Urie,
J:—This
is
an
appeal
from
a
judgment
of
the
Trial
Division
which
dismissed
the
appellant’s
appeal
from
the
decision
of
the
Tax
Review
Board
in
respect
of
a
reassessment
of
the
appellant’s
taxable
income
for
1971
arising
from
losses
carried
forward
from
the
1969
and
1970
taxation
years.
The
respondent’s
reassessments
disallowed
two
outlays
claimed
by
the
appellant
as
expenses:
(1)
a
$20,000
payment
made
in
1969
to
obtain
releases
from
certain
commitments
and,
(2)
a
series
of
payments
totalling
$108,000
made
in
1970
to
terminate
a
franchise
agreement.
1.
The
$20,000
Payment
The
pertinent
facts
are
these.
John
Long
controlled
three
companies
—
Pakall
Limited,
Pakall
Manufacturing
Limited
and
Pakall
Compaction
Equipment
Limited.
For
the
sake
of
convenience
they
and
Long
will
be
referred
to
herein,
jointly
and
severally,
as
“Pakall”.
Pakall
was
in
the
business
of
manufacturing
and
sale
of
earth
compaction
machines.
By
a
bulk
sale
agreement
entered
into
on
April
29,
1969,
Pakall
sold
its
plant,
inventory,
equipment,
supplies,
engineering
and
other
drawings,
patterns,
dies
and
other
equipment
to
Com-Pakall
Equipment
Limited
(“Com-
Pakall”)
which
had
been
recently
incorporated
for
the
purpose
of
purchasing
and
carrying
on
Pakall’s
business.
It
was
owned
to
the
extent
of
80
per
cent
by
Bopparder
Maschinenbaugesellschaft
MbH-Bomag
(“Bomag
Germany”),
10
per
cent
by
Long
and
10
per
cent
by
one
Kuettner.
Com-Pak
entered
into
an
agreement
dated
April
30,
1969
with
Pakall
whereby
it
retained
Pakall
as
a
consultant
and
sales
agent.
Pakall
agreed
to
employ
Long
and
to
make
his
services
available
to
Com-Pakall
on
a
full-time
basis
until
December
31,
1969
and
“as
required”
until
April
30,
1970.
The
applicable
paragraph
of
the
agreement
relating
to
the
retention
of
Pakall
as
a
consultant
is
paragraph
1
which
reads
as
follows:
1.
The
Company
hereby
retains
Pakall
as
a
consultant
to
advise
the
Company
in
the
manufacture
of
compaction
equipment
and
to
assist
in
the
sale
of
the
product
throughout
North
America
for
a
period
commencing
on
the
1st
day
of
May
1969
and
ended
and
fully
to
be
completed
on
the
30th
day
of
April,
1970.
That
part
of
the
agreement
relating
to
Pakall
as
a
sales
agent
is
contained
in
paragraph
4,
the
relevant
portions
of
which
read
as
follows:
4.
PAKALL
is
hereby
retained
to
act
as
a
sales
agent
for
the
product
of
the
Company
upon
the
following
terms:
(a)
Pakall
shall
have
no
defined
territory
within
North
America
but
shall
have
the
right
to
sell
the
product
of
the
Company
to
anyone
in
North
America
but
not
on
an
exclusive
basis
and
shall
not
be
able
to
sell
to
the
ultimate
user
in
a
territory
in
which
the
Company
may
now
or
in
the
future
have
an
exclusive
dealer,
in
which
case
the
sale
shall
be
made
by
Oakall
through
the
dealer
and
the
commission
hereinafter
mentioned
shall
be
at
the
sale
price
to
the
dealer
and
not
to
the
ultimate
user;
(b)
It
is
agreed
that
in
the
case
of
the
five
machines
listed
by
type
and
serial
number
in
Schedule
“A”
annexed
hereto
and
the
first
five
machines
manufactured
by
the
Company,
or
any
person,
firm,
corporation,
partnership,
company
or
other
legal
entity
on
behalf
of
the
Company,
that
special
conditions
with
regard
to
commission
only
shall
apply.
A
commission
of
TWO
THOUSAND
DOLLARS
($2,000.00)
shall
be
paid
to
Pakall
when
each
of
the
said
machines
is
sold
by
the
Company.
