SHEPPARD,
J.:—This
appeal
is
against
a
re-assessment
(dated
January
30,
1968)
of
the
Minister
of
National
Revenue
for
the
taxation
year
1966
by
the
appellant
alleging
that
the
assessment
erred
as
follows:
1.
by
the
Minister
assessing
as
income
moneys
alleged
by
the
appellant
to
be
capital,
being
United
States
dollars
applied
by
the
appellant
during
the
year
1962
to
1966
inclusive
in
the
paying
of
principal
of
debentures
payable
in
the
United
States
of
America,
and
2.
in
the
Minister
of
National
Revenue
disallowing
as
a
capital
loss
the
sum
of
$358,828.12
being
an
exchange
loss
incurred
in
1961
in
borrowing
moneys
in
the
United
States
of
America
and
converting
from
the
United
States
dollars
to
Canada
dollars.
Transactions
in
years
previous
to
1966
are
relevant
in
that
the
appellant
claimed
to
carry
forward
business
losses
under
Section
27(1)
(e)
of
the
Income
Tax
Act
and
alleged
that
error
arose
through
the
Minister
increasing
the
income
for
the
years
1962
to
1966
and
treating
as
a
capital
loss
an
exchange
loss
in
1961,
thereby
reducing
the
loss
remaining
to
be
carried
forward
into
1966.
The
facts
follow:
In
1954
the
appellant
was
incorporated
by
a
special
act
of
the
Alberta
Legislature
(Exhibit
7)
with
power
to
act
as
a
common
carrier
of
gas
(Section
13,
Exhibit
7).
Under
a
contract
bearing
date
June
14,
1960,
the
appellant
agreed
to
transport
gas
for
two
other
companies
respectively,
the
Alberta
and
Southern
Gas
Company
Limited
(herein
referred
to
as
Alberta
Company)
and
Westcoast
Transmission
Company
Limited
(herein
referred
to
as
Westcoast)
(Exhibit
1)
to
transport
gas
purchased
by
the
Alberta
Company
to
be
delivered
near
the
Alberta-Montana
border
and
to
transport
gas
purchased
by
Westcoast
to
a
point
near
the
Alberta-British
Columbia
border.
The
payments
from:
Alberta
Company
and
Westcoast
pursuant
to
the
contract
gives
rise
to
the
issues,
and
on
those.
issues
the
following
paragraphs
in
the
eontract
are
relevant
:
_'
2.2
Trunk
Line
agrees
to
maintain
and
operate,
in
accordance
with
best
pipeline
practice,
the
said
pipeline
system
existing
from
time
to
time
and
necessary
for
the
performance
of
Trunk
Line’
S
obligations
under
this
Contract.
2.3
Each
shipper
agrees
to
pay
Trunk
Line
in
accordance
with
the
monthly
cost
of
service
basis
as
provided
for
in
paramgraph
13.
..
12.
Billing
and
Payment
12.1
Billing:
On
or
before
the
twentieth
(20th)
day
of
each
month,
Trunk
Line
shall
render
an
itemized
bill
to
each
shipper
showing
the
monthly
cost
of
service
charge
calculated
for
that
shipper
in
accordance
with
paragraph
13
for
the
preceding
month
(hereinbefore
defined
as
the
“billing
month”)
and
the
number
of
United
States
dollars,
if
any,
which
shall
be
substituted
for
Canadian
dollars
pursuant
to
paragraph
12.2.
12.2
Part
payment
in
United
States
dollars:
If
Trunk
Line
shall
cause
the
construction
of
the
said
pipeline
system
to
be
financed
in
whole
or
in
part
by
the
sale
prior
to.
December
31,
1964,
of
securities
of
Trunk
Line
requiring
repayment
of
principal
and/or
payment
of
interest
in
United
States
dollars
(such
securities
being
hereinafter
referred
to
as
“U.S.
pay
securities”),
‘then
each
shipper
shall
in
its
payment
of
its
said
monthly
cost
of
service
charge
substitute
for
the
same
number
of
Canadian
dollars,
and
Trunk
Line
shall
accept
in
substitution,
the
number
of
United
States
dollars
determined
as
hereinafter
set
forth,
but
not
to
exceed
sixty-six
percent
(66%)
of
the
said
monthly
cost
of
service:
charge.
