Sydney Harold Healey v. Minister of National Revenue, [1984] CTC 2004, 84 DTC 1017

Christie, CJTC:—The appellant appeals from reassessments of income tax for his 1977, 1978 and 1979 taxation years. He is the owner of a property located at 415 Pembroke Street West, Pembroke, Ontario, (“the property”). The dispute giving rise to this appeal relates to expenses claimed by the appellant in relation to the property. Notices of reassessment were mailed to the appellant on August 11, 1980, for the years 1977 and 1978 and on September 15, 1980, for 1978 and 1979. Each reads the same except for the reference to the taxation year:

I object to the Department of Revenue Re-Assessment of my (year) Tax Return on the basis of the repairs and improvements made to my property located at 415 Pembroke St, West, Pembroke, Ontario, and re-assessing such repairs as Capital Expenditures.

I contend that all such repairs and improvements were done in order to bring the building back to the condition it was formerly (before being vacant for approximately four years) as economically as possible, without making any change structurally.

The Minister confirmed the reassessments by notice of confirmation dated November 23, 1981, on the ground that:

The expenditure for repairs, maintenance, and alterations in the amount of $38,741.62 in 1979, $13,260.06 in 1978 and $54,490.62 in 1977 claimed as a deduction from income was an outlay or payment on account of capital within the meaning of paragraph 18(l)(b) of the act and was properly determined to be property of Class 3 of Schedule II of the Income Tax Regulations.

The expenditure for repairs and maintenance in the amount of $10,000.00 in 1977 claimed as a deduction from income was an outlay or payment on account of capital within the meaning of paragraph 18( l)(b) of the act and was properly determined to be property of Class 1 of Schedule II of the Income Tax Regulations.

By notice of appeal dated February 18, 1982, the appellant appealed to this Court pursuant to paragraph 169(a) of the Income Tax Act (“the Act”) on the ground that the expenditures made with respect to the property are properly deductible as outlays or expenses made or incurred for the purpose of gaining or producing income from a business or property within the meaning of paragraph 18(l)(a) of the Act. The respondent takes the position that the expenditures are outlays on account of capital within the meaning of paragraph 18(1)(b) of the Act.

There is a considerable spectrum of tests or approaches to be found in reported cases and elsewhere pertaining to the determination of the issue whether an outlay is a revenue expenditure on account of capital. The importance of the distinction pertains, of course, to the manner in which deductions from taxable income may be made. If the expense is current, the whole of it may be deducted in the taxation year in which it was incurred; if capital, it is to be written off over a period of time by way of capital costs allowances as provided by the Act and Regulations made thereunder.

What has been said ranges from the somewhat simplistic “once and for all” and “enduring benefit” test postulated by Lord Dunedin in Vallambrosa Rubber Company Limited v Farmer (1910), 5 TC 529, and Viscount Cave, LC, in British Insulated and Helsby Cables Ltd v Atherton, [1926] AC 205, to the much less tangible notion expressed by Lord Pearce in B P Australia Ltd v Commissioner of Taxation, [1966] AC 224 (PC), that the solution does not lie in any rigid test or description. Viscount Cave said at 213:

But when an expenditure is made, not only once and for all, but with a view to bringing into existence an asset or an advantage for the enduring benefit of a trade, I think that there is very good reason (in the absence of special circumstances leading to an opposite conclusion) for treating such an expenditure as property attributable not to revenue but to capital.

Lord Pearce said at 264:

The solution to the problem is not to be found by any rigid test or description. It has to be derived from many aspects of the whole set of circumstances some of which may point in one direction, some in the other. One consideration may point so clearly that it dominates other and vaguer indications in the contrary direction. It is a commonsense appreciation of all the guiding features which must provide the ultimate answer. Although the categories of capital and income expenditure are distinct and easily ascertainable in obvious cases that lie far from the boundary, the line of distinction is often hard to draw in border line cases; and conflicting considerations may produce a situation where the answer turns on questions of emphasis and degree. That answer:

“depends on what the expenditure is calculated to effect from a practical and business point of view rather than upon the juristic classification of the legal rights, if any, secured employed or exhausted in the process”:

per Dixon J in Hallstroms Pty Ltd v Federal Commissioner of Taxation, (1946) 72 CLR 634 at 648. As each new case comes to be argued felicitous phrases from earlier judgments are used in argument by one side and the other. But those phrases are not the deciding factor, nor are they of unlimited application. They merely crystallise particular factors which may incline the scale in a particular case after a balance of all the considerations has been taken.

