Nomad Sand & Gravel LTD v. Minister of National Revenue, [1982] CTC 2035, 82 DTC 1070

The Chairman:—The appeal of Nomad Sand & Gravel Ltd is from assessments with respect to the 1974, 1975, 1976 and 1977 taxation years. There was however no tax payable on the appellant’s 1974, 1975 and 1977 income and therefore no assessment of tax within the meaning of section 152 of the Income Tax Act from which an appeal may be taken. Counsel for the appellant, in conceding that the appeal with respect to the said three years had to be dismissed, rightly pointed out that all four years have to be taken into account for purposes of calculating the appellant’s taxable income for the 1976 taxation year.

There are two issues in this appeal:

The first is whether payments made by the appellant pursuant to “an Act to regulate pits and quarries and to provide for their rehabilitation for the Province of Ontario” was an outlay or an expense incurred by the appellant to earn income from the appellant’s operations within the meaning of paragraph 18(1 )(a) of the Act and deductible, or whether they are deposits or reserves which are not deductible under either paragraphs 18(1 )(a) or (e) of the Act.

The second issue is whether front-end loaders used by the appellant in its sand and gravel operations are for the purpose of calculating capital cost allowances, items within Class 22, Schedule B(lI) to the Income Tax Regulations as contended by the appellant, or whether they are Class 10 equipment, the basis on which the respondent computed the capital cost allowance.

I propose to deal with the issues in that order.

Summary of Facts:

Mr John J Bonn, the president and manager of the appellant company, testified that the company’s operations began in 1969 and were carried out in only one location situated on RRS in Brighton, Ontario, with five employees.

The operations consist of taking raw material from a gravel pit, transporting it to crushers and washers and from there, to the loading trenches. The transportation of the material was done by three “966 Carruthers” front-end loaders (Exhibits A-1 and A-2), the permissible capital cost allowance on which is the second issue that will be dealt with later.

In order for the appellant to obtain a licence and operate a gravel pit, it was required by the Ontario Regulation 545/71 under The Pits and Quarries Control Act, 1971 to produce a site plan for the rehabilitation of the area. The rehabilitation required by the Act consists in levelling off the banks; the gradual sloping of the floor of the pit; covering the area with top soil and seeding grass and trees on the site.

Mr Bonn, who has spent 25 years in the gravel business, estimated that the cost of rehabilitating the pit area after exhaustion would be between $125,000 to $130,000, an amount which was not challenged by the respondent.

Under the Pits and Quarries Regulations (section 5) a levy of $0.02 per ton was imposed on the amount of material extracted from the pit each year as security toward the rehabilitation of the pit area. Mr Bonn estimated that in 1960, at the outset of the operations, the pit had a total capacity of 3 to 3.5 million tons of material and in 1974 there were 2.2 million tons remaining before depletion. A levy of $0.2 per ton per year (representing approximately $3,000 per year) on the balance of the material would result in a total levy of $35,000 to $40,000.

The amount paid over the years by the appellant as a levy bore interest at 6% and was refundable when and if the rehabilitation of the pit area was completed. If the pit were abandoned and the rehabilitation not completed, as set out in the site plan, the Minister of Mines and Northern Affairs had the discretionary power of forfeiting the amount paid.

None of the figures given by the appellant were challenged by the respondent who contended that the payments were refundable deposits or reserves and in either case non-deductible.

The appellant on the other hand suggested that it would be ludicrous for any businessman to spend $130,000 in rehabilitating the pit area after depletion to recoup a deposit of only $40,000. It was contended that, in this particular instance, the pit could not be progressively rehabilitated and the rehabilitation could only take place once the pit was exhausted. The appellant noted that, at that time, the company would no longer have income against which to expense the cost of rehabilitation.

Mr Lawrence J Soden, a chartered accountant, was called by the appellant as an expert witness to comment on the evidence given by Professor Murray Leo Davis in the case of J F Burns, Sr, James F Burns, Junior, Clayton R Carroll and Burnco Industries Limited v MNR, [1980] CTC 2817; 80 DTC 1705, in which Professor Davis stated for purposes of those appeals (1709-1710) that backfilling expenses in gravel mining operations are legitimate operating expenses. Mr Davis then proceeded to explain the accrual system of accounting as applicable in Burnco (supra) and referred to the principle of matching revenues with expenses. He further stated that the backfilling expenses in Burnco (supra) was not a reserve because it had not been appropriated from retained earnings or other surplus. In his evidence, Mr Davis defined “contingent liability as a potential obligation”, the existence of which is conditional upon the happening of some future event, and referred to a sinking fund as “a transfer of cash from a general account, generally speaking, to an account which is restricted to its use for a specified purpose”.

