Thomas B Matheson v. Minister of National Revenue, [1982] CTC 2810, 82 DTC 1819

Guy Tremblay:—This case was heard on April 29, 1982, at the City of London, Ontario.

1. The Point at Issue

The point at issue is whether the appellant is correct in deducting the amount of $10,314.79, claimed as an expense for the cost of drainage tile. That amount was the fair market value of the drainage tile at the date of purchase of the farming business in 1976 by the appellant.

2. The Burden of Proof

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

3. The Facts

No evidence was adduced concerning the facts. The following was admitted by the representatives of the parties:

3.01 In 1976 the appellant purchased, for $65,000, a farming business consisting of fifty acres of land with a drainage tile which had been installed by the previous owner in 1969 and 1970.

3.02 The life expectancy of this drainage tile being twenty-five years, according to the appellant, it would remain useful for eighteen to nineteen years from the date of purchase. Its fair market value, according to the appellant, was $10,314.79. This amount formed part of the purchase price of the farm property.

3.03 The appellant claimed this amount in 1976 pursuant to section 30 of the Income Tax Act, SC 1970-71-72, c 63, as amended. It is admitted that the appellant carried on a farming business in 1976.

3.04 The respondent disallowed the said drainage tile expense of $10,314.79.

4. Law — Cases at Law — Analysis

4.01 Law

The main provisions of the Income Tax Act and the Income Tax Regulations involved in the present case are section 30 of the Income Tax Act and Clas 8 of Regulation XI, passed pursuant to paragraph 20(1 )(a) of the Act. They read as follows:

SEC. 30. Clearing land, levelling land and laying tile drainage.

Notwithstanding paragraphs 18(1 )(a) and (b), there may be deducted in computing a taxpayer’s income for a taxation year from a farming business any amount paid by him in the year for clearing land, levelling land or laying tile drainage for the purpose of carrying on the farming business.

PART Xl

Allowances in Respect of Capital Cost

DEDUCTIONS ALLOWED

1100. (1) Under paragraph (a) of subsection (1) of section 11 (sec. 20(1 )(a)) of the Act, there is hereby allowed to a taxpayer, in computing his income from a business or property, as the case may be, deductions for each taxation year equal to

Additional Allowances — Class 8

(k) such additional amount as he may claim in the case of property included in Class 8 in Schedule B in respect of which a certificate has been obtained as provided by section 1106, not exceeding the least of

(i) 20% of the amount certified,

(ii) the difference between 50% of the amount certified, and the amounts allowed in respect of the property in previous taxation years under this paragraph, or

(iii) the undepreciated capital cost to him as of the end of the taxation year (before making any deduction under this paragraph for the taxation year) of property of the class.

4.02 Cases at Law

Counsel for the respondent referred the Board to the following cases at law:

Fess Oil Burners Ltd v Mutual Investments Ltd, [1932] 2 DLR 16; and

Stack v T Eaton Co et al, [1902] 4 OR 335.

4.03 Analysis

4.03.1 Appellant’s Argument

The agent for the appellant referred the Board to the 1981 Farmer’s Income Tax Guide issued by the respondent. At page 8, the paragraph under the heading “Clearing or Improving Land” reads as follows:

Amounts paid for clearing or levelling land, for tile drainage, or for constructing an unpaved road on a farm property are deductible expenses of the year in which they are paid by a taxpayer who was engaged in a farming business. The cost of a paved road is not fully deductible in the year but is subject to capital cost allowance under Part XI (Class 1) — see Chapter 3. If you own land that is rented to a tenant and if you pay for constructing a road or installing tile drainage and have not previously charged these costs as expenses, then you may claim capital cost allowance under Part XI (Class 1 — 4%, if acquired before May 26, 1976; Class 17

— 8%, if acquired after May 25, 1976) on the cost of constructing the road, and (Class 8 — 20%) of the cost of tile drainage.

4.03.2 The Board shares the opinion of the respondent’s counsel. Pursuant to section 30 of the Act, only the person who makes the repairs and pays for them may claim the expense incurred during the same year. Pursuant to the admission, the appellant is the purchaser of land from its previous owner who had paid for laying drainage tile.

4.03.3 The paragraph of the 1981 Farmer’s Income Tax Guide to which the agent for the appellant referred first applies to an owner of land “that is rented to a tenant”.

In the instant case no evidence was adduced to the effect that the appellant had rented the land. Moreover, despite the information given in the Guide, the Board cannot find in the Income Tax Act a provision permitting the taxpayer to claim capital cost allowance. The Board is prepared to admit that tile drainage can be an asset (despite the fact that in Common Law, pursuant to the two cases at law referred to above, tile drainage is considered as part of the land). However, capital cost allowance is possible inasmuch as it is provided for in the Act.

Section 30 of the Act permits the deduction of the total amount of the expense in the computation of income for the year in which the farmer paid the said expense. If the said expense occasioned a loss for the said year it is possible, by virtue of paragraph 111 (1 )(a) of the Act, to apply this loss to the former year and to the five subsequent years.

In the instant case no evidence was adduced to show that the former owner had claimed the deduction in 1969 and 1970. However, as it is considered a current expense by the Act, the Board cannot find that the new purchaser can claim the expense made by the former owner seven years before.

5. Conclusion

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

Appeal dismissed.