Date: 20010823
Docket: 1999-1979-IT-G
BETWEEN:
TORONTO REFINERS & SMELTERS LIMITED,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasons for Judgment
Bell, J.T.C.C.
GENERAL:
[1] All statutory references herein are to the Income Tax Act ("Act") unless otherwise stated.
ISSUE:
[2] Whether any portion of the sum of $9,000,000 paid, in 1992 by the Corporation of the City of Toronto ("Toronto") to the Appellant in respect of damages occasioned as a result of the Appellant's inability to relocate its business, Toronto having acquired its business land and buildings in 1988, was an "eligible capital expenditure" as defined in section 14.
FACTS:
[3] The parties filed an Agreed Statement of Facts which constitutes all facts placed before the Court.
[4] The Appellant carried on the business of secondary lead refining ("Business") on its land and buildings ("Real Property") located in the City of Toronto.
[5] In the early 1980's Toronto expressed interest in purchasing the Real Property from the Appellant. From that time until July 11, 1988 the Appellant and Toronto negotiated for the sale of the Real Property conditional upon the Appellant finding a suitable nearby location for the relocation of its Business. On July 11, 1988 the Appellant and Toronto entered into a written agreement ("1988 Agreement") to transfer the real property to Toronto. That agreement was made pursuant to section 31 of the Expropriations Act. Section 31 of that Act provided:
Where the owner of land consents to the acquisition of the land by a statutory authority, the statutory authority or the owner, with the consent of the other, may apply to the Board for the determination of the compensation to which the owner would be entitled by this Act if the land were expropriated, and the Board may determine the compensation and the provisions of this Act and the regulations respecting the determination of the compensation, hearings and procedures, including costs and appeals, apply thereto in the same manner as if the land had been expropriated and for the purpose, subject to any agreement of the parties, the compensation shall be assessed as of the date on which the assent to the acquisition is given.
[6] That agreement provided that the Appellant and Toronto each consented to the other applying to the Ontario Municipal Board ("OMB") for determination of the compensation to which the Appellant would have been entitled under the Expropriations Act had the Real Property been expropriated. In 1988 Toronto did not carry on the business of secondary lead refining. The 1988 Agreement was not conditional on the Appellant finding a suitable nearby site for the relocation of its Business. However, it provided that in the event that the Appellant did not relocate its business, Toronto would acknowledge in all future proceedings that it was not feasible for the Appellant to relocate the business.
[7] The 1988 Agreement permitted the Appellant to recover its inventory, equipment and chattels located on the Real Property and to dispose of them for its own account. The Appellant agreed that receipts from the disposition of those assets would be disclosed to Toronto if it claimed compensation on the basis of existing use or if it claimed disturbance damages. The Appellant also agreed that the amount of such receipts could be taken into account in calculating market value or disturbance damages if the OMB deemed it relevant.
[8] On July 15, 1988 the Appellant, pursuant to the 1988 Agreement, transferred the Real Property to Toronto. Toronto paid the Appellant $1,000,000 as an initial payment and $60,000 for legal, appraisal and other costs incurred by the Appellant. The $1,000,000 payment was received by the Appellant without prejudice to its right to seek additional compensation based on a July 15, 1988 valuation date.
[9] The Appellant ceased carrying on its Business and disposed of substantially all of its remaining business assets prior to 1989. The Appellant gave Toronto vacant possession of the Real Property on February 20, 1989. The Appellant never relocated the business.
[10] On October 13, 1989 the Appellant applied to the OMB for the determination of the compensation to which it was entitled pursuant to the 1988 Agreement and section 31 of the Expropriations Act. Valuators, retained by the Appellant and Toronto for the purposes of the hearing before the OMB, valued the goodwill of the Business as being between $3,850,000 and $8,000,000. They valued the Real Property, based on existing use, as being between $1,000,000 and $6,800,000. These valuations were made as of July 15, 1988.
[11] The hearing commenced before the OMB for compensation determination in January, 1992. On January 27, 1992 the Appellant and Toronto entered into a Minute of Settlement approved by an Order of the OMB under which Toronto agreed to pay the Appellant as compensation:
(a) $2,900,000 in respect of the land,
(b) $100,000 in respect of the buildings; and
(c) $9,000,000 "in respect of damages occasioned as a result of the inability of" the Appellant "to relocate its Business".
