Blais v. The Queen

Blais v. The Queen
Court (s) Database
Tax Court of Canada Judgments
Date
2005-10-25
Neutral citation
2005 TCC 417
File numbers
2004-206(IT)I, 2004-2803(IT)I
Judges and Taxing Officers
Paul Bédard
Subjects
Income Tax Act
Notes
A correction was made on December 21
Decision Content
Docket: 2004-206(IT)I
2004-2803(IT)I
BETWEEN:
JEAN-FRANÇOIS BLAIS,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
[OFFICIAL ENGLISH TRANSLATION]
____________________________________________________________________
Appeals heard in joint evidence with the appeals of Christiane Auray‑Blais (2004-208(IT)I and 2004‑2804(IT)I) and Innovations et intégrations brassicoles inc. (2004-42(IT)I and 2004-2805(IT)I)
from February 28 to March 3, 2005, at Sherbrooke, Quebec,
and on May 11, 2005, at Montréal, Quebec.
Before: The Honourable Justice Paul Bédard
Appearances:
For the Appellant:
The Appellant himself and Christiane Auray-Blais (representative)
Counsel for the Respondent:
Philippe Dupuis
____________________________________________________________________
JUDGMENT
The appeals of the assessments issued pursuant to the Income Tax Act for the 1996, 1997, 1998, 1999, 2000 and 2001 taxation years are allowed and the assessments are referred back to the Minister of National Revenue for review and reassessment based on the attached reasons for judgment.
A single group of costs is awarded to the Appellants for costs incurred in respect of their expert witness.
Signed at Ottawa, Canada, this 25th day of October, 2005.
"Paul Bédard"
Bédard, J.T.C.C.
Citation: 2005TCC417
Date: 20051025
Dockets: 2004-206(IT)I
2004-2803(IT)I
BETWEEN:
JEAN-FRANÇOIS BLAIS,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent,
AND
Dockets: 2004-208(IT)I
2004-2804(IT)I
CHRISTIANE AURAY-BLAIS,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent,
AND
Dockets: 2004-42(IT)I
2004-2805(IT)I
INNOVATIONS ET INTÉGRATIONS BRASSICOLES INC.,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Bédard, J.T.C.C.
[1] The appeals of Jean-François Blais, Christiane Auray-Blais and Innovations et intégrations brassicoles inc. (IIB inc.) in dockets 2004-206(IT)I, 2004-2803(IT)I, 2004-208(IT)I, 2004-2804(IT)I, 2004‑42(IT)I and 2004-2805(IT)I were heard in joint evidence, with the parties’ consent, from February 28 to March 3, 2005 at Sherbrooke, Quebec, and on May 11, 2005, at Montréal, Quebec. The Appellants Jean-François Blais and Christiane Auray-Blais acted on their own behalf and as majority shareholders of IIB inc. (the two other shareholders being the Appellants’ children).
[2] In brief, the matter before this Court involves the activities of two companies, one a corporation, IIB inc., which, according to the Appellants, conducts research on beer, and a general partnership, La Société Christiane Auray‑Blais et Jean-François Blais (the General Partnership) which, again according to the Appellants, conducts research on seedlings.
[3] Specifically, through their General Partnership, the Appellants seek to develop a formula for a nutraceutical beer by adding rutin to [translation] "lower blood pressure by fortifying capillary and blood vessel tissue, preventing hemorrhaging... also a major role as antioxidant;"[1] in other words, health beer. The Appellants compare this future product to the addition of vitamin D to milk, one of the great achievements of the century given that few people consume enough of this vitamin. In parallel with this main objective of the General Partnership, the Appellants are also striving, with IIB inc., to develop a method to enable hops, one of the ingredients of beer, to grow in Quebec’s soil without pesticides and to eliminate the need for labour to secure these plants to stakes.[2]
[4] The debate in all these cases comes down to five questions in dispute (in the order in which they were submitted to the Court).
a) What is the leasing cost of property for purposes of calculating the investment tax credit?
b) Can a partner in a General Partnership also be an employee of that same General Partnership for purposes of the Income Tax Act (the Act)?
c) Did the Appellants fail to declare agricultural losses under the terms of section 31 of the Act?
d) Do the Appellants’ activities constitute experimental research and development activities under the terms of the Act?
e) Other points raised on May 11, 2005.