Mr Soden agreed with the accounting principles and concepts as expressed by Mr Davis in Burnco (supra) and in applying those principles to the appeal under review, submitted that there were only two possible accounting treatments of the levy payments. First, if the facts in the instant appeal were that the appellant, with the total amount of levies paid, would have accumulated more than sufficient funds to cover the cost of the rehabilitation, the amounts paid during the course of a year could be set up as a receivable and the estimated cost of rehabilitation could be accrued as an expense of extracting gravel during that year. The principle of matching expenses with revenues would in that way be met and the amount that would be ultimately recoverable would be shown as a receivable.

The second way of accrual accounting which, according to Mr Soden, is the only reasonable approach to be taken in the circumstances of this appeal, would be to report as operating expenses the yearly payments of $0.02 a ton of gravel. Otherwise, there would be no way of ever recovering any money since the total amount of the yearly levies paid over the life of the pit would be only $40,000 and the estimated cost of rehabilitation which would preclude earning any further income from its operation is $130,000.

The appellant’s submission on that point is that the more logical approach would be to treat the levy which is calculated each year on the basis of the previous year’s production as an expense of doing business and applying it in the year in which income is earned.

The respondent’s position is that the amounts paid pursuant to section 11(1) of The Pits and Quarries Control Act, 1971 cannot be expenses or outlays under any sense of those terms because:

(1) the amounts so paid are on deposit with the Treasurer of Ontario;

(2) the security so deposited may be forfeited if the rehabilitation program is not properly carried out;

(3) the amount on deposit bears interest at 6%;

(4) the loss of the deposit under Section 11(2) of The Pits and Quarries Control Act, 1971 is onctingent upon discretionary power of the Provincial Minister;

(5) the security or deposit with the Province of Ontario is a reserve and not deductible under paragraph 18(1)(e) of the Income Tax Act;

(6) the obligation to rehabilitate the pit area is for a future time and no liability exists to insure the related expenses immediately.

The pertinent section of “An Act to regulate pits and quarries and to provide for their rehabilitation” is section 11 and reads as follows:

11. (1) Every licensee shall maintain on deposit with the Treasurer of Ontario such security in such amount and form as is prescribed by the regulations.

(2) Where the rehabilitation program of a pit or quarry or abandoned pit or quarry is not carried out in accordance with the requirements of this Act, the regulations or the site plan or the terms and conditions of the licence, the Minister may direct that the security deposited under subsection 1 be forfeited.

(3) Upon the direction of the Minister under subsection 2, the security is forfeited and the Minister may authorize any person or persons to enter upon the premises on which the pit or quarry is situate and perform such work as is necessary to complete the rehabilitation requirements, and the cost thereof shall be paid out of the moneys forfeited and the balance refunded in accordance with the regulations.

The applicable Regulations under the Pits and Quarries Control Act, 1971 is paragraph 5 which reads as follows:

5. (1) The security required under subsection 1 of section 11 of the Act shall be deposited annually no later than the 15th day of March for the operations of the previous calendar year in a deposit account held by the Treasurer of Ontario bearing simple interest at 6 per cent per annum. O Reg 545/71, s 5(1).

(2) The amount of the security referred to in subsection 1 shall be equal to 2 cents per ton of material removed from the pit or quarry property in the previous calendar year and subject to subsections 4 and 5 shall continue to be paid until such time as the total amount of the security on deposit is $100,000, including interest or an amount equal to $500 per acre of the property which is to be used for pit or quarry property in the previous calendar year and subject to subsections 4 and 5 shall continue to be paid until such time as the total amount of the security on deposit is $100,00, including interest or an amount equal to $500 per acre of the property which is to be used for pit or quarry operations, whichever is the greater. O Reg 107/72, s 4, part; O Reg 94/73, s 1(1).

(3) Where a pit or quarry has been abandoned and the rehabilitation program carried out in accordance with the requirements of the Act, this Regulation and the site plan as required under subsection 2 or 3 of section 4 of the Act, the operator of the pit or quarry is entitled to a refund of the whole of the security on deposit including accumulated interest. O Reg 107/72, s 4, part.