This was cited with approval by Fauteux, J (as he then was) in delivering the judgment of the Supreme Court of Canada in MNR v Algoma Central Railway, [1968] SCR 447 at 449-50; [1968] CTC 161; 68 DTC 5096.

One assessment of what was said by Viscount Cave is that of the former Chief Justice of the Federal Court, the Honourable Wilbur Jackett, who, not speaking in a judicial capacity, said:

Mr Sherbaniuk has, however, invited me to comment on that jurisprudence. Having regard to the complexity of cases concerning capital transactions, I hesitate to do so. I can say that it seems to me to be a line of jurisprudence where lawyers and judges have, only too frequently, fallen into the trap of taking reasoning out of particular cases and erecting it into general principles. In my view, the “once and for all test” as amplified in British Insulated and Helsby Cables Ltd typifies no test that I find less helpful for general application than the “once and for all” or enduring asset or advantage test. The Corporate Management Tax Conference 1981 at pages 288-9.

This question has been posed and this observation made in relation to determining whether an outlay is a revenue expenditure or an expenditure on account of capital:

(i) “Were these sums expended on the structure within which the profits were to be earned or were they part of the money-earning process?” See B P Australia at page 271.

(ii) “The contrast has been observed between expenditure forming ‘part of the cost of improving or adding to the income-earning plant or machinery’ and ‘part of the cost of performing the income-earning operations’.” See Regent Oil Co Ltd v Strick (Inspector of Taxes) [1966] AC 295 per Lord Morris of Borth-y-Gest at page 329.

In Canada Steamship Lines Limited v MNR, [1966] Ex CR 972; [1966] CTC 255; 66 DTC 5205, Jackett, P (as he then was) said at 975:

Things used in a business to earn the income — land, buildings, plant, machinery, motor vehicles, ships — are capital assets. Money laid out to acquire such assets constitutes an outlay of capital. By the same token, money laid out to upgrade such an asset

— to make it something different in kind from what it was — is an outlay of capital. On the other hand, an expenditure for the purpose of repairing the physical effects of use of such an asset in the business — whether resulting from wear and tear or accident

— is not an outlay of capital. It is a current expense.

In Shabro Investments Limited v The Queen, [1979] CTC 125; 79 DTC 5104, a decision of the Federal Court of Appeal, the headnote reads:

The taxpayer owned a two-storey rental building part of the lower floor of which was constructed of wire mesh and concrete dependent for support on the underlying sanitary land fill. When the fill compacted, the floor subsided and broke, becoming unusable and damaging subsidiary structures such as waterlines, storm drains, plumbing weeping tile and electric wiring. The taxpayer fixed the damage by installing a new concrete floor reinforced by steel beams and supported by steel piles, and by repairing or replacing the subsidiary structures. The taxpayer treated the total cost of $95,198 as an operating expense for the 1973 taxation year. The Minister reassessed it as a capital expenditure. The taxpayer appealed unsuccessfully to the Federal Court — Trial Division (77 DTC 5293) and then brought this appeal.

Held: The taxpayer’s appeal was allowed in part. The Court allowed the deduction of that part of the $95,198 spent to repair or replace the damaged subsidiary structures as the cost of repairs. However, the Court concluded that the cost of sinking steel piles was clearly a capital expenditure, and that the entire process of sinking the piles and placing thereon a concrete slab reinforced by steel was a single operation whereby an improvement was made that was essentially different in kind from a repair. As a result, the remainder of the $95,198 was characterized as a capital expenditure.

In the course of delivering the majority judgment, Chief Justice Jackett said at 5106:

I know of no single test to distinguish between

(a) “repairs”, the cost of which is a revenue expenditure in the year during which they are carried out, and

(b) additions or improvements, the cost of which is an outlay on account of capital.

Generally speaking, replacement of worn or damaged parts, even though substantial, are repairs and are to be contrasted with changes designed to create an enduring addition or improvement to the structure. In ordinary cases, the difference is evident. Unfortunately, this is not such an ordinary case.

