Shabro Investments Limited v. Her Majesty the Queen, [1977] CTC 429, 77 DTC 5293

Sweet, DJ:—In the first of the above-styled actions [T-3456-76] the plaintiff appeals against a reassessment under the Income Tax Act for the 1972 taxation year. In the second [T-3457-76] it appeals against a reassessment made for the 1973 taxation year. It was agreed that both cases be heard on common evidence. Both are dealt with in these reasons.

The defendant admitted the following statements in the statement of claim in the first of the above-styled actions:

2. The Plaintiff was at all times relevant to the action herein the owner of certain industrial premises municipally known as Numbers 7-11 Ingram Drive, in the Borough of North York, in the Municipality of Metropolitan Toronto, in the Province of Ontario (hereinafter referred to as “the building”).

3. The land on which the building was constructed originally was a garbage land-fill site.

4. The building was leased by the Plaintiff to industrial tenants.

5. One such tenant was Electrolite Products Limited, (hereinafter referred to as “Electrolite”). Another such tenant was Marson (Canada) Limited (hereinafter referred to as “Marson”).

6. In or about the year 1973, Electrolite vacated the space in the building that it occupied because such space had fallen into a state of disrepair and it was unable to tolerate an interruption in its occupation that would have been necessary pending repairs.

7. The said state of disrepair had resulted from the decomposition of garbage in the land-fill below the building, which caused the lower floor of Electro- lite’s space to crack and sag, methane gas from the garbage to escape into the building and thereby to create a dangerous condition, and the water lines, storm drains, plumbing, weeping tile and electric wiring to settle and break under the weight of the floor.

8. Marson originally occupied approximately 60,000 square feet of space in the building under lease from the Plaintiff for a 15-year term computed from July 15, 1967 at an annual rental of $48,000.00.

9. Under the said lease Marson also had an option on approximately 38,000 square feet of additional space in the building that was the space originally leased to and later vacated by Electrolite.

16. The Plaintiff in computing its income for the 1973 taxation year accordingly deducted the said expenditures in the amount of $95,198.10 and consequently computed a net loss for the year in the amount of $65,951.00.

17. By Notice of Reassessment No 201830, dated September 8, 1975, the Minister of National Revenue reassessed tax against the Plaintiff in the amount of $3,673.08. In reassessing as he did, the Minister disallowed the deduction by the Plaintiff in computing its income of the said amount of $95,198.10, which the Minister described in his T7W-C form as “repairs and maintenance capitalized’’.

19. By Notification dated July 28, 1976, the Minister confirmed the said reassessment as having been made in accordance with the provisions of the Income Tax Act and in particular on the ground that:

“the expenditures amounting to $95,198.10 in respect of the taxpayer’s building at 7 Ingram Drive which were claimed as deductions from income were capital outlays within the meaning of paragraph 18(1 )(b) of the Act.”

20. In computing its taxable income for the 1972 taxation year, the Plaintiff deducted from its income in the amount of $41,401.00 an equivalent amount in respect of its non-capital loss for the 1973 taxation year in the amount of $65,951.00 as computed by the Plaintiff.

21. By Notice of Reassessment Number 201829, dated September 8, 1975, for the 1972 taxation year, the Minister of National Revenue reassessed tax in the amount of $15,111.36 against the Plaintiff. In reassessing as he did, the Minister disallowed the deduction by the Plaintiff in computing its taxable income for the 1972 taxation year of the said amount of $41,401.00, as a result of his having disallowed the deduction by the Plaintiff in computing his income for the 1973 taxation year of the said amount of $95,198.10 in respect of repairs to the said building and of his having consequently having reversed the said loss for the year in the said amount of $65,951.00.

23. By Notification dated July 28, 1976, the Minister confirmed the said reassessment as having been made in accordance with the provisions of the Income Tax Act and in particular on the ground that:

“There was no capital loss in 1973 available as a deduction from income in 1972 within the provisions of paragraphs 111(1)(a) and 111 (8)(b) of the Act.’’

The above paragraphs numbered 2, 3, 4, 5, 6, 7, 8, 9, 16, 17 and 19 are also contained in the statement of claim in the second of the abovestyled actions [T-3457-76].

