Urie,
J.:—The
issue
raised
in
this
appeal
from
a
judgment
of
the
Trial
Division,
which
dismissed
the
appeal
of
the
appellant
from
a
decision
of
the
Tax
Review
Board,
is
whether
the
respondent
was
entitled
to
deduct,
as
it
did
in
its
tax
returns,
the
amounts
of
$9,650.44
and
$17,140.65
in
its
calculation
of
its
gross
profits
in
its
1977
and
1978
taxation
years
computed
pursuant
to
paragraph
20(1)(gg)
of
the
Income
Tax
Act
("the
Act”)
as
"inventory
allowance”.
The
Minister
of
National
Revenue
("The
Minister")
in
his
reassessment
disallowed
the
deductions.
The
issue
arises
because
the
goods
were
described
in
the
agreement
between
the
respondent,
an
authorized
dealer
of
John
Deere
Limited
("J.D.L."),
and
J.D.L.
as
"consigned
goods"
which,
since
the
respondent
has
no
property
in
such
goods,
the
appellant
says
deprives
the
respondent
of
the
right
to
the
deduction
calculated
in
accordance
with
paragraph
20(1)(gg)
of
the
Act.
Facts-The
Contract
An
"Authorized
Agricultural
Dealer
Agreement"
was
executed
on
an
annual
basis
by
the
parties,
J.D.L.
and
the
respondent,
including
the
1977
and
1978
taxation
years.
It
was
agreed
that
those
agreements
governed
the
business
relationship
between
them.
Two
types
of
goods
were
to
be
shipped
by
J.D.L.
to
the
respondent
Dealer
on
orders
received
from
it:
first,
"consigned
goods"
which
were
goods
shipped
"on
consignment
for
sale
by
the
Dealer"
and
to
be
“held
by
the
Dealer
as
the
property
of
the
Company".
Secondly,
“sold
goods"
which
included
service
parts,
small
attachments
not
shipped
with
the
consigned
goods
having
an
individual
dealer
price
of
$1,000
or
less,
certain
items
of
J.D.L.
product
line
and
all
other
items
sold
as
opposed
to
consigned,
by
J.D.L.
to
the
Dealer.
Among
the
relevant
terms
and
conditions
of
the
agreement
for
the
1976-1977
year
were
the
following:
Paragraph
2
of
Part
I
of
the
Terms
and
Conditions
provided
for
the
procedure
to
be
followed
in
the
event
that
J.D.L.
wished
or
did
not
wish
to
renew
an
existing
annual
agreement
and,
as
well,
provided
that
the
Dealer
might
"accept
or
reject
any
new
appointment."
Paragraph
2(d)
reads:
(d)
If
the
Dealer’s
Authority
to
sell
Consigned
Goods
on
behalf
of
the
Company
is
terminated
under
Sections
2
or
3,
no
further
shipments
will
be
made
to
the
Dealer
and
the
Dealer
will
promptly
ship
all
Consigned
Goods
unsold
in
his
possession
to
the
destination
and
in
the
manner
directed
by
the
Company,
F.O.B.
the
Dealer's
town.
All
Consigned
Goods
will
be
shipped
by
him
properly
packed
and
with
all
parts
complete.
The
Dealer's
obligation
to
store
and
care
for
the
consigned
Goods
continues
until
they
have
been
properly
shipped
as
directed
by
the
Company.
In
the
event
that
the
Dealer
fails
to
ship
any
Consigned
Goods
in
accordance
with
the
instructions
of
the
Company,
and
within
the
time
limit
specified
by
the
Company,
then
the
Company
shall
have
full
power
and
right
to
take
possession
thereof
and
deal
with
them
as
it
sees
fit.
[Emphasis
added.]
Paragraph
3
empowered
J.D.L.
to
cancel
the
Dealer's
appointment
prior
to
the
end
of
the
one
year
term
of
the
agreement
for
a
variety
of
reasons.
In
the
event
of
such
a
cancellation
it
stipulated
the
following:
The
Dealer
will,
upon
termination
of
his
authority
to
sell
or
lease
Consigned
Goods,
ship
the
Consigned
Goods
in
his
possession
at
the
direction
of
the
Company
in
the
same
manner
as
provided
in
Section
2.
His
obligation
to
store
and
care
for
the
Consigned
Goods
will
continue
until
such
shipment
has
been
made.
[Emphasis
added.]
A
similar
provision
was
embodied
in
paragraph
4
in
the
event
of
the
death
of
the
Dealer.
Paragraph
6
stated
that
the
Dealer's
authority
to
act
on
behalf
of
J.D.L.
was
limited
.
.
.
to
storing,
selling
and
leasing
Consigned
Goods
in
his
possession
belonging
to
the
Company,
and
holding
and
accounting
for
the
proceeds
of
such
Consigned
Goods,
all
strictly
in
the
manner
and
within
the
limitations
provided
for
herein.
He
has
no
authority
to
act
for
or
bind
the
Company
in
any
other
way
whatsoever.
Part
Il
of
the
agreement
was
headed
"Consignment
Terms"
which
embodied
several
important
provisions
relating
to
the
relationship
of
the
parties.
Paragraph
8
is
set
forth
in
full:
Part
II.
Consignment
Terms
8.
Dealer's
Duty
to
Store
and
Care
for
Consigned
Goods.
The
company
retains
title
to
Consigned
Goods
and
the
Dealer
will
hold
them
as
the
property
of
the
Company
unless
and
until
they
are
sold
or
leased
by
him
on
behalf
of
the
Company
under
the
authority
set
out
in
Section
9.
Dealer
will
keep
Consigned
Goods
properly
warehoused
and
protected
and
will
not
permit
removal
of
any
part
from
any
item
of
Consigned
Goods.
He
is
responsible
for
all
loss,
damage
or
deterioration
to
Consigned
Goods
after
delivery
to
him.
The
Company
will
arrange
for
physical
damage
insurance
on
Consigned
Goods
against
perils
listed
in
a
certificate
of
insurance
to
be
supplied
to
the
Dealer.
The
Cost
of
of
such
coverage
will
be
charged
to
the
Dealer
and
the
Dealer
agrees
to
pay
the
same.
The
Dealer
will
promptly
pay
to
the
company
the
full
amount
of
any
loss,
damage
or
deterioration
in
Consigned
Goods,
however
caused,
which
is
not
covered
by
the
foregoing
insurance.
The
Dealer
will
pay
when
due
all
charges
for
customs
duties,
sales,
use,
excise,
personal
property,
or
other
similar
taxes
and
penalties,
license
fees
and
other
charges
of
any
kind
that
may
be
assessed
or
charged
on
the
Goods,
the
sale,
lease
or
use
thereof,
or
the
Dealer's
premises.
If
the
Dealer
fails
to
pay
such
charges,
the
Company
may
pay
them
and
the
Dealer
agrees
to
reimburse
the
Company
on
demand
for
all
moneys
so
paid
out,
with
interest
at
the
highest
contract
rate
permitted
by
law
but
not
in
excess
of
14%
per
annum.
The
Dealer
agrees
to
co-operate
with
the
Company's
Transfer
Program
described
in
the
Agricultural
Dealer's
Terms
Schedule.