If
however
any
one
of
the
said
machines
is
sold
by
Pakall
for
less
than
THIRTY
THOUSAND
DOLLARS
($30,000.00)
the
commission
payable
to
Pakall
for
such
machine
shall
abate
dollar
for
dollar
as
the
sale
price
shall
reduce
(c)
In
all
cases
other
than
as
set
out
in
the
foregoing
sub-clause
Pakall
shall
be
paid
a
commission
of
FOUR
PER
CENT
(4%)
on
all
sales
effected
by
Pakall
which
commission
shall
be
calculated
on
the
sale
price
which
the
purchaser
shall
agree
to
pay,
fob
the
manufacturing
facilities
of
the
Company.
.
.
.
With
respect
to
the
April
30,
1969
agreement
the
learned
Trial
Judge
had
this
to
say:
.
.
.
Taking
the
April
30
agreement
as
a
whole,
it
is
apparent
that
the
$2,000
per
machine
for
the
specified
ten
machines
was
intended
to
be
payable
to
Pakall
regardless
of
whether
Pakall
had
done
anything
to
effect
their
sale
and
independent
of
Pakall’s
performance
of
any
of
its
other
obligations
under
that
payment.
It
was,
in
fact
and
substance,
part
of
the
consideration
for
the
initial
acquisition
by
Com-Pakall,
its
payment
contingent
only
on
the
sale
of
the
specific
machines.
It
is
important
to
note
as
well
at
this
stage
I
think,
that
the
full-time
consultant
and
sales
agency
arrangements
were
for
a
period
of
only
eight
months
and
the
part
time
arrangement
for
only
a
further
four-month
period.
That
is,
the
retention
of
Pakall’s
services,
particularly
as
a
sales
agent,
was
for
only
one
year
in
all.
The
significance
of
that
fact
will
be
considered
later
herein.
For
several
reasons
which
need
not
be
gone
into
here,
the
arrangement
did
not
work
out
so
that
for
the
purpose
of
further
distancing
itself
from
Pakall,
in
July
1969,
Bomag
Germany
caused
the
appellant
(herein
sometimes
referred
to
as
“Bomag
Canada’’)
to
be
incorporated.
It
was
owned
to
the
extent
of
90
per
cent
by
Bomag
Germany
and
to
the
extent
of
10
per
cent
by
Kuettner.
Effective
October
1,
1969
Bomag
Canada
assumed
Com-Pak’s
external
business
operations.
The
relations
with
Pakall
having
further
deteriorated,
in
November
1969,
Com-Pakall
(not
the
appellant)
paid
to
Pakall
the
sum
of
$20,000
for
which
it
received
a
general
release
from
all
claims
against
Com-Pakall.
The
release
was
executed
by
Pakall
and
John
Long
personally.
The
recitals
in
the
release
made
reference
to
the
April
29
bulk
sale
agreement
and
the
April
30
consultant
and
sales
agency
agreement
and
the
operative
part
of
the
document
released
Com-
Pakall,
but
not
the
appellant,
from
all
claims,
past,
present
or
future
“‘arising
out
of
the
said
recited
Agreements
or
otherwise”.
Another
agreement
between
Com-Pakall
and
the
appellant,
dated
February
2,
1970
in
paragraphs
2
and
3
stated:
2.
Bomag
and
Com-Pakall
acknowledge
that
Bomag
has
advanced
money
to
pay
John
Long
the
amount
of
$20,000.00
in
lieu
of
commission
and
to
terminate
his
contract
and
accordingly
Bomag
has
obtained
the
advantage
of
selling
the
compaction
equipment
formerly
sold
by
John
Long
and
Com-Pakall.
3.
This
Agreement
confirms
the
verbal
arrngement
made
between
the
parties
and
the
course
of
conduct
of
the
parties
with
regard
to
the
matters
mentioned
herein.
The
learned
trial
judge
held
“That
is,
of
course,
an
entirely
self-serving
document,
created
after
the
event
and
of
no
probative
value”.
I
agree.
He
also
found
that
the
interchangeable
roles
of
Com-Pakall
and
Bomag
Canada
were
reasonably
explained
so
that
nothing
turned
on
the
fact
that
Com-Pak
actually
paid
the
$20,000
to
Pakall.