At 5107-8 he cited a number of situtions which he regarded as being evident capital additions or improvements including:

(b) if a building were built leaving one side without a wall but partially protected from the elements by a metal awning that was an essential part of the structure, remedying damage to the awning would be a “repair” but replacing it by a wall along the open side would be a capital improvement.

The kind of paradox which can flow from applying general legal principles or hypothetical facts to actual fact situations in particular cases was, in the realm of current versus capital expenditures, exemplified on this appeal. In the course of argument, counsel for the appellant and respondent both relied on Shabro and both recited the passages from the judgment just quoted in support of the correctness of their positions which, of course, were diametrically opposed.

The appellant purchased the property in 1944. It was used for the purposes of his automobile dealership which was carried on as Healey Motors Limited. The property consisted of two levels. The basic structure was steel and poured concrete in the lower level, a floor between the lower and upper or street level of which a portion, if not all, was concrete, and the upper level which was composed of concrete blocks. The roof was made up of a roof deck covered with tarpaper on which was superimposed a mixture of tar or asphalt and gravel and this was overlaid with crushed stone. There was also a square (two or three feet on each side) pier type reinforced concrete pillar under what will later be referred to as the Trader’s area. It was sunk into the ground and supported two girders at the top running north and sourth. These girders were connected by 12 small girders running east and west which were anchored in the wall. This was to support the showroom of the dealership which held up to five or six cars at a time plus parts. A concrete wall separated the Trader’s area from what will be described as the United Auto Parts area and subsequently the poolroom area.

In 1960 or 1961 Healey Motors Limited vacated the property. Between 1960- 61 and 1968-69 it was leased to these tenants: Trader’s Finance (“Trader’s”), Crane Supply (“Crane”) and United Auto Parts (“United”). The property is fronted on Pembroke Street and runs south (front) to north (rear). Crane occupied the whole of the lower level, Trader’s the left or west side of the street level and United occupied the right or east side. There were entrances to the Trader’s and United areas off Pembroke Street, while the entrance to the Crane area was at the back or north end of the building. There was also a paved parking lot at the back. The land slopes steeply downward from the front to the back of the building.

These three lessors were described as being “generally good tenants” in respect of whom there were no complaints of a serious nature. While they occupied the property, the only noteworthy repairs were to the roof which received a new covering.

The first tenant to vacate was United. It did so “around approximately 1968 or 1969”. The property was described by the appellant as being in this condition at that time. Except for the toilet, there were no partitions in the United area. This area had four feet of panelling and then painted gyprock to the ceiling. The ceiling was of insulboard. The Crane area was without partitions and the walls were bare concrete. Part of the ceiling was of some undescribed painted material and part simply the unfinished bottom of the floor of the Trader’s area. Shelving had been constructed in the Crane area for bins for heavy supplies. It consisted of pipes running from the floor to the ceiling and from wall to wall. This involved drilling holes in the walls. In the Trader’s area there were partitions on the west wall for the manager’s office, the furnace room and a small partition for the loans manager which Trader’s had erected. The walls were covered with panelling “all around” including the furnace area. The ceiling was composed of acoustic tile.

The space formerly occupied by United remained vacant for four or five months when the appellant was approached by Mr Keith Saunders who was interested in renting it. When the appellant asked Saunders the purpose for which he wanted the premises, the latter replied that he could not divulge the reason, but he assured the appellant that “it would be a good, clean operation and would not conflict with any of the tenants”. Saunders was granted a five year lease and opened a poolroom (“the poolroom area”). The appellant said that this turned out to be an unfortunate transaction. Drug pushers moved in and there “was a lot of commotion around it”. The poolroom was broken into on a number of occasions with resulting damage to the doors and locks, and there were broken windows.

One night the appellant received a call from the manager of Crane complaining that water was pouring into the Crane area from the upper level and destroying paperwork and packaging. The cause was “that some person (in the poolroom area) had blocked the toilets and pulled the insides out of the toilet tanks, which allowed the water to flood through onto the floor”. This stained the paint on the ceiling and caused it to blister.