The
Dealer
acknowledges
that
the
intent
of
this
program,
and
his
participation
in
it
from
time
to
time,
is
to
facilitate
overall
dealer
retail
sales
and
to
assist
in
maintaining
dealer
inventories
at
reasonable
levels.
It
is
recognized
that
this
is
to
the
mutual
benefit
of
the
Dealer
and
the
Company.
At
the
request
of
the
Company,
the
Dealer
will
ship
any
item
or
items
of
Consigned
Goods
requested
by
the
Company
to
the
destination
and
in
the
manner
directed
by
the
Company,
F.O.B.
the
Dealer's
town.
[Emphasis
added.]
Paragraph
9
headed
“Sales
or
Leases
by
the
Dealer"
reads
in
part
as
follows
with
emphasis
added:
9.
Sales
or
Leases
by
the
Dealer.
The
Dealer
is
authorized
to
sell
or
lease
Consigned
Goods
to
users
in
his
own
name
but
on
behalf
of
the
Company,
subject
to
the
following
provisions:
(b)
Upon
delivery
of
Consigned
Goods,
the
Dealer
will
obtain
full
settlement
from
the
customer
in
accordance
with
the
order,
receiving
all
proceeds
as
the
property
of
the
Company.
Except
as
provided
below
with
respect
to
proceeds
in
the
form
of
tangible
property,
the
Dealer
will
immediately
on
receipt
remit
to
the
Company
proceeds
including
deposits
acceptable
to
it
up
to
the
full
wholesale
price
of
the
items
sold.
Acceptable
proceeds
in
the
form
of
tangible
property
will
be
purchasd
by
the
dealer
as
provided
in
section
9(d)
rather
than
physically
remitted.
If
the
value
of
proceeds
acceptable
to
the
Company
with
which
the
Dealer
proposes
to
settle
for
the
item
sold
is
less
than
the
wholesale
price
of
such
item,
the
Dealer
shall
promptly
remit
the
difference
in
cash
immediately
upon
delivery
of
the
machine.
When
the
item
sold
has
been
fully
settled
for
as
aforesaid,
all
other
proceeds
of
the
sale
not
used
in
such
settlement
shall
become
the
property
of
the
Dealer.
Proceeds
so
becoming
the
Dealer's
property
shall,
except
as
otherwise
specifically
provided
in
connection
with
warranty
work
or
other
special
services
performed
by
the
Dealer,
constitute
his
full
compensation
for
all
services
rendered
by
him
to
the
Company
under
this
contract
or
otherwise,
and
all
expenses
incurred
by
him
in
rendering
such
services.
All
proceeds
of
any
item
not
settled
for
shall
be
turned
over
to
the
Company
promptly
on
demand.
[Emphasis
added.]
Paragraph
10
is
important
in
understanding
the
nature
of
the
transactions
between
the
parties.
The
last
sentence
should
be
read
in
conjunction
with
paragraph
2,
supra.
10.
Carry-over
Deposit.
The
Company
publishes
a
Schedule
of
Selling
Periods
for
Consigned
Goods.
This
Schedule
provides
an
“Original
Selling
Period"
for
each
class
of
machine,
applicable
to
all
of
the
machines
of
that
class
shipped
to
the
Dealer
during
each
"shipping
period"
into
which
the
year
is
divided.
In
the
Case
of
most
classes
of
machines,
the
Schedule
also
provides
an
"Extended
Selling
Period"
applicable
to
a
stated
percentage
of
machines
of
like
kind
in
each
particular
class
shipped
during
the
shipping
period,
should
they
still
be
in
the
Dealer's
possession
unsold
at
the
end
of
the
Original
Selling
Period.
If
the
Dealer
has
failed
to
sell
during
the
Original
Selling
Period
any
machine
which
is
not
eligible
for
the
Extended
Selling
Period,
he
agrees,
as
security
for
the
discharge
of
his
obligations
hereunder,
to
pay
to
the
Company
in
cash
a
carry-over
deposit
of
25%
of
the
wholesale
price
as
of
that
date.
A
25%
carry-over
deposit
will
be
paid
on
the
remaining
machines
shipped
during
the
shipping
period
if
they
remain
unsold
at
the
end
of
the
Extended
Selling
Period.
Dealer
will
also
pay
an
additional
carry-over
deposit
on
the
last
day
of
each
succeeding
twelve
month
period
after
carry-over
deposit
first
became
payable
on
any
machine
so
long
as
it
remains
on
hand
unsold,
in
the
amount
of
25%
of
the
wholesale
price
of
the
machine.
After
the
third
25%
deposit
has
been
made
the
annual
payment
shall
be
25%
of
the
difference
between
the
wholesale
price
of
the
machine
and
the
sum
of
carry-over
deposits
made
previously
for
that
machine.
The
Company
may
designate
certain
machines
shipped
as
being
available
for
immediate
retail
sale
only.
The
Company
may
from
time
to
time
designate
a
higher
carry-over
deposit
and
shorter
Original
Selling
Period
on
such
machines.
If
the
Dealer
sells
a
machine
on
which
there
has
been
made
a
carry-over
deposit,
or
on
which
a
charge
for
loss,
damage
or
deterioration
has
been
paid,
the
proceeds
or
cash
remitted
by
him
under
Section
9
shall
equal
the
appropriate
wholesale
price
less
any
such
deposit
and
less
any
such
payment,
and
in
the
event
of
loss
or
damage
to
the
Goods
his
liability
to
the
Company
under
Section
8
is
limited
to
the
appropriate
wholesale
price
less
any
such
deposit
or
payment.
If
Consigned
Goods
are
returned
to
the
Company
pursuant
to
the
terms
of
this
Agreement,
the
Dealer
will
be
credited
with
any
carry-over
deposit
he
has
paid
on
the
Goods
returned,
but
not
with
amounts
paid
for
damage
or
deterioration.
With
regard
to
“sold
goods"
it
is
only
necessary
to
note
that
the
agreement
provides
in
paragraph
13
that:
Title
to,
ownership
and
the
right
to
possession
of
all
Sold
Goods
shipped
by
the
Company
[J.D.L.]
to
the
Dealer
is
and
shall
remain
vested
in
the
Company
[J.D.L.]
until
full
payment
of
the
indebtedness
therefor
.
.
.
[Emphasis
added.]
The
latter
part
of
that
quotation
is
to
be
contrasted
with
the
title
provisions
set
forth
in
paragraph
8,
supra,
which
are
not
related
to
“payment
of
the
indebtedness"
but
rather,
in
respect
of
consigned
goods,
title
is
retained
by
J.D.L.
”
.
.
.
until
they
are
sold
or
leased
by
him
[the
Dealer]
on
behalf
of
the
Company
[J.D.L.]
under
the
authority
set
out
in
section
9.”
The
latter
provision
designates
the
proceeds
of
sale
as
the
property
of
J.D.L.
Additional
Relevant
Facts
The
following
additional
facts
disclosed
in
the
evidence
and
not
exclusively
related
to
the
contract,
are
of
relevance
in
the
determination
of
the
issue
raised
in
the
appeal
and
are
largely
undisputed.
