Gordon v. The Queen, 95 DTC 493, [1995] 2 CTC 2185 (TCC)

Kempo J.T.C.C.:-This general procedure appeal concerns the appellant’s 1989 taxation year.

During 1984 the appellant acquired interests in a film which was never fully finished. Following unsuccessful marketing efforts the appellant sold these interests in 1989 for a nominal amount and claimed a terminal loss pursuant to subsection 20(16) of the Income Tax Act, R.S.C. 1952, c. 148 (am. S.C. 1970-71-72, c. 63) (the "Act”) for that year. This provision presupposes a loss arising in respect of the disposition of depreciable property. The Minister of National Revenue (the "Minister"), on the premise that the appellant’s film interest was capital property but not depreciable property, disallowed the claimed terminal loss and, instead, allowed a capital loss.

Background

During the course of counsels’ opening remarks or their closing submissions at the hearing of this appeal the following facts were acknowledged as undisputed:

-in 1984 the appellant acquired 20 units in the subject motion picture film for $400,000, and he claimed capital cost allowance ("CCA") thereto at the rate of 30 per cent under class 10 of Schedule II of the Income Tax Regulations (the "Regulations") for the years 1984 to 1987 inclusive thusly:

$60,000 for 1984

102,000 for 1985

71,400 for 1986

49,980 for 1987

which were disallowed by the Minister on reassessment except for 1984 which was then statute barred;

—the film interest was acquired by the appellant for the purposes of making a profit out of marketing the film and was for the purpose of gaining or producing income therefrom;

-the CCA disallowances for the 1985-1987 inclusive taxation years are now not disputed nor under appeal;

-since a $60,000 CCA was taken for 1984, the cost amount of the appellant’s film interest for depreciable property purposes is $340,000 and the 1989 loss, on account of a terminal loss, would be that amount less the $10 received in 1989 from an arm’s length purchaser;

-the Minister’s allowance of a capital loss in 1989 should have been calculated for capital property purposes on the acquisition cost amount of $400,000 (and not on the $340,000 as assessed) less the $10 received;

—for there to be a terminal loss allowable under subsection 20(16) of the Act the appellant’s film interest must be characterized as depreciable property within either of Class 8 or 10 of Schedule IT of the Regulations;

-the appellant’s film interest represented in excess of a 50 per cent undivided ownership interest in the subject motion picture film;

—production of the film commenced in 1984 but was never fully completed. It reached an approximate half-way point and was transposed during 1984 to a video tape for marketing purposes. Marketing efforts, carried out in Toronto, New York and Los Angeles, were unsuccessful and the film was neither finished nor certified as a Class 12 film or production under Schedule II of the Regulations; and

-the sale of the film interest in 1989, after marketing efforts had failed, was done for fiscal recognition purposes, there being no issue respecting the nominal amount received as being representative of its value at that time.

The evidence

The appellant is a chartered accountant and was the sole witness concerning this appeal. The respondent’s counsel did not call any witnesses.

Before 1984 the appellant had successfully invested in other film productions and the opportunity to invest in the subject film arose fortuitously through a casual conversation with its principal producer, a Mr. Larry Ryckman. It was being shot in a ski resort outside of Banff, Alberta known as Sunshine Village. The appellant read the script and discussed matters concerning the actors and producers, the intent being to ensure appropriate Canadian content for certification purposes. Upon being satisfied that this would be the case, 20 out of a total of 40 film units were acquired in 1984 for $400,000. Since less than 40 units were sold, the appellant effectively held in excess of a 50 per cent interest in the project. Apparently five of these units represented his involvement as an on-hands executive producer. These activities included on-site attendances and related services as well as the use of his marketing contacts within the film industry located in Toronto and Los Angeles. These five units entitled him to an enhanced income-share of the profits (see Exhibit A-3) in addition to his financial entitlements as an investor.

