The
Associate
Chief
Justice:—This
action
by
way
of
appeal
from
a
judgment
of
the
Tax
Review
Board
dated
April
29,
1982,
allowing
the
defendant's
appeal
in
respect
of
its
1977
and
1978
taxation
years,
came
on
for
hearing
at
London,
Ontario,
on
April
10
and
11,
1985.
At
issue
is
the
taxpayer's
eligibility
for
the
year-end
inventory
allowance
in
paragraph
29(1
)(gg)
of
the
Income
Tax
Act:
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
of
such
part
of
the
following
amounts
as
may
reasonably
be
regarded
as
applicable
thereto:
(gg)
an
amount
in
respect
of
any
business
carried
on
by
the
taxpayer
in
the
year,
equal
to
that
portion
of
3%
of
the
cost
amount
to
the
taxpayer,
at
the
commencement
of
the
year,
of
the
tangible
property
(other
than
real
property
or
an
interest
therein)
that
was
(i)
described
in
the
taxpayer’s
inventory
in
respect
of
the
business,
and
(ii)
held
by
him
for
sale
or
for
the
purposes
of
being
processed,
fabricated,
manufactured,
incorporated
into,
attached
to,
or
otherwise
converted
into
or
used
in
the
packaging
of,
property
for
sale
in
the
ordinary
course
of
the
business
that
the
number
of
days
in
the
year
is
of
365;
and
[added
by
S.C.
1977-78,
c.
1,
s.
14(1)].
In
1977
and
1978,
the
defendant
was
an
authorized
dealer
under
an
“Authorized
Agricultural
Dealer
Agreement,"
of
agricultural
equipment
and
machines
for
John
Deere
Limited.
During
the
years
in
question,
the
relationship
between
the
defendant
company
and
John
Deere
Limited
was
governed
by
an
Agricultural
Dealer
Agreement
which
was
executed
by
the
parties
on
an
annual
basis.
The
relevant
provisions
of
that
agreement
are:
8.
DEALER’S
DUTY
TO
STORE
AND
CARE
FOR
CONSIGNED
GOODS.
The
Company
retains
title
to
Consigned
Goods
and
the
Dealer
will
hold
them
as
the
property
of
the
Company
unless
and
until
they
are
sold
or
leased
by
him
on
behalf
of
the
Company
under
the
authority
set
out
in
Section
9.
Dealer
will
keep
Consigned
Goods
properly
warehoused
and
protected
and
will
not
permit
removal
of
any
part
from
any
item
of
Consigned
Goods.
He
is
responsible
for
all
loss,
damage
or
deterioration
to
Consigned
Goods
after
delivery
to
him.
The
Company
will
arrange
for
physical
damage
insurance
on
Consigned
Goods
against
perils
listed
in
a
certificate
of
insurance
to
be
supplied
to
the
Dealer.
The
Cost
of
such
coverage
will
be
charged
to
the
Dealer
and
the
Dealer
agrees
to
pay
the
same.
The
Dealer
will
promptly
pay
to
the
Company
the
full
amount
of
any
loss,
damage
or
deterioration
in
Consigned
Goods,
however
caused,
which
is
not
covered
by
the
foregoing
insurance.
The
Dealer
will
pay
when
due
all
charges
for
customs
duties,
sales,
use,
excise,
personal
property,
or
other
similar
taxes
and
penalties,
license
fees
and
other
charges
of
any
kind
that
may
be
assessed
or
charged
on
the
Goods,
the
sale,
lease,
or
use
thereof,
or
the
Dealer’s
premises.
If
the
Dealer
fails
to
pay
such
charges,
the
Company
may
pay
them
and
the
Dealer
agrees
to
reimburse
the
Company
on
demand
for
all
moneys
so
paid
out,
with
interest
at
the
highest
contract
rate
permitted
by
law
but
not
in
excess
of
14%
per
annum.
At
the
request
of
the
Company,
the
Dealer
will
ship
any
item
or
items
of
Consigned
Goods
requested
by
the
Company
to
the
destination
and
in
the
manner
directed
by
the
Company,
F.O.B.
the
Dealer’s
town.
