Digests

Hewlett Packard (Canada) Ltd. v. Canada

A-526-03

2004 FCA 240, Noël J.A.

21/6/04

22 pp.

Appeal from decision of Tax Court of Canada (T.C.C.) ([2004] 1 C.T.C. 2683) confirming reassessments denying in part capital cost allowance (CCA) claimed with respect to car fleet for 1995, 1996, 1997--Pursuant to Income Tax Regulations, s. 1100(1)(c), taxpayer entitled to claim deduction equal to 30% of undepreciated capital cost (UCC) of automobiles held at end of taxation year--For newly acquired depreciable assets, only half of CCA may be claimed in year of acquisition (half-year rule)--Appellant providing employees with new cars each year--Arrangement with Ford that new fleet purchased immediately prior to close of taxation year, and old fleet sold back at beginning of next, although Ford taking possession of old fleet prior to close of taxation year--This allowed appellant to claim CCA on UCC computed by reference to old and new fleet--Reassessments disallowed CCA claimed with respect to old fleet on ground exchange of fleets resulted in change of use of old fleet prior to end of taxation year, giving rise to deemed disposition pursuant to Income Tax Act, s. 13(7)(c)--T.C.C. confirmed reassessments on different grounds--Concluded that "disposition of property" in Income Tax Act, s. 13(21) can also take place when seller becomes entitled to proceeds of disposition, even though no change of ownership--T.C.C. held appellant had "absolute enforceable entitlement to be paid" and thus disposed of old fleet prior to end of taxation year, despite continued ownership--Before this Court, Crown argued T.C.C. erred in finding no change of use of old fleet prior to end of relevant taxation years--Argument rejected-- Income Tax Act, s. 13(7)(a) requires asset be used for "some other purpose", no such purpose evidenced here--Appellant argued T.C.C. wrong to hold that under Income Tax Act, s. 13(21), "proceeds of disposition" possible with respect to property not yet "sold"--Classic test set out in Minister of National Revenue v. Wardean Drilling Ltd., [1969] 2 Ex. C.R. 166: ownership of depreciable asset at year end, determined by applicable private law, brought right to claim CCA--Alberta Sale of Goods Act, s. 20, as it then read, provided property in specific or ascertained goods transferred at time parties intended--Wardean Drilling consistently followed with respect to transactions governed by laws of common law provinces--Income Tax Act, s. 54 stating "disposition" includes any transaction entitling taxpayer to proceeds of disposition but not including transfer of property by virtue of which change in legal ownership without change in beneficial ownership--Clearly Act follows common law--Appellant's entitlement to proceeds for old fleet not absolute before title passed--Entitlement giving rise to disposition specified in Income Tax Act, s. 13(21)(a)-- Parliament adopted concept of sale thus ensuring time of disposition of property as corresponding to time of acquisition known to law--State of law remains as stated by Exchequer Court in Victory Hotels Ltd. v. Minister of National Revenue, [1963] Ex. C.R. 123: disposal of property as soon as taxpayer entitled to sale price of property sold--As to exchanges governed by law of Quebec, on which T.C.C. did not pronounce, basic rule common to civil, common law systems that ownership passes when parties intend it to pass--Relevant provisions of Civil Code of Quebec making it clear that old fleet remained property of appellant until new taxation year-- In any event, F.C.A. has held common law approach prevails even in Quebec--Appeal allowed--Income Tax Regulations, C.R.C., c. 945, s. 1100(1)(c)--Income Tax Act, R.S.C., 1985 (5th Supp.), c. 1, ss. 13(7)(a) (as am. by S.C. 1994, c. 7, Sch. II, s. 9(3); c. 21, s. 7), (c) (as am. by S.C. 1994, c. 7, Sch. II, s. 9(4)), (21) "disposition of property", "proceeds of disposition" (as am. by S.C. 1995, c. 21, s. 2), 54 "disposition"--Sale of Goods Act, R.S.A. 1955, c. 295, s. 20 --Civil Code of Quebec, S.Q. 1991, c. 64.