Kirsch Construction LTD v. Minister of National Revenue, [1985] 2 CTC 2387, 85 DTC 675

Christie, ACJTC:—This appeal is against a reassessment by the respondent under the Income Tax Act ("the Act") regarding the appellant’s 1977 taxation year. In reassessing, the respondent disallowed a claimed deduction by the appellant for capital cost allowance in respect of the cost of purchasing a Blaw Knox model PF-108H Road-paver ("paver") for use in the appellant’s road construction business.

Under paragraph 249(1 )(a) of the Act the taxation year-end for the appellant's 1977 taxation year was March 31, 1977. The only question to be answered is whether the appellant "acquired" the paver within the meaning of subparagraph 13(21 )(f)(i) of the Act as of the date just mentioned. If the answer is yes the appellant succeeds. Otherwise the appeal must be dismissed.

The material facts are brief. On March 30, 1977, Mr Reinhold Kirsch, the president and sole shareholder of the appellant, attended at the Saskatoon office of Industrial Sales Limited and signed, on behalf of the appellant, a document entitled "Order for Industrial Equipment" in which the appellant is described as the purchaser and Industrial Sales as the vendor. It provides, inter alia, that the paver will be shipped fob Saskatoon; that it will be loaded and shipped from the factory by April 10, 1977; that the order is subject to the written acceptance of the vendor and that the purchaser's deposit would be returned if the order is not accepted by the vendor. The appellant made a deposit of $20,000 on March 30. The purchase price was $117,276.60 and the balance was paid shortly after delivery. The order form indicates on its face that the order was accepted on behalf of the vendor on April 11, 1977. The manufacturer of the paver is a company named Blaw- Knox located in Illinois.

Mr Kirsch testified that he, or a representative of Industrial Sales, telephoned the manufacturer at least twice concerning delivery of the paver. He believed a call was made before April 10. The information received from the manufacturer was that others had priority over the appellant regarding delivery of pavers and that delivery to the appellant of its paver would take place as soon as possible. The appellant accepted this state of affairs and delivery of the paver occurred in late May or early June 1977, after which it was employed in the appellant’s business.

What is relevant for the purposes of this appeal in paragraph 20(1)(a) of the Act, paragraph 1100(1)(a) of the Income Tax Regulations and paragraph 13(21)(f) of the Act provides that, in computing a taxpayer’s income for a taxation year from a business, there may be deducted such part of the capital cost to him of property as is allowed by regulation. Regulations allowed deductions for each taxation year equal to a named percentage, subject to specified deductions, of the undepreciated capital cost to a taxpayer as of the end of the taxation year of certain prescribed classes of property. The prescribed classes of property are set out in Schedule B (now Schedule Il) of the Regulations and the percentage which may be deducted varies depending on the class of property that is involved in the claimed deduction. In order for there to have been undepreciated capital cost to a taxpayer of depreciable property of a prescribed class as of the end of a taxation year, the property must have been “acquired” before that time.

The answer to the question in the present appeal is governed by provisions in the Sale of Goods Act, RSS 1965, c 388 pertaining to when property in goods is transferred to the buyer under a contract of sale. When such transfer occurred in relation to the paver, in accordance with those provisions, is when it was acquired by the appellant. Section 19 of the Sale of Goods Act provides:

19 (1) Where there is a contract for the sale of specific or ascertained goods the property in them is transferred to the buyer at the time the parties to the contract intend it to be transferred.

(2) For the purpose of ascertaining the intention of the parties regard shall be had to the terms of the contract, the conduct of the parties and the circumstances of the case.

Reference was also made in argument to section 20 which contains five rules for ascertaining the intention of the parties to a contract for the sale of goods respecting the time when the property in the goods was to pass to the buyer. The application of these rules is, however, subject to this caveat contained in these opening words of section 20: “Unless a different intention appears . . There is no need to resort to these rules for reasons which follow.

As previously noted the order for the paver provided that it was to be shipped free on board Saskatoon. Applying the general rule this raises the prima facie presumptions that the invoice price included delivery of the paver at Saskatoon at the vendor's expense and that the property in the paver would pass to the appellant on its arrival there. Beaver Specialty Ltd v Donald H Bain Ltd, [1974] SCR 903, involved the determination of the issue of when the property in 2,000 cases of chinese walnuts was intended to pass from the appellant to the respondent. The contract for purchase and delivery stipulated that the goods were "fob" Toronto, Ont". With reference to the primary meaning to be given to this phrase, Mr Justice Ritchie, who delivered the judgment of the Court, said at 914:

In this regard I have reference to what is said in Mr Williston’s work on The Law Governing Sales of Goods, rev ed, 1948, s 280(b), where it is said:

As it is a necessary implication in fob contracts that the buyer is put at all expense in regard to the goods after the time when they are delivered fob, the presumption follows that the property passes to the buyer at that time and not before, . . . and the further presumption follows that the place where the goods are to be delivered fob is the place of delivery to the buyer

(The italics are my own.) Further authority to the same effect is to be found in Void on the Law of Sales, 2nd ed, s. 33, where it is said:

Under shipment “f ob destination” the presumption is that the property interest was not meant to pass until the goods reached destination.

At pages 914-15 of his reasons for judgment Ritchie, J refers to Steel Co of Canada Ltd v The Queen, [1955] SCR 161 and, in particular, to a passage from the reasons for judgment delivered by Kerwin, CJC, with whom Fau- teux, J (as he then was) concurred, that is authority for the proposition that an fob contract can of itself bring a contract for the sale of goods within the meaning of the previously cited opening words of section 20 of the Sale of Goods Act.

See also MNR v Wardean Drilling Ltd, [1969] CTC 265; 69 DTC 5194 and The Queen v Henuset Bros Ltd [no 1], [1977] CTC 228; 77 DTC 5169. In those cases the same issue that emerges on this appeal was before the Exchequer Court and the Federal Court — Trial Division, respectively.

In my opinion what transpired with respect to the purchase of the paver cannot be construed as establishing that it was “acquired” by the appellant as of March 31,1977 within the meaning to be attributed to that word in the context of this appeal. As already mentioned, the order for the paver expressly provided that the offer to purchase was subject to the written acceptance of the vendor and this was not forthcoming until April 11, 1977. Furthermore, by this time the appellant was aware that the position was that it would receive delivery of the paver when the manufacturer's priorities permitted and the appellant acquiesced in this. The conclusion to be drawn is that, having regard to those matters referred to in subsection 19(2) of the Sale of Goods Act, which includes the unrefuted presumption that arises out of the fob clause in the order form, it is clear that it was the intention of the parties that the property in the paver would be transferred to the appellant when it arrived in Saskatoon. This date was not fixed, but was contingent on the manufacturer’s priorities. This intention is not in accord with any of the rules in section 20 of the Sale of Goods Act and supersedes their application. As events unfolded, the paver was delivered in late May or early June 1977 and this is when it was acquired by the appellant.

The appeal is dismissed.

Appeal dismissed.