L’Heureux-Dubé
J.:
I.
Introduction
This
appeal
involves
a
fact-driven
technical
question
of
income
taxation.
The
narrow
issue
is
whether
the
appellant
can
claim
Capital
Cost
Allowance
(CCA)
from
a
specific
business
it
operated
for
a
period
of
five
days.
This
depends
upon
proper
application
of
the
“purpose
of
producing
income”
requirement
set
out
in
s.
1102(1)(c)
of
the
Income
Tax
Regulations,
C.R.C.,
c.
945,
read
together
with
the
phrases
“from
a
business
or
property”
and
“applicable
to
that
source”
in
s.
20(1)
of
the
Income
Tax
Act,
S.C.
1970
71-72,
c.
63
(ITA),
in
the
factual
context
of
this
appeal.
In
my
opinion,
the
CCA
deduction
is
allowable.
II.
Background
A.
Factual
Context
The
appellant
Hickman
Motors
Ltd.
(Hickman
Motors)
is
a
General
Motors
automobile
and
truck
distributor
in
St.
John’s,
Newfoundland.
It
is
a
member
of
a
group
of
associated
companies
held
by
Hickman
Holdings
Ltd.
(Hickman
Holdings),
which
is
controlled
by
brothers
Albert
Hickman
and
Howard
Hickman.
In
1980,
Hickman
Holdings
owned
A.E.
Hickman
Ltd.
(hereinafter
AEH).
AEH,
at
that
point,
was
itself
acting
as
a
holding
company:
it
held
the
shares
of
Hickman
Motors,
Atlanta
Insurance
Ltd.,
Verdun
Sales
Ltd.
and
Hickman
Equipment
Ltd.
(Equipment).
AEH
also
had
a
number
of
operating
divisions
in
different
business
areas,
operating
out
of
Cornerbrook,
Fortune
and
Grand
Falls,
Newfoundland.
Equipment
was
in
the
business
of
construction
equipment.
It
had
four
franchises:
John
Deere
for
construction
equipment
such
as
backhoes
and
bulldozers,
Tree
Farmer
for
forestry
equipment,
Ingersoll-Rand
for
rock-drilling
equipment
and
P&H
Ltd.
for
crane
operations.
At
one
point
in
the
mid-1970s,
Equipment
operated
as
a
division
of
AEH,
rather
than
as
a
separate
corporation
set
up
as
a
subsidiary
of
AEH.
The
Hickman
name
is
well-known
in
Newfoundland.
The
business
started
in
1905,
and
until
now
the
Hickmans
have
been
proud
to
have
honoured
their
commitments
and
met
all
their
responsibilities
to
other
people.
Beginning
in
the
early
1980s,
the
Hickman
Group
began
to
experience
dramatic
change,
serious
financial
losses,
and
difficulties
with
its
creditors
and
its
bankers.
The
consolidated
financial
statements
of
AEH
showed
a
profit,
but
the
non-consolidated
ones
showed
significant
losses.
Equipment
lost
$1.8
million
in
1981,
and
$120,000
in
1984.
These
losses
were
described
by
the
appellant’s
witness
as
“pretty
significant
operating
losses
...
frightening
losses”
that
had
the
potential
of
making
Equipment
go
bankrupt.
The
Group
strived
to
ensure
that
this
bankruptcy
would
not
occur
because
it
would
have
had
a
spill-over
effect
on
Hickman
Motors
and
AEH.
As
a
condition
for
the
operating
line
of
credit
for
Equipment,
the
Canadian
Imperial
Bank
of
Commerce
had
guarantees
from
most
of
the
Group’s
subsidiary
companies.
In
the
event
of
Equipment’s
going
bankrupt,
the
income
streams
of
all
the
companies
in
the
Group
would
have
been
impacted
because
both
Hickman
Motors
and
AEH
could
have
been
called
to
honour
the
bank
guarantees.
Also,
John
Deere
required
the
guarantee
of
AEH
as
a
condition
of
Equipment
having
the
John
Deere
franchise.
There
would
have
been
a
tremendous
loss
of
customer
confidence
in
the
business
of
Hickman
Motors
as
the
Hickman
name
was
involved
in
three
of
the
businesses.
In
1982-83,
it
was
decided
to
remove
both
Hickman
Motors
and
Equipment
as
subsidiaries
of
AEH,
thus
allowing
it
to
focus
on
its
building
supply
operation.
On
November
30,
1984,
the
Hickman
Group’s
auditing
firm
presented
a
“package
proposal”
to
get
financing
from
CIBC.
This
involved
a
corporate
reorganization
which
occurred
as
follows.
On
December
14,
1984,
the
appellant
Hickman
Motors
acquired
all
the
shares
of
Equipment.
On
December
28,
1984,
Equipment
was
voluntarily
liquidated
and
wound-up
into
its
parent
Hickman
Motors.
Its
assets,
including
non-capital
losses
in
the
amount
of
$876,858
and
depreciable
property
with
an
undepreciated
capital
cost
of
$5,196,422,
became
the
property
of
the
appellant.
On
January
2,
1985,
those
same
assets,
net
of
the
liabilities
of
Equipment,
were
sold
to
the
appellant’s
newly
created
and
wholly
owned
subsidiary,
Hickman
Equipment
(1985)
Limited
(Equipment
1985).
In
its
1984
tax
return,
the
appellant
claimed
a
capital
cost
allowance
of
$2,029,942
in
respect
of
the
assets
it
had
received
from
Equipment
on
the
winding-up,
which
was
disallowed
by
the
Minister
of
National
Revenue.
B.
Issues
The
only
issues
to
be
resolved
are
the
following:
1.
Does
s.
88
ITA
create
any
rights
for
the
appellant;
if
so,
what
are
they?
2.
Is
the
capital
cost
of
the
assets
acquired
in
the
winding-up
applicable
to
the
income
from
the
appellant’s
business,
within
the
meaning
of
s.
20(1
)(a)
IT
Al
By
consent
the
parties
withdrew
all
the
other
issues
that
were
raised
in
the
courts
below.
C.
Judgments
Appealed
From
As
regards
the
s.
88
issue,
both
the
Trial
Division,
[1993]
1
F.C.
622
(Fed.
T.D.),
and
the
Court
of
Appeal,
(1995),
95
D.T.C.
5575
(Fed.
C.A.),
held
that,
in
themselves,
the
s.
88
provisions
do
not
create
a
right
to
deduct
CCA.
As
regards
the
s.
20
issue,
both
judgments
focused
on
the
taxpayer’s
“intention
to
earn
income”
from
the
equipment-related
items
of
property.
The
Trial
Division
found,
at
p.
633,
that
the
appellant
never
intended
to
carry
on
the
business
of
a
heavy
equipment
dealer:
it
is
difficult
to
see
how
the
assets
...
were
used
in
the
business
of
the
plaintiff
to
produce
income....
The
mere
fact
that
these
assets
were
available
for
leasing
does
not
...
affect
the
real
purpose
of
the
acquisition.
I
should
find
that
the
short
turnover
period
of
some
four
days
is
a
pretty
clear
indication
that
there
was
neither
an
intention
nor,
for
practical
purposes,
any
more
than
a
notional
attempt
to
earn
income
from
the
assets
acquired
on
the
winding-up.
[Emphasis
added.]
The
Court
of
Appeal,
at
p.
5579,
substantially
applied
the
“reasonable
expectation
of
profit”
test
set
forth
by
this
Court
in
Moldowan
v.
R.,
(1977),
[1978]
1
S.C.R.
480
(S.C.C.),
and
inferred
that,
[w]hile
I
would
not
wish
to
be
taken
as
suggesting
that
there
is
any
temporal
requirement
to
a
taxpayer’s
holding
of
property
for
the
purposes
of
earning
income,
the
fact
that
this
taxpayer
held
the
property
here
in
issue
only
over
the
period
of
a
long
holiday
week-end
is
surely
indicative
of
the
fact
that
it
had
no
intention
of
actually
earning
income
from
the
property.
[Emphasis
added.]
I
will
deal
in
greater
detail
with
specific
parts
of
these
judgments
in
the
appropriate
sections
infra.
D.
Positions
of
the
Parties
Before
This
Court
The
appellant
claims
that
the
scheme
of
the
/TA
as
a
whole
should
apply
in
the
case
of
related
groups
to
permit
the
transfer
of
accumulated
pools
of
undeducted
expenses,
loss
carry
overs,
or
tax
credits:
Michael
Wilson,
A
Corporate
Loss
Transfer
System
for
Canada,
Department
of
Finance
Budget
Papers,
Budget
Speech,
Canada,
May
1985,
at
p.
3:
In
the
Canadian
corporate
income
tax
system,
each
corporation
is
taxed
as
a
separate
entity.
This
can
lead
to
situations
in
which
one
corporation
in
a
commonly-owned
group
has
tax
losses
or
unused
deductions
or
tax
credits
while
other
corporations
in
the
group
face
tax
liabilities....
If
the
businesses
within
the
separate
corporations
were
instead
operated
as
divisions
within
a
single
corporation,
the
unused
losses,
deductions
or
credits
from
one
line
of
business
could
generally
be
used
to
reduce
the
amount
of
corporate
tax
payable
on
income
from
one
another.
The
corporate
tax
system
in
the
United
States
provides
for
tax
consolidation.
The
United
Kingdom
has
a
system
of
loss
transfers.
Many
other
countries
also
have
systems
to
provide
for
the
transfer
of
losses,
deductions
or
tax
credits.
[Emphasis
added.]
One
of
the
reasons
why
Canada
has
not
been
able
to
achieve
a
more
liberal
system
of
corporate
group
taxation
is
the
two-tier
federal-provincial
income
tax
system:
Robert
Couzin,
“Current
Tax
Provisions
Relating
to
the
Deductibility
and
Transfer
of
Losses”,
in
Policy
Options
for
the
Treatment
of
Tax
Losses
in
Canada,
(1991),
p.
3:3,
at
p.
3:12.
According
to
the
respondent,
the
party
who
should
be
taking
CCA
is
Equipment
1985,
not
the
appellant
Hickman
Motors.
In
the
respondent’s
opinion,
the
interposition
for
a
few
days
of
Hickman
Motors
in
the
transfer
of
the
assets
from
Equipment
to
Equipment
1985
should
not
make
any
difference,
and
the
CCA
deductions
could
be
taken
by
Equipment
1985
in
subsequent
years.
However,
during
the
oral
hearing
before
us,
counsel
for
the
respondent
conceded
that
it
is
always
possible
that
the
deduction
might
end
up
being
lost
forever.
The
respondent
relies
quite
heavily
on
the
findings
and
inferences
of
fact
made
by
the
trial
judge,
and
confirmed
by
the
Court
of
Appeal.
The
respondent
argues
that
the
courts
below
made
no
palpable
and
overriding
error
in
their
findings.
That
deference
argument
was
strongly
emphasized
both
in
the
respondent’s
brief
and
in
argument
before
us.
It
is
quite
clear
that
the
respondent
advocates
a
formalistic
application
of
the
principle
of
appellate
deference
to
trial-level
findings
of
fact.
Accordingly,
before
addressing
the
substantive
legal
issues,
it
is
necessary
to
review
this
principle
briefly.
III.
Trial-Level
Findings
of
Fact
Counsel
for
the
appellant
pointed
out
in
oral
argument
that
some
of
the
trial-level
factual
findings
were
wrong.
The
uncontradicted
evidence
shows
that
Hickman
Motors
held
the
assets
during
five
days,
not
four
days
as
found
by
the
trial
judge
at
p.
633.
Also,
counsel
pointed
out
that
Hickman
Motors’
leasing
revenue
was
not
1.9%,
as
the
trial
judge
found,
but
$1.9
million,
which
in
reality
makes
2.5%
of
the
total
revenue.
It
is
noteworthy
that
in
addition
to
these
factual
errors,
the
trial
judge
stated
at
least
four
times
during
the
hearing
that
he
was
“overwhelmed”
or
“confused”,
which
is
quite
understandable
given
the
complexity
of
the
case.
I
consider
that
the
appellant
is
right
about
the
above
errors,
although
they
do
not
affect
the
substance
of
the
decision.
Except
for
these
errors,
I
wish
to
emphasize
that
I
take
the
facts
as
found
by
the
trial
judge,
and
confirmed
by
the
Court
of
Appeal,
as
they
appear
in
the
record.
However,
we
ought
to
look
at
those
facts
through
the
prism
of
the
appropriate
law.
A
reviewable
error
of
law
exists
where
there
has
been
a
mistake
of
law,
such
as
addressing
the
wrong
question,
applying
the
wrong
principle,
failing
to
apply
or
incorrectly
applying
a
legal
principle,
or
drawing
an
improper
inference
from
established
facts.
In
the
case
at
bar,
both
courts
below
drew
improper
inferences
from
the
established
facts,
asked
the
wrong
questions
and
incorrectly
applied
the
law.
It
is
to
be
noted
at
the
outset
that
in
the
present
case,
the
credibility
or
reliability
of
witnesses
is
not
an
issue.
There
was
only
one
witness
for
the
appellant
and
the
respondent
called
no
witnesses.
Neither
the
Trial
Division
nor
the
Court
of
Appeal
raised
any
issue
of
credibility.
Where
credibility
is
not
in
question,
an
appeal
court
is
in
as
good
a
position
to
evaluate
the
evidence
as
the
trial
judge:
Lessard
v.
Paquin,
[1975]
1
S.C.R.
665
(S.C.C.),
at
pp.
673-5.
Accordingly,
in
my
view,
our
Court
is
in
as
good
a
position
as
the
Trial
Division
to
evaluate
the
evidence
in
the
record,
should
the
need
arise.
The
following
statement
by
Roger
P.
Kerans,
a
Justice
of
the
Alberta
Court
of
Appeal,
aptly
describes
the
appropriate
relief
in
the
present
case
(Standards
of
Review
Employed
by
Appellate
Courts
(1994),
at
p.
203):
Often,
the
error
of
the
first
tribunal
was
about
a
question
of
law.
In
that
case,
its
findings
of
fact
remain
undisturbed.
Usually,
the
reviewing
court
will,
in
such
a
case,
refuse
to
order
a
new
trial.
/t
will
instead
vary
the
conclusion,
or
affirm
the
conclusion,
after
applying
the
correct
view
of
the
law
to
the
facts
found
by
the
first
tribunal.
[Emphasis
added.]
While
accepting
the
findings
of
fact
(after
correcting
the
errors),
if
the
courts
below
have
misapplied
the
law
to
the
facts,
it
is
open
to
an
appeal
court
to
examine
the
“proper
inferences
to
be
drawn
from
the
evidence”,
by
looking
at
the
facts
as
they
appear
on
the
record
and
assessing
them
through
the
prism
of
the
appropriate
law,
which
is
what
I
will
now
turn
to.
IV.
Analysis
I.
Section
88
The
provision
at
issue
here
reads
as
follows:
88.(1)
Where
a
taxable
Canadian
corporation
(in
this
subsection
referred
to
as
the
“subsidiary”)
has
been
wound
up
after
May
6,
1974
and
not
less
than
90%
of
the
issued
shares
of
each
class
of
the
capital
stock
of
the
subsidiary
were,
immediately
before
the
winding-up,
owned
by
another
taxable
Canadian
corporation
(in
this
subsection
referred
to
as
the
“parent”)
and
all
of
the
shares
of
the
subsidiary
that
were
not
owned
by
the
parent
immediately
before
the
winding-up
were
owned
at
that
time
by
persons
with
whom
the
parent
was
dealing
at
arm’s
length,
notwithstanding
any
other
provision
of
this
Act,
the
following
rules
apply:
(a)
subject
to
paragraph
(a.1),
each
property
of
the
subsidiary
that
was
distributed
to
the
parent
on
the
winding-up
shall
be
deemed
to
have
been
disposed
of
by
the
subsidiary
for
proceeds
equal
to,
(iii)
in
the
case
of
any
other
property,
the
cost
amount
to
the
subsidiary
of
the
property
immediately
before
the
winding-up;
[...]
