Kempo,
T.C.J.:—This
appeal
is
in
respect
of
the
appellant’s
1980
taxation
year.
It
concerns
the
respondent's
disallowance,
as
being
an
outlay
of
capital,
of
a
deduction
claimed
in
the
amount
of
$37,529.65
in
respect
of
the
appellant's
farming
business.
This
amount
represents
the
appellant’s
share
of
the
reconstruction
cost
of
a
water
dam
located
on
Crown
land
adjacent
to
his
farm.
The
respondent
allowed
a
deduction
in
the
amount
of
$1,876.48
for
the
year
in
accordance
with
paragraph
20(1)(b)
of
the
Income
Tax
Act
(the
“Act")
on
the
basis
that
the
subject
expenditure
was
an
eligible
capital
expenditure
within
the
meaning
of
paragraph
14(5)(b)
of
the
Act.
The
appellant
claims
entitlement
for
the
full
amount
as
being
an
expenditure
on
account
of
revenue
pursuant
to
paragraph
18(1)(a)
of
the
Act.
Accordingly
the
real
issue
is
with
respect
to
the
characterization
of
this
expenditure.
Both
parties
agree
through
their
respective
counsel
that
if
its
Operative
characterization
as
a
current
expenditure
fails,
it
is
to
attract
the
eligible
capital
treatment
accorded
by
the
respondent
as
aforesaid
by
the
reassessment
under
appeal.
That
the
expenditure
was
made
for
the
purpose
of
gaining
or
producing
income
from
business
or
property
within
the
meaning
of
paragraph
18(1
)(a)
is
admitted.
The
appellant’s
notice
of
appeal
recites
a
brief
summary
of
the
facts
which
read
as
follows:
The
Inskips
own
10600
acres
of
land
which
they
operate
and
report
as
a
cattle
ranch
and
is
their
only
source
of
income.
In
addition
they
hold
a
grazing
only
lease
on
4820
acres
of
adjoining
Crown
land.
The
lease
was
entered
into
on
October
24,
1971
and
runs
for
twenty
years
ending
October
1992.
This
Crown
land
incorporates
O’Connor
Lake
and
Noble
Creek
and
Mr.
Inskip
must
periodically
obtain
a
Water
license
to
use
water
from
these
bodies
for
irrigation
purposes.
The
dam
in
question
is
situated
on
these
waters
and
on
the
adjoining
Crown
land.
In
October
1978
the
Department
of
Environment
inspected
this
dam,
which
has
been
in
existance
[sic]
and
in
active
use
for
many
years
and
judged
it
to
be
“an
imminent
danger
to
life
and
property”.
This
danger
was
judged
for
both
the
immediate
area
and
also
to
the
North
Thompson
flood
plain
further
down
river
which
had
developed
residentially.
The
people
who
held
the
immediate
water
licenses,
the
Inskip’s
and
Hayward
Holdings,
were
ordered
to
contribute
to
the
repair
of
the
dam
to
government
specifications
or
destroy
it.
The
benefit
of
this
dam
extends
far
past
the
Inskip
holdings
to
numerous
others
who
were
not
forced
to
contribute
to
its
repairs.
The
government
agency
ARDSA
would
agree
to
pay
the
largest
portion
of
the
cost
if
the
Inskip’s
and
Hayward
Holdings
would
divide
the
balance.
The
surveyors,
engineers,
construction
companies
were
all
contracted
for
and
supervised
by
the
controlling
government
agencies.
The
Inskips
had
no
control
over,
nor
were
they
included
in
any
of
these
operations
or
decisions.
In
order
to
afford
this
project,
the
Inskips
had
to
sell
an
unusually
large
amount
of
immature
cattle
before
their
normal
market
time,
and
at
a
much
lower
price.
This
forced
cattle
sale
income
was
a
direct
result
of
the
forced
repairs
to
the
dam.
The
position
taken
in
the
notice
of
appeal
is
that:
The
amount
spent
on
repairs
to
this
dam
were
claimed
as
an
expense
on
the
original
return
for
the
following
reasons:
1.
The
structure
is
situated
on
land
and
water
owned
and
controlled
by
the
Crown
and
its
government
agencies.