[5] It should be noted that the parties reached agreement a few days before the start of the hearings on admission of interest charges of $3,107, $3,605 and $3,665 as expenses for scientific research and experimental development (SR&ED) under subparagraph 37(1)(a)(i) of the Act, instead of agricultural expenses, for the 1998, 1999 and 2000 tax years. Application of subsections 127(8) and (9) of the Act, as well as division 2902(a)(i)(C) of the Income Tax Regulations, would follow, according to counsel for the Respondent, who drafted the agreement in a letter to the Appellants dated February 24, 2005. Since the parties raised no objection to this agreement at the hearing, I therefore take for granted that neither the facts underlying this agreement nor the law are in dispute.
[6] Now, before addressing each of the questions in dispute in the order in which they were raised at the hearing, it must be noted that although I reversed the order in which evidence was produced at the hearing by asking counsel for the Respondent if he could start, this does not mean that the burden of proof has shifted to the Respondent. I simply allowed this procedure to give the Appellants, who were acting on their own behalf under the informal procedure, a better opportunity to respond to the Respondent’s allegations. However, it is still incumbent on the Appellants to defeat the Minister’s factual allegations to win their case.
a) What is the leasing cost of property for purposes of calculating the investment tax credit?
[7] The Appellants submit that this question covers two series of leases.
[8] Under the first series, IIB inc. leases the laboratory equipment listed in Exhibit I-2, tab 6, to the General Partnership under leasing contracts.[3] This equipment apparently comes from various organizations. In his testimony, Mr. Blais admitted that all this equipment was off the balance sheet[4] and that the amount of $404.88 appearing as the only capital expenditures on the property was actually related to the cost of incorporating the company, not to the laboratory equipment as the Minister presumed.
[9] Under the second series, the General Partnership in turn leased to IIB inc. most of the agricultural equipment listed in Exhibit I-4, tab 53 (as well as other equipment, according to the Appellants) under another lease.[5] This equipment was previously used by the Appellants in beekeeping activities, also known as apiculture, but due to the diseases affecting their bees, the Appellants refocused their efforts on brewing activities (and specifically for purposes of this equipment, the study of barley, hops and rutin). According to the Appellants, most of this agricultural equipment was acquired in 1981; however, no document can confirm the purchase dates much less the cost of each of the properties in question.
[10] The Minister maintains that the Appellants should have been denied the investment tax credits (ITC) set out in section 127 of the Act because the purchase cost and date for each of these leased properties were unavailable, except for a tractor purchased in 1996 for $36,000. This tractor was accepted in an earlier decision of this Court involving the same Appellants.[6] In allowing fiscal depreciation of this same tractor, the Minister allowed the Appellants to deduct an eligible expenditure of $3,068 as an ITC for the 2000 tax year, in docket 2004-42(IT)I.
[11] In particular, the Respondent submits, since item A in the formula appearing in the definition of "the cost to the supplier of rendering the particular service" in subsection 127(11.7) of the Act is no more than $3,068, the amount of the eligible expenditure is also $3,068.
[12] In reaching this conclusion, the Minister first cited subsection 127(5) of the Act which makes provision for the investment tax credit. This subsection then refers to the definition of "investment tax credit" in subsection 127(9), which in turn refers in its paragraph (a.1) to "eligible expenditures." These expenditures are subject to the assumptions in subsection 127(5.1), including paragraph (a), which refers to subsection 127(11.6) and the concept of "adjusted service cost." The expression "adjusted service cost" in turn is defined in subsection 127(11.7), especially in its item A which represents "the cost to the supplier of rendering the particular service." This item A applies in this case since we are dealing with the leasing of property and since, according to paragraph 127(11.8)(c), the "leasing of a property is considered to be the rendering of service." Subsection 127(8) was also cited by the Minister for the calculation of the General Partnership’s investment tax credit. Unfortunately for the concept of simplicity of statutes as fiscal policy, this type of cascade of legislative provisions is common in tax law. There are even worse examples.[7] At least for purposes of these appeals, we need suffer no further intellectual dizziness since the parties are not challenging the application of all these provisions.