(c)
the
cost
to
the
parent
of
each
property
of
the
subsidiary
distributed
to
the
parent
on
the
winding-up
shall
be
deemed
to
be
the
amount
deemed
by
paragraph
(a)
to
be
the
proceeds
of
disposition
of
the
property...
Hugessen
J.A.,
speaking
for
the
Federal
Court
of
Appeal,
came
to
the
conclusion,
at
p.
5577
and
at
p.
5578,
that
this
provision
creates
no
rights
to
any
deductions
at
all:
While
I
am
prepared,
in
general
terms,
to
agree
with
the
appellant’s
characterization
of
the
purpose
and
intent
of
subsection
88(1),
I
cannot
agree
that
it
gives
rise
to
the
results
contended
for.
In
and
of
itself,
the
subsection
creates
no
rights
to
any
deductions
at
all.
I
conclude,
accordingly,
that
section
88
does
not
create
for
the
appellant
an
independent
right
to
claim
capital
cost
allowance
on
the
property
which
it
acquired
on
the
winding-up
of
its
subsidiary
“Equipment”.
Such
a
claim
can
only
succeed
if
the
appellant
can
demonstrate
that
it
otherwise
meets
the
requirements
of
the
Act
and
Regulations.
I
agree
with
this
analysis
of
s.
88(1).
The
relevant
parts
of
s.
88(
1
)(a)(iii)
are
the
following:
88.(1)(a)
...property
...
shall
be
deemed
to
have
been
disposed
of
by
the
subsidiary
for
proceeds
equal
to
(iii)
...the
cost
amount
to
the
subsidiary....
[Emphasis
added.]
The
cost
amount
is
defined
in
s.
248(1):
248.(1)
...
“cost
amount”
to
a
taxpayer
of
any
property
at
any
time
means...
(a)
where
the
property
was
depreciable
property
of
the
taxpayer
of
a
prescribed
class,
that
proportion
...
of
the
undepreciated
capital
cost...
[Emphasis
added.]
Section
88(
1
)(<a)(iii)
provides
that
the
property
disposed
of
by
a
subsidiary
on
winding-up
is
deemed
to
have
been
disposed
of
for
proceeds
equal
to
its
undepreciated
capital
cost
(UCC).
This
implies
that
there
can
be
neither
a
recapture,
nor
a
terminal
loss,
as
far
as
the
subsidiary
is
concerned.
As
far
as
the
parent
company
is
concerned,
the
relevant
parts
of
s.
88(1
)(c)
are
the
following:
88.(1)(c)
the
cost
to
the
parent
...
shall
be
deemed
to
be
the
amount
deemed
by
paragraph
(
(a)....
The
property
acquired
from
the
subsidiary
by
the
parent
on
winding-up
is
deemed
to
have
been
acquired
at
a
cost
equal
to
the
above-stated
amount,
as
determined
pursuant
to
s.
88(1
)(a)(iii),
that
is,
the
UCC.
In
other
words,
the
whole
transaction
is
deemed
to
have
occurred
at
the
UCC
rather
than
some
other
value
such
as,
for
example,
the
laid-down
acquisition
cost
or
the
fair
market
value.
It
is
appropriate
to
distinguish
the
instant
case
from
Mara
Properties
Ltd.
v.
R.,
[1996]
2
S.C.R.
161
(S.C.C.).
In
so
far
as
its
interrelation
with
the
present
case
is
concerned,
in
my
opinion
Mara
stands
for
the
following
proposition:
upon
winding-up,
a
subsidiary
automatically
distributes
its
assets
to
its
parent
pursuant
to
s.
88(1),
and
those
assets
should
be
grouped
with
the
parent’s
assets
of
the
same
character.
Here,
Equipment’s
assets
were
distributed
to
the
appellant
and
should
be
grouped
with
the
parent’s
assets
of
the
same
character.
But
that
is
not
the
issue
here.
The
issue
here
is
this:
once
the
winding-up
is
done
and
the
assets
are
distributed,
what
happens
afterwards?
Can
the
parent
claim
CCA
on
those
assets?
This
issue
is
outside
the
scope
of
both
Mara
and
s.
88
itself.
In
my
opinion,
and
I
agree
with
both
the
trial
judge
and
the
Court
of
Appeal
in
this
respect,
s.
88(1)
does
not
create
any
right
for
the
parent
company,
in
this
case
the
appellant
Hickman
Motors,
to
claim
a
CCA
deduction
for
property
acquired
from
the
subsidiary
Hickman
Equipment.
If
there
is
such
a
right,
it
is
to
be
found
in
s.
20
/TA,
which
I
will
now
discuss.
2.
Section
20
Section
20(1
)(a)
and
the
Regulations
must
be
read
in
conjunction,
as
is
clearly
stated
in
the
provision:
20.
(1)
Notwithstanding
paragraphs
18(l)(a),
(b)
and
(A),
in
computing
a
taxpayer’s
income
for
a
taxation
year
from
a
business
or
property,
there
may
be
deducted
such
of
the
following
amounts
as
are
wholly
applicable
to
that
source
or
such
part
of
the
following
amounts
as
may
reasonably
be
regarded
as
applicable
thereto:
(a)
such
part
of
the
capital
cost
to
the
taxpayer
of
property,
or
such
amount
in
respect
of
the
capital
cost
to
the
taxpayer
of
property,
if
any,
as
is
allowed
by
regulation...
Section
20(1
)(a)
creates
a
deduction
for
the
capital
cost
of
property,
“as
is
allowed
by
regulation”.
Section
20(1)(a)
cannot
be
read
in
a
vacuum:
the
applicable
regulations
must
be
read
concurrently.
Because
of
its
language,
reading
it
without
considering
the
regulations
would
not
be
in
accordance
with
appropriate
principles
of
statutory
interpretation:
F.A.R.
Bennion,
Stat-
utory
Interpretation
(2nd
ed.
1992),
at
pp.
805
et
seq;
see
also
Ruth
Sullivan,
Driedger
on
the
Construction
of
Statutes
(3rd
ed.
1994),
at
p.
198;
2747-3174
Québec
Inc.
c.
Québec
(Régie
des
permis
d'alcool),
[1996]
3
S.C.R.
919
(S.C.C.),
at
pp.
1011-15.
At
this
stage,
I
must
stress
that
both
the
trial
judge
and
the
Court
of
Appeal
did
not
examine
the
facts
through
the
appropriate
legal
landscape.
According
to
s.
20
of
the
/TA
and
the
Regulations,
the
following
questions
had
to
be
asked.
Is
there
“income
from
a
business”?
What
is
the
appropriate
“business
source”
of
income?
What
is
the
“part
of
the
capital
cost”
that
can
be
deducted?
Is
the
amount
“wholly”
or
“partly”
applicable
to
the
source?
Was
the
item
of
property
“acquired
for
the
purpose
of
producing
income”?
In
order
to
address
this
last
question,
the
following
had
to
be
asked:
Does
the
item
of
property
produce
any
revenue?
If
it
does
not,
is
its
purpose
to
produce
income?
By
not
asking
the
proper
questions,
and
by
not
drawing
the
appropriate
inferences
from
the
established
facts
as
regards
the
legal
landscape,
both
courts
below
made
errors
of
law
which
must
be
reviewed
by
looking
at
the
facts
through
the
prism
of
the
applicable
law.
In
my
opinion,
the
applicable
law
as
regards
the
case
at
bar
is
as
follows.
Where
a
parent
acquires
depreciable
property
from
a
subsidiary
as
a
result
of
a
wind-up
pursuant
to
s.
88(1),
the
deductibility
of
CCA
is
not
automatic.
The
nature
of
the
property
and
the
nature
of
its
income
are
not
forever
fixed
as
a
result
of
a
s.
88(1)
rollover.
The
nature
of
the
property
and
the
nature
of
its
income
may
change.
To
claim
CCA,
the
parent
must
satisfy
the
requirements
of
s.
20(1)(a),
that
1s,
the
property
must
be
held
by
the
parent
for
the
purpose
of
producing
income
from
the
parent’s
business.
As
I
see
it,
both
my
colleague
Iacobucci
J.
and
I
agree
on
that
statement
of
the
law.
However,
we
disagree
on
the
application
of
that
proposition
of
law
to
the
facts
of
the
case
at
bar.
In
my
opinion,
a
proper
analysis
of
the
evidence
as
it
appears
in
the
record,
to
which
I
will
now
turn,
can
only
lead
to
the
conclusion,
that
in
the
case
at
bar,
the
appellant
met
the
requirements
for
CCA.
A.
Income
From
a
Business
Source
Is
there
“income
from
a
business”?
From
the
evidence,
the
appellant
had,
for
the
1984
fiscal
year,
sales
of
$75,275,000
and
an
income
before
extraordinary
items
of
$1,528,000.
Next,
the
deduction
in
s.
20(1)
can
only
apply
to
“income
from
a
business
or
property”.
The
issue
of
“income
from
property”
has
not
been
argued
and
does
not
arise
in
our
case.
We
must
now
determine
whether
the
source
of
the
above
income
is
in
fact
a
“business”.
It
is
appropriate
to
look
at
the
definition
of
“business”
in
s.
248(1):
248.(1)
“business”
includes
a
profession,
calling,
trade,
manufacture
or
undertaking
of
any
kind
whatever
and,
...
an
adventure
or
concern
in
the
nature
of
trade
but
does
not
include
an
office
or
employment....
[Emphasis
added.]
“Income
from
a
business”
accordingly
includes
“income
from
an
undertaking
of
any
kind
whatever
except
an
office
or
employment”,
as
distinguished
from
another
source
which
would
be
excluded
from
the
s.
248(1)
definition.
As
discussed
by
Vern
Krishna,
The
Fundamentals
of
Canadian
Income
Tax,
at
p.
277
and
p.
772,
there
is
a
rebuttable
presumption
that
corporate
income
derives
from
business:
Canadian
Marconi
Co.
v.
R.,
[1986]
2
S.C.R.
522
(S.C.C.);
Smith
v.
Anderson,
(1880),
15
Ch.
D.
247
(Eng.
C.A.)
.
Here,
the
income
is
corporate,
so
the
presumption
that
income
is
sourced
from
business
applies.
Of
course,
the
above
presumption
is
rebuttable.
However,
neither
the
examination-in-chief
nor
the
cross-examination
of
the
appellant’s
witness
revealed
evidence
to
that
end,
and
the
respondent
adduced
no
evidence
whatsoever.
As
the
presumption
was
not
rebutted,
I
conclude
that
the
appellant’s
income
is
sourced
from
business,
as
distinguished
from
another
source.
Moreover,
the
record
discloses
positive
evidence
that
Hickman
Motors
did
indeed
carry
on
the
equipment-related
sales
and
rental
activities
during
the
period:
(1)
the
equipment
rental
business
was
in
fact
carried
on;
(2)
Hickman
Motors
assumed
the
business
risk
and
other
obligations;
(3)
it
is
a
common
practice
in
the
construction
industry
to
buy
the
rented
equipment
just
before
the
December
31
year-end,
so
there
was
a
clear
opportunity
for
doing
business
during
that
specific
period;
(4)
Equipment
in
fact
sold
a
backhoe
on
December
21,
1984;
(5)
evidence
of
rental
revenue,
and
a
bundle
of
rental
invoices
applicable
to
the
period,
as
detailed
infra;
(6)
the
equipment
was
available
for
sale,
and
was
advertised
as
such;
(7)
on
December
31,
1984,
Hickman
Motors
accepted
an
order
for
rental
of
at
least
one
piece
of
equipment.
While
my
colleague
Iacobucci
J.
asserts,
at
paras.
43
and
55
of
his
reasons,
that
the
appellant
“did
nothing
at
all
with
these
assets”,
his
reasons
do
not
explicitly
refer
to
any
evidence,
adduced
by
the
respondent,
that
would
rebut
the
appellant’s
clear
evidence
and
prove
that
the
appellant
“did
nothing
at
all
with
the
assets”.
At
paras.
45
and
46
of
his
reasons,
Iacobucci
J.
challenges
one
piece
of
evidence,
the
December
31
invoice,
based
in
large
part
on
a
reference
by
counsel
to
“retail
sales
tax”
which,
according
to
my
colleague,
“suggest[s]
that
the
invoice
related
not
to
a
rental
...
but
rather
to
a
sale”.
However,
“retail
sales
tax”
is
not
necessarily
more
suggestive
of
a
sale
than
a
rental,
since
both
are
taxable:
Retail
Sales
Tax
Act,
1978,
S.N.
1978,
c.
36,
s.
13.
Furthermore,
the
sales
tax
alluded
to
related
in
fact
to
computers,
not
to
rental
equipment.
Even
without
the
December
31
invoice,
I
am
satisfied
that
the
rest
of
the
evidence,
viewed
as
whole,
shows
that
the
appellant
did
in
fact
actively
carry
on
the
equipment-related
business
activities.
Nevertheless,
it
is
true
that
Equipment
1985
re-negotiated
the
dealership
agreement
with
John
Deere,
and
Hickman
Motors
did
not
do
so.
However,
this
is
not
evidence
that
Hickman
Motors
“did
nothing
at
all
with
the
assets”,
or
did
not
otherwise
carry
on
the
equipment-related
business.
Clear,
uncontradicted
evidence
was
adduced
that
the
other
dealership
agreements
had
remained
unchanged
since
the
mid-1970s,
and
remained
so
even
after
Equipment
1985
had
assumed
them.
The
trial
judge,
asking
the
wrong
questions,
inferred
the
absence
of
business
purpose,
and
the
absence
of
intention
to
earn
income,
from
the
fact
that
the
property
was
merely
“available
for
leasing”.
This
inference
is
incorrect
and
constitutes
an
error
of
law.
Where
machinery
is
rented
out,
the
essential
core
operations
may
at
times
be
limited
to
accepting
rental
revenue
and
assuming
the
business
risk
and
other
obligations.
At
any
time
during
that
period,
any
client
could
demand
the
execution
of
any
of
the
contractual
obligations,
such
as
fixing
an
engine,
for
example.
Where,
because
a
rental
business
is
fortunate
enough
to
experience
no
mechanical
breakdowns
or
accidents
during
a
period
of
time,
it
“passively”
accepts
rental
revenue
and
assumes
business
risk
and
obligations,
it
does
not
necessarily
follow
that
it
is
not
carrying
on
a
business
during
that
period.
Holding
otherwise
would
imply
that
rental
businesses
are
“intermittent”,
that
is,
that
they
carry
on
a
business
only
when
something
goes
wrong
in
the
operations.
Such
a
proposition
is
unacceptable.
Contrary
to
my
colleague
lacobucci
J.’s
opinion
at
paras.
43
and
56
of
his
reasons,
even
if
the
appellant
“passively”
received
rental
income
during
a
period
of
time,
it
does
not
necessarily
follow
that
it
did
not
carry
on
an
active
business.
In
Carland
(Niagara)
Ltd.
v.
Minister
of
National
Revenue,
(1964),
64
D.T.C.
139
(Can.
Tax
App.
Bd.),
at
p.
141,
the
Tax
Appeal
Board
stated
that:
It
is
not
necessary
that
there
be
sustained
activity
before
it
can
be
maintained
that
a
business
is
carried
on;
there
may
be
and
often
are
periods
of
quiescence
in
almost
any
business
enterprise....
[The
Commissioner
of
Inland
Revenue
v.
The
South
Behar
Railway
Co.,
Ltd.,
(1925)
12
T.C.
657]
indicates
how
little
need
be
done
to
constitute
a
carrying
on
of
business.
I
find,
as
a
fact,
that
some
measure
of
business,
be
it
greater
or
lesser,
never
ceased
to
be
conducted
at
any
material
time.
Always,
the
premises
were
open
to
any
customer
who
might
call
there.
Also,
I
note
the
following
comment
in
J.
Durnford,
“The
Distinction
Between
Income
from
Business
and
Income
from
Property,
and
the
Concept
of
Carrying
On
Business”
(1991),
39
Cdn.
Tax
J.
1131,
at
p.