It
can
never
be
owned
by
an
individual.
One
of
the
basic
rules
for
claiming
capital
cost
allowance
is
that
the
item
must
be
owned
or
with
a
leasehold
interest
by
an
individual.
2.
The
structure
cannot
be
sold
by
the
taxpayer
and
therefore
no
gain
or
loss
could
ever
be
realized.
3.
The
grazing
lease
and
water
rights
can
not
be
sold
by
the
present
holders
but
can
only
be
transferred
at
the
stipulated
rates
and
only
under
certain
strict
conditions
for
the
balance
of
the
terms
and
only
with
the
approval
of
the
appropriate
government
agencies.
One
of
these
conditions
is
that
all
of
their
land
must
first
be
sold.
These
leases
and
rights
cannot
be
sold
separately
and
therefore
no
gain
or
loss
can
be
recognized
at
any
time.
This
situation
does
not
appear
to
fit
into
any
of
the
classes
set
down
in
the
Tax
Act.
Any
use
that
the
taxpayer
has
through
his
lease
and
water
rights
is
tenuous
and
limited
by
time
and
can
be
revoked
at
any
time
by
the
government
branches
concerned.
It
does
not
fulfill
the
basic
rule
for
claiming
capital
cost
allowance
or
cumulative
eligible
capital
amount
since
no
control
or
ownership
is
involved.
We
feel
that
for
these
reasons
the
amount
spent
in
repairs
on
this
dam
should
be
claimed
as
an
operating
expense
in
the
year
incurred.
Counsel,
in
argument
at
the
hearing,
stressed
that
the
appellant
was
required
to
make
the
expenditure
in
question
so
as
to
preserve
and
continue
his
right
to
store
and
take
water
for
irrigation
purposes.
These
rights
remained
unchanged
as
to
the
water
volume
permitted
to
be
used
in
that
it
was
the
same
entitlement
as
before
reconstruction.
No
enduring
benefit
to
the
appellant
ensued
or
was
thereby
created,
nor
was
one
intended.
The
fact
that
the
dam
was
reconstructed
rather
than
repaired
was
not
desired
nor
authorized
by
the
appellant.
It
was
not
within
his
control,
jurisdiction
or
influence
to
have
changed
the
course
of
events
in
this
respect.
As
it
turned
out
the
new
dam
was
larger.
This
did
not
entitle
the
appellant
to
take
more
water
than
previously,
nor
did
he
want
or
need
any
more
to
run
his
farming
business.
He
was
not
intending
nor
seeking
to
expand
his
business.
Rather
he
was
forced
to
become
an
unwilling
participant
solely
to
maintain
what
he
already
had.
The
appellant’s
duty
to
repair
the
dam
remained
as
before,
but
was
obviously
financially
minimized
as
a
consequence
for
the
near
future.
Evidentiary
support
for
the
above
position
was
given
by
the
appellant's
wife.
The
Book
of
Documents
(Exhibit
A-1)
contains,
inter
alia,
copies
of
an
Order
pursuant
to
section
37(1)
of
the
Water
Act,
R.S.B.C.
1979,
c.
429
to
repair
or
breach
the
works
and
a
covering
letter
(Tab
5),
copy
of
an
Order
pursuant
to
section
38
of
that
enactment
rescinding
the
former
Order
coupled
with
a
new
Order
to
improve
or
breach
the
works
plus
two
Orders
of
time
extension
(Tab
7),
copy
of
letters
regarding
approval
of
repairs,
ARDSA
financing
agreement,
conduct
of
the
project
and
engineer
function
(Tabs
10,
11,
12
and
13
respectively),
copy
of
grazing
lease
(Tab
9)
and
copy
of
the
material
water
licences
(Tab
8).
The
initial
Order
to
repair
or
breach
had
been
appealed
by
the
appellant
and
his
proposal
for
interim
repair
measures
(Exhibit
R-1)
was
granted.
The
engineer’s
report
to
the
British
Columbia
Ministry
of
Environment,
Water
Rights
Branch
(Exhibit
R-2)
explains
that
the
dam-works
had
to
be
knocked
down
because
of
the
access
problem
for
operating
earthmoving
machinery
during
construction.