The
carry-over
deposits
referred
to
in
paragraph
10
were
refundable
to
the
Dealer
upon
retail
sale,
transfer
or
return
of
the
goods.
The
respondent
had
transferred
consigned
goods
when
they
were
needed
for
other
dealers
and
when
it
had
an
excess
of
certain
goods.
It
had
never
transferred
at
a
loss.
On
a
transfer,
the
respondent
would
be
credited
by
J.D.L.
in
its
consigned
goods
account
for
the
price
at
which
the
unit
was
transferred
and
the
receiving
dealer
was
invoiced
for
the
price
and
freight.
Units
sold
by
the
respondent
were
usually
invoiced
on
a
J.D.L.
invoice.
Proceeds
were
remitted
to
J.D.L.
on
its
remittance
forms.
Credit
terms,
if
any,
required
the
approval
of
J.D.L.
Each
month
J.D.L.
prepared
a
Statement
showing
all
of
the
details
of
the
new
consigned
goods
held
by
the
Dealer,
including
any
deposits
applicable
to
any
of
the
units
so
held,
which
were
verified
by
the
respondent
by
acknowledgement
that
the
stock
referred
to
in
the
statement
was
“in
stock
and
is
the
property
of
John
Deere
Limited
on
consignment
with
me
pursuant
to
the
agreement
between
us.”
[Emphasis
added.]
The
respondent
was
not
required
to
pay
for
the
consigned
goods
until
retail
sale
and
was
not
charged
interest
or
other
carrying
charges
on
the
invoice
price
or
freight
costs
until
after
that
time.
J.D.L.
itself
received
the
goods
which
it
shipped
to
the
respondent,
from
its
U.S.
parent,
Deere
&
Comapny,
on
consignment
in
accordance
with
a
written
agreement
between
them.
The
agreement
provided
for
the
purchase
of
the
consigned
goods
from
the
parent,
which
purchase
was
to
be
deemed
to
have
taken
place
immediately
prior
to
the
sale
or
lease
thereof
by
J.D.L.
That
sale,
of
course,
took
place
when
the
Dealer
sold
them
to
its
customer.
J.D.L.
accounted
internally
only
in
a
Consigned
Inventory
Account
for
goods
shipped
on
consignment
to
the
respondent
and,
as
well,
in
a
Consigned
Liability
Acount.
Neither
appeared
in
their
financial
statements.
The
Delaer
was
viewed
by
J.D.L.
as
its
agent
and
it
was
not
until
the
Dealer
sold
the
goods
at
retail
that
J.D.L.
recognized
its
liability
to
its
parent
and,
of
course,
the
liability
of
the
Dealer
to
it.
However,
the
carry-over
deposits
were
shown
as
liabilities
of
J.D.L.
in
its
financial
statements.
In
computing
its
inventory
allowance
under
paragraph
20(1)(gg)
in
its
1977
tax
returns,
the
respondent
included
in
the
cost
amount
of
inventory
at
the
commencement
of
each
tax
year,
the
balance
in
the
respondent's
consigned
goods
account
with
J.D.L.
at
its
year
end,
Setpember
30,
1976
and
September
30,
1977
respectively.
The
evidence
discloses
that
J.D.L.,
for
what
it
is
worth,
did
not,
at
least
in
1977,
claim
such
an
inventory
allowance
because,
it
was
stated,
it
did
not
own
that
inventory.
The
Tax
Review
Board
member
who
heard
the
appeal
concluded
that
whether
or
not
the
inventory
of
goods
was
"owned"
by
the
respondent
was,
in
effect,
immaterial
since,
in
his
view
of
the
evidence,
all
of
the
characteristics
of
ownership
fell
upon
the
appellant
[Respondent
here]
once
delivery
was
made
to
it
in
the
goods
were
entirely
at
its
risk,
they
were
in
its
possession
and
its
use
of
same
related
to
the
sale,
leasing
or
transferring
to
another
dealer.
This
was
its
business.
This
constituted
its
use
of
the
goods
.
.
.
All
machinery,
parts
and
attachments
were
treated
as
stock-in-trade
and
were
sold
.
.
.
The
respondent
was,
thus,
in
his
view,
entitled
to
the
inventory
allowance
granted
by
paragraph
20(1)(gg).
The
Associate
Chief
Justice,
in
the
Trial
Division,
agreed
and
dismissed
the
Minister's
appeal.
It
is
from
that
judgment
this
appeal
is
brought
on
the
basis
of
three
alleged
errors
in
the
final
judgment
described
by
the
appellant
in
her
memorandum
of
fact
and
law
in
the
following
terms:
1.
The
learned
Trial
Judge
erred
in
concluding
that
ownership
of
the
property
did
not
have
to
be
determined
in
deciding
whether
or
not
the
goods
were
properly
treated
by
the
Respondent
as
inventory
for
purposes
of
paragraph
20(1)(gg)
of
the
Act.
2.
It
is
submitted
that
the
question
of
ownership
was
an
issue
of
both
fact
and
law,
and
that
it
should
be
found
that
the
Respondent
did
not
own
the
goods
and
the
goods
were
not
inventory
for
purposes
of
paragraph
20(1)(gg).
3.
The
learned
Trial
Judge
correctly
found
that
the
Respondent
did
not
have
an
obligation
to
pay
for
the
goods
and
had
no
cost
in
respect
of
the
goods.
It
is
submitted,
however,
that
it
should
have
been
found,
accordingly
,
that
the
Respondent
had
no
cost
amount
in
respect
of
the
goods,
for
purposes
of
paragraph
20(1)(gg).
I
will
deal
with
the
alleged
errors
seriatim.
1.
Does
the
Act
require
that
to
obtain
the
benefit
of
paragraph
20(1)(gg)
the
inventory
be
owned
by
the
taxpayer?
Paragraph
20(1)(gg)
must,
of
course,
be
read
in
the
context
of
the
Act
as
a
whole.
The
principal
sections
relevant
in
its
interpretation
for
purposes
of
this
appeal
include
the
definitions
of
"inventory"
and
“cost
amount"
set
out
in
subsection
248(1),
subsection
9(1),
and
subsections
10(1)
and
(2).
Those
sections
read
as
follows:
20(1)(gg)
Inventory
allowance—an
amount
in
respect
of
any
business
carried
on
by
the
taxpayer
in
the
year,
equal
to
that
portion
of
3%
of
the
cost
amount
to
the
taxpayer,
at
the
commencement
of
the
year,
of
the
tangible
property
(other
than
real
property
or
an
interest
therein)
that
was
(i)
described
in
the
taxpayer's
inventory
in
respect
of
the
business,
and
(ii)
held
by
him
for
sale
or
for
the
purposes
of
being
processed,
fabricated,
manufactured,
incorporated
into,
attached
to,
or
otherwise
converted
into
or
used
in
the
packaging
of,
property
for
sale
in
the
ordinary
course
of
the
business
that
the
number
of
days
in
the
year
is
of
365,
and
248
(1)
In
this
Act,
"Inventory"
means
a
description
of
property
the
cost
or
value
of
which
is
relevant
in
computing
a
taxpayer's
income
from
a
business
for
a
taxation
year.