1191:
Indeed,
depending
on
the
nature
of
the
business,
the
mere
presence
of
long
periods
of
inactivity
will
not
alone
indicate
that
a
business
is
not
being
carried
on.
I
am
satisfied
that
the
evidence,
viewed
as
a
whole,
shows
that
the
appellant
has
discharged
its
burden
of
proving
that
it
did
in
fact
actively
carry
on
the
equipment-related
business.
Moreover,
the
respondent
adduced
no
evidence
whatsoever
that
could
be
weighed
against
that
of
the
appellant.
However,
the
respondent
could
have
adduced
evidence,
as
it
did
for
example
in
Attridge
v.
R.,
(1991),
91
D.T.C.
5161
(Fed.
T.D.)
where
it
used
2
experts;
see
also
Bay
Centre
Apartments
Ltd.
v.
Minister
of
National
Revenue,
(1981),
81
D.T.C.
489
(T.R.B.),
where
it
used
an
expert-employee.
Therefore,
the
appellant’s
evidence
must
stand,
and
the
proper
inference
from
that
evidence
is
that
Hickman
Motors
did
in
fact
carry
on
the
equipment-related
business
between
December
28,
1984
and
January
2,
1985.
B.
Determining
the
Appropriate
Business
Source
The
next
step
is
to
ensure
that
the
deduction
is
applied
to
the
appropriate
business
source.
Contrary
to
what
my
colleague
Iacobucci
J.
states
in
paras.
34
to
36
of
his
reasons,
there
is
no
disagreement
as
to
the
words
used
in
the
ITA.
In
cases
where
two
or
more
business
sources
exist,
the
relevant
business
source
must
be
identified,
and
the
income
from
each
individual
source,
as
the
case
may
be,
is
to
be
computed
separately.
However,
I
cannot
agree
with
my
colleague
as
to
his
application
of
that
principle
to
the
facts
of
the
case
at
bar.
The
trial
judge
at
p.
9-10
inferred
that
the
source
was
the
“automotive”
operations,
implying
that
this
source
was
somehow
distinct
from
the
“equipment”
operations
during
the
applicable
period.
Further,
my
colleague
lacobucci
J.
asserts
that
the
appellant
has
several
“business
‘subsources’”
of
income.
This
“sub-source”
issue
need
not
be
decided
in
order
to
resolve
the
present
case,
and
should
be
left
for
another
day,
for
two
reasons.
Firstly,
the
business
activities
here
in
question
can,
if
necessary,
be
categorized
into
a
single
business
source,
as
is
clearly
shown
by
the
uncontradicted
evidence:
Q.
You
described
earlier
the
business
of
Hickman
Motors
Limited,
Mr.
Grant,
during
the
period
of
December
29th,
1984
to
January
2,
1985.
Could
you
tell
us
what
the
business
of
Hickman
Motors
Limited
was?
A.
Well,
it
would
have
been
the
sales
and
servicing,
the
leasing
and
rental
of
cars,
light-duty
trucks,
medium-duty
trucks,
heavy-duty
trucks,
and
also
construction
equipment,
John
Deere
equipment,
also
forestry
equipment
and
also
rock
drilling
equipment.
[Emphasis
added.]
The
above
testimonial
evidence
is
clear,
was
not
shaken
in
cross-examination,
no
question
of
credibility
was
ever
raised
and
the
respondent
did
not
adduce
any
evidence
whatsoever.
Furthermore,
the
uncontradicted
evidence
adduced
by
the
appellant
clearly
shows
the
following.
Equipment’s
market
for
backhoes
and
bulldozers,
and
Hickman
Motors’
market
for
heavy-duty
trucks,
have
the
same
customer
base.
There
is
a
natural
fit
in
combining
Hickman
Motors’
heavy-duty
trucks
with
Equipment’s
machinery.
This
combination
is
not
unusual.
As
even
the
trial
judge
recognized,
“if
you
buy
a
backhoe,
you
need
a
heavy-duty
truck
to
transport
it”.
This
uncontradicted
evidence
adduced
by
the
appellant
speaks
for
itself:
the
“automobile”
franchise,
the
“truck”
franchise
and
the
“equipment”
franchises
were
associated
into
a
single
integrated
business.
Accordingly,
the
inference
drawn
by
the
trial
judge
is
incorrect
and
constitutes
an
error
of
law.
The
proper
inference
from
the
above
evidence
is
that
from
December
29,
1984,
to
January
2,
1985,
Hickman
Motors
was
a
single
integrated
business
of
sales,
servicing,
leasing
and
rental
of
cars
and
trucks,
and
of
construction,
forestry
and
rockdrilling
equipment,
which
was
in
fact
an
“undertaking
of
any
kind
whatever”
that
complied
with
the
definition
of
“business”
in
subsection
248(1).
From
this
clear,
unchallenged
and
uncontradicted
evidence
of
“one
(1)
business”,
absent
any
evidence
to
the
contrary,
in
my
view,
it
is
fallacious
and
irrational
to
conclude
that
there
are
“two
(2)
businesses”.
The
fallacy
that
the
Trial
Division
fell
into,
upheld
by
the
Court
of
Appeal
and
deferred
to
by
Iacobucci
J.,
appears
to
be
as
follows:
the
appellant
adduced
evidence
that
there
is
one
(1)
business,
therefore,
it
follows
that
there
are
two
(2)
businesses.
I
cannot
accept
such
reasoning.
I
note
that
neither
the
Trial
Division,
nor
the
Court
of
Appeal,
has
cited
any
evidence
from
the
record
that
would
point
towards
“two
businesses”.
Similarly,
my
colleague
lacobucci
J.’s
reasons
do
not
explicitly
provide
any
evidence
in
the
record
upon
which
his
conclusion
of
“two
businesses”
is
based.
In
the
case
at
bar,
the
idea
of
“two
businesses”
is
merely
an
unproven
assumption,
not
a
proven
fact.
The
proven
fact
is
that
there
is
one
business,
as
evidenced
in
the
record.
In
view
of
this
evidence
in
chief,
the
respondent
should
have
adduced
some
evidence.
By
way
of
example,
as
I
stated
in
paragraph
2
above,
Equipment
used
to
be
a
division
of
AEH
—
a
building
supply
operation.
Surely,
the
respondent
could
have
adduced
evidence
that
it
had
considered
Equipment
and
AEH
as
two
businesses,
if
that
was
the
case,
but
it
failed
to
do
so.
Such
evidence,
or
some
expert
evidence,
had
it
been
properly
adduced,
might
have
pointed
towards
“two
businesses”,
but
in
this
case
we
are
left
with
a
total
absence
of
evidence
on
the
part
of
the
respondent.
Secondly,
as
my
colleague
lacobucci
J.
states
in
para.
27
of
his
reasons,
the
respondent
departed
from
the
line
of
argument
pursued
in
the
courts
below.
Neither
the
parties
nor
the
courts
below
cited
any
caselaw
with
respect
to
“sub-sources”.
The
caselaw
cited
by
Iacobucci
J.
relates
to
the
very
specific
area
of
“farming
businesses”
which
are
singled
out
for
special
treatment
in
s.
31
of
the
/TA.
In
the
present
case,
we
do
not
have
the
benefit
of
argument
with
respect
to
the
various
criteria
for
“sub-sources”
that
may
or
may
not
be
applicable
generally
to
corporations
outside
of
the
farming
context.
As
a
matter
of
fact,
in
Gloucester
Railway
Carriage
&
Wagon
Co.
v.
Inland
Revenue
Commissioners
(1923),
129
L.T.R.
691
(Eng.
K.B.),
aff’d
(1924),
40
L.T.R.
435
(Eng.
H.L.),
it
was
suggested
that,
prior
to
that
case,
it
had
never
been
decided
that
a
company
can
have
two
businesses.
In
that
case,
the
appellant
corporation
was
selling,
and
letting
out
for
hire,
various
kinds
of
wagons.
The
corporation
argued
that
it
had
two
businesses.
The
appeal
was
dismissed:
there
was
one
single
business
of
making
a
profit
generally
out
of
wagons
in
one
way
or
another.
That
case,
which
was
cited
with
approval
in
R.
v.
Anderson
Logging
Co.,
[1925]
S.C.R.
45
(S.C.C.),
at
p.
55,
relates
to
corporations
outside
of
the
farming
context,
and
could
arguably
be
seen
as
governing
the
case
at
bar.
The
evidence
is
that
Hickman
Motoros
is
in
the
business
of
making
a
profit
generally
out
of
machines,
in
one
way
or
another.
Given
the
evidence,
and
the
incomplete
argument,
I
do
not
want
to
pronounce
on
the
issue
of
“sub-sources”
in
the
context
of
the
present
case,
inter
alia
because
I
have
not
had
the
benefit
of
full
argument
on
the
possible
difficulties.
For
instance,
“sub-sources”
might
be
interpreted
inappropriately
to
second-guess
legitimate
business
decisions
of
taxpayers
from
a
position
of
hindsight.
C.
Deductibility
of
Capital
Cost
Allowance
Once
the
“income
from
a
business
source”
is
established,
the
next
step
is
to
determine
what,
if
anything,
can
be
deducted
therefrom
in
order
to
arrive
at
the
taxable
income.
Section
20(1)
provides
that,
20.(1)
...there
may
be
deducted
...
such
of
the
following
amounts
as
are
wholly
applicable
to
that
source
...
or
such
part
of
the
...
amounts
...
as
applicable
thereto....
The
“following
amount”
may
be
either
“wholly
applicable”
or
“partly
applicable”
to
“that
source”,
that
is,
the
business
source.
So
a
specific
amount
could
be
“partly
applicable”
to
income
from
a
business
source,
and
“partly
applicable”
to
income
from
another
source
such
as,
for
example,
income
from
a
property
source.
Or
a
specific
amount
could
be
“wholly
applicable”
to
the
business
source
only.
Here,
this
distinction
is
not
at
issue:
the
amount
sought
to
be
deducted
would
be
“wholly
applicable”
to
income
from
the
business
source
identified
above.
Next,
it
is
appropriate
to
examine
the
relevant
“following
amount”
that
is
sought
to
be
deducted,
as
provided
in
s.
20(1
)(«):
20.(1
)(a)
...such
part
of
the
capital
cost
to
the
taxpayer
of
property
...
as
is
allowed
by
regulation....
[Emphasis
added.]
We
must
now
determine
what
“part
of
the
capital
cost”
is
“allowed
by
regulation”.
Regulation
1100
provides
that:
1100.
(1)
For
the
purposes
of
20(1
)(d)
of
the
Act,
there
is
hereby
allowed
to
a
taxpayer,
in
computing
his
income
from
a
business
or
property,
as
the
case
may
be,
deducions
for
each
taxation
year
equal
to
(a)
such
amount
as
he
may
claim
in
respect
of
property
of
each
of
the
following
classes
in
Schedule
II
not
exceeding
in
respect
of
property
(xvi)
of
Class
22,
50
per
cent....
[Emphasis
added.]
In
the
present
case,
the
evidence
reveals
that,
for
the
most
part,
the
capital
property
was
included
in
Class
22.
The
corollary
of
Regulation
1100(1)
is
that
if
an
item
of
property
is
not
included
in
any
of
the
classes,
then
no
CCA
deduction
is
allowed
for
such
property.
Regulation
1102(1)
designates
groups
of
items
of
property
that
are
deemed
to
be
excluded
from
all
the
classes:
1102(1)
The
classes
of
property
described
in
this
Part
and
in
Schedule
II
shall
be
deemed
not
to
include
property
(c)
that
was
not
acquired
by
the
taxpayer
for
the
purpose
of
gaining
or
producing
income…
The
corollary
of
Regulation
1102(1
)(c)
is
that,
in
order
for
any
item
of
property
to
be
included
in
any
class,
it
must
have
been
acquired
for
the
purpose
of
producing
income.
Otherwise,
the
item
of
property
is
deemed
not
to
be
included
in
any
class,
so
no
CCA
is
allowed
for
such
property.
Therefore,
within
the
scope
of
s.
20(1
)(a),
the
word
“property”
cannot
mean
anything
other
than
“property
acquired
for
the
purpose
of
producing
income”.
Accordingly,
in
the
present
case,
s.
20(1)(a)
must
be
understood
as
follows:
...there
may
be
deducted
...
such
part
of
the
capital
cost
...
of
property
[acquired
for
the
purpose
of
producing
income]…
D.
The
“Purpose
of
Producing
Income”
Test
In
Bolus-Revelas-Bolus
Ltd.
v.
Minister
of
National
Revenue,
(1971),
71
D.T.C.
5153
(Can.
Ex.
Ct.),
the
corporate
taxpayer
was
operating
various
concerns
and
decided
to
buy
two
“exhibition-park
amusement
rides”.
But
these
two
assets
were
never
erected
nor
operated:
they
had
been
acquired
and
then
dismantled
and
put
in
storage,
out
of
service,
and
did
not
produce
any
income
whatsoever.
The
Exchequer
Court
found
that
the
taxpayer
had
not
acquired
these
items
of
property
for
the
purpose
of
producing
income
and
held
that
no
CCA
was
available.
Bolus-Revelas-Bolus
Ltd.
stands
for
the
following
proposition:
where
property
does
not
produce
income,
courts
will
ascertain
objectively
whether
the
taxpayer
acquired
the
property
for
the
purpose
of
producing
income;
where
there
is
no
such
objective
purpose,
CCA
deduction
will
not
be
allowed.
However,
while
Bolus-Revelas-Bolus
Ltd.
seems
analogous
to
the
instant
case,
it
is
clearly
distinguishable
because,
as
will
be
shown
below,
here
the
property
did
produce
income.
Absent
extraordinary
circumstances,
if
a
business
owns
an
item
of
property
that
produces
income,
then
presumably
its
purpose
is
indeed
to
produce
income.
The
converse
proposition
would
be
absurd;
see
also
Royal
Trust
Co.
v.
Minister
of
National
Revenue,
(1956),
57
D.T.C.
1055
(Can.
Ex.
Ct.);
Ghali
c.
Canada
(Ministre
des
transports),
(October
24,
1996),
Doc.
T-1153-96
(Fed.
T.D.).
In
other
words,
to
avoid
absurdity
in
the
context
of
the
present
case,
s.
20(1
)(a)
must
be
understood
as
follows:
there
may
be
deducted
...
such
part
of
the
capital
cost
...
of
[income-producing]
property
[or,
alternatively,
property
acquired
for
the
purpose
of
producing
income]…
In
my
view,
the
above
formulation
of
the
rule
in
s.
20(1
)(a)
applies
in
the
present
circumstances
and
the
first
part
of
the
test
is:
does
the
property
produce
income?
In
the
affirmative,
the
deduction
is
allowable.
The
word
“income”
is
susceptible
of
two
meanings:
“gross
income”
(revenue)
or
“net
income”
(profit):
see
Mark
Resources
Inc.
v.
R.,
(1993),
93
D.T.C.
1004
(T.C.C.);
see
also
Bellingham
v.
R.,
(1995),
[1996]
1
F.C.
613
(Fed.
C.A.),
at
pp.
627-28;
McLaren
v.
Minister
of
National
Revenue,
(1990),
[1991]
1
F.C.
468
(Fed.
T.D.),
at
pp.
480-81.
While
an
item
of
property
may
produce
revenue,
it
does
not
necessarily
produce
profit
by
itself,
and
it
would
be
absurd
to
demand
that
each
individual
item
of
property
actually
yield
“net
income”
(profit)
in
and
of
itself.
Accordingly,
to
satisfy
this
first
part
of
the
test,
it
is
sufficient
to
presume
that
if
the
property
produces
revenue,
it
indeed
meets
the
requirements
of
Regulation
1102(1)(c).
The
second
part
of
the
test
is:
where
the
item
of
property
does
not
produce
income,
was
it
acquired
for
the
purpose
of
producing
income?
This
is
determined
by
an
objective
evaluation
of
the
specific
facts
and
circumstances
of
each
case
in
relation
to
appropriate
jurisprudence,
having
regard
to
whether
the
taxpayer
acted
in
accordance
with
reasonably
acceptable
principles
of
commerce
and
business
practices.
