Royal Trustco v. The Queen, 2001 DTC 52 (TCC)

Sarchuk T.C.J. indicated (at p. 64) that:

"The interpretation of the undefined terms 'tangible property' and 'reflected' in accordance with their accounting meanings accords with Parliament's use of accounting-based concepts throughout the entire scheme of Part I.3 of the Act."

Sarchuk T.C.J. found that GAAP should be applied in determining the characterization of items for purposes of Part I.3 rather than just their carrying value given the evident reliance on GAAP in that Part.

The taxpayer, and a partnership of which it was a member, leased equipment. Sarchuk T.C.J. accepted evidence that upon execution of the leases the taxpayer or the partnership was treated for accounting purposes as having disposed of the assets to the lessees and that the accounting carrying value of the resulting amounts on its or the partnership's balance sheet represented financial assets (i.e., amounts receivable by it). Given that the whole of Part I.3 of the Act relied on balance sheets and GAAP in the determination of a corporation's taxable capital employed in Canada, Sarchuk T.C.J. found (at p. 64) that:

"It seems only reasonable to conclude that the technical terms referable to the balance sheet ought to be defined and characterized for the purposes of Part I.3 of the Act by reference to accounting terminology."

Therefore, because the amounts were not tangible property for accounting purposes, they were not tangible property for the purposes of s. 181.3(1).