(Court Files Nos. A-497-94 and A-498-94.)

Investment tax credits (“ITCs”) — Taxpayers carrying on business as individuals, leasing buses to various individuals or corporations involved in transporting passengers and/or property — Whether taxpayers themselves required to be actually involved in the active, physical transportation of passengers and goods in order to qualify for ITCs being claimed — Income Tax Act, R.S.C. 1985 (5th Supp.), c. 1, as amended, ss. 127(5), 127(9)(a) and 127(9)(b).

The taxpayers, as individuals, carried on the business of leasing buses to various individuals or corporations involved in transporting passengers and/or property. The Minister disallowed the ITCs claimed by the taxpayers for 1985 to 1989 in respect of their buses. In allowing their appeal, the Tax Court of Canada concluded (95 DTC 329) that paragraphs 127(9)(a) and (b) of the Act did not require the taxpayers themselves to be the ones actually involved in the active, physical transportation of passengers and goods in order to qualify for the ITCs which they had claimed. The Crown appealed to the Federal Court of Appeal.

Held: The Crown’s appeal was allowed. To qualify for the ITCs in issue, the taxpayers had to be actually engaged in the physical transport of passengers and goods, themselves. In this case they were engaged only in providing the means whereby others could engage in the actual transportation of the passengers and goods in issue. In addition, the taxpayers did not fall within the unambiguous wording of subparagraph 127(9)(b)(ii) of the Act as lessors of the buses in issue, since they were not carrying on their leasing activities as a corporation, as clearly required by the wording of that subparagraph. On both of these grounds, therefore, the taxpayers were not entitled to the ITCs which they had claimed. The Minister’s assessments were affirmed accordingly.