Addy,
J:—In
1972
the
defendant
purchased
400
shares
at
$5
each
in
the
Caisse
d’entraide
économique
de
Grand’Mère
(hereinafter
referred
to
as
“the
Caisse
de
Grand’Mère’’).
The
by-laws
of
each
of
the
Caisses
d’entraide
in
Quebec
provide
that
a
sum
equal
to
4
/2%
of
each
amount
subscribed
for
the
purchase
of
shares
must
be
paid
to
the
Caisse
in
addition
to
the
purchase
price.
In
accordance
with
these
provisions
the
defendant
paid
the
sum
of
$90,
in
addition
to
the
purchase
price
of
$2,000.
The
issue
in
the
case
at
bar
is
whether,
under
paragraph
18(1)(b)
of
the
Income
Tax
Act,
this
sum
constitutes
an
expenditure
in
the
nature
of
a
capital
outlay
and
is
not
deductible,
as
the
plaintiff
maintains,
or
whether,
as
the
defendant
claims,
the
outlay
was
made
for
the
purpose
of
earning
income
in
the
form
of
taxable
interest,
and
is
in
the
nature
of
an
income
outlay,
and
therefore
by
this
very
fact
deductible
from
gross
income.
Counsel
for
both
parties
stated
that
despite
the
small
amount
in
dispute,
the
case
is
of
considerable
importance
for
the
numerous
Caisses
d’entraide
in
the
Province
of
Quebec
and
their
subscribers,
and
will
constitute
a
test
case.
The
Caisses
d’entraide
in
Quebec
belong
to
a
federation
known
as
the
“Federation
des
caisses
d’entraide
économique
du
Québec”
(hereinafter
referred
to
as
“the
Federation”).
They
are
established
and
operate
under
the
Savings
and
Credit
Unions
Act
(RSQ
1964,
c
293).
It
is
interesting
to
note
that
in
1974
the
Caisses
d’entraide
économique
Act
(SQ
1974,
c
68)
was
passed.
This
Act
adopts
several
of
the
by-laws
under
which
the
Caisses
d’entraide
and
the
Federation
were
operating
and
provides
that,
except
as
otherwise
provided
by
the
Act,
the
Caisses
d’entraide
économique
and
the
Federation
will
continue
to
be
governed
by
the
Savings
and
Credit
Unions
Act.
The
1974
Act
does
not
of
course
apply
to
the
case
at
bar
since
here
we
are
concerned
with
an
assessment
for
the
1972
taxation
year,
but
counsel
for
the
parties
both
seemed
to
be
of
the
view
that
this
Act
would
in
no
way
affect
the
dispute
even
if
it
were
applicable.
The
findings
that
follow
are
based
in
part
on
the
internal
management
provisions
governing
the
co-operative
caisses
found
in
the
Savings
and
Credit
Unions
Act
and
in
part
on
the
by-laws
of
the
Caisse
de
Grand’Mère
and
on
the
other
facts
admitted
by
counsel
for
the
parties
or
established
in
evidence
at
the
trial.
The
facts
themselves
are
not
in
dispute
and
the
plaintiff
did
not
lead
any
evidence
but
merely
cross-examined
the
defendant’s
only
witness.
The
Caisse
de
Grand’Mère
is
a
co-operative
that
has
been
affiliated
with
the
Federation
since
1968.
Like
all
caisses
d’entraide,
it
has
a
well-defined
territorial
jurisdiction
and
all
members
must
reside
within
the
limits
of
its
territory.
If
a
member
changes
his
place
of
residence
he
ceases
to
be
a
member
of
that
caisse
and
can
join
only
the
Caisse
d’entraide
in
the
territory
in
which
his
new
residence
is
located,
by
purchasing
shares
in
it.
One
of
the
chief
characteristics
that
distinguish
the
Caisses
d’entraide
from
the
Caisses
populaires
is
that
the
members
of
the
Caisses
populaires
d’épargne
can
buy
only
one
share
each,
whereas
the
members
of
the
Caisses
d’entraide
can
purchase
an
indefinite
number.
In
addition
the
Caisses
d’entraide,
unlike
the
Caisses
populaires,
do
not
operate
savings
accounts.
The
Caisse
de
Grand’Mère
thus
did
not
provide
any
banking
service
in
1972.
The
4
/2%
of
the
amount
paid
for
each
share
purchase
is
never
reimbursed
unless
the
member
claims
a
refund
for
his
shares
within
30
days
after
he
purchased
them.
The
amount
is
therefore
paid
only
once,
each
time
shares
are
purchased.
The
defendant’s
application
for
membership
form
(Exhibit
D-1)
dated
November
1,
1972
contains
the
words,
and
I
quote:
“I
agree
to
pay
in
addition
4
/2%
of
my
subscription
in
non-refund-
able
admission
fees.”
A
member
can
claim
a
refund
for
his
shares
at
any
time.
These
are
not
subject
to
any
appreciation
of
capital
or,
except
in
the
event
of
bankruptcy,
any
capital
depreciation.
