Guy
Tremblay
[TRANSLATION]:—These
appeals
(76-259
and
78-822)
were
heard
on
common
evidence
with
the
case
of
Dr
Hubert
Watelle
(78-744)
at
Montreal
(Quebec)
on
August
21
and
22,
1979.
1.
The
Points
at
Issue
A.
1973:
Legal
expenses
The
issue
is
mainly
whether
the
appellant,
a
doctor
and
owner
of
a
pharmacy,
is
entitled
to
claim
in
the
computation
of
net
income
for
the
1973
taxation
year
an
expenditure
of
$14,143.14
under
the
heading
of
legal
expenses
with
respect
to
an
action
brought
against
the
Cuivre
Regional
School
Board
for
the
purpose
of
having
a
high
school
built
in
Ville-Marie.
He
says
that
this
expenditure
was
incurred
for
the
purpose
of
gaining
income.
In
fact,
the
construction
of
this
school
would
have
resulted
in
additional
income
both
for
his
pharmacy
business
and
his
medical
practice.
B.
1974
and
1975:
Expenditures
to
promote
a
home
for
the
aged
The
issue
is
mainly
whether
the
appellant,
the
director
of
a
corporation
formed
to
build
a
home
for
the
aged,
is
entitled
to
claim
against
his
1974
income
an
amount
of
$36,078.63
(the
amount
lost
through
a
personal
loan
to
the
corporation,
which
went
bankrupt),
and
for
1975
an
amount
of
$27,596.22
(the
amount
paid
to
lending
institutions
which
had
made
loans
to
the
corporation
guaranteed
by
the
appellant).
The
appellant
claims
that
these
expenditures
were
incurred
for
the
purpose
of
gaining
income
in
his
medical
practice
and
in
his
pharmacy
business,
as
the
construction
of
a
home
for
the
aged
should
have
resulted,
among
other
things,
in
an
increase
in
his
clientele.
2.
Burden
of
Proof
The
burden
is
on
the
appellant
to
show
that
the
respondent’s
assessments
are
incorrect.
This
burden
of
proof
derives
not
from
a
particular
section
of
the
Income
Tax
Act
but
from
several
judicial
decisions,
including
the
judgment
of
the
Supreme
Court
of
Canada
in
Johnston
v
The
Minister
of
National
Revenue,
[1948]
CTC
195,
3
DTC
1182.
3.
The
Facts
3.01
Since
1956,
the
appellant
has
been
practising
the
profession
of
physician
and
surgeon
at
Ville-Marie,
Témiscamingue
County,
Province
of
Québec.
He
is
connected
with
the
Ste-Famille
Hospital
in
Ville-Marie.
3.02
In
addition,
the
appellant
is
practically
the
only
other
pharmacy
is
60
miles
from
Ville-Marie.
There
were
4
doctors
and
two
pharmacies
over
an
area
of
8,000
to
10,000
square
miles.
3.03
The
appellant
also
owns
various
apartment
buildings.
A.
1973:
Legal
expenses
3.04
According
to
the
appellant’s
testimony,
he
paid
the
following
legal
expenses
in
1973:
(a)
$8,000
to
Martineau,
Walker
et
al
(the
law
firm
had
issued
its
account
in
the
amount
of
$10,759.28
on
October
28,
1971
(Exhibit
A-32),
but
addressed
it
to
the
appellant
care
of
Roger
Vincent
of
Ville-Marie,
who
did
not
inform
the
appellant
until
1973,
when
it
was
finally
agreed
to
settle
for
$8,000.
It
was
paid
on
February
21,
1973
(Exhibit
A-32(a));
(b)
the
sum
of
$2,018.86
was
claimed
by
and
paid
to
Claude
Larouche,
a
lawyer.
In
addition,
there
was
an
amount
of
$600
owing
to
Me
Fleury
of
Ville-Marie
for
legal
expenses
which
were
also
incurred
in
1973,
but
not
paid
during
that
year.
However,
no
supporting
document
has
been
filed
in
this
regard.
Another
amount
of
$735
was
claimed
but
no
evidence
was
adduced
as
to
its
nature.
3.05
An
amount
of
$283.85
was
also
alleged
to
have
been
incurred
to
connect
a
water
intake
for
a
trailer
located
near
the
marina.
However,
the
owner
of
the
said
trailer
did
not
pay
any
rent
to
park
his
trailer
on
the
premises.
3.06
The
expenditures
claimed
as
legal
expenses
and
described
in
paragraph
3.04
relate
to
an
action
instituted
against
the
Cuivre
Regional
School
Board
on
September
9,1968
for
the
purpose
of
having
a
high
school
built
in
Ville-Marie.