[13] Two of the arguments raised by the Appellants merit special attention.
[14] The first holds that the property had a cost after it was purchased by the two companies, contrary to what the Minister claims.
[15] In respect of the laboratory equipment, the Appellants first testified that they had received it in the form of a donation from a few organizations. They then added that they and their children had provided certain services in exchange for this equipment. The Appellants produced in Court three letters signed by three different persons representing three organizations, stating that the laboratory equipment (without specifying what this included) was in fact "donated" (this word is used in each of the letters with no mention of services by the Appellants or their children).[8] Yet at the hearing, Mr. Blais testified that he and the other members of his family had conducted research using radiation spectroscopy, performed equipment maintenance and allegedly dismantled and transported laboratory equipment. In all, the Appellants claim that they received equipment with a value of $100,000 (but, according to the appraisal of this property performed by Labequip Ltd for the Canada Revenue Agency (CRA), dated August 19, 2003, the value of the equipment is $85,764).[9]
[16] On the matter of the agricultural equipment, the Appellants believed that the cost was consistent with the fair market value (FMV) in 1997, when the General Partnership changed activities. The FMV of the agricultural equipment at the time, according to the Appellants, was slightly more than $122,000. In tax law, however, the concept of FMV is not the same as that of cost.[10]
[17] The second argument was submitted in writing and orally. At the third unnumbered page of the document produced at the hearing on arguments, the Appellants raised the following.
[translation] The interpretation of the CRA agents applying subsection 127(11.7) of the Act essentially is that the value of the adjusted service cost is almost identical to the adjusted selling cost. They also used an accounting form of the base service cost without considering the intrinsic and extrinsic cost (maintenance cost, replacement cost, economic obsolescence cost, etc.). The attitude of CRA staff is to grant the fewest economic benefits and interpret the ITA as restrictively as possible.
[18] Despite the Appellants’ insistence, I concur with the Respondent on the cost. First, in respect of the laboratory equipment:
a) little property is identified in the three letters entered into evidence;
b) according to these same letters, these were always donations, not an exchange of anything;
c) in his testimony, Mr. Blais was unable to provide sufficient details about the said services, including the number of hours and the value of these services. It is also hard to conceive that, under the circumstances, the Appellants and their children actually provided services with a value of $100,000. Had this been the case, Mr. Blais surely would have provided more information in his testimony;
d) even if the maintenance, replacement and obsolescence costs could be factored into the total cost of the property in this case, the Appellants produced no evidence on this aspect; and
e) since the Respondent accepted part of the credit based on a cost of $405, I cannot rule that the cost was nil because the Minister could then appeal its own assessment. (Petro-Canada v. Canada[11])
[19] In respect of the "agricultural" equipment, the Appellants simply failed to establish evidence of the cost, except for the tractor, the cost of which has already been allowed by the Respondent.
b) Can a partner in a General Partnership also be an employee of that same General Partnership for purposes of the Act?
[20] The Appellants are seeking a deduction for the General Partnership of salary or wages of $27,060 paid to Mr. Blais despite the fact he is also a partner in this same General Partnership.[12] In other words, they maintain that a partner in a General Partnership can also be an employee of this same company.[13]
[21] In support of their position, the Appellants raised several arguments, including these five: (1) the reasons given by this Court in Crestglen Inv. Ltd. v. Canada[14]; (2) the reasons given by this Court in Archbold v. Canada[15]; (3) the former interpretation bulletin IT-138R which appeared to allow deduction of salary expenses for a partner; (4) an excerpt from the book by Lord et al., Les principes de l'imposition au Canada[16] (in which the authors imply that the matter appears to be unresolved, despite the fact that bulletin IT-138R has been rescinded by the CRA); and (5) the reasons in Drolet v. Charron,[17] a decision by the Superior Court of Quebec permitting the employee/partner duality.
