CATTANACH,
J.:—This
is
an
appeal
by
the
Minister
from
a
decision
of
the
Tax
Appeal
Board
(1966),
41
Tax
A.B.C.
125,
dated
April
22,
1966
in
respect
to
the
Minister’s
assessment
to
income
tax
for
the
respondent’s
1960
and
1961
taxation
years.
By
the
assessments
in
question
the
Minister
reduced
the
capital
cost
allowance
claimed
by
the
respondent
in
respect
of
furniture,
fixtures
and
equipment
purchased
by
it
from
$45,000
to
$3,000
and
computed
the
tax
payable
accordingly.
The
transaction
which
gave
rise
to
this
appeal
was
the
sale
in
1959
of
a
retail
drug
business
carried
on
in
the
City
of
Brandon,
Manitoba.
This
business
was
begun
originally
by
D.
E.
Clement,
a
member
of
the
Clement
family,
in
1913
in
a
building
known
as
the
Clement
Block,
a
five
storey
building
situated
in
the
centre
of
the
downtown
area
of
the
city.
The
four
upper
storeys
contained
offices
and
the
street
level
floor
housed
a
variety
of
businesses
over
the
years
but
including
the
drug
store
throughout
those
years.
The
building
was
owned
by
a
number
of
the
members
of
the
Clement
family
of
which
Mr.
D.
E.
Clement
was
one.
In
1934
Clement’s
Drug
Store
Limited
was
incorporated
to
acquire
and
carry
on
the
drug
store
on
the
identical
site.
At
that
time
Mr.
W.
P.
Lowres,
who
had
been
associated
in
partnership
with
Mr.
D.
E.
Clement
prior
thereto,
acquired
a
substantial
share
interest
in
the
Company
and
eventually,
in
or
about
1948,
he
became
the
beneficial
owner
of
all
issued
and
outstanding
shares
in
the
Company.
The
business
carried
on
throughout
the
years
can
best
be
described
as
a
reputable
family
pharmacy.
While
a
variety
of
items
normally
associated
with
a
drug
store
were
sold,
nevertheless,
much
emphasis
was
placed
upon
the
expert
and
accurate
filling
of
prescriptions.
The
fixtures,
the
greater
portion
of
which
consisted
of
solid
oak
shelving
and
beam
fittings,
were
custom
built
and
installed
in
1913
and
were
in
continuous
use
since
that
time.
They
were
designed
to
complement
and
accentuate
the
high
repute
and
substantial
nature
of
the
pharmacy
business
to
be
carried
on
in
the
premises.
Representations
of
the
mortar
and
pestle
were
carved
into
the
oak
fixtures
to
complete
the
motif
and
coloured
apothecary
globes
were
displayed.
When
the
fixtures
were
acquired
by
Clement’s
Drug
Store
Limited
in
1934
they
were
taken
into
the
Company’s
opening
balance
sheet
at
$4,000.
Mr.
Lowres
testified
that
this
was
during
the
depression
years
when
the
value
of
all
assets
was
extremely
low.
Between
1935
and
1938
there
were
additions
to
the
fixtures
in
the
amount
of
$3,042.59
making
a
total
of
$7,042.59
the
undepreciated
capital
cost
of
which
was
$814.58
as
at
December
31,
1948.
Between
1949
and
1959
further
additions
were
made
in
the
amount
of
$1,648.76
thereby
bringing
the
total
cost
of
these
assets
to
the
Company
to
$8,691.35,
the
undepreciated
capital
cost
of
which
was
$962.54
as
at
December
31,
1959.
However,
Mr.
Lowres
said
that
in
the
depression
years
of
the
thirties
many
items
were
claimed
as
expenses
in
the
year
of
purchase
and
not
depreciated.
The
retail
drug
business
carried
on
first
by
Mr.
D.
E.
Clement
and
then
by
his
successor,
the
Company
owned
by
Mr.
Lowres,
was
particularly
successful
and
over
the
years
became
increasingly
more
successful.
In
the
Rexall
method
of
drug
merchandising
this
store
always
stood
in
the
top
listings
based
upon
the
value
of
purchases
from
Rexall.
Mr.
Lowres
employed
a
number
of
qualified
pharmacists.
In
1957
he
employed
John
Garth
Allen
in
that
capacity
on
a
salary
and
bonus
basis.
Mr.