3.07
According
to
the
resolution
of
the
said
School
Board
passed
on
August
29,
1966,
this
high
school
was
to
be
built
in
Ville-Marie.
Ville-Marie
was
chosen
because
it
offered
the
most
services:
a
hospital,
cultural
centre,
sports
centre
(Swimming
pool,
arena)
and
government
services.
The
Minister
of
Education
at
the
time,
Mr
J
J
Bertrand,
had
also
confirmed
this
choice
by
letter
dated
September
13,
1966.
3.08
On
March
25,
1968,
a
resolution
of
the
School
Board
(Exhibit
A-36)
rescinded
the
resolution
of
August
29,
1966,
and
decided
that
Lorrainville
should
be
the
new
choice
for
the
construction
of
the
high
school.
3.09
The
legal
proceedings
commencing
the
suit
contain
71
paragraphs
supporting
the
argument
that
the
high
school
was
to
be
built
in
Ville-Marie,
and
alleging,
among
other
things,
that
there
were
irregularities
in
the
March
25,
1968
meeting
of
the
School
Board.
3.10
The
appellant
testified
that
it
was
particularly
on
a
personal
basis
and
for
his
own
financial
benefit
that
he
brought
the
said
action.
3.11
In
fact,
the
high
school
was
to
serve
1,500
students,
1,400
of
whom
would
come
from
outside.
He
submitted
that
each
student
would
bring
him
an
average
of
$15
per
year
in
consultation
fees
and
medicine,
amounting
to
$21,000.
B.
1974
and
1975:
expenditures
to
promote
a
home
for
the
aged
3.12
In
1969,
there
were
2,000
inhabitants
of
Ville-Marie.
This
population
continued
to
dwindle.
Young
people
were
leaving
this
agricultural
centre
for
the
industrial
and
commercial
centres
where
work
was
easier
to
find.
3.13
Some
older
people
were
also
leaving
Ville-Marie
to
go
into
homes
for
the
aged
elsewhere
(North
Bay,
Macamic,
Rouyn,
etc).
The
exodus
of
the
population
from
Témiscamingue
County
in
the
years
after
1969
was
1,500
per
year.
3.14
The
old
people
remaining
in
Ville-Marie
and
outside
exerted
pressure
on
the
professional
people
in
the
area
(doctors,
lawyers,
etc)
to
have
a
home
for
the
aged
built
in
their
own
town.
3.15
Following
an
inquiry
in
1969,
a
list
of
208
old
persons
(Exhibit
A-31),
of
which
10%
were
from
Ville-Marie
and
90%
from
other
communities
in
Témiscamingue,
indicated
their
interest
in
immediately
living
in
a
home
for
the
aged
if
one
were
to
be
built
in
Ville-Marie.
Between
150
and
200
others
also
indicated
their
interest
but
in
a
more
indirect
manner,
saying
that
they
would
decide
later
or
that
they
were
awaiting
completion
of
construction,
etc.
This
inquiry
had
been
undertaken
by
the
organization
of
local
farmers
under
the
direction
of
Mrs
Yvette
Lanouette,
the
representative
in
charge
of
the
Ville-Marie
local
office
of
the
Department
of
Social
Affairs.
3.16
In
1969,
Dr
Eugène
Lalande,
Dr
Hubert
Watelle
and
Me
Gilles
Desjardins,
a
lawyer
formed
a
non-profit
corporation
under
Part
Three
of
the
Quebec
Companies
Act,
under
the
name
of
“Manoir
Ville-Marie
Inc.”
One
of
the
main
objects
in
the
letters
patent
(Exhibit
A-1)
of
the
corporation
issued
in
December,
1969
is
the
operation
of
a
home
or
shelter
in
Ville-Marie,
Témiscamingue
County.
3.17
In
addition
to
the
above-mentioned
three
persons,
Mrs
Yvette
Lanouette
and
Mr
Gérard
Caron,
the
mayor
of
Ville-Marie
at
that
time,
were
appointed
as
directors,
as
appears
from
the
minutes
of
the
corporation
of
January
20,
1970
(Exhibit
A-2).
3.18
A
construction
plan
for
the
Manoir
was
prepared,
and
according
to
Dr
Lalande,
after
meetings
with
officials
of
the
Department
of
the
Family
and
Social
Welfare,
these
officials
promised
in
January,
1970
that
100%
of
the
financing
would
be
provided
by
the
Quebec
Housing
Corporation.