[12] The $12,000,000 was paid to the Appellant pursuant to sections 31, 13 and 18 and subsection 19(2) of the Expropriations Act. In computing its income for the 1992 taxation year for financial statement purposes, the Appellant included the receipt of $9,000,000 as damages. In computing its income for income tax purposes, it deducted $9,000,000 from income, claiming that that sum was a non-taxable capital receipt.
[13] The Minister of National Revenue ("Minister") reassessed the Appellant for its 1992 taxation year on the basis that three-quarters of the $9,000,000 payment was an "eligible capital amount" within the meaning of subsection 14(1). This appeal is in respect of that assessment.
APPELLANT'S SUBMISSIONS:
[14] Appellant's counsel initially submitted that the $9,000,000 of damages was part of the cost of the Real Property purchased by Toronto or was a current expense and was, therefore, not an eligible capital amount under section 14. He later abandoned the latter position respecting current expenses.
[15] He said that in order to be an eligible capital amount within section 14, the damages paid to the Appellant must be, pursuant to paragraph 14(5)(a)(iv)(A):
... an amount which, as a result of a disposition ... he has or may become entitled to receive in respect of the business carried on or formerly carried on by him where the consideration given by him therefor was such that, if any payment had been made by him after 1971 for that consideration, the payment would have been an eligible capital expenditure of the taxpayer in respect of the business. ...
He then said that paragraph 14(5)(b) provides, inter alia, that:
"eligible capital expenditure" of a taxpayer in respect of a business means the portion of any outlay or expense made or incurred by him, as a result of a transaction occurring after 1971, on account of capital for the purpose of gaining or producing income from the business, other than any such outlay or expense ...
(i) in respect of which any amount is ... deductible in computing income from the business ...
...
(iii) that is the cost of or any part of the cost of,
tangible property of the taxpayer ...
(emphasis added)
[16] Counsel, in referring to subparagraph 14(5)(a)(iv)(A) submitted that the actual circumstances of the payor, Toronto, must be taken into account in determining whether the notional payor, the Appellant, has incurred an eligible capital expenditure. He said that, therefore, if the amount of damages paid to the Appellant was not an eligible capital expenditure of Toronto because that amount was part of the cost of the Real Property to Toronto or was a currently deductible expense, the receipt of that amount could not be an eligible capital amount of the Appellant.[1] He referred to Her Majesty the Queen v. Goodwin Johnson, 86 DTC 6185 (F.C.A.). In that case the Court had to determine whether damages for breach of contract were eligible capital amounts under section 14. A company called Naden had purchased the beneficial ownership of a timber license from a third party but title to the license was held in Goodwin Johnson's ("Johnson") name, apparently for regulatory reasons. Naden hired Johnson to manage the timber cutting operations in return for fees partially dependent on the amount of timber cut. The amount of timber that could be cut depended on whether Naden would build a mill. Naden sued Johnson for transfer of the license title. Johnson counterclaimed for damages for breach of contract and breach of fiduciary duty because Naden's refusal to build a mill resulted in less timber being cut. The matter was settled by Naden paying Johnson damages for breach of contract. The Court held that the receipt of such damages was on capital account. Appellant's counsel submitted that even though Naden and Johnson were in the same business of timber cutting and were, therefore, potential competitors, the Court found that Naden was not attempting to acquire a portion of Johnson's business but was only ridding itself of a breach of contract action. The Court stated, at page 6189:
As I have earlier said, it is my opinion that the purpose of the respondent in settling the damage action here was not to sell a capital asset nor was it Naden's purpose to acquire one, although that was a result which followed incidentally from the acceptance of the settlement offer. Rather, its purpose truly was to settle a breach of contract action.
