Judson,
J
(concurred
in
by
Abbott,
Ritchie
and
Spence,
JJ):—The
Tax
Appeal
Board
held
that
Income
Tax
Regulation
1101(1)
was
ultra
vires
as
conflicting
with
subsection
20(2)
of
the
Act.
In
doing
so
it
followed
a
line
of
its
own
decisions
going
back
to
1962
which
were
uniform
with
one
exception.
The
decision
of
the
Board
was
reversed
in
the
Exchequer
Court.
The
issue
is
squarely
in
this
Court
for
the
first
time
and
my
opinion
is
that
the
judgment
of
the
Exchequer
Court
should
be
affirmed.
The
case
has
been
argued
throughout
on
an
agreed
Statement
of
facts
which
require
a
brief
summary.
In
its
1963
taxation
year,
Midwest
sold
a
hotel
business,
including
building
and
equipment.
The
depreciable
assets
included
in
the
sale
were
within
Classes
3
and
8.
Later
in
the
same
taxation
year,
it
purchased
other
assets
in
these
classes.
The
Minister
ruled
that
pursuant
to
subsection
1101(1)
of
the
Regulations,
the
business
sold
and
the
business
purchased
were
two
different
businesses
and
recaptured
the
capital
cost
allowance
amounting
to
$306,237
arising
from
the
sale
of
the
first
business.
The
company
contended
that
subsection
1101(1)
of
the
Regulations
was
ultra
vires
and
that
there
should
be
no
recapture
of
capital
cost
allowance
in
1963.
Its
argument
was
that
since
the
assets
of
the
business
sold
and
the
business
purchased
came
within
the
same
classes
(Classes
3
and
8),
the
amount
recaptured
should
be
applied
to
reduce
the
undepreciated
capital
cost
of
the
new
assets
in
the
same
classes
in
accordance
with
subsection
20(2)
of
the
Act.
This
is
the
issue
and
its
outcome
depends
upon
the
validity
of
subsection
1101(1)
of
the
Regulations.
The
Minister’s
position
is
stated
in
his
notification
to
the
taxpayer
under
section
58
of
the
Act:
The
Honourable
the
Minister
of
National
Revenue
having
reconsidered
the
assessment
and
having
considered
the
facts
and
reasons
set
forth
in
the
Notice
of
Objection
hereby
confirms
the
said
assessment
as
having
been
made
in
accordance
with
the
provisions
of
the
Act
and
in
particular
on
the
ground
that
the
property
of
the
taxpayer
acquired
for
the
purpose
of
gaining
or
producing
income
from
the
hotel
business
and
the
property
of
the
taxpayer
acquired
for
the
purpose
of
gaining
or
producing
income
from
the
business
of
leasing
fixed
assets
were
separate
classes
within
the
meaning
of
subsection
(1)
of
section
1101
of
the
Income
Tax
Regulations
and
accordingly
the
amount
of
$315,842.97
has
been
properly
included
in
computing
the
taxpayer’s
income
for
the
1963
taxation
year
in
accordance
with
the
provisions
of
subsection
(1)
of
section
20
of
the
Act.
Subsection
20(1)
of
the
Act
provides
that
where
depreciable
property
has
been
disposed
of
in
a
taxation
year
and
the
proceeds
exceed
the
undepreciated
capital
cost
of
the
depreciable
property,
the
amount
of
the
excess
shall
be
“recaptured”
and
shall
be
included
in
computing
the
income
for
the
year.
Subsection
(2)
of
section
20
operates
to
prevent
immediate
taxation
where
other
property
of
the
same
class
is
acquired
in
the
same
year
by
providing
that
the
otherwise
recapturable
amount
be
applied
to
reduce
the
undepreciated
capital
cost
of
the
new
assets
of
the
same
class
so
that
recapture
does
not
take
place
until
all
the
assets
of
that
class
have
been
disposed
of.
