Orlando Corp. v. The Queen, 94 DTC 1046, [1994] 1 CTC 2113 (TCC)

Bonner, J.T.C.C.:—The appellant appeals from assessments made under the Income Tax Act, R.S.C. 1952, c. 148 (am. S.C. 1970-71-72, c. 63) (the "Act") for the 1985, 1986 and 1987 taxation years.

At all relevant times, the appellant carried on the business of a real estate developer, that is to say, it bought raw land, subdivided it and resold it. In reassessing tax for the 1986 taxation year, the Minister of National Revenue (the "Minister") disallowed a deduction in the computation of the appellant's income of $876,985 paid by the appellant to the City of Mississauga in lieu of the conveyance of land for parks. In reassessing tax for the 1987 taxation year, the Minister disallowed a deduction of $127,080 paid for the same purpose. The issues raised by the 1986 and 1987 appeals are the same, namely, whether the payments may be deducted in the years in which they were made.

The payments were exacted under section 50 of the Planning Act, .O. 1983, c. 1. Subsection 50(1) of the Planning Act permits an owner of land to apply to the Minister of Municipal Affairs and Housing for approval of a plan of subdivision of his land. Paragraph 50(5)(a) permits the Minister to impose such conditions to the approval of a plan of subdivision as he thinks are reasonable and it expressly authorizes the imposition of a condition

50 (5)(a) that land to an amount to be determined by the Minister but not exceeding in the case of a subdivision proposed for commercial or industrial purposes, two per cent and in all other cases five per cent of the land included in the plan shall be conveyed to the local municipality for park or other public recreational purposes or, if the land is not in a municipality, shall be dedicated for park or other public recreational purposes. . . .

Subsection 50(8) allows a municipality, if it chooses, to require the owner to pay an amount of money not exceeding the value of the land otherwise required to be conveyed.

William O'Rourke, a chartered accountant employed as comptroller of the appellant, testified that the appellant capitalized the payments for financial statement purposes. The deductions were made in the reconciliation of net income per financial statements with net income for income tax purposes. Mr. O'Rourke said that this treatment was adopted because the payments repre- sented one time costs which did not carry with them any future benefit. He likened them to ordinary annual real estate taxes. In my view his reasoning is unsound. The payment of annual taxes does not in any way assist in the conversion of raw land into land located within a registered plan of subdivision.

In Urbandale Realty Corp. v. M.N.R., [1993] 1 C.T.C. 2132, 93 D.T.C. 154 (T.C.C.), I had occasion to consider the question whether a development charge in the form of a lot levy imposed by a municipality on a land developer in consequence of the carrying out of the development process was deductible in the year of payment or whether it had to be capitalized and deducted at the time of sale of the inventory in respect of which it was imposed. I found that ordinary commercial principles require the latter treatment. I can see no distinction in principle whatever between the situation under consideration in Urbandale and the present case. The basic principles to be followed in approaching the problem are clearly stated by Jackett, P. in Associated Investors of Canada Ltd. v. M.N.R., [1967] C.T.C. 138, 67 D.T.C. 5096, at pages 143-44 (D.T.C. 5099) as follows:

Profit from a business, subject to any special directions in the statute, must be determined in accordance with ordinary commercial principles. (Canadian General Electric Co. v. M.N.R., (1962) S.C.R. 3, [1961] C.T.C. 512, 61 D.T.C. 1300, per Martland, J. at page 12 (S.C.R.).) The question is ultimately "one of law for the court". It must be answered having regard to the facts of the particular case and the weight which must be given to a particular circumstance must depend upon practical considerations. As it is a question of law, the evidence of experts is not conclusive. (See Oxford Motors Ltd. v. M.N.R., [1959] S.C.R. 548, [1959] C.T.C. 195, 59 D.T.C. 1119, per Abbott J. at page 553, and Strick v. Regent Oil Co., [1966] A.C. 295, 3 W.L.R. 636 per Reid, J. at pages 645-46. See also M.N.R. v. Anaconda American Brass Ltd., [1955] C.T.C. 311, 55 D.T.C. 1220.)

My first task is therefore to determine the proper treatment of the amounts in question in accordance with ordinary commercial principles. Having ascertained that, I must consider whether any different treatment is dictated by any special provision of the statute.

Ordinary commercial principles dictate, according to the decisions, that the annual profit from a business must be ascertained by setting against the revenues from the business for the year, the expenses incurred in earning such revenues.

It is evident that the payments made by the appellant were not made to satisfy a recurrent demand arising from the operation of its business as a whole. The municipality became empowered to demand the payments as a consequence of the appellant's application for approval of the subdivision of specific parcels of land. The payments related exclusively to those parcels. Income can be properly computed only by deducting from revenues from the sale of land the costs incurred in preparing such land for sale. What the appellant wants to do is to burden 1986 and 1987 revenues with costs of earning the revenues which will be generated in subsequent years by the sale of the land located in the subdivisions in question.

