Thurlow,
J
(judgment
delivered
from
the
Bench,
concurred
in
by
Sheppard,
DJ):—This
is
an
appeal
from
a
judgment
of
the
Trial
Division
which
dismissed
the
appellant’s
appeal
from
a
reassessment
of
income
tax
for
the
year
1965.
By
the
reassessment
in
question
the
appellant
was
assessed
in
respect
of
an
amount
of
$60,851.06
on
the
basis
that
under
subsection
67(1)
of
the
Income
Tax
Act
he
was
deemed
to
have
received
a
dividend
of
that
amount
from
a
personal
corporation
known
as
Northland
Holdings
Limited.
The
Minister’s
ground
for
applying
subsection
67(1)
was
the
fact
that
in
the
year
the
personal
corporation
(hereafter
referred
to
as
Northland)
had
received
from
Skeena
Navigation
Limited,
a
company
of
which
Northland
held
40%
of
the
issued
stock,
a
stock
dividend
which
the
Minister
regarded
as
representing,
to
the
extent
of
$60,851.06,
“undistributed
income
on
hand”
of
that
company
within
the
meaning
of
paragraph
82(1
)(a)
of
the
Act.
The
issue
in
the
appeal
is
not
concerned
with
the
effect
of
subsection
67(1)
but
with
the
question
whether
the
$60,851.06
was
“undistributed
income
on
hand”
of
the
company
in
question.
Both
in
the
Trial
Division
and
on
the
appeal
io
this
Court
the
appellant’s
position
was
that
Skeena
Navigation
Limited
had
no
undistributed
income
on
hand
at
the
material
time.
In
the
Trial
Division
the
appellant
raised
two
distinct
issues
in
support
of
his
position
both
of
which
were
decided
against
him.
Both
issues
were
again
raised
in
the
appellant’s
memorandum
of
fact
and
law
on
the
appeal
but
the
second
of
them
was
abandoned
by
counsel
at
the
commencement
of
his
presentation
of
argument.
It
is
therefore
necessary
to
consider
and
deal
with
only
the
first
of
them.
Skeena
Navigation
Limited
(which
I
shall
refer
to
hereafter
for
convenience
as
Skeena
Amalgamated),
the
company
from
which
the
dividend
was
received
by
Northland,
was
formed
by
the
amalgamation
on
December
23,
1964
of
Skeena
Navigation
Limited
(hereafter
Skeena)
and
The
Sannie
Transportation
Company
Limited
(hereafter
Sannie)
both
of
which
had
previously
been
engaged
in
operating
fleets
of
vessels
in
the
coastal
waters
of
British
Columbia.
In
1962
both
companies
had
sold
their
vessels
for
amounts
which,
in
the
case
of
Skeena,
totalled
$535,500,
and
in
the
case
of
Sannie
$900,000.
Thereafter,
in
order
to
avoid
recapture
of
capital
cost
allowances
previously
claimed
in
respect
of
the
vessels
under
the
special
provisions
of
the
Canadian
Vessel
Construction
Assistance
Act,
SC
1949,
c
11,
both
companies,
with
the
approval
of
the
Canadian
Maritime
Commission
under
and
in
accordance
with
the
provisions
of
that
Act,
disposed
of
the
proceeds
of
the
sales
of
the
vessels
by
selling
such
proceeds
to
other
companies
which
undertook
to
use
them
for
the
construction
of
new
vessels,
but
at
discounts
which,
in
the
case
of
Skeena,
amounted
to
$63,033.56
and,
in
the
case
of
Sannie,
to
$108,
310.30.
From
the
point
of
view
of
the
purchasers
there
were,
undoubtedly,
advantages
to
be
realized
from
the
purchase
of
such
proceeds
at
a
substantial
discount
in
the
transactions
in
question.
