Beatty Investments Incorporated v. Minister of National Revenue, [1984] CTC 2368, 84 DTC 1306

Tremblay, TCJ:—This case was called for hearing in London, Ontario on May 30, 1983 and written arguments were subsequently filed. The last submission was received by the Court on June 24, 1983, and the case was then taken under advisement.

1. The Point at Issue

The point at issue is whether the appellant company, a tenant of MacDonald’s Restaurants of Canada Limited, is correct in deducting $25,517 and $1,212 in the computation of the income for the 1978 and 1979 taxation years respectively. These expenses were claimed to pay for landscaping.

These expenses were disallowed by the respondent on the basis that paragraph 20(1 )(aa) providing the deduction for landscaping costs may not be applied to the tenant, but only to the owner of the buildings and of the land.

2. The Burden of Proof

2.01 The burden is on the appellant to show that the respondent’s assessments are incorrect. This burden of proof results particularly from several judicial decisions, including the judgment delivered by the Supreme Court of Canada in Johnston v MNR, [1948] CTC 195; 3 DTC 1182.

2.02 In the same judgment, the Court decided that the assumed facts on which the respondent based his assessments or reassessments are also deemed to be correct. In the present case, the assumed facts are described in the reply to notice of appeal as follows:

3. The Respondent, in assessing the Appellant in respect of its 1978 and 1979 taxation years and, specifically, in disallowing the expenses claimed on account of landscaping, relied upon the following findings or assumptions of fact:

(a) the business of the Appellant includes the operation of MacDonald’s take out restaurant;

(b) the restaurant buildings and the lands adjacent thereto are leased from MacDonald’s restaurants of Canada Limited;

(c) the Appellant paid landscaping costs in respect of such lands in the amounts of

$25,517.00 and $1,121.00 in its 1978 and 1979 taxation years, respectively;

(d) such landscaping costs were incurred in respect of land leased by the Appellant.

3. The Facts

The facts are not in dispute. All of the respondent’s assumptions of fact quoted above were admitted by the appellant.

No other evidence was given.

4. Law — Cases at Law — Analysis

4.01 Law

The main provisions of the Income Tax Act involved in this instant case are 18(l)(a) and (b) and 20(1 )(aa). They read as follows:

18 (1) In computing the income of a taxpayer from a business or property no deduction shall be made in respect of

(a) an outlay or expense to the extent that it was made or incurred by the taxpayer

for the purpose of gaining or producing income from the business or property;

(b) an outlay, loss or replacement of capital, a payment on account of capital or an allowance in respect of depreciation, obsolescence or depletion except as expressly permitted by this Part;

20 (1) Notwithstanding paragraphs 18(l)(a), (b) and (h), in computing a taxpayer’s income for a taxation year from business or property, there may be deducted such of the following amounts as are wholly applicable to that source or such part of the following amounts as may reasonably be regarded as applicable thereto:

(aa) an amount paid by the taxpayer in the year for the landscaping of grounds around a building or other structure of the taxpayer that is used by him primarily for the purpose of gaining or producing income therefrom or from a business;

4.02 Cases at Law

Counsel for both parties referred the Court to the following cases at law:

1. William R Schultz v MNR, [1979] CTC 2328; 79 DTC 279;

2. The Bank of Nova Scotia v The Queen, [1980] CTC 57; 80 DTC 6009;

3. Qualico Developments Ltd v The Queen, [1983] CTC 66; 83 DTC 5108;

4. Bell County v Hines, 219 SWR 556 (Court of Civil Appeals of Texas);

5. Stokes et al v Great Western Lumber Co et al, District Court, SD, Mississippi, Jackson Division;

6. The Queen v Burial Board of St John, Westgate, 1 B & S 679 affirmed in Exchequer Chamber, 2 B & S 703 (121 ER 1232);

7. Gene A Nowegijick v The Queen et al, [1983] CTC 20; 83 DTC 5041;

8. Regina v Quasar Petroleums Ltd (1979), 19 AR 9.

4.03 Analysis

4.03.1 The Issue

In his submission, counsel for the appellant referring to paragraph 1 of Interpretation Bulletin IT-296 issued by the respondent on March 1, 1976, said it clearly sets out the issue in subparagraph (b).

The said paragraph 1 reads as follows:

1. The cost of landscaping grounds is regarded as an expenditure of a capital nature which, because it is a land improvement, is not subject to capital cost allowance. However, such an expenditure is deductible by virtue of paragraph 20(1 )(aa) in the computation of a taxpayer’s income if:

(a) the landscaping is around a building or other structure,

(b) the taxpayer is the owner of the building or other structure at the time the landscaping is being done,

(c) the building or other structure is used by the taxpayer primarily for the purpose of gaining or producing income from it or from a business, and

(d) the deduction is made in the year in which the amount is paid and not in the year in which it is incurred, (even if the taxpayer normally computes his income according to the “accrual method”).

Counsel for the respondent admitted that subparagraph (a), (c) and (d) were not in dispute. The simple issue therefore is whether the taxpayer, in order to obtain this deduction, needs to be an owner or a tenant in the year an amount was paid by the taxpayer for landscaping.