Trunk
line
shall,
not
later
than
thirty
(30)
days.
after
each
sale
of
any
.U.S.
pay
securities,
giving
notice
to
each
shipper
setting
forth
the
following:
(i)
The
total
outstanding
amount
of
U.S.
pay
securities;
(ii)
A
schedule
of
the
total
amounts
of
such
repayments
and/or
payments
unconditionally
required
by
the
terms
of
such
U.S.
pay
securities
to
be
made
in
United
States
dollars;
and
(iii)
The
place
where
Trunk
Line
desires
to
receive
that
part
of
the
said
monthly
cost
of
service
charge
which
is
to
be
paid
in
United
States
dollars
.
.
.
12.3
Payment:
On
or
before
the
last
day
of
the
month
following
the
billing
month
each
shipper
shall
pay
Trunk
Line
at
Trunk
Line’s
office,
Calgary,
Alberta
for
so
much
of
the
bill
as
shall
be
payable
in
Canadian
dollars
and
at
the
place
designated
by
Trunk
Line
pursuant
to
paragraph
12.2
for
so
much.
of
the
bill
as
shall
be
payable
in
United
States
dollars.
12.4
Payment
after
Termination
as
to
One
Shipper:
In
the
event
that
this
Contract
shall
terminate
with
respect
to
Westcoast
but
shall
continue
with
respect
to
the
other
parties
as
in
paragraph
3
provided,
Trunk
Line
shall
bill
Alberta
and
Southern
shall
pay
to
Trunk
Line
the
total
monthly
cost
of
service.
12.5
Interest
on
Unpaid
Amounts:
Should
a
shipper
fail
to
pay
the
amount
of
any
bill
rendered
by
Trunk
Line
as
herein
provided
when
such
amount
is
due,
interest
thereon
shall
accrue
at
the
rate
of
six
percent
(6%)
per
annum
from
the
date
due
until
the
date
of
payment.
12.6
Late
Billing:
If
presentation
of
a
bill
by
Trunk’
Line
is
delayed
after
the
twentieth
(20th)
day
of
the
month,
then
the
time
for
payment
shall
be
extended
"correspondingly
unless
the
shipper
billed
as
responsible
for
such
delay
...
.
f
,
13.1
Calculation
of
Cost
of
Service:
Such
monthly
cost
of
service
for
each
section
shall
equal
the
sum
of
the
amounts
properly
chargeable
to
that
section
under
the
following
subdivisions
of
this
paragraph
13.1.
(a)
Operating
Expenses
.
.
;(b)
Depreciation
.
..
(c)
Amortisation
.
.
.
(d)
Taxes
.
?
(e)
Return:
Return
at
an
annual
rate
of
seven
and
one
half
percent
(742%)
computed
for
each
billing
month
by
the
application
of
one-twelfth
(1/12)
of
such
annual
rate
to
the
net
investment
base
determined
as
follows
:
.
.
.
There.
are
later.
amendments
to:
this
contract
which
appear
in
items
two
to
eleven
inclusive
of
Exhibit
1.
Before
entering
into
that
contract
of
June
14,
1960
(Exhibit
1),
the
appellant
became
aware
that
to
perform
the
contract
it
would
be
necessary
to
construct
the
pipeline
referred
to
and
to
finance
the
construction
thereof
in
United:
States
of
America
moneys
repayable
as
to
principal
and
interest
111
United
States
dollars.
The
appellant
borrowed
on
the
security
of
First
Mortgage
Sinking
Fund
Bonds
the
amount
of
$67,000
000
repayable
as
to
principal
and
interest
thereon
at
5%%
per
annum
payable
in
United
States
dollars
at
New
York.
City.
To
guard
against
the
United
States
dollars,
then
at
a
discount,
later
becoming
at
a
premium,
the
Alberta
Company
and
West-
coast
by
the
contract
(
Exhibit
1
)
agreed
to
pay
in
United
States
dollars
the
sum
to
be
paid
in
the
United
States
of
America.
The
rate
of
exchange
on
United
States
dollars
is
shown
in
Exhibit
3.
When
the
$67,000,000
U.S.
dollars
was
converted
into
Canada
dollars
the
Canada
dollar
was
at
a
premium
and
the
appellant
suffered
a
loss
of
$358,828.18,
which
loss,
the
appellant
alleges,
was
wrongly
charged
in
the
re-assessment
to
capital
and
was
not
allowed
as
a
business
loss
within
Section
27(1)(e)
of
the
Income
Tax
Act
and
therefore
in
error
reduced
the
credit
to
be
allowed
under
Section
27(1)(e)
in
1966
assessment.
The
pipeline
was
completed
and
delivery
of
gas
for
the
shippers
(Alberta
Company
and
Westcoast)
began
in
December
1961
and
the
first
billing
was
for
the
month
of
January:
1962.