"cost
amount"
to
a
taxpayer
of
any
property
at
any
time
means,
except
as
expressly
otherwise
provided
in
this
Act,
(c)
where
the
property
was
property
desribed
in
an
inventory
of
the
taxpayer,
its
value
at
that
time
as
determined
for
the
purpose
of
computing
his
income,
9.
Income
from
business
or
property.
(1)
Subject
to
this
Part,
a
taxpayer's
income
for
a
taxation
year
from
a
business
or
property
is
his
profit
therefrom
for
the
year.
10.
Valuation
of
inventory
property.
(1)
For
the
purpose
of
computing
income
from
a
business,
the
property
described
in
an
inventory
shall
be
valued
at
its
cost
to
the
taxpayer
or
its
fair
market
value,
whichever
is
lower,
or
in
such
other
manner
as
may
be
permitted
by
regulation.
10.
(2)
Notwithstanding
subsection
(1),
for
the
purpose
of
computing
income
for
a
taxation
year
from
a
business,
the
property
described
in
an
inventory
at
the
commencement
of
the
year
shall
be
valued
at
the
same
amount
as
the
amount
at
which
it
was
valued
at
the
end
of
the
immediately
preceding
year
for
the
purpose
of
computing
income
for
that
preceding
year.
First
and
foremost,
it
is
clear
from
the
definition
that
for
property
to
be
"inventory"
in
a
taxation
year,
its
cost
or
value
must
be
relevant
in
the
computation
of
income
from
a
business
in
that
year.
By
virtue
of
subsection
9(1),
income
for
a
taxation
year
from
a
business
is
the
profit
therefrom
for
the
year.
The
significance
of
the
inclusion
of
"inventory"
in
the
calculation
of
income
from
a
business
in
a
taxation
year
is
well
illustrated
in
the
following
passage
from
the
unanimious
judgment
of
the
Supreme
Court
of
Canada
delivered
by
Martland
J.
in
M.N.R.
v.
Shofar
Investment
Corporation,
[1979]
C.T.C.
433
at
435;
79
D.T.C.
5347
at
5348
citing
with
approval
the
judgment
of
Jacket,
C.J.
in
this
Court:
..
.
As
Chief
Justice
Jackett
points
out,
thepractice
"hardened
into
a
rule
of
law”
in
the
computation
of
the
profit
of
a
trading
business
as
to
deduct
from
the
aggregate
proceeds
of
all
sales
the
cost
of
sales
computed
by
adding
the
value
placed
on
inventory
at
the
beginning
of
the
year
to
the
cost
of
acquisitions
to
inventory
during
the
year,
less
the
value
of
inventory
at
the
end
of
the
year.
[Emphasis
added.]
The
Act,
in
subsections
(2)
and
(3)
of
s.
14
[new
ss.
10(1),
9(2)]
contains
mandatory
provisions
as
to
inventory
valuation:
14.
(2)
For
the
purpose
of
computing
income,
the
property
described
in
an
inventory
shall
be
valued
at
its
cost
to
the
taxpayer
or
its
fair
market
value,
whichever
is
lower,
or
in
such
other
manner
as
may
be
permitted
by
regulation.
(3)
Not
withstanding
subsection
(2),
for
the
purpose
of
computing
income
for
a
taxation
year
the
property
described
in
an
inventory
at
the
commencement
of
the
year
shall
be
valued
at
the
same
amount
as
the
amount
at
which
it
was
valued
at
the
end
of
the
immediately
preceding
year
for
the
purpose
of
computing
income
for
that
preceding
year.
The
value
of
inventory,
which
is
used
in
determining
profit,
is
determined
on
the
basis
of
cost
or
fair
market
value,
whichever
is
lower,
or
in
such
other
manner
as
may
be
permitted
by
regulation.
By
virtue
of
subsection
14(20,
therefore,
the
cost
of
an
inventory
item
is
a
factor
which
has
relevance
in
determining
inventory
value.
It
is
clear,
then,
that
for
property
to
be
designated
as
inventory
for
tax
purposes
in
a
year
in
which
it
is
not
sold,
it
must
be
property
that
would
be
included
in
the
computation
of
income
(i.e.
profit)
for
tax
purposes.
That
is
what
the
definition
in
subsection
248(1)
says.
If
it
is
that
kind
of
property
its
value
must
be
calculated
in
accordance
with
subsection
10(1),
i.e.,
at
the
lower
of
its
cost
to
the
taxpayer
or
its
market
value
or
in
such
other
manner
as
may
be
permitted
by
regulation
of
which
there
is
none
applicable
in
this
situation.
Nor,
in
the
circumstances
prevailing
in
this
case,
can
there
be
any
"cost"
to
the
taxpayer
until
the
sale
of
the
consigned
goods
has
been
effected.
Neither
can
a
"value"
be
assigned
to
such
goods
as
inventory
for
the
purpose
of
computing
taxable
income
for
the
taxpayer.
Can
paragraph
20(1)(gg)
apply
in
such
a
factual
situation?
I
think
that
the
answer
Clearly
is
"no".
In
Burrard
Yarrows
Corporation
v.
The
Queen,
[1986]
2
C.T.C.
313;
86
D.T.C.,
6459,
Joyal,
J.,
whose
reasons
for
judgment
were
affirmed
in
this
Court,
made
the
following
observations
at
page
316-17;
6461-2
on
the
requirements
which
must
exist
for
paragraph
20(1)(gg)
to
apply.
Before
a
taxpayer
is
eligible
to
claim
a
paragraph
20(1)(gg)
inventory
allowance,
four
pre-conditions
must
be
met.
First,
the
allowance
must
be
claimed
on
the
cost
amount
of
the
property
in
question
at
the
beginning
of
each
taxation
year
in
question.
Next,
the
property
against
which
it
is
claimed
must
be
tangible
property
other
than
real
estate
or
an
interest
therein.
Thirdly,
it
must
be
established
that
the
property
was
described
in
the
taxpayer's
inventory
in
respect
of
his
business,
and
finally,
that
it
was
held
for
sale
or
to
be
processed,
manufactured,
incorporated
into,
attached
to,
or
otherwise
converted
into
property
for
sale
in
the
ordinary
course
of
that
business.
Failure
to
establish
the
existence
of
any
one
of
these
elements
results
in
a
disentitlement
to
a
reserve
under
that
paragraph.
The
position
fo
counsel
for
the
defendant
was
that
the
third
and
fourth
preconditions
were
not
met.
In
order
for
a
taxpayer
to
meet
the
paragraph
20(1)(gg)
requirement
holding
property
for
sale,
he
must
have
property
in
it
which
he
can
sell.
Here,
as
I
noted
above,
the
property
in
the
ships
was
vested
in
the
purchasers
and
not
in
the
plaintiff
taxpayer.
As
a
result,
the
plaintiff
did
not
have
property
in
the
ships
which
he
could
sell
and,
therefore,
he
could
not
be
said
to
be
holding
them
for
sale
within
the
meaning
of
paragraph
20(1)(gg).
As
a
result,
it
was
not
eligible
to
claim
a
reserve
pursuant
to
that
paragraph.
The
appeal
with
respect
to
this
issue
must
fail.
[Emphasis
added.]
