A
W
Prociuk
(orally:
February
5,
1976):—The
appellant,
James
H
Sunstrum,
formerly
for
Kindersley,
Saskatchewan
and
presently
of
Yellowknife,
Northwest
Territories,
appeals
from
the
respondent’s
reassessment
dated
February
13,
1973
in
respect
of
his
income
for
the
taxation
year
1969,
wherein
the
appellant’s
claim
of
a
loss
in
the
sum
of
$17,659.44
was
disallowed
by
the
Minister
on
the
ground
that
the
expense
claimed,
to
which
I
shall
make
reference
later,
was
a
a
capital
outlay
within
the
meaning
of
paragraph
12(1
)(b)
of
the
Income
Tax
Act,
RSC
1952,
c
148,
as
amended.
The
appellant
claims
that
the
loss
constituted
an
expense,
or
was
made
up
in
the
main
of
an
expense,
for
the
purpose
of
earning
or
producing
income
as
provided
for
and
allowed
in
paragraph
12(1)(a)
of
the
Act
and
for
the
purpose
of
convenience
I
shall
quote
the
relevant
section
of
the
Act.
12.
(1)
In
computing
income,
no
deduction
shall
be
made
in
respect
of
(a)
an
outlay
or
expense
to
the
extent
that
it
was
made
or
incurred
by
the
taxpayer
for
the
purpose
of
gaining
or
producing
income
from
property
Or
a
business
of
the
taxpayer,
(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,
At
the
outset
of
the
hearing,
counsel
for
the
appellant
conceded
that,
as
the
appellant
was
a
50-50
partner
with
one
John
Iver
Kjeldsli,
he
would
be
entitled
only
to
a
deduction
in
the
sum
of
$9,559.43,
if
my
arithmetic
is
correct,
being
one-half
of
the
total
loss
to
which
I
shall
make
reference
later.
The
facts
of
the
case
are
as
follows.
The
appellant
was
a
barrister
and
solicitor
by
profession
and
conducted
a
successful
practice
in
the
districts
of
Kerrobert
and
Kindersley,
with
offices
at
one
time
in
both
centres,
for
some
years
in
the
sixties.
He
also
served
as
a
provincial
judge
in
that
area
and
from
the
evidence
I
gathered
that
he
was
well
known
to
the
people
in
those
districts.
In
the
year
in
question,
the
appellant
practised
his
profession
in
the
town
of
Kindersley,
with
his
office
on
the
main
street
of
the
said
town.
The
other
witness
in
support
of
this
appeal
was
the
appellant’s
onetime
partner,
John
Iver
Kjeldsli,
who,
prior
to
the
material
time,
was
manager
of
the
Royal
Bank
of
Canada
in
Kerrobert
and
later
in
Eatonia.
in
1957
Kjeldsli
resigned
from
his
position
and
entered
into
the
business
of
real
estate
insurance
and
accounting
consultant
under
the
firm
name
and
style
of
Donn
Realty,
which
business
he
conducted
in
Eatonia,
a
town
approximately
30
miles
from
Kindersley.
In
the
late
sixties
he
conducted
part
of
his
business
in
Kindersley
and
used
a
portion
of
the
offices
of
the
appellant’s
law
practice
for
his
purposes,
where
he
attended
two
or
three
times
a
week.
Some
time
in
1969,
T
&
T
Agencies
Limited,
owned
and
operated
by
one
Harlen
Thompson
of
Kindersley,
Saskatchewan,
being
in
the
business
of
real
estate
insurance,
income
tax
consulting,
travel
agency
and
sale
of
motor
licences,
approached
Kjeldsli
with
a
view
to
selling
to
him
all
the
business
of
T
&
T
Agencies
Limited.
Kjeldsli
at
this
time
consulted
the
appellant
and
both
agreed
that
it
would
be
beneficial
to
buy
or
enter
into
an
agreement
to
buy
customer
lists
in
respect
of
the
insurance
business
carried
on
by
T
&
T
Agencies
as
well
as
the
income
tax
list
but
apparently
they
were
not
prepared
to
buy
the
entire
business
as
a
going
concern.
I
need
not
go
into
the
reasons
why
they
arrived
at
that
decision
except
to
Say
that
both
were
not
impressed
with
the
general
reputation
that
T
&
T
Agencies
enjoyed
at
that
time
in
the
area.
Both
witnesses
testified
that
they
were
satisfied
that,
if
if
they
were
able
to
buy
the
customer
lists
relating
to
insurance
and
income
tax
consulting,
they
were
sufficiently
known
in
the
area
to
be
able
to
carry
on
a
a
fairly
beneficial
practice
arising
out
of
these
lists.