3.19
In
1971,
the
Department
of
the
Family
and
Social
Welfare
decided
to
withdraw
from
the
project
for
the
construction
of
the
Manoir,
but
it
was
prepared
to
support
a
project
using
prefabricated
Modultex
houses.
The
Quebec
Housing
Corporation
and
the
Central
Mortgage
and
Housing
Corporation
also
supported
this
project
(minutes
of
February
9,
1971,
Exhibit
A-6).
3.20
In
June,
1971,
the
Department
of
Social
Affairs
withdrew
from
the
project
for
the
construction
of
houses
and
decided
that
there
would
be
no
further
government
financing,
as
the
Department’s
policy
from
then
on
was
to
help
old
people
live
at
home
(minutes
of
June
10,
1971,
Exhibit
A-7).
3.21
The
Department
was
to
pay
the
accounts
for
professional
persons
(architects,
engineers)
incurred
to
date
on
the
project,
amounting
to
$21,983.
In
November,
1971,
the
federal
goernment
arranged
to
pay
the
salaries
for
construction,
amounting
to
$289,341,
under
the
local
initiatives
program.
The
balance
of
the
cost
of
financing
the
project,
namely
$273,878.18,
would
be
covered
by
a
loan
from
the
Quebec
Housing
Corporation
(minutes
of
November
10,
1971,
Exhibit
A-8).
3.22
In
February,
1972,
a
letter
from
the
Minister
of
Manpower
and
Immigration,
Mr
Bryce
Mackasey,
to
the
appellant
as
President
of
Manoir
Ville-
Marie
Inc,
advised
that
the
project
amounting
to
$563,219
was
accepted
and
that
the
Department
was
prepared
to
pay
80%
of
the
cost
of
salaries,
or
$289,341.
This
grant
was
conditional
on
the
Quebec
Housing
Corporation
paying
for
the
materials.
3.23
The
Accounts
Committee
provided
$10,000
to
assist
the
project
(Exhibit
A-8).
3.24
A
piece
of
land
was
purchased
from
the
Municipal
Corporation
for
$7,700
(Exhibit
A-10).
In
May,
1972,
the
foundation
of
the
Manoir
was
poured,
more
than
half
of
the
modules
were
in
place,
but
the
construction
could
not
be
completed
within
the
time
limits
set
by
the
federal
Government
because
of,
among
other
things,
inclement
weather
and
a
fire
in
the
workshop
where
the
modular
panels
were
manufactured,
which
destroyed
equipment,
material,
etc.
In
addition,
a
strike
in
the
public
service
prevented
the
Corporation
from
obtaining
the
amount
of
the
guaranteed
loan
from
the
Quebec
Housing
Corporation.
A
letter
dated
May
17,
1972
was
therefore
written
to
the
Minister,
Mr
Mackasey,
to
obtain
an
extension
of
the
time
limit
for
obtaining
the
federal
grant.
3.25
As
money
was
needed
to
continue
construction,
it
was
decided
to
borrow
on
a
short-term
basis.
The
Bank
Canadian
National
was
prepared
to
grant
up
to
$50,000
in
credit,
by
instalments
of
$5,000.
The
amounts
would
be
paid
upon
receipt
of
the
amounts
of
the
CMHC
loan.
Drs
Lalande
and
Watelle
guaranteed
this
loan
(Exhibit
A-12).
Dr
Lalande
stated
that
they
gave
a
guarantee
at
that
time
so
as
not
to
abort
the
project.
3.26
In
June,
1972,
an
electrical
installation
contract
for
$51,850,
including
material
and
salaries,
was
signed
by
Le
Manoir.
Drs
Lalande
and
Watelle
guaranteed
the
payment
by
the
BCN.
3.27
Drs.
Watelle
and
Lalande
also
gave
guarantees
for
the
purchase
of
wood,
in
the
amount
of
$30,000,
and
to
increase
the
bank
credit
from
$50,000
to
$75,000
(Exhibit
A-17).
Dr
Lalande
stated
that
these
guarantees
were
given
so
that
construction
could
be
completed
and
thereby
bring
security
by
ensuring
there
would
be
clients.
3.28
In
July,
1972,
a
plumbing
contract
in
the
amount
of
$42,000
was
signed.
Messrs
Lalande
and
Watelle
did
not
guarantee
it.
3.29
In
August,
1972,
during
a
meeting
with
Dr
Théberge,
the
member
of
the
Legislative
Assembly
for
Témiscamingue,
the
Minister
Mr
Tessier
and
the
President
of
the
QHC,
Mr
Boulanger,
the
directors
of
the
Manoir
were
informed
that
the
Department
concerned
no
longer
had
any
money
available
and
that
it
was
not
bound
by
the
promises
which
had
been
made.