At some unspecified time, Saunders “sold the lease” to an unidentified man from Ottawa who after a few weeks “gave up and he sold the lease to Mr Mc- Groghan”. On taking over, McGroghan cut holes in the ceiling and installed ventilation fans to draw smoke from the poolroom into the crawlspace between the ceiling and the roof covering. This hot air was said to have produced considerable condensation which, in turn, caused some rot to the roof deck over which the exterior covering was laid. The condensation also ruined the insulation. This overheated the roof with the result that ice and snow melted in the centre and formed a pool there, while the perimeter remained frozen. When the pool froze in very cold weather, it cracked the exterior covering of the roof.

When the five year lease under which McGroghan occupied the poolroom area terminated, the appellant refused to renew it. Crane left a short time later. The appellant’s testimony in this regard is that Crane vacated because of a phone call received by the company from McGroghan in which he asked when Crane was moving because he had bought the property. The appellant said he had never even discussed sale with McGroghan and the first the former knew about it was when Crane asked for a months extension in which to leave. When asked if Trader’s also left “as a result of this?” the appellant replied: “Yes, they left around the same time”. When asked if this was in 1974, the appellant replied: “Yes, sometime there”.

When McGroghan left he is said to have removed the air conditioning equipment and certain light fixtures which he owned. He also “tore the wiring and the circuit breakers loose and took the circuit breakers and did quite a lot of damage getting it out”.

Again at some unspecified time, a Mr Barry McGrath expressed a desire to rent the poolroom area to run another poolroom. The appellant refused. Presumably this occurred in 1974, because the testimony of the appellant on cross- examination is that, apart from persons involved in repairs and renovations, the property stood vacant during 1975 and through to May 1, 1979, when the Government of Ontario took possession. Next Mr Fred Melcher of Richmond, Ontario, indicated his wish to purchase the property. There were serious negotiations about this. Melcher was to buy when he sold his motel in Richmond. One evening the appellant received a call from Melcher who said he had sold his motel and would soon have the money for the property. He asked the appellant to let him have a key in the meantime so he could move in some bowling and poolroom equipment that he intended to sell in the Renfrew area. Melcher claimed to be a distributor for Brunswick. McGrath arrived for the key whereupon the appellant called Melcher and said that he had already turned McGrath down as a potential tenant and poolroom operator. Melcher gave assurances there would be no poolroom, just the sale of equipment. The key was turned over. Why, if the appellant considered that he was selling the property to Melcher, he would be concerned about the existence in it of a poolroom was not explained.

The appellant was away for two or three weeks and upon his return he found McGrath operating a poolroom in the building. Melcher had never paid anything in respect of the anticipated sale of the property and no rent was paid. McGrath was summarily evicted. While there, he moved the gas furnace and some fixtures from the Trader’s area to the poolroom area. The appellant sued McGrath and Melcher and recovered $3,000.

Unsuccessful efforts were made to sell the property. While vacant it was the object of vandalism. All of the windows on the lower level were broken four times. Eventually some of them were bricked in. In addition, plate glass at the front was broken. This was boarded up. The back doors were jimmied. During the winter of 1975, the person under contract to deliver oil for the furnace could not enter the parking lot because of a snow storm and the fuel tank emptied, whereupon the furnace ceased to function. The consequence of this was that the plumbing froze and burst “and the toilets were all broken’’. In addition, frost formed under the floor of the west section of the lower level causing heaving which caused breakage in that portion of the concrete floor.

The repairs got under way in the early part of 1977 and were said to have been made to: (a) the Trader’s area; (b) the Crane area which included reinforced support for the Trader’s area floor; (c) the poolroom area; (d) the roof which included drainage of water from it; and (e) the parking lot and its supporting retaining wall.

The front of the Trader’s area was transformed from what had previously been practically all plate glass to double doors with relatively narrow windows of salvaged plate glass on either side of the doors. The rest was new brick. In the interior of this area the places from which light fixtures had been removed were “repaired over”. There were some repairs around an archway which connected with the Trader’s area to the poolroom area. These repairs consisted of lining the archway with new bricks. The size of the bricks used here and elsewhere were seven inches long, four inches deep and four inches wide. The toilet facilities which had been damaged when the furnace ran out of oil were moved from the Trader’s area and consolidated with new lavatory facilities in the poolroom area.