Allen
was
anxious
to
engage
in
the
drug
business
on
his
own
account.
Some
time
in
1958
he
indicated
to
Mr.
Lowres
that
he
wished
to
purchase
the
business
to
which
overture
Mr.
Lowres
was
not
unduly
receptive.
Mr.
Allen,
therefore,
investigated
the
possibility
of
purchasing
two
or
three
other
businesses.
However
Mr.
Allen,
who
was
young
and
ambitious,
persisted
in
his
efforts
to
purchase
the
business
owned
by
Mr.
Lowres
with
which
his
employment
had
made
him
familiar.
In
1959
Mr.
Lowres
agreed
to
sell
the
business
for
a
price
of
$100,000.
Accordingly
an
agreement
between
Clement’s
Drug
Store
Limited
as
vendor,
John
Garth
Allen
as
purchaser
and
William
Percy
Lowres
as
covenanter,
was
entered
into
on
December
30,
1959
whereby
the
business
was
sold
to
the
purchaser,
Mr.
Allen,
for
$100,000
made
up
of
fixtures
at
$45,000
and
stock-in-trade
to
be
determined
and
valued
as
at
December
31,
1959.
The
stock-
in-trade
was
subsequently
determined
to
have
been
$33,779.23
as
at
that
date.
The
purchase
price
was
payable,
$20,000
in
cash
and
the
balance
by
equal
consecutive
annual
payments
of
$8,000
payable
at
$4,000
on
the
last
days
of
June
and
December,
commencing
on
the
last
day
of
June
1960.
Interest
was
payable
on
the
outstanding
balance
at
3
per
cent
beginning
January
1,
1963
until
January
1,
1965
when
the
interest
on
the
outstanding
balance
of
the
purchase
price
would
be
at
the
rate
of
4
per
cent.
Mr.
Allen
undertook
to
employ
Mr.
Lowres
as
a
business
consultant
and
adviser
for
a
period
of
ten
years
or
so
long
as
Mr.
Lowres
or
his
wife
should
retain
ownership
of
at
least
51
per
cent
of
the
shares
of
the
vendor
company,
whichever
should
be
the
earlier
date
at
an
annual
salary
of
$4,800
payable
monthly.
By
the
agreement
dated
December
30,
1959
it
was
provided
by
paragraphs
10
and
11
thereof
that
upon
the
incorporation
of
a
new
corporation
by
Mr.
Allen
that
a
new
agreement
substantially
embodying
the
terms
of
the
agreement
dated
Decem-
ber
30,
1959
would
be
entered
into
by
the
parties
and
the
new
company
would
then,
in
effect,
stand
in
the
place
of
the
original
purchaser,
Mr.
Allen.
A
new
company
was
incorporated,
which
is
the
present
respondent,
and
an
agreement
was
made
dated
December
23,
1960
to
which
the
respondent
was
also
a
party
whereby
it
acquired
the
business
and
assets
of
the
drug
store
and
undertook
obligations
substantially
similar
to
those
in
the
prior
agreement.
The
present
appeal
was
heard
and
argued
on
the
assumption
that
the
respondent
herein
should
be
regarded
as
the
original
purchaser.
A
contrary
assumption
would
not
have
a
material
bearing
on
the
eventual
outcome
of
the
present
appeal.
If
the
original
purchaser
were
Mr.
Allen
personally,
and
not
as
agent
or
trustee
for
the
company
to
be
formed,
the
respondent
would
be
deemed
to
have
acquired
depreciable
property
at
the
same
capital
cost
as
the
capital
cost
to
Mr.
Allen
(see
Section
20(4)
of
the
Income
Tax
Act)
since
any
transaction
between
Mr.
Allen
and
the
respondent,
which
he
controlled,
would
not
be
at
arm’s
length
(see
Section
139(5)
and
139
(5a)).
At
no
time
during
the
conduct
of
the
drug
store
business
did
the
proprietor
have
a
long
term
written
lease
with
the
landlord.
Presumably
when
Mr.
D.
E.
Clement
was
the
owner
of
the
drug
store
there
was
no
necessity
for
a
long
term
lease
because
he
was
a
co-owner
and
closely
related
to
the
other
co-owners
of
the
building
and
I
would
presume
that
similar
considerations
prevailed
when
Mr.
Lowres
first
became
associated
with
Mr.
Clement
in
the
business.