The
applicable
provisions
of
the
British
Columbia
Water
Act,
supra,
that
were
said
to
be
material
are:
Transfer
of
licence
or
permit
13.
Every
licence
and
permit
that
is
made
appurtenant
to
any
land,
mine
or
undertaking
shall
pass
with
conveyance
or
other
disposition
of
it.
Transfer
of
appurtenancy
of
licence
16.
On
the
application
of
a
licensee
and
compliance
by
the
licensee
and
the
proposed
transferee
with
the
comptroller’s
or
the
regional
water
manager’s
directions
as
to
giving
notice,
the
comptroller
or
the
regional
water
manager
may,
on
the
terms
he
considers
proper,
transfer,
in
whole
or
in
part,
the
rights
and
obligations
granted
and
imposed
under
a
licence
from
the
licensee
to
the
proposed
transferee,
and
may
issue
a
new
licence
to
the
transferee
or
transferor,
or
both,
and
determine
the
appurtenancy
of
it.
Suspension
and
cancellation
of
rights
and
licences
20.
(2)
The
rights
of
every
licensee
under
a
licence
are
subject
to
suspension
for
any
time
by
the
comptroller,
and
every
licence
and
all
rights
under
it
are
subject
to
cancellation
in
whole
or
in
part
by
the
comptroller
for
(g)
the
licensee’s
failure
to
comply
with
an
order
of
the
comptroller
or
engineer.
Powers
of
engineer
37.
(1)
In
addition
to
all
other
powers
given
under
this
Act
and
the
regulations,
every
engineer
may
(d)
order
the
repair,
alteration,
improvement,
removal
of
or
addition
to
any
works;
Counsel
for
the
Minister
called
no
evidence.
His
position
on
making
the
subject
reassessment
is
as
set
out
in
his
reply
to
notice
of
appeal,
the
material
portions
being
as
follows:
2.
He
admits
the
allegations
of
fact
contained
in
the
brief
summary
of
events
set
out
on
page
one
of
the
Appellant’s
Notice
of
Appeal
(in
the
form
of
a
two
page
letter
dated
February
28,
1984).
3.
He
admits
that
in
calculating
his
income
for
the
1980
taxation
year
the
Appellant
treated
his
expenditure
in
respect
of
the
said
dam
as
an
expense
deductible
from
his
income
for
the
three
reasons
set
out
on
page
2
of
the
Appellant’s
Notice
of
Appeal.
4.
He
specifically
denies
the
Appellant’s
allegations
that
the
said
expenditure
was
spent
on
repairs
to
the
existent
dam.
5.
He
specifically
denies
the
Appellant’s
allegation
that
no
ownership
or
control
was
involved
in
this
transaction
although
he
admits
that
the
Appellant
did
not
own
the
existent
dam
or
the
new
dam
or
the
land
upon
which
it
was
constructed.
6.
He
admits
that
the
Appellant
cannot
sell
the
new
dam
and
cannot
realize
a
gain
or
loss
in
respect
of
such
a
disposition.
7.
He
admits
that
because
the
Appellant
does
not
own
or
lease
the
new
dam
the
Appellant
cannot
claim
capital
cost
allowance
in
respect
of
the
cost
to
him
of
its
construction
but
he
expressly
denies
the
Appellant’s
allegation
that
because
he
exercises
no
control
or
ownership
over
the
new
dam
his
expenditure
in
respect
of
its
construction
cannot
be
dealt
with
in
accordance
with
the
provisions
of
the
Income
Tax
Act
relating
to
cumulative
eligible
capital.
8.
He
admits
that
in
calculating
his
income
for
the
1980
taxation
year
the
Appellant
treated
the
said
expenditure
as
a
current
expense
which
was
deductible
from
his
income
from
the
ranching
business
and
that
by
Notice
of
Reassessment
mailed
December
2,
1983
the
Minister
of
National
Revenue,
the
Respondent,
reassessed
the
income
of
the
Appellant
for
the
1980
taxation
year
by
disallowing
the
said
deduction
and
gave
the
aid
expenditure
treatment
as
an
eligible
capital
expenditure
in
accordance
with
the
provisions
of
Paragraphs
14(5)(a)
and
(b)
of
the
Income
Tax
Act.
