The Assistant Chairman:—This is the appeal of BACM Industries Limited from an assessment of the appellant’s 1968 taxation year which was heard in Winnipeg on April 6, 1973.
The point in issue is whether an amount of $60,186 claimed by the appellant in 1968 is an expense incurred in the course of issuing or selling of shares of the capital stock of the taxpayer within the meaning of subparagraph 11 (1 )(cb)(i).
In 1968 the appellant, pursuant to subparagraph 11 (1 )(cb)(i), claimed a total deduction of $227,358.01 as expenses incurred in the course of issuing and selling shares of its capital stock. The respondent disallowed the amount of $60,186 on the grounds that this amount was not incurred in the course of issuing shares of the taxpayer’s capital stock within the meaning of subparagraph 11(1)(cb)(i) and, further, was not incurred in the course of borrowing money used by the taxpayer for the purpose of earning income from a business or property pursuant to subparagraph 11 (1 )(cb)(ii).
In my view, the question to be resolved here is not so much one of principle nor even one of the interpretation of subparagraphs 11 (1 )(cb)
(i) and (ii) as it is a question of fact.
In 1967 BACM Industries Limited envisaged an expansion of its operations in the provinces west of Manitoba. The authorized capital of the appellant company at that time was 4,000,000 common shares at a par value of $5, one-half of which were issued.
The company needed money for the proposed expansion of its operation and plans for the financing of the project were considered. In 1961, when the company first went public, the required funds were raised on the American market by means of convertible debentures which were popular at the time. In the fall of 1967, therefore, the financing of the company’s expansion was contemplated by means of convertible debentures on the New York Stock Exchange. In February of 1968 a registered statement for the issue of convertible debentures was filed (Exhibit A-2). This statement contained a prospectus giving the history of the company, the balance sheet, and an indication of its proposed expansion without mentioning any specific proposed acquisitions.
In May of 1968 there was an updating of the information contained in the registration statement of February. The negotiations which had been proceeding for some time with a number of western industries known as the “standard group” were finalized and were specifically mentioned in the registration statement. Moreover, it was found that because the interest rates had risen by 2 to 2 /2%, the issue of convertible debentures was less attractive to the company. Convertible debentures were considered by the company’s financial advisers as being at that time less popular with the public than shares. The company then decided it had to go to the shares market which decision was followed up by a first amendment to the registered statement to the effect that instead of convertible debentures the company would issue 200,000 shares of its capital stock. This decision was again amended and the number of shares to be issued was increased from 200,000 to 300,000 so as to raise $4,000,000. The financial statement in the registration statement was again updated by a second amendment. At that time the stock prices were declining in the United States and the company would have received only $13 per share which was considered an insufficient return.
The appellant company then entered into an agreement with Soge- mines Limited in which it raised $3,300,000 from the issue of 175,000 shares at approximately $18.85 per share of the company’s capital stock. The overall acquisition of the standard group was realized by the issue Of 540,000 common shares of the company’s capital stock, only 175,000 shares being paid in cash.
The total cost to the appellant for the final issue of these shares was $227,358.01 of which, from evidence adduced, only $1,050 was directly and exclusively attributable to the originally planned issue of convertible debentures.
In my opinion the facts of the case indicate clearly that what we are concerned with here is an overall plan for the financing of the appellant company’s desired expansion which it successfully achieved.
I do not believe that any or the progressive changes which were made because of existing circumstances to the original plan for the financing of the company’s expansion, and which changes were in the company’s interest, can be considered as separate or abortive attempts to borrow money or to issue shares. The shares were successfully issued and the company’s expansion was realized by means of a financing program which went through normal planning and experimental stages which nevertheless form part of one overall successful transaction.
Furthermore, it is difficult to see on what basis $60,186—roughly one- third of the expenses claimed by the company in the course of issuing or selling shares—was disallowed by the respondent when only $1,050 is directly attributable to what the respondent considers an abortive attempt by the company to borrow money.
In my opinion, the different steps taken by the company in financing the expansion of the company’s operations constitute an overall financing scheme in the successful realization of the company’s project. The total amount of $227,358.01, in my view, was an expense incurred in the course of issuing shares of the capital stock of the appellant company within the meaning of subparagraph 11(1)(cb)(i) and the amount of $60,186 should not have been disallowed therefrom.
For these reasons the appeal is allowed.
Appeal allowed.