(4) Where a pit or quarry is in operation and progressive rehabilitation has been carried out, the operator of the pit or quarry may deduct from the amount payable under subsection 2, such amounts as are approved by the Minister that have been expended in progressive rehabilitation on or before the 15th day of October in the previous calendar year, provided the operator shall not be entitled to reduce the amount payable to less than $100 for each acre requiring rehabilitation.

(5) Where an operator of a pit or quarry has filed security under subsection 1 in excess of $100 for each acre requiring rehabilitation, he is entitled upon submission of proof satisfactory to the Minister of the performance of progressive rehabilitation, to a refund of the portion of the excess as determined by the Minister based on the amount of the rehabilitation carried out. O Reg 94/73, s 1(2).

There can be no doubt from the wording of section 11(1) of The Pits and Quarries Control Act, 1971 and sections 5(1) and 5(2) of the Regulations that the appellant was under a firm obligation to pay to the Treasurer of Ontario a levy of $0.02 per ton of aggregate processed if he intended to earn income from the gravel pit.

Counsel for the respondent suggested that the wording of section 11(2) of the said Act was permissive and gave to the Minister of Ontario the discretion of directing (or otherwise) that the appellant’s deposit be forfeited if he did not, once the pit was depleted properly, carry out the rehabilitation program submitted. I presume counsel was suggesting not only that the appellant’s liability with respect to rehabilitation was for some future period, but it was also contingent upon whether or not the appellant carried out the rehabilitation.

As I read sections 11(2) and (3) of The Pits and Quarries Control Act, 1971, it appears to me that the permissiveness granted to the Minister is also extended to the pit operators. There are, as I see it, two distinct amounts involved here: one is the payment of the yearly levy which the operators are legally obliged to pay in order to operate the pit; the other amount is the cost of rehabilitating the pit which may or may not be equal to the amounts of the yearly levies and which may or may not be executed by the appellant.

The Pits and Quarries Control Act, 1971 imposes no legal obligation on the appellant to carry out the rehabilitation or to incur additional expenses, should the cost of rehabilitation exceed the yearly payments made over the life of the pit. Whether or not the appellant intends to carry out the rehabilitation at some future date when the pit is exhausted is, in my view, immaterial to the issue. The appellant’s only liability under The Pits and Quarries Control Act, 1971 is the payment of the yearly levy which is not a future or contingent liability.

The rehabilitation of the site which is optional for the appellant is distinct from its normal pit operations. The appellant’s decision to execute the rehabilitation would most certainly be governed by the profitability of that undertaking and would be the result of a business judgment call. It would not arise from the appellant’s legal obligation to so.

It is true, as pointed out by the respondent, that The Pits and Quarries Control Act, 1971 clearly refers to “deposits” which bear interest at 6% and are refundable if and when the rehabilitation is completed by the operator. On the other hand, it is also true that if the rehabilitation is executed by persons other than the operator, the funds from the appellant’s security deposits would be used by the Government of Ontario to pay for the cost of the rehabilitation and would be lost to the appellant.

In the scheme of The Pits and Quarries Control Act, 1971, including the incentive of a 6% interest on levy payments, the accumulated amounts so paid by the operators might well be viewed by the Minister of Mines and Northern Affairs of Ontario as security deposits and a government source of funds to cover the future cost of rehabilitating pit areas. The yearly payments however do not necessarily constitute for the operators a security deposit, a reserve or a sinking fund to be applied toward the cost of the rehabilitation, principally because they have no liabilities with respect to the execution of the rehabilitation program; they are not in possession of the deposits nor do they have any property rights to the funds until and unless they decide to execute the rehabilitation.

Counsel for the respondent cited the decision of the Supreme Court of Canada in MNR v Atlantic Engine Rebuilders Limited, [1967] CTC 230; 67 DTC 5155, in support of the proposition that the appellant’s payments to the Government of Ontario were deposits and not expenditures.

In relation to the appeal under review, the facts in Atlantic (supra) not only represent a reverse situation but are quite unique and the basic issues are, as I see them, different. There, the dealers were immediately obligated to provide the taxpayer for each rebuit engine, a second rebuildable engine or alternatively, pay a substantial “core” deposit. The issue was whether the unredeemed deposits should be included in the taxpayer’s receipts and whether the liability to refund the deposits was deductible.

