Tremblay,
TCJ
[TRANSLATION]:
This
case
was
heard
at
Montreal,
on
August
30,
1984.
1.
Issue
According
to
the
originating
pleadings,
the
issue
is
whether
the
appellant
is
correct
in
regarding
a
notarized
agreement
executed
on
June
9,
1977,
retroactive
to
July
5,
1976,
as
a
contract
of
lease.
Under
that
agreement
the
appellant
leased
its
immovables
located
on
boulevard
Paquette
in
Mont-
Laurier
to
Robert
Bédard
Auto
(1976)
Inc
(hereinafter
“Robert
76”)
for
five
years
with
an
option
to
purchase,
by
July
4,
1981.
The
respondent,
for
his
part,
maintained
that
the
contract
was
a
lease
in
form
but
that
in
substance
it
was
a
contract
of
sale,
pursuant
both
to
the
Civil
Code
of
the
province
of
Quebec
and
to
the
meaning
of
the
word
“disposition”
defined
in
the
Income
Tax
Act.
He
argued,
among
other
things,
that
pursuant
to
the
said
lease,
Robert
76
was
obliged
to
purchase
the
immovables
in
question,
that
the
price
was
fixed
and
that
Robert
76
had
agreed
to
purchase.
Consequently,
for
the
years
1976
to
1979,
the
respondent
disallowed
the
capital
cost
allowance
claimed
by
the
appellant
and
also
taxed
the
recapture
and
calculated
the
capital
gain.
2.
Burden
of
Proof
2.01
The
burden
is
on
the
appellant
to
show
that
the
respondent's
assessments
are
incorrect.
This
burden
of
proof
results
from
several
judicial
decisions,
including
the
judgment
delivered
by
the
Supreme
Court
of
Canada
in
Johnston
v
MNR,
[1948]
CTC
195;
3
DTC
1182.
In
the
same
judgment,
the
Court
decided
that
the
assumed
facts
on
which
the
respondent
based
his
assessment
or
reassessment
are
also
deemed
to
be
correct
until
proved
otherwise.
In
the
present
case,
the
assumed
facts
are
described
in
the
reply
to
the
notice
of
appeal
as
follows:
In
reassessing
the
appellant
for
its
1976,
1977,
1978
and
1979
taxation
years,
the
respondent,
the
Minister
of
National
Revenue,
relied
on
the
following
facts,
inter
alia:
(a)
Until
July
5,
1976,
the
appellant
owned
a
building
and
land
located
at
588
boulevard
Paquette
in
Mont-Laurier;
(b)
Immediately
prior
to
July
5,
1976,
the
appellant
was
involved
in
the
automobile
business
and
held
a
Chrysler
franchise;
(c)
On
July
5,
1976,
the
appellant
sold
its
business
by
a
written
contract
to
Robert
Bédard
Auto
(1976)
Inc;
(d)
The
said
contract
of
July
5,
1976,
a
copy
of
which
is
appended
to
form
an
integral
part
hereof
as
though
set
out
in
full,
provides,
among
other
things,
that
the
sale
of
the
inventory
and
the
franchise
is
conditional
upon
the
sale
of
the
building
and
land
briefly
described
in
subparagraph
(a);
(e)
In
fact,
and
in
substance,
it
is
clear
that
the
appellant
disposed
of
its
building
and
land
on
July
5,
1976,
since
it
is
clear
that
the
appellant
would
not
have
sold
its
business
or
its
Chrysler
franchise
if
its
building
and
land
had
not
been
sold;
(f)
There
was
a
sale
on
July
5,
1976,
on
the
condition
that
the
sale
price
of
$225,000
would
be
paid
within
five
years,
as
was
done
by
Robert
Bédard
Auto
(1976)
Inc;
(g)
The
sale
price
of
$225,000
agreed
upon
in
1976
by
the
appellant
and
the
purchaser
Robert
Bédard
Auto
(1976)
Inc
represented
the
fair
market
value
of
the
building
and
the
land
in
1976;
(h)
As
a
result
of
the
sale,
the
appellant
realized
a
capital
gain
of
$35,430
during
its
1976
taxation
year,
representing
the
difference
between
the
sale
price
of
$225,000
and
the
fair
market
value
of
the
building
and
the
land
at
December
31,
1971,
and
of
the
improvements
and
additions
made
after
that
date;
(i)
Since
the
appellant
did
not
receive
any
of
the
sale
price
for
the
immovable
during
the
1976
to
1979
taxation
years,
a
reserve
on
the
capital
gain
realized
was
allowed;
(j)
As
a
result
of
the
disposition
of
the
building
during
the
1976
taxation
years,
the
building
being
the
only
immovable
in
its
class
belonging
to
the
appellant,
there
is
a
recapture
of
the
capital
cost
allowance
calculated
as
follows:
|
UCC
at
December
31,
1975
|
$
75,394.46
|
|
Disposition
in
1976
|
|
|
(building)
|
$112,476.45
|
|
Recapture:
|
$
37,081.99
|
(k)
Had
it
not
been
for
the
disposition
of
the
building
in
the
circumstances
described
in
subparagraph
(j),
the
capital
cost
allowance
would
have
been
that
claimed
by
the
appellant,
namely
the
following
amounts:
|
YEAR
|
AMOUNT
|
|
1976
|
$3,769.72
|
|
1977
|
$3,581.00
|
|
1978
|
$3,402.00
|
|
1979
|
$3,232.09
|
(l)
As
a
result
of
the
disposition
of
the
building
in
1976,
the
appellant
could
not
deduct
the
capital
cost
allowance
referred
to
in
the
preceding
paragraph;
(m)
In
addition
to
the
contract
alleged
in
subparagraph
(d),
the
appellant
signed
an
agreement
collateral
to
the
agreement
of
June
5,
1976
with
Robert
Bédard
Auto
(1976)
Inc;
(n)
This
collateral
agreement
dated
June
9,
1977
retroactive
to
July
5,
1976,
a
copy
of
which
is
appended
to
form
an
integral
part
hereof
as
though
set
out
in
full,
provides
in
substance
that
the
appellant
had
already
disposed
of
the
building
and
land
to
Robert
Bédard
Auto
(1976)
Inc
in
1976
since
the
latter:
(i)
assumes
the
charges
normally
borne
by
an
owner
as
established
in
clauses
1,
2,
3,
5
and
7
of
the
general
terms
and
conditions;
(ii)
must
pay
the
sale
price
or
find
someone
to
do
so;
(o)
The
general
agreement
of
July
5,
1976
involves
the
sale
of
the
building
and
land
in
1976
especially
since
the
sale
price
of
$225,000
was
less
than
the
fair
market
value
of
the
building
and
land
at
the
time
Robert
Bédard
Auto
(1976)
Inc
paid
for
it
in
1981
since
the
latter
resold
the
property
shortly
afterwards
for
its
fair
market
value
in
1981,
namely
$325,000;
(p)
In
substance,
the
alleged
“rent”
was
in
fact
interest
payable
on
the
balance
of
the
sale
price
of
$225,000;
3.