On
the
other
hand
Skeena
and
Sannie,
by
accepting
or
absorbing
the
discounts,
were
able
lawfully
to
avoid
having
to
bring
the
capital
cost
allowances
into
their
incomes
under
subsection
20(1)
of
the
Income
Tax
Act
and
to
pay
tax
thereon,
which
was
the
end
which
they
sought
from
the
transactions.
The
appellant’s
case
is
that
the
amounts
of
these
discounts
were
deductible
as
expenses
falling
within
subparagraph
82(1)(a)(ii)
of
the
Income
Tax
Act
for
the
purpose
of
computing
the
“undistributed
income
on
hand”
of
Skeena
Amalgamated
at
the
material
time.
If
so,
the
amounts
were
more
than
sufficient
to
offset
the
alleged
undistributed
income
on
hand
of
Skeena
Amalgamated
and
there
was
no
basis
for
treating
any
part
of
the
dividend
received
by
Northland
as
undistributed
income
or
for
the
application
of
subsection
67(1).
The
definition
of
“undistributed
income
on
hand”
in
paragraph
82(1
)(a)
is
long
and
complicated
and
no
good
purpose
would
be
served
by
reading
it
in
full.
Basically,
as
I
understand
it,
the
concept
is
that
of
the
aggregate
of
the
incomes
of
the
corporation
for
the
taxation
years
since
1917
minus
the
aggregate
of
the
following
for
each
of
those
years:
(1)
each
loss
sustained
for
a
taxation
year;
(2)
expenses
incurred
or
disbursements
made
by
the
corporation
which
were
not
deductible
in
computing
income
(with
certain
defined
exceptions);
(3)
the
amount
by
which
capital
losses
exceeded
capital
gains;
(4)
certain
amounts
on
which
special
taxes
were
paid;
(5)
dividends;
and
(6)
certain
other
specified
amounts.
The
particular
portion
of
the
definition
involved
in
the
appellant’s
contention
reads
as
follows:
82.
(1)
In
this
Act
(a)
“undistributed
income
on
hand”
of
a
corporation
at
the
end
of,
or
at
any
time
in,
a
specified
taxation
year
means
the
aggregate
of
the
incomes
of
the
corporation
for
the
taxation
years
beginning
with
the
taxation
year
that
ended
in
1917
and
ending
with
the
specified
taxation
year
minus
the
aggregate
of
the
following
amounts
for
each
of
those
years:
(ii)
each
expense
incurred
or
disbursement
made
by
the
corporation
during
one
of
those
years
that
was
not
allowed
as
a
deduction
in
computing
income
for
one
of
those
years
under
this
Part
except
(A)
an
expense
incurred
or
disbursement
made
in
respect
of
the
acquisition
of
property
(including
goodwill)
or
the
repayment
of
loans
or
capital,
(B)
an
outlay
or
expense
the
deduction
of
which
was
not
allowed
by
reason
of
subsection
(3)
of
section
12,
or
(C)
unless
the
undistributed
income
on
hand
is
being
determined
for
the
purpose
of
subsection
(1)
of
section
81,
any
part
of
the
payment
referred
to
in
section
76
that
has
not
been
allowed
as
a
deduction
in
computing
income
for
one
of
those
years,
It
will
be
observed
that
the
expenses
and
disbursements
deductible
under
this
provision
are
not
confined
to
those
incurred
or
made
for
the
purpose
of
gaining
or
producing
income
from
the
corporation’s
business
or
property
(compare
paragraph
12(1
)(a)).
On
the
language
of
the
provision
that
plainly
is
not
the
test.
As
an
example
income
taxes
paid
by
the
corporation
over
the
years
appear
to
fall
within
the
provision.
Moreover,
the
exemption
in
clause
(A)
of
particular
types
of
capital
expenditures
suggests
that
at
least
some
items
of
a
capital
nature
may
be
included
as
properly
deductible.
The
fact
that
the
amounts
here
in
question
are
of
a
capital
nature,
thus,
in
my
opinion,
does
not
by
itself
afford
an
answer
to
the
appellant’s
contention.
