Decision and Order
IN THE MATTER OF AN APPEAL PURSUANT TO S. 50 OF THE ASSESSMENT ACT
CONCERNING:
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Appeal Nos.: |
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Refer to as: |
Tolko v. Area 20 (2010 PAABBC 20090445) |
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Date of Decision: |
January 28, 2010 |
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Property: |
866 Otter Lake Cross Road, District of Spallumcheen |
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Heard: |
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Appearances: |
James Fraser, for the Appellant |
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David Houston, for the Respondent |
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Board Panel: |
Simmi K. Sandhu, Panel Chair |
INTRODUCTION
[1] These appeals concern the assessments of improvements in the co-generation plant at the Spullamacheen Planner and Sawmill in Armstrong, B.C. (the “Mill”), owned and operated by the Appellant, Tolko Industries Ltd (“Tolko”).
[2] The co-generation plant includes structures that burn wood to produce steam and electricity for purposes of the Mill. The plant comprises three main structures: the boiler plant or complex, the turbine hall (both contained in building 90) and cooler condensers. Tolko constructed the Mill on or about 2000 but purchased the boiler vessel, equipment and other improvements from a pulp mill located in California. These purchased improvements were from a structure in California that was built in 1981. The purchased materials were disassembled and shipped from California to Armstrong, B.C., where it was re-assembled and put to use in building 90 in 2000/2001.
[3] For assessment purposes, the improvements are not assessed based on their market value but are costed using the Major Industrial Properties Manual (MIPs Manual) and depreciated in accordance with the Depreciation of Industrial Improvements Regulation, B.C. Reg. 379/88 (the “Depreciation Regulation”). Certain non-assessable improvements are exempted from costing under the Improvements Exclusion (1991) Regulation, BC Reg. 69/91 (the “Exemption Regulation”). The boiler vessel with its additional machinery and equipment is exempt.
[4] However, the Assessor has assessed and costed the structural steel in the boiler complex that surrounds the boiler vessel, and the stairs and catwalks attached to the structural steel. These items were part of the purchase of the boiler vessel. The Assessor has also used 2000/2001 as the base year for determining the chronological age of the improvements as part of the depreciation calculation.
[5] Tolko says an effective age calculation should be used to calculate the depreciation of the improvements in question as they originated in 1981 and have been in use since then. Also, Tolko submits that the structural steel, stairs and catwalks are non-assessable and exempt under the Exemption Regulation.
EXEMPTION OF THE STRUCTURAL STEEL/CATWALKS
[6] Section 1 of the Exemption Regulation excludes certain items, but not foundations associated with them, from the definition of “improvements” including:
“(i) those catwalks or tending platforms that are principally mounted on or are supported either by an improvement exempted by this regulation or by production machinery…” and
“(t) the following vessels:
(i) cyclones, dust and particulate collectors or separators, power and recovery boilers….”
[7] Under this Regulation, the boiler vessel and other equipment are excluded from the definition of “improvements”. The Assessor has not excluded the structural steel surrounding the boiler vessel or the stairs and catwalks attached to that structural steel, and therefore, has costed them according to the Manual.
[8] Tolko submits that, due to the nature of the design and the function of the boiler vessel, the structural steel and the catwalks are so integrated with the vessel that they must be treated as a single unit and exempted together.
[9] Jesse Wiebe and Peter Jones, for Tolko, and Don Currie, for the Assessor, provided evidence on the industrial design of the improvements.
[10] The boiler vessel is suspended from the top of the structural steel that frames the building by thirty-five structural steel rods that are attached to I-beams that support the vessel’s weight. Suspension of the vessel from the top, and off the floor, creates space underneath the bottom of the vessel to allow for expansion and contraction of the vessel due to temperature changes. The catwalks and the stairs are attached to the steel frame and not directly to the boiler vessel, but they are custom designed for this particular vessel structure. These catwalks and stairs provide access for the operation and maintenance of the boiler vessel, but also for other pieces of equipment in the boiler complex.