Facts
3.01
M
Jacques
Lapalme,
age
38,
president
of
Robert
76,
testified
that
on
June
22,
1976,
Robert
76
had
purchased
certain
assets
from
the
appellant
in
order
to
operate
a
garage
from
July
5,
1976.
The
contract
was
filed
as
Exhibit
A-1.
The
assets
purchased
"subject
to
the
transfer
of
the
Chrysler
franchise"'
to
Robert
76
were
(a)
the
inventory
of
new
and
used
vehicles;
(b)
the
inventory
of
parts;
(c)
expenses
paid
in
advance;
(d)
equipment
and
tools;
and
(e)
the
tow
truck.
In
addition,
the
contract
stipulated
that
this
was
a
bulk
sale
within
the
meaning
of
the
Civil
Code.
The
sale
was
also
subject
to
the
signature
by
the
parties
of
a
contract
to
lease
the
immovable
(building
and
land)
for
five
years
(monthly
rent
of
$2,000)
with
Robert
76
being
obligated
to
purchase
the
immovable
at
the
end
of
the
period
for
$225,000.
3.02
According
to
Mr
Lapalme,
since
he
himself
had
no
experience
in
this
type
of
business,
he
asked
Eugène
Duval,
president
of
the
appellant,
to
agree
to
act
as
an
adviser.
It
was
for
similar
reasons,
moreover
(since
this
was
for
him
"a
developing
business”),
that
he
wished
to
have
as
few
debts
as
possible
at
the
outset
and
that
initially,
in
June
1976,
he
purchased
only
certain
assets,
namely
what
was
essential.
Robert
76
did
not
even
purchase
all
the
appellant’s
movable
assets.
The
appellant
had
to
dispose
of
them.
Furthermore,
it
would
not
have
been
financially
possible
to
purchase
the
immovable
in
1976.
It
was
preferable
first
to
pay
for
the
assets
acquired
before
purchasing
the
immovable.
The
five-year
period
seemed
reasonable
for
this
purpose
(transcript,
pp
7,
8,
9).
3.03
With
this
option
to
purchase
the
immovable,
they
would
be
able,
if
business
went
well,
to
protect
themselves
and
not
find
themselves
with
an
owner
who
might
have
demanded
an
excessive
price
for
the
immovable
"since
he
would
have
you
by
the
throat
with
no
way
out”
(transcript,
pp
9,
10
and
11).
The
situation
might
have
been
similar
with
a
lease
renewal
without
an
option
to
purchase
if,
when
everything
was
going
well,
the
rent
was
doubled
or
tripled
when
the
lease
was
renewed
(transcript,
p
20).
"So,
what
was
decided
at
the
time,
was
to
have
a
fairly
long
lease
to
allow
us
to
build
and
establish
our
business
and
eventually,
we
froze
an
amount,
we
said,
fine,
the
building
in
five
years,
we
decided,
I
decided
at
the
time,
if
in
five
years,
to
purchase
the
building
for
a
certain
price,
which
made
it
possible
first
to
operate
on
a
base
and
if
in
five
years,
it
suited
us,
as
turned
out
to
be
the
case,
well
we
resold
it”
(transcript,
pp
9
1
12
to
24).
After
four
and
a
half
years,
"we
were
literally
losing
money
in
the
business”
(transcript,
p
10).
Since
Robert
76
was
obliged
to
purchase,
that
is
what
it
did
and
resold
the
same
day;
"in
the
type
of
business
we
were
running
at
the
time,
we
couldn't
afford
to
purchase
the
building”.
Economic
conditions
in
1981
were
otherwise
more
difficult
than
in
1976.
It
was
necessary
to
keep
between
$400,000
and
$500,000
in
vehicle
inventory
with
interest
rates
of
between
14
and
20
per
cent
and
few
buyers.
3.04
The
official
lease
contract
for
the
immovable
(land
and
building)
signed
on
June
9,
1977
retroactive
to
July
5,1976
was
filed
as
Exhibit
A-2.
Its
clauses
dealing
with
(1)
price,
(2)
general
terms
and
conditions,
(3)
declarations
by
the
owner,
(4)
promise
to
sell
and
(5)
special
clause
read
as
follows:
PRICE
This
lease
is
granted
for
and
in
consideration
of
the
sum
of
one
hundred
and
twenty
thousand
dollars
($120,000)
which
the
lessee
undertakes
to
pay
to
the
owner,
at
the
owner's
head
office
in
Montréal,
at
12195
Daigle,
by
means
of
sixty
equal
and
consecutive
monthly
payments
of
two
thousand
dollars
($2,000)
each,
the
first
of
these
sixty
instalments
being
due
and
payable
on
the
fifth
of
July,
one
thousand
nine
hundred
and
seventy-six,
and
the
others
on
the
same
day
of
each
subsequent
month
until
payment
has
been
made
in
full;
the
whole
without
interest
before
the
due
date
but
with
interest
at
the
rate
of
ten
per
cent
per
annum
after
the
due
date
on
any
payment
owing,
outstanding
and
not
paid
when
due.
The
owner
recognizes
in
this
regard
that
he
has
received
before
now
to
his
full
Satisfaction
the
instalments
of
rent
payable
and
due
up
to
the
first
day
of
June,
one
thousand
nine
hundred
and
seventy-seven
inclusive,
and
he
discharges
the
lessee
thereof
accordingly.
