A
W
Prociuk:—The
appellant,
Jericho
Investments
Limited,
of
Toronto,
Ontario,
appeals
from
the
respondent’s
reassessment
of
its
income
for
the
taxation
year
1972
wherein
the
sum
of
$80,881
was
disallowed
as
a
deduction
in
respect
of
the
capital
cost
allowance
of
depreciable
property
of
a
partnership
called
West
Mall
Investments,
of
which
the
appellant
was
a
50%
partner.
The
appellant
is
in
the
business
of
rental
of
real
property
owned
by
it
and
real
property
owned
in
partnership
with
Nuberg
and
Dale
Limited
and
Anspor
Construction
Limited,
under
the
firm
name
and
style
of
the
said
West
Mall
Investments.
The
partnership’s
fiscal
year-end
is
and
was
September
30
of
each
year
and
that
of
the
appellant’s
is
and
was
August
31
of
each
year.
In
filing
its
return
for
the
taxation
year
1972,
after
August
31
of
that
year,
it
included
in
its
return
its
share
of
its
income
in
West
Mall
Investments
as
of
September
30,
1971,
deducting
therefrom
the
abovestated
sum
of
$80,881
being
the
appellant’s
share
of
capital
cost
allowance.
Prior
to
January
1,
1972
the
individual
members
of
a
partnership
could
claim
capital
cost
allowance
to
the
extent
of
their
respective
interest
in
a
depreciable
asset
for
income
tax
purposes.
Under
the
old
Act
a
partnership
was
not
recognized
as
an
entity
capable
of
owning
assets.
Under
the
current
Income
Tax
Act,
commencing
with
January
1,
1972,
a
partnership
is
deemed
to
be
a
legal
entity
for
income
tax
purposes.
Thus,
in
1972
and
subsequent
years,
capital
cost
allowance
in
respect
of
depreciable
assets
of
a
partnership
would
be
taken
at
partnership
level.
There
is
then
the
transfer
of
portions
of
assets
from
the
partners
to
the
partnership
pursuant
to
subsections
20(3),
20(4)
and
20(5)
of
the
Income
Tax
Application
Rules
which
Parliament
enacted
to
assist
taxpayers
to
effect
such
transfers
in
a
most
equitable
way.
However,
in
the
case
at
bar,
the
fiscal
year-end
on
September
30,
1971,
of
West
Mall
Investments,
is
not
in
the
least
affected
by
the
above-mentioned
new
provisions
of
the
Act.
In
the
same
manner
as
it
did
on
September
30,
1970,
the
partnership
prepared
its
fiscal
year-
end
financial
statement
and
each
member
thereof
(the
appellant
herein)
deducted
therefrom
its
share
of
the
capital
cost
allowance
of
depreciable
assets
in
the
partnership
as
of
September
30,
1971.
In
1972
when
the
appellant
prepared
its
tax
return,
it
added
to
its
other
income
its
share
from
West
Mall
Investments
as
that
share
(including
capital
cost
allowance)
stood
on
September
30,
1971.
With
deference
to
the
able
argument
by
counsel
for
the
respondent,
both
oral
and
written,
it
is
clear
that
what
the
respondent
purported
to
do
in
respect
of
the
capital
cost
allowance
of
the
partnership
was
one
year
ahead
of
time.
The
respondent,
at
all
times
prior,
recognized
the
partnership’s
fiscal
year-end
as
being
September
30
in
each
year.
The
amendments
applicable
to
1972
and
subsequent
years
are
not
retroactive
and
cannot
affect
the
fiscal
year
ended
on
September
30,
1971.
For
the
succeeding
taxation
year,
commencing
on
October
1,
1971,
the
accounting
for
the
partnership
income
and
its
possible
losses
would
be
governed
by
the
new
Act.
The
appeal,
accordingly,
is
allowed
and
the
matter
is
referred
back
to
the
respondent
for
reassessment
on
the
basis
that
the
appellant
is
entitled
to
deduct
the
said
sum
of
$80,881
from
its
income.
Appeal
allowed.
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