It was admitted that the expense of $95,198.10 was incurred in 1973. The plaintiff’s counsel took the primary position that all of that amount was incurred on revenue account but submitted that if that were not the situation a portion of it was so incurred.

One of the witnesses called on behalf of the plaintiff was Mr William Shapiro, who, according to his evidence, was the only person who had any financial interest in the plaintiff.

He said that the land on which the building was erected was acquired in 1950 and that it was partially filled land, the fill being garbage and earth. The building, according to Mr Shapiro, was erected in five parts, the fourth and fifth of those parts respectively having been built in 1960 and 1967. He said the total area of the five sections was approximately 98,000 square feet.

According to Mr Shapiro, the area leased to Electrolite was in the fourth and fifth additions to the building.

His evidence was that approximately 25,000 feet of the floor of the portion occupied by Electrolite collapsed. He said it sank in some areas as much as 2 /2 to 3 feet. His evidence was that the earth had compacted and caused the settling or collapse of the floor and that it took with it drains, water lines, electric wiring, sewers, heating system and plumbing. He said that Electrolite had to move and they were forced to let them out of their lease because they could not operate.

Another witness called on behalf of the plaintiff was Mr Alex Tobias, a consulting engineer. It was Mr Tobias who designed the plans for all five sections which went to make up the structure. He said that the Original section was built in 1951, the next in 1953 and another in 1957. He indicated that the construction of the first three sections included slabs on grade, that periodical inspections had been made and there was no trouble. The floor construction in the last two additions was also slabs on grade. The floor was road-meshed. He said that there was no indication that there would be settlement in the last two additions. According to Mr Tobias, slabs on grade on normal soil would carry 400 to 500 pounds per square foot. This was not normal soil.

Following the collapse he prepared plans for the new floor. This was a suspended floor. It was of a different type of construction than was the collapsed floor. For the new floor, steel piles were driven through the garbage and into the solid earth. The new floor was concrete reinforced with steel, not road-mesh. Then the floor so reinforced was poured. It spanned from pile to pile and was carried by the piles.

Mr Tobias said in effect that piling and reinforcing steel was needed. He said that once they had experience that there was decomposing material they would not put back the old floor. He indicated they took that precaution so that the floor could stand on its own in case there was any further settling underneath. He said he put back a floor which could be used and that it was of a different design than his origina! one.

Mr Tobias’s evidence was to the effect that if piles and reinforcing steel had been originally used for the last two additions the total cost would have been $15,000 extra. He did not give any breakdown' as to how he arrived at that figure.

A summary as prepared by the Department of National Revenue (Exhibit 5) purports to show expenditures and other items as follows:

The plaintiff did not agree with all of the allocations of the Department and gave some detail in connection with the total figure of $95,198.10.

In giving this evidence he, for the most part, followed a partial breakdown which also appears in Exhibit 5. I summarize it below:

$6,950.00: for a superintendent and some charges of Mr. Tobias’s firm

$219.50: temporary lighting

$13,654.80: removing and re-installing original toilet facilities, replacing drains, water lines and sewers

$235.00: labour

$482.28: sand

$364.52: rental for fans to blow out gas fumes caused by the decomposition of the garbage used in the land-fill

$6,500.00: to break up and remove floor concrete

$727.40: to close off flooding drains

$425.69: Mr Shapiro said he did not recall what this item was for

$261.80: additional rental for fans for blowing out fumes

$7,000.00: supplying concrete and laying steel for the floor

$1,321.38: finishing the surface of the new floor

$130.00: labour

$72.82: replacing tile in the washroom

$357.62: supervision

$1,375.00: dry-wall for washroom

$16,000.00 and $5,000.00: part of the cost of driving steel shafts into the ground to support the floor and incidental matters

$195.00 and $3,930.75: removing old concrete from site

$6,543.00: steel for reinforcing the new floor

$2,389.00: bringing in machine for breaking up concrete and for piling, bulldozing

$5,000.00: steel for the floor and for stands on which to set drains to keep pipes rigid until the floor was poured

$5,000.00: for concrete floor

$5,058.71: steel

Counsel for the plaintiff referred to the work which was done as repairs. He submitted that the cost of those “repairs”, so-called, fall into revenue for the reasons which I summarize below:

1. The floor itself cannot in any way properly be used as an asset which is separate and distinct from the building. It was an integral - part of the building. It did not have a physical or functional existence apart from the building. The building was the entirety. The floor was a part. The building itself was not renewed. Prima facie, counsel submitted, the repair of a part of an asset, the floor being the part, was on revenue account.