9.
The
Respondent
allowed
the
Appellant
a
deduction
of
$1,876.48
from
his
income
from
the
ranching
business
for
the
1980
taxation
year
in
respect
of
the
said
eligible
capital
expenditure
in
accordance
with
the
provisions
of
Paragraph
20(1)(b)
of
the
Income
Tax
Act,
calculated
as
follows:
|
Expenditure
in
respect
of
dam
construction
|
$37,529.65
|
|
1980
Eligible
Capital
Expenditure
(50%)
|
18,764.83
|
|
1980
Cumulative
Eligible
Capital
Amount
|
|
|
(10%
per
year)
|
1,876.48
|
10.
In
reassessing
the
Appellant
for
his
1980
taxation
year
as
set
out
in
paragraphs
8
and
9
herein
the
Respondent
relied
inter
alia,
on
the
following
assumptions
of
fact:
(a)
the
facts
hereinbefore
alleged;
(b)
the
existent
dam
was
completely
knocked
down
in
the
course
of
the
construction
work
and
the
aid
expenditure
was
made
in
respect
of
the
construction
of
a
new
dam
on
the
same
site;
(c)
the
Appellant
owned
and
controlled
a
licence
to
use
water
for
irrigation
purposes
which
was
necessary
to
his
ranching
business
and
the
construction
of
the
new
dam
was
necessary
to
the
preservation
and
exercise
of
the
rights
conferred
upon
the
Appellant
by
the
said
licence;
(d)
the
expenditure
of
$37,529.65
for
the
construction
of
the
new
dam
was
made
in
respect
of
the
Appellant’s
ranching
business
and
for
the
purpose
of
gaining
or
producing
income
from
that
business;
(e)
the
said
expenditure
was
made
in
the
1980
taxation
year;
(f)
the
said
expenditure
was
made
by
the
Appellant
only
once
and
for
all
and
with
a
view
to
bringing
into
existence
an
asset
or
advantage
for
the
enduring
benefit
of
the
Appellant’s
ranching
business
and
on
account
of
capital;
(g)
the
said
expenditure
was
not
a
current
expense
made
in
the
ordinary
course
of
the
Appellant’s
ranching
business
operations;
(h)
the
said
expenditure
was
an
eligible
capital
expenditure
within
the
meaning
of
Paragraph
14(5)(b)
of
the
Income
Tax
Act;
(i)
at
all
times
material
hereto
the
Appellant
did
not
own
the
new
dam
or
the
land
upon
which
it
was
constructed.
11.
The
Respondent
relies,
inter
alia,
upon
Paragraphs
14(5)(a)
and
(b)
and
20(1)(b)
of
the
Income
Tax
Act,
S.C.
1970-71-72,
c.
63,
as
amended.
12.
The
Respondent
submits
that
the
expenditure
made
by
the
Appellant
in
respect
of
the
construction
of
the
new
dam
was
not
an
outlay
or
expense
made
in
the
ordinary
course
of
the
ranching
business
operations
of
the
Appellant
and
is
not
deductible
from
the
Appellant’s
income
from
that
business
in
the
1980
taxation
year
as
a
Current
expense.
13.
The
Respondent
further
submits
that
the
said
expenditure
was
made
by
the
Appellant
in
the
1980
taxation
year
in
respect
of
his
ranching
business
on
account
of
capital
and
for
the
purpose
of
gaining
or
producing
income
from
that
business
and
was
correctly
characterized
by
the
Respondent
as
an
eligible
capital
expenditure
in
accordance
with
the
provisions
of
Paragraph
14(5)(b)
of
the
Income
Tax
Act,
irrespective
of
the
fact
that
the
Appellant
did
not
own
the
said
new
dam
or
the
land
upon
which
it
was
constructed.
14.