They
were
criticized
for
beginning
before
they
had
the
money.
On
the
other
hand,
a
failure
to
begin
would
have
meant
giving
up
the
federal
grant
(Exhibits
A-19
and
A-21).
3.30
On
October
12,
1972,
an
application
for
a
loan
in
the
amount
of
$394,000
was
made
to
the
BCN
(Exhibit
A-22).
3.31
On
October
27,
1972,
the
Manoir
was
informed
that
not
only
did
CMHC
refuse
to
lend,
but
it
even
refused
to
recommend
a
loan
by
the
BCN.
The
entire
administration
of
the
Manoir
was
turned
over
to
the
Firme
Administration
Commerciale
de
Montréal
for
$4,000
per
year.
Among
other
things,
this
firm
was
to
try
to
find
financing
(Exhibit
A-23).
3.32
On
March
4,
1973,
the
Firme
Administration
Commerciale
de
Montréal
advised
that
General
Trust
of
Canada
had
agreed
to
lend
$305,250
at
9
/4%
(Exhibit
A-24).
3.33
On
March
24,
1973,
the
Manoir
signed
a
note
in
favour
of
Dr
Lalande
who
advanced
$23,736
to
cover
the
following
expenses:
|
$13,736
|
—
|
Expenses
of
the
mortgage
loan
|
|
6,000
|
—
|
Accounting,
Administration
Commerciale
Inc,
|
|
4,000
|
—
|
Instalment
on
insurance
premiums
(Exhibit
A-25)
|
|
$23,736
|
|
A
few
days
later,
Dr
Lalande
advanced
$3,000
to
the
BCN
to
pay
for
salaries
and
materials
to
continue
the
work.
3.34
On
October
10,
1973,
the
Manoir
promised
to
sell
to
the
Municipal
Housing
Office
of
Ville-Marie
(the
Office)
the
land
and
uncompleted
construction
for
the
sum
of
$531,000
(Exhibit
A-27).
On
October
26,
1973,
the
directors
of
the
Manoir
were
informed
that
the
QHC
would
make
a
loan
as
a
matter
of
course
to
effect
the
purchase.
However,
in
order
to
achieve
the
purchase,
the
Manoir
had
to
complete
the
construction.
In
order
to
do
so,
it
had
to
take
out
a
loan
which
would
be
guaranteed
by
the
loan
from
the
QHC
(Exhibit
A-28).
3.35
On
November
28,
1973,
a
loan
of
$11,536.24
was
made
by
Drs
Watelle
and
Lalande
to
pay
a
creditor
Kalcikote
Inc
which,
following
legal
proceedings,
was
on
the
verge
of
having
the
land
and
construction
in
progress
sold.
The
Manoir
signed
an
acknowledgement
of
indebtedness
in
favour
of
Messrs
Watelle
and
Lalande
(Exhibit
A-29).
3.36
In
order
for
the
Caisse
Populaire
to
make
a
loan
large
enough
to
complete
the
work,
it
required
the
Manoir’s
3
directors,
including
Drs
Watelle
and
Lalande,
each
to
deposit
$25,000;
finally,
this
loan
was
not
completed
(Exhibit
A-29).
3.37
On
April
19,
1974,
in
view
of,
among
other
things,
the
QHC’s
requirements
to
complete
the
construction
work
and
the
Manoir’s
inability
to
borrow,
all
the
Manoir’s
interests
in
the
property
(land
and
construction)
were
transferred
to
Paul
Perras,
a
Montreal
trustee.
The
property
was
sold
to
someone
who
divided
it
up
into
motels.
3.38
Dr
Lalande
stated
that
if
it
had
been
profitable,
his
professional
income
as
a
physician
would
have
increased
by
20%.
His
pharmacy
would
also
have
benefited
greatly
because
an
older
person
requires
between
$15
and
$25
in
medicine
per
month.
Instead
of
this,
140
old
persons
left
Ville-
Marie.
3.39
The
parties
admitted
that
in
1974,
the
Manoir
was
unable
to
repay
the
loans
made
by
the
appellant
in
a
total
amount
of
$36,078.63,
including
an
advance
of
$11,517.63
made
by
the
appellant
in
1973
to
the
Manoir
(and
that
in
1975
he
was
called
upon
to
pay
the
BCN
and
the
Caisse
Populaire
the
sum
of
$27,596.22
pursuant
to
his
obligation
as
a
surety).
3.40
Dr
Lalande,
who
owned
office
buildings
in
Ville-Marie
in
which
the
Québec
Government
was
the
principal
tenant,
stated
that
he
wanted
to
increase
his
tenants’
rent
by
35%
to
40%.