Those provisions of the subscription agreements (as represented by Exhibits A-l and A-2) of particular relevance here provided, inter alia:

Whereas the producer wishes to offer for sale an undivided ownership interest of a certain amount in and to the motion picture film provisionally entitled "Snowballs”, the master negative of same and the copyright of same to be registered, and in and to all related ancillary rights;

1. The unitholder hereby agrees to purchase, and the producer hereby agrees to sell on the date of closing as hereinafter defined, 20 film units. Each film unit consists of an equal undivided ownership interest in and to a film tentatively entitled, ’’Snowballs”, based upon the original screenplay written by Neil Gordon, James Woodland, Alex Tadich, Larry Ryckman and Michelle Stirling and in and to all related ancillary rights, (hereinafter referred to as ’’film units").

6. The producer hereby covenants that it will sell no more than the maximum of 40 film units, subject to the provisions of paragraph 8 hereunder, which contemplates deferment being paid to creative or other participants....

8. The producer represents and warrants to the unitholder as follows:

(a) that it is the sole and exclusive owner, without any encumbrances whatsoever, of all of the rights to make a feature length comedy version of the screenplay, and to exhibit, license and exploit same in any language or version, in any medium, including recording and reproduction rights to the sound track, excerpts and stills from the motion picture, and the text of the screenplay and related ancillary rights....

(e) that the producer will exercise its best efforts to ensure that "Snowballs” will qualify under the provisions of paragraph 1104(2)(i) of the Income Tax Regulations (Canada) and will be certified by the Minister of Communications as a certified feature film; and

(f) that it will complete principal photography of ’'Snowballs” prior to December 31, 1984.

25. The producer shall produce "Snowballs" through its best efforts.

It is appropriate to state at this time that the appellant’s credibility was essentially unrefuted throughout his testimony, respondent’s counsel in effect acknowledging at the end that he had no reason to doubt his veracity.

The appellant said he was intricately involved as executive producer, that he was frequently on-site making suggestions for change, that he had examined further money-raising possibilities and that these functions often overlapped with Mr. Ryckman’s duties and responsibilities. This testimony was advanced to refute a stated fact assumed by the Minister’s assessor that the appellant "was not the executive producer of the film nor was he in the business of producing the film" (as per paragraph 7(j) of the respondent’s reply to notice of appeal).

The appellant’s evidence was that the extent of the outside ski shots taken during May and June 1984 fell short of the number contemplated under the written script because of random inclement weather conditions followed by closure of the ski hill in June. Consequently, as the intention to complete the outside scenes remained, moneys were expended to hold over the cast of actors, supplies and equipment to the fall opening of the ski season.

Following the ski hill closure in late June 1984, the film strips on hand were developed and spliced together resulting in a master film approximately 50 minutes in duration comprising of sound, a sequence of scenes and events, and a developing and readily discernable plot. It was somewhat rough as it was not extensively edited. However it did have a beginning and an ending; it was not simply random clips.

The master film was transposed onto a video tape by an experienced technician in Los Angeles who in turn made a trailer of five to eight minutes in length for enhanced marketing flexibility and attractiveness. It included some nudity and other scenes not in the original script. The purpose of the trailer was to capsulate the film’s more exciting parts and to increase its attractiveness to 14 to 19 years of age who would be the targeted audience.

The script for ’’Snowballs”, a comedy motion picture” was marked as Exhibit A-5. Because it was in a movie-shooting format unlike that of a live-play script, it was too complicated to follow. The video tape and trailer was viewed by the Court and was introduced as Exhibit A-4 in these proceedings. It was like those made and used for marketing purposes. Extensive discussions and meetings respecting the film’s marketing opportunities occurred with a variety of professional and experienced marketers in Toronto, New York and Los Angeles, to no avail. In this context it was seen by approximately 20 to 25 people, mostly during 1984 and, notwithstanding ongoing discussions and marketing attempts, it was not shown at all after 1987.

The appellant confirmed the film’s original preliminary budget was around $800,000. At its marketing stage some $700,000 to $800,000 had actually been spent. These sums were raised via sales of approximately 35 film units in total. He conceded the marketing represented "an attempt to find interest to see whether the project was worth pursuing further". It was his opinion that at this juncture the film was over 50 per cent complete, the raising of further money was then still a secondary concern and that since most of the startup costs had been paid it would have taken, as a guess, only an additional $100,000 plus to complete.

