Strayer,
J.:
—
Relief
Requested
This
is
an
appeal
by
the
plaintiff
against
notices
of
reassessment
by
the
Minister
in
respect
of
the
taxation
years
of
the
plaintiff
ending
March
31,
1980
and
December
31,
1980
respectively.
As
I
understand
it
the
only
issue
remaining
for
determination
by
me
is
as
to
whether
the
Minister
should
have
assessed
the
plaintiff
on
the
basis
that
a
deemed
reduction,
equal
to
an
investment
tax
credit
claimed
by
the
plaintiff,
in
the
capital
cost
of
certain
depreciable
property
of
the
plaintiff,
should
only
be
regarded
as
taking
place
in
the
taxation
year
in
respect
of
which
the
investment
tax
credit
was
deducted
from
income
or
on
the
basis
that
it
can
be
regarded
as
taking
place
in
the
year
during
which
the
return
for
the
previous
taxation
year
(in
respect
of
which
the
investment
tax
credit
is
claimed)
is
actually
prepared
and
submitted.
The
Minister
takes
the
position
that
the
deemed
reduction
in
capital
cost
must
be
taken
to
have
occurred
in
the
former
year,
whereas
the
plaintiff
takes
the
position
that
it
should
be
allowed
to
treat
the
deduction
in
capital
cost
to
have
occurred
in
the
latter
year.
Facts
In
the
period
commencing
in
1975
and
continuing
at
least
until
the
end
of
the
plaintiff's
taxation
year
ending
December
31,
1980
the
plaintiff
earned
and
became
entitled
to
investment
tax
credits
in
the
aggregate
amount
of
$5,965,585.
In
filing
its
return
of
income
tax
for
the
taxation
years
ending
March
31,
1980
and
December
31,
1980
the
plaintiff
calculated
its
capital
cost
allowance
on
the
basis
that
the
investment
tax
credit
reduced
the
undepreciated
capital
cost
of
depreciable
property
in
the
taxation
year
in
respect
of
which
the
investment
tax
credit
was
claimed.
By
notices
of
reassessment
dated
February
20,
1984
the
Minister
accepted
this
basis
of
calculation
but
made
certain
modifications
in
detail.
The
plaintiff
then
filed
notices
of
objection
dated
March
9,
1984
in
which
it
for
the
first
time
contended
(contrary
to
its
original
returns)
that
the
deemed
reduction
of
capital
cost
due
to
the
receipt
of
investment
tax
credits
should
occur
only
in
the
year
in
which
the
returns
were
filed
claiming
those
credits,
i.e.
during
the
taxation
year
following
the
year
in
respect
of
which
those
tax
credits
were
earned
and
realized
by
a
reduction
in
the
tax
payable.
The
Minister
in
further
notices
of
reassessment
dated
May
28,
1986
rejected
this
contention
and
confirmed
his
assessments
based
on
the
reduction
in
capital
cost
being
deemed
to
have
occurred
in
the
year
in
respect
of
which
the
income
tax
credits
were
earned.
Subsection
127(5)
of
the
Income
Tax
Act,
R.S.C.
1952,
c.
148
(am.
S.C.
1970-71-72,
c.
63)
(the
"Act")
permits
a
deduction
of
investment
tax
credits
from
tax
otherwise
payable.
Subsection
13(7.1)
of
the
Act
provides
in
part
as
follows:
(7.1)
For
the
purposes
of
this
Act,
where
a
taxpayer
has
deducted
an
amount
under
subsection
127(5)
or
(6)
in
respect
of
a
depreciable
property.
.
.
the
capital
cost
of
the
property
to
the
taxpayer
shall
be
deemed
to
be
the
amount
by
which
the
aggregate
of
(c)
the
capital
cost
thereof
to
the
taxpayer.
.
.
exceeds
the
aggregate
of
(e)
all
amounts
deducted
under
subsection
127(5)
or
(6).
.
.
The
issue
before
me
involves
the
interpretation
of
these
provisions
in
the
total
context
of
the
Act.
For
the
purposes
of
this
case,
the
question
is
whether
the
deemed
reduction
of
capital
cost
which
is
to
occur
after
the
taxpayer
"has
deducted"
his
investment
tax
credit
can
or
must
occur
in
the
same
year
in
respect
of
which
that
credit
was
claimed,
or
can
or
must
it
be
deemed
to
occur
in
the
year
following
the
year
in
respect
of
which
the
tax
credit
was
deducted?
