Compagnie Immobilière BCN Limitée v. Her Majesty the Queen, [1976] CTC 282, 76 DTC 6153

The Chief Justice (judgment delivered from the Bench) (concurred in by Pratte, J and Hyde, DJ):—This is an appeal from a judgment of the Trial Division dismissing an appeal by the appellant from assessments under Part I of the Income Tax Act for the 1967 and 1968 taxation years by which the Minister disallowed the appellant’s claims for capital cost allowances in respect of the capital cost of an emphyteutic lease and the capital cost of a building that had been situate on the land that was the subject matter of that lease.

It is common ground that the appellant was entitled to such capital cost allowances in respect of the 1964 taxation year during which year

(a) the appellant was the lessee under that lease, and

(b) the appellant was the owner of that building.

However, in January 1965

(a) the appellant acquired the landlord’s rights in respect of the land with the result that the lease came to an end (see Articles 1198 and 1655 of the Civil Code of Quebec), and

(b) the appellant granted to a third person an emphyteutic lease under the terms of which the building was demolished,

with the result that, prior to the end of the 1965 taxation year, both the emphyteutic lease and the building ceased to exist and with the further result that the appellant had, at the end of that year, no property in the prescribed “classes” to which those properties had, respectively, belonged.

The judgment of the Trial Division is based, as I understand it, on the view that capital cost allowance cannot be claimed or allowed in respect of the capital cost of property that could not have been used to earn income in the relevant year because it was non-existent during that year.

Without analyzing in detail the relevant provisions of the Income Tax Act and the regulations made under paragraph 11(1)(a) thereof, I think it is clear that, when computing income from a business, there is no necessity that all the property the capital cost of which is included in the computation of an amount that is claimed for any year under paragraph 11 (1)(a) in respect of a particular “class” have been in existence and used in the business during that year. Indeed, I find nothing in the statute or regulations that requires that there always have been in existence during that year some property of the “class” to which particular property belongs as a condition to the capital cost of that particular property being included in the computation. While it is not so clear, I am of the view that the same remarks apply where property, and not a business, is the source of the income that is being computed.

What one does find, as I understand the regulations, is that, where all the property of a “class” that is grouped together for purposes of capital cost allowance had been “disposed” of in a year and the taxpayer had no property of that class at the end of the year, he is entitled to a deduction for that year of the total amount that remains in the capital cost computation for that class as of the end of the year. I am furthermore of the view that the whole of such amount is deductible in the particular year and, unlike deductions under Regulation 1100(1)(a), the amount so deductible is not deductible in different years “as he may claim it”. This is my understanding of Regulation 1100(2), the English version of which reads:

1100. (2) Where, in a taxation year, otherwise than on death, all property of a prescribed class that had not previously been disposed of or transferred to another class has been disposed of or transferred to another class and the taxpayer has no property of that class at the end of the taxation year, the taxpayer is hereby allowed a deduction for the year equal to the amount remaining, if any, after deducting the amounts, determined under sections 1107 and 1110 in respect of the class, from the undepreciated capital cost to him of property of that class at the expiration of the taxation year.

and the French version of which reads:

1100. (2) Lorsque, dans une année d’imposition, autrement qu’au décès, tous les biens d’une catégorie prescrite qui n’avaient pas auparavant été aliénés ou transportés à une autre catégorie ont été aliénés ou transportés à une autre catégorie et que le contribuable n’a plus de biens de cette catégorie à la fin de l’année d’imposition, il est par les présentes accordé au contribuable une déduction, pour l’année, égale au montant qui reste, s’il en est, après déduction des montants, établis en vertu des articles 1107 et 1110 à l’égard de la catégorie sur le coût en capital non déprécié, pour lui, des biens de cette catégorie, à la fin de l’année d’imposition.

It follows that, as the whole of the balance remaining in the undepreciated capital cost account for the particular class at the end of the year of “disposition” or “aliénation” is deductible in computing income for that year, no amount in respect of the capital cost of property of that class acquired before that time will remain in the base for computation of the capital cost allowance deduction for property of that class for a subsequent year. (Compare Regulation 1100(1) with paragraphs 20(5)(d) and (e) of the Act.)

The question to be decided on this appeal, therefore, is whether, in the circumstances that I have referred to, the emphyteutic lease and the building in question must be regarded as having been disposed of in 1965. Regardless of whether the expression “disposed of” would have been given some other sense if the English version were read alone, in my view, when the two versions are read together, ‘‘disposed of” must be read in the sole relevant sense that that expression has in common with the French word “aliénés’’. In my view, this sense would include any transfer, by way of sale, gift or otherwise, of legal title, to some other person but would not include the bringing about of the destruction or extinguishment of the property.* [1]

Applying that sense of the expression “disposed of” in the application of Regulation 1100(2) to what happened in 1965 as set out above, I am of opinion that the regulation did not confer on the appellant any right to a capital cost allowance deduction for that year.

I am therefore of opinion that the appeal should be allowed, that the appellant’s assessments under Part I of the Income Tax Act for the 1967 and 1968 taxation years should be referred back to the Minister for reassessment on the basis that

(a) Regulation 1100(2) did not confer on the appellant any right to a deduction for the 1965 taxation year; and

(b) it is not necessary for property to be in existence or used or held for income-producing purposes for its capital cost to be included in the computation of capital cost allowance under Regulation 1100(1),

and that the appellant should have its costs of the appeal to the Trial Division as well as its costs of the appeal to this Court.