Thereafter
the
notices
required
annually
and
monthly
were
given
and
specimen
notices
of
the
annual
amounts
appear
in
Exhibits
4,
5
and
6.
The
issue
over
the
amount
of
the
taxable
income
for
the
year
1966
arose
in
this
manner.
The
appellant
carried
forward
into
the
year
1966
the
remainder
of
a
previous
business
loss
within
Section
27(1)(e)
of
the
Income
Tax
Act
and
the
re-assessment
complained
of
reduced
this
loss
to
be
deducted
from
the
1966
taxable
income
by
increasing
the
income
for
the
years
1962
to
1966
by
adding
thereto
the
United
States
dollars
received
by
the
appellant.
It
therefore
follows
that
the
accuracy
of
the
re-assessment
of
the
1966
taxable
income
must
depend
upon
whether
the
United
States
dollars
paid
to
the
appellant
by
the
Alberta
Company
by
Westcoast
were
income
as
alleged
by
the
respondent
or
capital
as
alleged
by
the
appellant.
In
considering
the
accuracy
of
the
assessment
for
the
taxation
year
1966,
there
was
no
right
of
rectification
of
the
contract
(Exhibit
1).
There
is
no
evidence
of
a
mutual
mistake
of
the
parties
in
setting
down
a
previously
concluded
oral
contract
within
United
States
v.
Motor
Trucks
Limited,
[1924]
A.C.
196
at
page
200,
nor
were
the
parties
Alberta
Company
and
Westcoast
parties
to
this
appeal
within
Whiteside
v.
Whiteside,
[1950]
Ch.
65
at
pages
66
and
67.
There
is,
therefore,
no
case
for
rectification
and
the
issue
depends
upon
the
construction
of
the
contract
in
question,
that
is,
whether
the
United
States
dollars
which
are
paid
to
the
appellant
by
Alberta
Company
and
Westcoast
pursuant
to
the
said
contract
(Exhibit
1)
in
respect
of
principal
repayable
in
the
United
States
are
income
or
capital
for
the
years
1962
to
1966.
The
appellant
contends
that
the
cost
of
service
being
the
payments
for
the
transportation
of
gas
consists
exclusively
of
the
items
appearing
in
Section
13.1
of
the
agreement
(Exhibit
1)
and
does
not
include
the
amount
of
the
United
States
dollars
which
are
then
paid
to
the
appellant.
The
respondent
contends
that
the
payments
for
the
transportation
of
gas
include
not
only
those
items
in
Section
13.1
but
also
the
United
States
dollars
payable
pursuant
to
12.2.
The
initial
problem
is
the
construction
of
the
contract.
The
construction
of
the
written
instrument
is
for
the
court
as
a
question
of
law.
Bowes
v.
Shand
(1877),
2
App.
Cas.
455,
Lord
Cairns,
L.C.
at
page
462.
Turner
v.
Sawdon
and
Company,
[1901]
2
K.B.
653,
per
A.
L.
Smith,
M.R.
at
page
656
and
the
words
thereof
are
to
be
construed
according
to
‘‘strict,
plain
meaning
of
the
words
themselves’’.
Tsang
Chuen
v.
Li
Po
Kwai,
[1932]
A.C.
715.
The
contract
(Exhibit
1)
provides
that
Trunk
Line
is
to
maintain
and
operate
the
pipeline
in
question
and,
while
Section
2.3
provides
that
the
shippers
(Alberta
Company
and
Westcoast)
will
severally
pay
‘‘The
monthly
cost
of
services
basis
as
provided
for
in
paragraph
13’’
(Paragraph
2.3),
the
contract
does
not
necessarily
exclude
the
moneys
provided
for
in
paragraph
12
being
also
payable
for
the
cost
of
service
and
therefore
being
income.
Paragraph
12.1
provides
the
monthly
billing
by
the
appellant
of
the
shippers
(Alberta
Gas
and
Westcoast)
is
to
be
“calculated
for
that
shipper
in
accordance
with
paragraph
13
for
the
preceding
month
(hereinbefore
defined
as
the
‘billing
month’)
and
the
number
of
United
States
dollars,
if
any,
which
shall
be
substituted
for
Canadian
dollars
pursuant
to
paragraph
12.2’’
(12.1,
Exhibit
1)
and
under
Paragraph
12.2,
each
company
as
shipper
is
to
pay
the
amount
of
the
billing,
‘‘then
each
shipper
shall
in
its
payment
of
its
said
monthly
cost
of
service
charge
substitute
for
the
same
number
of
Canadian
dollars,
and
Trunk
Line
shall
accept
in
substitution,
the
number
of
United
States
Dollars
determined
as
hereinafter
set
forth,
but
not
to
exceed
sixty-six
percent
(66%)
of
the
said
monthly
cost
of
service
charge.’’