Accordingly,
after
some
consultation
or
negotiation
between
Kjeldsli
and
Thompson
of
T
&
T
Agencies
Limited
with
the
appellant
participating
on
at
least
one
occasion,
an
agreement
was
entered
into
by
Kjeldsli
and
T
&
T
Agencies
which
was
filed
as
Exhibit
A-1
and
which
reads
as
follows:
AGREEMENT
MADE
IN
DUPLICATE
THIS
31st
DAY
OF
OCTOBER,
A
D
1969
BETWEEN:
T
&
T
AGENCIES
LIMITED,
a
body
corporate
carrying
on
business
in
the
Province
of
Saskatchewan,
hereinafter
called
the
Vendor
of
the
First
part.
—and—
JOHN
IVAR
KJELDSLI,
of
the
Town
of
Eatonia,
in
the
Province
of
Saskatchewan,
hereinafter
called
the
Purchaser
of
the
second
part.
Whereas
the
Vendor
has
for
some
time
past
carried
on
business
at
the
Town
of
Kindersley,
in
the
Province
of
Saskatchewan
as
a
general
Insurance
agent
and
an
Income
Tax
Consultant.
And
whereas
the
said
Vendor
has
a
list
of
customers
with
whom
it
has
done
Insurance
business
during
the
past
together
with
a
list
of
policy
renewal
dates.
And
whereas
the
said
Vendor
has
a
list
of
customers
for
whom
it
has
done
Income
Tax
Consulting
work
during
the
past.
Now
therefore
it
is
agreed
between
the
parties
hereto
that
the
Vendor
shall
sell
and
the
Purchaser
shall
purchase
the
list
of
customers
with
whom
the
Vendor
has
done
Insurance
business
during
the
past
and
the
list
of
Policy
renewal
date
for
a
total
purchase
price
of
Seventeen
Thousand
Dollars
($17,000.00)
and
the
Vendor
shall
sell
and
the
Purchaser
shall
purchase
the
list
of
customers
with
whom
the
Vendor
has
done
Income
Tax
Consulting
work
during
the
past
for
the
sum
of
Two
Thousand
Dollars
($2,000.00).
The
said
sum
of
Nineteen
Thousand
Dollars
($19,000.00)
will
be
payable
as
follows:
that
is
to
say
the
sum
of
Ten
Thousand
Dollars
($10,000.00)
on
the
day
of
the
date
hereof
(receipt
whereof
is
hereby
by
the
Vendor
acknowledged)
and
the
remaining
sum
of
Nine
Thousand
($9,000.00)
as
follows;
that
is
to
say
the
sum
of
Five
Thousand
Dollars
($5,000.00)
on
or
before
the
fourth
day
of
November,
A
D
1969
and
the
balance
of
Four
Thousand
Dollars
($4,000.00)
as
follows;
that
is
to
say
the
sum
of
Two
Hundred
Dollars
($200.00)
on
or
before
the
31st
day
of
December,
A
D
1969,
and
a
similar
sum
of
Two
Hundred
Dollars
($200.00)
on
the
last
day
of
each
and
every
month
thereafter
until
fully
completed
and
paid
for,
with
interest
at
the
rate
of
Eight
percent
(8%)
per
annum
payable
monthly
the
first
payment
of
interest
to
be
due
and
to
be
paid
on
or
before
the
31st
day
of
December,
A
D
1969.
IN
WITNESS
WHEREOF
THE
SAID
T
&
T
AGENCIES
LIMITED
has
caused
its
corporate
seal
to
be
hereunto
affixed
attested
by
the
signature
of
its
proper
officer
in
its
behalf
this
31st
day
of
October,
A
D
1969.
At
this
point
in
time,
I
am
satisfied,
from
the
evidence,
that
the
appellant
and
Kjeldsli
entered
into
a
partnership
with
respect
to
this
portion
of
the
business
which
they
were
setting
up
under
the
firm
name
and
style
of
Donn
Realty,
so
that
if
the
appellant
is
successful
in
his
appeal
he
would
then
be
entitled
to
deduct
one-half
of
the
loss
claimed
as
reported
in
the
Statement
of
Profit
and
Loss
for
the
year,
and
not
the
amount
that
he
originally
claimed
and
which
was
disallowed.
