Digests

Du Pont Canada Inc. v. Canada

A-527-99

2001 FCA 114, Sharlow J.A.

12/4/01

24 pp.

Appeal from Tax Court's dismissal of appeal from reassessment of 1988 tax return based on Revenue Canada's position Du Pont's explosives manufacturing operation comprising separate business--In 1988 Du Pont sold explosives manufacturing plant, related assets--Income Tax Regulations, s. 1101(1) deeming separate class to exist for depreciable property acquired for use in business that is separate from any preexisting business--Test for determining when taxpayer has separate business "was there any inter-connection, any interlacing, any interdependence, any unity at all embracing those two businesses": Scales (H.M. Inspector of Taxes) v. George Thompson & Co., Ltd. (1927), 13 T.C. 83 (K.B.)--Between 1955, 1957 Du Pont constructed plant in Nipissing, Ontario for manufacture of explosives--Annual reports showing financial results for whole company--Corporate policy to centralize control over finance, people, technology--General service functions i.e. research, provided from Kingston; treasury, central pay system, human resources, industrial relations, systems and computer services provided from Mississauga--All of products manufactured by Du Pont marketed under Du Pont brand with Du Pont name, logos prominently displayed--Explosives manufacturing operation maintaining accounting records, but not enough to permit determination of profitability of operation--Various divisions of Du Pont cooperated in use, marketing of Du Pont products--Purchase and sale agreement not clearly stating whether parties considered transaction to be sale of separate business or simply sale of number of assets--But statement as to sufficiency of business assets apparently express acknowledgement by purchaser assets not sufficient to comprise stand-alone business, because assets required for business not included in transaction--To deal with that potential problem, Du Pont, purchaser entering into separate support services agreement--In finding explosives division separate business, Tax Court holding managed as one income-producing unit: manufacturing, supervision, direction, marketing, sales, staff and accounting, although certain rules applied generally to all divisions and certain services provided centrally--Appeal allowed--Tax Court misapprehended evidence relating to particular combination of centralized, divisional decision-making adopted by Du Pont, and substantial functional connections between Du Pont's explosives manufacturing operation, other business activities--Question whether, having regard to manner in which Du Pont organized affairs, aspects of operations characteristic of single integrated business more substantial than aspects characteristic of separate businesses--Most important indicators of integration centralized financing, credit management, centralized purchasing, common research facilities--These facts distinguishing cases in which separate businesses found--Also important that Du Pont name, trade-marks consistently used for all of Du Pont products, but ceased to be attribute of explosives manufactured at Nipissing plant after sale--Degree of product integration demonstrated by practice of cross-selling also distinguishing cases in which separate businesses found--Explosives manufacturing operation had customers in common with other Du Pont plants, and sold those customers Du Pont products not produced at Nipissing plant--Some factors divided explosives manufacturing operation from rest of Du Pont's business, eg. plant physically separate from other of Du Pont's activities, but insufficient indicators of separation to overcome many substantial indicators Du Pont operating single, integrated business--Explosives manufacturing operation not separate business--Income Tax Regulations, C.R.C., c. 945, s. 1101(1) (as am. by SOR/80-618, s. 1).