Pinard
J.
[Translation]
:
—This
is
an
appeal
by
an
action
pursuant
to
subsections
172(2)
and
175(3)
of
the
Income
Tax
Act,
S.C.
1970-71-72,
c.
63,
as
amended,
brought
by
the
taxpayer
Sani
Sport
Inc.
following
a
notification
of
confirmation
of
a
notice
of
assessment
by
the
Minister
of
National
Revenue
for
the
1980
taxation
year.
At
the
start
of
the
hearing
the
parties
agreed
on
the
following
facts
and
filed
by
consent
the
documents
referred
to
in
this
agreement.
(1)
On
July
18,
1973
Mr.
Jean
Garceau,
acting
for
a
corporation
to
be
formed,
made
an
offer
to
purchase
a
piece
of
land
located
in
Boucherville
to
be
used
to
build
a
sports
centre.
(See
document
1.)
(2)
Mr.
Garceau
approached
the
Mayor
and
the
councillors
of
the
town
of
Boucherville
to
get
a
zoning
change
and
the
services
needed
to
build
this
sports
centre.
In
his
letter
there
was
a
brief
description
of
the
proposal
to
build
this
sports
centre,
which
was
to
be
in
three
stages
over
a
six-year
period.
(See
documents
2
and
3.)
(3)
The
plaintiff
was
incorporated
under
the
Quebec
Companies
Act
on
August
16,
1973
for
the
purpose
of
building
and
operating
a
sports
centre.
(See
document
4.)
(4)
The
land
on
which
the
plaintiff
held
an
option
was
subject
to
a
right
of
way
in
favour
of
Hydro-Québec
over
an
area
of
some
88,051
square
feet.
Before
purchasing
the
land,
the
plaintiff
obtained
permission
from
Hydro-Québec
to
use
the
part
of
the
land
subject
to
the
servitude
as
a
parking
lot,
as
it
represented
approximately
the
area
needed
by
its
business
for
parking.
This
permission
was
given
on
March
1,
1974.
(See
documents
5,
6
and
27.)
(5)
After
obtaining
the
zoning
change,
the
plaintiff
on
May
29,
1974
purchased
the
land
on
which
it
built
its
sports
centre.
(See
documents
7
and
8.)
(6)
Work
began
on
the
first
stage
in
spring
1974
and
concluded
on
October
1,
1974.
The
original
construction
included
ten
tennis
courts
and
a
services
section.
(7)
On
April
18,1975
the
plaintiff
wrote
the
Mayor
and
councillors
of
the
town
of
Boucherville
asking
for
a
new
change
in
the
zoning
so
that
the
facilities
of
the
sports
centre
could
be
enlarged
by
the
building
of
five
new
tennis
courts
and
the
addition
of
an
auxiliary
services
section.
The
town
of
Boucherville
had
refused
to
dezone
all
the
land
bought
by
the
plaintiff
in
the
initial
phase,
preferring
to
dezone
it
as
the
plaintiff's
expansion
took
place.
(See
document
10.)
The
clerk
of
the
town
of
Boucherville
then
informed
the
plaintiff
that
the
town
could
not
issue
it
a
permit
because
Hydro-Québec
had
filed
a
notice
of
expropriation
to
obtain
real
and
perpetual
rights
of
way
allowing
it
to
build
electric
power
transmission
lines.
(See
document
9.)
(8)
This
notice
was
registered
in
the
registry
office
on
January
13,1975
and
by
an
error
was
not
sent
to
the
plaintiff.
On
August
1,
1975,
Hydro-
Québec
officially
notified
the
plaintiff
that
it
was
taking
prior
possession
for
the
purpose
of
acquiring
real
and
perpetual
rights
of
way.
(See
document
11.)
This
notice
of
taking
of
possession
had
the
effect
of
prohibiting
the
plaintiff
from
undertaking
construction
of
any
kind.
(See
document
12.)