[17] The Court held that since an eligible capital expenditure as defined in paragraph 14(5)(b) did not include a current deductible expense and since Naden, the actual payor, had incurred a current deductible expense by making the damages payment, Johnson, as notional payor, should also be considered to have made a current deductible expenditure. At page 6190 Urie, J. said:
I turn now to the effect, if any, of subsection 14(1) on the finding that, in the hands of the Respondent, the payment of $830,000 was capital. As earlier noted, that subsection employs the curious technique of determining whether or not a payment is an eligible capital expenditure by notionally considering the recipient of the payment as the payor for the consideration which was given in return for the payment. In my opinion, that notional change of roles cannot be effected in a vacuum. By that I mean, the circumstances in which the actual payment was made, for the actual consideration given, do not change and cannot be ignored. They are vital in making the determination required to ascertain whether or not the payment is an eligible capital expenditure. As I have concluded that the payment by Naden of $830,000 as the actual payor, was in settlement of an action for damages for breach of contract so too then is the payment of that sum by the notional payor, the Respondent. The sole question then is, does that payment fall within the terms of paragraph 14(5)(b)(i) or not? In general terms that question leads to another - is the payment an expense deductible as being one for the purpose of gaining or producing income and not within the exceptions described in paragraphs (i) to (vi) inclusive of subsection 14(1), more particularly, in this case, paragraph (i)? If it is not within these exceptions and is properly a deductible expense, it is a revenue expenditure. Since it is not within the ambit of subsection 14(1), it will not be an eligible capital expenditure.
Note: The pertinent portions of subsection 14(1) referred to in Johnson are virtually identical to the pertinent portions of subparagraph 14(5)(a)(iv) under examination in the instant case.
[18] Mr. Justice Urie also, at 6190 said:
What, then, on the facts of this case, was the purpose of the payment? In my opinion, it is clear that the expenditure was made "for the purpose of gaining or producing income" by getting rid of an operational contractual expense by paying damages for breach of that contract. The purpose could not remotely be described as being for the acquisition of a capital asset. That being so, subsection 14(1) does not come into play because if the Respondent had been the payor, the payment made by it would not have been an eligible capital expenditure since it failed to meet one of its tests imposed by subparagraph 14(5)(b)(i) of the Act, viz, that the payment not be what, in general terms, is described as, a deductible business expense. The trial judge, therefore, correct found the $830,000 payment to have been received on capital account.
[19] Counsel then referred to Pe Ben Industries Company Limited v. Her Majesty the Queen, 88 DTC 6347, in which Strayer, J. (as he then was) approved and applied the Goodwin Johnson decision, at page 6351, in respect of a payment that:
... was getting rid of its contractual arrangement with the plaintiff and avoiding all future litigation. It was getting rid of any further obligations to pay what would normally be operating expenses under the contract. In other words the payment made by NAR to the plaintiff was for it in the nature of an operating expense which would be deductible as a business expense. By virtue of subparagraph 14(5)(b)(i) of the Income Tax Act it could therefore not be "eligible capital expenditure" if it had been made by the plaintiff and therefore it cannot when received by the plaintiff be an "eligible capital amount". This was the rationale of the Goodwin Johnson decision and it is directly applicable here.
[20] With respect to subsection 14(1) counsel quoted the learned Justice further:
In applying it, one must then notionally put the plaintiff in the position of the payor who actually was paid this amount as an income matter, i.e. a deductible expense incurred in the process of earning income. That being the case the plaintiff notionally put in that position cannot claim the amount received by it as an "eligible capital amount" because of the provisions of paragraph 14(5)(b).
[21] Appellant's counsel submitted further that an "eligible capital expenditure" must be an outlay or expense "in respect of a business" that is made or incurred for the purpose of gaining or producing income from the business. He said that there was no evidence before the Court that Toronto carried on any business. He then said that the payment by Toronto would not be an eligible capital expenditure.
[22] In addition, counsel submitted that Toronto's purpose in paying damages arose out of its desire to acquire the Real property and subsequently being obliged to pay the Appellant for its inability to relocate its Business. He enforced this argument by saying that the payment was not made to terminate the business. He referred to the 1988 Agreement between the Appellant and Toronto and stated that the Appellant did not, under that agreement, agree to terminate the Business.
[23] Counsel submitted further that the payment was not for the acquisition of goodwill since Toronto did not acquire the Business. He stated that the payment was not made to acquire goodwill by eliminating the Appellant's Business, Toronto not being a competitor of the Appellant and there being no evidence that it wished to acquire any customers of the Appellant becoming available upon its inability to relocate the Business.