Of
the
41/2%
of
the
total
amount,
2%
is
paid
into
the
general
revenue
fund
of
the
Caisse
and
the
other
2
/2%
is
used
for
recruitment,
administration,
establishment
of
a
stabilization
fund
and
other
objectives
of
the
Caisse
and
the
Federation.
The
annual
rate
of
interest
payable
on
the
shares
is
determined
each
year
by
resolution
of
the
general
meeting
of
the
members
of
the
Caisse
d’entraide.
Each
member
has
only
one
vote
at
the
meeting,
regardless
of
the
number
of
shares
he
owns.
When
a
member
of
a
caisse
leaves
its
territory
and
moves
to
an
area
under
the
jurisdiction
of
another
caisse,
he
may
purchase
the
same
number
of
shares
in
this
caisse
without
again
paying
the
4
/2%
in
question.
These
shares
are
not
transferable
without
the
consent
of
the
Board
of
Directors
of
the
Caisse
and
are
not
negotiable.
In
the
event
of
death
the
amount
paid
by
the
member
for
his
shares
is
reimbursable
to
his
heirs.
There
is
no
income
guaranteed
to
the
member
but
the
amount
of
interest
payable
on
the
shares
out
of
the
revenue
has
in
fact
always
exceeded
10%
per
annum.
As
Thorson,
P
of
the
former
Exchequer
Court
said
in
G
K
Daley
v
MNR,
[1950]
CTC
254;
50
DTC
877,
where
he
altered
somewhat
his
earlier
interpretation
of
the
Act
as
set
out
in
Imperial
Oil
v
MNR,
[1947]
CTC
353;
3
DTC
1090,
paragraphs
6(a)
and
6(b)
of
the
1927
Act
RSC
1927,
c
97
(now
paragraphs
18(1
a)(a)
and
18(1
)(b)
of
the
present
Act)
are
sections
worded
in
a
negative
or
prohibitory
manner,
and
the
fact
that
deduction
of
an
amount
from
income
is
not
prohibited
under
these
sections
does
not
in
itself
mean
that
it
can
be
deducted
for
tax
purposes.
Although
the
wording
of
paragraphs
18(1)(a)
and
18(1)(b)
is
not
identical
to
that
of
paragraphs
6(a)
and
6(b)
of
the
1927
Act,
I
am
of
the
opinion
that
a
taxpayer
can
now
deduct
an
amount
from
income
only
on
two
conditions:
first,
that
it
would
be
normal
practice
according
to
generally
accepted
accounting
principles
to
deduct
this
sum
from
an
income
account,
and
secondly,
that
the
prohibitory
provisions
of
subsection
18(1)
do
not
prevent
such
a
deduction.
It
is
recognized
that
the
burden
of
proof
is
always
on
the
taxpayer
(in
this
case
the
defendant)
when
an
assessment
for
tax
purposes
is
being
challenged.
I
find
that
on
the
evidence
presented,
the
defendant
has
not
discharged
this
burden,
since
he
has
not
established
that
the
outlay
was
of
the
type
which,
according
to
generally
accepted
accounting
principles,
would
be
chargeable
to
income
account,
and
in
particular,
that
it
would
be
chargeable
to
this
account
as
an
expenditure
attributable
to
income
for
1972.
In
case
this
first
finding
should
be
incorrect
or
erroneous,
it
might
be
useful
to
consider
the
scope
of
the
prohibitory
provisions
of
section
18
having
regard
to
the
particular
circumstances
of
this
case.
The
two
main
prohibitions
in
this
section
may
be
summarized
as
follows:
an
outlay
is
not
deductible
from
income
for
tax
purposes
(1)
when
it
is
not
for
the
purpose
of
gaining
income
(paragraph
18(1)(a)),
or
(2)
when
it
represents
a
payment
of
capital
nature
(paragraph
18(1
)(b)).
I
will
pass
over
the
first
of
these
two
propositions
for
the
moment,
and
consider
only
the
second,
namely
a
payment
on
account
of
capital.
Fauteux,
CJ,
formerly
of
the
Supreme.
Court
of
Canada,
stated
in
MNR
v
Algoma
Central
Railway,
[1968]
SCR
447;
[1968]
CTC
161;
68
DTC
6154,
that
it
was
not
possible
to
resolve
the
issue
of
whether
the
expressions
.
.
outlay
.
.
.
of
capital
or
payment
on
account
of
capital
.
.
.”
applied
simply
by
using
a
formula
or
rule
of
interpretation:
it
could
only
be
resolved
by
considering
the
particular
circumstances
and
facts
of
each
case.
It
seems
clear
that
a
particular
sum
may
be
deductible
against
the
income
of
the
person
who
paid
it
out
while
being
attributable
as
capital
to
the
person
to
whom
the
payment
was
made.
The
converse
is
also
true.
In
the
case
at
bar,
despite
the
fact
that
40%
of
the
membership
fees
(that
is,
2%
of
the
amount
paid
for
the
shares)
is
paid
into
the
general.
revenue
fund
of
the
Caisse,
the
defendant
has
no
right
to
claim
in
kind
or
otherwise
reimbursement
of
any
part
of
this
sum.
He
has
no
enforceable
right
to
any
specific
part
of
the
latter..