(9)
In
the
months
that
followed
the
plaintiff
made
efforts
to
persuade
Hydro-Québec
to
move
its
right
of
way,
to
get
permission
to
use
part
of
the
right
of
way
for
the
installation
and
operation
of
tennis
courts
or
to
buy
other
land
for
the
expansion
of
the
plaintiff's
facilities.
The
approaches
made
to
Hydro-Québec
were
unsuccessful
and
the
purchase
of
new
land
was
not
possible
as
a
change
in
the
zoning
by-law
for
the
land
could
not
be
obtained.
(See
documents
13,
14
and
15.)
(10)
The
plaintiff
had
to
resign
itself
to
negotiating
a
claim
for
compensation
for
the
right
of
way,
damage
to
the
remainder
of
the
land
and
the
damage
suffered
by
its
business
because
it
was
unable
to
increase
the
number
of
its
tennis
courts.
Hydro-Québec
made
a
preliminary
offer
of
$125,000,
including
the
sum
of
$33,838
to
compensate
for
the
land
needed
for
a
new
right
of
way
and
the
land
already
served,
$6,552
for
damage
to
the
remainder
of
the
land
and
$65,000
for
damage
suffered
by
the
business.
(See
documents
15,
16
and
17.)
(11)
The
plaintiff
retained
the
legal
services
of
Me
Paul
Trudeau
for
its
claim
against
Hydro-Québec
and
brought
the
necessary
legal
proceedings.
The
firm
of
chartered
accountants
Clarkson,
Gordon
was
retained
to
value
the
damage
suffered
by
the
business
as
the
result
of
loss
of
earning
capacity
and
the
firm
of
real
estate
appraisers
Therrien,
Dan-
sereau,
Courcelles
&
Associés
Inc
was
retained
to
determine
the
value
of
the
real
rights
expropriated
and
other
damage.
Hydro-Québec
asked
its
internal
audit
department,
and
later
the
administrative
consultants
Male-
tte,
Girouard,
Letendre
Limitée,
to
determine
the
damage
suffered
by
the
plaintiff's
business
as
a
result
of
the
expropriation.
(See
documents
18,
19,
20
and
22.).
(12)
As
negotiations
on
the
claim
had
lasted
a
very
long
time
and
were
still
dragging
on,
the
plaintiff
filed
an
application
for
a
priority
hearing
to
settle
the
matter.
In
this
application
reference
was
made
to
large
commercial
damages
exceeding
$400,000.
(See
document
21.)
(13)
As
the
Hydro-Québec
appraisers
and
those
of
the
plaintiff
placed
similar
values
on
the
right
of
way
and
the
damage
to
the
remainder
of
the
land,
the
parties
quickly
agreed
on
a
value
of
$42,406
for
the
right
of
way
and
an
indemnity
of
$21,060
for
the
depreciation
suffered
in
respect
of
the
remainder
of
the
land.
(See
document
17
and
the
valuation
report
of
Therrien,
Dansereau,
Courcelles.)
(14)
On
the
other
hand,
the
firm
of
Malette,
Girouard,
Letendre
Limitée
valued
the
commercial
loss
caused
by
the
expropriation
of
real
rights
at
$33,000,
while
the
firm
of
Clarkson,
Gordon
valued
this
loss
at
some
$300,000.
(See
the
valuation
report
of
Clarkson,
Gordon.)
(15)
A
few
days
before
the
case
was
heard,
there
was
a
final
meeting
in
an
effort
to
settle
the
matter
out
of
court.
(16)
This
meeting
took
place
at
the
offices
of
Malette,
Girouard,
Letendre
Limitée
and
the
discussion
centred
primarily
on
the
quantum
of
the
damage
suffered
by
the
plaintiff's
business.
(17)
After
a
long
discussion
an
offer
of
$350,000
was
made
to
compensate
for
the
value
of
the
right
of
way,
the
damage
suffered
by
the
remainder
of
the
land
and
the
damage
suffered
by
the
plaintiff's
business.