[24] He argued that the entire $12,000,000 was Toronto's cost of the Real Property. He sought to support this statement by reference to The Queen v. Metropolitan Properties Co. Limited, 85 DTC 5128. In that case the taxpayer, being in the land development business, agreed with a municipality to install services and improvements such as sewers, water mains, paving, tree planting, streetlights and telephone and electrical services on land that it owned but that it would donate to the city. The agreements provided that the cost of these services would be considered as pre-payments of realty taxes that would otherwise be levied by the city. The taxpayer deducted such costs as current expenses. The court held, in denying the claimed deduction, that such costs must be added to the cost of the taxpayer's land inventory since that would present a truer picture of the taxpayer's real income in any given year. He submitted that there was no suggestion that the expenditure should be an eligible capital expenditure.
[25] Counsel said further that the allocation of the entire $12,000,000 to Toronto's cost of the Real Property is also supported by the decision of the Federal Court of Appeal in Gladstone Investment Corporation et al v. The Queen, 99 DTC 5207. In that case the taxpayers owned a shopping plaza and wanted to expand its parking facilities. However, the land required for that expansion was being used by the city for a street. The city eventually agreed to relocate the street northward and transfer the land to the taxpayers provided that they transferred a more northerly parcel of land to the city. They paid the city $480,900 to reimburse it for the cost of relocating the street to the more northerly land. The taxpayers argued that the payment was currently deductible since the real purpose of that payment was not to acquire an asset of an enduring nature but to induce the city to make changes on city property that were beneficial to day to day business. The court held that the $480,900 should be added to the cost of the land acquired from the city. The Federal Court of Appeal upheld the Tax Court decision that the land, used in the expansion of a parking lot, was an asset of an enduring nature. It said, at page 5209:
Here, the exchange of land and the payment for the relocation of Pierre Corneille Street are not severable. The evidence is clear that both were viewed by the Appellants as part and parcel of a single arrangement the purpose of which was to allow for the expansion of the parking facility.
[26] Counsel submitted that the payment in Gladstone was similar to Toronto's payment to the Appellant in that the payment was made as part of a land purchase agreement under which Toronto agreed to compensate the Appellant for the market value of the Real Property and for any costs of relocating its Business or of not being able to relocate its Business. Accordingly, he concluded, in this respect, that Toronto's payment to the Appellant must be added to the cost of the Real Property acquired by it, that not being an eligible capital expenditure in accordance with the decisions in Goodwin Johnson and Pe Ben.
[27] Counsel's next argument was that the amount of damage paid to it could not fall within the provisions of section 14 because such payment was not received in respect of a "disposition" of its Business within the meaning of clause 14(5)(a)(iv)(A) since the word "disposition", when read together with the other words in that clause, means a transfer to another person. Further he said that it was not received "in respect of a business" within the meaning of that clause but rather as damages in respect of the loss of a business. Counsel argued that the word "disposition", read in context, contemplated that only a transfer of property for consideration could give rise to an eligible capital amount. He referred to the Supreme Court of Canada decision in The Queen v. Compagnie Immobilière BCN Limitée, 79 DTC 5068. In that case the court relied, inter alia, on the broad definitions of "proceeds of disposition" and "disposition" in the Act applying for capital cost allowance purposes. He submitted that those definitions were not of assistance in analyzing the word "disposition" since they only applied for capital cost allowance and capital gains purposes. He referred to Contonis v. The Queen, 95 DTC 511 (T.C.C.) in which this Court, in deciding when an amount was "payable" under section 14 said, at page 515:
"Proceeds of disposition" is defined in at least two provisions, paragraphs 13(21)(d) and 54(h) and it includes "the sale price of property that has been sold".
It will be noted however that paragraphs 13(21)(d) and 54(h) do not deal with dispositions of eligible capital property. Paragraph 13(21)(d) is part of a subsection that defines words used in sections 13, 20 and regulations made under paragraph 20(1)(a). Paragraph 54(h) is found in subdivision c of Division B which deals with capital gains and losses.