It
is
the
Caisse,
at
a
general
meeting
of
the
members,
which
alone
determines
annually
the
amount
of
interest
on
the
shares’to
be
paid
to
the
members
out
of
all
the
revenues
of
the
Caisse.
It
thus
follows
that,
contrary
to
the
allegations
of
counsel
for
the
defendant,
what
the
Caisse
d’entraide
does
with
this
sum
is
really
of
no
help
in
determining
whether
the
payment
by
the
defendant
of
membership
fees
is
attributable
to
capital
or
to
income
in
calculating
the
latter’s
fiscal
operations.
One
of
the
principal
characteristics
of
receipts
or
outlays
on
capital
account
is
that,
generally
speaking,
they
are
of
a
more
or
less
permanent
nature,
whereas
income
accounts
represent
receipts
and
disbursements
of
a
more
or
less
transitory
and
periodic
nature.
Capital
receipts
and
outlays
on
the
other
hand,
generally
speaking,
all
possess
an
existence,
an
effect
or
a
scope
that,
if
not
permanent,
is
at
least
.
of
long
duration.
Income
accounts,
on
the
other
hand,
represent
receipts
and
outlays
with
an
existence,
effect
or
scope
that
is
more
or
less
transitory
and
periodic.
It
is
not
necessary
that
the
capital
asset
be
capable
of
either
depreciating
or
increasing
in
value,
nor
is
it
essential
that
one
be
able
to
dispose
of
it
for
value,
despite
the
fact
that
one
or
other
of
these
characteristics
is
usually
found
in
a
capital
asset.
What
the
shareholder
gains
by
paying
the
4
Z?%
to
the
Caisse
d’entraide
is
the
benefit
of
investing
his
capital
and
deriving
an
income
from
it
for
a
good
number
of
years.
It
would
not
make
any
sense
for
him
to
pay
4
/2%
for
the
privilege
of
drawing
only
one
year’s
gross
interest
of
approximately
10%.
Therefore,
it
would
equally
not
make
sense
to
enter
it
on
the
books
as
an
expenditure
against
the
income
of
only
one
year.
The
expense
cannot
be
considered
to
be
attributable
against
the
income
of
any
one
year
in
particular,
since
the
4
/2%
can
be
used
for
the
rest
of
the
member’s
life
and
for
as
long
as
he
wishes
to
leave
his
capital
invested
in
the
Caisse.
As
the
members
of
the
Privy
Council
stated
in
BP
Australia
Ltd
v
Commissioner
of
Taxation
of
the
Commonwealth
of
Australia,
[1966]
AC
224:at
252,
in
citing
with
approval
Lord
Reid’s
judgment
in
Hinto
v
Maden
&
Ireland
Ltd,
[1959]
1
WLR
875:
.
.
.
that
.
.
.
expenses
which
relate
to
the
earnings
of
the
year
are
revenue
outgoings
but
that
expenses
which
produce
assets
which
survive
beyond
the
year
are
capital
expenses
because
the
assets
must:
show
in
the
balance
sheet
as
capital
assets.
The
rights
in
the
present
case
were
for
three
years
or
more,
mostly
five
years
or
more,
and
accordingly
the
value
of
the
ties
should
apear
in
the.
balance
sheet
as
capital
assets
at
the
end
of
the
accounting
period;
.
.
.
[The
italics
are
mine.]
The
4V2%
outlay
in
the
case
at
bar
could
never
be
a
periodic
payment
or
one
that
was
likely
to
be
repeated
periodically.
On
the
contrary,
it
was
clearly
stipulated
that
the
defendant
would
never
have
to
repeat
it
as
long
as
he
maintained
his
investment
in
the
Caisse
de
Grand’Mère.
Even
if
he
were
to
move
he
could
reinvest
this
money
in
another
Caisse
d’entraide
with
territorial
jurisdiction
over
his
new
place
of
residence.
He
could
then
purchase
the
same
number
of
shares
without
paying
further
membership
fees.
In
the
case
at
bar,
as
moreover,
in
many
similar
cases,
it
seems
evident
that
the
outlay
in
question
was
made
by
the
taxpayer
for
the
purpose
of
gaining
or
producing
income,
but
the
deduction
must
nevertheless
be
refused
since
this
can
only
be
considered
to
be
an
outlay
on
account
of
capital
or
of
a
capital
nature
in
view
of
its
scope
and
its
permanent
as
opposed
to
periodic
effect,
and
in
view
of
the
fact
that
it
cannot
logically
be
attributed
or
charged
to
a
definite
accounting
period.
Since
in
the
case
at
Bar
the
membership
fees
have
all
these
characteristics
and
fall
under
the
prohibition
in
paragraph
18(1)(b),
it
is
not
necessary
for
me
to
consider
the
effect
of
paragraph
18(1
)(a).
The
appeal
is
therefore
allowed.
The
decision
of
the
Tax
Review
Board
is
reversed
and
the
defendant’s
assessment
by
the
Minister
of
National
Revenue
in
the
amount
of
$90
for
the
membership
fees
in
question
for
the
1972
taxation
year
is
restored.
The
plaintiff
will
be
entitled
to
her
costs.