The
plaintiff's
representative
initially
refused
this
general
offer
of
settlement.
Under
pressure
from
its
advisors,
the
plaintiff
reconsidered
the
offer
and
indicated
it
would
be
willing
to
accept
it
if
in
addition
to
$350,000,
Hydro-
Québec
paid
the
fees
of
all
the
professional
experts
it
had
hired.
This
offer
was
accepted
by
Hydro-Québec.
(18)
Following
the
acceptance
of
this
offer,
Hydro-Québec
prepared
an
offer
of
settlement
for
the
right
of
way
and
a
draft
out-of-court
settlement,
which
was
signed
by
the
plaintiff.
(See
documents
23,
24
and
35.)
(19)
In
addition
to
the
fees
paid
by
Hydro-Québec,
the
plaintiff
had
to
pay
a
further
sum
of
$5,000
to
its
counsel,
Me
Trudeau,
and
the
sum
of
$3,824
to
its
president
Mr.
Jean
Garceau.
(20)
The
plaintiff
received
the
sum
of
$350,000
on
April
22,
1980.
(See
document
34.)
(21)
Relying
on
Interpretation
Bulletin
IT-264R
(see
document
31),
the
plaintiff
treated
the
proceeds
of
disposition
applicable
to
the
right
of
way,
namely
the
sum
of
$42,406
and
the
sum
of
$21,060,
as
reducing
its
adjusted
cost
base.
By
this
means
no
capital
gain
or
loss
was
made.
(See
documents
25
and
26.)
(22)
The
plaintiff
did
not
include
in
its
income
the
sum
of
$286,534,
compensation
for
the
damage
suffered
by
the
plaintiff
through
loss
of
business,
since
it
regarded
the
sum
as
a
payment
on
capital
account
which
did
not
produce
any
gain.
(See
documents
25,
26
and
27.)
(23)
In
her
notice
of
reassessment
the
defendant
considered
that
the
full
amount
of
$350,000
represented
the
proceeds
of
disposition
by
the
plaintiff
of
the
expropriated
property.
(See
documents
28-33
and
the
notice
of
reassessment.)
(24)
In
her
notice
of
reassessment
the
defendant
included
in
the
plaintiff's
income
the
sum
of
$154,213
calculated
as
follows:
|
Partial
proceeds
of
disposition
|
$350,000
|
|
Deduct:
|
|
|
—
Adjusted
cost
base
relating
to
this
|
|
|
disposition
(38%
of
$84,889)
|
$
32,750
|
|
—
Costs
incurred
to
collect
indemnity
|
$
8,824
|
|
Capital
gain
|
$308,426
|
|
Taxable
capital
gain
|
$154,213
|
(See
documents
29
and
30
and
the
notice
of
reassessment.)
(25)
In
her
notice
of
objection
the
defendant
sic]
objected
to
the
inclusion
in
her
income
of
the
sum
of
$154,213.
(26)
In
her
notice
of
notification
the
defendant
confirmed
her
assessment.
(27)
To
limit
the
discussion
the
plaintiff
was
prepared
to
assume
that
the
sum
of
$63,446
did
not
reduce
the
adjusted
cost
base
of
its
land
and
constituted
proceeds
of
disposition
resulting
in
a
capital
gain
calculated
as
follows:
|
Proceeds
of
disposition
|
$
63,466
|
|
Deduct:
|
|
|
—
Cost
base
(38%
of
$84,889)
|
$
32,750
|
|
—
Costs
incurred
to
collect
indemnity
|
$
8,824
|
|
Capital
gain
|
$21,892
|
|
Taxable
capital
gain
|
$
10,946
|
(28)
However,
the
plaintiff
continues
to
dispute
treating
$286,534
as
part
of
the
proceeds
of
disposition
and
including
this
sum
in
its
income.
The
case
at
bar
involves
the
expropriation
of
real
and
perpetual
rights
of
way
over
a
portion
of
land
owned
by
the
plaintiff
for
use
by
Hydro-Québec.