[11] Tolko argues that the structural steel was custom designed for this particular boiler vessel and they are critical to its operation and function. The steel frame is more than a structure but is part of the vessel itself. Because these improvements were designed, built and used as a unit, they should be exempted. They are not a foundation as referred to in the Exemption Regulation, nor a building structure. Rather, the structural steel provides support and stability for the suspension of the boiler vessel, and as such is an integral part of the boiler itself and therefore, is encompassed within section 1(t)(i) of the Exemption Regulation and the application of the test outlined in Canadian Forest Products Ltd. v. Assessor Area 26 (PAABBC 20071761). As for the catwalks and stairs, Tolko says that they are attached to and supported by the steel frame and, if the steel frame is part of the boiler vessel and exempted, so should the catwalks under section 1(i) of the Exemption Regulation.
[12] However, the Assessor disagrees. The vessel is an “improvement” as defined by section 1(2)(l) of the Assessment Act, along with any “structure” connected to the vessel, namely the structural steel frame. The Exemption Regulation, then, specifically excludes certain items from that definition of “improvements”. Foundations are not specifically excluded; however, vessels, such as the boiler vessel, are. The Regulation does not proceed to exempt the structures connected to the vessel, which are the steel frame, catwalks and stairs, irrespective of how integral they are to the boiler vessel.
Decision:
[13] There is no dispute that the structural steel frame is part of the support for the boiler vessel so that it can be suspended off the ground. There is no dispute that the stairs and catwalks are attached to the steel frame, but not the boiler vessel. All, including the boiler vessel, are “improvements” as defined by section 1(2) of the Act. Section 1(2)(t) refers to “any vessels…and any structure that is connected to those vessels…”. The structural steel frame is a structure connected to the boiler vessel and as such is included in the definition of “improvements”.
[14] In interpreting the Act and regulations, I must apply the prevailing and oft-quoted principle of statutory interpretation, namely that “words of an Act are to be read in their entire context and in their grammatical and ordinary sense, harmoniously with the scheme of the Act, the object of the Act, and the intention of Parliament.” (Bell Express Vu Ltd. V. R. (2002) SCC 42).
[15] The intent of the legislation is made clear in section 1(2), namely that the items listed there are “deemed to be included in that definition [of ‘improvements’] unless excluded from it by a regulation…”.
[16] The issue is whether or not the improvements in question are excluded by the Exemption Regulation. The Regulation specifically excludes in section 1(t) “vessels” but it does not mention the “structures connected to those vessels”. Therefore, a plain interpretation of the legislation, within the scheme of the Act, is that, although the boiler vessel is specifically excluded, the structural steel frame is not, regardless of how integral to the vessel. If the legislature intended to exclude a structure, such as the steel frame, connected to the vessel, it would have done so expressly in the Exemption Regulation. The language of the legislation is unambiguous. There is no room, in my mind, to insert or imply an exclusion that the legislature has specifically not intended. Since the legislature is presumed not to make mistakes (Driedger on Construction of Statutes, 3rd Edition, pg. 169), the only interpretation is that the failure to mention structures connected to the vessel in the Exemption Regulation was deliberate and reflected a decision of the legislature to not exempt them. This is consistent with the scheme of the Act, and the intent of the legislation.
[17] The test set out in Canadian Forest Products, supra., for whether a structure is an industrial improvement or part of an industrial improvement within the meaning of the Depreciation Regulation advocated by Tolko is not applicable here. That test involved the interpretation of a different regulation and definition, different language, as well different facts that concerned additions to existing buildings.
[18] As the stairs and catwalks are attached to the steel frame, which is not exempt, and not to the vessel, which is, section 1(i) does not apply to exempt them.
