Mahoney,
J.:—This
is
an
appeal
from
a
reported
judgment
of
the
Trial
Division,
[1987]
2
C.T.C.
79;
87
D.T.C.
5338.
The
matter
proceeded
to
trial
on
an
agreed
statement
of
facts
which
is
fully
reproduced
in
the
trial
judgment.
The
essential
facts
are
that,
during
its
1977,1978
and
1979
taxation
years,
the
appellant
expended
large
sums
in
rehabilitating
and
restoring
railway
lines
in
Western
Canada,
thereby
acquiring
depreciable
property
for
purposes
of
the
Income
Tax
Act,
R.S.C.
1952,
c.
148
(am.
1970-71-72,
c.
63).
Pursuant
to
an
agreement
with
the
Government
of
Canada,
it
was
paid
in
excess
of
$17.6
millions
tax
free
assistance
in
respect
of
those
outlays.
The
appellant
filed
its
income
tax
returns
claiming
the
total
capital
cost
of
the
acquired
property
calculated
as
prescribed
by
section
36
of
the
Income
Tax
Act.
In
reassessing,
the
Minister
applied
subsection
13(7.1)
and
reduced
the
claimed
capital
cost
by
the
amount
of
the
assistance.
36.
Where
any
amount
in
respect
of
an
expenditure
incurred
by
a
taxpayer
on
or
in
respect
of
the
repair,
replacement,
alteration
or
renovation
of
depreciable
property
of
the
taxpayer
of
a
prescribed
class
is,
under
a
uniform
classification
and
system
of
accounts
and
returns
prescribed
by
the
Canadian
Transport
Commission
pursuant
to
the
Railway
Act,
required
to
be
entered
in
the
books
of
the
taxpayer
otherwise
than
as
an
expense,
(a)
no
deduction
may
be
made
in
respect
of
that
expenditure
in
computing
the
income
of
the
taxpayer
for
a
taxation
year;
and
(b)
for
the
purposes
of
section
13
and
regulations
made
under
paragraph
20(1)(a),
the
taxpayer
shall
be
deemed
to
have
acquired,
at
the
time
the
expenditure
was
incurred,
depreciable
property
of
a
class
prescribed
by
regulation
at
a
capital
cost
equal
to
that
amount.
13.(7.1)
For
the
purposes
of
this
Act,
where
a
taxpayer
has
received
or
is
entitled
to
receive
assistance
from
a
government,
municipality
or
other
public
authority
in
respect
of,
or
for
the
acquisition
of,
depreciable
property,
whether
as
a
grant,
subsidy,
forgiveable
loan,
deduction
from
tax,
investment
allowance
or
as
any
other
form
of
assistance
other
than
[The
exceptions
are
irrelevant.]
the
capital
cost
of
the
property
to
the
taxpayer
shall
be
deemed
to
be
the
amount
by
which
the
aggregate
of
(c)
the
capital
cost
thereof
to
the
taxpayer,
otherwise
determined,
and
(d)
such
part,
if
any,
of
the
assistance
as
has
been
repaid
by
the
taxpayer
pursuant
to
an
obligation
to
repay
all
or
any
part
of
that
assistance,
exceeds
(e)
the
amount
of
the
assistance.
The
appellant's
argument
is
that
the
capital
cost
of
property
to
which
section
36
applies
is
conclusively
determined
by
that
section
for
all
purposes
of
section
13
and
is
not
to
be
reduced
by
application
of
paragraphs
13(7.1)(c),
(d)
and
(e).
The
respondent
argues
that
the
purpose
of
section
36
is
simply
to
require
conformity
of
a
taxpayer's
system
of
accounts
for
income
tax
purposes
to
that
required
under
the
Railway
Act,
R.S.C.
1970,
c.
R-2,
and
that
the
capital
cost
deemed
by
section
36
is
simply
"the
capital
cost
..
.
otherwise
determined"
of
paragraph
13(7.1)(c)
from
which,
if
there
has
been
governmental
assistance,
the
calculation
proceeds.
Notwithstanding
its
protestations
to
the
contrary,
the
appellant's
argument
necessarily
implies
an
inconsistency
between
the
two
provisions
and
requires
that
the
one
specifically
applicable
to
it,
as
a
taxpayer
subject
of
the
Railway
Act,
must
prevail
to
the
exclusion
of
the
other.
The
respondent
sees
no
inconsistency:
section
36
applies
because
the
appellant
is
subject
of
the
Railway
Act
and
subsection
13(7.1)
applies
because
it
received
governmental
assistance
in
acquiring
depreciable
property.
The
respondent's
position
is
clearly
to
be
preferred.
It
gives
effect
to
both
provisions
according
to
the
ordinary
meaning
of
their
words.
Even
if
I
agreed
that
there
is
some
doubt
on
a
proper
construction
as
to
the
interaction
of
the
two
provisions,
and
I
do
not,
I
should
think
that
the
respondent's
argument
must
prevail
as
bringing
about
a
result
that
conforms
to
the
apparent
scheme
of
the
Income
Tax
Act,
vid.
Highway
Sawmills
Ltd.
v.
M.N.R.,
[1966]
S.C.R.
384
at
393;
[1966]
C.T.C.
150
at
157.
I
do
not
see
the
scheme
of
the
Act
being
met
by
the
appellant,
on
the
one
hand,
receiving
over
$17.6
millions
as
a
tax
free
grant
and,
on
the
other,
being
allowed
over
time
to
reduce
its
otherwise
taxable
income
by
the
amount
of
that
grant,
vid.
The
Queen
v.
A.E.L.
Microtel,
[1986]
2
C.T.C.
108
at
110;
86
D.T.C.
6348
at
6350.
I
would
dismiss
the
appeal
with
costs.
Appeal
dismissed.
Email this Content