(See
12.2,
Exhibit
1.)
Literally,
‘‘the
monthly
cost
of
service
charge’’
is
to
include
those
United
States
dollars
which
the
appellant
required
for
‘‘repayment
of
principal
and/or
payment
of
interest
in
United
States
Dollars’’
(12.2,
Exhibit
1).
Paragraph
12.4
provides
that
after
the
contract
has
been
terminated
as
to
Westcoast
then
Alberta
Company
shall
“pay
to
Trunk
Line
the
total
monthly
cost
of
service’’.
That
is
the
total
sum
of
United
States
dollars
is
declared
to
be
“part
of
the
total
monthly
cost
of
service’’.
Again
whether
the
United
States
dollars
required
to
be
paid
by
the
appellant
are
part
of
the
cost
of
service,
must
depend
upon
the
intention
of
the
parties.
‘‘The
question
whether
a
particular
stipulation
is
a
condition
or
a
warranty
depends
upon
the
intention
of
the
parties
to
be
ascertained
in
the
case
of
a
written
contract
from
the
document
or
documents’’,
Halsbury’s
Laws
of
England
(3rd
ed.),
vol.
8,
p.
194,
para.
328.
In
the
later
amending
agreements
the
same
parties
refer
to
this
principal
agreement
(Exhibit
1)
as
the
‘‘Gas
Transportation
Contract’’.
See
Exhibit
1,
item
4,
agreement
of
June
16,
1960,
item
5,
August
23,
1960,
item
6,
January
31,
1961,
item
7,
agreement,
June
16,
1960,
item
8,
agreement
of
March
1,
1961,
item
9!
January
1,
1966;
item
10,
dated
Deceniber
29,
1967,
item
11,
dated
August
12,‘
1969.
‘Also
many
of
the
amending
agreements
contain
références
to
the
payment
in
‘United
States
dollars
as
being'
part
of.
the
cost
of
service
charge
and
implying
thereby
that
the
obligation
to
pay
is
‘conditional
upon
the
transportation
of
gas
‘as
agreed.
Item
7,
paragraph
4.
provides
:
Upon
such
notice
being
given
as
aforesaid
.
.
.
Pacific
Transémission
shall
pay
to
Trunk
Line”
(the
‘Appellant
herein)
“the
-;
monies
hereby
assigned
to
the
extent
of
the
amount
of
default
as
shown
o
the
said
notice
and
the
amount
of
the
cost
of
service
charges
thereafter
accruing
due
and
payable.
by
Alberta
and
Southern
to
Trunk
Line
under
and
as
provided
in
the
Gas
Transportation
Contract.
The
item
11,
the.
amending
agreement
of
August.
1,
969,
second
recital
states
:
Whereas
subdivision
(e)
of
paragraph
13.
1
of
the
Gas
Transportation
Contract
provides
for
the
payment
of
a
return
as
part
of
the
cost
of
service
and
the
parties
are
desirous
of
amending
the
provisions
dealing
with
return;
î
Therefore,
the
declared
intention
of
the
parties
is
that
the
payments
of
United
States
dollars
provided
for
in
the
notice
of
billing
shall
be
part
of
the
cost
of
service
charge.
Again
it
is
an
implied
intention
that
the
performance
of
the
promise
to
transport
gas
would
be
a
condition
precedent
of
the
promise
to
pay
the
billing
within
Paragraph
12.1,
which
billing
would
include
the
United
States
dollars,
to
be
paid
to
the
appellant.
That
implied
intention’
arises
for
the
following
reasons:
1.
The
values
to
be
exchanged
are
the
transportation
of
gas
and
the
payment
of
the
amount
of
the
monthly
billing.
The
principal
covenants
are
the
undertakings
t()
perform
those
acts,
and
while
in
the
contract
there
are
other
covenants,
they
are
merely
incidental
to
or
definitive
of
the
covenants
to
transport
gas
and
to
pay
the
amount
of
the
monthly
billing.
,
,
2.
By
the
succession
of
events
under
the
contract
the
transportation
of
gas
is
to
precede
the
payment.
The
acts
intended
would
be
(a)
the
transportation
of
gas,
(b)
the
monthly
billing
pursuant
to
12.1
and
(c)
the
payment
of
the:
amount
of
the
billing.