In
all
likelihood
these
considerations
may
have
continued
when
Mr.
Lowres
acquired
the
controlling
interest
of
the
Company
which
became
the
owner
of
the
drug
store.
The
premises
were
let
on
a
monthly
basis
and
the
oral
monthly
lease
could
have
been
terminated
on
one
month’s
notice,
a
circumstance
which
was
well
known
to
all
parties
to
the
sale
of
the
business.
I
have
no
doubt
that
the
location
of
the
business
was
one
of
the
paramount
considerations
present
to
Mr.
Allen’s
mind
when
he
was
negotiating
for
its
purchase.
Accordingly
the
agreements
contained
a
provision
covering
the
contingency
that
the
landlord
might
terminate
the
lease.
Paragraphs
3
and
4
of
the
agreement
dated
December
23,
1960
reads
as
follows:
8.
The
Purchaser
will
employ
the
Vendor
as
a
business
consultant
and
adviser
for
a
period
of
ten
(10)
years
or
so
long
as
the
Party
of
the
Fourth
Part
or
his
wife
shall
retain
the
ownership
of
at
least
fifty-one
(51%)
per
cent
of
the
capital
stock
of
the
Vendor
whichever
shall
be
the
earlier
date
or
for
such
lesser
period
as
the
Purchaser
may
have
to
assume
by
reason
of
the
fact
that
it
is
no
longer
able
to
occupy
the
premises
presently
occupied
by
the
Vendor
by
reason
of
the
refusal
of
the
owners
thereof
to
permit
the
continued
occupancy
thereof
by
the
Purchaser
either
through
refusal
to
continue
the
rental
arrangement
presently
in
existence,
by
the
giving
of
notice
by
the
Landlord
or
by
the
Landlord
requiring
the
Purchaser
to
pay
a
rental
in
excess
of
Eight
Thousand
($8,000.00)
Dollars
per
annum
and
the
Purchaser
being
able
to
obtain
substitute
business
accommodation
in
the
City
of
Brandon
in
order
to
continue
the
operation
of
said
business.
The
salary
to
be
paid
to
the
Vendor
shall
be
Forty-eight
Hundred
$4,800.00)
Dollars
per
year.
If
prior
to
the
thirty-first
day
of
December,
A.D.
1969
the
lease
or
rental
arrangement
with
respect
to
the
premises
to
be
occupied
by
the
Purchaser
shall
be
terminated
as
aforesaid
or
should
the
Landlord
require
a
rental
to
be
paid
in
excess
of
the
sum
of
Eight
Thousand
($8,000.00)
Dollars
per
year
and
the
property
be
surrendered
accordingly
and
the
Purchaser
shall
not
be
able
to
acquire
suitable
premises
in
the
City
of
Brandon
to
carry
on
the
said
business
but
shall
be
desirous
of
acquiring
other
premises
which
it
considers
will
not
be
so
suitable
then
the
salary
to
be
paid
hereunder
shall
be
the
subject
of
arbitration.
The
Purchaser
shall
appoint
one
arbitrator,
the
Vendor
another
and
the
two
arbitrators
so
chosen
shall
choose
a
third
and
their
decision
as
to
the
salary
to
be
paid
thereafter
shall
be
final
and
binding
upon
the
parties
hereto.
4.
If
prior
to
the
thirty-first
day
of
December,
A.D.
1969
the
lease
or
rental
arrangement
with
respect
to
the
premises
to
be
occupied
by
the
Purchaser
shall
be
terminated
by
the
Landlord
or
should
the
Landlord
require
a
rental
to
be
paid
in
excess
of
the
sum
of
Eight
Thousand
($8,000.00)
Dollars
per
year
and
the
property
be
surrendered
accordingly
and
should
the
Purchaser
be
unable
to
obtain
other
suitable
business
premises
in
the
City
of
Brandon
to
carry
on
said
business
the
purchase
price
shall
subject
to
the
provisions
of
this
paragraph
be
reduced
on
the
basis
hereinafter
set
forth,
namely:
The
value
of
the
stock
and
fixtures
as
determined
as
of
the
thirty-first
day
of
December,
A.D.