10.
CARRY-OVER
DEPOSIT.
The
Company
publishes
a
Schedule
of
Selling
Periods
for
Consigned
Goods.
This
Schedule
provides
an
“Original
Selling
Period”
for
each
class
of
machine,
applicable
to
all
of
the
machines
of
that
class
shipped
to
the
Dealer
during
each
“shipping
period”
into
which
the
year
is
divided.
In
the
case
of
most
classes
of
machines,
the
Schedule
also
provides
an
“Extended
Selling
Period”
applicable
to
a
stated
percentage
of
machines
of
like
kind
in
each
particular
class
shipped
during
the
shipping
period,
should
they
still
be
in
the
Dealer’s
possession
unsold
at
the
end
of
the
Original
Selling
Period.
If
the
Dealer
has
failed
to
sell
during
the
Original
Selling
Period
any
machine
which
is
not
eligible
for
the
Extended
Selling
Period,
he
agrees,
as
security
for
the
discharge
of
his
obligations
hereunder,
to
pay
to
the
Company
in
cash
a
carryover
deposit
of
25%
of
the
wholesale
price
as
of
that
date.
A
25%
carry-over
deposit
will
be
paid
on
the
remaining
machines
shipped
during
the
shipping
period
if
they
remain
unsold
at
the
end
of
the
Extended
Selling
Period.
Dealer
will
also
pay
an
additional
carry-over
deposit
on
the
last
day
of
each
succeeding
twelve
month
period
after
carry-over
deposit
first
became
payable
on
any
machine,
so
long
as
it
remains
on
hand
unsold,
in
the
amount
of
25%
of
the
wholesale
price
of
the
machine.
After
the
third
25%
deposit
has
been
made
the
annual
payment
shall
be
25%
of
the
difference
between
the
wholesale
price
of
the
machine
and
the
sum
of
carry-over
deposits
made
previously
for
that
machine.
The
Company
may
designate
certain
machines
shipped
as
being
available
for
immediate
retail
sale
only.
The
Company
may
from
time
to
time
designate
a
higher
carry-over
deposit
and
shorter
Original
Selling
Period
on
such
machines.
If
the
Dealer
sells
a
machine
on
which
there
has
been
made
a
carry-over
deposit,
or
on
which
a
charge
for
loss,
damage
or
deterioration
has
been
paid,
the
proceeds
or
cash
remitted
by
him
under
Section
9
shall
equal
the
appropriate
wholesale
price
less
any
such
deposit
and
less
any
such
payment,
and
in
the
event
of
loss
or
damage
to
the
Goods
his
liability
to
the
Company
under
section
8
is
limited
to
the
appropriate
wholesale
price
less
any
such
deposit
or
payment.
If
Consigned
Goods
are
returned
to
the
Company
pursuant
to
the
terms
of
this
Agreement,
the
Dealer
will
be
credited
with
any
carry-over
deposit
he
has
paid
on
the
Goods
returned,
but
not
with
amounts
paid
for
damage
or
deterioration.
13.
TITLE
TO
SOLD
GOODS.
Title
to,
ownership
and
the
right
to
possession
of
all
Sold
Goods
shipped
by
the
Company
to
the
Dealer
is
and
shall
remain
vested
in
the
Company
until
full
payment
of
the
indebtedness
therefor
and
any
other
indebtedness
now
or
hereafter
owing
by
the
Dealer
to
the
Company
shall
have
been
made
to
the
Company.
Sales
for
value
received
may
be
made
to
users
by
the
Dealer
in
the
ordinary
course
of
retail
business.
If
one
of
the
events
enumerated
in
Subsections
(c)
through
(j)
of
Section
3
above
shall
occur,
the
Company
may,
at
its
option:
(a)
Declare
immediately
due
and
payable
all
indebtedness
owing
by
the
Dealer
to
the
Company
and
collect
the
same
together
with
court
costs
and
reasonable
attorney’s
fees;
(b)
Discontinue
or
withhold
delivery
of
Sold
Goods
to
the
Dealer
or
make
further
deliveries
only
on
a
cash
or
C.O.D.
basis;
(c)
Take
possession,
with
or
without
legal
process,
of
any
Sold
Goods
the
Title
to
which
is
in
the
Company.
