Improvements v. Repairs or Running Expense


Hare v. Canada, 2013 DTC 5066 [at 5868], 2013 FCA 80, aff'g 2011 DTC 1215 [at 1262], 2011 TCC 294 (Informal Procedure)

improvements before rental

Renovation costs incurred on a residential rental property, including new doors, windows and siding, were of a capital nature given that they were incurred before any tenant rented the property. Hershfield J reasoned (at TCC para. 59) that the expenses "strike me as having been incurred, foreseen or not, as part of the process of acquiring the properties." He suggested (at para. 66) that renovations are more likely to be on current account where they are "undertaken to make the property suitable for normal use again by the same owner."

In affirming Hershfield J's findings (principally by deferring to his findings of fact), Blais CJ noted he was correct in evaluating the series of repairs collectively, rather than item-by-item.

Mbénar v. Canada, 2012 DTC 5137 [at 7290], 2012 FCA 180

complete rehabilitation of rental properties

The trial judge was correct in finding that alleged repair expenses were capital expenditures, which the Court characterized as a "complete rehabilitation" of the two rental properties in question. The "repairs" included interior redesign, rebuilding of a front entrance, a complete rewiring and replumbing, replacement of heating systems, doors, and windows, and extensive repairs of roofing, stonework, and balconies.

Rainbow Pipe Line Co. Ltd. v. Canada, 2002 DTC 7124, 2002 FCA 259

partial pipeline replacement

The Court affirmed the decision of Morgan T.C.J. that the cost of replacing 44 km of the taxpayer's 781 km light crude oil pipeline should be capitalized rather than expensed on income account. Morgan T.C.J. had regard to well-accepted business principles in determining that capitalizing the cost would provide a more accurate picture of the taxpayer's income for 1994, on the basis of expert evidence he had concluded that there was much stronger support in GAAP for capitalizing the costs, and he had taken into account that the expense was non-recurring, was a major repair, brought into existence an asset and was substantial in relation to the book value of the whole pipeline, other expenses and annual profits.

Bowland v. The Queen, 2001 DTC 5395 (FCA), aff'd 2001 DTC 5395, 2001 FCA 160

substantial rebuilding

The taxpayer claimed a deduction of $63,682 for repairs to a rental building which, prior to a fire, had a value of $75,000. The Court confirmed the conclusion of the Tax Court Judge that the renovations were so substantial in nature that the house was virtually rebuilt, with the result that there was a new capital asset. The work was of a capital nature.

65302 British Columbia Ltd. v. Canada, 99 DTC 5799, [1999] 3 S.C.R. 804

avoidance of threat to business not relevant to income treatment

Over-quoted levies paid by the taxpayer to the British Columbia Egg Marketing Board as the result of its deliberate over-production were paid on income account. Iacobucci J. stated (at p. 5813) that "the fact that there was a risk that the quota could be revoked upon failure to pay the fine is no more relevant to this analysis than the fact that if a factory's electricity bill is not paid, there is a risk that the utility company will eventually cut off the power to the factory, thereby putting the existence of the business in jeopardy", and noted that the fine at issue was assessed on a "per day basis and was "meant to remove the profit of over-quota production from the producer".

Gladstone Investment Corp. v. The Queen, [1999] F.T.R. 33087, 99 DTC 5207 FCA

The taxpayer paid $480,900 to the City of Montreal in connection with a land exchange with the City and relocating a city street further to the north. Because the direct advantage sought by the expenditure was the expansion of the parking facilities of the taxpayers' shopping centre, this expenditure was on capital account.

Canadian Reynolds Metals Co. Ltd. v. The Queen, 94 DTC 6340 (FCTD), aff'd 96 DTC 6312 (FCA)

The taxpayer periodically relined the steel containers which it used to produce primary aluminum through an electrolysis process. Historically, the taxpayer had expensed such costs for tax and income tax purposes given that the relining had a useful life of around 20 months. However, by the taxation years in question, the functional period had increased to some 45 to 60 months (and later increased to 8 years) and the cost per container of relining had reached $60,000.

Joyal J. found that the taxpayer was now entitled to capitalize the relining cost in light of this increasing life-span and in light of his finding that the relining materials were identifiable and separable assets.

Central Amusement Co. Ltd. v. The Queen, 92 DTC 6225 (FCTD)

The taxpayer, which was in the business of leasing, owning and servicing video-game machines was entitled to deduct in its 1983 taxation year the $175,026 cost of purchases of circuit boards containing new video games which it inserted in its video game cabinets in replacements of old games. The evidence established that a new video game earned its maximum revenue during the first 8 to 12 months after its introduction. In addition, in order to compete, it was necessary to continually purchase new circuit boards conversion kits.