In
the
affirmative,
the
deduction
is
allowable.
In
the
negative,
the
deduction
is
not
allowable.
Both
the
Trial
Division
and
Court
of
Appeal,
however,
being
of
the
opinion
that
“any
attempts
by
the
appellant
to
earn
income
from
the
assets
were
notional”,
inferred
that
“the
appellant
did
not
acquire
the
assets
for
the
purpose
of
producing
income”.
With
respect,
I
cannot
agree
with
that
inference.
Both
the
Trial
Division
and
the
Court
of
Appeal
asked
the
wrong
question
and
drew
an
incorrect
inference.
In
doing
so,
with
respect,
both
courts
erred
in
law.
E.
Distinctions
between
the
“Reasonable
Expectation
of
Profit”
test
and
the
“Purpose
of
Producing
Income”
test
The
Court
of
Appeal
held
at
p.
5579
that
the
appropriate
test
to
be
applied
in
determining
whether
property
has
a
purpose
of
producing
income
is
“similar”
to
the
test
for
determining
the
“analogous”
question
of
whether
a
business
has
a
reasonable
expectation
of
profit.
With
respect,
these
two
tests
are
not
“similar”,
but
“dissimilar”.
Both
“revenue-producing”
and
“non-revenue-producing”
assets
can
be
acquired
“for
the
purpose
of
producing
income”.
A
typical
example
would
be
an
administrative
photocopier
(non-revenue
producing)
as
opposed
to
a
self-service
pay-per-use
photocopier
(revenue-producing).
Both
kinds
of
assets
can
be
used
in
the
same
business
for
the
purpose
of
producing
income.
One
asset
directly
produces
income,
the
other
is
used
for
the
objective
purpose
of
producing
income.
However,
this
is
no
guarantee
that
the
business
itself
will
make
a
profit.
Both
kinds
of
assets
can
be
held
by
a
business
that
shows
a
profit,
or
by
one
that
does
not
show
a
profit.
This
is
where
the
“purpose
of
producing
income”
test
and
the
“reasonable
expectation
of
profit”
test
must
be
clearly
distinguished.
These
two
tests
differ
in
terms
of
their
general
thrust.
A
business
that
has
a
profit
does
not
need
to
demonstrate
that
it
has
a
“reasonable
expectation
of
profit”.
Where
a
business
does
not
have
a
profit,
however,
it
must
have
a
“reasonable
expectation
of
profit”,
to
be
determined
by
an
application
of
the
Moldowan
test
(see
Krishna,
supra,
at
p.
261).
In
a
nutshell,
the
“reasonable
expectation
of
profit”
test
is
principally
directed
at
differentiating
between
a
“business”
and
a
“personal
pursuit
such
as
a
hobby,
etc.”,
whereas
the
“purpose
of
producing
income”
test
is
directed
at
determining
whether
an
asset
is
appropriately
used
in
the
business.
The
“reasonable
expectation
of
profit”
test
questions
whether
there
is
a
business,
whereas
the
“purpose
of
producing
income”
test
presupposes
a
business
and
questions
the
usage
of
a
piece
of
business-owned
property.
The
“reasonable
expectation
of
profit”
test
looks
at
the
historical
and
anticipated
results
of
several
years
of
operations,
and
asks:
“will
the
revenue
of
this
operation
ever
be
greater
than
its
expenses,
such
that
a
profit
will
occur?”
The
“purpose
of
producing
income”
test
looks
at
an
item
of
property
and
asks:
“does
it
produce
revenue,
or
is
it
at
least
used
for
that
purpose?”
These
two
tests
address
very
different
issues.
Both
tests
could
be
applied
separately
to
the
same
taxpayer
at
the
same
time.
Most
of
the
“reasonable
expectation
of
profit”
criteria
would
be
repugnant
to
the
“purpose
of
producing
income”
test.
For
instance,
the
“profit
and
loss
experience
in
past
years”
criterion
is
irrelevant
to
the
“purpose
of
producing
income”
test
for
CCA,
because
a
business
may
very
well
include
items
of
property
used
only
for
a
short-term
period.
Similarly,
the
“taxpayer’s
training”
criterion
is
irrelevant
to
the
“purpose
of
producing
in-
come”
for
CCA,
because
some
items
of
property
may
require
no
particular
training
other
than
the
general
knowledge
possessed
by
anyone.
In
my
view,
the
words
and
scheme
of
the
ITA
support
an
application
of
the
“reasonable
expectation
of
profit”
criteria
to
ascertain
whether
a
taxpayer
is
carrying
on
a
business
or
a
hobby,
but
not
to
determine
the
deductibility
of
CCA
per
se.
See
also
generally
John
R.
Owen,
“The
Reasonable
Expectation
of
Profit
Test:
Is
There
a
Better
Approach?”
(1996),
44
Cdn.
Tax
J.
979.
With
respect,
mechanically
transferring
the
“reasonable
expectation
of
profit”
criteria
into
the
“purpose
of
producing
income”
requirement
in
Regulation
1102(1)(c)
for
CCA
purposes
is
incorrect
in
law.
In
doing
so,
both
the
Trial
Division
and
the
Court
of
Appeal
erred
in
law.
F.
Did
the
property
produce
any
revenue?
As
I
said
earlier,
both
the
Trial
Division
and
the
Court
of
Appeal
put
the
cart
before
the
horse
in
not
addressing
the
first
part
of
the
test.
Consequently,
the
inferences
they
drew
are
incorrect
and
we
must
look
at
the
evidence
in
order
to
draw
the
appropriate
ones.
The
first
part
of
the
test
is:
did
the
property
produce
any
revenue?
In
the
case
at
bar,
revenue
was
produced
by
the
property:
Q.
The
assets
that
were
distributed
to
Hickman
Motors
Limited
on
December
28,
1984,
the
assets
of
Hickman
Equipment
Limited,
were
they
being
used
by
Hickman
Equipment
Limited
in
the
carrying
on
of
business
immediately
prior
to
liquidation?
A.
Yes.
Q.
Were
these
assets
generating
income?
A.
Yes.
Q.
Now
what
about
following
December
28,
1984,
with
respect
to
these
assets
that
have
been
distributed
to
Hickman
Motors
Limited
as
a
result
of
the
liquidation?
A.
They
would
have
been
used
for
the
same
income
producing
purposes
that
they
had
been
used
for
previously.
The
Court:
7.2
million
of
total
sales
in
1984;
there
was
about
1.5
million
representing
income
accruing
from
rentals
and
leases?
A.
Yes.
Q.
And
the
rentals,
that
income
accruing
from
the
rentals
and
leases
would
have
come
from
those
Class
22
assets?
A.
Yes.
[Emphasis
added.]
Reviewing
the
evidence
through
the
appropriate
prism,
it
is
clear
that
the
property
produced
revenue.
Furthermore,
in
addition
to
this
uncontradicted
testimonial
evidence,
the
appellant
adduced
clear
documentary
evidence
of
revenue
from
the
property
during
the
period:
Q.
Perhaps
you
might
just
explain
those
invoices
and
why
you
are
submitting
them
to
the
Court,
Mr.
Grant?
A.
Well,
if
we
take
invoice
59762
and
we
look
down,
and
it
states
that
the
rental
period
is
from
December
the
5th,
1984,
to
January
the
4th,
1985.…
And
these
are
only
representative,
I
might
add;
most
of
the
records
have
been
destroyed
since
1985.
So
we
are
just
fortunate
enough
to
find
these
samples
really.
Q.
And
they
’re
similar
samples
of
statements
or
invoices
sent
out
for
other
pieces
of
equipment
for
rental?
A.
Yes.
[Emphasis
added.]
Several
invoices
showing
equipment
rentals
during
the
period
were
adduced
in
evidence.
Furthermore,
these
invoices
were
but
a
mere
sampling
of
the
actual
equipment-rental
activity
that
occurred
during
the
period.
The
above
testimonial
and
documentary
evidence
speaks
for
itself
and
was
not
contradicted
by
the
respondent.
The
proper
inferences
to
be
drawn
are
as
follows.
The
Class
22
property
produced
revenue,
on
an
annual
basis,
during
the
1984
fiscal
year,
in
the
amount
of
$1.5
million.
Hence,
the
pro-rated
daily
revenue
therefrom
was
approximately
$4,110.
Therefore,
during
the
5
days
that
the
appellant
held
the
assets
for
doing
business,
the
approximate
pro-rated
revenue
was
$20,550.
While
my
colleague
lacobucci
J.
concludes,
at
para.
41
of
his
reasons,
that
there
was
no
income,
his
reasons
do
not
explicitly
provide
any
evidence
from
the
respondent
that
would
rebut
the
above
evidence
from
the
appellant.
In
the
case
at
bar,
this
conclusion
of
“no
income”
is
an
unsubstantiated
assumption,
not
a
proven
fact
in
the
record.
The
proven
fact
is
that
there
was
income,
as
evidenced
in
the
record.
As
revenue
is
produced
by
the
property,
it
is
not
necessary
to
conduct
the
second
part
of
the
test
dealing
with
the
objective
purpose,
which
is
the
one
applied
by
the
trial
judge,
and
the
inferences
made
by
the
courts
below
are
irrelevant.
The
proper
inferences
to
be
drawn
show
that
revenue
was
produced
and
that
the
requirements
of
Regulation
1102(l)(c)
are
met.
Therefore,
the
CCA
deduction
is
allowable.
I
will
now
turn
to
the
issues
of
the
time
period
and
the
amount
of
revenue,
which
were
incorrectly
addressed
by
the
Trial
Division
and
the
Court
of
Appeal.
G.
Time
Period
Requirement
The
Trial
Division,
in
holding
at
p.
633
that
“the
short
turnover
period
of
some
four
days
is
a
pretty
clear
indication
that
there
was
neither
an
intention
nor,
for
practical
purposes,
any
more
than
a
notional
attempt
to
earn
income
from
the
assets”,
was
answering
the
second
part
of
the
test
dealing
with
the
objective
purpose,
which
is
not
the
proper
first
question.
Similarly,
the
Court
of
Appeal
held
at
p.
5579
that
holding
the
property
“only
over
the
period
of
a
long
holiday
week-end
is
surely
indicative
of
the
fact
that
it
had
no
intention
to
earn
income
from
the
property”.
While
the
time
period
and
the
days
of
the
week
might
be
relevant
factors
as
regards
the
second
part
of
the
test,
I
would
prefer
to
leave
this
issue
for
another
day.
As
regards
the
first
part
of
the
test,
should
the
above
revenue
of
$20,550
have
been
received
during
a
period
of
time
of
any
minimum
duration,
say
6
days
or
6
weeks,
or
during
specific
days
of
the
week?
I
cannot
find
any
such
reference
in
Regulation
1102(1)(c).
Furthermore,
holding
otherwise
here
could
create
absurd
results,
given
that
Class
22
equipment
can
be
used
in
24-hour,
continuous
operations.
When
Parliament
or
the
executive
wish
to
set
time
periods
in
tax
law,
they
do
so
quite
clearly
and
precisely.
For
example,
as
regards
Capital
Cost
Allowance
per
se,
see
the
following
time
periods:
Regulation
1100(2.2)(/)(i),
364
days,
and
Schedule
II,
CCA,
Class
12,
(r),
7
days
and
30
days.
More
generally,
the
ITA
and
the
Regulations
provide
as
follows:
s.
232(4)(è):
6
days;
Regulation
107(1):
7
days;
s.
116(3):
10
days;
s.
232(4)(a):
14
days;
s.
62(3)(c):
15
days;
s.232(4)(a)(i):
21
days;
Regulation
231(3):
30
days;
s.
85(8):
a
month;
s.
40(2)(g)(iv)(B):
60
days;
s.
33.1(3):
90
days;
s.
130.1(l)(a)(ii):
91
days;
s.
129(2.1)(a):
120
days;
s.
78(4):
180
days;
s.
112(3)(a):
365
days;
s.
85(7):
3
years.
As
regards
very
short
time
periods,
I
also
note
the
following:
s.
118.6(1):
10
hours;
s.
8(4):
12
hours;
s.
231.4(4):
24
hours;
s.
6(6)(a)(ii):
36
hours;
s.
225.2(5):
72
hours;
Regulation
7303(7)(Z?)(iii)
(revoked
SOR/93-440):
3
days;
s.
225.2(2)(a)
(amended
S.C.
1988,
c.
55,
s.
170):
3
days.
In
view
of
the
above,
in
the
absence
of
any
other
indication,
I
would
hesitate
to
read
any
time
period
requirement
into
the
Regulation,
since,
on
the
one
hand,
there
is
no
clear
legislation
to
that
effect,
and,
on
the
other
hand,
the
legislator
is
in
the
best
position
to
determine
such
requirements.
Had
Parliament
intended
such
time
restrictions
to
apply
to
CCA,
it
would
have
said
so
—
expressio
unius
est
exclusio
alterius;
for
an
application
of
implied
exclusion
in
tax
law,
see
generally
Vancouver
Art
Metal
Works
Ltd.
v.
R.,
(1993),
93
D.T.C.
5116
(Fed.
C.A.)
at
p.
5117.
Therefore,
under
Reg-
ulation
1102(1)(c),
the
property
does
not
have
to
produce
revenue
during
a
specified
minimum
period:
where
revenue
is
produced,
it
is
sufficient
that
it
be
produced
during
a
time
period
of
any
duration.
Holding
otherwise
would
likely
introduce
considerable
uncertainty
in
this
area
of
the
law.
The
judgment
of
the
Trial
Division
stands
for
the
proposition
that
5
days
is
not
enough,
but
it
does
not
set
forth
exactly
what
would
be
sufficient.
It
introduces
uncertainty
as
to
what
time
period
would
be
sufficient
in
order
for
a
taxpayer
to
successfully
claim
CCA.
It
is
incumbent
upon
Parliament
or
the
executive
to
specify
a
cut-off
period
if
they
find
it
expedient.
Therefore,
with
respect,
the
undefined
time
period
requirement
introduced
by
the
Federal
Court
Trial
Division,
and
upheld
by
the
Court
of
Appeal,
constitutes
an
error
of
law
and,
in
my
view,
is
encroaching
upon
Parliament’s
legislative
function.
H.
Materiality
of
the
assets
revenue
in
relation
to
the
total
revenue
The
Trial
Division
found
at
p.
633
that
the
amount
of
equipment-related
revenue
was
“meagre”
in
terms
of
percentage
of
total
revenue.
Does
Regulation
1102(1)(c)
require
that
the
revenue
meet
some
specified
minimum
amount,
or
that
it
be
“material”
in
relation
to
the
taxpayer’s
other
income?
I
am
unable
to
see
such
a
requirement
in
Regulation
1102(1
)(c).
Therefore,
I
conclude
that
the
question
as
to
whether
the
income
produced
by
an
item
of
property
is
“material”
or
“immaterial”,
in
relation
to
the
taxpayer’s
other
income,
is
irrelevant
to
the
application
of
Regulation
1102(1)(c).
Holding
otherwise
could
lead
to
absurd
results
in
situations
of
rapid
growth
in
revenue.
I.
Does
every
item
of
property
have
to
be
shown
in
the
financial
statements?
The
Court
of
Appeal
held
at
p.
5579
that
“the
appellant
itself
did
not
at
the
time
treat
the
property
which
it
acquired
from
the
writing-up
of
“Equipment”
as
being
a
potential
or
actual
source
of
income:
no
such
income
was
shown
in
the
appellant’s
books
for
either
its
1984
or
its
1985
taxation
years”.
Where
the
revenue
produced
by
an
asset
is
“immaterial”
in
relation
to
the
taxpayer’s
other
income,
does
Regulation
1102(
1
)(c)
require
that
it
be
shown
distinctly
in
the
financial
statements?
This
issue
has
been
aptly
described
in
Lanny
G.
Chasteen
et
al.,
Intermediate
Accounting
(1st
Canadian
ed.
1992),
at
p.