The
fallacy
in
the
taxpayer’s
argument
is
that
by
paragraph
11
(1)(a)
of
the
Act
it
may
deduct,
in
computing
its
income,
only
such
part
of
its
capital
cost
“as
is
allowed
by
regulation”.
This
is
an
exception
to
the
general
rule
of
disallowance
of
capital
cost
contained
in
paragraphs
12(1)(a)
and
12(1)(b)
of
the
Act.
Subsection
1101(1)
of
the
Regulations
is
just
as
much
a
part
of
the
definition
of
classes
as
is
Regulation
1100.
What
would
be
the
property
of
the
same
class,
if
Regulation
1100
alone
were
considered,
becomes
property
of
a
separate
class,
if
the
case
falls
within
subsection
1101(1)
of
the
Regulations.
This
subsection
is
stated
in
plain
terms:
1101.
(1)
Where
more
than
one
property
of
a
taxpayer
is
described
in
the
same
class
in
Schedule
B
and
where
(a)
one
of
the
properties
was
acquired
for
the
purpose
of
gaining
or
producing
income
from
a
business,
and
(b)
one
of
the
properties
was
acquired
for
the
purpose
of
gaining
or
producing
income
from
another
business
or
from
the
property,
a
separate
class
is
hereby
prescribed
for
the
properties
that
(i)
were
acquired
for
the
purpose
of
gaining
or
producing
income
from
each
business,
and
(ii)
would
otherwise
be
included
in
the
class.
There
can
be
no
doubt
about
the
meaning
and
effect
of
this
Regulation.
It
is
part
and
parcel
of
the
whole
system
of
regulation
for
the
prescribing
of
classes
of
assets
for
the
purpose
of
the
capital
cost
allowance
which
may
be
claimed
under
the
provisions
of
the
Act.
The
clear
and
unambiguous
words
of
the
section
are
thai
‘‘a
separate
class
is
hereby
prescribed”
for
properties
used
in
different
businesses
or
acquired
for
income
purposes.
Such
a
Classification
is
to
be
applied
for
all
purposes.
It
is
not
one
which
comes
into
play
only
when
there
is
a
possibility
of
avoiding
recapture
under
section
20
of
the
Act.
Subsection
1101(1)
applies
in
every
case
where
a
taxpayer
carries
on
more
than
one
business
or
where
a
taxpayer,
in
addition
to
business
assets,
owns
non-business
assets
in
respect
of
which
he
is
entitled
to
claim
capital
cost
allowance.
It
applies
with
respect
to
the
computation
of
the
capital
cost
allowance,
the
recapture
of
capital
cost,
and
the
deduction
of
terminal
losses.
There
is,
therefore,
in
my
opinion,
no
question
of
conflict
between
the
Act
and
the
Regulations
and
therefore
no
question
of
invalidity.
I
would
dismiss
the
appeal
with
costs.
Pigeon,
J
(dissenting):—Paragraph
11(1)(a)
of
the
Income
Tax
Act
reads:
11.
(1)
Notwithstanding
paragraphs
(a),
(b)
and
(h)
of
subsection
(1)
of
section
12,
the
following
amounts
may
be
deducted
in
computing
the
income
of
a
taxpayer
for
a
taxation
year:
(a)
such
part
of
the
capital
cost
to
the
taxpayer
of
property,
or
such
amount
in
respect
of
the
capital
cost
to
the
taxpayer
of
property,
if
any,
as
is
allowed
by
regulation;
Part
XI
of
the
Income
Tax
Regulations
entitled
“Allowances
in
respect
of
Capital
Cost”
opens
with
the
following
provision:
1100.
(1)
Under
paragraph
(a)
of
subsection
(1)
of
section
11
of
the
Act,
there
is
hereby
allowed
to
a
taxpayer,
in
computing
his
income
from
a
business
of
property,
as
the
case
may
be,
deductions
for
each
taxation
year
equal
to
(a)
such
amount
as
he
may
claim
in
respect
of
property
of
each
of
the
following
classes
in
Schedule
B
not
exceeding
.
.
.
Then
follows
subsection
1101(1):
1101.