Greenway v. The Queen, 91 DTC 5251 (FCTD)

The taxpayer along with other investors did not acquire the beneficial ownership of a MURB at the time that a nominee corporation entered into an agreement of purchase and sale with the owner, in light of various conditions precedent specified in the agreement which were not fulfilled (and were not capable of fulfilment at that time). Accordingly, expenses incurred after that time, including expenses of litigation with the owner, were incurred by the taxpayer and other investors on capital account.

Locations of other summaries Wordcount
Tax Topics - General Concepts - Ownership 56

Graves v. The Queen, 90 DTC 6300 (FCTD)

In finding that costs incurred by the taxpayers, who in partnership carried on a business of distributing Amway products in Canada, in connection with attending conventions in the U.S., would have been non-deductible in the absence of s. 20(10), MacKay J. stated:

"I do not doubt that the plaintiffs believe they acquired awareness of how others had been successful and even techniques useful in motivating others to participate and to succeed in the Amway network. But that awareness and their ability to convert that into useful skills for their business, of direct sales in maintaining and developing their part of the network, can best be interpreted as long-term assets, capital assets under the Income Tax Act not allowable as an expense except within the limits of section 20(10)."

The Queen v. Browning Harvey Ltd., 90 DTC 6105 (FCTD)

The taxpayer, which was a manufacturer and distributor of soft drinks, sold coolers to shopkeepers for $2, payable 1/2 at the date of the agreement and 1/2 on the seventh anniversary of the agreement. The shopkeepers agreed to use the coolers for seven years exclusively for the sale of the taxpayer's beverages and acquired title to the coolers on payment of the $1 installment on the seventh anniversary. Martin J. held that the cost to the taxpayer of the coolers "were amounts paid to bring into existence physical assets which were used as tools of the defendant's trade", and were capital expenditures.

MHL Holdings Ltd. v. The Queen, 88 DTC 6292, [1988] 2 CTC 42 (FCTD)

A developer paid $712,000 to the City of Calgary in lieu of the construction of 89 parking stalls which otherwise would have been required by the by-laws, and $114,000 in satisfaction of the developer's obligations to pay the cost of future skywalk connections. It was found that not constructing the parking areas and skywalk had the effect of maximizing the net available rental space, thereby creating an enduring benefit through the prospect of future rentals. The capital expenditure of $826,000 was conceded by the Crown to be part of the cost of the building.

Locations of other summaries Wordcount
Tax Topics - General Concepts - Accounting Principles 75

Edmonton Plaza Hotel (1980) Ltd. v. The Queen, 87 DTC 5371, [1987] 2 CTC 153 (FCTD)

In order to obtain a development permit to add a 72-room extension to its hotel, the taxpayer committed itself to either construct 27 additional parking stalls within 1/4 mile of the hotel, or pay the City of Edmonton $216,000. The subsequent payment by the taxpayer of that sum "arose only as a consequence of the decision to expand" and it could not be said "that this expenditure answered one of the needs which arise in the course of running the hotel's business." The expenditure was not deductible.

Locations of other summaries Wordcount
Tax Topics - General Concepts - Accounting Principles 52
Tax Topics - Income Tax Act - Section 13 - Subsection 13(21) - Undepreciated Capital Cost - A costs incurred to obtain building permit part of building cost 106

Gold Bar Developments Ltd. v. The Queen, 87 DTC 5152, [1987] 1 CTC 262 (FCTD)

Following the premature break-down of the brick veneer on an apartment building due to faulty workmanship when the building had been constructed 10 years earlier, the taxpayer made the necessary repairs at a cost of $241,666 using metal cladding rather than brick veneer. This was held to be "fundamentally a repair expenditure" as it was not made "for the purpose of creating an improved building so as to produce greater income", and accordingly was deductible. Although the taxpayer did not replace the original brick, Dube, J. stated that he could not "accept the suggestion ... that once the decision to repair is forced upon the taxpayer, he must ignore advancements in building techniques and technology in carrying out the work".

The Queen v. Moore, 86 DTC 6325, [1986] 2 CTC 22 (FCTD), aff'd 87 DTC 5215 (FCA)

Property was leased for 60 years to a corporation ("Woodbine") for $180,000 payable on December 31, 1976 and the balance of the consideration of $180,000 payable on December 31, 1977. In October 1977 the taxpayer and 11 other individuals acquired the lease for $180,000 plus interest, and paid the $180,000 due to the head lessor on December 31, 1977.