[22] In turn, counsel for the Respondent instead cited the mechanism of section 96 of the Act and the fictions this provision creates. He submits that the amount paid is instead a capital attribution set out in subparagraph 53(2)(c)(v) of the Act. In support of this position, counsel for the Respondent cites Lachance,[18] Metro-Can Construction Ltd.,[19] and Madsen.[20] And even if bulletin IT‑138R were still in force (bulletin rescinded on December 31, 2000),[21] it is obvious that such an administrative policy cannot set aside application of a clear provision of the Act.
[23] Based on my reading of the law on this question, I unfortunately cannot find for the Appellants, for the following reasons.
[24] Although the Appellants agreed that Mr. Blais would receive a "salary," it remains that such [translation] "agreements made between two partners, even if binding on the partners, does not necessarily bind the Minister of National Revenue if the said agreements run counter to the Act."[22]
[25] In the Archbold decision [supra], Justice Lamarre Proulx did in fact refer to an act, the Ontario Partnerships Act, to conclude that a partner may also be an employee of his General Partnership given that nothing in that Act prohibits this. I cannot concur with this conclusion. First, as Justice Noël repeated in Canada (Attorney General) v. National Bank of Canada, [23] provincial law can only be cited when federal law on the matter is silent. Here is how he summarized the rule after citing sections 8.1 and 8.2 of the Interpretation Act.
[33] Thus, if, in interpreting the application of a federal enactment in a province, one is to refer to the province's law of property and civil rights as suppletive law, reference to that law must be necessary and there must be no provision to the contrary in federal law. [24]
[26] In this case, I conclude there is no need to refer to Quebec law to answer this question in dispute, since the Act provides the answer. In any event, even if this were not the case, I believe that the provincial law concurs.
[27] In the case before us, the Act sets out several rules for general partnerships in section 96. In that provision, the legislator codified the principle by which a General Partnership is not a separate person from its partners (paragraphs 96(1)(a) and (c)).[25] This principle is by no means new and has existed in common law for a very long time.[26] It is now accepted in Quebec following the decision by the Court of Appeal of Quebec in (Québec) Ville v. Cie d'immeubles Allard Ltée.[27] In fact, several judges and authors now appear to accept the absence of legal personality in general partnerships in Quebec,[28] with only a few exceptions,[29] including Justice Lamarre Proulx in a subsequent decision, Latourelle v. Canada (M.N.R.).[30]
[28] Here is how she bypassed the decision of the Court of Appeal of Quebec:
¶ 31 In support of the statements in subparagraph 4(f) of Reply No. 1, and subparagraph 6(g) of Reply No. 2 [...] referred to the judgment of the Quebec Court of Appeal in Ville de Québec v. La Cie d'immeubles Allard Ltée et le Régistrateur de la division d'enregistrement de Québec [1996], R.J.Q. 1566, which held that although a partnership might appear to possess certain attributes of legal personality it does not have such personality and so cannot enjoy ownership of a separate patrimony. Relying on this judgment, the appellant’s agent maintained that a partnership is not a person and so has no power to contract.
¶ 32 As the judgment does not say that a partnership has no power to contract in Quebec law, I shall not rely on that aspect in making my decision, especially as it seems to me that this statement runs directly counter to the actual wording of art. 2221 of the Civil Code of Quebec, which reads as follows:
In respect of third persons, the partners are jointly liable for the obligations contracted by the partnership but they are solidarily liable if the obligations have been contracted for the service or operation of an enterprise of the partnership.
Before instituting proceedings for payment against a partner, the creditors shall first discuss the property of the partnership; if proceedings are instituted, the property of a partner is not applied to the payment of creditors of the partnership until after his own creditors are paid.
¶ 33 The respondent’s agent also referred to two decisions of this Court, of which one, Alain Carpentier c. M.R.N., dated May 14, 1996, takes the approach that there cannot be a contract of employment between a partnership and a member of that partnership, and the other, Louise Brady-Charette c. M.R.N., dated December 6, 1990, takes the opposite view.
¶ 34 As to the impossibility of a contract of employment between a partner and a partnership of which he is a member, the respondent’s agent did not refer the Court to any Quebec precedent or commentary in support of his argument. I shall therefore also not base my decision on this legal argument.