For
this
purpose,
and
to
increase
his
credit
limit
with
the
banks,
in
1975
Dr
Lalande
asked
a
firm
of
assessors,
Les
Evaluateurs
du
Nord
Ouest
Québécois
Inc,
to
assess
all
his
property
as
of
December
31,
1971
and
January
1,
1975
(Exhibit
A-37).
The
cost
of
this
professional
work
was
$1,810.
In
filing
his
income
tax
returns
for
1974
and
1975,
the
appellant
claimed
as
expenses
the
sums
appearing
in
paragraphs
3.39
and
3.40.
3.41
On
the
other
hand,
in
his
assessment
of
the
said
returns,
the
respondent
refused
to
allow
the
said
expenses.
4.
Act—
Case
Law—Comments
4.1
Act
The
following
sections
of
the
Income
Tax
Act
may
be
cited
by
the
parties
to
support
their
position:
3,
4,
9,
paragraphs
18(1)(a),
18(1)(b),
18(1)(h),
sections
39,
40,
42(g),
sections
50,
57,
subsection
152(7)
and
section
248.
The
sections
will
be
cited
later
on,
if
necessary.
4.2
Case
law
The
following
case
law
was
cited
by
the
parties:
A.
By
the
appellant
1.
Algoma
Central
Railway
v
MNR,
[1967]
CTC
130;
67
DTC
5091;
2.
MNR
v
Algoma
Central
Railway,
[1968]
CTC
161;
68
DTC
5096;
3.
BC
Electric
Railway
Co
Ltd
v
MNR,
[1958]
CTC
21;
58
DTC
1022;
4.
Canada
Starch
Company
Limitedv
MNR,
[1968]
CTC
466;
68
DTC
5320;
5.
Bowater
Power
Co
Ltd
v
MNR,
[1971]
CTC
818;
71
DTC
5469;
6.
MNR
v
Henry
J
Freud,
[1968]
CTC
438;
68
DTC
5279;
7.
Aluminum
Company
of
Canada
Ltd
v
HMQ,
[1974]
CTC
471;
74
DTC
6408;
8.
Pigott
Investments
Ltd
v
HMQ,
[1973]
CTC
693;
73
DTC
5507;
9.
HMQ
v
F
H
Jones
Tobacco
Sales
Co
Ltd,
[1973]
CTC
784;
73
DTC
5577;
10.
Dr
J
G
Cyr
v
MNR,
[1978]
CTC
2757;
78
DTC
1549;
11.
Malcolm
C
Kronby
v
MNR,
76
DTC
1226;
12.
Terence
T
Malone
v
MNR,
[1979]
CTC
2619;
79
DTC
540;
13.
L
Berman
&
Co
Ltd
v
MNR,
[1961]
CTC
237;
61
DTC
1150;
14.
Olympia
Floor
and
Wall
Tile
(Quebec)
Ltd
v
MNR,
[1970]
CTC
99;
70
DTC
6085;
15.
Riedle
Brewery
Limited
v
MNR,
[1938-39]
CTC
312;
1
DTC
499-29;
16.
Margaret
Ann
F
rappier
v
HMQ,
[1976]
CTC
85;
76
DTC
6066;
17.
Sigma
Explorations
Ltd
v
HMQ,
[1975]
CTC
215;
75
DTC
5121;
18.
Paco
Corporation
v
The
Queen,
[1980]
CTC
409;
80
DTC
6328;
B.
By
the
respondent
19.
Associated
Investors
of
Canada
Ltd
v
MNR,
[1967]
CTC
138;
67
DTC
5096;
20.
William
E
Bannerman
v
MNR,
[1959]
CTC
214;
59
DTC
1126;
21.
L
Berman
&
Co
Ltd
v
MNR,
[1961]
CTC
237;
61
DTC
1150;
22.
John
Francis
Boland
v
MNR,
9
Tax
ABC
389;
54
DTC
25;
23.
Canada
Safeway
Ltd
v
MNR,
[1957]
CTC
335;
57
DTC
1239;
24.
Canada
Starch
Co
Ltd
v
MNR,
[1968]
CTC
466;
68
DTC
5320;
25.
HMQ
v
Clifford
B
Clark,
[1974]
CTC
305;
74
DTC
6242;
26.
Estate
of
Harold
H
Cohen
v
MNR,
[1970]
CTC
856;
70
DTC
1577;
27.
Consolidated
Textiles
Ltd
v
MNR,
[1947]
CTC
63;
47
DTC
958;
28.