By
reason
of
the
transportation
of
gas
preceding
the
payment
therefore
it
is
impliedly
a
condition
precedent
of
the
obligation
to
pay.
Mr.
Serjeant
Williams,
Pordage
V.
Cole
(1607),
85
E.R.
449,
footnote
at
page
452
states:
But
2
when
a
day
is
appointed
for
the
payment
of
money
and
the
day
is
to
happen
after
the
thing
which
is
the
consideration
of
‘the
money,
etc.,
is
to
be
performed,i
no;
action
can
‘be
maintained
#•••:for
the
money,
etc.,
before.
performance.*
3.
The
transportation
of
gas
is
a
“substantive
part’’
of
the
contract
as
appears
by
the
principal
contract
and
by
the
amending
agreements.
Therefore
the
performance
to
transport
gas
is
a
condition
precedent
of
the
obligation
to
pay.
Behn
v.
Burness
(1863),
3
B.
&
S.
751
at
page
754.
Benten
v.
Taylor
Sons
and
Co.,
[1893]
2
Q.B.
'274.
By
any
of
these
tests
the
performance
of
the
promise
of
the
appellant
to
transport
gas
is
a
condition
recedent
to
and
the
consideration
for
the
obligation
to
pay
the
amount
of
the
'monthly
billing
which
includes
not
only
that
portion
of
the
cost
of
service
contained
in
Paragraph
13:1
but
also
the
United
States
dollars
required
to
be
paid
by
the
appellant
under
Paragraph
12.2.
Thé
appellant
has
contended
that
the
consideration
for
the
promise
to
pay
‘United
States
dollars
(Paragraph
122,
Exhibit
1)
is
the
appellant’s
borrowing’
such
monies
in
the
United
States.
That
contention
should
not
succeed
for
the
following
reasons
:
1.
The
contention
is
inconsistent
with
the
contract.
On
the
contention
there
would
be
two
considerations,
namely,
the
borrowing
in
the
United
States
as
a
consideration
for
the
payment
of
the
United
States
dollars
and
the
transportation:
of
gas
as
the
consideration
for
paying
the
amount
stipulated:
in:
Paragraph
13.1.
In
fact,
there
is
only
one
promise
to
pay
contained
in
the
contract,
namely
to
pay
the
amount
of
the
monthly
billing.
Also
Paragraph
12.2
is
literally
declared
to
be
a
condition
by
the
word
“if”
in
the
phrase
‘‘if
Trunk:
Line
shall
cause
the
construction
of
the
said
pipeline
system
to
be
financed”,
ete.
The
billing
under
Paragraph
12.1
is
a
condition
of
the
type
in
Worsley
v.
Wood
(1796),
6
Term
Rep.
710,
and
is
not
a
consideration.
Equally
so
the
financing
in
the
United
States
is
a
condition
and
not
a
consideration.
.The
'
The
covenant
to
pay
United
States
dollars
for
such
consideration,
namely,
the
appellant’s
borrowing
in
the
United
States,
would
be
ultra
vires
of
the
Alberta
Company
and
the
Westcoast
Company.
Upon
borrowing
in
the
United
States,
according
to
such
contention,
then
would
vest
the
liability
of
the
Alberta
Company
and
of
Westcoast
to
pay
the
equivalent
United
States
dollars,
and
that
obligation
to
pay
United
States
dollars
would
vest
as
an
absolute
obligation
irrespective
of
any
transportation
of
gas
for
either
the
Alberta
Company
or
Westcoast.
That
is
not
what
the
parties
intended,
as
appears
from
the
amending
agreements,
and
particularly
from
item
11
to
the
amending
agreement
of
August
1,
1961.
Also
such
obligation
to
pay
would
be
ultra
vires
of
Alberta
Company
and
of
Westcoast,
as
the
powers
of
each
company
would
be
limited
to
applying
its
moneys
to
the
objects
for
which
the
company
was
formed,
and
as
a
result
neither
could
make
a
gift
of
its
moneys
to
another
person
or
corporation,
Re
Lee
Behrens
&
Co.
Ltd.,
2
Ch.
D.
40,
Hutton
v.
West
Cork
Railway
Co.
(1882-83),
23
Ch.
D.
654,
Henderson
v.
Bank
of
Australasia
(1889),
40
Ch.
D.
170,
and
could
disburse
its
moneys
only
to
procure
some
benefit
intended
to
recur
to
the
company.
