A-156-75
Compagnie Immobilière BCN Limitée (Appellant)
(Plaintiff)
v.
The Queen (Respondent) (Defendant)
Court of Appeal, Jackett C.J., Pratte J. and Hyde
D.J.—Ottawa, February 24; Montreal, March 31
and April 2, 1976.
Income tax—Deductions—Emphyteutic lease—Appellant
permitted deductions as capital cost allowance on building for
1964—Building demolished in 1965—Whether taxpayer loses
right to deduction as capital cost allowance if, after acquiring
the property for purpose of gaining income, property ceases to
exist, and no property remains in same class—Income Tax
Act, R.S.C. 1952, c. 148, ss. 11(1)(a), 20(5) and Regulations, s.
1100—Quebec Civil Code, art. 1198, 1655.
In an earlier decision, the Trial Division had permitted
appellant to claim a deduction as capital cost allowance for a
building and for its rights as lessee under an emphyteutic lease
for 1964. Since, by virtue of article 1198 of the Quebec Civil
Code, there occurred confusion regarding the rights of lessor
and lessee as a result of purchase of both the building and lease
by appellant in 1964, and since the building was demolished in
1965, appellant appealed to the Trial Division to determine
whether it might continue to claim allowances in respect of the
capital cost of the building and of its rights as lessee. The Trial
Division held that in order to preserve the right to yearly
deductions, destruction of the property was irrelevant, so long
as there still existed property of the same class. And, as
deduction is permissible only when property is used to produce
income, if it no longer exists, a deduction is not justifiable.
Appellant appealed.
Held, the appeal is allowed and assessments for the 1967 and
1968 taxation years should be referred back to the Minister for
re-assessment. (1) Regulation 1100(2) did not confer on appel
lant any right to a deduction for 1965. The expression "dis-
posed of" as used in the Regulation must be read in the sole
relevant sense that it has in common with "aliénés" in the
French version; this would include any transfer of legal title,
but not the destruction or extinguishment of the property. (2) It
is not necessary for property to be in existence or used or held
for income producing purposes for its capital cost to be includ
ed in the computation of capital cost allowance under Regula
tion 1100(1).
APPEAL.
COUNSEL:
M. Régnier, Q.C., and R. Couzin for
appellant.
W. Lefebvre for respondent.
SOLICITORS:
Stikeman, Elliott, Tamaki, Mercier & Robb,
Montreal, for appellant.
Deputy Attorney General of Canada for
respondent.
The following are the reasons for judgment
delivered orally in English by
JACKETT C.J.: This is an appeal from a judg
ment of the Trial Division' dismissing an appeal
by the appellant from assessments under Part 1 of
the Income Tax Act for the 1967 and 1968 taxa
tion years by which the Minister disallowed the
appellant's claims for capital cost allowances in
respect of the capital cost of an emphyteutic lease
and the capital cost of a building that had been
situate on the land that was the subject matter of
that lease.
It is common ground that the appellant was
entitled to such capital cost allowances in respect
of the 1964 taxation year during which year
(a) the appellant was the lessee under that
lease, and
(b) the appellant was the owner of that
building.
However, in January, 1965,
(a) the appellant acquired the landlord's rights
in respect of the land with the result that the
lease came to an end (see Articles 1198 and
1655 of the Civil Code of Quebec), and
(b) the appellant granted to a third person an
emphyteutic lease under the terms of which the
building was demolished,
with the result that, prior to the end of the 1965
taxation year, both the emphyteutic lease and the
building ceased to exist and with the further result
that the appellant had, at the end of that year, no
property in the prescribed "classes" to which those
properties had, respectively, belonged.
The judgment of the Trial Division is based, as I
understand it, on the view that capital cost allow
ance cannot be claimed or allowed in respect of the
capital cost of property that could not have been
used to earn income in the relevant year because it
was non-existent during that year.
[1975] F.C. 523.
Without analyzing in detail the relevant provi
sions of the Income Tax Act and the regulations
made under section 11(1) (a) thereof, I think it is
clear that, when computing income from a busi
ness, there is no necessity that all the property the
capital cost of which is included in thé computa
tion of an amount that is claimed for any year
under section 11(1)(a) in respect of a particular
"class" have been in existence and used in the
business during that year. Indeed, I find nothing in
the statute or regulations that requires that there
always have been in existence during that year
some property of the "class" to which particular
property belongs as a condition to the capital cost
of that particular property being included in the
computation. While it is not so clear, I am of the
view that the same remarks apply where property,
and not a business, is the source of the income that
is being computed.