The appellant also opined that the level of interest shown by the professional marketers may well have warranted going further but that he had decided not to put in more than the $400,000 already invested and was not prepared to take on any additional financial risks. He said Mr. Ryckman failed to make any concerted efforts to gain further investors, and no active steps were taken to turn the film into a made-for-television project, although it was contemplated. He confirmed television usually requires 50- minute footage whereas standard motion picture films require at least 90 minutes.

The appellant readily admitted the video did not always follow the script, that there were missing segments, and that some of the segments may have been without sound or were disjointed. It was essentially a situation type of comedy. He said any comedy needs a plot and this one had a plot. He described it thusly [at T. 29,1. 8-22]:

When I was in Hollywood they used to tell me that it was impossible to sell a film that wasn’t put together because nobody can imagine what the final product was like, so if you are able to follow the plot line in this one, I guess you deserve to be in Hollywood because it is a little disjointed.

And I think you can understand generally really any comedy needs a plot, and the humour is built around that plot. It was about a man and his wife who owned a ski lodge, was in financial trouble, and someone was trying to buy their property at a cheap price by poisoning the water and causing environmental harm. And it was for the environmental harm that it was about to be closed down and about to be worthless.

From the Court’s own viewing of the video the appellant’s description was accurate. The Court also agrees with the appellant that the contents of the trailer would have met its objectives.

The appellant readily admitted the project had been offered to investors on the basis it would be a certified film for Class 12 purposes and that he was disappointed it did not happen. It was set up for certification respecting Canadian content requirements and if it had been completed, or if the "principal photography" had been completed, it would have so qualified.

To complete the evidentiary portion of the appellant’s case, counsel read in portions of the examination for discovery of the official produced by the Minister. While disavowing the appellant was "in the business of" producing the film, it was admitted on behalf of the respondent that:

—the appellant had participated in the film’s production as an executive director;

-the appellant’s film interest was considered to be tangible property which was why it was treated as capital property for capital loss purposes for 1989;

-active filming stopped sometime in the fall of 1984, the marketing steps as described by the appellant had occurred and the project was not abandoned in 1984 but at a later time;

—the appellant acquired the film interests for the purpose of earning income; and that

-the film was not viewed prior to the issuance of the reassessment under appeal.

The law

The relevant provisions of the Act and of the Regulations of application to this appeal are not in themselves complicated.

The appellant relies upon the fiscal provisions found within subdivision (b) of Division B of Part I of the Act thusly:

Subdivision b-Income or Loss from a Business or Property

13(21) Definitions.—In this section, section 20 and any regulations made under paragraph 20(1 )(a),

(b) “depreciable property" of a taxpayer as of any time in a taxation year means property acquired by the taxpayer in respect of which he has been allowed, or, if he owned the property at the end of the year, would be entitled to, a deduction under regulations made....

20(1) Notwithstanding paragraphs 18(1)(a), (b) and (h), in computing a taxpayer’s income for a taxation year from a business or property, there may be deducted such of the following amounts as are wholly applicable to that source or such part of the following amounts as may reasonably be regarded as applicable thereto:

(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;

Subsection 20(16) of the Act permits a deduction of a terminal loss amount (calculated under certain conditions which are of no concern to the issues at hand) in respect of a taxpayer’s "depreciable property" of a "particular class".

The "particular class" for the purposes of this appeal as raised by counsel for the appellant is found in Schedule II of the Regulations. Counsel pointed out that, because two classes are appropriately applicable to the subject matter under appeal, it matters not which particular one would necessarily apply where the ultimate issue concerns a terminal loss. The two classes relied upon are Class 10 and Class 8 in Schedule II. The relevant parts of Class 10 property and its associated regulations are reproduced within the following paragraph A. Class 8 is within paragraph B.

A. Class 10 (30 per cent)

Property not included in any other class that is

(s) a motion picture film or video tape...except a property included in Class 12;

Class 12 (100 per cent)

Property not included in any other class that is

(n) a certified feature film, certified feature production or certified short production.

Subsection 1100(21) of the Regulations relates to Class 12(n) property which, inter alia, hampers CCA deductions in respect of that property where its "principal photography" or taping was not completed within certain times. Subsections 1104(2) and 1104(10) of the Regulations concern certification of Class 12(n) property which, inter alia, requires Canadian input and content in its various aspects. Counsel for both parties acknowledged that the subject film would have fulfilled these Canadian content expectations and that the process for certification was never begun.