35;
see
also
Thomas
H.
Beechy,
Canadian
Advanced
Financial
Accounting
(2nd
ed.
1990),
at
pp.
38-40:
Materiality
implies
that
generally
accepted
accounting
principles
need
to
be
strictly
followed
only
in
accounting
for
and
reporting
material
items.
Lack
of
materiality
justifies
expedient,
cost-effective
treatment
of
immaterial
items.
[...]
Materiality
is
a
somewhat
elusive
concept
because
it
is
dependent
on
(1)
the
relative
dollar
amount
of
an
item.
[...]
(3)
some
combination
of
the
relative
dollar
amount
and
nature
of
an
item.
[...]
Finally,
the
materiality
threshold
may
vary
from
company
to
company.
For
example,
a
$20,000
loss
from
a
lawsuit
could
be
material
for
many
companies
but
might
not
be
material
for
a
company
as
large
as
Air
Canada.
Because
materiality
judgments
often
involve
factors
peculiar
to
a
particular
situation,
the
CICA
has
not
yet
found
it
feasible
to
develop
a
set
of
general
materiality
guidelines,
and
materiality
decisions
are
a
matter
of
professional
judgment
in
the
particular
circumstances.
[Emphasis
added.
I
In
my
opinion,
under
Regulation
1102(l)(c),
where
the
revenue
produced
by
an
item
of
property
is
immaterial
in
relation
to
the
overall
business
income,
the
taxpayer
is
not
required
to
show
this
specific
item
of
property
separately
in
the
financial
statements.
The
underlying
cost/benefit
and
policy
rationales
are
clearly
expressed
in
the
Generally
Accepted
Accounting
Principles
(GAAP):
“[t]he
benefits
...
from
providing
information
in
financial
statements
should
exceed
the
costs....
[T]he
evaluation
of
the
nature
and
amount
of
benefits
and
costs
is
substantially
a
judgmental
process”:
CICA
Handbook,
s.
1000.16.
In
the
case
at
bar,
the
appellant
decided
not
to
show
the
specific
revenue,
the
matched
expenses,
and
the
net
income
related
to
the
specific
equipment
property
in
its
financial
statements:
Q.
Well,
if
the
business
of
Hickman
Equipment
Limited
was
wound
up
into
Hickman
Motors
Limited
effective
December
28,
1984,
why
did
you
not
show
the
revenues
and
expenses
of
Hickman
Equipment
Limited
as
part
of
the
revenues
and
expenses
of
Hickman
Motors
Limited
as
at
December
31,
1984?
A.
Well,
in
our
judgment
at
that
time,
the
revenue
-
the
income
and/or
loss
that
may
have
been
generated
would
not
have
adjusted
the
auditing
expense
and
the
accounting
expense
to
reconstruct
the
records
for
the
three-,
four-day
period.
We
would
have
had
to
have
had
our
external
auditors
involved
for
a
period
of
time
and
we
would
have
had
to
have
had
our
own
staff
involved.
A.
Well,
if
we
take
invoice
59762
and
we
look
down,
and
it
states
that
the
rental
period
is
from
December
the
5th,
1984,
to
January
the
4th,
1985.
And
one
thing
that
it
does,
it
illustrates
some
of
the
cost
that
would
have
been
involved
in
prorating
the
revenue
from
the
period
December
29th,
1984,
up
to
January
the
2nd,
1985.
[Emphasis
added.]
The
equipment-related
revenue
attributable
to
the
appellant
is
approximately
$20,550.
The
total
revenue
of
the
appellant
is
$75,275,000.
Bearing
in
mind
the
GAAP,
supra,
I
cannot
find
that
the
appellant’s
cost/benefit
decision
with
respect
to
materiality
is
unreasonable.
Showing
a
specific
property
item’s
revenue
in
the
financial
statements
is
not
the
only
way
to
prove
that
it
produced
revenue.
There
may
be
other
admissible
evidence,
such
as
the
uncontradicted
testimonial
and
documentary
evidence
in
the
case
at
bar.
Holding
otherwise
would
be
unreasonable
and
could
lead
to
absurd
and
unmanageable
results
where
a
large
number
of
items
of
property
produce
revenue.
My
colleague
lacobucci
J.,
at
para.
41
of
his
reasons,
repeats
the
Court
of
Appeal’s
opinion
that
because
the
revenue
was
not
shown
in
the
financial
statements,
there
is
no
evidence
of
revenue.
I
cannot
agree
with
that
statement.
For
example,
see
Docherty
v.
Minister
of
National
Revenue,
(1991),
91
D.T.C.
537
(T.C.C.)
at
p.
539,
where,
in
the
absence
of
entries
in
the
appellant’s
financial
statements
reflecting
a
transaction,
the
court
accepted
the
working
papers
and
the
testimony
of
the
corporation’s
accountant
as
evidence
that
the
transaction
had
occurred.
The
law
is
well
established
that
accounting
documents
or
accounting
entries
serve
only
to
reflect
transactions
and
that
it
is
the
reality
of
the
facts
that
determines
the
true
nature
and
substance
of
transactions:
Vander
Nurseries
Ltd.
v.
R.,
(1994),
94
D.T.C.
91
(T.C.C.);
Mountwest
Steel
Ltd.
v.
R.,
[1994]
G.S.T.C.
71
(T.C.C.);
Uphill
Holdings
Ltd.
v.
Minister
of
National
Revenue,
(1992),
93
D.T.C.
148
(T.C.C.);
Minister
of
National
Revenue
v.
Wardean
Drilling
Ltd.,
(1969),
69
D.T.C.
5194
(Can.
Ex.
Ct.);
Minister
of
National
Revenue
v.
Sociétécoopérative
agricole
de
la
vallée
de
Yamaska,
(1957),
57
D.T.C.
1078
(Can.
Ex.
Ct.).
Furthermore,
where
the
/TA
does
not
require
supporting
documentation,
credible
oral
evidence
from
a
taxpayer
is
sufficient
notwithstanding
the
absence
of
records:
Weinberger
v.
Minister
of
National
Revenue,
(1964),
64
D.T.C.
5060
(Can.
Ex.
Ct.);
Naka
v.
R.,
(1995),
95
D.T.C.
407
(T.C.C.);
Page
v.
R.,
(1993),
95
D.T.C.
373
(T.C.C.).
In
the
case
at
bar,
the
ITA
does
not
require
that
the
revenue
be
shown
in
the
financial
statements
and,
accordingly,
since
no
issue
of
credibility
was
raised,
the
evidence
adduced
by
the
appellant
is
clearly
sufficient.
J.
Proportionality
of
the
assets’
revenue
in
relation
to
their
own
value
The
remaining
issue
is
whether
the
fevenue
is
unreasonably
low
in
relation
to
the
property’s
value,
such
as
to
make
it
tantamount
to
no
revenue
at
all.
For
example,
in
Clapman
v.
Minister
of
National
Revenue,
(1969),
70
D.T.C.
1012
(Can.
Tax
App.
Bd.),
a
motel
valued
at
$50,000
was
rented
to
a
controlled
corporation
for
only
$600
per
year.
By
virtue
of
renting
the
property
for
much
less
than
its
fair
annual
rental,
the
appellant
in
Clapham
showed
that
it
was
not
acquired
for
the
purpose
of
producing
income.
CCA
was
disallowed,
even
though
the
item
of
property
produced
some
revenue.
In
my
opinion,
if
the
revenue
is
unreasonably
low
in
relation
to
the
value
of
the
revenue-generating
property,
then
it
is
deemed
not
to
produce
income,
and
the
second
part
of
the
test,
dealing
with
the
objective
purpose,
is
to
be
applied.
In
the
case
at
bar,
is
the
revenue
unreasonably
low
in
relation
to
the
property’s
value?
Cross-examination
established
that
Hickman
Motors’
leasing
revenue
was
$1,900,000,
the
value
of
its
leasing
assets
being
$5,220,000,
and
that
Equipment’s
rental
revenue
was
$1,500,000,
the
value
of
its
Class
22
assets
being
$2,700,000.
Thus,
the
fixed
asset
ratios
(ratio
=
revenue
—:—
asset)
are
respectively
.36
for
Hickman
Motors
and
.55
for
Equipment.
These
two
ratios
contrast
sharply
with
the
fixed
asset
ratio
in
Clapham,
which
is
.01.
Accordingly,
I
cannot
infer
from
the
evidence
that
the
revenue
produced
by
Equipment’s
property
is
unreasonably
low
in
relation
to
that
property’s
value
-
and
the
respondent
adduced
no
evidence
to
that
end.
It
is
to
be
noted
that
I
am
using
the
above
numbers
for
showing
the
clear
distinction
between
the
present
case
and
Clapham.
These
ratios
and
values
will
not
necessarily
apply
in
the
context
of
other
cases.
K.
Onus
of
Proof
As
I
have
noted,
the
appellant
adduced
clear,
uncontradicted
evidence,
while
the
respondent
did
not
adduce
any
evidence
whatsoever.
In
my
view,
the
law
on
that
point
is
well
settled,
and
the
respondent
failed
to
discharge
its
burden
of
proof
for
the
following
reasons.
It
is
trite
law
that
in
taxation
the
standard
of
proof
is
the
civil
balance
of
probabilities:
Dobieco
Ltd.
v.
Minister
of
National
Revenue,
[1966]
S.C.R.
95
(S.C.C.),
and
that
within
balance
of
probabilities,
there
can
be
varying
degrees
of
proof
required
in
order
to
discharge
the
onus,
depending
on
the
subject
matter:
Continental
Insurance
Co.
v.
Dalton
Cartage
Ltd.,
[1982]
1
S.C.R.
164
(S.C.C.);
Pallan
v.
Minister
of
National
Revenue,
(1989),
90
D.T.C.
1102
(T.C.C.)
at
p.
1106.
The
Minister,
in
making
assessments,
proceeds
on
assumptions
(Bayridge
Estates
Ltd.
v.
Minister
of
National
Revenue,
(1959),
59
D.T.C.
1098
(Can.
Ex.
Ct.),
at
p.
1101)
and
the
initial
onus
is
on
the
taxpayer
to
“demolish”
the
Minister’s
assumptions
in
the
assessment
(Johnston
v.
Minister
of
National
Revenue,
[1948]
S.C.R.
486
(S.C.C.);
Kennedy
v.
Minister
of
National
Revenue,
(1973),
73
D.T.C.
5359
(Fed.
C.A.),
at
p.
5361).
The
initial
burden
is
only
to
“demolish”
the
exact
assumptions
made
by
the
Minister
but
no
more:First
Fund
Genesis
Corp.
v.
R.,
(1990),
90
D.T.C.
6337
(Fed.
T.D.),
at
p.
6340.
This
initial
onus
of
“demolishing”
the
Minister’s
exact
assumptions
is
met
where
the
appellant
makes
out
at
least
a
prima
facie
case:
Kamin
v.
Minister
of
National
Revenue,
(1992),
93
D.T.C.
62
(T.C.C.);
Goodwin
v.
Minister
of
National
Revenue,
(1982),
82
D.T.C.
1679
(T.R.B.).
In
the
case
at
bar,
the
appellant
adduced
evidence
which
met
not
only
a
prima
facie
standard,
but
also,
in
my
view,
even
a
higher
one.
In
my
view,
the
appellant
“demolished”
the
following
assumptions
as
follows:
(a)
the
assumption
of
“two
businesses”,
by
adducing
clear
evidence
of
only
one
business;
(b)
the
assumption
of
“no
income”,
by
adducing
clear
evidence
of
income.
The
law
is
settled
that
unchallenged
and
uncontradicted
evidence
“demolishes”
the
Minister’s
assumptions:
see
for
example
Maclsaac
v.
Minister
of
National
Revenue,
(1974),
74
D.T.C.
6380
(Fed.
C.A.),
at
p.
6381;
Zink
v.
Minister
of
National
Revenue,
(1987),
87
D.T.C.
652
(T.C.C.).
As
stated
above,
all
of
the
appellant’s
evidence
in
the
case
at
bar
remained
unchallenged
and
uncontradicted.
Accordingly,
in
my
view,
the
assumptions
of
“two
businesses”
and
“no
income”
have
been
“demolished”
by
the
appellant.
Where
the
Minister’s
assumptions
have
been
“demolished”
by
the
appellant,
“the
onus
shifts
to
the
Minister
to
rebut
the
prima
facie
case”
made
out
by
the
appellant
and
to
prove
the
assumptions:
Magilb
Development
Corp.
v.
Minister
of
National
Revenue,
(1986),
87
D.T.C.
5012
(Fed.
T.D.),
at
p.
5018.
Hence,
in
the
case
at
bar,
the
onus
has
shifted
to
the
Minister
to
prove
its
assumptions
that
there
are
“two
businesses”
and
“no
income”.
Where
the
burden
has
shifted
to
the
Minister,
and
the
Minister
adduces
no
evidence
whatsoever,
the
taxpayer
is
entitled
to
succeed:
see
for
example
Maclsaac,
supra,
where
the
Federal
Court
of
Appeal
set
aside
the
judgment
of
the
Trial
Division,
on
the
grounds
that
(at
pp.
6381-2)
the
“evidence
was
not
challenged
or
contradicted
and
no
objection
of
any
kind
was
taken
thereto”.
See
also
Waxstein
v.
Minister
of
National
Revenue,
(1980),
80
D.T.C.
1348
(T.R.B.);
Roselawn
Investments
Ltd.
v.
Minister
of
National
Revenue,
(1980),
80
D.T.C.
1271
(T.R.B.).
Refer
also
to
Zink
v.
Minister
of
National
Revenue,
supra,
at
p.
653,
where,
even
if
the
evidence
contained
“gaps
in
logic,
chronology
and
substance”,
the
taxpayer’s
appeal
was
allowed
as
the
Minster
failed
to
present
any
evidence
as
to
the
source
of
income.
I
note
that,
in
the
case
at
bar,
the
evidence
contains
no
such
“gaps”.
Therefore,
in
the
case
at
bar,
since
the
Minister
adduced
no
evidence
whatsoever,
and
no
question
of
credibility
was
ever
raised
by
anyone,
the
appellant
is
entitled
to
succeed.
In
the
present
case,
without
any
evidence,
both
the
Trial
Division
and
the
Court
of
Appeal
purported
to
transform
the
Minister’s
unsubstantiated
and
unproven
assumptions
into
“factual
findings”,
thus
making
errors
of
law
on
the
onus
of
proof.
My
colleague
Iacobucci
J.
defers
to
these
so-
called
“concurrent
findings”
of
the
courts
below,
but,
while
I
fully
agree
in
general
with
the
principle
of
deference,
in
this
case
two
wrongs
cannot
make
a
right.
Even
with
“concurrent
findings”,
unchallenged
and
uncontradicted
evidence
positively
rebuts
the
Minister’s
assumptions:
Maclsaac,
supra.
As
Rip
T.C.J.,
stated
in
Gelber
v.
Minister
of
National
Revenue,
(1991),
91
D.T.C.
1030
(T.C.C.),
at
p.
1033,
“[the
Minister]
is
not
the
arbiter
of
what
is
right
or
wrong
in
tax
law”.
As
Brulé
T.C.J.,
stated
in
Kamin,
supra,
at
p.
64:
the
Minister
should
be
able
to
rebut
such
[prima
facie]
evidence
and
bring
forth
some
foundation
for
his
assumptions.
The
Minister
does
not
have
a
carte
blanche
in
terms
of
setting
out
any
assumption
which
suits
his
convenience.
On
being
challenged
by
evidence
in
chief
he
must
be
expected
to
present
something
more
concrete
than
a
simple
assumption.
[Emphasis
added.]
In
my
view,
the
above
statement
is
apposite
in
the
present
case:
the
respondent,
on
being
challenged
by
evidence
in
chief,
failed
to
present
anything
more
concrete
than
simple
assumptions
and
failed
to
bring
forth
any
foundation.
The
respondent
chose
not
to
rebut
any
of
the
appellant’s
evidence.
Accordingly,
the
respondent
failed
to
discharge
her
onus
of
proof.