However,
he
also
disposed
of
the
contention
that
the
$20,000
payment
having
been
made
in
lieu
of
commission
and
to
terminate
Pakall’s
contract,
so
that
the
appellant
obtained
the
advantage
of
selling
the
equipment
formerly
sold
by
Pakall
and
Com-Pakall,
in
the
following
way:
The
$20,000
was,
under
the
April
30
agreement,
a
deferred
obligation
on
account
of
the
initial
purchase
price
of
the
assets
purchased
from
Pakall.
Its
character
was
not
altered
by
terming
it
a
“commission”.
It
was
payable
whether
Pakall
did
anything
to-
earn
it
or
not.
That
there
was
valuable
consideration
for
its
prepayment
did
not
alter
its
character
either.
It
was
a
capital
outlay
and
not
deductible.
The
appeal
as
to
the
$20,000
payment
will
be
dismissed.
This,
then,
is
the
finding
from
which
the
appeal
is
taken
with
respect
to
the
disallowance
of
the
deduction
of
$20,000
claimed
by
the
appellant
as
a
revenue
expense
in
respect
of
its
1969
taxation
year,
for
the
purpose
of
computing
its
1971
taxable
income
taking
into
account
its
loss
carried
forward
from
1969.
It
should
be
noted
that
in
lieu
of
viva
voce
evidence
in
the
Trial
Division,
the
parties
filed
the
transcript
of
the
evidence
adduced
before
the
Tax
Review
Board
and
the
exhibits
produced
there.
Only
one
witness,
Walter
Kuettner,
the
appellant’s
general
manager,
had
testified.
That
being
so
there
is
no
question
of
credibility
in
issue
and
this
Court,
in
this
case,
need
not
feel
inhibited
by
the
advantages,
which
normally
accrue
to
a
trial
judge
not
normally
available
to
an
appellate
court,
by
his
having
had
the
witnesses
before
him
and
thus
being
able
to
better
assess
the
weight
of
their
evidence
and
draw
appropriate
inferences
therefrom.
The
appellant
contended
that
the
$20,000
payment
was
for
the
purposes
of
terminating
a
contract
of
agency
and
commissions,
so
that
it
is
a
deductible
expense.
Counsel
argued
that
the
payment
was
simply
a
commutation
of
the
$2,000
payments
it
was
required
to
make
to
Pakall
on
the
sale
of
each
of
the
ten
machines
referred
to
in
the
April
30
agreement.
Each
of
these
payments,
it
was
said,
would
have
been
deductible
as
expenses
for
commissions
paid
to
effect
the
sales.
There
was,
thus,
no
reason
for
the
commuted
payment
to
be
treated
differently
when
the
oral
and
documentary
evidence
disclosed
that
the
$20,000
represented
immediate
payments
of
commissions
rather
than
payments
made
after
the
actual
sales.
Counsel
for
the
respondent,
on
the
other
hand,
argued
that,
as
found
by
the
trial
judge,
the
obligation
to
pay
the
commissions
on
the
ten
machines
was
“‘..
.
.
a
deferred
obligation
on
account
of
the
initial
purchase
price
of
the
assets
purchased
from
Pakall”.
Thus,
it
was
on
capital
account.
It
was
argued
that
the
payment
was
made
to
obtain
the
advantage
of
selling
the
compaction
equipment
formerly
sold
by
Com-Pakall.
It
thus
met
the
test
of
being
capital
in
nature
as
propounded
in
the
line
of
cases
commencing
with
British
Insulated
and
Helsby
Cables
v
Atherton,
[1926]
AC
205
and
followed
in
Canada
Starch
Co
Ltd
v
MNR,
[1968]
CTC
466;
68
DTC
5320
and
other
cases.
In
the
Atherton
case,
Viscount
Cave,
LC,
at
213
made
these
pronouncements
which
have
been
quoted
in
tax
cases
countless
times:
Now,
in
Vallambrosa
Rubber
Co
v
Farmer
Lord
Dunedin,
as
Lord
President
of
the
Court
of
Session,
expressed
the
opinion
that
“in
a
rough
way”
it
was
“not
a
bad
criterion
of
what
is
capital
expenditure
—
as
against
what
is
income
expenditure
—
to
say
that
capital
expenditure
is
a
thing
that
is
going
to
be
spent
once
and
for
all,
and
income
expenditure
is
a
thing
that
is
going
to
recur
every
year”;
and
no
doubt
this
is
often
a
material
consideration.