GENERAL
TERMS
AND
CONDITIONS
This
lease
is
granted
on
the
following
conditions,
which
the
lessee
undertakes
to
respect
and
comply
with
well
and
faithfully,
to
wit:
(1)
to
maintain
the
property
(land
and
buildings)
in
good
repair
even
as
regards
major
repairs,
and
to
restore
it
to
such
condition
at
the
end
of
the
lease,
the
owner
being
in
no
way
obliged
to
contribute
thereto
in
any
circumstances;
(2)
to
keep
the
buildings
erected
thereon
insured
against
lightning,
fire
and
vandalism,
on
behalf
of
the
owner,
with
a
promise
to
sell
to
the
lessee,
for
at
least
the
amount
for
which
they
are
currently
insured
under
policy
No
T305695,
issued
by
Les
Prévoyants
du
Canada,
being
at
present
the
sum
of
two
hundred
and
fifty
thousand
dollars
($250,000)
on
the
buildings
and
with
an
insurance
company
approved
by
the
owner,
and
to
provide
him
with
a
copy
of
the
policy
and
the
premium
payment
receipts
upon
request,
as
well
as
the
renewal
certificates
at
least
fifteen
days
prior
to
expiry;
(3)
to
maintain
liability
insurance
at
least
equivalent
to
that
currently
held
by
the
owner
with
Les
Prévoyants
du
Canada
under
policy
No
1305695
with
an
insurance
company
approved
by
the
owner
and
to
provide
him
with
the
policy
and
the
premium
payment
receipts
upon
request,
as
well
as
the
renewal
certificates
at
least
fifteen
days
prior
to
expiry;
(4)
to
fit
out
the
demised
premises
with
furniture
and
equipment
sufficient
to
guarantee
payment
of
three
months'
rent;
(5)
to
pay
all
municipal
and
school
taxes
that
become
payable
on
the
immovable,
including
those
for
water
and
garbage
collection
service,
as
soon
as
they
respectively
fall
due,
and
provide
receipts
therefor
to
the
owner
upon
request;
(6)
to
use
the
demised
premises
only
to
operate
a
business
consisting
in
the
sale
of
new
and
used
motor
vehicles
(cars
and
trucks)
and
of
parts
for
such
motor
vehicles
and
their
repair
and
maintenance,
except
the
apartment
located
above
the
garage,
which
may
continue
to
be
occupied
as
such;
(7)
to
pay
himself
for
his
electricity
and
for
heating
the
demised
premises
during
the
cold
season;
(8)
not
to
assign
his
rights
under
this
lease
or
sublet
in
whole
or
in
part,
without
the
written
consent
of
the
owner,
except,
of
course,
with
regard
to
the
apartment
located
above
the
garage,
which
he
may
rent
for
his
benefit,
retroactive
to
the
first
of
July,
one
thousand
nine
hundred
and
seventy-six,
and
except
as
agreed
in
the
promise
to
sell
hereinafter;
(9)
to
indemnify
the
owner
for
any
expenses,
damage
or
charges
of
any
kind
that
may
be
caused
or
that
he
may
incur
as
a
result
of
the
lessee’s
failure
to
comply
with
all
municipal
or
other
by-laws
pertaining
to
or
affecting
the
demised
premises;
(10)
in
the
event
the
insurance
policies
protecting
the
demised
premises
are
terminated
owing
to
the
use
or
occupation
made
of
the
said
premises,
in
whole
or
in
part,
by
the
lessee
or
any
assignee
or
sublessee
or
any
other
person
having
received
permission
to
occupy
the
said
premises
from
the
lessee,
the
owner
may,
at
his
option,
declare
the
present
lease
to
be
terminated,
by
giving
the
lessee
notice
in
writing
to
that
effect,
and
dispose
of
the
demised
premises
as
he
wishes
and
for
his
benefit,
the
lessee
being
required
to
give
the
owner
immediate
possession
of
the
demised
premises;
(11)
to
allow
the
owner
or
his
representatives
and
agents,
superintendents
and
workers,
to
enter
the
demised
premises
at
any
reasonable
time,
in
order
to
inspect
them,
and,
where
necessary,
to
make
repairs
and
alterations;
(12)
not
to
make
any
changes
in
the
demised
premises
without
the
owner's
written
consent,
and
if
he
makes
any,
he
must
leave
everything
the
way
it
is
at
the
end
of
this
lease,
without
any
compensation
for
the
lessee,
unless
the
owner
prefers
to
have
the
premises
the
way
they
were
previously,
in
which
case
the
lessee
must
immediately
perform
the
necessary
work
for
this
purpose,
at
his
own
expense;
(13)
the
parties
hereby
expressly
stipulate
that
should
the
lessee
fail
to
pay
the
rent
provided
for
in
this
lease,
and/or
should
he
contravene
or
fail
to
perform
the
terms
and
conditions
of
this
lease,
and/or
in
the
event
any
of
the
lessee's
movables
or
furniture
in
the
demised
premises
are
seized
or
taken
in
execution
or
guarantee
by
any
of
the
lessee's
creditors,
or
if
they
were
seized
or
taken
from
the
lessee
for
taxes
or
pursuant
to
a
deed
of
pledge,
and/or
if
the
lessee
makes
any
assignment
of
his
property
for
the
benefit
of
his
creditors
or
becomes
insolvent,
or
becomes
subject
to
any
Act
concerning
insolvency,
and/or
if
the
lessee,
at
any
time
during
his
occupation
of
the
demised
premises,
removes
or
attempts
to
remove
from
the
said
premises
any
part
of
his
movables
and
furniture
therein,
except
in
the
ordinary
course
of
his
business,
without
the
prior
written
consent
of
the
owner,
and/or
if
a
writ
of
execution
or
seizure
is
issued
by
any
court
in
the
province
of
Quebec
against
the
lessee's
movables
and
furniture,
the
current
rent
shall
become
due
and
payable,
and
the
owner
shall
have
the
right
to
terminate
this
lease
immediately
and
to
resume
possession
of
the
demised
premises,
or
lease
them
again,
if
he
so
wishes;
(14)
to
pay
the
costs
and
fees
hereof,
as
well
as
the
cost
of
registration
and
of
preparing
a
copy
for
the
owner;
DECLARATIONS
BY
THE
OWNER
The
owner
declares:
(1)
that
the
apartment
located
above
the
garage
presently
rented,
is
rented
to
Dave
Roy,
without
a
lease,
and
the
owner
subrogates
the
lessee
in
his
rights
as
owner
respecting
this
lease,
including
the
right
to
receive
rent
from
the
first
of
July,
one
thousand
nine
hundred
and
seventy-six
and
the
right
to
review
this
lease
for
such
price
and
on
such
terms
as
the
lessee
deems
appropriate
for
a
term
not
to
end
later
than
the
fourth
of
July,
one
thousand
nine
hundred
and
eighty-one;
(2)
that
to
his
knowledge
this
apartment
complies
with
the
municipal
by-laws
of
the
town
of
Mont-Laurier;
(3)
that
at
present
he
has
no
hypothecary
creditors
on
the
immovables
currently
leased.
PROMISE
TO
SELL
In
addition,
it
is
agreed
by
the
parties
that
no
later
than
the
fourth
of
July,
one
thousand
nine
hundred
and
eighty-one,
the
lessee
or
any
other
natural
or
artificial
person
the
lessee
may
appoint
of
his
choice
shall
purchase
without
liability
for
the
present
lessee
if
he
is
not
the
one
purchasing,
and
the
owner
shall
sell
to
him
the
land
and
buildings
currently
leased,
for
the
sum
of
two
hundred
and
twenty-
five
thousand
dollars
($225,000)
payable
on
terms
the
parties
have
decided
not
to
fix
immediately,
but
which
they
shall
determine
rather
at
the
time
of
such
sale.