The
facts
in
this
case
are,
of
course,
substantially
different
from
those
in
the
Burrard
Yarrows
case
but
there
can
be
no
doubt,
in
my
view,
that
similarly
for
the
paragraph
to
apply
in
the
factual
situation
in
this
case,
the
taxpayer
must
have
a
property
interest
in
the
inventory
upon
which
he
seeks
the
allowance.
Accordingly,
in
my
view,
the
trial
judge
erred
in
holding,
as
he
seems
to
have
done,
that
ownership
or
property
in
the
inventory
in
issue
is
not
required
so
long
as
"it
be
part
of
the
taxpayer's
stock-in-trade".
His
finding
fails
to
appreciate
the
scheme
of
the
Act
as
it
relates
to
inventories
and
to
the
jurisprudence
relating
thereto.
2.
As
a
matter
of
law,
who
owned
the
goods
making
up
what
was
claimed
by
the
respondent
to
be
its
inventory?
The
Associate
Chief
Justice
made
his
finding
on
the
issue
by
expressing
his
agreement
with
what
was
said
by
the
member
of
the
Tax
Review
Board
who
heard
the
respondent's
appeal
to
that
Board,
in
the
following
passage
from
his
reasons
for
judgment:
In
summary,
all
the
characteristics
of
ownership
fell
upon
the
appellant
once
delivery
was
made
to
it
in
that
the
goods
were
entirely
at
its
risk,
they
were
in
its
possession
and
its
use
of
same
related
to
the
sale,
leasing
or
transferring
to
another
dealer.
This
was
its
business.
This
constituted
its
use
of
the
goods.
Further,
it
should
be
clearly
understood,
from
the
evidence
given
by
Mr.
Northcott,
and
I
found
him
completely
honest
and
forthright,
and
obviously
so
did
Mr.
Erlichman
because
he
did
not
deign
to
cross-examine
him,
that
the
goods,
once
delivered
to
the
appellant,
could
not
be
returned
to
John
Deere
and
that
it
had
to
make
instalment
payments
thereon
and
ultimately
pay
out
the
full
price
after
a
certain
period
of
time,
regardless
of
whether
it
had
sold
or
transferred
the
items
in
this
possession.
All
machinery,
parts
and
attachments
were
treated
as
stock-in-trade
and
were
sold
and
recorded
(and
I
may
add
very
accurately)
by
his
accountants.
I
think
the
appellant
company
has
dealt
with
an
onerous
contract
with
John
Deere
in
a
very
straight
forward,
honest
and
efficient
manner
and
the
evidence
relating
thereto
was
clear
and
uncontradicted.
I
therefore
allow
the
appeal
and
refer
the
matter
back
to
the
respondent
for
reconsideration
and
reassessment.
As
a
Starting
point,
it
must
be
recognized
that
calling
a
transfer
of
goods
a
consignment
of
the
goods
by
the
transferor
to
the
transferee
does
not
necessarily
make
it
such.
What
the
true
arrangement
is
necessitates
a
review
of
all
of
the
circumstances.
As
Saunders,
J.
said
in
Re
Stephanian's
Persian
Carpets
Limited
(1980),
34
C.B.R.
33
at
37-8:
In
its
simplest
terms,
a
consignment
is
the
sending
of
goods
to
another.
An
arrangement
whereby
an
owner
sends
goods
to
another
on
the
understanding
that
such
other
will
sell
the
goods
to
a
third
party
and
remit
the
proceeds
to
the
owner
after
deducting
his
compensation
for
effecting
the
sale
is
an
example
of
a
consignment
agreement.
The
same
learned
judge,
again
sitting
as
a
judge
in
Bankruptcy
Court
of
the
Supreme
Court
of
Ontario
in
Re
Toyerama
Limited
(1980),
34
C.B.R.
153,
dealt
with
an
agreement
which
embodied
many
terms
similar
to
that
before
the
Court
in
this
appeal
including,
inter
alia,
the
description
of
the
toys
in
issue
as
being
on
consignment
with
title
remaining
in
the
vendor,
held
exclusively
at
the
risk
of
the
consignee,
payment
of
a
determined
sum
on
sales
or
delivery
by
the
consignee,
remittance
to
the
consignor
of
a
monthly
inventory
by
the
consignee
duly
certified,
monthly
report
of
deliveries,
and
a
statement
that
the
consignee
was
not
the
agent
of
the
consignor.
There
was
no
express
right
to
return
unsold
toys
and
there
was
a
right
in
the
consignor
to
an
agreed
fixed
price
regardless
of
the
consignee's
sale
price.
On
the
basis
of
these
facts,
Saunders,
J.
had
this
to
say:
While
there
is
at
least
doubt
as
to
whether
Toyerama
had
a
right
to
return
the
goods
to
Regal,
in
my
view
the
determining
factor
in
the
characterization
of
the
agreement
is
the
absence
of
any
obligation
on
the
part
of
Toyerama
to
pay
for
unsold
items
not
delivered
to
retail
outlets.
Such
a
factor,
when
taken
together
with
the
evidence
of
the
purpose
of
the
transaction
and
the
other
terms
of
the
agreement,
leads
me
to
the
conclusion
that
such
part
of
the
toys
that
were
either
not
sold
to
third
parties
or
not
delivered
to
retail
outlets
were
held
by
the
bankrupt
on
consignment
at
the
time
of
the
bankruptcy
and
had
not
been
purchased
by
it.
Conversely,
toys
delivered
to
retail
outlets
were,
in
my
opinion,
sold
to
Toyerama
and,
to
the
extent
that
they
were
on
hand
at
the
time
of
the
bankruptcy,
were
property
of
the
bankrupt
(even
if
returned
to
the
warehouse).
In
Re
Bristol
Yacht
Sales
Inc.
et
al.
(1984),
51
C.B.R.
279,
Chief
Justice
McEachern,
after
referring
to
both
the
Stephanian's
Persian
Carpets
and
the
Re
Toyerama
cases,
with
approval,
said
at
page
283:
I
recognize
that
calling
an
arrangement
a
consignment
does
not
necessarily
make
it
so,
and
that
it
is
necessary
to
look
at
all
the
circumstances
in
order
to
determine
what
the
true
arrangement
was:
Re
Rivabo
Truck
Bodies
Ltd.
(1975),
20
C.B.R.
(N.S.)
252
(Ont.
H.C.);
Re
Librairie
&
Tabagie
Aston
Inc.;
St.-Georges
v.
Agence
de
Distribution
Populaire
Inc.
(1980),
35
C.B.R.
(N.S.)
132
(Que.
S.C.);
and
Re
Indust.
Forklift
Services
Ltd.;
Touche
Ross
Ltd.
v.
Liftmaster
Ltd.
(1981),
49
N.S.R.
(2d)
585,
96
A.P.R.
585
(T.D.).
There
are
a
number
of
matters
which
raise
some
questions
about
Inland's
title,
particularly
the
payment
of
interest
and
some
of
the
particulars
of
other
transactions.
In
my
view,
however,
the
payment
of
some
interest
including
a
different
rate
between
new
and
used
boats
and
the
deferral
of
interest
during
the
winter
months
is
just
a
factor
to
be
taken
into
consideration.