Counsel for the appellant, faced with the fact that the appellant had capitalized the payments in its domestic financial statements, argued that the manner in which the appellant had treated the payments for accounting purposes is not determinative of the way in which they are to be treated in computing income for purposes of the Act (West Kootenay Power and Light Co. v. The Queen, [1992] 1 C.T.C. 15, 92 D.T.C. 6023 (F.C.A.)). I agree. What is essential in a case such as this is to identify and to adopt the accounting treatment which gives the most accurate picture of the taxpayer's income for the year. I am of the view that capitalization of the payments in issue will result in that picture. The appeals from the 1986 and 1987 assessments will therefore be dismissed.

In the 1985 appeal, the appellant seeks judgment vacating a reassessment said to have been made on December 10, 1990 on the basis that it is invalid because it was not made within the “normal reassessment period" for that taxation year as defined in subsection 152(3.1) of the Act.

The starting point is a notice of assessment for the 1985 taxation year dated November 13, 1986. The amount of federal tax set out on the face of the notice is $198,443. Particulars of tax payable set out in an explanation found on the second page of the notice are as follows:

The Minister sent another document entitled notice of assessment dated April 12, 1989. The amount of federal tax remained unchanged, $198,443. In an explanation of changes attached the Minister set forth details of adjustments to capital cost allowance which resulted in a decrease of the $248,480 loss reported by the appellant in its return of income to $215,786. The Minister calculated the appellant’s revised taxable income (non-capital loss) to be $3,390,786.

The Minister sent out yet another document entitled notice of reassessment. It was dated December 10, 1990. Again, the box marked federal tax shows $198,443, a figure which obviously refers to the appellant's Part IV tax liability for the year. The explanation of changes attached revises the "Non-Capital loss previously assessed" by decreasing it to $1,217,415.

It is clear that the Minister’s position from November 13, 1986 onward has been that no tax is payable under Part I of the Act for the 1985 taxation year. It was common ground that the Minister did not at the request of the appellant make any determination of a loss as contemplated by subsection 152(1.1) of the Act. It is settled law that no appeal lies from a nil assessment or notification that no tax is payable (Consumers Gas Co. v. The Queen, [1987] 1 C.T.C. 79, 87 D.T.C. 5008 (F.C.A.)). Thus so far as the appeal relates to liability for tax under Part I of the Act, it must be dismissed.

Subsection 187(3) of the Act makes applicable to Part IV the provisions of Part I with respect to assessments, objections and appeals with such modifications as circumstances require. It is clear that if the Minister did reassess Part IV tax on December 10, 1990, such reassessment was made after the normal reassessment period and was invalid under subsection 152(4) of the Act. The critical question is whether the Minister, by reiterating on December 10, 1990 the position which he had taken all along, namely, that the appellant’s liability for Part IV tax was $198,433, can be said to have reassessed tax within the meaning of subsection 152(4). In my view he can not be said to have done so. The purpose of that provision is to prevent ministerial dithering on the question of the taxpayer's liability for tax for the year. It is not intended to prevent the Minister from making calculations which, if tney affect the taxpayer's liability for tax at all, will not do so until future years (New St. James Ltd. v. M.N.R., [1966] C.T.C. 305, 66 D.T.C. 5241).

In Pure Spring Co. v. M.N.R., [1946] C.T.C. 169, 2 D.T.C. 844, at page 198 (D.T.C. 857) Thorson, P. stated:

The assessment is different from the notice of assessment; the one is an operation, the other a piece of paper. The nature of the assessment operation was clearly stated by the Chief Justice of Australia, Isaacs, A.C.J. in Federal Commissioner of Taxation v. Clarke (1927), 40 C.L.R. 246 at page 277:

An assessment is only the ascertainment and fixation of liability.

a definition which he had previously elaborated in The King v. Deputy Federal Commissioner of Taxation (S.A.); ex parte Hooper (1926), 37 C.L.R. 368 at page 373:

An "assessment" is not a piece of paper: it is an official act or operation; it is the Commissioner's ascertainment, on consideration of all relevant circumstances, including sometimes his own opinion, of the amount of tax chargeable to a given taxpayer. When he has completed his ascertainment of the amount he sends by post a notification thereof called "a notice of assessment". . . . But neither the paper sent nor the notification it gives is the "assessment". That is and remains the act of operation of the commissioner.

The amount of Part IV tax chargeable to the appellant was ascertained in November 1986 to be $198,433. At no time did the Minister depart from that position. In the subsequent notices of assessment he simply repeated himself and made other calculations which did not affect the amount of Part IV tax liability. Repetition is not reassessment.

Although for the reasons given above I have concluded that the Minister did not reassess tax either on April 12,1989 or December 10, 1990. I will note that it would in any case be futile to grant judgment vacating the supposed December 1990 reassessment of part for tax. Nothing in the material indicates that if the event of December 1990 were viewed as a reassessment, judgment allowing the appeal and vacating it would achieve any practical results. The appellant would remain liable for exactly the same amount of tax under the supposed reassessment of April 12, 1989 (Lornport Investments Ltd. v. Canada, [1952] 1 C.T.C. 351, 92 D.T.C. 6231). The courts have a discretion to decline to decide a case which raises an abstract question only (Borowski v. A.-G. Canada, [1989] 1 S.C.R. 342, 130 D.L.R. (3d) 588).

The appeals for all three years will therefore be dismissed. The respondent is entitled to her costs after taxation.

Appeal dismissed.