This
sale
shall
be
made
with
a
legal
guarantee
by
the
vendor
and
the
guarantee
that
these
immovables
are
free
of
any
privileges
and
hypothecs,
without
the
vendor
being
obliged
to
provide
any
deeds
other
than
those
he
may
have
in
his
possession,
including,
however,
a
certificate
of
title
search
for
at
least
thirty
years
and
a
survey
certificate
not
more
than
five
years
old,
documents
which
shall
be
submitted
before
the
fourth
of
January,
one
thousand
nine
hundred
and
eighty-
one,
with
all
the
usual
clauses
in
notarial
deeds
of
sale
respecting
immovables
where
the
sale
price
is
not
paid
in
full
in
cash,
if
the
parties
agree
at
the
time
to
make
the
sale
for
a
price
which
is
not
fully
paid
in
cash,
such
as
clauses
concerning
fire
insurance,
additional
hypothecs
(15%),
giving
in
payment,
expiry
of
the
term,
etc.
SPECIAL
CLAUSE
It
is
essential
to
the
signature
hereof
and
the
parties
agree
that
this
contract
shall
be
registered
by
being
deposited
AT
LENGTH
in
the
office
of
the
registration
division
of
Labelle,
so
that
the
description
will
mention
all
agreements
concerning
the
lease,
as
well
as
all
agreements
concerning
the
promise
to
sell
contained
in
this
contract.
NOW
THEREFORE,
the
parties
hereto
request
the
Registrar
of
the
registration
division
of
Labelle
to
register
this
deed
AT
LENGTH
by
deposit,
in
order
to
give
full
effect
to
the
agreements
of
the
parties
hereto,
failing
which
this
lease
shall
be
null
and
void
and
of
no
effect,
and
any
amounts
paid
by
the
lessee
to
the
owner
shall
be
reimbursed
to
the
lessee
by
the
owner
without
prejudice
to
any
other
rights
and
remedies
the
lessee
might
exercise
against
the
owner
for
any
injury
that
may
have
resulted
therefrom.
3.05
In
cross-examination,
Mr
Lapalme
testified
that:
(a)
the
building
may
have
been
30,000
square
feet
in
area
and
the
land
between
75,000
and
80,000
square
feet;
(b)
He
had
just
moved
to
Mont-Laurier
when
he
established
the
business
in
1976.
He
did
not
know
whether
he
would
be
accepted
and
whether
the
business
would
succeed;
(c)
in
addition
to
the
rent
of
$2,000,
he
also
had
to
pay
municipal
and
school
taxes
and
for
heat
and
electricity
and
liability
insurance
against
fire.
This
is
what
is
known
as
a
net
net
lease
(transcript,
p
21).
Furthermore,
he
even
had
to
make
major
repairs.
At
the
time
of
the
purchase
in
1981
all
the
conditions
had
been
met:
(d)
the
price
paid
was
that
specified,
namely
$225,000;
(e)
explaining
his
lease
and
the
promise
to
purchase,
"when
you're
having
commercial
discussions,
the
only
way
is
to
step
into
the
other
person's
shoes",
the
lessor
wished
to
lease,
to
have
a
reasonable
price,
but
not
to
find
himself
at
the
end
of
two
or
three
years
with
a
lessee
who
was
no
longer
able
to
pay
and
who
had
killed
the
business.
The
lessor
would
then
find
himself
with
an
empty
building.
The
lessee,
on
the
other
hand,
did
not
wish
to
find
himself,
after
his
lease
(with
or
without
an
option
to
purchase)
when
the
business
was
flourishing
with
a
lessor
who
would
double
or
triple
the
rent
or
demand
an
exorbitant
price
for
the
property.
This
explains
the
various
clauses
in
the
lease
(A-2).
3.06
Testimony
of
Eugène
Duval
Eugène
Duval,
age
59,
president
of
the
appellant,
testified
that
when
he
transferred
his
business
to
Robert
76,
he
had
owned
the
said
business
for
20
years;
someone
else,
Robert
Bédard,
had
owned
it
before
him
for
10
years.
3.07
Concerning
the
sale
of
the
property,
he
said:
First
of
all,
I
wanted
to
sell
the
garage
in
question
and
if
I
had
demanded
an
additional
$225,000
from
the
purchaser
for
the
buildings,
which
he
was
unable
to
pay
at
the
time,
so
I
agreed
to
take,
to
sell
him
the
inventory
and
deal
on
the
basis
of
a
rental
for
five
years
with
a
promise
to
purchase
by
the
purchaser
for
the
buildings
(transcript,
p
30).
For
him
it
was
a
question
of
a
financial
guarantee
which
Robert
76
could
not
give
in
1976.
3.08
On
the
appellant’s
financial
statements
for
1976
to
1981
(filed
as
Exhibit
A-3),
the
property
(building
and
land)
was
shown
as
a
capital
asset.
3.09
The
rent
of
$2,000
was
fixed
following
discussion
between
the
two
parties,
taking
into
account
the
expenses
the
lessee
would
have
to
pay
(municipal
taxes,
etc).
3.10
Had
it
not
been
for
the
clause
in
which
Robert
76
agreed
to
purchase
the
property,
the
appellant
would
not
have
leased
it.
3.11
The
purchase
price
of
$225,000
was
fixed
by
the
appellant
following
various
calculations;
"when
you
want
to
sell
something,
you
sit
down
and
jot
something
down".
Mr
Duval
admitted
that
if
he
had
asked
a
higher
price,
he
would
probably
not
have
sold
the
business.
The
maximum
Robert
76
could
put
into
the
business
in
1976
was
$175,000,
or
the
price
of
the
inventories
and
other
assets
sold
pursuant
to
Exhibit
A-1.
4.
Act
—
Case
law
—
Analysis
4.01
Act
The
principal
provisions
of
the
Income
Tax
Act
involved
in
this
case
are
13(1),
13(21
)(c),
(d)
and
(f),
54(c)
and
(h),
39(1)(a)
and
40(1)(a).
They
will
be
cited
in
the
analysis
if
necessary.
4.02
Case
Law
and
Other
Authorities
The
principal
case
law
and
other
authorities
referred
to
by
the
parties
are
as
follows:
(A)
Other
Authorities
1.
Interpretation
Bulletin
IT-233R
2.
Traité
de
Droit
Civil
du
Québec,
Léon
Faribault
3.
La
Vente,
Michel
Pourcelet,
Les
Editions
Thémis
(B)
Case
law
4.
Victory
Hotels
Ltd
v
MNR,
[1962]
CTC
614;
62
DTC
1378;
5.
