A
J
Frost:—This
is
an
appeal
from
the
appellant’s
income
tax
assessments
for
the
1968
and
1969
taxation
years
in
which
the
only
question
to
be
decided
is
whether
interest
claimed
by
the
appellant
in
respect
of
the
indebtedness
on
a
property
maintained
by
the
appellant
is
deductible
in
computing
his
income
for
those
years.
The
appellant
purchased
a
property
on
the
Niagara
River
Parkway
in
April
of
1968,
containing
7.8
acres
and
two
buildings
comprising
a
7-room
house
and
a
22-room
house.
The
appellant
owned
over
600
paintings
and
works
of
art
and
decided
to
establish
an
art
gallery.
He
employed
a
full-time
curator
and
borrowed
considerable
sums
of
money
to
restore
and
improve
the
larger
of
the
two
buildings
which
he
envisaged
as
a
gallery.
This
building
was
constructed
in
1833
and
is
of
some
historical
significance.
Dr
Afrukhteh
began
collecting
works
of
art
as
a
boy
until
his
hobby
became
an
avocation.
He
is
a
very
knowledgeable
man
and
a
very
devoted
and
successful
individual
both
in
medicine
and
art.
His
plans,
however,
were
frustrated
when
the
Niagara
Parks
Commission
refused
him
permission
to
establish
an
art
gallery
at
the
location
he
had
chosen.
The
Minister
of
National
Revenue
in
assessing
the
appellant
did
not
accept
an
part
of
the
interest
on
borrowed
money
as
an
allowable
expense.
During
the
hearing
the
Board
found
the
story
of
the
appellant’s
achievements
of
great
interest
and
regarded
his
collection
of
many
valuable
works
of
art
as
an
important
accomplishment.
However,
the
income
tax
aspect
of
his
case
is
a
different
matter.
Interest
on
borrowed
money
during
construction
or
reconstruction
is
a
capital
item
from
both
an
accounting*and
legal
viewpoint.
In
Sherritt
Gordon
Mines
Ltd
v
MNR,
[1968]
CTC
262;
68
DTC
5180,
it
was
clearly
established
that,
in
accordance
with
generally
accepted
accounting
principles,
at
least
where
amounts
are
significant
to
the
taxpayer’s
business,
the
Income
Tax
Act
requires
the
capitalization
of
interest
charges
during
periods
of
construction.
Hence,
even
if
the
appellant
had
not
been
frustrated
in
his
attempts
to
establish
a
gallery
to
display
his
works
of
art
on
a
revenue-producing
basis,
the
Board
would
still
be
obliged
to
hold
that
the
interest
outlay,
prior
to
the
opening
of
the
gallery,
was
of
a
capital
nature
under
the
appropriate
provisions
of
the
Income
Tax
Act,
RSC
1952,
c
148,
as
amended.
The
Board
has
no
alternative
but
to
dismiss
the
appeal.
Appeal
dismissed.
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