Lamarre
Proulx,
T.C.C.J.:—This
is
an
appeal
under
the
informal
procedure
from
an
assessment
of
the
Minister
of
National
Revenue
(the
"Minister")
for
1988.
The
point
at
issue
is
whether
an
amount
of
$3,009
relating
to
the
acquisition
of
three
shares
in
a
film
to
be
produced,
but
which
was
not
completed,
may
grant
entitlement
to
a
deduction
in
computing
the
appellant's
income
for
1988.
The
appellant
decided
to
take
a
$10,000
interest
in
the
acquisition
of
10
shares
in
a
film.
Each
share
was
worth
$1,000
(Exhibit
A-1:
agreement
of
purchase
and
investment).
The
appellant
wrote
two
cheques,
one
in
the
amount
of
$3,500
dated
October
28,
1988,
the
other
dated
December
25,
1988
in
the
amount
of
$6,500.
The
promoter
wrote
the
following
on
October
17,
1988
(Exhibit
A-4)
in
order
to
get
the
appellant
to
invest:
Enclosed
please
find
the
document
issued
by
Les
Productions
Chantfilm/
Visa-
mondo
Inc.
You
need
only
sign
the
last
page
and
return
it
to
us
with
your
two
cheques.
These
must
represent
35
per
cent
of
your
purchase
(dated
October
28,
1988)
and
the
balance
(dated
December
28,
1988).
These
cheques
must
be
written
to
the
order
of
"Les
Productions
Chantfilm
Inc.”
I
remind
you
that
the
tax
deduction
is
30
per
cent
at
the
federal
level
and
166
per
cent
at
the
provincial
level.
You
will
receive
the
federal
(T
1-CP)
and
provincial
(statement
9)
tax
forms
before
March
30,
1989.
In
addition,
you
will
receive
a
cheque
representing
65
per
cent
of
your
purchase
in
the
first
week
of
January
1989,
and
20
per
cent
by
May
31,1989
at
the
latest,
thus
totalling
a
return
equal
to
85
per
cent
of
your
investment.
[Translation.]
The
appellant
managed
to
stop
payment
on
the
second
cheque;
his
reason
was
not
mentioned.
Consequently,
only
the
first
amount
was
paid.
The
appellant
thus
purchased
three
shares
in
a
film
purportedly
in
the
production
phase
for
the
amount
of
$3,500
on
October
28,
1988
(Exhibits
A-3
and
A-4).
On
May
17,
1989,
the
film’s
producer
informed
the
Department
of
National
Revenue,
with
copies
to
the
investors,
that
the
film
had
not
yet
been
made
and
requested
an
extension
until
September
1989
in
order
to
provide
the
certification
required
to
classify
the
film
in
class
12
(Exhibit
A-4).
On
May
26,
1989,
the
promoter
wrote
to
the
investors
explaining
to
them
the
procedure
for
obtaining
the
tax
deduction
sought
(Exhibit
A-6).
In
August
1989,
a
letter
from
the
attorneys
of
the
film
production
company
was
sent
to
the
project
promoter
to
say
that
the
production
would
likely
be
completed
in
the
following
two
or
three
weeks
(Exhibit
A-5).
An
exchange
of
correspondence
between
the
appellant
and
the
accounting
firm
to
which
the
project
promoter
belonged
was
filed
in
the
record
of
evidence
(Exhibits
A-8
and
A-9).
These
letters
were
written
between
February
26,
1990
and
May
7,
1990.
There
was
also
a
note
from
the
appellant
dated
October
29,
1990,
explaining
the
status
of
the
situation
regarding
the
film
project
(Exhibit
A-7).
The
appellant
included
a
deduction
in
the
amount
of
$3,009
in
computing
his
income
for
the
year
1988.
The
reason
for
the
deduction
changed
a
number
of
times.
At
first,
the
notice
of
objection
mentioned
a
capital
cost
allowance
under
Class
10
of
Schedule
II
of
the
Income
Tax
Regulations
(the"Regulations")
on
the
ground
that
this
was
an
amount
representing
30
per
cent
of
the
amount
invested,
that
is
$10,000.
It
will
be
remembered
that
the
appellant
had
stopped
payment
on
the
second
cheque
and
that
only
an
amount
of
$3,500
had
been
invested.
The
notice
of
appeal
requested
deduction
of
the
amount
of
$3,009
as
a
terminal
loss
under
subsection
20(16)
of
the
Income
Tax
Act,
R.S.C.