The
indemnity
paid
to
the
plaintiff
is
described
as
follows,
in
paragraph
7
of
the
release
signed
by
the
parties
concerned
and
entered
in
the
record:
7.
The
total
indemnity
owed
TO
THE
OWNER
as
a
result
of
expropriation
of
the
aforesaid
real
and
perpetual
rights
of
way
has
been
set
by
mutual
agreement
between
the
parties
at
the
sum
of
THREE
HUNDRED
FIFTY
THOUSAND
DOLLARS
($350,000)
in
full
and
final
settlement
of
any
amount
owed
for
any
reason
whatever.
Hydro-Québec
thus
became
owner
by
expropriation
of
the
real
and
perpetual
rights
of
way
in
question
pursuant
to
the
powers
conferred
on
it
by
the
Hydro-Quebec
Act
(R.S.O.
1977,
c.
H-5,
as
amended).
In
particular,
the
relevant
provisions
of
s.
33
of
that
Act
state:
33.
With
the
authorization
of
the
Government,
the
Corporation
may:
.
.
.
(3)
acquire
by
expropriation:
..
.
.
(b)
any
immoveable,
servitude
or
construction
required
for
the
exploitation
of
waterpowers
held
by
the
Corporation
or
for
the
generation,
transmission
or
distribution
of
power.
.
.
Section
35
of
the
Expropriation
Act,
R.S.O.
1977,
c.
E-24,
makes
the
provisions
of
section
58
of
that
Act
applicable
to
the
indemnity
paid
by
HydroQuebec
to
the
plaintiff;
section
58
provides:
58.
The
indemnity
shall
be
fixed
according
to
the
value
of
the
property
expropriated
and
the
amount
of
damages
resulting
directly
from
the
expropriation.
It
is
thus
essentially
a
question
of
determining
whether
the
sum
of
$286,534
forming
part
of
the
total
indemnity
of
$350,000
constitutes
proceeds
of
disposition
resulting
in
a
capital
gain
within
the
meaning
of
the
Income
Tax
Act.
The
plaintiff
argued
that
this
sum
of
$286,534
represents
strictly
damages
to
its
business
and
that
it
is
therefore
not
an
indemnity
relating
to
the
expropriated
property.
It
submitted
that
the
sum
of
$286,534
is
an
indemnity
which
should
be
similar
to
that
applicable
to
moneys
paid
for
bodily
injury,
which
are
not
subject
to
income
tax.
In
its
written
submissions,
the
plaintiff
went
on
to
say
that
even
if
these
are
not
bodily
injuries,
"the
fact
remains
that
there
was
a
permanent
amputation
of
the
plaintiff's
assets,
resulting
in
a
loss
of
earning
capacity";
it
concluded
that
the
parallel
is
“significant
and
valid".
Counsel
for
the
defendant,
for
his
part,
based
his
principal
argument
on
the
provisions
of
sections
39(1)(a)
and
54(c)(i)
and
(h)(iv)
of
the
Income
Tax
Act.
Additionally,
the
Minister
of
National
Revenue's
notification
of
confirmation
referred
not
to
subparagraph
54(h)(iv)
of
the
Act
but
to
subparagraph
54(h)(v),
which
has
not
been
subsequently
amended
or
corrected.
Further,
in
his
argument
counsel
for
the
defendant
relied
alternatively
on
clause
54(c)(ii)(B)
of
the
Act.
Accordingly,
I
must
take
into
account
that
the
defendant
has
a
duty
to
establish
the
validity
of
her
notice
of
assessment,
since
she
sought
to
justify
it
by
means
different
from
those
originally
put
forward.
(See
Maxine
Wise
et
al.
v.
The
Queen,
[1986]
1
C.T.C.
169;
86
D.T.C.
6023.)
The
following
relevant
provisions
of
the
Income
Tax
Act
need
to
be
reproduced
here:
39.
Meaning
of
capital
gain
and
capital
loss.
