Wilson v. MNR, 80 DTC 1379, [1980] CTC 2431 (T.R.B.)

John B Goetz:— This is an appeal from an income tax assessment for the appellant’s 1976 taxation year. The appellant was a retired senior officer of a trust company and with his experience had considerable expertise in making investments. In computing his income for the 1976 taxation year, he sought to deduct the sum of $1,020.35 represented by the following items being financial literature with respect to the investment in securities:

The Minister disallowed this deduction of $1,020.35 on the basis that the said amount constituted an outlay on account of capital relying, inter alia, upon paragraphs 18(1)(a) and (b) of the Income Tax Act, SC 1970-71-72, c 63, as amended.

The quantum of investment income earned by the taxpayer during the 1976 taxation year as a result of investment in stocks and bonds was substantial in relation to his total income for that year, namely, $21,015.01, out of a total income for the year of $67,375. The appellant maintained that the expenditure on investment publications was necessary for the purpose of producing income from property, namely, investments in stocks and bonds.

The issue therefore resolves as to whether in fact the expenditure of $1,020.35 on investment literature was an expenditure on account of revenue or on account of capital. This issue has been dealt with many times in judicial decisions and I quote Jackett, P in Algoma Central Railway v MNR, [1967] CTC 130; 67 DTC 5091, at 134 and 5093 respectively:

The “usual test’’ applied to determine whether such a payment is one made on account of capital is, “was it made “with a view of bringing into existence an ad- vantage for the enduring benefit of the appellant’s business” ”? See BC Electric Ry Co Ltd v MNR (1958), SCR 133 (58 DTC 1022, [1958] CTC 21), per Abbott, J at pages 137-8, where he applied the principle that was enunciated by Viscount Cave in British Insulated and Helsby Cables, Ltd v Atherton ([1926] AC 205), and that had been applied by Kerwin J, as he then was, in Montreal Light, Heat & Power Consolidated v MNR, [1942] SCR 89 at 105 (2 DTC 535, [1942] CTC 1).

The respondent relied on paragraphs 18(1)(a) and (b) which reads as follows:

(1) In computing the income of a taxpayer from a business or property no deduction shall be made in respect of

(a) an outlay or expense except to the extent that it was made or incurred by the taxpayer for the purpose of gaining or producing income from the business or property

(b) an outlay, loss or replacement of capital, a payment on account of capital or an allowance in respect of depreciation, obsolescence or depletion except as expressly permitted by this Part; (Italics mine).

“Business” is described in subsection 248(1) of the Act as follows:

(1) In this Act,

“business” includes a profession, calling, trade, manufacture or undertaking of any kind whatever and includes an adventure or concern in the nature of trade but does not include an office or employment; (Italics mine).

“Capital property” is described in paragraph 54(b) of the Act as follows:

(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;

The appellant had an extensive investment portfolio of securities which, in my view, comes under the definition of property within the meaning of subsection 248(1) of the Act. The investment periodicals purchased by him were obtained with the view of either increasing his portfolio in existing stocks therein or removal from such portfolio of stocks and securities that he felt would be dropping in value. If as the result of the purchase of more securities of companies within his portfolio and if indeed he disposed of them at a profit from the time of their original purchase, he would be subject to a cpaital gain’s tax. Conversely, if he disposed of stock or securities at a loss, he would be entitled to a capital loss as defined in section 39 of the Act.

The appellant, in asking the Board to determine whether the expenditure for investment in periodicals should be classified as being as a capital or income nature, is whether or not it brought into existence an asset or advantage of an enduring benefit and to this end he quoted British Insulated and Helsby Cables v Atherton, [1926] AC 205, at pp 213-14.

The respondent maintained that this proposition has been affirmed in the Canadian Courts and referred the Board to the Federal Court of Appeal decision in MNR v M P Drilling Ltd, [1976] CTC 58; 76 DTC 6028.

The appellant further argued that the deduction in question was not of a capital nature in as much as no enduring asset was acquired and that the information obtained from the periodicals in question was of a current and temporary nature, having always to be updated to continue using such publications. In this regard he made reference to the Supreme Court of Canada decision in Algoma Central Railway v MNR, [1968] CTC 161; 68 DTC 5096, by way of analogy in that it was held that the cost of a geological survey undertaken by the Railway with the intention of gathering information in order to generate the public interest in, and development of, the area, were not capital expenditures, but merely amounts laid out to procure information. By analogy the appellant submitted that his expenditures on the Said periodicals were not of a capital nature, in as much as they were laid out to gather information with which to make investment decisions needed to earn the investment income in question.

The respondent, on the other hand, argued that the investments contained in the appellant’s portfolio should not be considered to be inventory and submitted that there is at best only ‘‘a tenuous connection between the expenditures in question and the earning of income from these investments”. The respondent further stated that if the Board should find that the appellant comes within paragraph 18(1)(a), and I do so find, then the outlays in question can only be considered outlays on account of capital since they were not made for the purpose of maintaining an income stream but rather were made for the purpose of either acquiring or selling capital property, namely, the different investments made by the appellant.

In that substantial portion of the appellant’s annual income from his adventure in the investment field, I find that the use of financial periodicals would be vital to his sensitive investment and not as argued by the respondent that these expenditures were “too indirect or remote to permit the deduction sought by the appellant”.

For the above reasons, the appeal is allowed and the matter referred back to the respondent for reconsideration and reassessment.

Appeal allowed.