But
the
criterion
suggested
is
not,
and
was
obviously
not
intended
by
Lord
Dunedin
to
be,
a
decisive
one
in
every
case;
.
.
.
But
when
an
expenditure
is
made,
not
only
once
and
for
all,
but
with
a
view
to
bringing
into
existence
an
asset
or
an
advantage
for
the
enduring
benefit
of
a
trade,
I
think
that
there
is
very
good
reason
(in
the
absence
of
special
circumstances
leading
to
an
opposite
conclusion)
for
treating
such
an
expenditure
as
properly
attributable
not
to
revenue
but
to
capital.
.
.
.
etc;
or
(b)
if
it
is
a
payment
in
respect
of
a
capital
asset
in
order
to
pro
tanto
go
out
of
business,
it
will
be
categorized
as
a
capital
expenditure,
but
if,
(c),
the
commutation
payment
does
not
create
a
capital
asset
even
though
it
is
made
in
respect
to
a
capital
asset
and
the
business
or
that
part
of
it
continues
after
such
payment,
and
such
payment
was
made
for
the
purpose
of
such
continuing
business,
then
the
payment
will
be
categorized
as
an
income
expenditure.
In
the
final
analysis,
however,
it
would
appear
that
no
one
criterion
can
be
used
universally
in
all
cases.
Instead
the
business
purpose
of
a
commutation
payment
in
each
case
must
be
analyzed
carefully
for
the
object
of
categorization
and
then
one
or
more
of
the
various
criteria
may
be
employed
to
assist
in
determining
the
correct
category
of
such
payment,
that
is,
whether
the
payment
truly
is
an
income
disbursement
or
one
out
of
capital
account.
Dixon,
J
(as
he
then
was)
of
the
High
Court
of
Australia
put
the
characterization
problem
succinctly
in
this
way
in
Hallstroms
Pty
Ltd
v
FCT
(1946),
72
CLR
634
at
648:
Whether
an
expenditure
is
on
revenue
or
capital
account
.
.
.
depends
on
what
the
expenditure
is
calculated
to
effect
from
a
practical
and
business
point
of
view
rather
than
upon
the
juristic
classification
of
the
legal
rights,
if
any,
secured,
employed
or
exhausted
in
the
process.
Using
Mr
Justice
Gibson’s
analysis,
it
appears
to
me
that
to
infer
that
the
business
purpose
for
the
commutation
payment
was
“in
fact
and
substance,
part
of
the
consideration
for
the
initial
acquisition
by
Com-Pakall.
.
.
.”’
requires
that
the
evidence
of
Kuettner
and
the
consulting/sales
agreement
be
completely
ignored.
There
are
factors
which
might
entitle
the
Court
to
depreciate
the
weight
of
that
evidence
and
agreement.
Among
those
factors
are:
(a)
the
consulting/sales
agreement
was
for
a
term
of
only
eight
months
full-
time
and
four
months
part-time,
a
total
of
one
year,
which
is
a
term
of
short
duration
for
an
agreement
of
this
kind
particularly
since
there
were
no
renewal
rights;
(b)
Pakall
was
entitled
to
the
$2,000
commission
on
the
sale
of
each
of
the
machines
whether
it
participated
in
the
sales
or
not;
(c)
none
were,
in
fact,
sold
prior
to
the
termination;
and
(d)
most
could
not
have
been
sold
during
that
period
because
they
had
been
leased
for
varying
periods.
The
cumulative
effect
of
those
facts
could
lead
to
the
conclusion
that
the
commissions
payable
were
“commissions”
in
name
only
and
that
their
true
nature
was
that
they
were
part
of
the
consideration
for
the
purchase
of
pakall’s
assets
pursuant
to
the
bulk
sale
agreement
of
April
29,
deferred
pending
the
sales
of
the
particular
pieces
of
equipment
then
in
existence
or
to
be
brought
later
into
existence.
In
my
opinion,
however,
the
weight
to
be
given
to
the
cumulative
effect
of
those
facts
cannot
in
the
circumstances
of
this
case
displace
the
weight
to
be
given
to
the
agreement
dated
April
30,
1969
between
Com-Pakall
and
Pakall,
which
on
its
face
is
what
it
purposrts
to
be
—
a
consulting
and
sales
agreement.