I
note
that,
in
upholding
the
Minister’s
unproven
assumptions,
my
colleague
lacobucci
J.
may
be
seen
as
reversing
the
above-stated
line
of
caselaw,
without
explicitly
providing
the
rationale
for
doing
so.
With
respect
for
the
contrary
opinion,
in
my
view,
changes
in
the
jurisprudence
regarding
the
onus
of
proof
in
tax
law
should
be
left
for
another
day.
Furthermore,
on
the
facts
of
the
case
at
bar,
sanctioning
the
respondent’s
total
lack
of
evidence
could
seem
unreasonable
and
perhaps
even
unjust,
given
that
the
appellant
complied
with
a
well-established
line
of
jurisprudence
as
regards
its
onus
of
proof.
V.
Summary
Section
88(1
)(<?)
does
not
create
any
right
for
the
parent
company
to
claim
a
CCA
deduction
as
a
result
of
the
winding-up
of
a
subsidiary.
This
right
is
to
be
found
in
s.
20(1
)(a),
read
concurrently
with
the
applicable
Regulations.
The
appellant
has
discharged
its
burden
of
proving
that
the
property
was
held
for
the
purpose
of
producing
income
from
its
business.
The
appellant
proved
that
between
December
28,
1984,
and
January
2,
1985
it
did
in
fact
carry
on
an
integrated
car,
truck
and
equipment
business.
The
appellant
proved
that
the
equipment-related
property
produced
revenue
from
that
business
during
that
period.
Accordingly,
the
requirements
of
Regulation
1102(1)(c)
and
s.
20(1)(a)
are
met.
Therefore,
the
CCA
deduction
is
allowable.
Both
the
Trial
Division
and
the
Court
of
Appeal
failed
to
take
the
revenue
into
consideration
and,
in
determining
whether
the
equipment-related
assets
met
the
requirements
of
Regulation
1102,
made
incorrect
inferences,
asked
the
wrong
questions
of
law
and
applied
the
wrong
test,
which
constitute
reviewable
errors
of
law.
In
as
technical
a
piece
of
legislation
as
the
ITA,
had
Parliament
or
the
executive
wanted
to
specify
any
minimum
period
of
time,
materiality
requirement,
or
financial
statement
content
requirement,
they
would
have
used
clear
language
to
that
effect.
VI.
Disposition
Since
the
appellant
is
entitled
to
a
capital
cost
allowance
deduction
as
claimed,
I
would
allow
the
appeal
with
costs
throughout,
set
aside
the
judgments
of
the
Federal
Court
of
Appeal
and
the
Trial
Division,
and
remit
the
matter
back
to
the
Minister
of
National
Revenue
for
reassessment
in
conformity
with
these
reasons.
lacobucci
J.:
I
have
read
the
reasons
written
by
my
colleagues,
Justice
L’Heureux-
Dubé
and
Justice
McLachlin,
and,
with
respect,
find
myself
unable
to
concur
with
most
of
their
reasoning
or
with
their
conclusion.
In
my
opinion,
the
appellant’s
attempt
to
deduct
capital
cost
allowance
from
its
income
from
a
business
fails
for
the
primary
reason
that
the
capital
cost
allowance
is
not,
as
required
by
s.
20(1)
of
the
Income
Tax
Act,
S.C.
1970-71-72,
c.
63,
applicable
to
a
business
source
of
income.
Because
of
my
disagreement
with
my
colleagues’
respective
approaches
to
this
case,
I
will
set
forth
the
relevant
factual
and
judicial
background.
1.
Facts
The
appellant,
Hickman
Motors
Ltd.,
is
a
General
Motors
distributor
in
St.
John’s,
Newfoundland.
It
sells,
services,
rents
and
leases
cars
and
trucks.
On
December
14,
1984,
Hickman
Motors
acquired
all
of
the
outstanding
shares
of
an
associated
corporation,
Hickman
Equipment
Ltd.
(hereinafter
“Equipment”).
Equipment’s
business
consisted
of
leasing
heavy
equipment,
such
as
backhoes,
bulldozers,
rock
drilling
equipment
and
cranes.
On
Friday,
December
28,
1984,
Equipment
was
voluntarily
wound
up
into
Hickman
Motors.
Upon
the
winding
up,
all
of
Equipment’s
assets
passed
to
Hickman
Motors.
Among
these
assets
were
certain
items
of
depreciable
property
(in
this
case,
backhoes,
bulldozers,
etc.)
with
an
undepreciated
capital
cost
of
$5,196,422.
Hickman
Motors
retained
Equipment’s
assets
for
five
days
and
then,
on
January
2,
1985
(the
following
Wednesday,
after
the
New
Year’s
holiday),
sold
everything
to
a
newly
incorporated,
related
company
called
Hickman
Equipment
(1985)
Ltd.
(hereinafter
“Equipment
85”).
From
January
2,
1985,
Equipment
85
carried
on
the
same
heavy
equipment
leasing
business
which
had
formerly
been
carried
on
by
Equipment.
In
the
1984
taxation
year,
the
appellant,
Hickman
Motors,
claimed
$2,092,942
for
capital
cost
allowance
in
respect
of
the
Equipment
assets.
The
Minister
of
National
Revenue
disallowed
this
claim,
and
held
that
Hickman
Motors
was
not
entitled
to
claim
capital
cost
allowance
on
any
of
the
Equipment
property
on
the
ground
that
Hickman
Motors
had
not
acquired
the
property
for
the
purpose
of
gaining
or
producing
income.
Hickman
Motors
appealed
the
Minister’s
decision
to
the
Federal
Court
(Trial
Division),
arguing
that,
since
it
had
acquired
the
assets
as
part
of
a
business
reorganization
pursuant
to
ss.
88(1)
and
(1.1)
of
the
Act,
it
did
not
need
to
show
that
it
had
carried
out
this
acquisition
with
the
purpose
of
gaining
or
producing
income
therefrom.
In
the
alternative,
the
company
alleged
that
it
had,
in
fact,
acquired
and
used
the
assets
in
order
to
gain
or
produce
income.
Joyal
J.
({1993]
1
F.C.
622
(Fed.
T.D.))
dismissed
the
taxpayer’s
appeal.
A
subsequent
appeal
to
the
Federal
Court
of
Appeal
((1995),
95
D.T.C.
5575
(Fed.
C.A.))
was
similarly
dismissed.
2.
Relevant
Statutory
Provisions
Income
Tax
Act,
S.C.
1970-71-72,
c.
63:
3.
The
income
of
a
taxpayer
for
a
taxation
year
for
the
purposes
of
this
Part
is
his
income
for
the
year
determined
by
the
following
rules:
(a)
determine
the
aggregate
of
amounts
each
of
which
is
the
taxpayer’s
income
for
the
year
(other
than
a
taxable
capital
gain
from
the
disposition
of
a
property)
from
a
source
inside
or
outside
Canada,
including,
without
restricting
the
generality
of
the
foregoing,
his
income
for
the
year
from
each
office,
employment,
business
and
property,
4.(1)
For
the
purposes
of
this
Act,
(a)
a
taxpayer’s
income
or
loss
for
a
taxation
year
from
an
office,
employment,
business,
property
or
other
source,
or
from
sources
in
a
particular
place,
is
the
taxpayer’s
income
or
loss,
as
the
case
may
be,
computed
in
accordance
with
this
Act
on
the
assumption
that
he
had
during
the
taxation
year
no
income
or
loss
except
from
that
source
or
no
income
or
loss
except
from
those
sources,
as
the
case
may
be,
and
was
allowed
no
deductions
in
computing
his
income
for
the
taxation
year
except
such
deductions
as
may
reasonably
be
regarded
as
wholly
applicable
to
that
source
or
to
those
sources,
as
the
case
may
be,
and
except
such
part
of
any
other
deductions
as
may
reasonably
be
regarded
as
applicable
thereto;...
9.(1)
Subject
to
this
Part,
a
taxpayer’s
income
for
a
taxation
year
from
a
business
or
property
is
his
profit
therefrom
for
the
year.
20.(1)
Notwithstanding
paragraphs
18(l)(a),
(b)
and
(h),
in
computing
a
taxpayer’s
income
for
a
taxation
year
from
a
business
or
property,
there
may
be
deducted
such
of
the
following
amounts
as
are
wholly
applicable
to
that
source
or
such
part
of
the
following
amounts
as
may
reasonably
be
regarded
as
applicable
thereto:
(a)
such
part
of
the
capital
cost
to
the
taxpayer
of
property,
or
such
amount
in
respect
of
the
capital
cost
to
the
taxpayer
of
property,
if
any,
as
is
allowed
by
regulation;
85....
(5.1)
Where
a
person
or
a
partnership
(in
this
subsection
referred
to
as
the
“taxpayer”)
has
disposed
of
any
depreciable
property
of
a
prescribed
class
of
the
taxpayer
to
a
transferee
that
was
(a)
a
corporation
that,
immediately
after
the
disposition,
was
controlled,
directly
or
indirectly
in
any
manner
whatever,
by
the
taxpayer,
by
the
spouse
of
the
taxpayer
or
by
a
person,
group
of
persons
or
partnership
by
whom
the
taxpayer
was
controlled,
directly
or
indirectly
in
any
manner
whatever,
and
the
fair
market
value
of
the
property
at
the
time
of
the
disposition
is
less
than
both
the
cost
to
the
taxpayer
of
the
property
and
the
amount
(in
this
subsection
referred
to
as
the
“proportionate
amount”)
that
is
the
proportion
of
the
undepreciated
capital
cost
to
the
taxpayer
of
all
property
of
that
class
immediately
before
the
disposition
that
the
fair
market
value
of
the
property
at
the
time
of
the
disposition
is
of
the
fair
market
value
of
all
property
of
that
class
at
the
time
of
disposition,
the
following
rules
apply:
(e)
the
lesser
of
the
cost
to
the
taxpayer
of
the
property
and
the
proportionate
amount
in
respect
of
the
property
shall
be
deemed
to
be
the
taxpayer’s
proceeds
of
disposition
and
the
transferee’s
cost
of
the
property.
3.
Judgments
Below
A.
Federal
Court
(Trial
Division),
[1993]
1
F.C.
622
(Fed.
T.D.)
At
trial,
Hickman
Motors
called
only
one
witness,
Mr.
Brian
Grant,
who
manages
the
financial
affairs
of
all
the
Hickman
companies.
The
Crown
called
no
witnesses.
Having
reviewed
the
evidence
relating
to
the
relevant
transactions,
Joyal
J.
found
that
Hickman
Motors
had
never
intended
to
expand
its
business
to
include
a
heavy
equipment
dealership.
It
had
always
planned
to
hold
onto
Equipment’s
assets
for
only
a
few
days
prior
to
a
subsequent
transfer
to
Equipment
85
(Joyal
J.
at
p.
632):
According
to
the
evidence,
the
plaintiff,
a
General
Motors
dealer
in
cars
and
trucks,
had
no
intention
of
carrying
on
the
business
of
a
heavy
equipment
dealer,
which
had
been
Equipment’s
mainstay
and
which
Equipment
85
was
to
inherit.
Given
that
Hickman
Motors
had
never
intended
to
run
a
heavy
equipment
dealership,
the
trial
judge
considered
whether
the
Act
would,
nonetheless,
permit
capital
cost
allowance
deductions
for
the
heavy
equipment
in
question.
Joyal
J.
looked
first
at
s.
20(1),
which
is
headed
“Deductions
permitted
in
computing
income
from
business
or
property”.
In
particular,
Joyal
J.
noted
that
s.
20(1)
permits
only
those
deductions
which
are
wholly
or
partly
applicable
to
the
source
in
question.
Then,
Joyal
J.
turned
to
s.
1102(l)(c)
of
the
Regulations.
This
regulation
excludes
from
the
definition
of
depreciable
property
all
assets
which
the
taxpayer
did
not
acquire
for
the
purpose
of
gaining
or
producing
income.
In
the
opinion
of
the
trial
judge
at
p.
632,
this
exclusion
is
“consonant
with
the
sourcing
provision
of
section
20”
(emphasis
in
the
original).
Considering
s.
20(1)
in
light
of
Reg.
1102(l)(c),
Joyal
J.
held
that,
in
order
to
claim
capital
cost
allowance
in
respect
of
the
heavy
equipment
assets,
Hickman
Motors
must
establish
that
it
acquired
the
property
for
the
purpose
of
producing
profit
from
a
business
which
it
was
carrying
on.
Based
on
the
evidence
before
him,
Joyal
J.
found
that
Hickman
Motors
had
not
acquired
the
property
for
the
purpose
of
producing
income
from
its
business.
He
emphasized
two
factors:
first,
the
fact
that
Hickman
Motors
derived
only
a
small
portion
of
its
revenues
from
leasing;
and,
second,
that
it
held
on
to
the
assets
for
only
five
days.
Joyal
J.
said
at
p.
633,
“[T]here
was
neither
an
intention
nor,
for
practical
purposes,
any
more
than
a
notional
attempt
to
earn
income
from
the
assets
acquired
on
the
winding-up.”
Therefore,
he
held
that
Reg.
1102(1)(c)
and,
in
particular,
its
requirement
that
the
taxpayer
acquire
the
property
in
question
for
the
purpose
of
gaining
or
producing
income
operate
to
bar
Hickman
Motors’
claim
for
capital
cost
allowance.
Before
leaving
his
analysis
of
s.
20(l)(a)
and
Reg.
1102(l)(c),
Joyal
J.
made
one
final
comment.
He
said
at
p.
633,
“It
is
evident
to
me
that
the
capital
cost
of
the
assets
is
not
applicable
to
the
income
of
the
plaintiff’s
business
of
automotive
sales
and
services
which
it
carried
on
in
its
1984
taxation
year.”
The
balance
of
the
trial
judge’s
reasons
deals
with
whether
or
not
section
88(1.1)
of
the
Act
allows
Hickman
Motors
to
claim
capital
cost
allowance
on
the
assets.
The
wording
of
s.
88(1.1)(e)
and
s.
88(1)(c)
led
Joyal
J.
to
conclude
that
the
roll-over
provisions
of
s.
88
apply
only
when
the
parent
uses
the
subsidiary’s
assets
in
its
business.
Since
he
had
already
found
that
Hickman
Motors
had
not
used
Equipment’s
depreciable
property
in
its
car
sales
and
leasing
business,
the
trial
judge
found
that
Hickman
Motors
could
not
use
the
s.
88
rollover
provisions
as
a
springboard
to
claiming
capital
cost
allowance.
In
the
opinion
of
Joyal
J.,
to
allow
Hickman
Motors’
claim
would
lead
to
inconsistency
within
the
Act
as
a
whole.
He
said
at
p.
637:
I
conclude
that
the
specific
processes
found
in
subsection
88(1.1)
with
respect
to
the
roll-over
of
assets
and
liabilities
can
only
be
applied
in
light
of
the
other
provisions
of
the
Act
which
I
have
cited.
To
do
otherwise
would
simply
result
in
artificiality
and
create
an
imbalance
or
non-conformity
in
the
application
of
the
more
generic
provisions
of
the
statute
which
Parliament
had
no
intention
of
creating.
In
conclusion,
Joyal
J.
said
that
Hickman
Motors
could
not
claim
capital
cost
allowance
in
respect
of
Equipment’s
assets
because
it
failed
to
satisfy
the
“business
purpose
test”
contained
within
the
sourcing
provisions
of
s.
20(1)
and
within
the
definition
of
depreciable
property
in
Reg.
1102(1)(c).
B.
Federal
Court
of
Appeal,
((1995),
95
D.T.C.
5575
(Fed.
C.A.))
Writing
for
the
Court
of
Appeal,
Hugessen
J.A.
considered
but
ultimately
rejected
Hickman
Motors’
argument
that
s.
88(1)
creates
a
right
to
claim
capital
cost
allowance
which
operates
independently
of
s.
20(1
)(a).
The
appellant’s
claim
failed
for
the
basic
reason
that
s.
88(1)
contains
no
language
which
either
charges
or
relieves
the
taxpayer
from
tax
liability.