The
arrangements
in
other
transactions
are
also
entitled
to
some
weight
but
they
are
not
conclusive.
The
business
in
question
is
one
in
which
many
different
arrangements
may
be
necessary.
What
impresses
me
most
is
the
fact
that
Bristol
was
under
no
obligation
to
pay
for
any
of
these
boats
until
they
were
sold,
and
Bristol's
recognition
that
the
trade-
ins
belonged
to
Inland.
These
facts,
and
all
the
other
circumstances,
including
the
fact
that
Inland
paid
for
these
boats
in
the
first
instance,
satisfy
me
that
these
were
true
consignment
arrangements.
I
am
satisfed
that,
prior
to
the
appointment
of
the
receiver,
these
two
men,
if
asked
who
owned
the
boats,
would
agree
that
they
belonged
to
Inland.
If
they
indulged
themselves
in
close
analysis—which
is
not
how
businessmen
spend
their
time—they
would
agree
that
Bristol
would
never
take
title,
would
not
have
to
pay
for
a
boat
unless
it
was
sold
and
that
Bristol
could
insist
that
an
unsold
boat
be
returned
to
Inland
without
any
specific
penalty
being
charged
to
Bristol.
All
three
cases
to
which
I
have
referred
are,
of
couse,
bankruptcy
cases
but
that
does
not
make
the
principles
applicable
in
the
determination
of
the
true
nature
of
the
transactions
there
involved
different
from
those
applicable
in
other
cases
including
income
tax
cases.
All
of
the
cases
to
which
were
referred
and
which
I
have
read,
base
the
determination
on
applying
the
recognized
law
relating
to
consignment
sales
to
the
circumstances
of
the
particular
case.
I
have
already
related
the
contractual
and
other
circumstances
in
this
case
in
some
detail
so
that
it
is
unnecessary
for
me
to
review
them
again.
Suffice
it
to
say
that
the
Tax
Review
Board
member
and,
accordingly,
the
learned
trial
judge
laid
particular
emphasis
on
the
assumption
of
all
risks
and
costs
relating
to
the
obligation
to
care
for
the
goods
following
their
delivery.
That
is
merely
one
of
the
indicia
to
be
taken
into
account
in
determining
whether
or
not
the
transaction
is
truly
one
of
consignment.
It
is
not
the
sole,
nor
necessarily,
the
major
one.
It
is
an
obligation
commonly
found
in
a
variety
of
commercial
transactions
as
can
be
seen
from
the
three
cases
to
which
I
have
made
reference.
While
there
was
no
contractual
right
to
return
the
goods
to
J.D.L.
there
was
a
right,
which
had
never
been
refused,
to
transfer
the
goods
to
another
dealer
either
at
the
instigation
of
J.D.L.
or
upon
its
consent,
if
requested
by
the
respondent.
In
nature
it
was
substantially
a
right
of
return
and
again
is
another
factor
to
be
taken
into
account
in
characterizing
the
transaction.
At
least
of
equal
importance
is
the
fact
that
there
was
no
requirement
to
pay
for
the
goods
prior
to
retail
sale
nor
were
any
carrying
charges
required
to
be
paid
no
matter
how
long
the
goods
remained
in
stock.
That
fact
is
in
stark
contrast
to
sales
made
on
credit
where
it
is
well
known
that
carrying
charges
for
the
indebtedness
are
routinely
imposed
by
the
creditor.
The
carry-over
deposit,
according
to
the
uncontradicted
evidence,
was
not
applicable
to
all
goods
on
the
same
terms
and
was
not
considered
to
be
part
of
the
purchase
price.
Rather,
it
was
a
refundable
deposit
payment
the
purpose
for
which
was
”.
.
.
a
reminder
to
the
Dealer
that
he
has
a
unit
in
inventory
that
he
should
be
putting
extra
effort
to
move
because
he
had
it
for
over
a
year
or
more."
Such
deposits
were
refundable
on
either
sale
or
transfer
of
the
goods
to
which
they
applied.
Significantly,
if
the
dealer
went
out
of
business,
the
deposits
were
refunded.
On
an
average
the
carry-over
deposits
represented
only
three
to
four
per
cent
of
the
total
inventory.
One
other
matter
referred
to
by
the
trial
judge
requires
brief
consideration.
In
his
reasons
he
made
the
following
finding.
.
.
.
He
also
revealed
that
since
the
inception
of
the
Ontario
Personal
Property
Securities
Amendment
Act,
1973,
S.O.
1973,
c.
102,
the
Defendant
has
been
required
to
enter
into
a
security
agreement
with
John
Deere
Limited.
One
of
those
agreements
was
entered
in
evidence.
He
stated
that
agreement,
"gives
us
a
security
interest
in
the
inventory
of
the
dealer".
On
cross-examination
he
further
admitted
that
the
purpose
of
the
security
agreement
is
to
secure
all
of
the
indebtedness
of
the
Defendant
to
the
Company
and
that
part
of
that
security
consists
of
the
consigned
goods.
As
a
very
minimum,
the
action
of
taking
out
mortgage
security
is
entirely
inconsistent
with
the
thesis
that
ownership
rests
with
the
parent
company.
I
do
not
agree
that
the
taking
out
of
mortgage
security
is
inconsistent
with
the
thesis
of
ownership.
As
we
were
advised,
section
2
of
the
Personal
Property
Security
Act
of
Ontario
reads
in
part
as
follows:
2.
Subject
to
subsection
1
of
section
3,
this
Act
applies,
(a)
to
every
transaction
without
regard
to
its
form
and
without
regard
to
the
person
who
has
title
to
the
collateral
that
in
substance
creates
a
security
interest,
including,
without
limiting
the
foregoing.
(ii)
as
assignment,
lease
or
consignment
intended
as
security,
and
.
.
.
Saunders,
J.
had
occasion
to
consider
that
subparagraph
2(a)(ii)
in
the
Stephanian
case,
supra.
While
what
he
had
to
say
is
not
strictly
applicable
to
what
was
said
by
the
trial
judge
here,
it
does
disclose
what
I
believe
to
be
the
correct
interpretation
to
be
placed
on
the
section
2.
At
pages
40-41
of
the
judgment
he
had
this
to
say:
Counsel
for
the
trustee
did
not
strenuously
dispute
that
the
arrangement,
in
form
at
least,
was
a
consignment
but
drew
a
distinction
between
what
he
called
a
“true”
consignment
and
a
consignment
intended
as
security.
He
argued
that
a
true
consignment
was
where
the
consignee
acted
as
a
selling
agent
for
the
consignor
and
was
paid
a
commission
for
so
doing.
The
purpose
of
such
an
arrangement
might
be
to
control
the
ultimate
selling
price
or
to
maximize
the
return
to
the
consignor.
In
the
case
at
bar,
there
could
be
no
such
purpose,
as
the
return
to
Anglo
was
fixed
at
the
wholesale
price,
no
matter
what
the
retail
customer
paid
for
the
rugs.
In
contrast,
a
consignment
arrangement
whose
purpose
is
to
alleviate
a
cash
flow
problem
of
the
consignee
(sometimes
referred
to
as
a
"floor
plan
financing")
and
to
provide
protection
to
the
consignor
from
claims
of
creditors
of
the
consignee
was
submitted
to
be
a
consignment
intended
as
security.