[emphasis added]
[29] First, a partner is not a third party in the eyes of the General Partnership. Second, there is now a Quebec precedent supporting the Minister’s position. The Quebec judgment cited by the Appellants has in fact been overturned very recently (April 28, 2005) by the Court of Appeal of Quebec in Charron v. Drolet[31] for the following reasons, at paragraphs14‑21.
[translation] [14] The Appellants claim that the Superior Court judge erred in fact and law in finding that the Respondent was both a partner and a salaried employee and granting him a period of leave. They maintain that a single given person cannot have the status of both partner and employee. Furthermore, there has never been a bond of subordination between the Respondent and the Appellants;
[15] The Respondent instead argues that the statuses of partner and employee can be held simultaneously. She maintains that she became an employee in 1999 when Charron made several unilateral decisions, including that to pay, in the form of salary with source deductions, for the withdrawals made by both partners;
[16] In support of her claims, she cites the following excerpt from authors Aust and Charrette:
Quite often, a relationship is determined by a variety of legal relationships. A single given employee may be both shareholder, employee, manager and director, each of these positions involving various legal obligations that must be met simultaneously.
(emphasis added)
as well as this passage from Robert P. Gagnon’s book:
[translation] Finally, it will be noted incidentally that the status of employee can coexist, in the same person, with others, such as shareholder or director of the company, or even that of independent contractor.
(emphasis added)
[17] However, these two excerpts deal only with the possible confusion between the status of employee and that of shareholder, not that of employee and partner. Admittedly, confusion prevailed during the hearing. In her statement of August 9, 2000, the Respondent claimed to own 40 percent of the shares of the Appellant Conseillers Corporatifs Focus inc. Only after several days of hearings and discussion was this statement amended, on February 28, 2002, to make a distinction between the joint-stock company and the undeclared partnership;
[18] In reality, the Respondent was never a shareholder of the Appellant Conseillers Corporatifs Focus inc., a joint-stock company owned by the Appellant Charron. She joined the latter as partner to operate an undeclared partnership under the name "Conseillers Corporatifs Focus." The similarity of names explains the error made by the Superior Court judge, who deemed the Respondent a shareholder;
[19] One of the key innovations of the Civil Code of Quebec on the issue of companies is the distinction between a general, limited or undeclared partnership and a joint-stock company. Only the last one is an artificial person (2188 C.C.Q.). Yet in all forms of companies, we find the same constituent elements of the partnership agreement: pooling of contributions, sharing of monetary profits, and a spirit of collaboration (2186 C.C.Q.);
[20] The Respondent and the Appellant chose to adopt a legal structure incompatible with the contract of employment defined in article 2085 C.C.Q. as that "by which a person, the employee, undertakes for a limited period to do work for remuneration, according to the instructions and under the direction or control of another person, the employer." A partnership agreement, in turn, is described in article 2186 C.C.Q. as that "by which the parties, in a spirit of cooperation, agree to carry on an activity, including the operation of an enterprise, to contribute thereto by combining property, knowledge or activities and to share among themselves any resulting pecuniary profits";
[21] It is not our place here to determine what roles partners may play within a joint-stock company, only to recognize that the parties’ intent was to operate a joint business in a spirit of collaboration and to share the company’s losses and profits;
[infrapaginal notes omitted]
[30] Thus, with no legal personality separate from its partners, a general partnership cannot hire one of its partners as an employee, given that a person may not employ himself.[32] This is especially true when the general partnership consists of only two partners, as in the present case. I therefore would not grant the Appellants the requested deduction, despite former bulletin IT-138R. The Appellants have admitted in arguments that they had been notified on July 8, 2003,[33] if not before that date, of the fact that this bulletin was no longer in force. In any event, this Court is not bound by the CRA position, whether stated orally or in writing, but by the Act.[34]
c) Did the Appellants fail to declare agricultural losses under the terms of section 31 of the Act?