[19] If structural steel and catwalks are held not to be part of one unit with the boiler vessel, Tolko submits in the alternative that they are “associated” with the boiler vessel pursuant to the introductory language of section 1 of the Exemption Regulation, and are not a “foundation” and therefore, exempt together with the boiler vessel itself. There is no basis for this interpretation of the section. As indicated earlier, the introductory language of section 1 is clear. It states that the following items are excluded from the definition of “improvements”, then enumerates those items, and that any foundations “associated with them” are not excluded. There is no basis for Tolko’s argument that this means that any items “associated” with an exempt item is therefore also exempt. Rather, this interpretation would go against the clear intent and language of section 1.
[20] As I have found that the structural steel frame and catwalks are not excluded, Tolko argues that the effective age should apply to the whole of the boiler complex under the Depreciation Regulation.
DEPRECIATION OF THE BOILER COMPLEX
[21] The scheme for the costing of major industrial improvements in the legislation is to cost and depreciate each improvement and part of an improvement separately. Therefore, a “plant” can consist of a number of industrial improvements, some of which are added or installed at different times.
[22] In this instance, the boiler complex includes the boiler vessel, structural steel and roof structure, equipment supports, catwalks and ladders, ventilation (all from 1981), and lighting, concrete foundations and wall and roof cladding (from 2000/2001).
[23] Tolko says that because the major components of the boiler complex (i.e. the boiler vessel, the structural steel, and ancillary improvements) have been part of an industrial plant since 1981, they should attract the effective age calculation for depreciation, which had been historically applied to the boiler complex prior to these assessments, rather than the Assessor’s current calculation based on chronological age.
[24] An industrial improvement is depreciated according to either its chronological age or its effective age. Sections 1 and 2(1) of the Depreciation Regulation states:
‘chronological age’ means the number of years determined by subtracting
(a) the year in which the plant first commenced operation, or
(b) in the case of an industrial improvement or part of an industrial improvement that was constructed or installed after the plant commenced operation, the year in which the construction or installation of the industrial improvement or part of it was completed
from the year in which the new assessment roll is completed.
‘effective age’ means the number of years determined by
(a) calculating the total cost of the industrial improvement,
(b) multiplying the chronological age of each part of the industrial improvement by the cost of that part to give the weighted age of that part,
(c) adding the weighted ages of all of the parts of the industrial improvement, and
(d) dividing the sum of the weighted ages by the total cost of the industrial improvements and rounding the quotient up to the next whole year to yield the effective age.”
[25] Whether industrial improvements are depreciated based on chronological age or effective age depends on a determination of whether the thing in question is an improvement comprised of parts of different chronological ages, in which case the effective age is used, or whether it is a separate industrial improvement, in which case the chronological age is used. (Canadian Forest Products Ltd, supra.).
[26] There were no submissions made or evidence provided by either party as to whether the boiler complex is a separate industrial improvement or part of an improvement. In the assessments, building 90, which includes the boiler complex and the turbine hall, are treated as one building as the two structures are connected by a small control room. This was not disputed.
[27] Regardless of whether the boiler complex is a separate industrial improvement or whether it is part of an improvement, i.e. building 90, there are components that were installed new and others that were used and from 1981.
[28] The Assessor says that there is no basis for an effective age calculation since all the improvements in question were constructed or installed at the same time, namely 2000/2001, and that the regulation does not make allowance for components used previously on another site. As support, the decision in Canpar Industries Ltd v. Assessor of Area #17 (PAABBC 19990907) is cited, where the Board stated the date of the construction or installation of the “industrial improvements” governs, regardless of whether they are constructed of new or used components.