[28] Further, in this regard, Appellant's counsel submitted that clause 14(5)(a)(iv)(A) only applies where a taxpayer agrees to transfer property rights to another person for consideration and that it does not contemplate damages for the extinguishment of property such as a business. He said that the provision refers to both a "disposition" and a "payment made for ... consideration". He submitted that the logical interpretation of that convoluted provision was that it applies when the recipient of the payment (Appellant) has disposed of consideration to the payor (Toronto) and has received payment therefor. Counsel then submitted that damages received for its inability to relocate its Business do not fall within that provision since no part of its Business was transferred to Toronto. He argued further that the test described in Johnson requires the recipient of a payment to assume that he made the payment to obtain the consideration given up. He then said that both the receipt of the actual payment and the notional payment must "be in respect of a business" and that the language of clause 14(5)(a)(iv)(A) therefore contemplates that property has been transferred from one business to another in the course of both businesses.
[29] Counsel then submitted that clause 14(5)(a)(iv)(A) required the payment to the Appellant to be "in respect of the business carried on or formerly carried on by" the Appellant. He said that the requirement that the amount be "in respect of the Business of the Appellant was reiterated in subsection 14(1) and submitted that a payment of damages in respect of a loss of a business was not a payment "in respect of the business" within the meaning of section 14. He referred to The Queen v. Atkins, 76 DTC 6258 in which an employee who was dismissed without notice threatened to commence an action against his former employer. A settlement was negotiated and the employee received an amount as a "severance allowance" in exchange for releasing the employer from all claims against it. The Crown contended that the amount was employment income pursuant to paragraph 5(1)(a) of the Act, which included in income:
... benefits of any kind whatsoever ... received ... in respect of, in the course of, or by virtue of the office or employment ...
[30] The Federal Court of Appeal disagreed, stating at page 6258:
Once it is conceded, as the appellant does, that the respondent was dismissed "without notice", monies paid to him (pursuant to a subsequent agreement) "in lieu of notice of dismissal" cannot be regarded as "salary", "wages" or "remuneration" or as a benefit "received or enjoyed by him ... in respect of, in the course of, or by virtue of the office or employment". Monies so paid (i.e., "in lieu of notice of dismissal") are paid in respect of the "breach" of the contract of employment and are not paid as a benefit under the contract or in respect of the relationship that existed under the contract before that relationship was wrongfully terminated.
[31] He said that although that decision was questioned in obiter by the Supreme Court of Canada in Jack Cewe Ltd. v. Jorgenson, 80 DTC 6233 (S.C.C.), the Federal Court of Appeal subsequently reaffirmed its decision in The Queen v. Pollock, 84 DTC 3670. He said further that the Federal Court of Appeal in Buccini v. The Queen, 2000 DTC 6685 affirmed the Atkins decision. In that case, an amalgamation between the taxpayer's employer and its majority shareholder terminated all outstanding options to purchase shares of the employer and the option-holders were compensated with a release payment. The Crown argued that the amount received was a benefit in respect of employment. The Federal Court of Appeal disagreed, stating at page 6689:
It is, however, well-settled law that damages for breach of a contract of employment are not taxable under section 6 of the Act. This proposition was established in The Queen v. Atkins, and remains good law.
[32] Counsel said that such damages were in respect of the loss of the Business rather than in respect of the Business. He said further that the words "in respect of the business carried on or formerly carried on" are not inconsistent with that interpretation. He stated that the phrase "formerly carried on" ensures that payments made to a taxpayer for the transfer of a business did not escape the ambit of section 14 merely because the taxpayer no longer carried on the business at the time his entitlement to the payment arises. He said that such entitlement would ordinarily not arise until after the business was actually transferred and a taxpayer no longer carried on the business.
[33] Finally, Appellant's counsel suggested that the damages received by the Appellant in respect of its inability to relocate its Business should not be taxable unless it was clear under section 14, and that any reasonable doubt in that regard should be resolved by recourse to the residual presumption in favour of the taxpayer. He referred to The Queen v. Fortino et al, 97 DTC 55 where this Court, referring at page 65 to the Supreme Court of Canada's decision in Schwartz v. The Queen, 96 DTC 6103, said:
... Our courts seem to act very carefully in including in taxable income amounts that are not specifically covered in the Act. ... I will recall here what has been said by the Supreme Court of Canada in CUQ v. Corp. Notre-Dame de Bon-Secours, with respect to the rules that should be applied in the interpretation of tax legislation. A legislative provision should be given a strict or liberal interpretation depending on the purpose underlying it, and that purpose must be identified in light of the context of the statute, its objective and the legislative intent: this is the teleological approach. And where a reasonable doubt is not resolved by the ordinary rules of interpretation, it should be settled by recourse to the residual presumption in favour of the taxpayer.