(1)
For
the
purposes
of
this
Act,
(a)
a
taxpayer's
capital
gain
for
a
taxation
year
from
the
disposition
of
any
property
is
his
gain
.
.
.
for
the
year
from
the
disposition
of
any
property
of
the
taxpayer.
.
.
54.
(c)
"Disposition"
of
property.
—
“disposition”
of
property.
—
“disposition”
of
any
property,
except
as
otherwise
expressly
provided,
includes
(i)
any
transaction
or
event
entitling
a
taxpayer
to
proceeds
of
disposition
of
property,
(ii)
any
transaction
or
event
by
which
(B)
any
debt
owing
to
a
taxpayer
or
any
other
right
of
a
taxpayer
to
receive
an
amount
is
settled
or
cancelled
.
.
.
54.
(h)
"Proceeds
of
disposition"
—
"proceeds
of
disposition”
of
property
includes
.
.
.
(iv)
compensation
for
property
taken
under
statutory
authority
.
.
.
The
plaintiff's
position
appears
to
me
to
be
inconsistent
with
these
provisions
of
the
Income
Tax
Act,
which
must
be
interpreted
in
accordance
with
the
usual
grammatical
meaning
of
the
words
they
contain,
taking
into
account
their
general
context,
the
structure
and
purpose
of
the
statute
and
finally
the
intention
of
Parliament.
I
thus
apply
the
modern
rule
of
legislative
interpretation
as
defined
by
the
writer
E.A.
Driedger
and
stated
as
follows
by
the
Supreme
Court
of
Canada,
in
interpreting
the
provisions
of
the
Income
Tax
Act,
in
Stubart
Investments
Limited
v.
The
Queen,
[1984]
C.T.C.
294
at
316;
84
D.TC.
6305
at
6323:
While
not
directing
his
observations
exclusively
to
taxing
statutes,
the
learned
author
of
Construction
of
Statutes,
2nd
ed,
(1983),
at
87,
E.A.
Dreidger,
put
the
modern
rule
succinctly:
Today
there
is
only
one
principle
or
approach,
namely,
the
words
of
an
Act
are
to
be
read
in
their
entire
context
and
in
their
grammatical
and
ordinary
sense
harmoniously
with
the
scheme
of
the
Act,
the
object
of
the
Act,
and
the
intention
of
Parliament.
Subparagraph
54(h)(iv)
of
the
Act
speaks
of
"compensation
for
property
taken
under
statutory
authority".
There
is
no
doubt
that
the
real
and
perpetual
rights
of
way
expropriated
by
Hydro-Quebec
constitute
"property
taken
under
statutory
authority”.
Subsection
248(1)
of
the
Act
indicates
that
"property"
means
property
of
any
kind
whatever,
whether
real
or
personal
or
corporeal,
and
that
"property"
includes,
without
restricting
the
generality
of
the
foregoing,
a
right
of
any
kind
whatever.
As
we
have
seen,
this
property
was
taken
or
expropriated
under
Quebec
statutes
known
as
the
Hydro-Quebec
Act
and
the
Expropriation
Act.
Then,
the
legal
provision
uses
the
word
"afférente"
[for].
The
Grand
Larousse
de
la
langue
française
defines
the
word
"afferent"
as
"that
which
relates,
which
is
appropriate
to
someone
or
something";
Le
Robert
gives
the
following
definition:
"that
which
relates
to".
As
the
damage
to
the
business
is
an
obvious
consequence
of
the
exercise
of
real
and
perpetual
rights
of
way
by
Hydro-Québec
over
part
of
the
plaintiff's
property,
it
is
clear
that
there
is
a
relationship
between
this
damage
and
the
rights
of
way
expropriated.