Hugessen
J.A.
said
at
p.
234,
“In
and
of
itself,
the
subsection
creates
no
rights
to
any
deductions
at
all.”
in
his
view,
all
that
s.
88(1)
does
is
to
effect
a
“flow-through”
of
the
cost
of
property
from
a
wound-up
subsidiary
to
the
parent
corporation.
Neither
the
fact
that
the
subsidiary’s
depreciable
property
has
become
depreciable
property
in
the
parent
company’s
hands,
nor
the
fact
that
the
parent
has
“inherited”
the
subsidiary’s
undepreciated
capital
cost
assists
in
determining
whether
the
parent
can
claim
capital
cost
allowance
in
respect
of
the
property.
Hugessen
J.A.
pointed
out
that
a
taxpayer’s
right
to
claim
capital
cost
allowance
arises
only
by
virtue
of
s.
20(1
)(a).
This
section
incorporates
the
more
detailed
rules
laid
out
in
the
Regulations,
in
particular,
Reg.
1102(1)(c)
which
limits
the
classes
of
depreciable
property
to
those
assets
which
the
taxpayer
acquired
for
the
purpose
of
gaining
or
producing
income.
In
the
opinion
of
the
Court
of
Appeal
at
p.
236,
this
regulation
is
“wholly
consonant”
with
s.
18(1
)(a),
which
limits
deductions
from
income
from
a
business
or
property
to
those
outlays
which
were
made
for
the
purpose
of
gaining
or
producing
income
from
the
business
or
property.
Hugessen
J.A.
rejected
Hickman
Motors’
argument
that
Reg.
1102(14)
operates
so
as
to
deem
the
subsidiary’s
assets
to
be
depreciable
property
of
a
prescribed
class
in
the
hands
of
the
parent
company.
In
his
opinion,
this
regulation
has
only
one
purpose:
to
prevent
the
acquirer
of
depreciable
property
from
switching
the
property
from
one
class
to
another.
Accordingly,
Hugessen
J.A.
concluded
that
s.
88
did
not
create
an
independent
right
for
Hickman
Motors
to
claim
capital
cost
allowance
on
the
assets
acquired
on
the
winding-up
of
Equipment.
He
held
that
Hickman
Motors
could
only
deduct
capital
cost
allowance
if
it
met
the
standard
requirements
contained
in
the
Act
and
the
Regulations.
Hugessen
J.A.,
therefore,
turned
to
consider
whether
Hickman
Motors
had
acquired
the
property
in
question
for
the
purpose
of
gaining
or
producing
income,
as
required
by
Reg.
1102(l)(c).
He
first
looked
at
the
reasons
of
the
trial
judge
which
describe
as
“notional”
any
attempt
by
Hickman
Motors
to
earn
income
from
the
assets
in
question.
Acknowledging
the
deference
due
to
this
finding
of
fact,
Hugessen
J.A.
nonetheless
carried
out
his
own
examination
of
Hickman
Motors’
intention
in
acquiring
Equipment’s
depreciable
property.
In
order
to
determine
the
company’s
intention,
Hugessen
J.A.
applied
a
modified
version
of
the
test
laid
down
by
Dickson
J.,
as
he
then
was,
in
Moldowan
v.
R.,
(1977),
[1978]
1
S.C.R.
480
(S.C.C.).
This
test
takes
into
account
a
number
of
factors,
including
profit
and
loss
experience
in
past
years,
the
taxpayer’s
training,
and
the
taxpayer’s
intended
course
of
action.
Hugessen
J.A.
at
p.
238
found
that
these
criteria
“argued
strongly
against”
Hickman
Motors’
claim
and
he
could
not
see
any
evidence
which
might
“point
the
other
way”.
Specifically,
the
Court
of
Appeal
noted
that
Equipment
had,
for
several
years,
lost
substantial
sums
of
money.
Furthermore,
Hickman
Motors
was
not
in
and
had
no
intention
of
getting
into
the
business
of
leasing
heavy
equipment
(Hugesson
J.A.
at
p.
238):
...the
intended
course
of
action
of
the
appellant,
at
the
time
the
assets
of
“Equipment”
were
acquired
by
it,
was
admittedly
to
turn
such
assets
over
to
“Equipment
(1985)”
within
five
days
time.
Adding
to
the
evidence
which
suggested
that
Hickman
Motors
had
never
intended
to
earn
income
from
the
Equipment
assets
was
the
fact
that
the
parent
company
never
showed
any
such
income
in
its
books
for
either
the
1984
or
the
1985
taxation
years.
Accordingly,
Hugessen
J.A.
found
at
p.
239
that
the
trial
judge’s
conclusion
with
regard
to
the
intention
of
Hickman
Motors
in
acquiring
the
property
in
question
was
“concordant
with
the
applicable
principles
of
law
and
is
solidly
based
in
the
evidence”.
Finally,
Hugessen
J.A.
rejected
Hickman
Motors’
alternative
argument
that
it
was
entitled
to
claim
a
terminal
loss
equal
to
the
undepreciated
capital
cost
of
the
property
which
it
received
from
Equipment.
4.
Issue
in
the
hearing
before
this
Court,
the
parties
argued
only
one
issue:
Was
the
capital
cost
of
the
property
acquired
in
the
winding-up
of
Hickman
Equipment
Ltd.
applicable
to
the
income
from
the
appellant’s
business,
within
the
meaning
of
paragraph
20(1
)(a),
in
its
1984
taxation
year?
5.
Analysis
I
should
like
to
commence
my
reasons
with
a
discussion
of
what
is
not
in
issue
before
this
Court.
During
oral
argument,
Crown
counsel
conceded
that,
by
virtue
of
s.
88(1),
when
Hickman
Motors
assumed
ownership
of
its
subsidiary’s
heavy
equipment
assets,
it
acquired
depreciable
property
of
a
prescribed
class.
Departing
from
the
line
of
argument
pursued
in
the
courts
below,
the
Crown
has
not
based
its
opposition
to
the
appellant’s
claim
on
anything
contained
in
the
Regulations.
Rather,
the
dispute
revolves
entirely
around
the
opening
words
of
s.
20(1)
of
the
Act,
more
specifically,
around
whether
the
capital
cost
allowance
in
question
is
applicable
to
a
business
source
of
income.
Before
proceeding
to
an
examination
of
the
issues
which
arise
out
of
s.
20(1),
I
ought
to
express
my
agreement
with
L’Heureux-Dubé
J.
as
to
the
effect
of
s.
88(1).
I
agree
with
her
and
with
the
Federal
Court
of
Appeal
and
the
Trial
Division
judge
that
s.
88(1)
creates
no
right
in
a
taxpayer
to
claim
capital
cost
allowance.
In
the
event
of
a
transfer
of
property
between
related
corporations,
s.
88(1)
permits
a
“flow-through”
of
both
the
property’s
cost
amount
and
its
undepreciated
capital
cost.
Thus,
in
this
case,
when
Hickman
Motors
acquired
the
depreciable
property
from
Equipment,
s.
88(1)
deemed
Hickman
Motors
to
have
“inherited”
Equipment’s
cost
amount
and
undepreciated
capital
cost.
However,
while
s.
88(1)
does
fix
the
undepreciated
capital
cost
of
the
property
at
a
certain
level,
nothing
in
the
section
gives
the
parent
corporation
the
right
to
depreciate
the
property
further.
To
repeat
and
adopt
the
comments
of
Hugessen
J.A.,
s.
88(1)
in
and
of
itself
creates
no
rights
to
a
tax
deduction.
Any
right
to
claim
capital
cost
allowance
must
be
based
in
s.
20(1)
because,
before
this
Court,
the
parties
agreed
to
put
aside
other
provisions
of
the
Act
and
Regulations
which
might
otherwise
come
into
play,
and
confined
their
respective
submissions
to
the
effect
of
s.
20(1).
Section
20(1),
which
contains
the
specific
authority
for
claiming
capital
cost
allowance
(at
s.
20(1
)(«)),
provides:
Notwithstanding
paragraphs
18(
1
)(a),
(6)
and
(A),
in
computing
a
taxpayer’s
income
for
a
taxation
year
from
a
business
or
property,
there
may
be
deducted
such
of
the
following
amounts
as
are
wholly
applicable
to
that
source
or
such
part
of
the
following
amounts
as
may
reasonably
be
regarded
as
applicable
thereto....
In
this
case,
the
appellant
will
succeed
in
its
claim
only
if
the
capital
cost
allowance
in
question
was,
as
required
by
s.
20(1),
“wholly
applicable”
to
a
business
source
of
income.
I
say
“wholly
applicable”
because
this
case
raised
no
issue
with
regard
to
whether
the
capital
cost
allowance
was
partly
applicable
to
a
business
source
of
income.
In
order
to
show
that
the
capital
cost
allowance
in
question
was
wholly
applicable
to
a
business
source
of
income,
the
appellant
must
demonstrate
two
things:
first,
the
appellant
must
identify
the
relevant
business
source;
and
second,
the
appellant
must
show
that
the
capital
cost
allowance
is
wholly
applicable
to
that
particular
business
source.
A.
Identifying
the
relevant
source
of
income
It
is
trite
to
say
that
s.
3(a)
defines
a
taxpayer’s
income
as
income
from
all
sources.
The
section
goes
on
to
specify
the
most
common
sources
of
income,
namely,
business,
property,
and
office
or
employment.
Generally
speaking,
for
tax
purposes,
when
calculating
income
from
business,
a
taxpayer
may
not
lump
together
the
revenues
and
expenses
from
all
of
that
person’s
various
business
enterprises.
Rather,
the
taxpayer
must
compute,
separately,
his
or
her
income
or
loss
from
each
individual
business.
This
provides
the
appropriate
figure
which
the
taxpayer
then
“plugs
in”
to
the
s.
3
formula
for
computing
income
for
the
taxation
year.
This
requirement
to
treat
each
business
as
a
separate
source
arises
from
the
wording
of
the
applicable
statutory
provisions.
For
example,
s.
3(a)
states
that
a
taxpayer
must
“determine
the
total
of
all
amounts
each
of
which
is
the
taxpayer’s
income
for
the
year
...
from
each
office,
employment,
business
and
property”
(emphasis
added).
Similarly,
s.
4(l)(a)
provides:
à
taxpayer’s
income
or
loss
for
a
taxation
year
from
an
office,
employment,
business,
property
or
other
source,
...
is
the
taxpayer’s
income
or
loss
...
computed
in
accordance
with
this
Act
on
the
assumption
that
the
taxpayer
had
during
the
taxation
year
no
income
or
loss
except
from
that
source.
[Emphasis
added.]
Section
9(1)
contains
similar
wording,
as
does
s.
20(1),
which
lists
a
number
of
deductions
permitted
from
a
taxpayer’s
income
“from
a
business
or
property”
(emphasis
added).
This
need
to
segregate
business
income
according
to
its
various
“subsources”
has
been
discussed
in
both
academic
writings
and
the
jurisprudence.
In
Canadian
Income
Taxation
(4th
ed.
1979),
Edwin
C.
Harris
says
at
p.
99:
..the
Act
provides
that
a
taxpayer’s
income
for
a
taxation
year
is
his
income
from
all
sources,
including
but
not
limited
to
his
income
from
each
office
or
employment,
each
business,
and
each
property.
His
income
from
each
sourcetype
is
to
be
computed
separately.
[Emphasis
added.]
In
C.B.A.
Engineering
Ltd.
v.
Minister
of
National
Revenue,
[1971]
C.T.C.
504
(Fed.
T.D.),
at
p.
511,
Cattanach
J.
explained,
“When
there
is
more
than
one
business,
each
business
is
a
source
of
income.”
See
also,
Poulin
v.
R.,
(1993),
94
D.T.C.
1674
(T.C.C.),
at
pp.
1677-78;
Vincent
v.
Minister
of
National
Revenue,
[1965]
2
Ex.
C.R.
117
(Can.
Ex.
Ct.)
at
125;
and
B.J.
Arnold
et.
al.,
Materials
on
Canadian
Income
Tax,
10th
ed.,
at
p.
189.
However,
my
colleague,
Justice
L’Heureux-Dubé,
suggests
that
it
is
uncertain
whether
a
taxpayer
must
calculate
separately
his
or
her
income
from
each
business
source.
I
cannot
agree.
Indeed,
I
do
not
know
how
the
Act
could
speak
any
more
clearly
on
this
point.
As
noted
above,
s.
3
requires
a
taxpayer
to
calculate
income
from
“each
business”.
Similarly,
s.
9(1)
refers
to
a
taxpayer’s
income
from
“a
business”.
Certainly,
the
tax
courts
have
not
shown
any
confusion
in
this
regard.
For
example,
Garon
T.C.J.
in
Poulin,
supra,
said
at
p.
1677:
It
is
known
that
the
Income
Tax
Act
requires
income
to
be
computed
based
on
each
source
of
income.
See
in
particular
ss.
3
and
4
of
the
Income
Tax
Act.
Accordingly,
pursuant
to
that
Act,
the
income
from
each
business,
for
example,
must
be
computed
separately,
[emphasis
added]
The
requirement
to
calculate
income
from
each
“sub-source”
separately
is
fundamental
to
the
entire
taxing
scheme
set
up
by
Parliament.
To
suggest
otherwise,
as
my
colleague
does,
is
to
ignore
the
plain
words
of
the
Act.
Therefore,
it
is
not
enough
for
the
appellant
to
state
that
the
capital
cost
allowance,
claimed
in
regard
of
the
Equipment
assets,
is
applicable
to
income
from
“business”.
Instead,
the
appellant
must
show
that
the
allowance
is
applicable
to
income
from
a
particular
business.
In
this
case,
the
facts
suggest
two
potential
business
sources
of
income:
first,
the
appellant
unquestionably
operated
a
car
and
truck
sales
and
leasing
business;
second,
the
appellant
claims
to
have
briefly
operated
a
heavy
equipment
leasing
business,
a
business
which
was
previously
carried
on
by
the
appellant’s
subsidiary,
Equipment.
Because
the
Crown
disputes
the
existence
of
this
second
business
source,
I
will
now
turn
to
consider
whether
the
appellant
has
a
second
source
of
business
income,
in
the
form
of
a
heavy
equipment
leasing
enterprise,
separate
and
distinct
from
the
long-standing
General
Motors
dealership.
In
my
opinion,
the
appellant’s
argument
with
regard
to
this
alleged
second
business
fails
for
two
reasons.
First,
the
trial
judge
made
a
finding
of
fact,
and
properly
so,
in
my
view,
that
Hickman
Motors
did
not
continue
to
operate
the
business
previously
run
by
Equipment.
This
finding
of
fact
deserves
the
deference
of
appellate
courts.
Second,
having
examined
the
facts
of
the
case
myself,
I
fully
agree
with
the
trial
judge’s
conclusion.
Although
the
appellant
owned
all
of
Equipment’s
assets,
it
did
not
use
those
assets
in
a
business.
I
shall
discuss
each
of
these
reasons
in
turn.
As
mentioned
above,
the
trial
judge
held
that
Hickman
Motors
never
intended
to
carry
on
Equipment’s
leasing
business.
He
said
at
p.
632:
According
to
the
evidence,
the
plaintiff,
a
General
Motors
dealer
in
cars
and
trucks,
had
no
intention
of
carrying
on
the
business
of
a
heavy
equipment
dealer,
which
had
been
Equipment’s
mainstay
and
which
Equipment
85
was
to
inherit.
The
Federal
Court
of
Appeal,
although
giving
deference
to
the
trial
judge,
reinforced
this
finding
of
fact.
Thus,
the
courts
below
made
concurrent
find
ings
of
fact
on
this
issue.
Only
just
recently,
this
Court
restated
its
reluctance
to
interfere
with
such
concurrent
findings
of
fact,
absent
palpable
error
or
fundamental
error
of
law.
Borna
Manufacturing
Ltd.
v.
Canadian
Imperial
Bank
of
Commerce,
[1996]
3
S.C.R.
727
(S.C.C.),
at
para.