Three Supreme Court judges held that the unredeemed deposits were not ordinary trading receipts and that there was nothing in the Income Tax Act which required that the deposits be treated as profits.

Mr Justice Cartwright, speaking for the Court in Atlantic (supra), cited Dominion Taxicab Association v MNR, [1954] SCR 82, [1954] CTC 34; 54 DTC 1020 at 85 and 37 [1021] respectively where it was said:

It is well settled that in considering whether a particular transaction brings a party within the terms of the Income Tax Act its substance rather than its form is to be regarded.

Counsel for the respondent, on the basis of the majority decision in Atlantic (supra), concludes that a deposit made by a taxpayer is not an expenditure anymore than the receipt of a deposit can be income. Counnel’s premise that the payments made by the appellant are not expenditures but deposits which have no bearing on the appellant’s profit-making process is based exclusively on the form of the transaction: the use of the word “deposit” in The Pits and Quarries Control Act, 1971; the 6% interest paid on the amounts paid; and the possibility of a refund.

In Atlantic (supra), Mr Justice Cartwright states at 231:

The question of substance in this case appears to me to be whether in stating what its profit was for the year the respondent could truthfully have included the sum in question. To me there seems to be only one answer, that it could not. It knew that it might not be able to retain any part of that sum and that the probabilities were that 96% of it must be returned to the depositors in the near future.

The same question on the substance of the transaction in the case under review gives rise to a clear affirmative answer. The annual payment of the levies by the appellant have a direct bearing, not only on its profit for the year, but on its authorization to earn income from the operation of the gravel pit. Furthermore the refund of any of the payments is most unlikely in the circumstances.

The divergency in the opinions of the Justices of the Supreme Court in Atlantic (supra) appears to be one of degree. The majority of the Justices held that the core deposits received by the company could not, on the facts of that case, be included in the computation of its profits for the year.

In a dissenting judgment, Mr Justice Judson stated at 233 of Atlantic (supra);

The judgment of the Exchequer Court is obviously founded upon the finding that the deposits were of an income nature arising in the ordinary course of the company’s trading transactions, with this I agree.

At 234 of Atlantic (supra), Mr Justice Judson further says:

There was no liability to refund until the rebuildable engine was actually delivered. The taxpayer was not definitely committed in the year of income to make this disbursement or outlay or expense until the rebuildable engine was delivered.

In concluding his reasons in the majority decision in Atlantic (supra), Mr Justice Cartwright states at 232:

The result brought about by the judgment of Thurlow, J is that in the year in question the respondent will be taxed on its true profit for that year. If in the following year, as seems probable, as to a small portion of the said sum of $38,213, the respondent ceases to be under liability to return it to the depositor or depositors, such portion will form part of the profit in that year and once again the respondent will be taxed on its true profit. I do not think that such a result should be disturbed.

The overriding point in both the majority and dissenting decisions in Atlantic (supra) which is particularly pertinent to the issue under review is that the taxpayer be taxed on its true profit in each year under appeal.

The principal issues on the facts of other cases cited by the respondent were the treatment for tax purposes of future or contingent liabilities which are distinguishable from the issue and the facts of the instant appeal. For example the respondent cited the decision of the Supreme Court of Canada in Time Motors Limited v MNR, [1969] CTC 190; 69 DTC 5149. In that case the taxpayer, a car dealer, at times used credit notes in partial payments for used cars acquired by it. The credit notes were redeemable by the customers only by application on the price of another car within a stated period of time. The Minister took the position that the outstanding amounts of unredeemed credit notes were not a current liability but a reserve.

In a unanimous decision, the Court held:

The credit notes could not be considered apart from the transactions out of which they arose, in which they represented part of the consideration for the purchase of used cars, under executed contracts. Even if considered by themselves they could not be considered as unenforceable for indefiniteness. Moreover, the recording of the credit notes as liabilities was in accord with generally accepted accounting principles and the account was not a “contingent account” as referred to in Section 12(1 )(e). Appeal allowed.

The Supreme Court’s decision in Time Motors Limited (supra) with respect to paragraph 18(1)(a) of the Act and “generally accepted accounting principles” is applicable a fortiori to the facts and the issue in the appeal under review.