Distillers
Corporation
Seagrams
Ltd
v
MNR,
[1958]
CTC
305;
58
DTC
1168;
29.
HMQ
v
Doral
Investment
Corporation,
[1979]
CTC
398;
79
DTC
5316;
30.
DWS
Corporation
v
MNR,
[1968]
CTC
65;
68
DTC
5045;
31.
DWS
Corporation
v
MNR,
69
DTC
5203;
32.
MNRv
Henry
J
Freud,
[1968]
CTC
438;
68
DTC
5279;
33.
Frontenac
Shoe
Ltée
v
MNR,
[1963]
CTC
181;
63
DTC
1129;
34.
MNR
v
Alfred
Gordon,
[1966]
CTC
722;
66
DTC
5445;
35.
HMQ
v
H
Griffiths
Co
Ltd,
[1976]
CTC
454;
76
DTC
6261;
36.
CIR
v
Sir
H
C
Holder,
Bart
and
J
A
Holder,
Vol
XVI,
Part
VIII,
K
B
540;
37.
Jack
K
Holmes
et
al
v
HMQ,
[1974]
CTC
156;
74
DTC
6143;
38.
Imperial
Oil
Limited
v
MNR,
[1947]
CTC
353;
3
DTC
1090;
39.
MNR
v
Anthony
Thomas
et
al,
[1976]
CTC
532;
76
DTC
6299;
40.
Deputy
Minister
of
Revenue
of
Quebec
v
Julius
Lipson,
[1979]
CTC
247;
41.
Marshall
Richards
Machine
Co
Ltd
v
Jewitt
(H
M
Inspector
of
Taxes),
36
Tax
Cases
511;
42.
John
A
Matheson
v
HMQ,
[1974]
CTC
186;
74
DTC
6176;
43.
Donald
Preston
McLaws
v
MNR,
[1970]
CTC
420;
70
DTC
6289;
44.
Donald
Preston
McLaws
v
MNR,
[1972]
CTC
165;
72
DTC
6149;
45.
Lyle
A
Meredith
v
HMQ,
[1975]
CTC
570;
75
DTC
5412;
46.
Montreal
Coke
and
Manufacturing
Co
v
MNR,
[1944]
CTC
94;
2
DTC
654;
47.
Rossmor
Auto
Supply
Ltd
v
MNR,
[1962]
CTC
123;
62
DTC
1080;
48.
The
Royal
Trust
Co
v
MNR,
[1957]
CTC
32;
57
DTC
1055;
49.
Meyer
Shuchat
v
MNR,
[1957]
CTC
32;
57
DTC
1055;
50.
MNR
v
George
H
Steer
(1966),
CTC
731;
66
DTC
5481;
51.
Joel
Sternthal
v
HMQ,
[1974]
CTC
851;
74
DTC
6646;
52.
MNR
v
Stewart
&
Morrison
Ltd,
[1970]
CTC
431;
70
DTC
6295;
53.
Stewart
&
Morrison
Ltd
v
MNR,
[1972]
CTC
73;
72
DTC
6049;
54.
Tata
Hydro-Electric
Agencies,
Ltd,
Bombay
v
Commissioner
of
Income
Tax,
Bombay
Presidency
and
Aden
(1937),
AC
685;
55.
Harry
Topper
v
MNR,
[1965]
CTC
22;
65
DTC
5014;
56.
Trans-Prairie
Pipelines
Ltd
v
MNR,
[1970]
CTC
537;
70
DTC
6351;
57.
York
Gears
Ltd
v
MNR,
30
Tax
ABC
383;
63
DTC
61;
58.
Farmers
Mutual
Petroleums
Ltd
v
MNR,
[1967]
CTC
396;
67
DTC
5277;
59.
MNR
v
Dominion
Natural
Gas
Co,
Ltd,
[1940-41]
CTC
155;
1
DTC
499-133;
60.
MNR
v
Kellogg
Company
of
Canada
Ltd,
[1943]
CTC
1;
2
DTC
601;
61.
Canada
Starch
Co
Ltd
v
MNR,
[1968]
CTC
466;
68
DTC
5320;
62.
British
Columbia
Electric
Railway
Co
Ltd
v
MNR,
[1958]
CTC
21;
58
DTC
1022;
63.
BP
Pétroles
Limitée
v
HMQ,
[1979]
CTC
174;
79
DTC
5121;
64.
Siscoe
Gold
Mines
Ltd
v
MNR,
[1945]
CTC
397;
45
DTC
749;
65.
HMQ
v
Douglas
C
Matthews,
[1974]
CTC
230;
74
DTC
6193;
66.