2. The floor which replaced the damaged floor was not, as such, an improvement over the one that was damaged. Both floors served exactly the same purpose. The floor was not made bigger or better since there was no expansion of the function that it served. There was no upgrading of the floor. It did not enhance the commercial value of the building as a revenue-producing asset. The repairs simply enabled the functional utility and operational capacity of the building to be maintained.

3. There were other parts of the building damaged as a result of collapse of the floor. These, too, were restored to their original condition without any operating or commercial improvement.

Expenses were incurred to restore the damaged parts of the building to their original condition but the building itself was not improved or renovated. The repairs were restorative rather than ameliorative. These repairs made whole an existing asset. They did not bring into being any new capital asset. Counsel submitted they were not on Capital account but were incurred on revenue account.

4. In the alternative counsel for the plaintiff submitted that only $15,000 should be disallowed which, he claimed, was the amount which would have been spent in the first place if the type of construction which was used after the collapse had been used originally.

9. Other than those expenses which related to piling and the use of reinforced steel the expenses could not in any sense have resulted in any improvement to the building as a whole even if the plaintiff conceded that there was some improvement in the use of piles or reinforced steel. Counsel submitted by way of further alternative that the amount disallowed should not in any event exceed what was spent on piling and reinforcing steel.

My conclusion is that, having regard to the circumstances in this case, these submissions of the plaintiff’s counsel are not valid.

The facilities in respect of which work was done and expense incurred had not been used up or worn out. The work was not done because of any wear of the facilities. Work was not necessitated by any ageing of the materials previously in place. What occurred here was not in the nature of an accident as that word is generally used. It is admitted, as set out in paragraph 7 of the statements of claim, that:

7. The said state of disrepair had resulted from the decomposition of garbage in the land-fill below the building, which caused the lower floor of Electro- lite’s space to crack and sag, methane gas from the garbage to escape into the building and thereby to create a dangerous condition, and the water lines, storm drains, plumbing, weeping tile and electric wiring to settle and break under the weight of the floor.

Furthermore the designing, engineering and construction of the new floor was quite different from that of the previous floor which was destroyed. The new floor was to meet the actual and existing conditions, namely, land partly filled with garbage. As it turned out, obviously, the old floor did not so qualify. The previous one, with slabs on grade and road-mesh in the concrete, was indicated for normal soil. Here the soil was not normal. The new floor was supported by steel piles driven through the garbage into solid earth and the concrete flooring was reinforced with steel.

It is futile to suggest that actually the end result is the same in either case because what was accomplished in each case was a floor. By the replacement there was a floor presumably capable of withstanding the inadequacies of and meeting the problems arising from the nature of the land. Previously there was not.

To me it seems equally futile to say that the building as a whole was not improved by the new floor built and supported as it now is. Obviously a building with a floor properly designed and engineered to meet a condition such as exists here in an improvement over and a better building and a more valuable building than one with a floor not designed and engineered to meet that condition.

Then, again, it would be expected that a building with a floor which could be depended upon would be likely to provide a more assured and, in the long run, a better income than a building with a floor which could not be depended upon. That would be indicated by what occurred here with the collapsed floor preventing the use of the portion of the building containing it.

For the most part, at least, the evidence does not indicate whether the facilities, other than the floor and its supports, which replaced those damaged or destroyed were superior or functionally better than those previously existing. The use of steel stands on which to set the new drains might be considered an exception to this. However even assuming that those replacing facilities including drains, plumbing, drywall and tile for the washrooms, were no better than those they replaced they did not require replacing because of wear or ageing or deterioration resulting from use or the passage of time. So far as drains are concerned Mr Shapiro indicated that drains never wear out. Those replaced items required replacing because of damage or destruction Caused by or arising out of the same incident which destroyed the floor.