The evidence presented has satisfied me that a causal relationship exists between the annual payment of levies and the amount of the appellant’s true profit in each year under review; that the appellant has in each year satisfied its only liability to pay an annual levy to the Government of Ontario under The Pits and Quarries Control Act, 1971 and Regulations; that it has no liability with respect to the future rehabilitation of the area; that the annual payments do not constitute a deposit, a reserve or a sinking fund for the appellant; that its property rights to the funds are contingent upon an unlikely decision by the appellant in the circumstances to carry out the rehabilitation.

I conclude therefore that the facts in this appeal are distinguishable from those of Atlantic (supra) and that the annual levy payments are an integral part of the appellant’s current operating expenses and are deductible under paragraph 18(1)(a) of the Act.

The second issue is whether the front-end loaders used in the appellant’s gravel pit operations fall into the definition of Class 22 or Class 10 of Schedule B(lI) to the Regulations for purposes of capital cost allowances.

In Schedule B to the Income Tax Regulations, property coming under Class 22 (50%) was defined during the period under review as:

Property acquired after March 16, 1964, that is power-operated movable equipment designed for the purpose of excavating, moving, placing or compacting earth, rock, concrete or asphalt, but not including a property that is included in Class 7.

Counsel for the respondent conceded that prima facie the appellant’s frontend loaders would fall in Class 22 but suggested that the definition of property in Class 10 overrides that of Class 22 and should be applied in determining the permissible capital cost allowance on the appellant’s equipment.

The pertinent subsections of Class 10 property (30%) referred to in part by counsel read as follows:

Property not included in any other class that is . . . property that would otherwise be included in another class that is . . . property .. . that was acquired for the purpose of gaining or producing income from a mine and that is

(i) a structure that would otherwise be included in Class 8, or

(ii) machinery or equipment, except a property acquired before May 9, 1972 for the purpose of gaining or producing income from the processing of mineral ores after extraction from a mineral resource that is not owned by the taxpayer.

Counsel for the respondent submitted that the front-end loaders which could conceivably be put to other uses were acquired and used by the appellant for the purpose of gaining and producing income from a mine and therefore come within the definition of Class 10 property. He contends that the issue must be determined on whether or not a gravel pit is a mine.

Both counsel, in support of their respective positions, cited the case of On ni Paju and Oiva V Paju v MNR, [1974] CTC 2121, 74 DTC 1087, the facts of which are similar to those of the instant appeal.

In that case the appellants, two brothers, owned and operated a gravel pit and in 1970 purchased a new loader which they listed as coming within Class 22 and claimed a 50% capital cost allowance. The appellants, pursuant to Regulation 1201, also sought to deduct / of their profit from the business by claiming that gravel was a mineral resource. The Minister disallowed both the 50% capital cost depreciation and the deduction of / of the appellants’ profit under Regulation 1201. The taxpayers appealed to the Tax Review Board.

In his decision, the presiding Member confirmed the Minister’s assessment with respect to the non-application of Regulation 1201 and disallowed the deduction provided therein. However, the Board did allow a 50% depreciation on the loader as Class 22 equipment.

As I see it, both the Minister and the presiding Member were of the view that gravel was not a mineral resource. Otherwise, the provisions of Regulation 1201 would have applied. Further, had the Board considered that the gravel pit was a mine, it could not have allowed a 50% capital cost allowance on the loader as a Class 22 asset.

Counsel for the respondent contends that the capital cost allowance issue in Paju (supra) was different in that the wording of paragraph (k) of Class 10 (Schedule B) under the old Act 1970 referred specifically to mining machinery and equipment whereas the current wording of paragraph (k) of Class 10 (Schedule B) refers generally to property acquired for the purpose of gaining or producing income from a mine. Counsel suggested that in Paju (supra), all that the Board was called upon to decide in disposing of that issue was whether the loader was mining equipment. The Board held that although the loader could be used in mining operations, it was not as such, mining equipment.

The purport of the Board’s decision in Paju (supra) however goes considerably further than what the respondent suggests.

At 2123 [1088] of Paju (supra) the presiding Chairman states:

Learned counsel for the respondent argues that Class 10 (30%) applied to the loaders since this was mining machinery and equipment acquired for the purpose of gaining or producing income from a mine. On the basis of the judgment in Canadian Gypsum Co Ltd v MNR, (1965) 2 Ex CR 566, learned counsel argued that the gravel pit was a mine and the loaders accordingly were properly classed in this group by the respondent.

In my humble opinion, I do not think this resolves the point. The term “mine” is as vague and indefinite as the term “mineral”. Whether in the circumstances this particular gravel pit would be called a “mine” is questionable to say the least.