Donald
J
Gillis
v
HMQ,
[1978]
CTC
44;
78
DTC
6103;
67.
Pau
I-Em
He
Deschenes
v
MNR,
[1979]
CTC
2690;
79
DTC
461.
4.3
Comments
4.3.1
In
the
first
place,
the
Board
does
not
question
the
facts
adduced
in
evidence;
it
has
only
to
determine
the
principles
for
most
of
the
expenses
claimed.
The
long
list
of
authorities
cited
by
the
parties
involves
the
same
point:
is
the
expense
claimed
by
the
taxpayer
one
which
is
made
for
the
purpose
of
gaining
income
or
is
it
a
capital
expense
or
a
personal
expense?
The
respondent’s
main
argument
is
that
in
order
for
an
expense
to
be
deductible
under
paragraph
18(1)(a),
there
must
be
a
link
or
direct
connection
with
the
taxpayer’s
business.
The
expenses
incurred
to
assist
the
construction
of
the
Manoir
or
to
require
the
School
Board
to
build
a
high
school
in
Ville-Marie
do
not
have
this
direct
link;
the
appellant’s
business
is
only
indirectly
affected.
However,
as
Mr
Justice
Dube
stated
in
Paco
Corporation,
T-3967-77:
What
is
important
is
the
substance
of
the
transaction,
the
overriding
intent
of
the
taxpayer.
He
summarizes
seven
cases,
which
were
referred
to
by
the
parties
in
this
case,
as
follows:
However,
what
is
important
is
the
substance
of
the
transaction,
the
overriding
intent
of
the
taxpayer.
In
Algoma
Central
Railway
v
MNR,
a
decision
of
the
Exchequer
Court,
affirmed
by
the
Supreme
Court
of
Canada,
it
was
held
that
outlays
made
by
this
railway
company
to
obtain
geological
surveys
for
the
purpose
of
in-
creasing
traffic
on
its
line
were
income-related
expenses.
What
the
company
had
“in
mind”
was
obtaining
information
to
place
at
the
disposal
of
potential
customers.
If
these
expenditures
were
incurred
for
the
purpose
of
producing
income,
they
are
“current
expenses”.
In
another
decision
by
the
same
Court
in
the
same
year,
1967,
Associated
Investors
of
Canada
Limited
v
MNR,
Jackett,
P
also
held
that
loans
advanced
to
plaintiff’s
employees
had
been
so
advanced
for
the
purpose
of
earning
income,
and
to
enable
the
latter
to
have
funds
available
during
the
period
when
they
were
waiting
on
their
commissions.
Such
loans
were
therefore
an
integral
part
of
the
company’s
current
operations.
In
Olympia
Floor
and
Wall
Tile
(Quebec)
Limited
v
MNR,
the
same
judge
held
in
1970
that
gifts
to
charitable
organizations
made
largely,
if
not
entirely,
in
order
to
increase
sales
were
income-related
expenses
since
they
were
really
a
form
of
promotional
expense.
However,
the
Supreme
Court
of
Canada
held
in
Stewart
&
Morrison
Ltd
v
MNR
that
loans
advanced
by
the
Canadian
company
to
its
American
subsidiary
did
not
represent
current
expenses,
but
were
expenses
on
capital
account,
and
that
the
resulting
losses
were
on
capital
account.
However,
it
should
be
noted
that
the
Canadian
company
held
all
the
shares
of
its
American
branch
and
that
the
purpose
of
creating
the
American
company
was
specifically
in
order
to
produce
income.
In
The
Queen
v
Roméo
Lavigueur
the
taxpayer
loaned
money
to
his
tenants
to
enable
them
to
continue
leasing
his
apartments.
One
of
these
loans
was
not
repaid
and
in
1973
the
Federal
Court
held
that
this
loss
was
an
outlay
incurred
for
the
purpose
of
earning
income,
and
so
deductible
for
that
reason.
The
judge
emphasized
that
the
loans
were
“apparently
an
integral
part
of
the
profit-making
activities
of
the
business”.
In
1973
Noel
ACJ
of
the
Federal
Court
observed,
in
H
MTQ
v
F
H
Jones
Tobacco
Sales
Co
Ltd,
that
the
Court
must
consider
the
situation
from
a
businessman’s
point
of
view,
and
not
dwell
on
technicalities.
The
loss
of
$115,000
from
guaranteeing
a
loan
for
an
important
customer
resulted
from
a
transaction
entered
into
for
“commercial
reasons”.