RESPONDENT'S SUBMISSIONS:
[34] Counsel for the Respondent submitted that the amount of $9,000,000 paid to the Appellant would have been an eligible capital expenditure if it had been paid by the Appellant.
[35] She submitted that the tax law provides special rules for business-related expenditures that are neither deductible in full, being of a capital nature, nor eligible for a capital cost allowance. She said that those expenditures on account of "eligible capital property" include goodwill, certain customer lists and trademarks and quota rights.
[36] She said that paragraph 14(5)(a) defines a taxpayer's cumulative eligible capital. She said that the account operates on a pooled basis requiring, in general, that a portion of expenditures made by a taxpayer in respect of eligible capital property be added to the pool and that a portion of amounts received by the taxpayer in respect of dispositions of such property be subtracted from the pool. She added that where the balance in the pool is negative at the end of a taxation year, the negative balance must be included in income. She said that the policy behind the treatment of proceeds of disposition of eligible capital property was that the proceeds should be deducted in determining a taxpayer's cumulative eligible property at the time of disposition because it represents in large part, the recapture of a "write-off" that has previously been deducted.
[37] Counsel submitted that an amount is determined to be an eligible capital amount of a taxpayer under subparagraph 14(5)(a)(iv) if, instead of being the recipient of the amount, the taxpayer had made any payment for that consideration after 1971 and the payment would have been an eligible capital expenditure of the taxpayer in respect of the Business. She said that an eligible capital expenditure is defined in paragraph 14(5)(b) as being the portion of an outlay or expense (other than certain enumerated outlays or expenses) made or incurred by the taxpayer as a result of a transaction occurring after 1971, on account of capital for the purpose of gaining or producing income from the business. Then she said that it was necessary in determining whether an amount received was an eligible capital amount, to ask what consideration was given to the taxpayer for the amount. She referred to Black's Law Dictionary, 5th Ed. (St. Paul, Minnesota: West Publishing Co. 1979) saying that "consideration" was defined as follows:
The inducement to a contract. The cause, motive, price or impelling influence which induces a contracting party to enter into a contract. Some right, interest, profit or benefit accruing to one party, or some forbearance, detriment, loss or responsibility given, suffered, or undertaken by the other.
[38] She said that one must determine the forbearance, detriment or loss given by the Appellant for the amount of $9,000,000.
[39] Counsel then submitted that Toronto induced the Appellant to give up its Business and that the consideration given by the Appellant was that it gave up its Business. She said that the dollar value of that consideration was the value of the goodwill of the Business. She submitted further that the amount is required to be "as a result of a disposition". She said that the word "disposition" was not defined in the Act and therefore must be given its ordinary meaning. She referred to Black's Law Dictionary, supra, that defines that word as follows:
Act of disposing; transferring to the care or possession of another. The parting with; alienation of, or giving up property.
She submitted that the meaning of that word was broad enough to cover giving up a business "in the circumstances".
[40] She then said that the next question to be asked is whether, if any payment had been made by the Appellant after 1971 for that consideration (the giving up of the Business) it would have been an eligible capital expenditure. She said that the payment would have to have been made on account of capital for the purpose of gaining or producing income from the Business.
[41] If the payment met those two tests, she said that it would then be necessary to consider whether the payment fell within one of the enumerated exceptions before concluding that it would have been an eligible capital expenditure of the taxpayer in respect of the business.