B. Class 8 is often called a residuary or catch-all class. It reads:

Class 8 (20 per cent)

Property not included in Class 2, 7, 9 or 30 that is

(i) a tangible capital property that is not included in another class in this Schedule except...[the named exceptions are not applicable]

The provisions employed by the Minister are found under subdivision c of Division B thusly:

Subdivision c-Taxable Capital Gains and Allowable Capital Losses

39(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 determined under this subdivision...from the disposition of any property of the taxpayer other than

(i) eligible capital property,

(b) a taxpayer’s capital loss for a taxation year from the disposition of any property is his loss for the year determined under this subdivision...from the disposition of any property of the taxpayer other than

(i) depreciable property, or

54. In this subdivision,

(b) "capital property" of a taxpayer means

(i) any depreciable property of the taxpayer, and

(ii) any property (other than depreciable property), any gain or loss from the disposition of which would, if the property were disposed of, be a capital gain or a capital loss, as the case may be, of the taxpayer;

With respect to the Act as a whole, Part XVII provides the meanings to be assigned to certain words, thusly:

248(1) Definitions.—In this Act,

"Capital gam ".-"capital gain" for a taxation year from the disposition of any property has the meaning assigned by section 39;

"Capital /oss".-"capital loss" for a taxation year from the disposition of any property has the meaning assigned by section 39;

"Capital property ".-"capital property" has the meaning assigned by section 54;

"Depreciable property ".-"depreciable property" has the meaning assigned by subsection 13(21);

Issues and positions of the parties

For the appellant. The master file and video tape at the stage of production reached in 1984 represented property in the nature of a Class 10 motion picture film or video tape.

If not a Class 10 property then, and in any event, the film plus the video tapes therefrom were tangible capital property within the meaning of Class 8.

Any "principal photography" completion expectations apply solely to Class 12 (100 per cent write-off) certified film property which category is not being sought by the appellant.

The argument of respondent’s counsel that the property here represented merely work-in-progress is not sustainable because that terminology implies inventory categorization not being advanced and because a tangible capital property was achieved which has been recognized as such by the Minister.

The McQuillan v. M.N.R. decision, infra, relied upon by the respondent is distinguishable, and its principles should not be applied beyond the facts of that case.

For the respondent. The film was never completed and never exceeded 50 per cent completion. Having regard to all of the circumstances, it was and remained no more than work-in-progress. What the appellant bought was an undivided ownership interest in the end product which was the master negative, its copyright plus all other ancillary rights and cash flow therefrom, all arising with respect to a certified motion picture film. None of this ever happened and therefore he did not require anything of a tangible nature. The Minister’s allowance of capital loss was merely an administrative concession. What the appellant suffered was a business investment loss attracting capital loss treatment as assessed.

McQuillan v. M.N.R., [1981] C.T.C. 2657, 81 D.T.C. 618 (T.R.B.) is the longstanding authority for the principle that a taxpayer’s entitlement to CCA respecting a motion picture film turns on whether the film was then ready to be shown to the public. In that case it was not so, therefore the taxpayer’s appeal failed. The same result ought to pertain to this appeal.

Additionally, since the subject film’s principal photography was not done, what existed was intangible work-in-progress as earlier mentioned. Just because something is recorded on a film or video tape does not constitute it as either a motion picture film or video tape belonging to Class 10 or Class 8. For example, one scene on a film or tape obviously would not make it a motion picture film or video tape for either class. Accordingly the degree of completion being in accord with it being ready to be shown to the public as per the McQuillan decision is a logical and reasonable standard to be applied.

Analysis

As a preliminary matter, in my view it is appropriate to apply the general principles of statutory interpretation in construing the particular provisions of the regulations raised in this appeal. They should be reflected upon as a whole having regard to their intent, object and spirit and what it is they actually accomplish; Stubart Investments Ltd. v. The Queen, [1984] 1 S.C.R. 536, [1984] C.T.C. 294, 84 D.T.C. 6305. The approach to be employed ought to be functional, purposeful or teleological: Notre-Dame de Bon-Secours (Corp.) Québec (Communauté urbaine), [1995] 1 C.T.C. 241, 95 D.T.C. 5017, and not results oriented: Tennant v. The Queen, [1994] 2 C.T.C. 381, 94 D.T.C. 6505 (F.C.A.), nor purely mechanical: The Queen v. Swantje, [1994] 2 C.T.C. 113.