With respect to the Crane area, the appellant said ‘‘on one side we put a dropped ceiling in”. Also brick panelling was built to cover wear and tear on the concrete walls and damage which was said to have been inflicted to them by the shelving which was installed by Crane. One side wall and one end wall were bricked over. The other walls were covered with gyprock. A new concrete floor was poured on the west side which had heaved on account of frost. This, as mentioned, related to the furnace running out of oil. The existing reinforcing steel beams under the Trader’s area floor were further reinforced by matching all of the original beams running both north and south and east and west.

In the poolroom area “we just patched up some of the holes”. Also the damaged gyprock was replaced and “this side wall and the end wall” were panelled with brick and some new vinyl tile was applied to the floor. The damage to and loss of electrical wiring and fixtures was taken care of and the damaged doors were replaced. In addition, the walls were reinsulated.

The deck of the roof which was damaged by rotting was repaired and a new covering of the type already described was laid over it. The City of Pembroke had notified the appellant that the roof water could no longer be allowed to drain into a sanitary sewer and that the flow must be redirected to the back of the property. Installations, including sewer line, were made for this purpose. Later the City installed storm sewers along Pembroke Street and the roof water had to be further redirected there. This involved the laying of sewer pipes. The two changes included digging up pavement and asphalt at the front and back of the building.

Eventually after repairing damage such as potholes, a new surface was applied to the parking lot. When this work was being done, the level of the parking area was changed so that water would drain away from the building. It had been draining in the other direction because of heaving caused by frost. Also at the request of the City, a retaining wall related to the parking lot was reinforced. It was constructed of creosoted wooden ties, stone and gravel. This retaining wall ran along Christie Street which was located on the Trader’s or west side of the property.

In support of this evidence, counsel for the appellant entered eleven photographs as exhibits. Seven of them were interior and exterior shots of the poolroom area. The photographs of the interior depict water stains to the ceiling which are said to have been caused by the fans installed by McGroghan; exposed electrical wiring and cracks in and stains on the interior west wall; places from which light fixtures had been removed and untroweled cement on the floor. The two exterior photographs show damage to three doors, one of which is boarded up, cracked and broken glass plus the remnants of painted graffiti which had been largely removed. The three pictures of the interior of the Crane area show the concrete floor being repaired by a workman, damage to the west wall and an opening in the floor where a drain pipe from the roof was placed at the time the roof water was redirected from the sanitary sewer into the parking lot at the rear of the property. The single exterior photograph of the Trader’s area shows missing vitriolite panels above the plate glass at the front of the property and a repetition of the boarded up poolroom door.

There followed as an appellant’s exhibit (A-3) a document entitled “ITEMS IN DISPUTE’’ which reads:

(1) 1977

(A) PAVING		$10,000.00
— Delmar Paving Ltd
— one invoice dated Nov 15, 1977 for “repairing existing paving
and repairing drainage system”
(B) LABOUR		$18,828.27
— All to C F Krieger General Contractor for labour.
(C) NEW DOORS & FRAMES		$ 4,043.45
— Doorways Limited	$3,228.67
— J Hildebrandt Wood Products	$ 471.44
— Delbert Antler Limited	$ 343.83
(D) WALLS		$ 6,010.68
— Pembroke Lumber	$ 260.90
— Cashway	$1,888.00
— Swans Bldg Supply	$ 609.00
— Costello Bldg Supplies	$1,168.71

— Tom Mix Mobile Concrete	$ 432.00
— CA A Reiche and Sons Ltd	$ 297.44
— Beaver Lumber	$ 629.00
— Herb Shaw & Sons Ltd	$ 827.97
(E) CEILINGS	$ 9,790.77
— Rossow Lumber Ltd	$ 6,348.94
supplied lumber materials etc
— Ted’s Hardware	$ 1,200.00
materials
— Cash way North	$ 2,072.00
materials
(F) ROOFING	$ 3,687.97
— Irvcon	$ 3,322.35
Labour and materials
— Other roofing materials	$ 365.64
(G) BRICKING	$ 7,574.00
— George Nieman	$ 5,000.00
— Costello Bldg, Supplies	$ 2,800.00
(H) BATHROOMS	$ 1,401.98
— Pembroke Lumber Co: fixtures, ceramic tiles,
paint, toilet tanks.
(I) ELECTRICAL SUPPLIES	$ 2,750.81
— Maves	$ 2,200.00
— Westburn	$ 542.00
Fixtures and various supplies
(J) PLUMBING (MISCELLANEOUS EXPENSES)	$	402.49
— Mise Fixtures
(K) FLOORS	*$ 4,602.00 [1]
— Melmart Distributors
Carpeting
TOTAL 1977	$64,490.62
(2) 1978
(A) NEW VENTILATION SYSTEM	$ 3,748.00
— Irvcon Roofing Repairs for roofing; sheet metal and ventila-
tion work.
(B) NEW HEATING SYSTEM	$ 3,095.00
— M J Maves (Labour & Materials)
(C) NEW PLUMBING	$ 4,110.20
— GR R Adam (Labour & Materials)
(D) NEW BRICKING OF FRONT WALL	$ 662.00
— George Nieman — Labour
(E) NEW FLOOR (MISC LABOUR)	$ 1,074.00
— Enrest Fougere — Misc Labour
(F) RECONSTRUCTION STORM SEWER	$	570.86
re: City of Pembroke
TOTAL 1978	$13,260.06