[42] She submitted that if the Appellant had made the payment to induce the notional recipient to give up its Business, the payment "would probably have been made on capital account". She also said that the payment "would probably have been made for the purpose of gaining or producing income". She also said that the payment would not fall in the exceptions contained in subparagraph 14(5)(b)(ii). She then said that:
The amount would probably not be deductible by the taxpayer in computing income from the business. Furthermore, it would probably not be deductible by virtue of any provision other than paragraph 18(1)(b) ... Furthermore, it probably would not be part of the cost of a tangible property of the taxpayer. Therefore, it is not precluded by paragraph 14(5)(b)(iii).
[43] Counsel then submitted that three-quarters of the $9,000,000 (less outlay and expenses) received by the Appellant was an eligible capital amount in its 1992 taxation year and that, therefore, the amount of $6,471,277 had properly been determined and included in the Appellant's income pursuant to subsection 14(1) of the Act. She submitted further that the value ascribed to giving up the Business was based on goodwill and that the amount was paid for the whole income earning apparatus of the Appellant's Business.
ANALYSIS AND CONCLUSION:
[44] I agree with the submissions of Appellant's counsel that the conclusions reached in Johnson, supra, and Pe Ben, supra, apply to the circumstances of this case. I agree with his submissions that, because the actual payor's circumstances must be taken into account, the payment of damages by Toronto could not be an eligible capital expenditure within the definition thereof because there was no evidence that Toronto made the payment for the purpose of earning income from a Business. I agree that the payment was made in respect of damages for the inability of the Appellant to relocate its Business to another area and that it was not made to terminate the Business. I agree that the payment was not made for the acquisition of goodwill since Toronto did not acquire the Business. Further, the payment was not made indirectly to acquire goodwill by eliminating the Appellant's Business, Toronto not being a competitor of the Appellant and there being no evidence that it wished to acquire any customers of the Appellant that became available upon the inability of the Appellant to relocate.
[45] I agree with the Appellant's submission that Toronto, not carrying on Business competing with the Appellant, must add the amount of the damages paid to the cost of the Real Property purchased from the Appellant. That amount would not be payable but for the 1988 Agreement of purchase and sale of the Real Property, the damages being payable pursuant to that Agreement.
[46] I agree with Counsel's submission that the context of the statutory provision requires that a disposition be made to some person. I do not agree with Respondent's counsel's submission that a disposition in this context means simply "getting rid" of the Business.
[47] The damages paid by Toronto to the Appellant cannot be an "eligible capital expenditure" within the meaning of paragraph 14(5)(b) because they must be regarded as "part of the cost of ... tangible property" of the taxpayer, namely, the real property.
[48] Accordingly, the appeal is allowed with costs.
Signed at Ottawa, Canada this 23rd day of August, 2001.
"R.D. Bell"
J.T.C.C.
COURT FILE NO.: 1999-1979(IT)G
STYLE OF CAUSE: Toronto Refiners & Smelters Limited v.
The Queen
PLACE OF HEARING: Toronto, Ontario
DATE OF HEARING: August 15, 2001
REASONS FOR JUDGMENT BY: The Honourable Judge R.D. Bell
DATE OF JUDGMENT: August 23, 2001
APPEARANCES:
Counsel for the Appellant: Brian D. Segal
James R. Sennema
Counsel for the Respondent: Judith Sheppard
COUNSEL OF RECORD:
For the Appellant:
Name: Brian D. Segal
Firm: Baker & McKenzie
Toronto, Ontario
For the Respondent: Morris Rosenberg
Deputy Attorney General of Canada
Ottawa, Canada
1999-1979(IT)G
BETWEEN:
TORONTO REFINERS & SMELTERS LIMITED,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Appeal heard on August 15, 2001 at Toronto, Ontario, by
the Honourable Judge R.D. Bell
Appearances
Counsel for the Appellant: Brian D. Segal
James R. Sennema
Counsel for the Respondent: M. Judith Sheppard
JUDGMENT
The appeal from the reassessment made under the Income Tax Act for the 1992 taxation year is allowed, and the reassessment is referred back to the Minister of National Revenue for reconsideration and reassessment in accordance with the attached Reasons for Judgment.
Costs are awarded to the Appellant.
Signed at Ottawa, Canada this 23nd day of August, 2001.
|
"R.D. Bell" |
J.T.C.C.
[1] Subsection 14(1) describes "eligible capital amount" as being the total of amounts determined under subparagraph (5)(a)(iv).