The
Respondent
further
submits
that
he
correctly
reassessed
the
income
of
the
Appellant
for
the
1980
taxation
year
by
disallowing
the
deduction
claimed
by
the
Appellant
in
respect
of
the
costs
of
constructing
the
new
dam
and
by
allowing
the
Appellant
to
deduct
in
respect
the
said
costs
from
his
income
from
the
ranching
business
an
amount
of
$1,876.48
representing
10%
of
his
cumulative
eligible
capital
at
the
1980
taxation
year
end
in
accordance
with
the
provisions
of
Paragraphs
14(5)(a)
and
(b)
and
20(1)(b)
of
the
Income
Tax
Act.
Counsel,
in
his
argument,
urged
the
Court
to
find
that
this
situation
is
essentially
a
question
of
matters
involving
replacement
versus
repair
of
a
capital
asset
which,
in
this
case,
necessarily
includes
the
dam
as
the
material
and
substantive
component
of
the
appellant's
asset,
the
licence.
That
the
dam
was
not
owned
by
the
appellant
is
not
material
to
the
issue.
This
case
really
concerns
obsolescence
of
an
asset
and
its
consequent
replacement
as
opposed
to
mere
repair.
The
enduring
benefit
occasioned
by
the
expenditure
was
the
preservation
of
the
water
rights
under
a
licence
which
was
about
to
lapse
due
to
the
state
of
the
dam
together
with
a
substantial
lessening
of
its
annual
repair
costs.
A
new,
bigger
and
better
dam
was
had
with
an
effective
life-span
of
at
least
30
years.
Analysis
Counsel
for
the
respondent
makes
a
good
argument
in
the
context
of
his
restrictive
approach.
Its
attractiveness
lies
in
its
very
simplicity.
However
in
my
view
it
is
much
too
superficial.
It
focuses
on
the
physical
thing,
the
new
dam,
and
fails
to
address
the
over-all
benefit
derived
from
the
expenditure
which
is
called
for
in
this
situation.
Counsel
is
correct
in
his
submission
that
non-ownership
of
the
dam
would
not
be
decisive,
vide,
M.N.R.
v.
Canadian
Glassine
Co.
Ltd.,
[1976]
C.T.C.
141
at
157,
76
D.T.C.
6083
at
6084
(F.C.A.).
While
that
case
is
factually
dissimilar
in
many
aspects,
I
have
observed
that
the
Court
approached
the
circumstances
in
a
broad
and
purposeful
way.
Pratte,
J.,
at
143
(D.T.C.
6083),
found
that
the
expenditure
had
increased
the
value
and
desirability
of
the
respondent's
plant,
that
it
had
been
made
with
a
view
to
bringing
into
existence
an
asset
or
an
advantage
for
the
respondent's
enduring
benefit
and
that
it
was
incurred
for
the
establishment
of
the
profit-making
structure
of
the
respondent's
trade.
Kerr,
D.J.,
at
142
(D.T.C.
6084),
stated
he
was
in
substantial
agreement
with
the
conclusions
of
Pratte,
J.,
adding
his
own
view
that
the
scales
would
have
inclined
in
favour
of
the
expenditure
being
an
outlay
of
capital.
Any
attempt
to
draw
factual
analogies
between
those
at
bar
and
those
of
Glassine
would
bear
little
fruit
and
could,
in
my
opinion,
lead
to
undue
distortion
of
the
actual
circumstances
at
hand.
Counsel
for
the
appellant
urged
the
Court
to
consider
and
apply
the
views
of
Le
Dain,
J.
(dissenting)
in
Glassine
and
the
analysis
adopted
by
Thurlow,
A.C.J.
in
Oxford
Shopping
Centres
Ltd.
v.
The
Queen,
[1980]
C.T.C.
7;
79
D.T.C.
5458,
affirmed
[1981]
C.T.C.
128;
81
D.T.C.
5065.
Counsel
for
the
Minister
submitted
that
Oxford
was
a
very
special
case
and
the
decision
should
be
confined
to
its
very
special
factual
circumstances.
I
do
not
believe
that
any
attempt
on
my
part
to
synergize
the
two
decisions
would
bring
significant
enlightenment
or
assistance
to
the
case
before
me.
Mr.
Justice
Estey,
speaking
for
the
Supreme
Court
of
Canada
in
Johns-
Manville
Canada
Inc.
v.