On
the
other
hand
it
seems
equally
clear
that
not
every
sum
paid
out
can
properly
be
treated
as
an
expense
or
disbursement
within
the
meaning
of
the
provision.
For
example,
the
payment
of
a
sum
to
a
person
as
a
loan
by
a
corporation
otherwise
than
in
the
course
of
its
business
would
not,
as
I
see
it,
fall
within
the
meaning
of
expense
or
disbursement
in
that
provision
though
if
the
debt
were
lost
by
the
debtor
becoming
insolvent
the
loss
might
conceivably
qualify
as
a
loss
of
capital
to
be
taken
into
account
under
subparagraphs
(iii)
and
(iv)
of
paragraph
82(1)(a).
Finally,
since
the
deduction
of
net
capital
losses
as
well
as
of
operating
or
income
losses
is
specifically
provided
for
in
subparagraphs
(iii)
and
(iv)
and
(i)
respectively
of
the
paragraph
it
seems
apparent
that
the
words
“expense”
and
“disbursement”
in
subparagraph
(ii)
were
not
used
in
so
broad
a
sense
as
to
include
such
losses
and
that
if
the
amounts
here
in
question
are
in
fact
capital
losses
they
cannot
at
the
same
time
be
regarded
as
expenses
or
disbursements
within
the
meaning
of
those
terms
as
used
in
subparagraph
82(1
)(a)(ii).
I
pause
at
this
point
to
note,
first,
that
it
is
common
ground
that
Skeena
and
Sannie
had
net
capital
gains
rather
than
losses,
and
that
if
the
amounts
here
in
question
were
taken
into
the
computations,
as
we
were
informed
they
were,
there
would
still
be
in
both
cases
net
capital
gains
rather
than
losses
so
that
in
neither
case
was
there
anything
to
be
deducted
under
subparagraph
(iii)
or
(iv)
of
paragraph
82(1
)(a),
and,
second,
that
counsel
for
the
appellant
in
the
course
of
argument
conceded
that
the
word
“disbursement”
in
subparagraph
(ii)
was
not
apt
to
characterize
the
amounts
in
question.
What
remains
then
is
to
determine
whether
they
are
capital
losses
within
subparagraph
(iii)
or
(iv)
or
expenses
within
subparagraph
(ii).
On
this
I
am
in
agreement
with
the
view
of
the
learned
trial
Judge
that
the
amounts
were
not
expenses
within
the
meaning
of
subparagraph
82(1
)(a)(ii)
and
I
am
of
the
opinion
that
if
they
properly
fall
to
be
deducted
under
any
of
the
provisions
of
the
definition
of
undistributed
income
on
hand
they
do
so
as
capital
losses
within
the
meaning
of
subparagraphs
(iii)
and
(iv)
of
paragraph
82(1
)(a).
The
most
attractive
suggestion
put
forward
by
counsel
for
the
appellant
was
that
the
amounts
should
be
regarded
as
expenses
incurred
to
procure
the
construction
of
new
vessels
by
the
purchasers
but
I
do
not
think
they
can
be
so
characterized.
Rather,
the
substance
of
what
appears
to
me
to
have
transpired
is
that
Skeena
and
Sannie
avoided
the
recapture
of
capital
cost
allowances
by
losing,
or
accepting
the
loss
of,
a
part
of
the
proceeds
of
the
sale
of
their
vessels.
The
same
can
be
expressed
by
saying
that
they
accomplished
what
they
sought
at
the
“expense”
of
losing
a
part
of
the
proceeds.
In
either
way
of
stating
it,
however,
the
character
of
what
has
occurred
is
not
that
of
an
expense
but
that
of
a
loss
of
a
part
of
the
proceeds
as
a
result
of
the
transaction.
In
my
opinion
the
appeal
therefore
fails
and
should
be
dismissed
with
costs.