1959
in
the
sum
of
Thirty-
three
Thousand
Seven
Hundred
and
Seventy-nine
Dollars
Twenty-three
Cents
($33,779.23)
and
there
shall
be
added
thereto
ninety
(90%)
per
cent
of
the
profit
of
the
business
each
year
thereafter
(after
payment
of
income
tax)
up
to
the
aforesaid
termination
of
the
lease
and
the
Purchaser
shall
pay
unto
the
Vendor
the
total
amount
thereof
not
to
exceed
in
any
event
One
Hundred
Thousand
($100,000.00)
Dollars
and
any
payments
made
hereunder
shall
be
applied
thereon.
In
the
event
that
the
termination
of
the
lease
should
take
place
in
mid-year
then
the
pro-rata
portion
of
the
profit
for
such
year
shall
be
determined
on
the
profit
of
the
preceding
year.
Should
the
Purchaser
find
other
business
premises
in
the
City
of
Brandon
which
it
considers
will
not
be
suitable
for
the
carrying
on
of
the
said
business
and
should
it
leave
the
present
premises
then
the
Purchaser
may
require
the
balance
of
the
purchase
price
to
be
set
by
arbitration
in
which
case
the
Purchaser
shall
choose
one
arbitrator,
the
Vendor
shall
choose
one
arbitrator
and
the
two
arbitrators
so
chosen
shall
choose
a
third
and
the
decision
of
the
majority
of
the
arbitrators
so
chosen
shall
be
final
and
binding
upon
the
parties
hereto.
The
corresponding
provisions
of
the
agreement
dated
December
30,
1959
are
contained
in
paragraphs
4
and
5
of
that
agreement
except
that
in
paragraph
5
the
value
of
the
stock
and
fixtures
as
shown
in
the
books
of
the
vendor
as
at
December
31,
1959
is
to
be
taken
whereas
in
the
second
agreement
the
value
of
the
stock
and
fixtures
is
stated
in
the
specific
sum
of
$33,779.23
which
sum
is
the
value
of
the
merchandise
inventory
as
at
December
31,
1959
determined
shortly
after
that
date.
However
the
contingency
contemplated
by
the
foregoing
provisions
did
not
arise.
The
respondent
continued
the
business
in
the
same
premises
held
under
a
monthly
tenancy
for
a
period
of
two
years
and
nine
months.
Sometime
in
the
late
summer
of
1962
a
rumour
came
to
the
attention
of
Mr.
Allen
while
he
was
on
vacation
that
the
landlord
was
negotiating
for
a
lease
to
a
chartered
bank
for
the
entire
ground
floor
area
of
the
Clement
Block.
Such
negotiations
had
been
in
progress
in
fact
but
had
broken
down,
of
which
circumstance
Mr.
Allen
was
unaware
and
the
landlord
did
not
communicate
it
to
him.
He
therefore
cut
short
his
vacation
and
returned
to
negotiate
a
lease
for
the
premises
occupied
by
the
drug
store.
At
that
time
on
the
ground
floor
there
was
a
small
area
occupied
by
a
clothier
adjacent
to
the
drug
store
premises
and
on
the
other
side
of
the
clothier
were
premises
occupied
by
a
travel
agency
operated
by
D.
W.
Clement
who
was
one
of
the
co-owners
of
the
building.
The
landlord
had
experienced
difficulty
in
obtaining
satisfactory
tenants
for
the
space
occupied
by
the
clothier
because
of
the
small
area.
The
landlord
considered
that
it
would
be
more
advantageous
to
eliminate
that
space
by
dividing
it
and
adding
to
the
areas
occupied
by
the
drug
store
and
travel
agency.
This
addition
of
space
was
a
condition
precedent
to
the
landlord
entering
into
a
long
term
lease
with
Mr.
Allen
who
felt
impelled
to
comply.
Accordingly
a
lease
dated
September
30,
1962
was
entered
into
between
the
landlord
and
the
respondent
covering
the
increased
area
for
a
period
of
seven
years
at
a
monthly
rental
of
$550.
By
a
memorandum
annexed
to
and
forming
part
of
the
lease,
the
landlord
undertook
the
necessary
construction
work
to
expand
the
premises,
but
the
respondent
undertook
to
install
a
new
store
front
to
the
expanded
area
of
the
drug
store.
The
installation
of
a
new
store
front
had
been
casually
broached
to
Mr.
Lowres
by
the
landlord
but
was
never
a
matter
of
serious
consideration
between
them.
There
was
no
evidence
that
the
possibility
of
the
landlord
requiring
a
new
store
front
to
be
installed
had
ever
been
brought
to
Mr.