There
can
be
many
different
forms
of
consignment
arangements,
but
it
would
appear
that
in
the
United
States
the
courts
have
drawn
the
distinction
suggested
by
counsel
for
the
trustee
between
“true”
consignments
and
consignments
"intended
as
security".
Such
cases
have
arisen
in
the
context
of
the
American
personal
property
law
which,
while
similar
in
some
respects,
is
not
identical
to
the
law
of
Ontario.
It
seems
to
me
that
this
issue
should
be
approached
by
first
considering
the
phrase
"consignment
intended
as
security”
in
s.
2
of
the
PPSA.
Three
preliminary
conclusions
may
be
made:
(1)
P
*;
legislature
did
not
intend
to
cover
all
consignments
but
only
those
“intended
as
security”;
(2)
It
It
is
a
common
feature
of
all
consignment
arrangements
that
the
consignor
retains
title
to
the
goods.
As
the
legislature
did
not
intend
the
PPSA
to
apply
to
all
consignment
arrangements,
it
it
would
follow
that
the
title
retention
feature
alone
cannot
render
a
consignment
subject
to
the
statute:
and
(3)
The
word
“security”
is
not
defined
in
the
PPSA,
but
the
words
“security
interest”
are
defined
in
s.
1(y)
as
follows:
"1.
In
this
Act,
.
.
.
(y)
security
interest'
means
an
interest
in
goods,
other
than
building
materials
that
have
been
affixed
to
the
realty,
fixtures,
documents
of
title,
instruments,
securities,
chattel
papers
or
intangibles
that
secures
payment
or
performance
of
an
obligation,
and
includes
an
interest
arising
from
an
assignment
of
book
debts.”
In
order
for
a
consignment
arrangement
to
come
within
the
PPSA
it
must
create
a
security
interest
within
the
meaning
of
s.
1(y),
and,
in
my
view,
in
the
context
of
the
statute,
such
an
agreement
must
be
intended
to
secure
the
payment
or
performance
of
an
obligation
on
the
part
of
the
consignee.
Mr.
Justice
Saunders
then
concluded
that:
.
.
It
may
be
that,
if
the
arrangement
served
no
function
other
than
to
protect
the
consignor
against
creditors,
it
might
be
considered
to
be
within
the
Statute,
but
that
is
not
the
case
here.
The
arrangements
with
Stephanian's
provided
a
means
for
Anglo
to
have
it
products
marketed,
which
could
not
be
accomplished
by
means
of
a
sale
to
Stephanian's
because
of
cash
flow
problems.
I
conclude
that
the
o
^
I?
f
consignment
intended
as
security
within
the
meaning
of
s.
2
of
the
PPSA
and
that,
therefore,
no
registration
or
other
compliance
with
that
statute
was
required
on
the
part
of
Anglo.
The
circumstances
disclosed
here,
in
my
opinion,
clearly
show
that
the
consignment
was
a
true
one
and
not
one
intended
as
security.
Therefore
it
did
not
require
registration.
The
fact
that
it
was
registered
does
not
change
the
true
nature
of
the
transaction
between
the
consignor
and
consignee.
It
remained
what
it
had
always
been—a
consignment.
It
was
simply
the
act
of
a
.
.
.
prudent
consignor
[filing]
a
financing
statement
to
avoid
being
exposed
to
the
adverse
consequences
of
having
his
device
found
to
be
a
consignment
intended
as
security'.
Counsel for the respondent referred us to a number of cases including
The
Queen
v.
Boehringer
Ingelheim
(Canada)
Ltd.,
[1985]
2
C.T.C.
211;
85
D.T.C.
5443
(F.C.T.D.),
Sinnott
News
Company,
Ltd.
v.
M.N.R.,
[1956]
C.T.C.
81;
56
D.T.C.
1042
(S.C.C.),
Seven
Limas
Coal
and
Fertility
Co.
Inc.
v.
Hewett,
et
al.
(1986),
52
O.R.
(2d)
1
(Ont.
C.A.)
in
support
of
his
contention
that
the
transactions
here
in
issue
were
not
true
consignments
but
sales.
All
turn
on
their
own
facts
and
are
easily
distinguishable
from
the
circumstances
in
this
case
so
that
no
useful
purpose
would
be
served
in
an
analysis
of
each.
Accordingly,
in
my
view,
the
trial
judge
erred
in
holding
that
the
interest
of
the
respondent
in
the
goods
in
issue
was
such
that
they
became
inventory
within
the
meaning
of
subsection
248(1)
of
the
Act
for
which
an
inventory
allowance
under
paragraph
20(1)(gg)
could
be
had.
3.
Was
there
a
cost
amount
within
the
meaning
of
subsection
248(1)
of
the
The
Associate
Chief
Justice
made
the
following
finding
which
counsel
for
the
appellant
submitted
was
erroneous
in
its
interpretation
of
"cost
amount"
:
.
.
.
Evidence
in
this
case
clearly
substantiates
that
there
was
no
obligation
upon
this
Defendant
to
pay
for
any
merchandise
at
the
time
of
acquisition
with
the
possible
exception
of
certain
items
which
became
subject
to
a
25%
carry-over
deposit.
How
could
this
taxpayer
be
entitled
to
a
percentage
of
a
non-existent
cost?
The
legislation,
however,
also
contains
its
own
definition;
section
248(1)
defines
"cost
amount”
as
follows:
248.
(1)
In
this
Act,
"cost
amount"
to
a
taxpayer
of
any
property
at
any
time
means,
except
as
expressly
otherwise
provided
in
this
Act,
(c)
where
the
property
was
property
described
in
an
inventory
of
the
taxpayer,
its
value
at
that
time
as
determined
for
the
purpose
of
computing
his
income.
Cost
is
therefore
specifically
defined
not
in
terms
of
price
but
in
terms
of
value
at
the
time
of
acquisition.
Surely
had
Parliament
intended
to
confine
the
allowance
in
section
20(1)(gg)
to
the
cost
of
merchandise
bought
and
paid
for,
it
could
not
unintentionally
have
overlooked
these
two
opportunities
to
so
state,
the
first
by
defining
ownership
in
plain
legal
terms,
the
second
by
defining
cost
in
terms
of
purchase
price
at
the
time
of
acquisition.
For
convenience
sake,
I
again
set
out
the
definition
of
“cost
amount"
applicable
in
this
case.
248.
(1)
In
this
Act,
"cost
amount"
to
a
taxpayer
of
any
property
at
any
time
means,
except
as
expressly
otherwise
provided
in
this
Act,
(c)
where
the
property
was
property
described
in
an
inventory
of
the
taxpayer,
its
value
at
that
time
as
determined
for
the
purpose
of
computing
his
income.
With
respect,
I
am
unable
to
agree
with
the
conclusion
of
the
trial
judge.
I
need
deal
with
the
reasons
for
my
disagreement
only
briefly
since
I
have
earlier
alluded
to
such
reasons.
First,
the
property
must
be
described
in
an
inventory,
which,
as
I
have
found,
must
be
owned
by
the
taxpayer.