Additionally, as the terms "motion picture film" and "video tape" are not defined for the purposes of the Act or for the Regulations passed thereunder, a words-in-total-context approach should be used which means that in the case before me account ought to be taken of the nature and extent of the property included in Class 12(n) in interpreting property that is includable in Class 10(s) or alternatively in Class 8 for that matter.

However the Court ought firstly to address the respondent’s position that what the appellant acquired was merely work-in- progress and that he had nothing in the nature of tangible property until the film had been certified and completed. While the phrase "work-in-progress" is commonly used concerning issues of inventory and income calculations, its meaningful use or sense for other purposes escapes me. I believe it is more realistic, and therefore preferable, to pose the question as to whether the appellant’s $400,000 expenditure may be seen to have been made in the course of the acquisition or creation of a capital asset.

That this approach is the only one that makes any sense is derived from two essential factors in this case. Firstly it was common ground that the expenditure was made for the purpose of gaining or producing income from property. Secondly subsection 248(1) of the Act defines property thusly:

"Property".-"property" means property of any kind whatever whether real or personal or corporeal or incorporeal and, without restricting the generality of the foregoing, includes

(a) a right of any kind whatever, a share or a chose in action,

(b) unless a contrary intention is evident, money,

(c) a timber resource property, and

(d) the work in progress of a business that is a profession;

I am unable to agree that the appellant’s film interest was not property for the purposes of the Act and that his interests were merely executory and therefore remained essentially nothings.

The commercial reality here was that the $400,000 expenditure represented and was laid out in connection with and in the course of the acquisition and assembly of a capital asset, the cost of which is on capital account: Firestone v. The Queen, [1987] 2 C.T.C. 1, 87 D.T.C. 5237 (F.C.A.). In that decision the Court noted, at page 6 (D.T.C. 5240-41):

Despite this climate of uncertainty as to the exact test, there has nevertheless been general agreement that an expenditure for the acquisition or creation of a business entity is on capital account. Hence Jackett P. in Canada Starch Co. v. M.N.R., [1968] C.T.C. 466, 68 D.T.C. 5320, at page 472 (D.T.C. 5323-24), was able to lay down this much:

Applying this test [that of Dixon J. in the Sun Newspapers case] to the acquisition or creation of ordinary property constituting the business structure as originally created, or an addition thereto, there is no difficulty. Plant and machinery are capital assets and moneys paid for them are moneys paid on account of capital whether they are

(a) moneys paid in the course of putting together a new business structure,

(b) moneys paid for an addition to a business structure already in existence, or

(c) moneys paid to acquire an existing business structure

This approach was followed in this Court by Urie J. in M.N.R. v. M.P. Drilling Ltd., [1976] C.T.C. 58, 76 D.T.C. 6028. Subsequently, in the Johns-Manville case, supra, Estey J. emphasized in his summation that the expenditures which he there found to be on current account "were not part of a plan for the assembly of assets".

I am not convinced, and see no logical reason, why these principles ought not to apply to the appellant’s acquisition of a proprietorial interest in a motion picture film in the process of being created from which he intended to gain or produce income.

Estey J. (as he then was) in Johns-Manville Canada Inc. v. The Queen, [1985] 2 S.C.R. 46, [1985] 2 C.T.C. Ill, 85 D.T.C. 5373, was concerned about a situation in which there may have been no relief to the taxpayer of any kind relative to bona fide expenditures made in the course of its business. Here, respondent’s counsel submitted the appellant’s $400,000 expenditure acquired him nothing, but that, remedially, its capital loss treatment by the Minister’s assessor was justified under administrative concession. The problem with this is that taxation is not premised on such an authority. The appellant either acquired property or he did not. In my view he did, and that property was capital in nature. What was paid for and acquired was an interest in a capital property being put together or assembled, and its non-completion does not operate to change that basic characterization.

Having decided the appellant’s film interest was capital property, the next step is to determine whether it was depreciable property attracting the terminal loss provisions of subsection 20(16) of the Act.