Allen’s
attention.
Mr.
Allen
investigated
the
feasibility
of
matching
the
oak
fixtures
already
in
use
in
the
acquired
area
but
found
the
cost
to
be
prohibitive.
Accordingly
he
removed
the
original
oak
fixtures
and
installed
modern
metal
fixtures
throughout
the
store.
Nothing
was
realized
upon
the
discarded
oak
fixtures
because
they
had
been
custom
built
for
the
premises
where
used
and
were
useless
elsewhere.
An
attempt
to
realize
a
scrap
value
was
unsuccessful.
Under
the
terms
of
the
original
agreements
for
sale
the
balance
of
the
purchase
price
was
to
be
secured
by
a.
chattel
mortgage.
However,
it
was
not
until
February
15,
1963
that
this
requirement
was
complied
with
by
two
instruments
bearing
that
date
covering
the
fixtures
and
stock-in-trade
used
in
the
business
securing
the
then
outstanding
amount
of
$68,000
and
subject
to
a
prior
chattel
mortgage
in
favour
of
the
respondent’s
bank.
Mr.
Allen
testified
that
when
he
purchased
the
fixtures
he
had
no
intention
of
replacing
them
and
that
his
decision
to
do
SO
was
necessitated
by
the
circumstances
outlined
above.
He
added
that
they
were
more
than
satisfactory
for
the
purpose
of
conducting
a
retail
drug
store.
As
an
indication
of
the
efficiency
of
the
fixtures
it
was
established
that
the
business
under
Mr.
Allen’s
management
increased
its
Rexall
rating
to
first
and
second
in
1961
and
1960
respectively.
Rather
than
becoming
obsolete
the
fixtures
had
become
enhanced
in
value.
He
also
testified
that
certain
of
the
equipment
originally
purchased
was
still
in
use,
a
schedule
of
which
was
filed
in
evidence
as
Exhibit
11.
Mr.
Allen
assigned
values
to
each
such
item
totalling
$12,170.
No
consistent
method
of
evaluation
was
adopted.
In
some
instances
cost
was
used,
in
others
replacement
value
and
in
some
instances.
a
depreciated
value
was
used,
but
in
any
event
I
am
certain
that
Mr.
Allen’s
estimate
of
$12,170
represents
a
value
very
approximate
to
the
value
of
those
items
still
in
use.
In
addition
he
had
also
purchased
an
outside
neon
sign
which
he
valued
at
$1,500.
Mr.
Lowres
gave
evidence
to
like
effect
as
to
the
efficiency
of
the
fixtures
and
further
testified
that
he
would
not
have
sold
them
for
less
than
$45,000.
In
fixing
a
price
of
$100,000
in
response
to
Mr.
Allen’s
desire
to
purchase
the
business
he
said
that
such
was
the
worth
of
the
business
to
him.
I
should
add
that
subsequent
to
the
agreement
dated
December
30,
1959
Mr.
Lowres
deposited
$10,000
in
the
vendor
company’s
current
bank
account.
This
account
was
purchased
and
transferred
to
the
respondent.
Mr.
Lowres
said
that
he
did
this
to
facilitate
Mr.
Allen
carrying
on
the
business
and
that
it
was
in
the
nature
of
a
loan.
By
paragraph
15
of
the
agreement
dated
December
23,
1960
the
amount
of
$10,000
was
added
to
the
purchase
price.
I
should
also
add
that
by
the
two
agreements
the
respondent
assumed
all
trade
liabilities
of
the
vendor
as
at
December
31,
1959
which
totalled
$18,275.
I
would
add
that
in
preparing
his
tax
return
Mr.
Lowres
reported
the
sale
of
the
fixtures
and
equipment
at
$45,000
and
brought
into
income
capital
cost
allowance
recaptured
in
the
amount
of
$1,650.80.
The
amount
of
$45,000
as
the
price
of
the
fixtures
and
equipment
as
recited
in
both
of
the
two
agreements
for
sale
dated
December
30,
1959
and
December
23,
1960
was
arrived
at
by
negotiation
between
Mr.
Lowres
and
Mr.
Allen.
An
evaluator
was
not
engaged
to
fix
prices
on
the
assets,
but
the
amount
was
settled
upon
by
the
vendor
and
purchaser.