The
Queen
v
Lagueux
&
Frères
Inc,
[1974]
CTC
687;
74
DTC
6569;
6.
The
Queen
v
Compagnie
Immobilière
BCN
Limitée,
[1979]
CTC
71;
79
DTC
5068;
7.
Olympia
and
York
Developments
Ltd
v
The
Queen,
[1980]
CTC
265;
80
DTC
6184;
8.
Eustache
Laflamme
v
MNR,
[1983]
CTC
2507;
83
DTC
464;
9.
MNR
v
Wardean
Drilling
Ltd,
[1969]
CTC
265;
69
DTC
5194;
10.
Chibougamau
Lumber
Ltée
v
MNR,
[1973]
CTC
2174;
73
DTC
134;
11.
Lord
Elgin
Hotel
v
MNR,
36
Tax
ABC
268;
64
DTC
637;
12.
C
R
Stewart
Equipment
Ltd
v
MNR,
[1977]
CTC
2232;
77
DTC
176.
4.03
Analysis
4.03.1
The
central
issue
is
whether
contract
A-2
is
first
a
lease
or
a
sale
within
the
meaning
of
Civil
Code.
If
the
conclusion
is
that
it
is
not
a
sale,
it
will
be
necessary
to
determine
whether
by
this
contract
A-2,
the
appellant
nevertheless
"disposed”
of
his
property
(land
and
building)
within
the
meaning
of
the
Income
Tax
Act
in
1976.
In
the
case
of
a
sale
within
the
meaning
of
either
the
Civil
Code
or
the
Income
Tax
Act,
it
will
be
necessary
to
calculate
and
include
in
the
appellant's
income
for
1976
an
amount
equal
to
the
recpature
of
the
excess
capital
cost
allowance
previously
allowed.
Moreover,
the
capital
gain
will
be
taxed
only
at
the
time
of
payment,
in
1981.
Furthermore,
it
goes
without
saying
that
in
a
case
of
sale
or
disposition,
the
appellant
is
not
entitled
to
deduct
the
capital
cost
allowance
it
claimed
for
1976
to
1979,
as
appears
in
subparagraph
(k)
of
pargraph
4
of
the
reply
to
the
notice
of
appeal
cited
earlier
(para
2.02).
4.03.2
Sale
or
lease
within
the
meaning
of
the
Civil
Code
After
reading
the
appropriate
provisions
of
the
Civil
Code
of
the
Province
of
Quebec,
the
articles
referred
to
by
the
parties
and
the
Olympia
Floor
case,
where
the
same
subject
is
discussed,
the
Court
finds
that
agreement
A-2
is
not
a
sale
within
the
meaning
of
the
Civil
Code
of
the
Province
of
Quebec,
relying
in
short
on
the
following
reasoning:
Article
1476
of
the
Civil
Code
provides
that
“‘a
simple
promise
of
sale
is
not
equivalent
to
a
sale”.
This
article
includes
a
bilateral
promise
of
sale
as
in
the
case
we
are
concerned
with
where
one
party
offers
to
sell
and
the
other
undertakes
to
purchase.
Either
party
may
force
the
other
to
complete
the
transaction
where
the
latter
refuses
to
do
so
on
the
date
previously
set
by
them
or
where
there
is
no
date
set,
after
reasonable
notice.
The
judgment
is
then
equivalent
to
a
sale.
In
the
case
at
bar,
however,
the
transaction
time
is
set
for
“no
later
than
July
4,
1981”
(A-2
clause:
promise
of
sale)
with
the
lessee
having
the
option
of
purchasing
earlier.
Thus,
on
the
basis
of
the
fundamental
principle
that
the
contract
is
the
law
between
the
parties,
the
actual
time
of
the
transaction
is
the
one
decided
on
by
the
lessee
"Robert
76”,
being
early
1981.
Moreover,
Article
1478,
which
provides
that
a
promise
of
sale
with
tradition
and
possession
is
equivalent
to
sale,
is
subject,
in
my
view,
to
the
above
principle,
in
other
words,
the
contract
is
the
law
between
the
parties
and
the
actual
time
of
the
transaction,
once
again,
is
the
one
determined
by
the
lessee
under
the
terms
of
the
contract.
Consequently,
where
the
parties
have
agreed
for
a
future
time,
it
cannot
be
decided
under
civil
law
that
the
transaction
took
place
at
a
time
other
than
the
one
determined
and
executed
by
them.
A
bilateral
promise
does
not
have
the
effect
of
making
the
promissor-
purchaser
owner;
it
merely
allows
him
to
become
one
when
the
contract
of
sale
is
executed
or
when
the
judgment
in
lieu
of
the
contract
is
rendered;
Michel
Pourcelet
(reference
4.02,
page
23),
relying
on
Marler's
Law
of
Real
Property,
paragraph
430.
In
short,
all
these
principles
are
fundamentally
based
on
the
fact
that
in
Quebec,
ownership
includes
both
the
right
to
enjoy
and
the
right
to
dispose
of
things
(Art
406
CC).
The
right
of
enjoyment
may
be
transferred
separately
from
the
right
of
disposition.
4.03.3
Whether
or
not
a
"disposition"
within
the
meaning
of
the
Income
Tax
Act
4.03.3.1
Sections
13(1)
and
13(21)(c)
and
(d)
of
the
Act
read
as
follows:
SEC
13
Recaptured
depreciation
(1)
Recaptured
depreciation.—Where,
at
the
end
of
a
taxation
year,
the
aggregate
of
all
amounts
determined
under
subparagraphs
(21)(f)(iii)
to
(viii)
in
respect
of
depreciable
property
of
a
particular
prescribed
class
of
a
taxpayer
exceeds
the
aggregate
of
all
amounts
determined
under
subparagraphs
(21)(f)(i)
to
(ii.1)
in
respect
of
depreciable
property
of
that
class
of
the
taxpayer,
the
excess
shall
be
included
in
computing
the
income
of
the
taxpayer
for
that
taxation
year.