[29] Tolko says the facts are different here because the boiler complex was first installed into a “plant” in 1981, albeit in a California pulp mill, and operated continuously until purchased by Tolko and re-installed in the Mill. It is argued that the boiler complex became an “industrial improvement” under the Act when it was first installed in 1981 and has been since that time, albeit in different plants. The Assessor disagrees and says that the Depreciation Regulation refers to “the plant” which refers to the specific plant being costed and not any plant, and that the jurisdiction over which the Act applies is limited to B.C. Also, the Assessor argues the year of the commencement of the plant is used or, if an improvement is constructed or installed after commencement of the plant, the year of its construction or installation (i.e. the chronological age). If, however, parts of an industrial improvement have different chronological ages, i.e. if you add to the plant later, then the effective age applies. Therefore, the Assessor says it is the date of installation or construction that governs.
Decision:
[30] Only where an industrial improvement is made of parts with different chronological ages, does the effective age formula come into play to determine the effective age of the industrial improvement (section 2(1)(b) of the Depreciation Regulation).
[31] The Depreciation Regulation contemplates using the year in which the plant first commenced operation, or if there is an improvement that is constructed or installed after commencement of operations, the year of construction or installation. This is the chronological age. The effective age is used where parts of an industrial improvement have different “chronological ages” (section 2(1)(b) of the Regulation).
[32] Section 2(1)(b) uses a defined term, namely “chronological age” when referring to the instance when the effective age should be used. “Chronological age” is defined specifically in section 1 of the Depreciation Regulation, in other words the year the plant first commenced operation or the year in which construction or installation of the industrial improvement, if it, or parts of it, were constructed or installed after commencement. Based on the application of the defined term, i.e. “chronological age”, in the instance set out in section 2(1)(b) where effective age could be used, the effective age would apply where parts of an industrial improvement have different dates when they were constructed or installed after the plant commenced operation. It does not contemplate applying an effective age to used improvements nor the use of a year prior to either the commencement of the plant’s operation or the installation or construction of the industrial improvement.
[33] Tolko’s submission that the boiler complex became an industrial improvement in a plant in California in 1981 and, therefore, the effective age should be applied, is not consistent with the language of the legislation read in its entire context or in its grammatical and ordinary sense. The scheme of the costing of industrial improvements under the Act is to provide a value for the improvements of a particular major industrial property or plant.
[34] The Depreciation does not refer to “a plant” when it prescribes the chronological age, but refers to the “year in which the plant first commenced operation” (emphasis added), and “in the case of an industrial improvement or part of an industrial improvement that was constructed or installed after the plant commenced operation…” (emphasis added). By referring to “the plant”, it is clear that it is the plant being costed that is referenced, and not “any” plant. Therefore, Tolko’s argument is not supported by the plain language of the Regulation. The scheme of the legislation is to cost and depreciate each separate industrial improvement in a particular major industrial plant. Therefore, it is the plant in question which must be the reference point in the costing process, not “any” plant.
[35] Consequently, I cannot distinguish the Board’s previous decision in Canpar, supra, and agree with its finding that it does not matter for the purpose of applying the Depreciation Regulation whether the improvement was initially constructed of new or used parts or a combination of both. For effective age to apply, the parts of the industrial improvement have to have different chronological ages, and the chronological age of an industrial improvement is based on the year of the construction or installation of the, or part of the, industrial improvement. It is this year that governs according to the Regulation, not the date an industrial improvement initially came into existence.
[36] The fact that the Assessor had applied an effective age in prior years is not determinative. Due to the annual roll, each assessment is separate and distinct. The Board is not bound by what the Assessor did in earlier assessments.
[37] As the boiler complex was installed in the Mill, i.e. “the plant”, in 2000/2001, it is this year that governs, which is the chronological age.
Conclusion
[38] The structural steel surrounding the boiler vessel in building 90 and the catwalks attached to that structural steel are not excluded pursuant to the Exemption Regulation.
[39] The chronological age should be applied to the boiler complex in building 90 pursuant to the Depreciation Regulation.
ORDER
[40] The parties outlined agreement on values in the Agreed Statement of Facts, however, in order to ensure that these values accurately reflect the correct apportionment and my decision, the parties must provide to the Board by February 11, 2010, signed recommendations reflecting the parties’ agreements and my decision.