Conclusions
While
the
proper
interpretation
of
these
words
is
a
matter
of
difficulty
and
not
free
from
doubt,
I
have
concluded
that
the
Minister's
interpretation
is
correct.
That
is,
the
reduction
in
capital
cost
must
occur
in
the
year
in
respect
of
which
the
investment
tax
credit
was
utilized.
What
is
in
issue,
of
course,
is
whether
expenses
of
depreciation
otherwise
allowable
must
be
reduced
in
the
year
in
respect
of
which
the
investment
tax
credit
is
taken.
Section
20
deals
with
deductions
permitted
in
computing
income
from
business
or
property,
and
paragraph
20(1)(a)
permits
the
deduction
of
depreciation
in
the
amounts
prescribed
by
regulation.
Paragraph
1100(1)(a)
of
the
Regulations
sets
out
the
percentage
rates
of
depreciation
which
may
be
applied
to
"the
undepreciated
capital
cost
to
[the
taxpayer]
as
of
the
end
of
the
taxation
year.
.
.”.
To
determine
what
is
"undepreciated
capital
cost"
one
must
go
to
paragraph
13(21)(f)
of
the
Act
which
requires
that
one
start
with
the
"capital
cost"
to
the
taxpayer
of
the
depreciable
property,
adding
to
that
amount
certain
items
and
subtracting
certain
other
items.
"Deemed
capital
cost"
of
property
such
as
that
in
question
here,
that
is
property
in
respect
of
which
an
investment
tax
credit
has
been
obtained,
is
in
effect
defined
by
the
provisions
of
subsection
13(7.1)
as
quoted
above.
As
will
be
seen,
the
determination
of
that
capital
cost
requires
the
subtraction
inter
alia
of
amounts
deducted
as
investment
tax
credit
under
subsection
127(5).
Therefore,
when
one
seeks
to
deduct
depreciation
one
must
apply
the
authorized
percentage
to
the
undepreciated
capital
cost
at
the
end
of
the
taxation
year.
To
calculate
the
undepreciated
capital
cost
one
must
start
with
the
capital
cost
and
the
capital
cost
must
be
calculated,
by
virtue
of
subsection
13(7.1),
as
a
net
amount
after
the
deduction,
inter
alia,
of
any
investment
tax
credit
deducted.
Admittedly
there
may
be
some
ambiguity,
as
counsel
for
the
plaintiff
ably
contended,
in
the
words
“as
deducted"
or
"deducted"
where
they
are
found
in
the
opening
passage
of
subsection
13(7.1)
and
in
paragraph
13(7.1)(e).
They
could
be
thought
to
refer
to
something
which
has
occurred
in
a
previous
taxation
year.
But
when
one
looks
at
the
various
provisions
for
the
calculation
of
depreciation
and
the
determination
of
"undepreciated
capital
cost"
the
word
"deducted"
can
and
should
be
taken,
I
believe,
to
refer
to
a
deduction
made
in
the
course
of
the
calculation
of
tax
in
respect
of
that
very
year
in
which
the
investment
tax
credit
has
the
effect
of
reducing
net
tax.
Not
only
is
such
an
interpretation
permissible
from
the
language
employed,
but
it
is
also
more
consistent
with
the
calculation
of
income
and
expenses
on
an
accrual
basis,
which
is
the
norm.
That
is,
if
in
a
given
taxation
year
depreciable
property
is
acquired
and
its
real
cost
is
reduced
by
an
investment
tax
credit
obtained
in
respect
to
that
year,
then
a
reduction
in
the
capital
cost
should
be
taken
to
have
accrued
also
in
that
year
thereby
reducing
the
undepreciated
capital
cost
at
the
end
of
that
year
upon
which
depreciation
is
to
be
calculated.
I
am
therefore
dismissing
the
appeal
of
the
plaintiff
on
the
issue
left
for
me
to
decide,
and
will
confirm
the
reassessments
of
the
Minister
in
this
respect.
As
it
is
not
clear
to
me
what
the
formal
judgment
should
contain
in
its
entirety,
particularly
with
respect
to
those
matters
concerning
which
a
“partial
consent
to
judgment"
and
a
“partial
withdrawal”
has
been
filed,
I
am
requesting
counsel
for
the
defendant
to
draft
a
formal
judgment
and
submit
it
to
counsel
for
the
plaintiff
for
approval.
A
written
application
can
then
be
made
under
Rule
324
for
formal
judgment
if
there
is
agreement,
and
if
not
a
contested
application
will
have
to
be
made
either
under
Rule
324
or
by
further
appearance
at
a
time
to
be
arranged.
Appeal
dismissed.
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