SEC
13(21
)(c)
"Disposition
of
property"
(c)
Disposition
of
property"
includes
any
transaction
or
event
entitling
a
taxpayer
to
proceeds
of
disposition
of
property;
SEC
13(21)(d)
"Proceeds
of
disposition"
(d)
"Proceeds
of
disposition”
of
property
includes
(i)
the
sale
price
of
property
that
has
been
sold,
(ii)
compensation
for
property
unlawfully
taken,
(iii)
Compensation
for
property
destroyed
and
any
amount
payable
under
a
policy
of
insurance
in
respect
of
loss
or
destruction
of
property,
(iv)
compensation
for
property
taken
under
statutory
authority
or
the
sale
price
of
property
sold
to
a
person
by
whom
notice
of
an
intention
to
take
it
under
statutory
authority
was
given,
(v)
compensation
for
property
injuriously
affected,
whether
lawfully
or
unlawfully
or
under
statutory
authority
or
otherwise,
(vi)
compensation
for
property
damaged
and
any
amount
payable
under
a
policy
of
insurance
in
respect
of
damage
to
property,
except
to
the
extent
that
such
compensation
or
amount,
as
the
case
may
be,
has
within
a
reasonable
time
after
the
damage
been
expended
on
repairing
the
damage,
(vii)
an
amount
by
which
the
liability
of
a
taxpayer
to
a
mortgagee
is
reduced
as
a
result
of
the
sale
of
mortgaged
property
under
a
provision
of
the
mortgage,
plus
any
amount
received
by
the
taxpayer
out
of
the
proceeds
of
such
sale,
and
(viii)
any
amount
included
in
computing
a
taxpayer’s
proceeds
of
disposition
of
the
property
by
virtue
of
paragraph
79(c).
SEC
13(21)(f)
“Undepreciated
capital
cost"
(f)
“Undepreciated
capital
cost"
to
a
taxpayer
of
depreciable
property
of
a
prescribed
class
as
of
any
time
means
the
amount
by
which
the
aggregate
of
(i)
the
capital
cost
to
the
taxpayer
of
each
depreciable
property
of
that
class
acquired
before
that
time,
4.03.3.2
The
most
important
precedents
are
Compagnie
Immobilière
BCN
Limitée
and
Olympia
&
York
Developments
Ltd,
referred
to
above
(para
4.02).
The
facts
and
decisions
in
these
two
cases
can
be
summarized
as
follows:
(a)
The
Queen
v
Compagnie
Immobilière
BCN
Limitée
This
judgment
was
rendered
on
February
6,
1979.
The
question
in
this
case
is
whether
respondent
can
deduct,
in
computing
its
income
for
the
taxation
years
1967
and
1968,
certain
amounts
in
respect
of
the
capital
cost
of
property
previously
owned
by
it
for
the
purpose
of
gaining
or
producing
income
when
such
property
has,
in
a
previous
year,
ceased
to
be
in
a
prescribed
class
and
no
other
property
was
in
such
class
as
at
the
end
of
both
taxation
years
in
question.
The
case
concerned
two
distinct
assets:
(1)
a
piece
of
land
(falling
within
class
3
under
Schedule
B
of
the
Income
Tax
Regulations)
which
respondent
held
in
1964
as
the
successor
in
title
of
the
lessee
under
an
emphyteutic
lease
(the
“first
lease"),
of
which
it
became
sole
owner
in
January
1965
by
acquiring
the
lessor’s
rights,
and
which
it
then
conveyed
to
the
Société
Immobilière
Place
d'Armes
(the
“Société")
by
emphyteutic
lease
(the
“second
lease");
(2)
a
(class
13)
building
erected
on
the
piece
of
land,
which
the
Société
had
demolished
during
1965
in
accordance
with
the
stipulations
of
the
second
lease.
In
1967
and
1968
respondent
had
no
property
left
in
classes
3
and
13
and
for
this
reason
the
Minister
denied
the
deduction
claimed
by
respondent
for
the
undepreciated
capital
cost
of
these
two
classes
of
assets.
The
Trial
Division
of
the
Federal
Court
affirmed
this
decision,
but
it
was
reversed
by
the
Federal
Court
of
Appeal.
The
appeal
to
this
Court
raises
two
questions:
(1)
does
s
1100(2)
of
the
Income
Tax
Regulations,
relating
to
terminal
losses,
apply
to
the
circumstances
of
this
case,
that
is,
were
the
building
and
the
lessee's
rights
under
the
first
lease
disposed
of
or
“aliénés"
during
1965?
(2)
can
respondent
claim
a
capital
cost
allowance
when
there
is
no
property
in
the
relevant
class?
Held:
The
appeal
should
be
allowed.
Section
8(2)(b)
of
the
Official
Languages
Act
does
not
enact
an
absolute
rule
which
overrides
all
other
canons
of
construction,
in
particular
that
by
which
every
provision
is
to
be
construed
with
reference
to
the
context.
The
general
canons
of
construction
must
be
considered
and
the
meaning
of
words
determined
from
a
consideration
of
all
relevant
statutory
or
regulatory
provisions.
Although
the
French
sometimes
uses
the
words
“produit
d'une
aliénation”
or
“aliéné"
instead
of
“produit
d'une
disposition"
or
“disposé",
the
meaning
of
the
English
phrases
is
not
limited
thereby,
and
the
English
phrase
“disposed
of”
in
s
1100(2)
must
be
construed
as
if
the
French
text
were
“disposé”.
In
light
of
this
construction
it
must
be
concluded
that
respondent
conveyed
full
ownership
in
the
building
to
the
Société,
since
under
the
terms
of
the
emphyteutic
lease
the
building
was
not
the
subject
of
the
emphyteusis.
The
building
was
therefore
disposed
of
or
“aliéné”
within
the
meaning
of
s.
1100(2).
So
far
as
the
rights
of
respondent
under
the
first
lease
are
concerned,
these
rights
were
classified
as
a
leasehold
interest,
which
terminated
when
the
lessee
acquired
the
lessor’s
rights.
The
extinction
of
a
right
through
merger
“destroys”
that
right,
and
in
that
sense
it
was
disposed
of,
“aliéné”.
Finally,
respondent
submitted
that
s.
1100(2)
did
not,
so
long
as
respondent
did
not
take
advantage
of
it,
interfere
with
its
normal
right
to
claim
capital
cost
allowance
as
if
the
property
had
continued
to
exist
in
the
prescribed
class.
That
argument
cannot
be
accepted
for
two
reasons.
Firstly,
the
wording
of
the
Regulation
makes
it
clear
that
the
deduction
therein
provided
may
be
taken
only
in
the
year
in
which
the
property
was
disposed
of.
In
the
case
at
bar,
as
respondent
did
not
claim
in
1965
it
lost
the
right
to
claim
a
deduction
for
this
loss
in
calculating
its
income
for
a
subsequent
year.
Secondly,
the
provisions
of
s.
1100(2)
of
the
Regulations
have
the
effect
of
extinguishing
the
taxpayer’s
right
to
normal
capital
cost
allowance
in
respect
of
the
property
disposed
of.
The
amount
of
a
terminal
loss
that
the
taxpayer
is
permitted
but
failed
to
take
under
this
section
must
be
considered
as
depreciation
allowed
for
the
purposes
of
the
calculation
of
the
undepreciated
capital
cost
of
such
property.
In
view
of
this
conclusion,
it
is
not
necessary
to
express
any
opinion
on
the
second
question.