The
value
of
the
total
assets
sold
was
$128,275
consisting
of
current
assets
such
as
cash
on
hand,
bank
account,
accounts
receivable,
merchandise
inventory
and
prepaid
expenses,
to
the
total
amount
of
$45,844.02,
investments
in
the
total
amount
of
$1,055
fixed
assets
at
$45,000
making
a
total
of
tangible
assets
of
$91,899.02
added
to
which
was
goodwill
at
$36,375.98.
When
the
total
of
liabilities
assumed
in
the
amount
of
$18,275
is
deducted
from
the
total
of
the
assets
acquired
being
in
the
amount
of
$128,275,
the
net
sale
price
is
$110,000.
The
only
figures
in
dispute
between
the
parties
is
the
$45,000
attributed
to
fixtures
and
equipment
by
the
respondent
and
an
amount
of
$36,375.98
to
goodwill.
The
Minister
says
that
an
amount
of
$3,000
only
can
reasonably
be
attributed
to
the
consideration
for
the
fixtures
and
equipment
from
which
it
follows
that
an
amount
of
$78,375.98
would
be
attributed
by
the
Minister
to
goodwill,
an
increase
of
$42,000
over
the
amount
of
$36,375.98
attributed
to
goodwill
by
the
respondent.
The
issue
between
the
parties
therefore,
resolved
itself
into
the
problem
of
determining
on
the
facts
as
disclosed
by
the
evidence,
what
part
of
the
total
purchase
price
can
reasonably
be
regarded
as
having
been
the
consideration
for
the
depreciable
property
purchased,
i.e.
the
fixtures
and
equipment.
The
statutory
provision
under
which
the
matter
arises
reads
as
follows:
20.
(6)
For
the
purpose
of
this
section
and
regulations
made
under
paragraph
(a)
of
subsection
(1)
of
section
11,
the
following
rules
apply:
(g)
where
an
amount
can
reasonably
be
regarded
as
being
in
part
the
consideration
for
disposition
of
depreciable
property
of
a
taxpayer
of
a
prescribed
class
and
as
being
in
part
consideration
for
something
else,
the
part
of
the
amount
that
can
reasonably
be
regarded
as
being
the
consideration
for
such
disposition
shall
be
deemed
to
be
the
proceeds
of
disposition
of
depreciable
property
of
that
class
irrespective
of
the
form
or
legal
effect
of
the
contract
or
agreement;
and
the
person
to
whom
the
depreciable
property
was
disposed
of
shall
be
deemed
to
have
acquired
the
property
at
a
capital
cost
to
him
equal
to
the
same
part
of
that
amount;
The
argument
of
counsel
for
the
respondent,
as
I
understood
it,
was
that
the
sale
was
an
arm’s
length
transaction
between
two
knowledgeable
persons
both
of
whom
were
completely
familiar
with
the
business
and
knew
its
potentialities
and
who
also
knew
the
value
of
the
fixtures
as
they
were.
He
also
pointed
out
that
although
the
oak
fixtures
custom
built
for
the
premises
were
replaced
by
modern
metal
ones
within
21
months
of
the
purchase,
this
was
done
only
for
the
reason
that
to
obtain
a
long
term
lease
the
respondent
was
obliged
to
rent
a
larger
area.
He
emphasized
that
although
the
greater
bulk
of
the
oak
fixtures
had
to
be
discarded,
nevertheless,
some
of
the
equipment
which
had
been
purchased
was
still
being
used
in
the
renovated
premises
which
equipment
had
a
conservatively
estimated
value
of
$12,170.
This
fact,
he
contended,
leads
to
an
irrefutable
conclusion
that
the
amount
of
$3,000
attributed
by
the
Minister
as
consideration
for
the
purchase
of
the
depreciable
property
is
not
reasonable
and
that
the
true
consideration
for
the
depreciable
assets
was
the
price
of
$45,000
arrived
at
by
the
parties
to
the
sale
thereof.
The
assessments
carry
a
statutory
presumption
of
validity
and
stand
until
they
have
been
shown
to
be
erroneous
either
in
fact
or
in
law.
Therefore,
to
succeed
in
this
appeal
the
respondent
must
prove
that
the
finding
of
the
Minister
that
the
capital
cost
to
the
respondent
of
the
depreciable
assets
in
question
was
$3,000
was
erroneous
(wide
Johnston
v.
M.N.R.,
[1948]
S.C.R.