There
is
nothing
therein
or
in
the
evidence
of
Kuettner
to
cast
doubt
on
its
bona
fides
or
to
lead
the
reader
thereof
to
conclude
that
its
true
nature
was
to
provide
Pakall
with
additional
consideration
for
the
sale
of
its
assets
as
set
forth
in
the
bulk
sale
agreement
of
April
29,
1969.
That
being
so,
the
inferences
drawn
from
the
facts
to
which
I
have
earlier
alluded
are
not
of
sufficient
weight,
in
my
opinion,
to
permit
the
conclusion
that
the
commutation
payment
was
not
for
the
purpose
of
terminating
a
contract
for
agency
and
commissions.
Therefore,
on
this
analysis
of
its
true
nature,
from
“a
practical
and
business
point
of
view”,
I
conclude
that
it
is
an
expense
relating
to
the
earning
of
income
which
is
for
tax
purposes
a
deductible
one.
I
would,
therefore
allow
the
appeal
in
respect
of
the
$20,000
payment
and
set
aside
the
judgment
of
the
Trial
Division
to
that
extent.
The
matter
should
be
remitted
to
the
Minister
of
National
Revenue
for
reassessment
on
the
basis
that
the
$20,000
payment
was
a
deductibe
expense
for
the
reasons
given.
2.
The
$108,000
Payment
By
an
agreement
dated
January
30,
1967
Bomag
Germany
granted
to
Wet-
tlaufer
Equipment
Limited
(“Wettlaufer”)
the
exclusive
distribution
rights
in
Canada
for
certain
of
its
products
until
December
31,
1970
after
which
date
the
rights
continued
in
full
force
and
effect,
subject
to
termination
by
either
party
on
six
month’s
notice.
Wettlaufer
subsequently,
at
some
undisclosed
date,
assigned
all
of
its
rights
and
obligations
under
that
agreement
to
Charterhouse
Canada
Limited
(“Charterhouse”).
In
1969,
Kuettner,
authorized
to
act
on
behalf
of
Bomag
Germany,
approached
Charterhouse
with
a
view
to
terminating
the
exclusive
distribution
franchise
before
the
expiry
date
of
December
31,
1970.
Charterhouse
estimated
its
loss
of
income
if
the
franchise
were
teminated
at
$9,000
per
month.
In
the
result,
by
agreement
dated
June
27,
1969
between
Bomag
Germany
and
Charterhouse,
it
was
agreed,
inter
alia
that:
2.
Bomag
shall
pay
to
Charterhouse
on
the
1st
day
of
each
and
every
month
in
1970
the
sum
of
$9,000.
.
.
.
It
should
be
noted
that
the
Bomag
referred
to
is,
of
course,
Bomag
Germany
and
that,
as
at
the
date
of
the
agreement,
Bomag
Canada
had
not,
as
yet,
been
incorporated.
There
is
nothing
in
the
record
to
show
that
the
June
27,
1969
agreement
was
ever
assigned
by
Bomag
Germany
to
Bomag
Canada
after
its
incorporation.
Notwithstanding
this
fact,
upon
the
termination
of
the
franchise,
the
appellant
assumed
Bomag
Germany’s
obligation
to
purchase
Charterhouse’s
inventory.
As
well,
it
paid
the
twelve
monthly
instalments
of
$9,000
to
Charterhouse
which
Bomag
Germany
had
obligated
itself
to
pay
during
the
1970
calendar
year.
It
is
the
total
of
these
payments,
$108,000,
which
the
appellant
claims
to
be
a
deductible
expense
rather
than
a
capital
outlay
for
purposes
of
calculation
of
its
taxable
income
for
its
1970
taxation
year.
It
should
be
further
noted
that
Bomag
Germany
and
the
appellant
entered
into
a
further
agreement
on
February
2,
1970,
the
relevant
portions
of
which
are
reproduced
hereunder:
WHEREAS
Bomag
Germany
entered
into
an
Agreement
with
Charterhouse
Canada
Limited
dated
the
27th
of
June,
1969
and
the
shareholders
of
Bomag
Germany
thereafter
caused
Bomag
Canada
to
be
created
for
the
purpose
of
selling
the
products
contemplated
by
the
Charterhouse
Agreement,
WITNESSETH
that
the
parties
agree
as
follows:
1.
This
Agreement
confirms
the
verbal
arrangements
and
course
of
conduct
of
the
parties
following
the
incorporation
of
Bomag
Canada.