In
addition
to
purchasing
the
customer
lists
for
the
sum
of
$19,000,
as
stated
in
the
agreement,
that
is,
$17,000
for
the
insurance
list
and
$2,000
for
the
income
tax
consulting
list,
the
partnership
purchased
equipment
consisting
of
a
typewriter
and
some
filing
cabinets
from
T
&
T
Agencies
for
the
sum
of
$1,000.
The
evidence
is
clear
on
this
point
that
this
equipment
was
surplus
in
the
hands
of
T
&
T
Agencies
and
had
not
been
used,
as
that
firm
had
at
least
four
furnished
offices
and
this
equipment
was
standing
idle.
The
partnership’s
acquisition
of
the
customer
lists
and
the
files
naturally
required
more
equipment
than
the
appellant
then
had
in
his
law
office,
and
this
deal
was
entered
into
shortly
after,
or
at
the
same
time
as
Exhibit
A-1.
I
am
told
that
there
was
a
separate
agreement
with
regard
to
the
purchase
of
the
equipment
but
it
is
not
known
whether
it
was
a
verbal
or
written
agreement;
evidence
is
uncertain
on
that
point.
There
is
also
evidence
that
Mr
Thompson
of
T
&
T
Agencies,
at
the
request
of
Kjeldsli,
or
following
a
discussion
with
Kjeldsli,
wrote
to
the
various
customers
that
were
on
the
lists
that
were
filed
as
Exhibits
R-1
and
R-2,
R-1
being
the
insurance
list
and
R-2
being
the
income
tax
list,
indicating
that
Mr
Kjeldsli,
or
Donn
Realty,
had
acquired
the
business
formerly
conducted
by
T
&
T
Agencies
Limited
with
these
people
and
presumably
asking
them
to
continue
their
business
with
the
purchaser.
It
is
also
in
evidence
that
T
&
T
Agencies,
or
Mr
Thompson,
assisted
the
appellant
and
his
partner,
Kjeldsli,
in
obtaining
the
agencies
for
some
insurance
companies,
and
the
Saskatchewan
Government
Insurance
Office
in
particular.
On
cross-examination
the
appellant
stated
that
their
approval
of
the
purchasers
as
agents
on
the
transfer
of
the
agency
from
Thompson
to
Kjeldsli
and
in
the
opinion
of
the
appellant,
was
a
decision
that
rested,
in
any
event,
with
the
insurance
company
concerned.
For
the
year
1969,
that
is
from
the
time
when
they
commenced
business
on
December
1
until
the
year
ended
on
December
31,
the
Statement
of
Profit
and
Loss
indicates
that
there
were
receipts
totalling
$205
and
expenses,
which
included
the
cost
of
the
insurance
list
($17,000)
and
the
income
tax
list
($2,000),
depreciation
on
the
equipment
purchased
($200),
licences
($5),
commissions
($18.87)
totalling
$19,323.87,
or
a
net
loss
for
the
period
in
question
of
$19,118.87.
The
main
issue
here
is
whether
or
not
the
outlay
of
$19,000,
that
is,
the
purchase
price
of
the
insurance
and
income
tax
lists,
is
to
be
treated
as
an
acquisition
of
a
capital
asset
of
an
enduring
benefit
or
advantage
or
whether
this
is
an
expense
for
the
purpose
of
producing
income
in
the
business
of
real
estate
insurance
and
income
tax
consulting.
lt
was
argued
by
counsel
for
the
respondent
that
this
was
an
acquisition
of
an
actual
business
from
T
&
T
Agencies
and,
as
such,
the
operation
of
the
insurance
business
and
income
tax
consulting
business
was
a
Capital
acquisition
and,
therefore,
the
sum
paid
therefor
is
not
deductible
pursuant
to
paragraph
12(1)(b)
of
the
Income
Tax
Act.
I
refer
to
the
Reply
to
Notice
of
Appeal
where
the
respondent
states:
3.
On
October
31,
1969,
T
&
T
Agencies
Ltd
entered
into
an
agreement
with
John
Iver
Kjeldsli
pursuant
to
which
T
&
T
Agencies
Ltd
sold
to
Kjeldsli
for
$20,000
its
insurance
and
tax
consulting
business.
As
part
of
that
transaction
the
Purchaser
was
provided
with
a
list
of
insurance
policy
customers
and
renewal
dates,
and
a
list
of
customers
for
whom
T
and
T
Agencies
Ltd
had
handled
income
tax
work.
Dealing
with
this
for
the
moment,
the
evidence
satisfies
me
that
not
all
the
files
were
turned
over
by
T
&
T
Agencies
Ltd
to
the
partnership;
that
in
each
list
there
were
at
least
10
to
15
files
retained
by
Thompson,
some
special
clients
of
T
&
T
Agencies,
which
included
two
churches
in
the
town
of
Kindersley
and
some
people
that
had
been
friends
of
Mr
Thompson
for
years.