486
at
489
;
[1948]
C.T.C.
195
at
202).
I
am
completely
satisfied
on
the
evidence
that
the
assets
were
not
inefficient,
obsolete
or
in
need
of
replacement
at
the
time
of
their
purchase.
On
the
contrary
I
am
satisfied
that
the
respondent
would
have
continued
to
use
them
for
a
long
period
of
years
and
that
the
decision
to
replace
those
fixtures
with
modern
metal
ones
was
dictated
by
the
respondent’s
desire
for
a
long
term
lease
of
the
premises
which
the
landlord
would
not
give
unless
an
enlarged
area
was
covered
by
such
a
lease.
The
crux
of
the
argument
put
forward
by
counsel
for
the
Minister
was,
as
I
understood
it,
that,
assuming
the
statutory
rule
outlined
in
Section
20(6)
(g)
of
the
Income
Tax
Act
applies,
the
question
is
then,
what
amount
can
reasonably
be
regarded
as
having
been
consideration
for
the
depreciable
property.
He
contended
that
an
amount
of
$3,000
is
the
amount
which
can
be
reasonably
so
regarded,
upon
which
assumption
the
Minister
based
his
assessments
and
that
the
balance
of
the
purchase
price,
after
deducting
the
value
of
the
inventory
purchased,
can
be
reasonably
regarded
as
being
in
consideration
of
something
else,
i.e.
goodwill.
In
support
of
the
foregoing
submission
he
pointed
out
that
the
overall
price
was
to
be
$100,000,
later
increased
to
$110,000,
and
that
the
only
item
for
which
a
specific
allocation
was
made
in
the
agreements
for
sale
was
that
of
fixtures
and
equipment
where
$45,000
was
specified
as
the
price.
He
added
that
the
delay
of
the
vendor
in
obtaining
a
chattel
mortgage
on
the
fixtures
and
stock-in-trade
in
accordance
with
the
agreement
for
sale
to
secure
payment
of
the
purchase
price
of
the
business
was
indicative
of
an
overvaluation
of
the
fixtures
and
equipment.
I
think
this
circumstance
is
equally
susceptible
of
the
interpretation
that
the
vendor
was
satisfied
with
the
integrity
of
the
respondent
and
its
ability
to
pay
from
the
proceeds
of
the
business
in
which
he
acted
as
a
consultant
and
that
resort
to
this
additional
security
was
had
when
a
prior
chattel
mortgage
was
placed
on
the
stock-in-trade
and
new
fixtures
to
secure
the
respondent’s
bank
loan.
Therefore,
I
do
not
consider
this
circumstance
to
be
conclusive
either
way.
His
principal
submission
is,
however,
that
no
price
was
in
fact
fixed
as
the
purchase
price
of
the
drug
business
at
the
date
of
the
sale,
December
30,
1959,
which
is
the
material
date,
and
that
it
was
only
when
the
respondent
entered
a
lease
with
its
landlord
on
September
30,
1962
that
the
price
of
$110,000
became
fixed
and
determined.
Under
the
provisions
of
paragraph
1
and
paragraph
15
of
the
agreement
dated
December
23,
1960
the
purchase
price
was
stated
to
be
$110,000
subject
to
the
assumption
by
the
respondent
of
accounts
payable
as
at
December
30,
1959.
Since
the
tenancy
of
the
premises
was
a
monthly
one,
provision
was
made
in
paragraph
4
of
the
aforesaid
agreement,
that
in
the
event
of
the
landlord
terminating
the
monthly
tenancy,
or
exacting
a
rental
in
excess
of
$8,000
per
year
and
the
respondent
could
not
obtain
suitable
premises
elsewhere
in
the
city,
then
the
purchase
price
would
be
reduced
to
a
value
of
$33,779.23
for
the
stock
and
fixtures
plus
90%
of
the
yearly
profits
of
the
business
to
the
termination
of
the
lease.
Provision
was
made
for
a
pro
rata
determination
of
profits
if
the
lease
were
terminated
in
mid-
year
and
for
arbitration
of
the
purchase
price
if
the
respondent
carried
on
the
business
in
premises
it
considered
unsuitable.
Counsel
for
the
Minister
contended
that
the
respondent
did
not
obligate
itself
to
pay
a
purchase
price
of
$110,000
but
rather
that
the
minimum
amount
that
the
respondent
bound
itself
to
pay
was
the
consideration
set
out
in
paragraph
5
of
the
agreement
dated
December
30,
1959
and
paragraph
4
of
the
agreement
dated
December
23,
1960.