What one does find, as I understand the regula
tions, is that, where all the property of a "class"
that is grouped together for purposes of capital
cost allowance had been "disposed" of in a year
and the taxpayer had no property of that class at
the end of the year, he is entitled to a deduction
for that year of the total amount that remains in
the capital cost computation for that class as of the
end of the year. I am furthermore of the view that
the whole of such amount is deductible in the
particular year and, unlike deductions under
Regulation 1100(1)(a), the amount so deductible
is not deductible in different years "as he may
claim it". This is my understanding of Regulation
1100(2), the English version of which reads:
(2) Where, in a taxation year, otherwise than on death, all
property of a prescribed class that had not previously been
disposed of or transferred to another class has been disposed of
or transferred to another class and the taxpayer has no property
of that class at the end of the taxation year, the taxpayer is
hereby allowed a deduction for the year equal to the amount
remaining, if any, after deducting the amounts, determined
under sections 1107 and 1110 in respect of the class, from the
undepreciated capital cost to him of property of that class at
the expiration of the taxation year.
and the French version of which reads:
(2) Lorsque, dans une année d'imposition, autrement qu'au
décès, tous les biens d'une catégorie prescrite qui n'avaient pas
auparavant été aliénés ou transportés à une autre catégorie ont
été aliénés ou transportés à une autre catégorie et que le
contribuable n'a plus de biens de cette catégorie à la fin de
l'année d'imposition, il est par les présentes accordé au contri-
buable une déduction, pour l'année, égale au montant qui reste,
s'il en est, après déduction des montants, établis en vertu des
articles 1107 et 1110 à l'égard de la catégorie sur le coût en
capital non déprécié, pour lui, des biens de cette catégorie, à la
fin de l'année d'imposition.
It follows that, as the whole of the balance remain
ing in the undepreciated capital cost account for
the particular class at the end of the year of
"disposition" or "aliénation" is deductible in com
puting income for that year, no amount in respect
of the capital cost of property of that class
acquired before that time will remain in the base
for computation of the capital cost allowance
deduction for property of that class for a subse
quent year. (Compare Regulation 1100(1) with
section 20(5)(d) and (e) of the Act.)
The question to be decided on this appeal, there
fore, is whether, in the circumstances that I have
referred to, the emphyteutic lease and the building
in question must be regarded as having been dis
posed of in 1965. Regardless of whether the
expression "disposed of" would have been given
some other sense if the English version were read
alone, in my view, when the two versions are read
together, "disposed of" must be read in the sole
relevant sense that that expression has in common
with the French word "aliénés". In my view, this
sense would include any transfer, by way of sale,
gift or otherwise, of legal title, to some other
person but would not include the bringing about of
the destruction or extinguishment of the property. 2
Applying that sense of the expression "disposed
of" in the application of Regulation 1100(2) to
what happened in 1965 as set out above, I am of
opinion that the regulation did not confer on the
2 I have not overlooked section 20(5)(b) and (c) of the Act,
but the extension of the meaning of the expression "disposition
of property" created thereby would not appear to have any
application in the circumstances of this case. I have to confess
to an inclination to read Regulation 1100(2) as applying when
ever the taxpayer "has no property of that class at the end of
the taxation year" but this would make the words "where, in a
taxation year, ... all property of a prescribed class ... has
been disposed of ..." mere surplusage. If those words are to be
given any effect, I can imagine no policy reason for doing so in
the sense of "disposed of" that would extend to any getting rid
of (which would not fall within the French word used) rather
than in the sense of alienation (which has the same meaning as
the French word used).
appellant any right to a capital cost allowance
deduction for that year.
I am therefore of opinion that the appeal should
be allowed, that the appellant's assessments under
Part I of the Income Tax Act for the 1967 and
1968 taxation years should be referred back to the
Minister for re-assessment on the basis that
(a) Regulation 1100(2) did not confer on the
appellant any right to a deduction for the 1965
taxation year; and
(b) it is not necessary for property to be in
existence or used or held for income producing
purposes for its capital cost to be included in the
computation of capital cost allowance under
Regulation 1100(1),
and that the appellant should have its costs of the
appeal to the Trial Division as well as its costs of
the appeal to this Court.
* * *
PRATTE J. concurred.
* * *
HYDE D.J. concurred.
You are being directed to the most recent version of the statute which may not be the version considered at the time of the judgment.