Notice
of
acceleration
of
the
maturity
of
the
Dealer’s
indebtedness
shall
be
given
to
the
Dealer
in
such
manner
and
at
such
time
as
the
Company
may
see
fit.
No
notice
of
any
other
action
taken
or
to
be
taken
by
the
Company
hereunder
shall
be
necessary,
such
notice
being
specifically
waived
by
the
Dealer.
After
taking
possession,
the
Company
may
resell
all
or
any
part
of
the
Sold
Goods
at
one
or
more
public
and/or
private
sales
without
notice
or
without
demand
for
performance,
at
any
which
sale
or
sales
the
Company
may
purchase
all
or
any
part
of
the
property
sold.
Proceeds
of
the
sale
of
Sold
Goods
shall
be
applied
first
to
the
expenses
of
retaking,
holding
and
preparing
for
sale,
selling
and
the
like,
including
reasonable
attorney’s
fees
and
legal
expense
and,
second,
to
the
Dealer’s
indebtedness
to
the
Company.
If
after
such
application
there
are
excess
proceeds,
the
Company
will
pay
them
over
as
provided
by
law.
If
there
is
a
deficiency
after
application
of
such
proceeds,
the
Dealer
shall
be
liable
for
it
and
shall
pay
it
forthwith.
At
its
option,
the
Company
may
accept
all
or
part
of
the
items
in
full
satisfaction
of
the
Dealer’s
remaining
indebtedness,
rather
than
reselling
them
as
outlined
above.
18.
SHIPMENT.
Shipment
of
Goods
will
be
governed
by
the
following
provisions:
(d)
Delivery
to
Dealer;
Risk
of
Loss.
Delivery
of
Goods
by
the
Company
to
a
carrier,
including
agents
or
employees
of
the
Dealer
as
well
as
common
and
contract
carriers,
shall
constitute
delivery
to
the
Dealer,
and
the
Dealer
shall
bear
all
risk
of
damage
or
loss
thereafter.
The
Agreement
refers
to
two
types
of
goods,
sold
and
consigned.
Sold
goods
are
valued
at
under
$1,000
and
it
is
not
disputed
that
the
taxpayer
is
entitled
to
the
inventory
allowance
for
them.
The
dispute
concerns
the
tax
status
of
the
remaining
machines
and
attachments
with
a
value
in
excess
of
$1,000,
which
the
Agreement
refers
to
as
“Consigned
Goods.”
A
good
deal
of
evidence
was
put
in
at
the
present
trial
which
was
not
put
before
the
Tax
Review
Board.
In
particular,
the
parent
Canadian
company,
John
Deere
Limited,
and
in
turn
the
U.S.
parent
company,
Deere
&
Company,
take
the
position
that
all
merchandise
for
sale
by
Canadian
distributors
is
held
on
consignment.
On
several
occasions,
the
company
expressed
concern
to
its
distributors
about
any
effort
on
their
part
to
secure
the
inventory
allowance
which
is
in
issue
in
this
action.
Obviously,
the
company
felt
that
any
favourable
ruling
would
have
to
be
based
upon
the
distributor's
ownership
of
the
inventory,
whereas
the
parent
company
considers
the
consignment
arrangement
to
be
such
that
ownership
remains
at
all
times
with
the
parent.
In
support
of
that
position,
testimony
was
given
by
Alan
R.
Thomson,
Vice-President
and
Credit
Manager
and
Director
for
John
Deere
Limited.
The
defendant's
evidence
consisted
of
the
testimony
of
Lloyd
K.
North-
cott,
President
of
Dresden
Farm
Equipment
Limited,
the
transcript
of
examination
for
discovery
of
James
Robinson,
employee,
Department
of
National
Revenue
and
James
P.
Demels,
chartered
accountant.
With
regard
to
the
consigned
goods,
Mr.
