Fonthill Lumber Ltd. v. The Queen, 81 DTC 5333, [1981] CTC 406 (FCTD)

Jerome, ACJ:—This action is brought by the plaintiff in accordance with section 172 of the Income Tax Act as an appeal from the reassessment by the Minister of National Revenue of the capital cost allowances to which the plaintiff was entitled during its 1973 and 1974 taxation years. The facts are not complicated and the issue is a very narrow one.

This plaintiff was engaged in the business of manufacturing and selling wood products at Fonthill, Ontario, and on December 13, 1972, entered into an agreement to borrow the sum of $103,950 from the Ontario Development Corporation for the purpose of the acquisition of certain capital assets. The plaintiff expended the full sum in the acquisition of capital assets during its 1973 taxation year. The loan agreement was filed as an exhibit and discloses that of the borrowed sum, half was repayable at interest in regular instalments and is referred to as “term monies” while the other half was borrowed without interest unless and until demand for payment had been made and is referred to as “demand monies”. The agreement also contained the following forgiveness clause:

The Corporation [the ODC] will forgive repayment of the demand monies or so much thereof as are advanced on the following basis:

on the 1st day of the 13th month following the	10% of the demand monies ad-
date of the final advance of monies hereunder	vanced
on the 1st day of the 25th month following the	10% of the demand monies ad
date of the final advance of monies hereunder	vanced
on the 1st day of the 37th month following the	10% of the demand monies ad
date of the final advance of monies hereunder	vanced
on the 1st day of the 49th month following the	10% of the demand monies ad
date of the final advance of monies hereunder	vanced
on the 1st day of the 61st month following the	10% of the demand monies ad
date of the final advance of monies hereunder	vanced
on the 1st day of the 73rd month following the	10% of the demand monies ad
date of the final advance of monies hereunder	vanced

provided that the Borrower has at all material times prior to each of the dates upon which repayment of monies is to be forgiven, operated its business (or the portion thereof connected with the project if the Borrower carries on other lines of business or carries on business at other locations) in a manner satisfactory to the Corporation [the ODC], and without limiting the generality of the foregoing, it has continuously (having regard to the nature of its business) carried on the business of the manufacture of wood products for the building trade at the Village of Fonthill in the County of Welland.

The granting of any forgiveness hereunder shall not bind the Corporation [the ODC] to grant any further forgiveness.

The final advance of monies was June 11, 1973, so that the first forgiveness date was July 1, 1974, which falls beyond both taxation years in issue here.

During the plaintiff’s 1973 taxation year and prior to March 27, 1973, the Ontario Development Corporation advanced the term monies in full ($51,975) and on March 27, 1973, advanced $33,950 of the demand monies. The remaining $18,025 of the demand monies was not advanced until June 11, 1973, which falls within the plaintiff’s 1974 taxation year. The first forgiveness in accordance with the agreement did take place on July 1, 1974, and in due course, all of the demand monies were forgiven. I will not recite the chronology of returns and notices of reassessment and objections. The Minister has taken the position that the taxpayer is not entitled to claim capital cost allowance on the demand monies by virtue of paragraph 13(7)(e)

Where a taxpayer has received or is entitled to receive from a government, municipality or other public authority, in respect of or for the acquisition of property, a grant, subsidy or other assistance other than an amount authorized to be paid under an Appropriation Act and on terms and conditions approved by the Treasury Board for the purpose of advancing or sustaining the technological capability of Canadian manufacturing or other industry, the capital cost of the property shall be deemed to be the capital cost thereof to the taxpayer minus the amount of the grant, subsidy or other assistance.

Obviously, a loan is not a grant; but can a forgiveable loan be a grant or a subsidy or, if not, can it be “other assistance”? On this general question of interpretation Cattanach, J had the following to say in GTE Sylvania Canada Ltd v The Queen, [1974] CTC 751; 74 DTC 6315.

In my judgment the familiar rule that where there are general words following particular and specific words all of one genus, the general words are presumed to be restricted to the same genus as the particular words, — applies to the words “grant, subsidy or other assistance” as used in section 20(6)(h) of the Income Tax Act. In this section there are the specific words “grant” and “subsidy” followed by the general words “or other assistance’.