Secondly,
the
valuation
of
the
inventory
to
ascertain
the
"cost
amount”
is
"for
the
purpose
of
computing
.
.
.
income”.
Thirdly,
that
being
so
subsection
10(1),
supra,
comes
into
play
since
it
provides
that:
For
the
purpose
of
computing
income
from
a
business,
the
property
described
in
an
inventory
shall
be
valued
.
.
.
at
the
lower
of
cost
or
market.
The
respondent
incurred
no
cost
since
it
never
purchased
the
goods
so
that
there
could
be
no
lower
figure
for
market
value.
Thus,
there
could
be
no
"cost
amount"
for
inventory
upon
which
the
calculation
permitted
by
paragraph
20(1)(gg)
could
be
made
in
the
computation
of
the
respondent's
income
from
its
business.
For
all
of
the
foregoing
reasons,
I
would
allow
the
appeal
and
would
direct
the
restoration
of
the
re-assessments
in
issue
for
the
taxation
years
1977
and
1978.
Costs
The
respondent
has
requested
that
it
be
awarded
costs
as
permitted
by
subsection
178(2)
of
the
Act
which
reads
as
follows:
(2)
Costs
payable
by
Minister
in
certain
cases.
Where,
on
an
appeal
by
the
Minister,
other
than
by
way
of
cross-appeal,
from
a
decision
of
the
Tax
Court
of
Canada,
the
amount
of
(a)
tax,
refund
or
amount
payable
under
subsection
196(2)
in
the
case
of
an
assessment
of
the
tax
or
determination
of
the
refund
or
the
amount
payable,
as
the
case
may
be
that
is
in
controversy
does
not
exceed
$10,000,
or
(b)
loss
(in
the
case
of
a
determination
of
the
loss)
that
is
in
controversy
does
not
exceed
$20,000,
the
Federal
Court,
in
delivering
judgment
disposing
of
the
appeal,
shall
order
the
Minister
to
pay
all
reasonable
and
proper
costs
of
the
taxpayer
in
connection
therewith.
Counsel
for
the
appellant
argued
that
the
subsection
does
not
apply
to
Minister's
appeals
to
the
Court
of
Appeal,
only
to
the
Trial
Division
because
in
this
Court
the
appeal
is
from
that
Division
and
not
from
the
Tax
Court.
Mahoney,
J.,
then
a
member
of
the
Trial
Division,
in
The
Queen
v.
Creamer,
[1977]
2
F.C.
195
at
204-5;
[1977]
C.T.C.
20
at
28
described
Parliament's
intention
in
enacting
subsection
178(2)
in
the
following
terms:
I
have
no
doubt
that
Parliament
had
only
one
purpose
in
mind
in
enacting
subsection
178(2).
It
was
not
altruistic.
As
part
of
the
tax
reform
package,
Parliament
made
it
easier
and
even
less
expensive
than
theretofore
for
a
taxpayer
to
appeal
his
assessment
to
the
Tax
Review
Board.
It
wanted
to
enable
the
Crown
to
bring
to
this
Court
for
decision
important
questions
of
principle
in
cases
which,
because
of
the
small
amount
of
tax
involved,
the
taxpayer
would
likely
abandon,
regardless
of
principle,
rather
than
incur
the
expense
involved
in
defending
an
action
in
this
Court,
even
successfully,
if
conventional
rules
as
to
party
and
party
costs
pertained.
While
what
Pratte,
J.
said
in
reference
to
the
Creamer
case
in
his
Judgment
in
Leclerc
and
Lemay
v.
M.N.R.,
[1982]
C.T.C.
338;
52
N.R.
60
is
not
precisely
on
point,
he
does
appear
to
have
approved
of
the
whole
of
the
judgment
in
the
Creamer
case
including
what
Mahoney,
J.
said
in
the
above
quotation
as
to
the
purpose
of
the
enactment.
In
The
Queen
v.
Barbara
D.
Sills,
[1985]
1
C.T.C.
49;
85
D.T.C.
5096,
Heald,
J.
speaking
on
behalf
of
another
panel
of
this
Court,
on
consent,
allowed
the
unsuccessful
respondent
his
costs
throughout,
including
the
Court
of
Appeal,
under
subsection
178(2).
The
appellant
in
this
appeal
relied
on
the
decision
of
yet
another
panel
of
this
Court
in
Bernard
A.
Hodson
v.
The
Queen,
[1988]
1
C.T.C.
2;
88
D.T.C.
6001.
Heald,
J.
again
speaking
on
behalf
of
the
panel
there
present
said:
.
.
.
This
subsection
[178(2)]
does
not
apply
to
this
appeal
since
this
is
not
an
appeal
by
the
Minister
nor
is
it
an
appeal
from
the
Tax
Court
of
Canada.
Accordingly,
the
rationale
of
these
two
cases
has
no
application
or
relevance
to
the
question
of
costs
in
this
appeal.
The
appellant
there
had
asked
for
costs
even
though
he
had
lost
his
appeal,
on
the
basis
that
the
arguments
which
he
had
advanced
were
unique.
He
did
not
seek
such
costs
under
subsection
178(2).
The
appellant's
reliance
here
on
that
case
was
on
Heald,
J.'s
statement
that
"nor
is
it
an
appeal
from
the
Tax
Court
of
Canada".
In
her
counsel's
view
the
decision
here
not
being
from
the
Tax
Court
but
from
the
Trial
Division,
the
respondent
was
not
entitled
to
its
costs.
In
light
of
the
earlier
cases
to
which
I
have
referred
and
also
to
the
fact
that
in
the
circumstances
of
the
Hodson
appeal,
what
was
said
was
purely
obiter
dicta,
I
have
no
difficulty
in
rejecting
the
appellant's
argument
as
being
contrary
to
the
obvious
intention
of
Parliament
expressed
in
the
subsection
as
explained
by
Mahoney,
J.
On
the
facts
of
this
case,
the
appellant
was
the
Minister
in
the
appeal
initially
brought
from
the
Tax
Review
Board
(the
predecessor
of
the
Tax
Court
of
Canada)
to
the
Federal
Court-Trial
Division.
That
Division
upheld
the
Review
Board’s
decision
in
favour
of
the
respondent.
The
Minister
again
was
the
appellant
in
this
Court
and
it
is
my
opinion,
that
in
view
of
the
acknowledged
purpose
of
the
subsection,
the
phrase
“from
the
Tax
Court
of
Canada"
should
not
be
so
narrowly
interpreted
as
to
exclude
a
respondent
who
is
defending
a
judgment
in
his
favour
rendered
by
the
Trial
Division
upholding
a
decision
also
in
his
favour,
from
the
Tax
Court.
That
this
is
the
proper
view
is
supported
by
the
fact
that
the
meaning
of
"Federal
Court"
in
the
Rules
of
the
Court
includes
both
the
Trial
and
Appeal
divisions
and
that
fact
is
recognized
in
the
Income
Tax
Act
where
the
distinction
is,
where
necessary,
drawn
between
the
two
divisions
of
the
Court,
e.g.,
sections
174
and
180.
The
respondent,
accordingly,
should
be
entitled
to
its
costs
throughout.
Appeal
allowed.
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