Northcott's
evidence
is
that
the
defendant
places
orders
with
John
Deere
Limited
for
specific
types
of
equipment
with
various
attachments
or
options.
When
the
order
is
placed
it
is
not
subject
to
cancellation
by
the
defendant.
Following
manufacture
the
machinery
is
transported
to
the
defendant
unassembled.
Once
the
goods
are
loaded
on
a
transport
the
defendant
assumes
all
responsibility
for
loss
or
damage
and
it
is
the
defendant
who
must
seek
recourse
against
the
carrier
for
any
damage
caused
to
the
goods
during
carriage.
Any
taxes
to
which
the
goods
are
subject
are
the
responsibility
of
the
defendant.
Although
the
freight
and
insurance
costs
are
initially
paid
by
John
Deere
Limited,
those
costs
are
included
in
the
invoice
provided
to
the
defendant.
The
defendant
is
further
liable
for
all
costs
involved
in
assembling
the
equipment
and
for
any
subsequent
deterioration.
With
reference
to
payment
Mr.
Northcott
testified
that
there
are
basically
two
classes
of
goods.
The
first
requires
a
payment
of
25
per
cent
of
the
invoiced
price
of
the
machines
commencing
on
the
anniversary
date
of
the
original
invoice
or
delivery
date.
The
second
covers
equipment
which
is
subject
to
seasonal
demand,
for
which
the
defendant
is
subject
to
an
original
selling
period
—
a
period
of
time
given
to
the
dealer
before
he
has
to
start
paying
for
the
equipment.
The
dealer
then
enters
the
extended
selling
period
and
if
the
equipment
is
not
sold
during
the
original
selling
period,
the
dealer
is
required
to
make
payments
in
addition
to
the
original
deposit
on
the
equipment.
This
payment
is
referred
to
as
the
“carry-over
deposit”
in
paragraph
10
of
the
agreement.
John
Deere
Limited
calculates
the
value
of
all
machines
received
by
the
defendant
in
a
given
selling
season.
The
defendant
is
then
entitled
to
a
carry-over
of
25
per
cent
of
the
machines
with
no
carry-over
deposit.
The
remaining
75
per
cent
of
the
unsold
machines
are
subject
to
a
25
per
cent
carry-over
deposit
for
the
next
three
years.
After
that
period
of
time
the
annual
payment
is
25
per
cent
of
the
difference
between
the
wholesale
price
of
the
machine
and
the
sum
of
the
carry-over
deposits
previously
made
for
the
machine.
The
defendant
can
dispose
of
the
equipment
ordered
in
essentially
two
ways.
The
first,
and
most
obvious
is
through
retail
sale,
but
if
the
defendant
is
unable
to
dispose
of
equipment
through
retail
sale,
he
can
transfer
that
equipment
to
another
John
Deere
dealer.
Although
the
wholesale
price
of
the
equipment
is
fixed
by
John
Deere
Limited,
the
defendant
is
entitled
to
set
both
the
retail
and
dealer
transfer
price.
Any
amount
received
by
the
defendant
in
excess
of
the
wholesale
price
is
credited
to
the
defendant
together
with
any
carry-over
deposits
paid
on
the
equipment.
The
evidence
of
the
plaintiffs
witness
Alan
Thomson,
Vice
President
and
Credit
Manager
and
Director
for
John
Deere
Limited
differed
significantly
from
that
of
Mr.
Northcott.
Mr.
Thomson
testified
that
the
defendant
orders
equipment
from
John
Deere
Limited
which
is
subsequently
shipped
to
the
defendant
on
consignment.
The
carry-over
deposit
system
is
not
a
payment
system
for
the
purchase
of
the
equipment,
but
rather
it
“is
a
reminder
to
the
dealer
that
he
has
a
unit
in
inventory
that
he
should
be
putting
extra
effort
to
move
because
he
has
had
it
for
over
a
year
or
more.”
The
carry-over
deposit
is
refunded
or
credited
to
the
dealer
either
at
the
time
of
retail
sale
or
on
return
of
the
equipment
to
John
Deere
Limited
for
transfer
to
another
dealer.