(1)
Where
more
than
one
property
of
a
taxpayer
is
described
in
the
same
Class
in
Schedule
B
and
where
(a)
one
of
the
properties
was
acquired
for
the
purpose
of
gaining
or
producing
income
from
a
business,
and
(b)
one
of
the
properties
was
acquired
for
the
purpose
of
gaining
or
producing
income
from
another
business
or
from
the
property,
a
separate
class
is
hereby
prescribed
for
the
properties
that
(i)
were
acquired
for
the
purpose
of
gaining
or
producing
income
from
each
business,
and
(ii)
would
otherwise
be
included
in
the
class.
The
issue
in
this
case
is
whether
this
provision
of
the
Regulations
was
validly
enacted
under
the
authority
of
the
Act
or
whether
it
is
in
fact
an
invalid
attempt
to
alter
the
effect
of
subsection
20(1)
of
the
Act
which
is
as
follows:
20.
(1)
Where
depreciable
property
of
a
taxpayer
of
a
prescribed
class
has,
in
a
taxation
year,
been
disposed
of
and
the
proceeds
of
disposition
exceed
the
undepreciated
capital
cost
to
him
of
depreciable
property
of
that
class
immediately
before
the
disposition,
the
lesser
of
(a)
the
amount
of
the
excess,
or
(b)
the
amount
that
the
excess
would
be
if
the
property
had
been
disposed
of
for
the
capital
cost
thereof
to
the
taxpayer,
shall
be
included
in
computing
his
income
for
the
year.
To
support
the
validity
of
subsection
1101(1)
of
the
Regulations
it
is
said
to
be
a
part
of
the
definition
of
classes
of
depreciable
property.
I
cannot
agree
with
this
contention
for
two
reasons.
In
the
first
place
one
must
consider
the
meaning
of
the
word
“class”.
In
The
Oxford
Dictionary
I
find:
6.
gen.
A
number
of
individuals
(persons
or
things)
possessing
common
attributes,
and
grouped
together
under
a
general
or
‘class’
name;
a
kind,
sort,
division.
(Now
the
leading
sense.)
In
my
view,
the
concept
of
“class”
implies
a
plurality
of
objects
possessing
common
attributes
and
the
definition
of
a
class
is
a
selection
of
those
attributes.
I
therefore
fail
to
see
how
a
direction
that,
under
some
circumstances,
each
single
object
shall
form
“a
separate
class”
can
properly
be
said
to
be
a
definition
of
a
class.
To
consider
each
object
individually
is
the
very
antithesis
of
defining
a
class.
In
fact,
it
appears
to
me
that
the
prescribing
of
“a
separate
class”
is
really
nothing
else
than
the
elimination
of
the
specified
objects
from
the
specified
class.
The
essential
purpose
of
the
impugned
regulation
is
to
provide
that
for
recapture
taxation
(subsection
20(1)),
properties
acquired
for
a
business
shall
be
considered
separately
from
other
properties
of
the
same
class
that
were
not
acquired
for
that
same
business.
No
other
effect
has
been
shown.
Except
under
very
special
circumstances,
it
does
not
affect
the
amount
that
can
be
claimed
as
a
deduction.
In
MNR
v
Wahn,
[1969]
SCR
404;
[1969]
CTC
61;
69
DTC
5075,
the
majority
held
that,
as
a
general
rule,
all
business
losses
are
to
be
taken
into
account
in
computing
the
income
for
a
given
year.
This,
of
course,
results
in
a
taxpayer
being
entitled
to
claim
capital
cost
allowance
in
respect
of
any
property
acquired
for
the
purpose
of
a
business,
even
when
he
has
no
profit
from
that
business,
because
the
loss
can
be
set
off
against
other
income.
It
does
not
seem
to
me
that
this
result
is
affected
by
subsections
139(1a)
and
(1b)
enacted
in
1960.
These
provisions
have
application
when
income
from
a
specific
source
is
to
be
separately
ascertained
or
dealt
with.
