A-17-74
Val Royal Corporation (Appellant) (Defendant)
v.
The Queen (Respondent) (Plaintiff)
Court of Appeal, Jackett C.J., Pratte J. and Hyde
D.J.—Montreal, March 5, 1976.
Income tax—Rental insurance agreement—Option to pur
chase after fixed sum paid—Overpayment— Reacquisition of
property rights of appellant by payment back to respondent—
Whether deductible as business expense or capital outlay—
Income Tax Act, S.C. 1952, c. 148, s. 12(1 )(a).
Rental insurance agreements between Central Mortgage and
Housing Corporation and appellant, as owner of apartment
buildings, gave CMHC an option to purchase the properties,
after a fixed amount had been paid on account of rental
insurance. When CMHC gave notice of exercising its option,
the amount paid by it was in excess of the limit agreed upon.
The parties agreed to compromise the excess at the sum of
$105,000, and that on repayment of this amount by appellant
to CMHC, the latter would not exercise its right to obtain final
title.
Repayment of this amount by appellant to the Corporation
was assessed by the Minister as not deductible. The Tax
Review Board held that it was deductible, and was reversed by
the Trial Division. Regarding the first test of deductibility, the
Trial Division held that the expense was for the purpose of
producing income from the properties, within section 12(1)(a).
But, as to the second test, as to whether the payment was an
expense relating to capital or income, the Trial Division held
that it was essentially a lump sum payment for the reacquiring
by appellant of lost property rights and therefore a capital
expenditure. Appellant appealed.
Held, the appeal is dismissed. Assessments should be referred
back to respondent for re-assessment after considering whether
capital cost allowance should be made in respect of the pay
ment of $105,000.
APPEAL.
COUNSEL:
P. F. Vineberg, Q.C., for appellant.
T. B. Smith, Q.C., and H. Richard for
respondent.
SOLICITORS:
Phillips & Vineberg, Montreal, for appellant.
Deputy Attorney General of Canada for
respondent.
The following are the reasons for judgment of
the Court delivered orally in English by
JACKETT C.J.: This is an appeal from a decision
of the Trial Division' allowing an appeal by the
respondent from a decision of the Tax Review
Board holding that the appellant was entitled to
make certain deductions in computing its income
for the 1967 and 1968 taxation years for the
purposes of Part I of the Income Tax Act. The
judgment of the Trial Division declared "the
$105,000 expenditure" made by the appellant and
two other taxpayers "to be a capital disbursement
and not an income disbursement".
The question involved is set out in the reasons
for judgment of the learned Trial Judge in a
manner that we adopt. We are, furthermore, in
agreement with the reasoning whereby he reached
the conclusion that he did; and we are therefore of
the view that, subject to what I am about to say,
the appeal should be dismissed with costs.
Counsel for the respondent is in agreement with
counsel for the appellant that the assessments of
the appellant that are the subject matter of this
appeal should be referred back to the respondent
for re-assessment after considering whether capital
cost allowance should be made in respect of the
aforesaid payment of $105,000. Subject to such a
direction, the appeal will be dismissed with costs.
' [1973] F.C. 1346.
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.