With
regard
to
dealer
transfers,
the
witness
testified
that
although
John
Deere
Limited
permits
the
transfer
of
goods
between
dealers,
it
is
the
company's
policy
that
Territory
Managers
who
are
employees
of
the
company,
are
to
initiate
and
approve
all
such
transfers.
Mr.
Thomson
admitted
that
the
company
is
not
receptive
to
requests
from
dealers
for
cancellation
of
orders,
although
they
do
try
to
either
cancel
or
divert
orders.
On
cross-examination,
however,
he
conceded
that
there
is
no
term
in
the
dealership
agreement
permitting
the
cancellation
of
orders
or
the
return
of
goods.
He
also
revealed
that
since
the
inception
of
the
Ontario
Personal
Property
Securities
Amendment
Act,
1973,
S.O.
1973,
c.
102,
the
defendant
has
been
required
to
enter
into
a
security
agreement
with
John
Deere
Limited.
One
of
those
agreements
was
entered
in
evidence.
He
stated
that
that
agreement,
"gives
us
a
security
interest
in
the
inventory
of
the
dealer.”
On
cross-examination
he
further
admitted
that
the
purpose
of
the
security
agreement
is
to
secure
all
of
the
indebtedness
of
the
defendant
to
the
Company
and
that
part
of
that
security
consists
of
the
consigned
goods.
As
a
very
minimum,
the
action
of
taking
out
mortgage
security
is
entirely
inconsistent
with
the
thesis
that
ownership
rests
with
the
parent
company.
The
result
of
all
of
this
is
that
both
parties
acted
in
a
manner
at
least
as
consistent
with
the
concept
of
ownership
in
the
distributor
as
in
the
parent
company.
Of
far
greater
significance
to
me
is
that
the
legislation
does
not
contain
any
reference
to
ownership,
title
or
purchase
of
the
inventory,
only
that
it
be
a
part
of
the
taxpayer’s
stock-in-trade.
At
first
reading
I
also
assumed
that
if
the
taxpayer
were
to
overcome
the
ownership
hurdle
it
could
not
meet
the
issue
of
"cost".
Evidence
in
this
case
clearly
substantiates
that
there
was
no
obligation
upon
this
defendant
to
pay
for
any
merchandise
at
the
time
of
acquisition
with
the
possible
exception
of
certain
items
which
became
subject
to
a
25
per
cent
carry-over
deposit.
How
could
this
taxpayer
be
entitled
to
a
percentage
of
a
non-existent
cost?
The
legislation,
however,
also
contains
its
own
definition;
subsection
248(1)
defines
“cost
amount”
as
follows:
248.
(1)
In
this
Act,
“cost
amount”
to
a
taxpayer
of
any
property
at
any
time
means,
except
as
expressly
otherwise
provided
in
this
Act,
(c)
where
the
property
was
property
described
in
an
inventory
of
the
taxpayer,
its
value
at
that
time
as
determined
for
the
purpose
of
computing
his
income,
Cost
is
therefore
specifically
defined
not
in
terms
of
price
but
in
terms
of
value
at
the
time
of
acquisition.
Surely
had
Parliament
intended
to
confine
the
allowance
in
paragraph
20(1
)(gg)
to
the
cost
of
merchandise
bought
and
paid
for,
it
could
not
unintentionally
have
overlooked
these
two
opportunities
to
so
state,
the
first
by
defining
ownership
in
plain
legal
terms,
the
second
by
defining
cost
in
terms
of
purchase
price
at
the
time
of
acquisition.
I
have
every
reason
therefore
to
concur
with
the
analysis
of
the
learned
member
of
the
Tax
Review
Board
who
concluded
his
reasons
for
judgment
as
follows
[[1982]
C.T.C.
2377;
82
D.T.C.
1388]:
Nevertheless,
the
Agreement
read
as
a
whole
certainly
changed
the
true
meaning
of
the
simple
words
“On
Consignment”.