He
went
on
to
say,
at
5581:
For
some
years,
however,
our
courts
have
been
inclined
to
accept
certain
expenses
or
losses
as
deductible,
considering
not
so
much
the
legal
aspect
of
the
transaction,
but
rather
the
practical
and
commercial
aspects.
In
MNR
v
Henry
J
Freud,
the
Supreme
Court
of
Canada
held
in
1968
that
the
amounts
spent
by
the
taxpayer
on
developing
a
prototype
sports
car
to
interest
potential
customers
should
be
regarded
as
an
income-related
expenditure
and
not
an
expenditure
on
capital
account.
The
project
was
intended
from
the
outset
as
an
investment
for
the
purpose
of
producing
income.
Even
if
the
expenditure
was
a
loan,
it
was
not
necessarily
an
investment.
It
is
clear
that
a
loan
made
by
someone
who
is
not
in
the
lending
business
is
ordinarily
regarded
as
an
investment,
but
the
circumstances
may
be
“unusual
and
exceptional”.
It
appears
from
the
uncontradicted
evidence
that
the
appellant
was
not
acting
through
pure
altruism
in
making
all
of
the
outlays
claimed,
just
as
Algoma
Central
Railway
in
the
case
summarized
above
did
not
incur
expenses
to
obtain
geological
surveys
for
purely
scientific
purposes.
The
primary
intention
of
the
taxpayer
was
to
secure
the
construction
of
the
high
school
and
the
Manoir
to
increase,
or
at
least
maintain,
his
business
and
professional
income.
The
fact
that
the
appellant
became
more
involved
than
he
had
originally
intended
does
not
change
in
any
manner
the
substance
and
nature
of
his
financial
assistance.
Therefore
the
Board
has
no
hesitation
in
allowing
the
appeal
overall,
apart
from
certain
points
set
out
below.
4.3.2
1973
1.
The
$8,000
expense
is
allowed
for
1973,
although
the
account
was
submitted
in
1971.
After
discussions
and
a
settlement
in
1973
on
the
amount
of
the
account,
in
practice
it
may
be
considered
as
having
been
liquidated
in
1973.
It
was
paid
in
1973
(par
3.04).
2.
The
sums
of
$600
and
$735
are
disallowed,
as
no
supporting
documents
were
filed
(par
3.04).
3.
The
sum
of
$2,018.86
is
accepted
(par
3.04).
4.
The
sum
of
$283.85
(par
3.05)
is
disallowed,
because
the
owner
of
the
trailer
was
not
paying
any
rent.
The
expenditure
was
therefore
not
incurred
for
the
purpose
of
gaining
income.
5.
The
expense
of
$$11,517.63
must
also
be
included
in
1973,
because
it
was
actually
made
in
1973
(par
3.39)
and
not
in
1974.
The
Board
allows
it
in
1973,
although
the
appellant
did
not
claim
it
in
his
notice
of
appeal.
The
familiar
section
9
of
the
Income
Tax
Act
allows
the
Tax
Review
Board
to
do
so.
Disallowing
it
for
1974,
and
not
authorizing
it
for
1973,
would
force
the
taxpayer
to
appeal
to
the
Federal
Court,
which
would
hear
the
case
de
novo
and
allow
the
expense
in
any
event,
assuming
that
the
Court
were
to
affirm
the
judgment
on
the
merits.
4.3.3
1974
The
amounts
which
are
the
subject
of
the
appeal
are
accepted,
except
for
the
sum
of
$11,517.63
which
must
be
claimed
in
1973,
pursuant
to
the
above
comments.
4.3.5
1975
The
amounts
claimed
are
accepted
for
that
year,
except
the
greater
part
of
the
sum
of
$1,810
paid
by
the
appellant
to
have
his
property
assessed
as
of
December
31,
1971
and
December
31,
1974
(par
3.40).
This
expenditure
is
very
largely
of
a
capital
nature,
considering
that
the
obvious
purpose
of
the
December
31,
1971
assessment
was
to
later
establish
the
amount
of
his
capital
gain
in
the
event
of
a
transaction,
and
considering
also
that
the
purpose
was
to
obtain
credit,
which
is
capital.
There
remains
the
assessment
of
the
office
building
for
the
purpose
of
increasing
the
rent.
Although
the
office
building
is
the
most
important
item,
the
Board
cannot
allow
more
than
a
proportion
of
$285,750
out
of
$1,034,560
for
both
assessments.
The
Board
therefore
allows
$500
out
of
$1,810.
5.
Conclusion
The
appeals
are
allowed
in
part
and
the
matter
referred
back
to
the
respondent
for
reassessment
pursuant
to
the
above
reasons
for
judgment.
Appeal
allowed
in
part.
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