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BETWEEN: BLUE WAVE SEAFOODS INCORPORATED and D'EON FISHERIES LIMITED
and
Heard at Halifax, Nova Scotia, on February 16, 2006. Judgment delivered at Ottawa, Ontario, on February 21, 2006.
REASONS FOR JUDGMENT BY: DÉCARY J.A. CONCURRED IN BY: LÉTOURNEAU J.A. SEXTON J.A.
Docket: A-510-04 Citation: 2006 FCA 81
CORAM: DÉCARY J.A. LÉTOURNEAU J.A. SEXTON J.A.
BETWEEN: BLUE WAVE SEAFOODS INCORPORATED and D'EON FISHERIES LIMITED Appellants
and
HER MAJESTY THE QUEEN Respondent
REASONS FOR JUDGMENT [1] The appellants were involved throughout the 1990's in the development of the Canadian silver hake fishery. They applied for tax credits under the Scientific Research and Experimental Development (SRED) program (sections 37 and 248(1) of the Income Tax Act).
[2] At issue in this appeal are the tax credit claims for the years 1995 to 1998. The claims were allowed in part for 1995 and 1996 and disallowed in their totality for 1997 and 1998. In lengthy and thorough reasons Mr. Justice Miller of the Tax Court of Canada allowed in part the appeal from the reassessment with respect to 1995 and dismissed the appeals with respect to 1996, 1997 and 1998 (2004 TCC 553).
[3] The appellants submit that the Tax Court Judge erred in law first when he found that the silver hake purchased by the appellants were not "consumed" within the meaning of the Income Tax Act; second, when he based his reasons that the development of the silver hake fishery was no longer a SRED in 1997 and 1998 without regard for the material before him, and specifically, without regard for the reports and testimony; third, when he failed to find that the appellants had been denied procedural fairness in that an appropriate science advisor, required to review their SRED filings, was not provided by Canada Revenue Agency (CRA).
[4] With respect to the interpretation of the word "consumed" and its application to the facts of this case, I am in full agreement with the reasoning of the Tax Court Judge. I need only here reproduce paragraph 74 of his reasons: [74] Simply because the Appellants had to buy the whole catch from the Canadian fishers does not mean the fish were "consumed" or used up at that point. In fact, they were sold, or inventoried frozen and sold, albeit at a loss, but they were certainly not rendered valueless. The ordinary meaning of the words "consumed in the prosecution of SRED" leads to just one clear conclusion- only the fish that went through the prosecution of processing into surimi or tempura were consumed or used up on the prosecution of SRED. The fish that were otherwise sold or inventoried were not so consumed. They were not made waste by the process- they were excess to the capacity of the SRED process, but they retained a value.
[5] With respect to the Judge's conclusion that there was no longer a SRED in 1997 and 1998, that conclusion is a finding of fact and no palpable and overriding error has been shown. It is perhaps true, as suggested by counsel for the appellants, that the expert witness of the respondent was not as knowledgeable of the appellants' file as he might have been, but the alleged weakness of the Crown witness does not suffice to establish the appellants' case. The appellants have the onus of demonstrating that they were still involved in a SRED in 1997 and 1998, and their own evidence in that regard was found to be lacking. I am fully satisfied that the following findings of the Judge are supported by the material and evidence before him: [82] The Appellants were most certainly involved in the development of a Canadian silver hake industry, leading to what Mr. Coles called the "Holy Grail" of whole fresh silver hake to the customer. And, yes, there were over the years qualified expenditures on SRED, especially in the earlier stages of the development of the fishery. In 1995 and 1996, such SRED constituted the development of a process for producing surimi or tempura and the expenditures allowed by the Respondent were those attributable to the prosecution of such SRED. The excess fish purchased does not qualify.
[83] By 1997, the Appellants knew a great deal about silver hake fishery. I find that by then they knew:
- how best to catch silver hake to reduce by-catch (by use of separator grates for example); - now best to keep silver hake on board to maintain freshness (by use of totes for example); - TAC was relatively stable.
Apart from the onshore handling of fresh silver hake (which I have found was not subjected to any systematic testing), there remained no scientific or technological uncertainly which the Appellants were addressing in a manner that constituted SRED. They were contracting with fishers to catch fish they were attempting to market fresh. The process of the plant in dealing with such fresh fish was not extraordinary. There may well have been some commercial uncertainty, but I have not been satisfied such would be any different for anyone in the fishing industry.
[6] Finally, with respect to the procedural fairness argument, there is nothing to add to the following comments of the Judge: [85] Finally, a word about the Appellants' approach with respect to the Government's science advisor, Mr. Neil. Both he and Mr. Harnish were cross-examined at length; I have covered some of their testimony in the review of the facts. I have not been convinced by the Appellants that Mr. Neil's lack of business and fishery experience has resulted in an incorrect assessment. The Appellants may have some justification for feeling their case was not given to the most appropriately qualified individual for this particular science audit. If the Appellants are of the view there has been some abuse of process, prior to commencement of this action, that is not a matter to be brought before this Court. This Court is interested in the correctness of the assessments.
[7] I would dismiss the appeal with costs.
"I agree Gilles Létourneau"
"I agree J. Edgar Sexton"
FEDERAL COURT OF APPEAL
NAMES OF COUNSEL AND SOLICITORS OF RECORD
DOCKET: A-510-04
STYLE OF CAUSE: BLUE WAVE SEAFOODS INC ET AL. v. HER MAJESTY THE QUEEN
PLACE OF HEARING: HALIFAX, NOVA SCOTIA
DATE OF HEARING: FEBRUARY 16, 2006
REASONS FOR JUDGMENT OF THE COURT BY: DÉCARY J.A.
CONCURRED IN BY: LÉTOURNEAU J.A. SEXTON J.A.
DATED: February 21, 2006
APPEARANCES:
SOLICITORS OF RECORD:
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