(3) 1979

(A) ENGINEER & CONTRACTOR	$16,371.26
— Krieger (Contractor)	$9,484.00
— Griffin (Architect)	$ 370.00
— Patterson (Surveyor)	$ 290.00
— Galloway (Engineer)	$1,125.00
— Lome Ray	$3,000.00
— Irvcon Roofing	$2,000.00
(B) MATERIALS	$ 7,390.13
— Pemco Steel (reinforcing steel & other material)	$5,400.00
— Crane Supplies	$1,850.00
(C) SALARIES, WAGES FOR CUSTODIAL MANAGEMENT
AND REPAIR SERVICES	$ 8,363.94
— Bill Healey: Management Fees	$4,892.50
— Labour: Charges from Healey Motors (em
ployees)	$4,000.00
(D) WALL REPAIRS	$ 4,950.29
— Cecil Munro & Sons	$4,360.00
re: reinforcement of retaining walls on Christie
Street
— Mechanical Advertising Corp	$ 500.00
re: retaining walls — Christie Street
(E) PAINTING & DECORATING	$ 1,666.00
— Ernie Fougere — Labour and materials
TOTAL 1979	$38,741.62
	$131,427.48
	+ 4,602.00
GRAND TOTAL OF ITEMS IN DISPUTE	$136,029.48

Apart from the documents forwarded to the Court by the Deputy Minister of National Revenue for Taxation pursuant to subsection 170(2) of the Act (Exhibit A-l), the only other exhibits placed in evidence were two additional photographs which will be referred to later.

Counsel for the appellant agreed that item (1)(K) for 1977 in the sum of $4,602 for “‘Floors’’(supra) was included in error. It was for carpetig and was treated by the appellant as a capital expenditure in his return for his 1977 taxation year. In addition counsel for the respondent agreed that two of the expenditures included in item (3)(A) for 1979 entitled “Engineer & Contractor”, namely, $370 for the architect, Griffen, and $1,125 for the engineer, Galloway, should be allowed as current expenditure. If, subsequent to the disposition of this appeal, what is contained in Exhibit A-3 is considered relevant the parties should reexamine it because what is said therein is riddled with mathematical error.

On July 15, 1977, the appellant went to England and returned during the first week of the following month. At that time he was approached by Mrs Lackovic, an employee of the Government of Ontario, who expressed interest on behalf of that Government in renting the property for a Provincial Court House. A lease was later entered into and, as previously mentioned, the Government took possession on May 1, 1979. The appellant said that, in addition to what he spent on the property, the Government of Ontario expended between $200,000 and $220,000. The Government expenditures related basically to the interior of the building. The lease was for 10 years at an annual rent of $81,000.

Evidence was not forthcoming from any of the contractors or the engineer or architect who did work in relation to the property. Apart from the exhibits entered by his counsel, the only evidence was that of the appellant. The qualify of his evidence left much to be desired. In considerable measure he was unable to allocate expenses for material and labour with necessary specificity. I cite two examples. First with respect to item (2)(B) for 1978 labelled “New Heating System” M J Maves (labour and materials) $3,095, this exchange took place between the appellant and counsel for the respondent:

Q Well, what would this $3,095 relate to?

A Mr Maves did plumbing and he did the electrical.

Q So you can’t say what this $3,095 relates to?

A No.