Once
John
Deere
had
placed
the
shipment
ordered
by
the
appellant
onto
the
flat
deck
of
the
motor
carrier,
for
delivery
to
the
yard
of
the
appellant,
risk,
at
that
point
in
time,
fell
upon
the
appellant.
Paragraph
8
of
the
John
Deere
Agreement
clearly
sets
out
the
risks
and
responsibilities
involved
and
falling
upon
the
appellant.
The
appellant
certainly
had
possession
once
it
took
delivery
and
cleared
up
any
insurance
matters
relating
to
damage
in
transit.
Once
deliveries
were
accepted
at
the
appellant's
yard,
it
was
obliged,
pursuant
to
the
major
Agreement,
to
make
payments
therefor
at
specified
times.
It
could
not
return
the
goods
to
John
Deere.
It
could.only
sell
retail,
or
transfer
to
another
dealer
or
lease
subject
to
the
terms
set
out
by
John
Deere.
In
that
responsibility
fell
upon
the
appellant
from
the
time
of
delivery,
it
recorded
on
its
card
system
every
item
down
to
the
smallest
part
as
a
liability
item
until
it
was
sold
and
then
it
would
be
taken
out
of
inventory.
John
Deere
equipment,
parts
and
attachments
delivered
to
the
appellant
were
its
stock-in-trade
in
the
same
manner
as
a
real
estate
agent
acquiring
an
inventory
of
buildings
purchased
under
an
Agreement
for
Sale
for
the
purpose
of
reselling
at
a
profit.
I
can
see
no
difference
with
respect
to
the
question
of
title
upon
which
Mr.
Erlichman
rested
his
case
than
from
that
of
a
real
estate
agent
dealing
in
such
a
manner.
The
holding
of
the
legal
title
to
the
equipment
by
John
Deere
as
security
did
not
affect
the
true
issue
anymore
than
the
taking
of
security
on
all
equipment,
parts
and
attachments
in
the
form
of
a
chattel
mortgage
which
could
have
been
done.
Referring
to
the
words
of
Cattanach
J.
in
M.N.R.
v.
Wardean
Drilling
Limited,
[1969]
C.T.C.
265;
69
D.T.C.
5194,
at
270
and
5197
respectively,
he
says:
In
my
opinion
the
proper
test
as
to
when
property
is
acquired
must
relate
to
the
title
to
the
property
in
question
or
to
the
normal
incidents
of
title,
either
actual
or
constructive,
such
as
possession,
use
and
risk.
In
summary,
all
the
characteristics
of
ownership
fell
upon
the
appellant
once
delivery
was
made
to
it
in
that
the
goods
were
entirely
at
its
risk,
they
were
in
its
possession
and
its
use
of
same
related
to
the
sale,
leasing
or
transferring
to
another
dealer.
This
was
its
business.
This
constituted
its
use
of
the
goods.
Further,
it
should
be
clearly
understood,
from
the
evidence
given
by
Mr.
Northcott,
and
I
found
him
completely
honest
and
forthright,
and
obviously
so
did
Mr.
Erlichman
because
he
did
not
deign
to
cross-examine
him,
that
the
goods,
once
delivered
to
the
appellant,
could
not
be
returned
to
John
Deere
and
that
it
had
to
make
instalment
payments
thereon
and
ultimately
pay
out
the
full
price
after
a
certain
period
of
time,
regardless
of
whether
it
had
sold
or
transferred
the
items
in
its
possession.
All
machinery,
parts
and
attachments
were
treated
as
stock-in-trade
and
were
sold
and
recorded
(and
I
may
add
very
accurately)
by
his
accountants.
I
think
the
appellant
company
has
dealt
with
an
onerous
contract
with
John
Deere
in
a
very
straight
forward,
honest
and
efficient
manner
and
the
evidence
relating
thereto
was
clear
and
uncontradicted.
I
therefore
allow
the
appeal
and
refer
the
matter
back
to
the
respondent
for
reconsideration
and
reassessment.
The
action
is
therefore
dismissed
with
costs
and
the
matter
is
returned
to
the
Minister
for
the
appropriate
reassessment.
Action
dismissed.
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