60.
In
this
case,
the
trial
judge
committed
no
such
error.
Indeed,
I
fully
agree
with
Joyal
J.
that
Hickman
Motors
never
carried
on
a
heavy
equipment
leasing
business.
In
reaching
his
conclusion,
the
trial
judge
relied
on
a
number
of
factors.
For
example,
he
stressed
the
fact
that
Hickman
Motors
only
owned
the
Equipment
assets
for
a
very
short
period
of
time.
Joyal
J.
also
noted
that,
for
1994,
the
appellant
corporation
generated
$75
million
in
sales
and
that
only
a
very
small
proportion
of
these
sales
was
attributable
to
leasing.
Finally,
he
observed
that
the
appellant
was
a
General
Motors
dealer
in
cars
and
trucks
and
that
it
had
no
intention
of
expanding
its
business
to
include
heavy
equipment
leasing.
In
an
attempt
to
cast
doubt
on
the
trial
judge’s
finding,
counsel
for
the
appellant
emphasized
the
fact
that,
over
the
five
days
when
Hickman
Motors
owned
the
property
in
question,
leases
entered
into
by
Equipment
were
still
in
existence
and
were
still
providing
income.
Counsel
for
the
appellant
argued
that
this
income
flow
gave
a
good
indication
of
the
presence
of
an
on-going
business.
However,
there
was,
in
fact,
no
evidence
that
Hickman
Motors
actually
received
any
of
this
income.
The
company’s
1984
financial
statements
did
not
show
any
revenues
or
expenses
from
the
Equipment
assets.
In
my
view,
if
there
is
no
evidence
that
the
taxpayer
received
any
income,
then
the
taxpayer
cannot
rely
on
such
alleged
receipt
as
evidence
that
it
carried
on
a
business.
Furthermore,
even
assuming
that
Hickman
Motors
did
receive
income
from
these
assets,
this
does
not,
for
tax
purposes,
lead
necessarily
to
the
conclusion
that
Hickman
Motors
earned
income
from
a
business.
As
Professor
Vern
Krishna
notes
in
The
Fundamentals
of
Canadian
Income
Tax
(5th
ed.
1995)
at
260,
income
such
as
rents
may
be
either
property
income
or
business
income.
He
distinguishes
between
the
two
on
the
basis
that
“business”
connotes
some
kind
of
activity,
(at
p.
260):
...Business
refers
to
economic,
industrial,
commercial,
or
financial
activity
and
involves
more
than
mere
passive
ownership
of
property.
[Emphasis
in
original.]
In
a
similar
vein,
Harris,
supra,
says
at
p.
143:
Passive
income
from
the
mere
holding
of
property
is
classified
as
income
from
property
rather
than
income
from
business.
And
Peter
W.
Hogg
and
Joanne
E.
Magee
say
in
Principles
of
Canada
Income
Tax
Law
(1995),
at
p.
195:
A
gain
acquired
without
systematic
effort
is
not
income
from
a
business.
It
may
be
income
from
property,
such
as
rent,
interest
or
dividends.
Unless
the
taxpayer
actually
uses
the
asset
“as
part
of
a
process
that
combines
labour
and
capital”
(Krishna,
supra,
at
p.
276),
any
income
earned
therefrom
does
not
qualify
as
income
from
a
business,
but
rather
falls
into
the
category
of
income
from
property.
As
the
point
was
not
argued
either
before
us
or
in
the
courts
below,
I
need
not
go
on
to
discuss
whether
the
appellant
could
claim
capital
cost
allowance
on
the
basis
that
it
was
applicable
to
income
from
property.
In
this
case,
Hickman
Motors
did
nothing
at
all
with
the
Equipment
assets.
It
simply
assumed
ownership
of
the
property
and,
allegedly,
passively
received
income
from
the
outstanding
leases.
This
complete
lack
of
activity
contrasts
with
Equipment
85’s
course
of
action,
following
the
January
2,
1985
transfer
date.
As
soon
as
Equipment
85
obtained
ownership
of
the
property,
it
executed
a
new
dealership
agreement
with
its
most
important
supplier,
John
Deere
Ltd.
This
business
activity,
which
followed
immediately
upon
Equipment
85’s
acquisition
of
the
leasing
assets,
makes
all
the
more
apparent
the
complete
absence
of
any
action
taken
by
Hickman
Motors
during
its
tenure
as
owner.
In
her
reasons,
my
colleague,
L’Heureux-Dubé
J.,
disagrees
with
my
conclusion
that
Hickman
Motors
did
nothing
more
than
passively
hold
the
Equipment
assets.
Relying
on
certain
parts
of
the
trial
transcript,
she
maintains
that
“there
is
positive
evidence
that
Hickman
Motors
did
indeed
carry
on
the
equipment-related
sales
and
rental
activities”
over
the
crucial
five-
day
period
stretching
between
December
28,
1984
and
January
2,
1985.
Specifically,
my
colleague
points
to
testimony
given
on
cross-examination
by
the
sole
witness,
Mr.
Brian
Grant,
that
Hickman
Motors
accepted
some
type
of
rental
order
on
December
31,
1984.
The
testimony
in
question
revolved
around
a
bundle
of
invoices
all
of
which
were
sent
out
on
Hickman
Equipment
letterhead.
Most
of
these
invoices
related
to
heavy
equipment
which
Hickman
Equipment
had
rented
to
various
customers
in
the
weeks
preceding
its
winding-up.
The
last
invoice
in
the
bundle
was
the
subject
of
a
number
of
questions,
during
both
exami-
nation-in-chief
and
cross-examination.
In
his
examination-in-chief,
Mr.
Grant
said
that
the
last
invoice,
for
the
sale
of
a
backhoe
loader,
was
dated
December
21,
1984,
seven
days
before
the
winding-up
of
Equipment.
However,
a
discussion
of
this
same
invoice,
during
cross-examination
muddied
the
factual
waters
somewhat.
On
cross-examination,
counsel
seems
to
indicate
that
this
same
invoice
was
dated
not
December
21,
but
rather
December
31,
1984.
Mr.
Grant,
apparently
contradicting
his
earlier
testimony,
agreed
with
counsel.
Thus,
with
regard
to
the
question
of
whether,
on
December
31,
1984,
Hickman
Motors
sent
out
an
invoice
of
any
kind,
relating
to
the
Equipment
assets,
the
record
contains
inconsistent,
contradictory
evidence.
In
my
opinion,
such
contradictory
testimony
does
not
provide
a
satisfactory
evidentiary
foundation
upon
which
to
base
a
conclusion
that
the
appellant
engaged
in
the
kind
of
economic
activity
which
constitutes
a
business
for
the
purposes
of
the
Income
Tax
Act.
Left,
as
I
am,
with
no
clear
evidence
that
Hickman
Motors
did
anything
other
than
passively
hold
property,
I
agree
with
the
trial
judge’s
conclusion
that
the
appellant
did
not
carry
on
a
separate,
heavy
equipment
leasing
business.
Having
determined
that
the
appellant
had
only
one
source
of
business
•
income,
1.e.,
its
long-standing
General
Motors
car
and
truck
dealership,
I
now
turn
to
consider
whether
the
capital
cost
allowance
claimed
is
“wholly
applicable”
to
that
business
source,
as
required
by
s.
20(1).
B.
Is
the
capital
cost
allowance
“wholly
applicable”
to
the
appellant’s
General
Motors
car
leasing
and
sales
business?
in
his
reasons,
Joyal
J.
found
that
the
appellant
never
used
the
Equipment
assets
in
its
business.
He
said
at
p.
633,
“[I]t
is
difficult
to
see
how
the
assets
of
a
John
Deere
franchise
...
were
used
in
the
business
of
the
plaintiff
to
produce
income.”
And
at
p.
638,
“[T]he
assets
involved
could
not
have
been
realistically
used
in
the
plaintiff’s
business”.
I
can
see
no
reason
to
disturb
this
holding
as
it
finds
ample
support
in
the
evidence
presented
at
trial.
According
to
the
testimony
of
the
appellant’s
witness,
Equipment
dealt
in
construction,
forestry,
rock-drilling
and
crane
operation
equipment,
referred
to
by
counsel
as
“non-automobile”
assets.
By
contrast,
Hickman
Motors
dealt
in
cars
and
trucks.
Only
$30,000
of
the
company’s
$5,220,000
worth
of
leasing
assets
fell
into
the
“non-automobile”
category.
The
appellant’s
witness
testified
that
Hickman
Motors
dealt
in
automobiles
while
Equipment
dealt
in
“non-automobiles”.
I
agree
with
the
trial
judge
that
it
is
difficult,
if
not
impossible,
to
see
how
the
appellant
could
possibly
have
used
bulldozers,
backhoes
and
other
“non-automobile”
equipment
in
its
General
Motors
car
and
truck
business.
If
the
appellant
did
not
use
the
Equipment
assets
in
its
automobile
business,
then
I
fail
to
see
how
the
capital
cost
allowance
claimed
in
respect
of
those
assets
could
be
“wholly
applicable”
to
that
source
of
business
income.
Accordingly,
in
my
opinion,
the
appellant
may
not
deduct
capital
cost
allowance,
in
respect
of
the
Equipment
assets,
from
its
income
from
the
General
Motors
dealership
business.
I
should
point
out
that
a
rejection
of
Hickman
Motors’
claim
in
this
case
does
not
mean
that
the
$2,092,942
deduction
in
question
is,
somehow,
lost
forever
to
the
Hickman
group
of
companies.
On
the
contrary,
provided
that
Equipment
85
meets
the
relevant
statutory
requirements
(as
laid
out
in
s.
20(1)
and
elsewhere
in
the
Act
and
Regulations),
it
can
claim
the
capital
cost
allowance
which
was
denied
to
its
parent
corporation.
To
explain
more
fully,
when
Equipment’s
assets
passed
to
the
appellant,
in
December
of
1984,
s.
88(1)
effected
a
“rollover”
of
the
property
from
subsidiary
to
parent.
Accordingly,
Hickman
Motors
is
deemed
to
have
acquired
the
property
at
the
subsidiary’s
undepreciated
capital
cost,
in
this
case,
$5,196,422.
Subsequently,
when
Hickman
Motors
sold
the
property
to
Equipment
85,
in
January
of
1985,
s.
85(5.1)
effected
a
further
rollover
and
deemed
Equipment
85
to
have
acquired
the
assets
at
the
parent’s
undepreciated
capital
cost,
1.e.,
$5,196,422.
Thus,
in
Equipment
85’s
hands,
the
depreciable
property
has
the
same
undepreciated
capital
cost
which
it
had
in
Equipment’s
hands,
prior
to
the
winding-up.
Throughout
the
entire
corporate
reorganization,
the
undepreciated
capital
cost
has
remained
the
same
and
no
amount
of
capital
cost
allowance
entitlement
has
been
lost.
This
was
conceded
by
counsel
for
the
respondent
Minister.
J
would
like
to
add
one
final
comment.
As
my
colleague,
L’Heureux-
Dubé
states,
s.
88(1)
does
not,
in
and
of
itself,
create
any
right
to
claim
capital
cost
allowance.
All
that
this
subsection
does
is
to
preserve
certain
CCA-related
values.
She
writes:
...subsection
88(1)
does
not
create
any
right
for
the
parent
company,
in
this
case
the
appellant
Hickman
Motors,
to
claim
a
CCA
deduction
for
property
acquired
from
the
subsidiary
Hickman
Equipment.
If
there
is
such
a
right,
it
is
to
be
found
in
s.
20
ITA...
I
agree
with
this
statement
of
the
law.
However,
over
the
course
of
her
reasons,
my
colleague
appears
to
retreat
somewhat
from
this
position.
Indeed,
the
back-tracking
is
such
that
the
net
effect
of
her
reasons
is
to
turn
s.
88(1)
into
a
provision
which
does.
in
fact,
give
the
taxpayer
a
substantive
right
to
a
deduction.
As
my
colleague
notes,
prior
to
the
December
28
wind-up,
Equipment
was
carrying
on
a
business.
It
is
further
agreed
that
Equipment
was
entitled
to
take
capital
cost
allowance
on
the
property
in
question.
On
December
28,
Equipment
was
wound
up.
All
of
its
assets
reverted
to
the
parent
corporation,
Hickman
Motors.
Hickman
Motors
held
the
assets
for
five
days
and
then
effected
a
further
transfer
to
a
newly
incorporated
subsidiary.
The
evidence
does
not
establish
that
Hickman
Motors
did
anything
at
all
with
these
assets
over
that
five-day
period.
Moreover,
and
equally
important
for
this
Court
to
acknowledge,
both
the
Trial
Court
and
the
Federal
Court
of
Appeal
made
concurrent
findings
to
this
effect.
As
previously
stated,
there
is
much
jurisprudence
in
our
Court
that
generally
prevents
interfering
with
concurrent
findings
of
fact
in
the
courts
below.
If
the
company
received
any
income
from
the
assets,
it
did
so
passively.
It
did
not
use
the
property
in
the
kind
of
“economic,
industrial,
commercial
or
financial
activity”
which
would
imprint
the
resultant
income
with
the
character
of
income
from
business.
Nevertheless,
my
colleague
would
allow
Hickman
Motors
to
claim
capital
cost
allowance
as
applicable
to
income
from
business.
The
chain
of
reasoning
appears
to
be
as
follows:
since
the
assets
produced
income
from
business
in
the
hands
of
the
subsidiary,
and
since
the
parent
company
carried
on
a
business,
the
assets
must
have
continued
to
produce
income
from
business
in
the
hands
of
the
parent.
I
cannot
agree.
All
that
s.
s.
88(1)
does
is
to
displace
the
normal
rules
applying
to
the
disposition
of
property:
it
turns
the
transfer
from
subsidiary
to
parent
into
a
tax-free
transaction.
What
s.
88(1)
does
not
do
is
to
fix
the
character
of
the
transferred
property
immutably,
nor
does
it
fix
the
nature
of
the
income
produced
by
that
property.
Thus,
it
is
possible
that
while
the
transferred
property
produced
income
from
business
in
the
hands
of
the
subsidiary,
Equipment
85,
it
may
have
produced
income
from
property
in
the
hands
of
the
parent.
It
is
quite
possible
that
a
taxpayer
who
carries
on
business
may
receive
both
income
from
business
and
income
from
property.
As
Harris
explains
(at
p.
159):
Where
a
taxpayer
who
carries
on
a
business
also
owns
property
that
is
not
used
as
an
integral
part
of
the
business,
the
income
yielded
by
this
property
will
be
considered
property
income
and
not
business
income.
Thus,
the
nature
of
the
income
produced
from
the
property
may
change
following
a
s.
88(1)
roll-over.
However,
my
colleague’s
reasons
do
not
seem
to
allow
for
this
possibility.
What
my
colleague
has
put
forward
is,
in
effect,
a
system
whereby,
once
a
s.
88(
1
)
roll-over
occurs,
the
nature
of
the
property
and,
more
to
the
point,
the
nature
of
the
income
produced
by
that
property,
is
forever
fixed.
Under
her
scheme,
once
it
is
determined
that
the
assets
produced
income
from
business
in
the
hands
of
the
subsidiary,
it
necessarily
follows
that
those
assets
will
also
produce
income
from
business
in
the
hands
of
the
parent.
With
respect,
I
do
not
agree
with
this
reading
of
the
Act.
Nothing
in
either
s.
88(1)
or
s.
20(1)
or
in
any
other
provision
supports
such
a
conclusion.
I
have
addressed
my
comments
chiefly
to
the
reasons
of
L’Heureux-
Dubé
J.
because
they
are
more
specific
and
extensive.
However,
my
colleague,
McLachlin
J.
adopts
in
substance
much
of
the
reasoning
of
L’Heureux-Dubé
J.,
and
to
that
extent,
I
would
also
respectfully
disagree
with
her
reasons.
6.
Conclusion
For
all
of
the
foregoing
reasons,
I
would
dismiss
this
appeal
with
costs.
Appeal
allowed.
Pourvoi
accueilli.
Email this Content