(b)
Olympia
and
York
Developments
Ltd
v
The
Queen
This
judgment
was
rendered
on
April
21,
1980.
In
August
1969,
plaintiff
entered
into
an
agreement
with
First
General
Real
Estate
&
Resources
Trust
(“First
General”)
to
sell,
transfer
and
convey
Place
Cremazie
Complex.
The
agreement
provided
that
the
purchaser
had
the
right
to
obtain
the
deed
of
sale
upon
payment
of
either
the
whole
consideration
or
of
an
amount
sufficient
to
reduce
the
balance
owing
to
a
specified
amount.
First
General
was
entitled
to
legal
possession
forthwith,
but
the
agreement
specifically
provided
that
notwithstanding
delivery
and
actual
possession,
the
agreement
was
not
equivalent
to
a
sale
and
did
not
give
First
General
any
rights
to
ownership
until
the
deed
of
sale
was
executed.
First
General
assigned
all
leases
to
the
vendor
as
security
for
payment,
but
collected
and
retained
all
rentals.
First
General
also
paid
wages,
taxes,
insurance
premiums,
charges
of
every
kind,
made
repairs
and
looked
after
the
general
administration
of
the
property.
Finally,
First
General
defaulted
under
the
agreement
and
assigned
its
rights
under
the
agreement
to
Century
Plaza
Limited
(“Century
Plaza”).
A
deed
of
sale
was
executed
and
delivered
to
Century
Plaza
in
May
1974.
The
first
issue
is
whether
a
sale
took
place
in
August
1969,
or
in
May
1974,
and
the
second
issue
is
whether
there
was,
in
August
1969,
a
“disposition”
within
the
meaning
of
section
20(5)(b)
of
the
former
Income
Tax
Act
which
would
then
render
effective
sections
20(1)(a)
and
20(5)(e)(ii)(A)
and
(B).
Held,
the
plaintiff’s
action
succeeds
in
part.
The
plaintiff
first
sold
the
property
in
May
1974
to
Century
Plaza.
There
was,
in
September
1969,
a
“disposition”
of
Place
Cremazie
Complex
by
the
plaintiff
within
the
meaning
of
section
20
of
the
former
Act
(section
13
of
the
new
Act).
There
was
a
disposition
for
capital
cost
depreciation
purposes
as
of
that
time
even
though
the
profit
actually
realized
on
the
transaction
for
the
purposes
of
capital
gains
would
in
fact
be
reported
in
1974
and
not
in
1969,
as
section
20
of
the
former
Act
refers
only
to
capital
cost
allowances.
Since
there
is
no
special
definition
of
the
word
“sale”
in
the
Income
Tax
Act,
one
must
consider
that
word
in
the
light
of
the
law
of
the
Province
of
Quebec
as
applied
to
the
relationship.
Article
406
of
the
Quebec
Civil
Code
states
that
ownership
comprises
the
right
of
enjoyment
of
the
thing
and
the
right
to
dispose
of
it
absolutely.
Enjoyment
of
the
thing
can
be
conveyed
separately
from
the
right
of
disposition
and
for
a
sale
to
take
place
the
res
itself
must
be
disposed
of
and
not
merely
the
right
to
enjoy
it.
Numerous
authorities
on
the
law
of
the
Province
of
Quebec
lead
to
the
conclusion
that
even
though
all
the
benefits
and
all
of
the
charges
of
ownership
which
might
have
passed
to
the
purchaser
in
possession,
if
the
vendor
has
not
been
paid
in
full
and
the
parties
have
expressly
agreed
that
title
would
not
pass,
but
remains
in
the
vendor
and
also
that
there
would
be
no
sale
until
the
purchase
price
has
been
paid,
then,
although
under
article
1478
what
has
transpired
is
“equivalent
to”
a
sale,
it
still
does
not
constitute
a
sale
at
law.
As
to
the
second
issue,
the
substantive
definitions
of
“disposition
of
property”
and
“proceeds
of
disposition”
in
section
20(5)(b)
and
((c)
are
a
clear
indication
that
the
words
“disposed
of”
should
be
given
their
broadest
possible
meaning.
The
proper
test
as
to
when
property
is
acquired
must
relate
to
the
title
or
to
the
normal
incidents
of
title,
either
actual
or
constructive,
such
as
possession,
use
and
risk.
The
plaintiff
had,
after
executing
the
agreement
and
upon
delivering
possession
of
the
property
to
First
General
in
1969,
completely
divested
itself
of
all
the
duties,
responsibilities
and
charges
of
ownership
and
also
all
of
the
profits,
benefits
and
incidents
of
ownership,
except
the
legal
title.
It
was
absolutely
and
irrevocably
obliged
to
execute
and
deliver
a
clear
deed
to
the
purchaser
upon
receipt
of
the
balance
of
the
purchase
price
which
was
payable
to
it.
Any
additional
rights
to
which
it
was
entitled
under
the
agreement
were
solely
and
exclusively
for
the
protection
of
that
balance
of
purchase
price
and
are
rights
which
would
normally
be
granted
to
a
mortgagee
to
protect
his
security.
4.03.3.3
The
latter
decision
rendered
by
Addy,
J
of
the
Federal
Court,
Trial
Division
in
1980
refers
extensively
to
the
former
judgment,
rendered
by
the
Supreme
Court
in
1979.
After
stating
the
issue
and
citing
sections
20(1)
and
20(5)(b),
(c)
and
(e)
of
the
old
Act,
which
are
substantially
the
same
as
13(1)
and
13(21
)(c),
(d)
and
(f)
of
the
new
Act,
Addy,
J
stated
the
following:
Paragraph
20(5)(c)
states
that
“disposition”
includes
sale
and
several
other
types
of
payment
such
as
compensation
for
damage,
amounts
payable
under
a
policy
of
insurance,
etc,
but
does
not
purport
to
be
exhaustive
of
the
definition
of
“disposition
of
property”
contained
in
paragraph
20(5)(b)
which
I
have
quoted.
In
fact,
paragraph
20(5)(b)
itself,
which
uses
the
word
“includes”
is
not
itself
an
exhaustive
or
restrictive
definition.
In
this
respect,
in
delivering
judgment
on
behalf
of
the
Supreme
Court
of
Canada,
Pratte,
J
in
The
Queen
v
Compagnie
Immobilière
BCN
Limitée,
[1979]
1
SCR
865;
[1979]
CTC
71;
79
DTC
5068
stated:
“The
substantive
definitions
of
‘disposition
of
property'
and
'proceeds
of
disposition'
in
s
20(5)(b)
and
(c)
are
a
clear
indication
that
the
words
'disposed
of'
should
be
given
their
broadest
possible
meaning.”