The
general
rule
remains
that
the
tax
is
levied
on
income
from
all
sources
after
proper
deductions.
It
is
clear
in
the
present
case,
as
it
was
in
cases
decided
by
the
Board
in
previous
years,
that
the
question
is
not
a
matter
of
allocation
in
respect
of
capital
cost.
The
question
is
whether
a
capital
receipt
which
is
not
income
of
the
taxpayer,
is
to
be
taxed
as
income
by
virtue
of
subsection
20(1).
Concretely
the
question
is
whether
a
sum
of
$306,237.80
is
to
be
added
to
the
taxpayer’s
income
as
“capital
cost
recovery
on
disposal
of
Airport
Hotel”,
thus
adding
$153,983.51
to
the
income
tax
payable
for
the
year
in
question.
I
cannot
construe
the
reference
“to
a
prescribed
class”
in
subsection
20(1)
as
authorizing
the
impugned
regulation.
By
virtue
of
paragraph
139(1)(af)
“prescribed
year”
means
“prescribed
by
regulation’.
However,
the
reference
is
to
a
class
and,
as
previously
noted,
this
implies
a
category
of
things
described
by
some
common
attributes.
To
prescribe
‘‘a
separate
class
for
a
particular
thing
is
not
to
prescribe
a
class
at
all
but
to
order
that
such
thing
is
to
be
taken
out
of
the
class
and
considered
by
itself.
I
am,
therefore,
driven
to
the
conclusion
that
subsection
1101(1)
of
the
Regulations
is
not
a
regulation
prescribing
a
class
as
contemplated
in
subsection
20(1),
but
an
amendment
of
that
section
providing
in
substance
that,
in
the
case
of
properties
acquired
for
the
purpose
of
gaining
or
producing
income
from
a
business,
the
recapture
provision
shall
apply
to
the
proceeds
of
disposition
in
excess
of
the
undepreciated
cost
of
that
property
rather
than
to
the
excess
over
undepreciated
capital
cost
of
depreciable
property
of
that
class
.
It
is
obvious
that
a
regulation
is
invalid
if
not
within
the
scope
of
the
enabling
enactment:
Booth
v
The
King
(1915),
51
SCR
29;
Bélanger
v
The
King
<1917),
54
SCR
265;
Re
George
Edwin
Gray
(1918),
57
SCR
150.
In
the
application
of
this
principle,
it
is
necessary
to
look
at
the
true
nature
and
effect
of
the
regulation
in
question.
I
can
see
no
reason
why
the
same
rules
should
not
apply
as
in
adjudicating
on
the
constitutional
validity
of
legislation.
The
problem
is
essentially
the
same
namely,
the
scope
of
the
allocation
of
legislative
authority.
If
anything,
the
rules
should
be
more
strictly
applied
in
the
case
of
this
delegation
to
the
executive
seeing
that
taxing
statutes
are
to
be
construed
strictly,
while
constitutional
enactments
are
to
be
construed
broadly.
Among
the
many
statements
of
the
“‘pith
and
substance”
rule,
I
would
like
to
quote
the
following
from
the
reasons
of
Rand,
J
in
Switzman
v
Eibling,
[1957]
SCR
285
at
303:
The
settled
principle
that
calls
for
a
determination
of
the
“real
character’’,
the
“pith
and
substance”,
of
what
purports
to
be
enacted
and
whether
it
is
“colourable”
or
is
intended
to
effect
its
ostensible
object,
means
that
the
true
nature
of
the
legislative
act,
its
substance
in
purpose,
must
lie
within
s.
92
or
some
other
endowment
of
provincial
power.
In
my
view,
the
substance
of
subsection
1101(1)
of
the
Regulations
is
not
the
allocation
of
deductions
from
income
on
account
of
the
capital
cost
of
assets
acquired
for
business
use.
I
would
allow
the
appeal,
reverse
the
judgment
of
the
Exchequer
Court
and
restore
the
decision
of
the
Tax
Appeal
Board
with
costs
in
both
courts.
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