’’Depreciable property” by virtue of subsection 248(1) of the Act, supra, has the meaning assigned by subsection 13(21) of the Act, supra, which in turn incorporates by reference the provisions of paragraph 20(1 )(a) of the Act, supra. This exercise leads to Regulation 1100(l)(a) which, for the purposes of paragraph 20(1 )(a), provides (I am paraphrasing) for allowance of a deduction in the computation of a taxpayer’s income from a property an amount concerning Schedule II property in accordance with certain percentage rates in respect of its undepreciated capital cost. Then, as noted earlier, subsection 20(16) permits a deduction (under other circumstances of no application here) where the disposition of the depreciable property resulted in a terminal loss.

The core issue in this appeal was essentially in respect of which class, if any, the appellant’s film rights would fall. Accordingly those classes of relevance ought to be examined.

Class 12(n) property and subsections 1100(21) and 1104(2) of the Regulations are comprehensive provisions which, if met, permit a 100 per cent CCA write-off. Such a rate, in my opinion, signifies underlying incentive purposes and, when all taken together, they represent a complete code in circumstances where a motion picture film was certified and had reached its principal photography stage. Both certification as to Canadian content and completion to the principal photography stage would serve as an incentive to meet the economic and business interests and needs for the film industry as well as for those of Canada. The 30 per cent CCA write-off rate for Class 10 property does not portray a similar incentive intent and therefore it would be illogical to apply the completion of principal photography requirements of Regulation 1100(21) to that class of property. Surely if that was intended it could have been very easily and simply expressed therein. Indeed, Class 10(n) property expressly excludes Class 12 property. It is therefore reasonable to conclude that Class 10(s) property, a "motion picture film or video tape”, contemplates something less than the Class 12(n) property requirements.

The applicability of the decision in the McQuillan case, supra, must now be addressed. During 1972 the taxpayer acquired an interest in a film to be produced entitled "Lies My Father Told Me" and he claimed CCA deductions in respect thereof for the period 1972 to 1976 inclusive under a class which allowed a 60 per cent rate for property that was a "motion picture film".

According to the reasons for judgment, at page 621, the evidence was that the film’s photography was completed in November 1972 and that it was 125 minutes in duration. A director of the film apparently felt this was a rough cut, that he was unhappy with it and therefore he refused its release. The film as then shot was shown in Montreal to ten people. It was said to be without sound, and the identity of the ten people was undisclosed. The taxpayer claimed the principal photography had been done by that time, that not all of the photography was then done, and that the film was not shown to the "public" but that there was a "film". As of April 1974 more photography still had to be done plus dubbing in of sound which may by then have been only the music.

Apart from the above, the reasons do not disclose the extent of the film’s photography or its sound (if any) by the end of 1972, nor whether there was any discernable sequential plot displayed nor whether the film was materially in accord with the script. It is a fair observation that the ten people who viewed the film in December 1972 could well have been those people involved in its production, including financiers, as well as cast members. One simply does not know. Without further descriptive analysis, and noting a representation had been made to a bank in November 1973 that the film was "then in progress", board member Goetz J.B. (as he then was), at page 621, determined the taxpayer’s interest in the film as of December 31, 1972 could not be termed a depreciable asset, and said that "if the appellant was to have the benefit of Regulation 1000(l)-giving him a 60 per cent capital cost allowance on the film-it must be a motion picture film and I think that those words are quite clear that a motion picture film is something that is ready to be shown to the public". In my view these words signify his recognition of an underlying incentive being reflected in the CCA rate of 60 per cent.

In my view, McQuillan is distinguishable and ought to stand as a judgment based on its own facts and the law as it stood at that time. The factual distinctions which stand out are the film’s lack of sound together with questions remaining respecting sequence and completeness of its plot, the identity of its viewers and the purpose of the viewings. What was meant by the term "public" was not analyzed; was it to be the general public, the paying public, the investor public, or perhaps the marketing public? Additionally, the law has changed since McQuillan. Notwithstanding that the terminology employed respecting property in the subject Class 10(s) remained the same as in McQuillan's Class 18, the change (of application to that kind of property acquired after May 26, 1976) divided it into two classes-Class 10 (30 per cent) and Class 12 (100 per cent). The Class 12 conditions have already been stated.

