Alberta Wheat Pool v. Canada
A-835-96 / A-836-96
Rothstein J.A.
13/4/99
16 pp.
Appeal from Tax Court decision ((1996), 96 DTC 1795) appellants not entitled to capitalize interest on money borrowed during construction of terminal elevator for purposes of capital cost allowance-Terminal elevator depreciable property for capital cost allowance purposes under s. 20(1)(a); qualified property, machinery and equipment for purposes of investment tax credits under s. 127-Terminal under construction 1980-1986-Appellants claimed capital cost allowance, investment tax credits, capitalized interest costs in each year, included capitalized interest in base for calculation of capital cost allowance, investment tax credits-Minister disallowed capitalization of interest, capital cost allowance, investment tax credits, but permitted appellants to expense interest-Appeal dismissed-S. 20(1)(a) permitting deduction of capital cost allowance in computing taxable income-S. 20(1)(c) permitting deduction of interest as expense-S. 21(1) permitting taxpayer, rather than deducting interest as expense, to capitalize interest for year in which depreciable property acquired, and for three immediately preceding taxation years-Acquisition of depreciable property including construction of property-Taxpayers entitled, retroactively, to amend prior filed returns to convert interest deducted as expenses to capitalized interest-S. 21(3) permitting capitalization of interest in years subsequent to year depreciable property acquired-S. 127(5) providing for investment tax credits-S. 127(11.2) providing investment tax credits to be calculated on capital costs of qualified property, excluding interest capitalized under s. 21-Appellants not electing to capitalize interest under s. 21 because of s. 127(11.2)-Arguing entitled to capitalize interest without making election required under s. 21-S. 18(3.1) requiring taxpayers to capitalize interest during construction when construction involving buildings-Where interest capitalized under s. 18(3.1), s. 127(11.2) not applying and capitalized interest may be included in capital cost upon which investment tax credits calculated-Distinction in Act between buildings, other capital assets for purposes of interest costs incurred during construction-In case of buildings, interest must be capitalized-For other assets taxpayers may elect to capitalize interest or treat interest as expense under s. 20(1)(c)-Appellants argued interest capitalized only under s. 21 based on dicta of Kerr J. in Sherritt Gordon Mines Ltd. v. Minister of National Revenue, [1968] 2 Ex. C.R. 459 that capital cost including cost of borrowing capital required for creating property and not deductible as operating expense without special authority-S. 21, enacted shortly after Sherritt Gordon decision, making it clear taxpayer having option of treating such interest as expense or of adding it to cost of depreciable property-Taxpayer need not follow policy of expensing or capitalizing, but may invoke both approaches by allocating varying amounts of interest cost to expense or capitalization-No basis upon which to conclude construction period interest not contemplated by s. 21-Rule in Sherritt Gordon cannot stand together with s. 21-Court cannot eliminate option provided by Parliament to taxpayers under s. 21 by reference to prior case law-S. 21 superseded Sherritt Gordon-In circumstances not contemplated by s. 21, interest may be capitalized according to GAAP-May be interest costs incurred in course of construction not deductible as expenses-That interest not deductible under s. 20(1)(c), (d), (e) not assisting appellants; s. 21 dealing with interest otherwise deductible under s. 20(1)(c), (d), (e)-With respect to s. 20(1)(c) interest at issue, s. 21 vehicle by which taxpayers may elect to add interest to cost of depreciable property-If capitalization of interest elected, capitalized interest not part of capital cost for investment tax credit by virtue of s. 127(11.2)-S. 18(3.1) requiring construction period interest be capitalized for purposes of building constructed after November 12, 1981 not applicable because assets at issue machinery, equipment, construction in progress November 12, 1981-Where interest required to be capitalized under s. 18(3.1), investment tax credits calculated on capital cost including capitalized interest-Where s. 18(3.1) applicable, taxpayer given no option to expense interest whereas where capitalization optional under s. 21, no investment tax credits applicable-Appellants' interpretation of s. 21 would render s. 127(11.2) ineffectual-S. 127(11.2) operating to preclude taxpayer who chooses to capitalize interest under s. 21 from claiming investment tax credits on such interest-Income Tax Act, S.C. 1971-71-72, c. 63, ss. 18(3.1) (as enacted by S.C. 1980-81-82-83, c. 140, s. 11), 20(1), 21(1) (as am. by S.C. 1980-81-82-83, c. 48, s. 11; c. 140, s. 13), (3) (as am. idem, c. 48, s. 11), 127(5) (as enacted by S.C. 1974-75-76, c. 71, s. 9), (9) (as am. by S.C. 1974-75-76, c. 71, s. 9; 1979, c. 5, s. 40), (11.2) (as am. by S.C. 1980-81-82-83, c. 48, s. 73).