No
benefit
could
be
intended
to
recur
to
Alberta
Company
or
Westcoast
from
the
appellant
borrowing
in
the
United
States
of
America
if
that
were
as
contended
the
consideration
of
the
promise
to
pay
United
States
dollars.
On
the
other
hand,
if
the
payment
of
United
States
dollars
by
Alberta
Company
and
Westcoast
is
intended
as
a
payment
in
part
of
the
cost
of
transportation
by
the
appellant,
then
the
Alberta
Company
and
Westcoast
would
have
obtained
the
benefit
for
their
payment
intended
by
the
contract.
On
the
proper
construction
of
the
contract
the
payment
in
United
States
dollars
iS
a
payment
in
part
of
the
transportation
of
gas
by
the
appellant
for
Alberta
Company
and
for
Westcoast.
As
the
business
of
the
appellant
is
the
transportation
of
gas
(Exhibit
7),
and
the
payment
in
United
States
dollars
is
received
pursuant
to
such
business,
therefore,
it
is
income
within
Section
3
of
the
Income
Tax
Act.
(Tip
Top
Tailors
Ltd.
v.
M.N.R.,
[1957]
S.C.R.
703
at
page
707;
[1957]
C.T.C.
309.)
To
determine
the
amount
of
that
income,
the
United
States
dollars
must
be
translated
into
Canada
dollars
which
is
the
measure
of
the
receipt
of
income
and
such
resulting
sum
must
be
credited
to
income.
Therefore
the
assessment
for
the
taxation
year
is
proper
in
adding
to
the
income
for
the
years
1962
to
1966
inclusive
the
amounts
of
the
United
States
dollars
received
by
the
appellant
pursuant
to
Paragraph
12.2.
Further,
that
the
repayment
of
principal
moneys
borrowed
under
the
trust
deed
is
a
capital
outlay
of
the
appellant
as
these
moneys
were
used
in
constructing
the
pipeline.
M.N.R.
v.
Dominion
Natural
Gas
Co.
Ltd.,
[1941]
S.C.R.
19;
[1940-41]
C.T.C.
144.
Montreal
Light,
Heat
:0
Power
Consolidated
v.
M.N.R.,
[1942]
S.C.R.
89
at
page
98;
[1942]
C.T.C.
1
at
page
10,
and
being
a
capital
outlay
the
moneys
expended
in
payment
of
the
principal
of
the
moneys
borrowed
are
not
to
be
allowed
as
a
credit
on
income.
It
is
contended
by
the
appellant
that
the
re-assessment
was
in
error
in
adding
the
United
States
dollars
to
income
for
the
reason
that
the
appellant
was
not
in
the
business
of
dealing
in
United
States
dollars.
(Tip
Top
Tailors
Ltd.
v.
M.N.R.
(supra).)
The
question
is
whether
these
United
States
dollars
were
income
as
derived
from
a
business
of
the
appellant
and
that
is
settled
by
the
fact
that
the
moneys
were
received
from
the
business
of
transporting
gas,
and
hence
irrespectively
of
whether
the
appellant
was
also
in
the
business
of
dealing
in
United
States
dollars.
The
appellant
also
contends
that
the
alleged
loss
of
$358,828.12
should
have
been
allowed
as
a
business
loss
within
Section
27(1)
(e).
It
is
assumed
that
such
loss
was
not
necessarily
initially
ineurred
from
changing
United
States
dollars
into
an
equivalent
of
more
valuable
and
therefore
a
lesser
number
of
Canada
dollars,
then
at
a
premium,
but
arose
through
the
depreciation
of
the
Canada
dollar
which
increased
the
required
number
to
repay
the
principal
amount
in
United
States
dollars
(Exhibit
3).
The
building
of
the
pipeline
was
a
capital
outlay
(M.N.R.
v.
Dominion
Natural
Gas
Co.
Ltd.
(supra),
Montreal
Light,
Heat
Power
Consolidated
v.
M.N.R.
(supra))
and
the
borrowing
for
the
purpose
of
that
building
was
equally
a
capital
outlay.
As
the
pipeline
was
to
be
built
in
Canada,
the
United
States
dollars
obtained
to
the
extent
of
$67,000,000
were
transferred
into
Canada
dollars
for
the
purpose
of
paying
for
such
pipeline.
The
expenditure
of
these
moneys
on
the
pipeline
was,
therefore,
a
capital
outlay
and
any
loss
was
a
loss
of
capital.
In
other
words,
the
pipeline
was
a
capital
asset
to
be
used
in
the
business
of
the
company
which
business
was
the
transporting
of
gas.