On
the
assumption
that
the
landlord
gave
the
respondent
notice
to
quit
on
December
31,
1959,
as
they
were
entitled
to
do
and
that
the
respondent
would
be
required
to
vacate
on
January
31,
1960,
he
then
computed,
by
an
application
of
the
formula
outlined
in
the
foregoing
paragraphs
of
the
agreements,
the
minimum
amount
which
the
respondent
obligated
itself
to
pay
to
be
approximately
$35,000.
On
that
basis
he
contended
that
a
consideration
of
$3,000
for
the
purchase
of
the
depreciable
property
is
a
most
reasonable
proportion
bearing
in
mind
that
$33,779.23
was
the
determined
value
of
the
merchandise
inventory
and
that
the
amount
of
$45,000
attributed
by
the
contract
as
the
consideration
therefor
is
unreasonable.
I
am
unable
to
accede
to
the
Minister’s
contention
in
this
respect.
The
question
is
not
whether
the
respondent
absolutely
bound
itself
to
pay
$110,000
for
the
business,
but
whether
it
paid
that
amount
for
the
business
in
accordance
with
the
terms
of
the
contract.
While
it
is
true
that
the
parties
took
account
of,
and
provided
for,
the
contingency
of
the
respondent
being
dispossessed,
nevertheless,
that
contingency
did
not
arise.
Under
Section
11(1)
(a)
of
the
Income
Tax
Act
it
is
provided
that
certain
amounts
may
be
deducted
in
computing
the
income
tax
of
a
taxpayer
in
a
taxation
year”
including
‘‘such
amount
in
respect
of
the
capital
cost
to
the
taxpayer
of
property,
if
any,
as
is
allowed
by
regulation’’.
Section
1100(1)
(a)
of
the
Regulations
enacted
under
Section
11(1)
(a)
of
the
Act
provides
for
deductions
for
each
taxation
year
equal
to
the
rates
specified
in
paragraph
(a)
applicable
to
an
amount
remaining
after
deducting
the
amount
determined
under
Section
1107
of
the
Regulations,
from
the
‘‘undepreciated
capital
cost”
to
the
taxpayer.
The
amount
so
to
be
deducted
under
Section
1107,
as
applicable
to
the
1954
and
subsequent
taxation
years
to
the
1966
taxation
year,
is
an
amount
equal
to
(a)
the
capital
cost
of
the
property
that
was
acquired,
(b)
minus
the
proceeds
of
disposition
of
that
property.
It
is,
therefore,
clear
that
the
capital
cost
allowance
is
computed
upon
the
actual
"‘cost’’
of
the
depreciable
assets
to
the
taxpayer
for
which
reason
it
is
incumbent
upon
me
to
determine
that
cost.
In
my
view
the
cost
of
depreciable
property
here
in
question
is
$45,000
as
determined
by
the
contract
among
the
parties
to
the
sale
thereof.
That
is
the
amount,
under
the
terms
of
the
contract,
the
respondent
paid
for
the
fixtures
and
equipment
in
question.
The
contract
was
the
subject
of
arm’s
length
negotiations
over
a
protracted
period
and
was
not
a
mere
sham
or
subterfuge
but
represents
the
bargain
arrived
at
by
the
parties
and
in
my
opinion
is
decisive
in
the
circumstances
of
this
case.
The
statutory
rule
outlined
in
Section
20(6)
of
the
Income
Tax
Act
quoted
above
applies
only
‘
where
an
amount
can
reasonably
be
regarded
as
being
in
part
consideration
for
disposition
of
depreciable
property
of
a
taxpayer
of
a
prescribed
class
and
as
being
in
part
consideration
for
something
else’’.
No
question
therefore
arises
under
that
provision
as
the
circumstances
of
this
particular
appeal
do
not
fall
within
the
ambit
of
the
provision.
I
do
not
accept
the
original
premise
of
counsel
for
the
Minister
that
the
rule
so
outlined
applies
here
for
the
simple
reason
that
the
parties
to
the
sale
of
the
depreciable
property
agreed
on
the
capital
cost
thereof
to
the
respondent,
the
purchaser.
The
appeal
is,
therefore,
dismissed
with
costs.
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