[31] For the tax years from 1998 to 2001, the Minister believes that the Appellants did [translation] "not declare any amount as gross income and net income (net loss) from agriculture related to the General Partnership."[35] According to the Minister, all these amounts are linked to "farming" [agriculture in French] under the meaning of subsection 248(1) of the Act, and particularly to "tillage of the soil" [culture du sol in French], one of the activities listed in the Act for the term "farming" [agriculture in French]. In the English version of subsection 248(1), the legislator uses the term "farming" pour "agriculture," and the expression "tillage of the soil" pour "culture du sol."
[32] The Appellants have argued that the activities linked to these amounts were more scientific than agricultural. In light of the evidence on this point, I agree with the Appellants this time, for the following reasons.
[33] First, the very contract by which the General Partnership was created stipulates the following as the purpose of this company.
[translation] This company henceforth includes a single distinct undertaking, conducting scientific research and development for the purpose of developing and marketing a healthy or nutraceptic [sic] beer...[36]
[34] We discover more when we read another document produced by the Appellants, entitled "Historique de l'entreprise – Société Christiane et Jean‑François Blais (la Société)." I believe it is useful at this point to reprint a good part of this document, given that it extensively matches what I understand from the Appellants’ testimony on this aspect.
[translation] Purpose of the Company
The purpose of the said Company is the characterization and technological development of a value-added brewing business to be established in Quebec. We intend to produce a nutraceutical and ecological beer without the use of pesticides. This stated goal involves various phases of study, research and production of strategic ingredients to align the various desired compounds for a nutraceutical beer. These will be the focus of projects involving various research activities to resolve a number of technological and scientific uncertainties encountered, to attain the technological progress initially targeted for marketing nutraceutical beer.
Strategic phases of the Company
We have developed four strategic implementation phases for a brewing business, presented in sequence.
The first phase addresses the uncertainties raised by the cultivation method to establish brewer’s barley in our region, while meeting the production criteria of no pesticides or fertilizers and targeting links with mycorrhizae. This experimentation will also help determine whether small barley seeds can be used for sowing, to specify the barley growing technique for our suppliers so we can obtain the required compounds to produce nutraceutical beer. The research conducted on hops first includes assessment of the cold resistance of different varieties of hops seedlings. Cold resistance is in fact a major technological uncertainty that must be resolved, given Quebec’s winters, and may be intimately linked to the individual genetics of each variety. We must pose the following question: Must the ultimate selection of varieties be strictly based on this cold resistance factor? The answer will provide potential local producers with guidance and even certainty, to produce certain cold-resistant varieties rather than others without this characteristic. This explains the importance of studying this factor so we can determine which varieties are cold-resistant. We will also study the assessment of pest control for hops grown in Quebec, and finally, assessment of growing methods in various soil types using mycorrhizae. This first phase also involves studying and refining a production, extraction and dosing method for rutin obtained from Rhinanthus.
The second phase focuses on the rutin obtained to maximize the compounds for a nutraceutical beer, determining the growth stages at which Rhinanthus develops the highest levels of rutin in the plant and the conditions under which it must be added to the beer to preserve its properties.
[35] I believe that the following documents, produced by a representative of the Respondent, Mr. Éric Beauséjour, also support the Appellants’ position: the project summaries accompanying the T661 forms for the 1998 and 1999 tax years, as well as a document entitled "Caractérisation et développement technologique et scientifique d'une ferme brassicole de 1995 à 2005."[37] The only significant criticism of one of these documents by counsel for the Respondent is use of the word "farm" in one occurrence. However, not only is this term taken out of context from the paragraph in which it occurs, but it does not reflect the reality as I perceive it based on the evidence as a whole.[38] The relevant part in question is found on the first page of the T661 form for 1998 and reads as follows.
[translation] This characterization and technological development project for a value-added brewery farm has the following main objectives.
1. Make available a growing method and production variety (2 tonnes/acre) of barley with ecological and brewing qualities (warehousing, malting and brewing) adapted to southern Quebec and recover small seeds rejected in calibration for use in producing seedlings.
2. Make available productive varieties of hops and an ecological growing technology for extracting lupuline, and formulate various constituents in Quebec.