2.
Bomag
Canada
shall
have
the
right
to
all
of
the
benefits
contained
in
the
Charterhouse
Agreement
and
shall
assume
the
responsibilities
thereunder.
3.
All
payments
under
the
Agreement
shall
accordingly
be
paid
by
Bomag
Canada
to
Charterhouse
for
the
franchise
rights
which
Bomag
Canada
enjoys.
The
learned
trial
judge
found
the
agreement
to
be
self-serving
and
of
no
probative
value.
I
agree.
It
is
obviously
a
document
which
was
designed,
after
the
fact,
to
put
the
best
possible
light
for
tax
and
other
purposes
on
the
transaction
entered
into
between
Bomag
Germany
and
its
subsidiary,
the
appellant.
It
may
be
safely
ignored.
The
true
nature
of
the
transaction
can
be
derived
from
the
valid
documentation
and
evidence
adduced.
As
observed
by
the
trial
judge,
that
evidence
discloses
that
Bomag
Germany
negotiated
the
cancellation
of
the
franchise
so
that
the
appellant
could
become
its
distributor
in
Canada.
The
latter
did,
in
fact,
operate
as
the
franchised
distributor
from
January
1,
1970
although
its
arrangement
was
not
committed
to
paper
until
February
1,
1971.
The
trial
judge
analyzed
the
nature
of
the
$108,000
payment
in
the
following
way:
The line of cases dealing with a once and for all payment to get rid of an onerous obligation, and from which no lasting capital benefit accrues to the payer,2 does not apply to Plaintiffs payment of the $108,000, whatever its application might have been had Bomag Germany paid the $108,000. Notwithstanding that it was Bomag Germany that was bound to make the payment, it was the Plaintiff that paid the $108,000. For purposes of this appeal, the nature of the payment is to be determined from the point of view of the Plaintiff.
It is no answer simply to say that the Plaintiff was under no legal obligation to make the payment and made it “gratuitously”.3 Although not documented there was nothing artificial or unusual in the Plaintiffs assumption of the obligations under the cancellation agreement. The Plaintiff obtained a valuable asset which it could not have obtained had the Charterhouse franchise not been terminated. It had a bona fide business reason to pay for the early termination.
The cost to a franchise of procuring the surrender of a prior franchise is a proper element of the capital cost of the franchise obtained.4 That was the nature of the $108,000 payment in so far as the Plaintiff was concerned. It was, however, a capital outlay, not an expense.
2eg Johnson Testers v MNR, [1965] 2 Ex. CR 243
3Berman v MNR 61 DTC 1151
4Crystal Springs Beverages v MNR, [1965] 1 Ex. CR 702 at 709
I
think
that
both
the
analysis
of
the
transaction
and
the
conclusion
reached
are
correct.
No
useful
purpose
would
be
achieved
in
endeavouring
to
turn
them
into
my
own
words
or
to
elaborate
upon
them.
Suffice
it
to
say,
that
both
the
evidence
and
the
jurisprudence
amply
support
those
conclusions.
They
ought
not
to
be
disturbed.
The
appeal
on
the
characterization
of
the
$108,000
payment
ought,
therefore,
to
be
dismissed.
3.
Capital
Cost
Allowance
There
remains
only
the
question
as
to
whether,
with
respect
to
the
$108,000
payment,
capital
cost
allowance
deductions
were
permissible
pursuant
to
paragraph
1
l(l)(a)
of
the
Income
Tax
Act,
as
amended
and
Regulation
1100(1)(c)
and
Schedule
B,
Class
14
of
the
Income
Tax
Regulations.
Paragraph
11(
l)(a)
of
the
Income
Tax
Act
as
it
read
in
1970,
is
as
follows:
(1)
Notwithstanding
paragraphs
(a),
(b)
and
(h)
of
subsection
(1)
of
section
12,
the
following
amounts
may
be
deducted
in
computing
the
income
of
a
taxpayer
for
a
taxation
year:
(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.
Income
Tax
Regulation
1100(l)(c)
did
permit
a
taxpayer,
in
computing
his
income
from
a
business
or
property,
deductions
for
each
taxation
year
in
respect
of
various
classes
of
property
set
out
in
Schedule
B.