1952,
c.
148
(am.
S.C.
1970-71-72,
c.
63)
(the"Act").
Analysis
A
certified
feature
film
or
a
certified
production
is
a
Class
12
property,
and
the
capital
cost
allowance
permitted
is
100
per
cent.
Furthermore,
this
allowance
is
not
subject
to
the
rental
income
restriction
provided
at
subsection
1100(15)
of
the
Regulations.
Subsection
1104(1)
of
the
Regulations
defines
a
certified
feature
film
as
well
as
a
certified
production.
It
provides
that
the
certification
is
granted
by
the
Minister
of
Communications
and
that
the
film
or
the
production
must
meet
specific
requirements
stated
in
those
definitions.
The
purported
film
in
question
had
not
obtained
certification
in
1988.
A
motion
picture
film
which
is
not
included
in
Class
12
is
a
property
included
in
Class
10,
which
provides
for
a
capital
cost
allowance
of
30
per
cent.
However,
this
depreciation
is
restricted
to
the
rental
income
earned
from
the
film
as
provided
in
subsection
1100(15)
of
the
Regulations
cited
above.
Subsection
18(1)
of
the
Act
reads
as
follows:
18(1)
In
computing
the
income
of
a
taxpayer
from
a
business
or
property
no
deduction
shall
be
made
in
respect
of:
(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.
.
.
.
Paragraph
20(1)(a)
reads
as
follows:
20(1)
Notwithstanding
paragraphs
18(1)(a),
(b)
and
(h),
in
computing
a
taxpayer's
income
for
a
taxation
year
from
a
business
or
property,
there
may
be
deducted
such
of
the
following
amounts
as
are
wholly
applicable
to
that
source
or
such
part
of
the
following
amounts
as
may
reasonably
be
regarded
as
applicable
thereto:
(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;
This
capital
cost
is
the
depreciation
of
a
property.
The
Regulations
classify
property
and
determine
the
depreciation
rate.
As
we
have
seen,
the
taxpayer
was
not
entitled
to
capital
cost
allowances
either
for
a
Class
12
property
or
for
a
Class
10
property,
on
the
one
hand
because
the
film
was
not
certified,
and
on
the
other
hand
because
the
film
had
not
produced
rental
income.
The
appellant
then
proposed
that
he
was
entitled
to
a
deduction
for
terminal
loss.
Subsection
20(16)
of
the
Act
concerning
terminal
loss
reads
as
follows:
20(16)
Notwithstanding
paragraphs
18(1)(a),
(b)
and
(h),
where
at
the
end
of
a
taxation
year,
(a)
the
aggregate
of
all
amounts
determined
under
subparagraphs
13(21)(f)(i)
to
(ii.2)
in
respect
of
a
taxpayer's
depreciable
property
of
a
particular
class
exceeds
the
aggregate
of
all
amounts
determined
under
subparagraphs
13(21)(f)(iii)
to
(viii)
in
respect
thereof,
and
(b)
the
taxpayer
no
longer
owns
any
property
of
that
class,
in
computing
the
taxpayer's
income
for
the
year
(c)
there
shall
be
deducted
the
amount
of
the
excess
determined
under
paragraph
(a),
and
(d)
no
amount
shall
be
deducted
for
the
year
under
paragraph
(1)(a)
in
respect
of
property
of
that
class,
and
the
amount
of
the
excess
determined
under
paragraph
(a)
shall
be
deemed
to
have
been
deducted
under
paragraph
(1)(a)
in
computing
the
taxpayer’s
income
for
the
year
from
a
business
or
property.
[Emphasis
added.]
For
subsection
20(16)
of
the
Act
to
apply,
the
property
must
be
depreciable
property
and
the
property
in
the
class
in
question
must
no
longer
be
in
the
taxpayer's
possession.
Did
the
shares
in
the
film
constitute
a
depreciable
asset?
The
question
need
not
be
answered
for
1988
because
the
evidence
also
clearly
shows
that
the
appellant
still
owned
those
shares
at
the
end
of
1988.
Can
there
be
a
capital
loss
under
section
39
of
the
Act?
The
capital
loss
described
in
section
39
of
the
Act
does
not
apply
to
a
depreciable
asset.
However,
this
loss
is
calculated
at
the
time
of
disposition
of
the
asset
and
in
1988,
there
was
no
evidence
of
disposition
of
this
asset
for
that
year.
In
the
circumstances,
the
appeal
is
dismissed.
Appeal
dismissed.
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