3. Make available, as a beer additive, extractable flavins of agricultural origin by experimenting with Rhinanthus and/or buckwheat cultivars.
[emphasis added]
[36] The Appellants testified in turn that once these techniques were developed, they would probably have others actually produce the desired ingredients for their brewing business. Here is what Ms. Auray‑Blais first said.
[translation] A. But one of the things for us, is that once the technique has been developed, we will not invest in production of this product. We’re going to contract it out have others produce it, or we’re going to obtain a supply with our technique, which will happen in the same way as for the barley...
Mr. Blais then followed.
[translation] A. Well, we would be asking other producers to produce it for us, as they produce at a lower cost than we can ourselves because we’re not growers, we’re not farmers.[39]
[37] Faced with this evidence, can it be said that the Appellants were engaged in agricultural activities? I believe not.
[38] Since the Minister did not advance other possible meanings of the term "farming" [agriculture in French], I therefore will only determine whether the Appellants were engaged in "tillage of the soil." In any event, as several judges have already remarked in the past, most of the definitions appearing in subsection 248(1) are simply expansions on the common meaning of the term "farming" [agriculture in French].[40]
[39] Furthermore, of all the terms found in the Act, the case law and the dictionaries, the expression "tillage of the soil" [culture du sol] is that which best reflects the Appellants’ activities, yet without defining them. Given that this expression is not defined in the Act, here is what the dictionaries say.
Le Petit Robert 1 (1991) by Paul Robert
Cultiver Travailler (la terre) pour lui faire produire des végétaux utiles aux besoins de l'homme. [...] Soumettre (une plante) à divers soins en vue de favoriser sa venue; faire pousser, venir.
Culture Action de cultiver la terre; ensemble des opérations propres à tirer du sol les végétaux utiles à l'homme et aux animaux domestiques. V. Agriculture. [...] Culture hâtée, forcée : usage de méthodes artificielles pour obtenir des récoltes en dehors des saisons normales.
Oxford English Dictionary Online (2005) published by Oxford University Press
Tillage The act, operation, or art of tilling or cultivating land so as to fit it for raising crops; cultivating, agriculture, husbandry.
Tilling ... work done upon land for raising crops; cultivation, tillage.
Cultivation The bestowing of labour and care upon a plant, so as to develop and improve its qualities: the raising of (a crop) by tillage.
Crop The annual produce of plants cultivated or preserved for food, esp. that of the cereals; the produce of the land, either while growing or when gathered; harvest... The annual or season's yield of any natural product.
[40] The Appellants’ research activities are not very consistent with these definitions. First, the production is only indirectly useful for humans or domestic animals, and not meant to feed them in a not-too-distant future. Second, the Appellants are doing much more than providing a range of care for their plants to enhance their growth, as most farmers would do; they are developing these methods through much more advanced research than that conducted by a non-scientist. Third, the Appellants have no intention of harvesting a crop each year or season as a genuine farmer would (although this last indicator is far from decisive in itself), and although the Appellants have sold seedlings to a greenhouse in Abbotsford, British Columbia, these activities are too accessory to change the nature of the Appellants’ work. This is all the truer when we analyse the issue in terms of the legislator’s intent. In this regard, I concur with Justice Bowie, of this Court, in the following passage from Corker v. Canada.
[8] The Appellant does no breeding of horses, and her attendance at equestrian events is not a source of revenue for her. No doubt there is some promotional value in her attendance at these events, because people who see her compete there may later become paying students, but it cannot be said to be her business. Nor is it principally the horse that is being exhibited on these occasions, but herself and her riding skill. It is noteworthy that Parliament, in enacting this extended definition, chose to include "maintaining of horses for racing," which is, of course, a popular pastime of well-to-do city people which would not necessarily fall within the ordinary meaning of the word farming, although it has long been an avocation of many farmers, particularly in England. Instruction in riding is, I think, farther removed than racing from the normal activities of a farmer. Had Parliament intended that it should be included in the activities which are the subject of section 31 of the Act, it would no doubt have said so.[41]
[41] Finally, it is interesting to note that in its report on the activities of the General Partnership, the Respondent’s own expert described these activities as scientific, at page 1 of his report. In effect, when questioned about the subject of the number 060399 entered on this page as [translation] "SCIENTIFIC FIELD(S) – (# CA)," the expert replied that this was an Australian code, but did not specify which. In response to this memory lapse by the expert, Mr. Blais suggested that it would have been interesting to know this detail. To avoid leaving the Appellants in suspense too long, I take the liberty of noting that a search on the website of the Australian Research Council (www.arc.gov.au) revealed the following field: Industrial Biotechnology and Food Sciences. For my part, the simple fact that the expert placed a number after the mention of the "scientific" field only adds an additional indication of the scientific nature of these activities.