As
the
pipeline
is
a
capital
asset
built
by
borrowed
money,
brought
into
Canada
to
finance
the
construction
of
the
capital
asset,
therefore,
the
loss
by
reason
of
changing
into
Canada
dollars
is
a
loss
incurred
in
a
capital
expense.
That
loss
could
not
be
a
business
loss
within.
Section
27(1)
(e)
of
the
Income
Tax
Act
and,
therefore,
could
not
be
carried
forward
in
reduction
of
the
taxable
income
for
the
year
1966.
As
stated
in
Montreal
Light,
Heat
and
Power
Consolidated
v.
M.N.R.
(supra)
by
the
Chief
Justice
at
page
92
[6]
:
The
principle
is
illustrated
in
several
cases,
of
which
I
mention
two.
In
the
Arizona
Copper
Company
v.
Smiles,
3
T.C.
149,
a
bonus
which
the
taxpayer
was
obliged
to
pay
on
the
repayment
of
borrowed
capital
before
the
maturity
of
the
debt
was
described
by
the
Lord
President
as
"a
lump
payment
as
one
of
the
considerations
stipulated
for
a
loan
of
capital”
;
and
was
held
to
be
"entirely
heterogenous
to
those
outlays,
the
deduction
of
which
is
permitted
to
be
a
necessarily
incidental
to
the
earning
of
profit”,
and
the
bonus
was
held
not
to
be
deductible.
In
Texas
Land
and
Mortgage
Co.
v.
Holtham,
3
T.C.
255,
brokers’
charges
and
other
expenses
of
raising
debentures
were
held
not
to
be
deductible
.
.
.
I
think,
moreover,
that
these
disbursements
were
made
for
a
purpose
which
falls
within
the
principle
enunciated
by
Lord
Cave
in
The
British
Insulated
and
Helsby
Cables
v.
Atherton,
[1926]
A.C.
205
at
p.
212;
that
is
to
say,
the
expenditures
were
made
with
a
view
to
securing
an
enduring
benefit,
the
reduction
of
the
cost
of.
borrowed
capital
over
a
period
of
at
least
fifteen
years.
A
reference
is
due
to
the
argument
of
Mr.
Geoffrion
concerning
the
decision
in
Texas
Land
V.
Holtham,
just
mentioned,
That
case,
he
argues,
is
of
no
value
because
it
rests
on
the
decision
in
The
Anglo-Continental
Guano
Works
v.
Bell,
3
T.C.
239,
and
this
last
mentioned
case
is
unfavourably
criticized
in
Farmer
v.
Scottish
North
American
Trust,
Ltd.,
[1912]
A.C.
118.
Mathew,
J.
in
his
judgment
in
the
Texas
Land
case
says:
"To
increase
its
capital
it
(the
taxpayer)
raised
money
on
debentures.
The
argument
is
that
the
cost
of
raising
the
money,
ought
to
be
deducted,
from
the
profits
in
a
particular
year.
We
are
clearly
of
opinion
that
that
cannot
be
done.”
Before
the
Privy
Council,
[1944]
A.C.
126,
Lord
Macmillan,
at
page
134,
stated
:
It
was
conceded
in
the
Courts
in
Canada,
and
in
any
event
it
is
clear,
that
the
expenses
incurred
by
the
appellants
in
originally
borrowing
the
money
represented
by
the
bonds.
subsequently
redeemed
were
properly
chargeable
to
capital
and
so
to
maturity
the
premiums
and
expenses
then
payable
on
redemption
would
plainly
also
have
been
on
capital
account.
Why
then
should
the
outlays
in
connexion
with
the
present
transactions,
compendiously
described
as
“refunding
operations’’,
not
also
fall
within
the
same
category?
Their
Lordships
are
unable
to
discern
any
tenable
distinction.
In
Tip
Top
Tailors
Limited
v.
M.N.R.
(supra),
Rand,
J.
at
page
710
[312]
stated:
The
proposition
that
the
risk
of
a
change
in
value
of
capital
securities
or
investments
is
that
of
capital
can
be
accepted.
The
capital
machinery
within
and
by
means
of
which
the
business
earning
and
the
income
is
carried
on
is
distinct
from
that
business
itself;
and
the
fluctuations
in
its
value
have
no
bearing
on
profits
or
losses
from
the
business.
That
distinction
was
stated
with
clarity
by
Lord
Macmillan
in
Montreal
Coke
and
Manufacturing
Company
v.
M.N.R.;
Montreal
Light,
Heat
and
Power
Consolidated
v.