When questioned about the location of the work regarding item (3)(E) for 1979 regarding “Painting and decorating” Ernie Fougere — Labour and materials $1,666, the appellant replied: “I couldn’t tell you”.

No invoices were produced with this sort of result. When asked about item (1) (I) for 1977 regarding “electrical supplies” Westburn $542, he could not say what it related to without seeing the invoice. The same occurred with respect to item (3)(B) for 1979 pertaining to “Materials” Crane Supplies $1,850. Item

(2) (A) for 1978 relates to a “New ventilation system” Irvcon Roofing Repairs for roofing, sheet metal and ventilation work $3,748. Initially the appellant testified that this expenditure was to put ventilators in the roof. This was later changed to flashing around the roof. Then he was “not positive” and finally concluded with “whatever he (Irvcon) stated on the invoice is what he performed”.

Although some of the work done to the property was for repairs and deductible as revenue expenditure, the whole of the evidence clearly points to the conclusion that the great preponderance of the expenditures were for new additions or renovations constituting an outlay on account of capital. This is graphically illustrated by comparing Exhibits A-2(7) and A-5. The former photograph taken from the exterior shows the front end of the Trader’s area before the work was undertaken and the latter shows the same area in its present state. In A-2(7) one sees solid plate glass running up from the ground which is topped by a jutting ledge approximately a foot deep, the front of which is covered with vitriolite. This was the showroom when the property was occupied by Healey Motors. Exhicit A-5 shows a very significantly different structure. The plate glass has been totally dismantled and replaced by double doors in the middle. They are flanked by ordinary sized separate windows which commence well above the ground and the rest is new brick. The area where the vitriolite was is now covered over by an almost vertical canopy or apron of shingles several feet in depth. Where there was a door into the Trader’s area, there is now a solid brick wall. This latter point is brought home by comparing Exhibits A-2(7) and A-4. Exhibit A-4 will be discussed further in a moment. The difference is of such a magnitude that I should be very surprised that, if anyone examined Exhibit A- 2(7) and A-5 without knowledge of the history of the property, he or she would conclude that they are photographs of the same premises. In my opinion what was done was to effect changes so fundamental in character that they cannot possibly be regarded as “repairs”, the cost of which was an expenditure on account of revenue. Exhibit A-2(l) is a photograph of the exterior of a portion of the poolroom area before the work was undertaken and A-4 is a photograph of the same area and more in its present condition. Exhibit A-2(1) shows double doors which included glass windows which are boarded up. To the left of the double doors and above them are windows. Exhibit A-4 shows new solid double doors. The windows to the left of these doors are gone and replaced by a solid brick wall. The windows above the double doors have also been removed and replaced by an extension of the new canopy or apron of shingles in the Trader’s area. The window to the right of the double doors has been partially replaced by brick. Although the changes to the poolroom area are perhaps not as radical as those portrayed in respect of the Trader’s area, they sweep far beyond “repairs” and, in my view, the expenditure for these changes is also an outlay on account of capital.

I now refer to some of the other more significant expenditures. Included in item (3)(A) for 1979 entitled “Engineer and Contractor” is Krieger (contractor) $9,484 and in item (3)(B) for the same year under the heading “Materials” Pemco Steel (reinforcing steel and other material) $5,400. These two items total $14,884. This is labour and material which went into reinforcing the Trader’s area floor. That did not involve repairs. Nothing that was previously in existence was repaired. What happened is that existing girders were supplemented with new girders. The appellant said that this work was precipitated by an unidentified Province of Ontario safety inspector who required assurance that the floor in question would sustain pressure of up to 100 lbs per square foot in order to meet some unspecified provision of a safety code. Assuming that work is done under the compulsion of a legal requirement in a safety or sanitary code, this would not change the expenditure from what would otherwise be a capital outlay to current expense. In Morel v MNR, 5 Tax ABC 213; 51 DTC 431, the appellant, a hotel owner, had considerable work done to her premises including moving the tap room and beverage rooms to different locations in the hotel. This entailed, inter alia, the installation of lavatories, wash basins and heating equipment. The appellant sought to deduct all amounts spent for the purposes mentioned as revenue expenditures. The Minister disallowed a part of the expenditures. The appeal to the Income Tax Appeal Board was dismissed. In rendering his decision, Chairman Fabio Monet, KC said at 433:

The appellant submitted also that she was compelled to make the changes above described to comply with the regulations of the Liquor Control Board of Ontario. The evidence on that point is not too conclusive; it seems that competition and the fear that other licenses would be issued in Mattawa if alterations were not made to the hotel had a great deal to do with the appellant’s decision to go on with the work that was done. But even if it was to comply with the regulations of the Liquor Control Board of Ontario that such work was carried out, this fact would not in any way change the nature of the expenditure, for if an expenditure is in se a capital expenditure, I fail to see why the nature of such expenditure would be changed because a taxpayer has been compelled to incur it.

