Horst Bauerle v. Minister of National Revenue, [1986] 1 CTC 2175, 86 DTC 1131

Bonner, T.C.J.:—This is an appeal from an assessment of income tax for the 1981 taxation year. During that year the appellant disposed of a parcel of unimproved land. It had been purchased by him in 1957. The respondent assessed tax on the basis that in the process of calculating the appellant’s capital gain for the year from the disposition of the land an amount equal to the property taxes paid by the appellant during the period from 1972 to 1980 was not to be included in the computation of the adjusted cost base of the land.

At the outset it should be noted that Parliament has laid down fairly specific rules governing the calculation of capital gains. Paragraph 39(1)(a) of the Income Tax Act provides in part that:

. a taxpayer's capital gain for a taxation year from the disposition of any property is his gain for the year determined under this subdivision .. . .

Of particular relevance to this appeal is the rule laid down by paragraph 53(1 )(h) of the Act. It reads:

53 (1) In computing the adjusted cost base to a taxpayer of property at any time, there shall be added to the cost to him of the property such of the following amounts in respect of the property as are applicable:

(h) where the property is land of the taxpayer, any amount paid by him after 1971 and before that time pursuant to a legal obligation to pay

(i) interest on borrowed money used to acquire the land, or on an amount payable by him for the land, or

(ii) property taxes (not including income or profits taxes or taxes imposed by reference to the transfer of property) paid by him in respect of the property to a province or to a Canadian municipality

to the extent that that amount was, by virtue of subsection 18(2), not deductible in computing his income from the land or from a business for any taxation year commencing before that time;

The sole issue in the appeal was whether paragraph 53(1)(h) requires the inclusion of the taxes in the adjusted cost base. The closing words of that provision make it necessary to determine to what extent subsection 18(2) had prohibited the deduction of the property taxes in question. That subsection reads:

18 (2) Notwithstanding paragraph 20(1)(c), in computing the taxpayer's income for a taxation year from a business or property, no deduction shall be made in respect of any amount paid or payable by the taxpayer in the year and after 1971 as, on account or in lieu of payment of, or in satisfaction of,

(a) interest on borrowed money used to acquire land, or on an amount payable by him for land, or

(b) property taxes (not including income or profits taxes or taxes computed by reference to the transfer of property) paid or payable by him in respect of land to a province or a Canadian municipality.

if, having regard to all the circumstances, including the cost to the taxpayer of the land in relation to his gross revenue, if any, therefrom for that or any previous year, the land cannot reasonably be considered to have been, in that year

(c) used in, or held in the course of, a business carried on in the year by the taxpayer, or

(e) held primarily for the purpose of gaining or producing income of the taxpayer from the land for that year.

except to the extent that the taxpayer's gross revenue, if any, from the land for that year exceeds the aggregate of all other amounts deducted in computing his income from the land for that year.

There was no dispute about the facts. The facts found or assumed by the respondent on assessment were:

(a) in 1957 the Appellant acquired the land in question for approximately $2,400.00 which he sold in 1981 for approximately $108,000.00 thereby creating a taxable capital gain of $44,823.35;

(b) the property taxes paid by the Appellant from 1972 to 1980 were not an outlay or expense made or incurred for the purpose of gaining or producing income from land;

(c) the Appellant earned no revenue from the land in question;

(d) at all material times the land was not used in or held in the course of a business carried on by the Appellant nor held for the purpose of gaining or producing income;

(e) the land was undeveloped and vacant;

(f) the property taxes paid by the Appellant were not made or incurred by him for the purpose of disposing of the property.

Effect must be given to all the words of paragraph 53(1 )(h) of the Act.

When the legislature enacts a particular phrase in a statute the presumption is that it is saying something which has not been said immediately before. The rule that a meaning should, if possible, be given to every word in the statute implies that, unless there is good reason to the contrary, the words add something which would not be there if the words were left out.* [1]

The appellant's argument improperly ignores the words “. . . by virtue of subsection 18(2) .. .”_ which operate to exclude from the addition to adjusted cost base called for by paragraph 53(1)(h) any property taxes which were previously paid, but were not deductible for some reason other than subsection 18(2). That subsection, as is clear from its words, has application only when property taxes are relevant to the computation of the taxpayer's income, whether from business or property. Such a computation is not made where, as here, the land in question was not used or held in connection with the generation of income, whether from business or from the property itself. The non-deductibility of the municipal taxes in question here rested not on subsection 18(2), but on the fact that the taxes did not form any part of the cost of earning income.

The appeal will therefore be dismissed.

Appeal dismissed.