The $95,198.10 expenditure could not be classified as “one made to meet a continuous demand’’. It would, in my opinion, classify as “an expenditure made once and for all’’. It established an enduring benefit in respect of the utilization of the building for the purposes for which the building was erected. In my opinion, the facilities provided by that expenditure are such that they are to be treated as being of an enduring nature even though repairs to them or some of them may from time to time be required. Even if it could be said that there will be a more or less continuous demand for such repairs that would be something quite different than a continuous demand for the works per se. Furthermore the possibility that in some future and undefined time the advantages accruing from those facilities might somehow and for some reason terminate does not, in my view, take them out of the category of “enduring” as that term is generally understood.

Counsel for the plaintiff cited a number of cases which he submitted supported the plaintiff's position. In my opinion none of them do support that position having regard to the circumstances existing here. For one thing it is my opinion that the facts in those cases differ substantially and significantly from the facts here. I deal with a number of cases on which the plaintiff relied.

Lurcott v Wakely and Wheeler, [1911] 1 KB 905, was not a tax case. It was an action between a landlord and a tenant dealing with a covenant in a lease.

Rhodesia Railways, Limited v Collector of Income Tax (Bechuanaland Protectorate), [1933] AC 368, was a case in which the expenditure was incurred in consequence of rails having been worn out in the earning of the income of previous years on which tax had been paid without deduction in respect of such wear.

Samuel Jones & Co (Devonvale), Ltd v Commissioner of Inland Revenue (1951), 32 TC 513, dealt with the replacing of a factory chimney which had been in existence and operation for some 80 or 90 years.

In MNR v Vancouver Tugboat Company Limited, [1957] Ex CR 160; [1957] CTC 178 at 182; 57 DTC 1126 at 1128, Thurlow, J (as he then was), making reference to the Rhodesia Railways, Limited and the Samuel Jones & Co (Devonvale), Ltd cases, said:

Moreover, in seeking to solve the problem by reference to cases decided in other countries it must be borne in mind that there are very material differences in the taxing statutes from one country to another, which often accounts for the difference in the results of cases having many factual features in common. For example, in Rhodesia Railways Ltd v Collector of Income Tax, Bechuanaland, [1933] AC 368, the provisions of the income tax proclamation there considered were quite different from those of the Income Tax Act. . . .

And in Samuel Jones and Co (Devonvale) Ltd v CIR, 32 TC 513, where the cost of replacing a chimney which was an integral part of a factory was allowed as a proper charge against revenue, it is to be noted that the expenditure for the chimney was one to restore property on which there was no allowance for depreciation.

Regenstein et al v Edwards, 54-1 USTC 45,689, was a case in the District Court of the United States for the Middle District of Georgia, Macon Division. The comments of the present Associate Chief Justice of this Court made in the Vancouver Tugboat case regarding reference to cases decided in other countries would seem particularly appropriate in connection with the Regenstein case. In any event, it would seem that the facts in the Regenstein case would make it distinguishable from this case even if it were binding on this Court.

Levinter v MNR, 5 Tax ABC 75; 51 DTC 359, a decision of the Tax Appeal Board, dealt with repairs to a furniture store. The business had been carried on for approximately 35 years and, until the beginning of the war, the necessary repairs to the building were made from year to year. During the period of the war, building material was scarce, and it was very difficult to get labour. Consequently, practically no repairs of any nature were made for a number of years.

Another Tax Appeal Board case cited by counsel for the plaintiff was Edward A English Estate v MNR, 14 Tax ABC 225; 55 DTC 18. The expenses there involved three properties, a commercial boathouse of considerable size, a 4-apartment dwelling and another dwelling. The Board held that some items were deductible and to be treated as revenue and others not.

Conn v Robins Bros, Ltd (1966), 43 TC 266, is a case where in consequence of the age of the property it was found necessary to carry out some extensive work upon it.

MNR v Algoma Central Railway, [1968] CTC 161; 68 DTC 5096, concerned expenditures for a broad geological survey, over a period of five years, of the mineral possibilities of a section of the unpopulated land through which the respondent’s railway ran. The intention was to make the information available to interested persons in the hope that it would lead to development of the area that would produce traffic for the respondent’s transportation system. Fauteaux, J, in delivering the judgment of the Court, referred to an extract from BP Australia Ltd v Commissioner of Taxation of the Commonwealth of Australia, [1966]

AC 224, dealing with the matter of determining whether an expenditure was of a capital or income nature, namely:

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.