The
word
“acquired”
used
in
paragraph
20(5)(e)
is
obviously
the
direct
opposite
of
“disposed”
(or
disposition)
as
used
in
the
same
section
and
must
contain
substantially
the
same
elements
viewed
from
the
side
of
the
person
acquiring
the
asset
as
opposed
to
the
person
disposing
of
it.
The
meaning
of
the
word
“acquired”
as
used
in
subsection
20(5)
was
fully
considered
by
my
brother
Cattanach,
J
in
MNR
v
Wardean
Drilling
Limited,
[1969]
2
Ex
CR
166;
[1969]
CTC
265;
69
DTC
5194.
At
172
[271,
5197]
of
the
report
he
states:
“With
all
deference
I
cannot
accede
to
that
view.
In
my
opinion
the
proper
test
as
to
when
property
is
acquired
must
relate
to
the
title
to
the
property
in
question
or
to
the
normal
incidents
of
title,
either
actual
or
constructive,
such
as
possession,
use
and
risk.”
and
again
at
173
[271,
5198]
he
states:
“As
I
have
indicated
above,
it
is
my
opinion
that
a
purchaser
has
acquired
assets
of
a
class
in
Schedule
B
when
title
has
passed,
assuming
that
the
assets
exist
at
that
time,
or
when
the
purchaser
has
all
the
incidents
of
title,
such
as
possession,
use
and
risk,
although
legal
title
may
remain
in
the
vendor
as
security
for
the
purchase
price
as
is
the
commercial
practice
under
conditional
sales
agreements.
In
my
view
the
foregoing
is
the
proper
test
to
determine
the
acquisition
of
property
described
in
Schedule
B
to
the
Income
Tax
Regulations.”
That
view
is
followed
and
approved
by
Bastin,
DJ
in
The
Queen
v
Henuset
Bros
Ltd
[No.
2],
[1977]
CTC
227;
77
DTC
5169.
He
stated
at
229
[5170]:
“It
follows
that
all
the
incidents
of
ownership
other
than
the
legal
title
reserved
in
the
vendor
by
the
conditional
sales
agreements
such
as
possession,
risk
and
the
right
to
use
the
tractors
were
acquired
by
the
buyer
on
December
30,
1971.
In
my
opinion
the
reservation
of
the
legal
title
of
the
tractors
in
the
vendor
as
security
did
not
affect
the
issue
any
more
than
the
taking
of
security
on
the
tractors
in
the
form
of
a
chattel
mortgage
would
have
done.
This
opinion
is
supported
by
the
judgment
of
Mr
Justice
Cattanach
in
the
case
of
MNR
v
Wardean
Drilling
Limited,
[1969]
CTC
265;
69
DTC
5194.”
In
the
case
at
bar,
the
plaintiff
had,
after
executing
the
agreement
and
upon
delivering
possession
of
the
property
to
First
General
in
September
1969,
completely
divested
itself
of
all
the
duties,
responsibilities
and
charges
of
ownership
and
also
all
of
the
profits,
benefits
and
incidents
of
ownership,
except
the
legal
title.
It
was
absolutely
and
irrevocably
obliged
to
execute
and
deliver
a
clear
deed
to
the
purchaser
upon
receipt
of
the
balance
of
the
purchase
price
which
was
payable
to
it.
Any
additional
rights
to
which
it
was
entitled
under
the
agreement
were
solely
and
exclusively
for
the
protection
of
that
balance
of
purchase
price
and
are
rights
which
would
normally
be
granted
to
a
mortgagee
to
protect
his
security.
4.03.3.4
In
the
case
at
bar,
what
are
“the
elements
of
evidence,
whether
criteria
or
degrees
of
comparison,
to
determine
when
ownership
was
acquired
(or
disposed
of)
relating
to
the
title
to
the
property
or
to
the
normal
incidents
of
title,
either
actual
or
constructive,
such
as
possession,
use
and
risk”.
It
appears
from
Exhibit
A-2
that
Robert
76
was
in
possession
of
the
property
and
had
use
of
it
from
July
1976.
According
to
the
general
conditions:
(1)
It
had
to
insure
against
the
risks
of
“lightning,
fire
and
vandalism”
on
behalf
of
the
owner
with
a
promise
to
sell
in
the
name
of
the
lessee;
(2)
It
had
to
have
liability
insurance;
(3)
It
also
had
to
pay
municipal
and
school
taxes
as
well
as
for
heat
and
electricity;
(4)
In
addition,
it
had
to
pay
for
any
major
repairs.
All
these
obligations
and
risks
normally
fall
on
the
owner.
(5)
Finally,
the
lessee
was
obliged
to
purchase.
The
only
thing
that
was
missing
was
the
time
to
be
chosen
by
the
lessee
for
the
purchase.
In
fact,
that
time
could
have
been
only
a
few
days
after
June
9,
1977,
that
is,
after
the
lease
had
been
signed.
But
the
lessee
could
not
afford
it
then.
All
these
points
support
the
respondent's
thesis
that
there
was
a
disposition
of
the
property
as
soon
as
the
lease
was
signed
retroactive
to
July
4,
1976.
The
price
fixed
of
$225,000
also
seems
to
support
the
respondent's
thesis.
That
price
was
fixed
both
for
the
land
having
an
area
of
between
75,000
and
80,000
square
feet
and
for
the
building
of
approximately
30,000
square
feet
(para
3.05(a)).
Under
A-2,
Robert
76
was
obliged
to
carry
insurance
only
on
the
building
of
at
least
$250,000
(item
2
of
the
general
terms
and
conditions).
Thus
in
1976
the
building
alone
was
worth
more
than
the
price
for
both
the
building
and
the
land,
possibly
within
only
four
years.
It
must
be
concluded
that
the
lessor,
while
hoping
to
receive
the
most
monthly
rent
possible,
had
nonetheless
decided
to
sell
it
at
any
time
after
June
9,
1977.
4.03.3.5
Although
the
option
to
purchase
could
not
be
made
by
Robert
76
until
June
9,
1977
and
thereafter,
it
can
nevertheless
be
said
that
the
appellant
disposed
of
it
within
the
meaning
of
the
Income
Tax
Act
in
July
1976.
The
Court
is
bound
by
contract
A-2.
It
is
retroactive
to
July
4,
1976,
and
it
is
at
that
time
that
Robert
76
in
substance
(Exhibit
A-1)
took
possession
of
the
premises
with
all
the
risks
assumed
by
an
owner
including
the
option
to
purchase
for
$225,000.
Consequently,
the
reassessments
for
1976
to
1979
must
be
upheld.
5.
Conclusion
The
appeal
is
dismissed
for
the
above
reasons.
Appeal
dismissed.
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