In my opinion this change effectively dilutes the efficacy of the McQuillan decision even though the same phrase, "motion picture film", was continued in Class 10(s). Notwithstanding this continuation, I see no reason why the repetition of this phrase mandates continuation of McQuillan's strict interpretative approach rather than application of a broad and meaningful approach to its meaning given the reality that the rate change (from 60 per cent down to 30 per cent) was substantial. To me this indicates lesser concerns respecting matters of incentives or completion.

The Random House Dictionary of the English Language: Unabridged Edition (Random House, New York, 1983) defines "motion picture" as:

l. A sequence of consecutive pictures of objects photographed in motion by a specially designed camera and thrown on a screen by a projector...in such rapid succession as to give the illusion of natural movement. 2. a play, event, or the like, presented in this form.

film: Motion pictures. a. the film strip containing the photographs exhibited in a motion picture machine.

I do not believe the ordinary and common meaning of the phrase necessarily implies principal photography being reached or production being completed.

Due to the inherent diversity and complexities associated with the subject, purpose and intent respecting motion picture film or video tape productions, no meaningful definition of those phrases may be articulated in the abstract. Where CCA is being sought, an overriding requirement is that the production under scrutiny must have been instituted for the purposes of gaining or producing income from that property which effectively restricts these productions to commercial ventures. The determination of each case would turn on its own facts.

With respect to the film’s status in this case, it has been shown to display a readily discernible comedy plot, appropriate sound, a beginning, a developing sequential story, and an end. It reached the state which enabled it to be shown to professional marketers through a video tape medium and the fact that it was so shown operates persuasively in the appellant’s favour that there was then in existence a commercial depreciable property which may be classified as a Class 10(s) motion picture film or video tape for fiscal purposes.

Alternatively, even if the Class 10(s) classification may be erroneous, the applicability of Class 8(i) appears to me to be entirely appropriate. The film’s status as already described, and thus the appellant’s interest therein, complied with the ordinary and common meaning of property that is ’’tangible”. This term is defined by Black's Law Dictionary (6th Ed.) as

Having or possessing physical form. Capable of being touched and seen; perceptible to the touch; tactile; palpable; capable of being possessed or realized; readily apprehensible by the mind; real; substantial.

and by The Shorter Oxford English Dictionary as

1. Capable of being touched; affecting the sense of touch; touchable. Hence, material, externally real, objective. 2. That may be discerned or discriminated by the sense of touch; as a t. property or form. 3. fig. That can be laid hold of or grasped by the mind, or dealt with as a fact; that can be realized or shown to have substance.

It is trite to say that if a completed motion picture film was tangible property, then an incomplete one (to the extent as shown here) would also be tangible property.

Having been acquired before 1989, the film’s Class 8(1) classification would not specifically be subject to the ’’available for use" rules which came into effect respecting property acquired after 1989. While there is no presumption that legislative amendments signify a change in the substantive law, the existence of the transitional provision may well rebut any presumption that only clarification of the existing law was intended; Woodward Stores Ltd. v. The Queen, [1991] 1 C.T.C. 233, 91 D.T.C. 5090 (F.C.T.D.) at page 246 (D.T.C. 5100).

I appreciate that respondent’s counsel did not formulate his submission premised precisely on a requirement that the film must be "available for use" to qualify for CCA treatment but rather articulated his position in the context of the work-in-progress approach mentioned earlier. Even accepting, for the moment, this terminology at face value as falling somewhere short of "available for use" attributes, it cannot be ignored that the tangible state of the film here was recognized by the Minister’s officials as having reached capital property status. As I see it when viewed in its totality, the progress obtained by the end of December 1972 extended beyond a simple work-in-progress condition. Further because counsel did not formulate the issues in this case around "available for use" principles, I believe it is appropriate to decline making any further comments in this respect.

Decision

The appeal for the appellant’s 1989 taxation year is allowed and the matter is referred back to the Minister of National Revenue for reconsideration and reassessment on the basis that the appellant is entitled to a terminal loss deduction in the amount of $339,990 pursuant to subsection 20(16) of the Income Tax Act respecting his interest in a film entitled ’’Snowballs”.

The appellant may have his costs on a party-to-party basis.

Appeal allowed.