Her Majesty the Queen v F H Jones Tobacco Sales Co Ltd, [1973] CTC 784; 73 DTC 5577, dealt with a payment the defendant was obliged to make under a guarantee.

In The Elias Rogers Company Limited v MNR, [1972] CTC 601; 73 DTC 5030, the appellant carried on a business which included the selling of fuel oil. As part of its fuel oil business, and, in particular to facilitate the marketing of fuel oil, the appellant acquired and leased water heaters to fuel oil customers or prospective customers. The sole question involved was whether one element of the expenses incurred in connection with the leasing of water heaters was an expense of earning income which was deductible in computing its annual profit from the business notwithstanding paragraph 12(1 )(b) of the Income Tax Act then in force.

Counsel for the plaintiff said he made special reference to Canada Steamship Lines Limited v MNR, [1966] CTC 255; 66 DTC 5205. There the relevant expenditures fell into two classes:

(a) the expense of replacing what are, in effect, floors and walls of cargocarrying holds in certain ships and of incidental work in respect of the apparatus or members whereby such floors and walls were joined to the outside surface or “skin” of the ship—such work having been made necessary by the wear and tear arising out of the loading, carrying and unloading of cargoes; and

(b) the expense incurred in the replacement of boilers in one of the ships.

In connection with those expenditures which are within the scope of paragraph (a) Jackett, P (as he was then) said, inter alia [p 256 [5206]]:

Where the inside layer of the ship’s bottom, which also serves as the floor for the ship’s cargo-carrying holds, has to be replaced, in whole or in part, by reason of wear and tear and of damage caused by the cargo carried in the ship, it seems clear to me that the expense falls in the same class as the expenses of replacement of portions of the outside skin. So long as the ship Survives as a ship and damaged plates are being replaced by sound plates, I have no doubt that the ship is being repaired and it is a deductible current expense. (I exclude, of course, a possible replacement by something so different in kind from the thing replaced that it constitutes a change in the character—an upgrading—of the thing upon which the money is expended instead of being a mere repair.)

Because the new steel-reinforced floor, supported on the steel piles, was so materially different from and so superior to the previous floor it was, in my finding, a replacement so different in kind from the floor replaced that it constituted a change in the character of the floor and an upgrading which brought it within the exclusion stated by the President of the Court.

Dealing with the replacement of the boilers, the President of the Court said [p 258 [5207]]:

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.

The decomposition of garbage in the land-fill below the building and the escape into the building of the methane gas which caused the situation to arise could not, in my view, be classified as accidental. It was a natural result of an existing condition, the consequences of which, it seems to me, could have been anticipated and probably avoided if the original construction had been such as was then indicated.

In MNR v Haddon Hall Realty Inc, [1962] SCR 109; [1961] CTC 509 at 511; 62 DTC 1001 at 1002, it was pointed out that even expenditures to replace capital assets which have become worn out or obsolete may be capital outlays. Delivering the judgment of the Court, Abbott, J said:

Among the tests which may be used in order to determine whether an expenditure is an income expense or a capital outlay, it has been held that an expenditure made once and for all with a view to bringing into existence an asset or an advantage for the enduring benefit of a trade is of a capital nature.

Expenditures to replace capital assets which have become worn out or obsolete are something quite different from those ordinary annual expenditures for repairs which fall naturally into the category of income disbursements. Applying the test to which I have referred to the facts of the present case, the expenditures totalling $11,675.95, made by respondent in the year 1955 for replacing refrigerators, stoves and blinds in its apartment building were, in my opinion, clearly capital outlays within the provisions of Section 12(1 )(b) of the Act.

Paragraph 12(1)(b) of the legislation then in force is virtually the Same as the present paragraph 18(1 )(b) of the Act which is:

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

(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;

MNR v Vancouver Tugboat Company Limited (supra) is pertinent. It dealt with expenditures to purchase, transport and install a new engine in a tugboat owned by the respondent.

There, Thurlow, J (as he then was) expressed the opinion that the expenditure met and passed the test of the then paragraph 12(1 )(a) as One made or incurred for the purpose of gaining or producing income from property or a business of the taxpayer, at the very least in the sense that it enabled the taxpayer to use the tug for more working hours each year.