I am also of the view that item (3)(D) for 1979 designated “Wall Repairs” $4,950.29*, [2] which relates to the retaining wall below the parking lot is an outlay on account of capital. In describing the “original retaining wall” the appellant made no mention of pilings. The $4,950.29 was to drive supporting and reinforcing pilings of metal or wood into the ground. He said there were about 10 pilings. This means they would have cost about $486 each. I am of the view that the pilings effected an upgrading of the original retaining wall of a sufficient degree to constitute the creation of an enduring addition or improvement to the structure. While a retaining wall constructed of creosoted ties, stone and gravel and one similarly constructed with the addition of reinforcing pilings are both retaining walls, I regard them as being different in kind for present purposes.

It is my further opinion that the brick panelling in the Crane area and elsewhere and the brick archway between that area and the poolroom area constitutes an upgrading of sufficient magnitude to bring the expenditure for this work within the ambit of a capital outlay for the reason just assigned in relation to the retaining wall. retaining wall.

Item (1)(A) for 1977 described as “Paving” $10,000 pertains to the parking lot. The appellant said that the preceding paving job had been “done 15 or 20 years earlier”. He also admitted that, at the time the work was done “‘the pavement generally was in pretty rought shape”. When Crane was a tenant, large trucks with very heavy loads of supplies would use the lot. The work which was done not only involved a new top to the parking area, but as mentioned, adjusting its level to rectify a problem that had come into being, presumably through the use of the lot. The problem was one of water draining towards the building instead of away from it. I accept this as not having been an expenditure to make something different in kind from what it was, but rather as an expenditure for the purpose of repairing physical effects resulting from wear and tear and, therefore, a current expense in the light of Canada Steamship Lines Limited.

I am also prepared to accept item (1)(F) for 1977 regarding “Roofing” in the amount of $3,687.97 as being a revenue expenditure even though, between the time Healey Motors left the property and it was after vacated by Trader’s, Crane and United, the roof was newly recovered.

It may be that intertwined in the remaining items in dispute there are some expenditures on revenue account, but if so the appellant has failed to bring them into focus and to discharge the onus which rests upon him to establish that particular expenditures were revenue expenditures. This onus includes not only establishing the nature of the work done, but relating it with adequate certainty to a monetary value which has been ascertained on a reasonable and proper basis. In this regard I have in mind, in particular, the expenditure for pouring a new concrete floor on the west side of the Crane area. I must, however, also observe that it was confirmed that embedded in the remaining items there were capital expenditures. Item (2)(E) for 1978 in Exhibit A-3 in the amount of $1,074 is said to be for a “New floor (mise labour)”. In the course of being cross- examined the appellant testified that this expenditure was for the construction of two new stairwells, one at the front of the building and the other at the back where none had existed before. The stairwell at the rear of the building was connected with a judicial bench.

On the basis of the evidence adduced it would be mere speculation on my part to attempt to go further than I have in allocating expenditures to capital or revenue account.

The appeal is allowed and the reassessments are referred back to the respondent for reconsideration and further reassessment on the basis that the appellant is entitled to deduct the following expenditures in the years indicated as outlays Or expenses made or incurred for the purpose of gaining or producing income from a business or property within the meaning of paragraph 18(1 )(a) of the Act. In 1977, $10,000 for paving which is referred to in paragraph (1)(A) of Exhibit A-3, plus $3,687.97 for roofing which is referred to in paragraph (1)(F) of Exhibit A-3. In 1979, $370 for Griffin (architect) and $1,125 for Galloway (engineer) which are referred to in paragraph (3)(A) of Exhibit A-3. The appellant is not entitled to any further relief.

Appeal allowed in part.