The fact is that the general words “or other assistance” can hardly avoid being ancillary in nature to the words “grant” and “subsidy”. It seems to me that where there are ancillary words of this nature it is a sound rule not to give such a construction to the ancillary words as will wipe out the significance of the particular words which antecede them.

As I have said before the constant and dominating feature in the words “grant” and “subsidy” is that each contemplates the gift of money from a fund by government to a person for the public weal. Something concrete and tangible is to be bestowed. For the reasons I have expressed the general words “or other assistance” must be coloured by the meaning of those words.

Again referring to the dictionary meanings of the words “grant” and “subsidy” there is one common thread throughout, that is a gift or assignment of money by government or public authority out of public funds to a private or individual or commercial enterprise deemed to be beneficial to the public interest. Subject to minor refinements the words “grant” and “subsidy” appear from their dictionary meanings to be almost synonymous.

I am of the view that rules of interpretation or canons of construction which have been established judicially must be applied where pertinent and in or saying I do so fully cognizant that such rules, particularly the principle of ejusdem generis, are a useful servant but a dangerous master.

The ejusdem generis doctrine is as old as Bacon’s maxims. That rule, which I repeat, is that where general words follow an enumeration of particular things they do not introduce changes Of a different character.

In the Sylvania decision Cattanach, J concluded that special tax consideration in which no funds passed to the taxpayer would be an unwarranted extension of the genus of grant or subsidy. In the present case, however, there has been a transfer of funds to the taxpayer for the purpose of the Capital acquisitions in question and, in respect to the demand moneys, there is the possibility that repayment will be forgiven which would not be available except under such a publicly funded program. In my opinion, therefore, the forgiveable portion of the loan in this case may become a grant or subsidy at the time of forgiveness, and in any event can certainly be included in the words “other assistance” without offending the ejusdem generis doctrine.

The intent and the language of paragraph 13(7)(e) are not difficult to comprehend ie that the taxpayer’s capital cost allowance ought not to be based on a cost which the taxpayer does not incur but which is borne in whole or in part out of public funds. The clause concerns itself with the accuracy of capital cost and as such directs itself to the time of acquisition by the taxpayer. It is agreed that during the 1973 taxation year this plaintiff expended $103,950 on capital acquisitions, for the purpose of the project which is the subject of the agreement with the Ontario Development Corporation, and included this sum in the larger amount of its overall capital cost. If the Minister’s contention is valid the taxpayer was obliged by virtue of paragraph 13(7)(e) to reflect the fact that $51,975 was not a cost incurred by the taxpayer because it had been made with money which the taxpayer had borrowed and would not be obliged to repay, but I am of the opinion that the taxpayer was not in a position to make such a declaration at that time. Certainly since the facts disclose without dispute that some $18,025 of the demand moneys was not advanced until the plaintiff’s 1974 taxation year, the Minister’s contention could only be sustained, if at all, in respect of the $31,095 which was actually advanced during the 1973 year but the deciding point is more fundamental than merely a question of whether the demand moneys were received in the 1973 or the 1974 taxation year.

At the moment of acquisition the taxpayer had not received the proceeds of the loan and even after receipt could only know that no interest was payable in respect of the demand moneys until a demand for repayment, presumably because of some failure in the project. Such interest relief might be of taxation significance but it could not influence the original capital cost and neither, in my opinion, could the forgiveness feature so long as it remained a future and contingent event. The first time the taxpayer could be certain that a portion of its 1973 capital cost had not been incurred by it, but had been borne out of public funds, was upon fulfillment of the conditions and thereafter the actual act of forgiveness by the Ontario Development Corporation. The first act of forgiveness did not take place in either of the plaintiff's 1973 or 1974 taxation years and, therefore, while I find that in general terms this forgiveable loan program falls within the meaning of paragraph 13(7)(e) I am of the view that the Minister’s assessment that the taxpayer was not entitled to capital cost allowance on the demand portion of the moneys during its 1973 and 1974 taxation years “on the ground that in accordance with the provisions of subsection 13(7) of the Act, the taxpayer is not entitled to an allowance under paragraph 20(1 )(a) of the Act in respect of the amount of $51,975 received in 1973 from the Ontario Development Corporation . . was an incorrect assessment. The appeal is allowed and the matter is referred back to the Minister for the appropriate re-assess- ment of the plaintiff’s capital cost allowance during its 1973 and 1974 taxation years.