A. Appellant's argument

4.03.2 The appellant’s main argument was that the word “of’ in the phrase “around a building or other structure of the taxpayer’’, in provision 20(l)(aa) quoted above (paragraph 4.01) connoted not only property, but also possession and/or use.

To that end, the learned counsel referred to the definition of the word “of’ from different dictionaries and also to the interpretations given by Courts in different cases: Bell County v Hines, (supra), Stokes et al v Great Western Lumber Co et al, (supra), and Qualico Developments Ltd v The Queen, (supra).

4.03.3 It is obvious that the word “of’ may have different meanings, depending on the context in which it is used. Sometimes two constructions may be given. Hence, the appellant’s counsel referred to the following rule:

Where two constructions are open, the Courts must make a choice, and in making that choice such factors as absurdity, injustice, hardship and inconvenience are relevant, and generally speaking, as was indicated in The Queen v City of London Court, the Courts will adopt a construction that will avoid such consequences.

4.03.4 Also from E A Driedger, The Construction of Statutes, at 152 the appellant’s counsel quoted:

There is, of course, the well established principle that in a taxing act the tax must be expressed in unambiguous terms and that, in case of reasonable doubt, the act must be interpreted in favour of the taxpayer.

4.03.5 Finally, the appellant’s counsel quoted the well-known section of the Interpretation Act, RSC (1970) Vol 4, c I-23 which reads as follows:

Every enactment shall be deemed remedial, and shall be given such fair, large and liberal construction and interpretation as best ensures the attainment of its objects.

B. Court's opinion

4.03.6 Concerning the interpretation of a taxing statute, the following distinction must be made.

A taxing section is strictly construed in the sense that if it is ambiguous, it must be construed in favour of the taxpayer.

An exemption section is strictly construed in the sense that if it is ambiguous, it must be construed in favour of the taxing authority. This is because of the application to the following principle: taxation is the rule, the exemption is the exception.

Paragraph 20(1 )(aa) is an exemption provision because it is a deduction in the computation of the income. If it is ambiguous, hence it must be in favour of the respondent’s thesis.

However, is it so ambiguous? The Court shares counsel for the respondent’s opinion in his main contention that:

The phrase “of the taxpayer” must be given a different meaning, otherwise Parliament would be taken to have used the phrase “of the taxpayer” to express the concept of possession which it conveyed quite clearly subsequently by employing the word “used”. Parliament, it is submitted, would not have expressed the concept of possession in two different ways in the same paragraph. If the Appellant is correct in his argument that the building need only be leased by the Appellant and not owned by it, there would have been no need to insert the words “of the taxpayer” after the word “building” since the paragraph could have expressed the concept of possession by reading as follows:

. . . for the landscaping of grounds around a building or other structure that is used by him primarily for the purpose of gaining or producing income therefrom or from a business.

It is to be noted that the phrase “of the taxpayer” and the words beginning with “that is used” both modify the same words, ie, “building or other structure”. Therefore, the phrase “of the taxpayer” and the words beginning with “that is used” (in so far as the words express the concept of possession) must have different meanings to justify their insertion in the same sentence. If mere possession of the building is sufficient to obtain the benefit within the meaning of the paragraph, then the words “of the taxpayer” are surplus and do not convey any meaning at all. It is a canon of construction, that if at all possible, effect must be given to every word of an Act of Parliament. If every word in this paragraph is to be given its usual and ordinary meaning in the context in which it is used, it is submitted that the phrase “of the taxpayer” can only mean owned by the taxpayer.

The Court states that the said provision is clear and there is no possibility of two constructions.

4.03.7 The Court also states that the landscaping expenses were incurred by the taxpayer, the franchise-lessee for the general purpose of gaining income. Because it is a payment on account of capital pursuant to provision 18(l)(b) and it is not eligible for capital cost allowance pursuant to provision 20(1 )(aa) (see Laurentide Motels Limited v MNR, 25 Tax ABC 104; 60 DTC 500), there is no possibility, at first glance, to deduct in one way or another the said expense.

The Court, however, wonders whether such an expense could not be considered as one of the “nothings” stipulated in provision 14 and does not meet the requirement of “eligible capital expenditure” as provided in provision 14(5)(b)(i). It reads as follows:

14(5) In this section,

(b) “eligible capital expenditure” of a taxpayer in respect of a business means the portion of any outlay or expense made or incurred by him, as a result of a transaction occurring after 1971, on account of capital for the purpose of gaining or producing income from the business, other than any such outlay or expense

(i) in respect of which any amount is or would be, but for any provision of this Act limiting the quantum of any deduction, deductible (otherwise than under paragraph 20(1 )(b)) in computing his income from the business, or in respect of which any amount is, by virtue of 18(l)(b), not deductible in computing such income,

4.03.8 The Court must maintain the reassessment, unless there is an opening to the former comment. The appeal is dismissed.

5. Conclusion

The appeal is dismissed in accordance with the above reasons for judgment.

Appeal dismissed.