The
Queen,
[1985]
2
C.T.C.
111;
85
D.T.C.
5373
in
the
course
of
reviewing
the
general
approach
to
the
problem
taken
from
various
United
Kingdom
and
Australian
cases
observed,
at
119
(D.T.C.
5378),
that:
There
is
almost
an
endless
rainbow
of
expressions
used
to
differentiate
between
expenditures
in
the
nature
of
charges
against
revenue
and
expenditures
which
are
capital.
It
has
been
said
that
the
terminology
employed
is
merely
an
attempt
to
identify
particular
factors
which
may
tilt
the
scale
in
a
particular
case
in
favour
of
one
or
the
other
conclusion.
And
further
down
the
page
he
acknowledges
that
analogies
in
this
field
were
infinite.
Of
particular
interest
is
his
caution,
at
120
(D.T.C.
5379),
that
it
is
of
little
help
..
.
to
attempt
to
classify
the
character
of
the
expenditure
according
to
the
subject
of
that
expenditure.
While
the
expenditure
before
me
contains
elements
which,
prima
facie,
point
to
those
of
capital
account,
it
is
important
not
to
be
misled
by
appearances.
That
the
final
answer
lies
in
the
fact
that
the
water
licences
could
not
exist
without
the
dam
is
illusory,
and
begs
the
very
question.
It
turns,
in
my
view,
the
real
characterization
of
the
expenditure
on
its
head,
and
fallaciously
purports
to
answer
it.
When
seen
in
this
light,
the
above
noted
caution
of
Estey,
J.
in
Johns-Manville
is
well
taken,
which
is
that
the
subject
of
the
expenditure
may
not
be-speak
its
true
classification.
I
consider
that
the
evidence
in
its
entirety,
bringing
to
it
a
commonsense
appreciation
of
all
the
guiding
features,
weighs
in
favour
of
a
bona
fide
expenditure
having
been
made
by
the
appellant
in
the
course
and
for
the
purpose
of
his
regular
day-to-day
business
operations.
It
was
not,
to
use
the
words
of
Pratte,
J.
in
Glassine,
supra,
at
143
(D.T.C.
6083),
“an
expenditure
incurred
for
the
establishment
of
the
profit-making
structure
of
the
respondent’s
trade”.
It
was,
in
my
view,
incurred
in
the
operation
of
that
structure.
The
advantage
being
sought,
in
the
circumstances
of
this
case,
was
in
respect
of
the
current
operations
of
the
appellant.
The
expenditure
in
question
prevented
that
operation
from
being
severely
crippled.
There
is
no
evidence
that
the
value
of
the
farming
operation
was
any
different
from
its
value
before
the
dam
reconstruction.
Rather
than
enhancing
the
business,
and
thus
acquiring
an
advantage
of
enduring
nature
likened
to
an
assembly
of
assets
in
the
capital
structure
of
the
business,
the
expenditure
was
shown
to
have
merely
maintained
what
was
had
before.
And
what
was
had
before,
and
after,
was
water-usage
rights
which
remained
unchanged.
These
water
rights
were
employed
solely
in
the
operational
side
of
the
business,
that
is,
to
grow
the
hay
to
feed
the
cattle
which
are
then
sold.
The
water
rights
were
used
in
the
course
of
earning
the
income
stream.
That
the
water
rights
were
no
longer
in
jeopardy
after
reconstruction,
and
that
their
use
would
continue
for
some
indefinite
time
in
the
future,
does
not
significantly
taint
the
purpose
and
use
of
the
expenditure.
Decision
For
the
reasons
given,
the
appellant
has
shown
that
the
Minister
has
erred
in
the
subject
reassessment.
In
the
result,
the
appellant’s
appeal
is
allowed,
with
costs,
and
the
matter
is
referred
back
to
the
Minister
for
reconsideration
and
reassessment
on
the
basis
that
the
amount
of
$7,529.65
was
an
outlay
or
expense
made
or
incurred
by
the
appellant
for
the
purpose
of
gaining
or
producing
income
from
his
farming
business
pursuant
to
paragraph
18(1)(a)
of
the
Income
Tax
Act.
Appeal
dismissed.
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