[42] I therefore will find for the Appellants on this question. None of the cases raised by the Respondent support a different conclusion.
d) Do the Appellants’ activities constitute experimental research and development activities under the terms of the Act?
[43] For the following reasons, I believe, contrary to the Respondent, that for all the projects in question, the Appellants maintained [translation] "a detailed record of the assumptions, tests and results... as the work proceeded" consistent with the fifth criterion adopted by Justice Bowman (his title at the time) in Northwest Hydraulic Consultants Ltd. v. Canada.[42] These criteria were subsequently approved by the Federal Court of Appeal in C.W. Agencies Inc. v. Canada.[43]
[44] I also believe that the Appellants’ activities are quite consistent with the following passage from R I S – Christie Ltd. v. Canada.
[14] In addition to developing new products or processes, scientific research connotes the existence of controlled experiments involving the testing of models or prototypes. Thus, evidence of scientific research must be adduced by the taxpayer in order to demonstrate that such research (including testing) was undertaken and that it is eligible for favourable tax treatment: see, for example, Progressive Solutions Inc. v. R., 96 DTC 1232 (T.C.C.). Not only must taxpayers establish that tests were performed, they must also demonstrate that they were conducted in a systematic fashion. In my view, the requirement that research efforts be "systematic" is a higher threshold than simply requiring that research, including testing, be conducted. Although both documentary and viva voce evidence are admissible, the only sure-fire way of establishing that scientific research was undertaken in a systematic fashion is to adduce documentary evidence which reveals the logical progression between each test and preceding or subsequent tests.
[15] Thus, it is reasonable to expect a taxpayer to adduce documentary evidence of systematic research, including testing. If, however, a taxpayer has a plausible explanation for the failure to adduce such evidence, it is still open to the court to hold that, on a balance of probabilities, systematic research was undertaken. For example, where research notes are accidentally destroyed, it should be permissible for the trial judge to infer that systematic research was conducted, having regard to the totality of the evidence. During oral argument, counsel for the Minister accepted this proposition, if only because that scenario was inapplicable in the present case. However, in my view, it should also be permissible to infer that a taxpayer had conducted systematic research where it is established that such research led to a technological advancement. I say this because the whole foundation of the scientific research provisions of the Act and Regulations should not rest solely on the repeatability criterion. Otherwise, repeatability would negate the validity of all other evidence pertaining to scientific research.[44]
[45] Let us now examine the evidence on this question in dispute.
[46] Each party led testimony from its respective expert, who was questioned about his report on the activities of the General Partnership and IIB inc. These persons’ training and experience in their respective field were not questioned before me. Both experts completed doctoral studies in specialized fields of science (the Appellants’ expert also pursued post-doctoral studies), and both were accustomed to assessing projects or studies (the Respondent’s expert, for the CRA, the Appellants’ expert, for scientific journals).
[47] In general, if we compare the two series of reports, that by the Respondent’s expert is more complete and very damaging to the Appellants’ case, whereas that by the Appellants’ expert is fairly general and provides very few details. In brief, before the start of the trial, the Appellants had a challenge to overcome if they wanted to discharge the burden of proof.
[48] After hearing the testimony of each, however, I believe that the Appellants have discharged their burden by discrediting all the conclusions of the Respondent’s report in the brilliant cross-examination they conducted (Ms. Auray-Blais’ cross-examination was by far the best structured). They obtained solid admissions from the Respondent’s expert for each of the projects in question, they led him to contradict himself and they even obtained apol