The
total
compensation
of
$350,000,
including
the
disputed
amount
of
$286,534,
accordingly
relates
to
the
real
and
perpetual
rights
of
way
expropriated,
or
is
for
them,
since
as
the
release
in
question
states
(document
34
of
Exhibit
P-1),
the
total
compensation
owed
to
the
plaintiff
as
a
result
of
expropriation
of
the
real
and
perpetual
rights
of
way
in
question
was
set
by
mutual
agreement
between
the
parties
at
the
sum
of
$350,000
in
complete
and
final
settlement
of
any
amount
owed
for
any
reason
whatever
by
HydroQuebec
as
a
result
of
the
said
expropriation.
On
these
facts,
in
my
opinion,
the
plaintiff's
argument
that
the
Act
uses
the
expression
"afferent
aux
biens
pris
en
vertu
d'une
loi”
[for
property
taken
under
statutory
authority]
rather
than
the
words
"afférente
à
la
prise
des
biens
en
vertu
d’une
loi”
[for
the
taking
of
property
under
statutory
authority]
cannot
be
accepted
in
view
also
of
the
fact
that
the
provision
mentions
as
well
“toute
indemnité
["compensation]
(my
emphasis)
and
that
section
58
of
the
Expropriation
Act
of
Quebec,
cited
above,
provides
that
such
an
indemnity
shall
be
fixed
in
accordance
with
not
only
the
value
of
the
property
expropriated
but
the
damages
resulting
directly
from
the
expropriation
as
well.
Finally,
surely
the
very
word
"indemnité"
[compensation]
implies
redress
for
damage
suffered.
Moreover,
all
this
seems
quite
consistent
with
the
English
version
of
the
Act,
in
which
subparagraph
54(h)(iv)
simply
uses
the
words
"compensation
for
property
taken
under
statutory
authority”
and
subsection
248(1)
also
defines
"property"
as
meaning
"property
of
any
kind
whatever"
and
including
"a
right
of
any
kind
whatever".
This
accordingly
leads
to
the
application
of
paragraphs
54(c)
and
39(1)(a)
set
out
above,
the
wording
of
which
is
not
in
dispute,
so
that
the
sum
of
$286,534
which
forms
part
of
the
total
compensation
of
$350,000
is
to
be
regarded
as
proceeds
of
disposition
resulting
in
a
capital
gain
within
the
meaning
of
the
Income
Tax
Act.
Additionally,
it
is
interesting
to
note
that
in
E.R.
Fisher
Limited
v.
The
Queen,
[1986]
2
C.T.C.
114;
86
D.T.C.
6364,
McNair,
J.
of
the
Federal
Court
of
Canada
implicitly
recognized
that
damage
to
a
business
following
an
expropriation
(valued
at
$38,250)
had
to
be
regarded
as
within
the
definition
of
"proceeds
of
disposition”
in
paragraph
54(h)
of
the
Income
Tax
Act;
at
121
(D.T.C.
6369-70),
McNair
J.
said
the
following:
In
my
opinion,
the
payment
of
$144,172.43
is
clearly
attributable
to
a
disposition
of
property
and
the
proceeds
of
disposition
thereof
within
the
meaning
of
clause
54(c)(ii)(B)
and
paragraph
54(h)
of
the
Income
Tax
Act.
It
was
paid
to
the
plaintiff
as
a
transaction
or
event
by
which
the
right
of
the
taxpayer
to
receive
the
amount
was
settled.
The
total
amount
received
by
the
plaintiff
in
consideration
for
the
expropriation
of
his
interest
in
the
Sparks
Street
property
was
$756,256.20.
This
was
the
culmination
of
the
transaction
whereby
the
whole
amount
falls
within
the
definition
of
proceeds
of
disposition
in
paragraph
54(h)
of
the
Income
Tax
Act
inasmuch
that
it
was
compensation
for
property
taken
under
statutory
authority.
I
consider
that
the
defendant
has
successfully
shifted
the
burden
upon
her
in
this
particular
case
of
establishing
the
validity
of
the
assessment
at
issue
and
judgment
is
rendered
dismissing
the
plaintiff's
action
with
costs.
Action
dismissed.
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