Mr Justice Thurlow said [p 184 [1129]]:

How then is the question whether or not this expenditure was of a capital nature to be resolved? While there is no single determining test, a number of tests have, from time to time, been expressed, their usefulness in any particular case depending more or less on the particular circumstances.

After referring to comments in Ounsworth v Vickers Ltd, [1915] 3 KB 267, His Lordship said [p 185 [1130]]:

The creation of a new means of access to replace the old one was thus a capital item, even though the new means may not have been as advantageous as restoration of the old would have been. It was a new means of access, it was enduring expenditure for the benefit of the business as a whole rather than to enable the company to get one particular ship through the channel, and accordingly it was classified as a capital item. This case indicates that the method adopted to provide for something which might otherwise be a matter chargeable to revenue may stamp the expenditure as a capital one.

Then, referring to British Insulated and Helsby Cables Ltd v Atherton, [1926] AC 205, there is [p 186 [1130]]:

In this test, the elements indicating that the expenditure is capital are, first, that it is made once and for all and, secondly, that it is made with a view to bringing into existence an asset or an advantage for the enduring benefit of the trade.

In speaking of the expenditure for replacement of the engine he said inter alia [p 188 [1131]]:

Moreover, in my opinion, the respondent’s trade has gained an advantage by the expenditure, in that the expenditure has provided an engine which makes the tug more reliable, keeps it more constantly in service, and enables it to earn greater revenue and at the same time avoids the abnormal repairs formerly required. And such advantage is of an enduring nature in that the anticipated life of the new engine is ten years. No doubt there will be wear and tear each year beyond what is restored by repairs in the year and the advantage will ultimately be exhausted, but in my opinion that does not affect the nature of such advantage as capital. If any deduction from income is to be allowed in respect of such exhaustion, in my view, it must be by way of an allowance of the kind permitted under the exception to Section 12(1 )(b).

The total expenditure of $95,198.10 for the floor and all other items including water lines, storm drains, plumbing and weeping tile was for the enduring benefit of the plaintiff. All facilities and materials so provided were of an enduring nature. The entire expenditure for them was made once and for all as I consider that term to have been used in MNR v Haddon Hall Realty Inc (supra) and in British Insulated and Helsby Cables Ltd v Atherton, the latter cited in the Vancouver Tugboat case. Though there would be constant need for those facilities they were of such an enduring nature that there would not be a constant demand for their installation or replacement.

There was also reference in the Vancouver Tugboat case to a test propounded in Commissioners of Inland Revenue v The Granite City Steamship Co, Ltd (1927), 13 TC 1 at 14:

Broadly speaking, outlay is deemed to be capital when it is made for the initiation of a business, for extension of a business, or for a substantial replacement of equipment.

Much stress was laid by counsel for the plaintiff on his submission in which he attempted to make a distinction between the floor as a part of the building and the building as an entirety.

Dealing with a distinction also apparently attempted in Vancouver Tugboat as between the tug as an entirety and a subsidiary part of the tug, His Lordship said [p 187 [1130]]:

The argument for the respondent, on the other hand, stressed the view that the capital unit is the tug and that all repairs including replacements necessary to restore the tug to its initial condition are revenue items so long as the parts replaced are subsidiary parts of the tug and not in substance a replacement of the tug itself. No doubt the meaning of the expression “repairs” is broad enough to encompass all items necessary to restore the property to its original condition, but unlike the proclamation applied in Rhodesia Railways Ltd v Collector of Income Tax, Bechuanaland (supra) the Income Tax Act nowhere mentions or declares all repairs to be deductible, and I do not think, especially in view of the provisions in the statute for capital cost allowances, that the costs of all items that can be classed as repairs are ipso facto revenue items.

In the Vancouver Tugboat case there was a finding that the outlay in question was an outlay or replacement of capital within the meaning of paragraph 12(1)(b) of the Income Tax Act then in force and, accordingly, was not deductible from income.

In my opinion the consensus of the relevant authorities points unmistakably to the entire expenditure of the $95,198.10 being a payment on account of capital within the meaning of paragraph 18(1)(b) of the Income Tax Act. I find that in computing the plaintiff’s income for the taxation years 1972 and 1973 no deduction should have been made in respect of it or any part of it.

Both appeals of the plaintiff are dismissed. The defendant will have costs payable by the plaintiff but only one fee for conduct of the hearing at trial.