M.N.R.,
[1944]
A.C.
126.
At
p.
184;
[1944]
C.T.C.
94
at
p.
100,
he
puts
is
thus:
“It
is
not
the
business
of
either
of
the
appellants
to
engage
in
financial
operations.
The
nature
of
their
business
is
sufficiently
indicated
by
their
titles.
It
is
to
those
businesses
that
they
look
for
their
earnings.
Of
course,
like
other
business
people,
they
must
have
capital
to
enable
them
to
conduct
their
enterprises,
but
their
financial
arrangements
are
quite
distinct
from
the
activities
in
which
they
earn
their
income.
No
doubt,
the
way
in
which
they
finance
their
businesses
will,
or
may,
reflect
.
itself
favourably
or
unfavourably
in
their
annual
accounts,
.
but
expenditure
incurred
in
relation
to
the,
financing
of
their
businesses
is
not,
in
their
Lordships’
opinion,
expenditure
incurred
in
the
earning
of
their,
income
within
the
statutory
meaning.
The
statute,
in
s.
5(b);
significantly
employs
the
expression,
‘capital
used
in
the
business
to
earn
the
income’,
differentiating
between
the
provision
:
f
capital
and
the
process
of
earning
profits.”
Hence
the
loss
through
converting
the
United
States
dollars
into
Canada
dollars
cannot
be
a
business
loss
within
Section
27(1)(e).
Further
the
loss
of
$358,828,12
alleged,
by
the
appellant
is
excluded.by
Section’
12(1)
(a)
and
(b)
of
the
Ineome:
Tax:
Act:
See
Farmers
Mutual.
Petroleums
:Ltd.
v.
M.N.R.,
[1967]
C.T.C.
396,
British
Columbia
Electric
Railway
Company
Limited
v.
M.N.R.,
[1958]
S.C.R.
133;
[1958]
C.T.C.
21,
Abbott,
J.
stated
at
page
1,37
[31]
:
i.
Since
the
main
purpose
of
every
business
undertaking
is
presumably
to
make
a
profit,
any
expenditure
made
‘for
the
purpose
of
gaining
or
producing
income’
comes
within
the
terms
of
Section
12(1)
(a)
whether
it
be
classified
as
an
income,
expense
or
as
a
capital
outlay.
Once
it
is
determined
that
a
particular
expenditure
is
one
made
for
the
purpose
of
gaining
or
producing
income,
in
order
to
compute
income
tax
liability
it.
must
next
be
ascertained
whether
such
disbursement
is
an
income
expense
or
a
capital
outlay.
The
principle
underlying
such
a
distinction
is,
of
course,
that
since
for
tax
purposes
income
is
determined
on
an
annual
basis,
an
income
expense
is
one
incurred
to
earn
the
income
of,
the
particular
year
in
which
it
is
made
and
should
be
allowed
as
a
deduction
from
gross
income
in
that
year.
Most
capital
outlays
on
the
other
hand
may
be
amortized
or
written
off
over
a
period
of
years
depending
upon
whether
or
not
the
asset
in
respect
of
which
the
outlay
is
made
is
one
coming
within
the
capital
cost
allowance
regulations
made
under
Section
11(1)
(a)
of
the
Income
Tax
Act
.
,
Further
at
page
137
[32]
:
The
general
principles
to
be
applied
to
determine
whether
an
expenditure
which
would
‘be
allowable
under
Section
1241)
(a)
is
of
a
capital
nature,
are
now
fairly
well
established.
As
Kerwin
'.
J.,
as
he
then
was,,
painted
out
in
Montreal
Light,
Heat
and
Power
Consolidated
V.
M.N.R.,
applying
the
principle
enunciated
by
Viscount
Cave
in
British
Insulated
and
Helsby
Cables
Limited
v.
Atherton,
the
usual
test
of
whether
an
expenditure
is
one
made
on
account
of
capital
is;
was
it
made
“with
a
view
of
bringing
into
existence
an
advantage
for
the
enduring
benefit
of
the
appellant’s
business”.
.
,
i:
zoi
:
;
:
t.:
In
conclusion,
the
onus
is
on
the
appellant
to
establish:
errors
in
the
re-assessment
(Tip
Top
Tailors
Ltd:
v.
M.N.R.
(supra)
)
and
no
error
has
been
established
by
the
appellant.
It
would
follow
that
the
re-assessment
is
proper,
both
as
to
the
taxable
income
to
be
included
and
as
to
the
outlays
to
be
permitted,
and
the
appeal
is
dismissed
with
costs.
Email this Content