Class
14
of
that
Schedule
read
as
follows,
so
far
as
is
relevant
for
this
branch
of
the
appeal:
Property
that
is
a
patent,
franchise,
concession
or
license
for
a
limited
period
in
respect
of
property
but
not
including
..
.”
[Emphasis
added]
None
of
the
exclusions
are
applicable
in
the
circumstances
of
this
appeal.
There
is
no
doubt
that
what
Charterhouse
had
was
a
“franchise”
if
that
term
is
given
the
meaning
usually
accorded
to
a
contract
by
which
one
party
gives
to
the
other
exclusive
distribution
rights
to
ceertain
products
for
a
given
territory.
Did
the
contract,
however,
give
the
franchise
for
a
limited
period?
The
learned
trial
judge
found
no
difficulty
in
holding
that
it
did
not.
The
term
of
the
Charterhouse
agreement
is
set
for
in
paragraph
15
and
reads
as
follows:
15.
This
agreement
shall
remain
in
force
until
December
31,
1970.
Thereafter
it
will
run
and
operate
as
an
agreement
which
may
be
terminated
by
either
party
on
6
months
notice.
The
term,
by
agreement,
was,
of
course,
terminated
as
of
December
31,
1969
by
the
terms
of
the
settlement.
That
settlement
was
negotiated
on
June
27,
1969
so
that
at
least
until
December
31,
1969
the
term
was
limited
to
a
term
certain,
the
right
of
automatic
renewal
terminable
on
three
months
notice
having
implicitly
vanished
by
the
terms
of
settlement.
Had
it
been
that
franchise
which
the
appellant
purchased,
I
would
have
concluded
that
what
it
purchased
was
a
franchise
for
a
limited
period.
Thus
it
would
have
been
property
within
the
meaning
of
Class
14,
Schedule
B
and
the
owner
would
have
been
entitled
to
claim
capital
cost
allowance.
The
Charterhouse
franchise
was
not
assigned
to
the
appellant.
In
fact,
by
its
terms
it
was
not
assignable
without
the
consent
of
Bomag
Germany
which
consent
was
not
given.
However,
like
the
trial
judge,
I
am
unable
to
accept
that
the
result
of
the
transactions
was
that
the
appellant
purchased
the
Charterhouse
franchise.
That
franchise
had
terminated
by
effluxion
of
time
as
a
result
of
the
settlement
agreement.
The
payment
made
was
one
to
terminate
the
exclusive
distributorship
of
Bomag
Germany’s
products
in
Canada.
The
new
franchise
was
obtained
by
the
appellant
from
Bomag
Germany,
not
by
assignment
of
the
Charterhouse
franchise.
It
differed
in
its
terms
substantially
from
the
latter.
The
termination
clause
in
the
agreement
appointing
Bomag
Canada
as
Bomag
Germany’s
wholesaler
(in
effect
a
franchise
agreement)
dated
February
1,
1971
reads
as
follows:
19.
Termination
This
Agreement
may
be
terminated
as
to
one
or
more
Products,
or
as
to
a
part
of
Territory,
or
in
its
entirety,
by
either
party
by
written
notice,
effective
six
months
from
the
date
of
mailing
such
notice.
This
Agreement
may
be
terminated
at
any
time
for
a
breach
by
giving
written
notice
of
the
failure
or
neglect
to
perform
or
of
any
other
breach
of
agreement
effective
sixty
(60)
days
after
mailing
such
notice,
unless
the
breach
is
cured
within
said
sixty
(60)
days.
That
clause
shows
that
the
Bomag
Germany
wholesale
agreement
was
unquestionably
one
for
an
indefinite
term
subject
to
termination
on
six
months
notice.
It
was
clearly
not
for
a
limited
period
so
that
the
property
that
was
a
franchise
was
not
Class
14
property
eligible
for
capital
cost
allowance.
The
result
of
all
of
the
foregoing
is
that:
(a)
with
respect
to
the
$20,000
payment
the
appeal
should
be
allowed
and
the
reassessment
for
the
appellant’s
1971
taxation
year
should
be
varied
by
the
said
$20,000
payment,
to
accord
with
these
reasons
for
judgment;
(b)
with
respect
to
the
other
two
attacks
on
the
judgment
of
the
Trial
Division,
the
appeal
should
be
dismissed;
and
(c)
the
appellant
having
been
partially
successful
should
be
entitled
to
one
third
of
its
taxable
costs
both
here
and
below.
Email this Content