The
appellant,
when
asked
why
he
did
not
consider
that
he
and
Kjeldsli
purchased
the
insurance
business
and
the
income
tax
consulting
business
of
T
&
T
Agencies,
stated
in
cross-
examination
that
they
purchased
the
lists
only;
they
did
not
purchase
the
trade
name;
they
did
not
purchase
the
telephone,
that
is,
they
did
not
take
over
the
telephone
number;
and
that
all
that
they
wanted
was
the
insurance
and
income
tax
consulting
lists.
T
&
T
Agencies
continued
in
business
in
its
own
premises
for
about
two
or
three
years
thereafter,
conducting
the
remainder
of
its
business,
that
is,
some
limited
insurance
and
income
tax
consulting,
as
stated
earlier,
in
respect
of
the
files
retained,
as
well
as
its
real
estate
and
motor
licence
and
travel
agency
business.
It
is
also
in
evidence
that
Mr
Thompson
gave
a
personal
covenant
to
Kjeldsli,
not
to
compete
in
insurance
or
income
tax
consulting
within
a
50-mile
radius
of
Kindersley
for
a
period
of
five
years.
There
is
also
nothing
in
writing
in
that
regard.
Although
I
have
no
reason
to
question
the
accuracy
of
that
statement,
I
should
think
that
anybody
buying
the
files
and
the
lists,
if
this
is
the
right
terminology
at
the
present
time,
would
want
to
have
some
assurance
that
the
vendor
would
not
be
competing
for
the
business
with
the
same
customers
whose
names
and
files
he
had
turned
over.
I
have
been
referred
to
a
number
of
cases
and
I
might
say
that
in
this
area,
that
is
paragraphs
12(1)(a)
and
(b),
the
cases
are
almost
as
numerous
as
they
have
been
in
the
so-called
trading
cases
under
paragraph
139(1)(e)
of
the
former
Income
Tax
Act.
In
considering
the
case
of
Cumberland
Investments
Ltd
v
Her
Majesty
the
Queen,
[1975]
CTC
439;
75
DTC
5309,
to
which
counsel
for
the
respondent
referred
me,
I
have
read
the
case
very
carefully
and
compared
the
situation
therein
with
the
situation
in
the
instant
appeal
and
I
find
that
there
is
a
considerable
distinction
between
them
on
the
facts.
I
find
furthermore
that
had
the
appellant
and
his
partner
Kjeldsli
not
actively
pursued
the
lists
that
were
turned
over
to
them,
this
enterprise
would
have
been
much
less
successful
than
it
later
turned
out
to
be.
Even
so,
the
evidence
is
that
they
lost
at
least
25%
of
the
customers
that
were
on
the
list
and
Mr
Kjeldsli,
in
his
evidence,
stated
that
this
is
quite
normal
in
situations
of
this
kind;
customers
leave
to
go
to
someone
else
to
get
insurance
and
someone
else’s
customers
sometimes
come
to
you.
I
am
of
the
opinion
that
what
the
appellant
and
his
partner
purchased
here
was
nothing
more
than
customer
lists
on
which
they
had
to
do
a
considerable
amount
of
work
to
retain
the
continued
business
of
these
customers
with
their
firm.
There
was
nothing
of
an
enduring
benefit
assured
them
in
the
turnover
of
the
lists,
and
they
did
not
acquire
a
lasting
capital
asset.
All
they
acquired
was
inventory
with
which
they
could
work
and
hopefully
continue
to
do
business.
That
they
were
successful
in
this
enterprise
does
not
of
necessity
mean
that
it
constituted
a
capital
acquisition.
The
success
followed
some
substantial
hard
work
with
the
inventory
which
they
acquired.
Accordingly,
I
would
allow
the
appeal
on
the
basis,
as
indicated
by
counsel
at
the
commencement
of
the
proceedings,
that
the
appellant
is
entitled
to
deduct
one-half
of
the
loss
as
stated
in
the
Statement
of
Profit
and
Loss
for
this
business.
If
my
arithmetic
is
correct,
I
believe
his
share
of
the
loss
is
in
the
sum
of
$9,559.43,
which
the
appellant
is
entitled
to
deduct
from
his
other
income
for
the
1969
taxation
year,
and
the
matter
is
referred
back
to
the
respondent
for
reassessment
accordingly.
Appeal
allowed.