In Canadian Gypsum Company Ltd v MNR, [1965] CTC 210; 65 DTC 5125, cited in Paju (supra) and specifically referred to by the respondent, the issue was different from that of the appeal under review ie section 83 of the Act — Tax exemption for new mines. In his decision, Mr Justice Dumoulin of the Exchequer Court reviewed the characteristics of a “mine”. His first conclusion, as set out in the head notes of that case, was from an examination of the dictionary definition and judicial interpretation, the word “mine” is not a definite term but is “susceptible of limitation or expansion according to the intention with which it is used.”

Though not yet defined, it is now well established that open-pit as well as underground operations can come within an acceptable meaning of the word “mine”. However, Mr Justice Dumoulin at 216 [5129] in Canadian Gypsum Company Ltd (supra) states:

Although gypsum does not belong to the metalloid class, the purport of the quotation above is that open cut methods are industrially considered mining operations irrespective of whichever substance is being mined. To this there would be on exception only, that of a stone quarry.

Counsel for the respondent contended that the exclusion of stone quarries and gravel pits from the word “mine” was for purposes of tax exemption for new mines under section 83 of the old Act (which was retained in the transitional provision of ITAR 28.2) and is limited to the specific application of those provisions. It does not, he claimed, exclude gravel pits from the generally accepted concept that they are inherently mines.

Counsel for the respondent also cited Nova Scotia Sand and Gravel Limited v The Queen, [1980] CTC 378, 80 DTC 6298. Although the issues may again be different, the facts in Nova Scotia (supra) are identical to those of the present appeal.

Chief Justice Thurlow, in allowing the appeal on the ground that the taxpayer in his gravel pit operations was engaged in “processing” industrial minerals, was not required to determine whether or not a gravel pit is a mine.

Counsel for the respondent, on the basis of the decision in Nova Scotia (supra) concludes that gravel, as an industrial mineral, must necessarily come from a “mine”. That conclusion is, in my opinion, unwarranted.

In deciding the issue as to whether the appellant’s loaders are Class 10 or 22 assets for purposes of capital cost allowance, I cannot avoid stating whether, in my opinion, a gravel pit is or is not a mine because that is the nub of the respondent’s argument.

The Income Tax Act does not define the word “mine” but does specifically and currently exclude gravel pits and stone quarries from the meaning of the word “mine” with respect to tax exemption for new mines; in Paju (supra) the Minister’s assessment, based on the assumption that gravel was not a mineral resource, was confirmed by a decisionof the Board. Mr Justice Dumoulin in Canadian Gypsum (supra), stated that the words “mine” and “minerals” are not definite terms and that an attempt to fashion the word “mine” into some exclusive application would prove a pointless venture (page 5127). There is no authority that I know of that has stated that a gravel pit or stone quarry is a mine. I do not agree therefore with the respondent’s contention that a gravel pit or a stone quarry are generally accepted as being mines and that the extraction of gravel and stone must be seen as mining operations.

The appellant’s gravel operations, as were those in the appeals cited, consist in extracting gravel from an open pit, transporting them to washers and screeners and then to the loading trenches, all of which was done by means of the appellant’s front-end loaders. The description of the appellant’s equipment and the use to which the loaders are put fall readily and accurately into the definition of Class 22 assets.

Class 22 reads as follows:

Property acquired after March 16, 1964, that is power-operated movable equipment designed for the purpose of excavating, moving, placing or compacting earth, rock, concrete or asphalt, but not including a property that is included in Class 7.

An attempt to consider the loaders as mining equipment or property acquired for the purpose of gaining or producing income from a mine would require an unwarranted expansion of the ordinary meaning of the word “mine” to include gravel pits and stone quarries when, in my opinion, there is no basis in fact or in law for so doing. I conclude therefore that the appellant’s loaders were not acquired for the purpose of producing income from a mine and they are not Class 10 assets but Class 22 assets.

For these reasons my decision will go allowing the appeal and referring the matter back to the Minister for reassessment on the basis that the amounts paid to the Government of Ontario in the pertinent taxation years are current operating expenses and deductible, pursuant to paragraph 18(1)(a) of the Income Tax Act and that the transportation equipment used by the appellant in his gravel operations, come within the meaning of Class 22 property for the purpose of computing the capital cost allowances thereon, thereon.

Appeal allowed.