The taxpayer's share of the second $180,000 payment was held to be a capital expenditure for the acquisition of a capital lease. There was reasonable assurance that the investors would exercise their option to purchase the lands at the expiry of the term (suggesting that "they acquired substantially all the benefits and risks incidental to ownership of property") and the investors would "receive substantially all the economic benefits one would expect to derive from the use of the land as owners in fee simple."

Locations of other summaries Wordcount
Tax Topics - Statutory Interpretation - Resolving Ambiguity 35

Johns-Manville Canada v. The Queen, 85 DTC 5373, [1985] 2 CTC 111, [1985] 2 S.C.R. 46

recurring purchase and "consumption" of land

The taxpayer mining company purchased, on an almost annual basis, lands surrounding its open pit mine in order that the perimeter of the sloping sides leading down to the bottom of the pit could be continually expanded through the removal of overburden. The land expenditures were currently deductible partly in light of (1) their recurring nature, (2) the absence of an enduring benefit because similar expenditures were required in the future if the mining operation was to be continued (and the lands were in a sense "consumed") and (3) the fact that they were not made as part of a plan for the assembly of ore bodies or other assets.

Locations of other summaries Wordcount
Tax Topics - Income Tax Regulations - Schedules - Schedule II - Class 31 24
Tax Topics - Statutory Interpretation - Resolving Ambiguity presumption of relief for business expenditures 126

Cummings v. The Queen, 81 DTC 5207, [1981] CTC 285 (FCA)

landlord assumption of old leases

"Lease pick-up" payments which the taxpayer agreed to pay to prospective tenants of a nearly vacant office tower in downtown Montreal were deductible (before considering the effect of s. 18(1)(e)) because (1) the payments did not create an advantage of a lasting or permanent nature, as the building would have reached the break-even point after only 30 or 36 months in any event, and (2) these outlays were "running expenses", analogous to advertising expenditures, and as such were not subject to the matching principle.

Oxford Shopping Centres Ltd. v. The Queen, 79 DTC 5458, [1980] CTC 7, aff'd 81 DTC 5065, [1981] CTC 128 (FCA)

perimeter road construction for promotion

A large lump sum payment was made by the taxpayer to the City of Calgary in consideration of (i) the City improving the system of roads around the taxpayer's shopping centre and (ii) an implied promise of the City not to assess the taxpayer for local improvement taxes in respect of the cost of such improvements. The expenditure was treated as having been made because of the taxpayer's "object of promoting its business by enhancing the popularity of its shopping centre" and thus was analogous to an advertising or promotional expense. Also relevant to the finding of Thurlow, A.C.J., that the expenditure was not on capital account, was the fact that under commercial accounting principles it would not be treated as giving rise to a tangible asset (as opposed to an intangible deferred charge).

Bankmont Realty Co. Ltd. v. National Capital Commission (1980), 19 L.C.R. 97 (FCA)

Expenses incurred in moving premises used as banking offices, including legal and appraisal fees, moving expenses and rent during the period required for the conversion of the new premises, were non-deductible. They were a "capital expenditure incurred in connection with moving the business operation itself".

Shabro Investments Ltd. v. The Queen, 79 DTC 5104, [1979] CTC 125 (FCA)

substantial improvement to floor cf. mere replacement

The removal of the damaged floor of a rental building and its replacement by a floor supported by steel piles effected a substantial improvement to the building, and the associated expenditures accordingly were capital expenditures. However, expenditures made to repair or replace waterlines, storm drains, weeping tile and electric wiring that had been damaged or destroyed by the subsidence and fracturing of the old floor, were deductible.

Tobias v. The Queen, 78 DTC 6028, [1978] CTC 113 (FCTD)

In finding that expenditures totalling approximately $106,000 which the taxpayer made over an 8 year period in an unsuccessful search for buried pirate treasure on Oak Island were not outlays on account of capital, Cattanach J. stated (p.6040):

"Any cost to the plaintiff for the right to explore for valuables would be a capital cost but not those incurred in the conduct of that search."

The Queen v. Canadian Pacific Ltd., 77 DTC 5383, [1977] CTC 606 (FCA)

Canadian Pacific built a railway siding for a customer at the customer's expense and then later purchased the siding for $1. It was held that the construction expenditure by Canadian Pacific was not a capital expenditure but merely respresented "the cost of carrying out a building contract for the benefit of a customer."

The Queen v. H. Griffiths Co. Ltd., 76 DTC 6261, [1976] CTC 454 (FCTD)

The taxpayer ("Griffiths") incorporated a subsidiary, whose purpose was to supply sheet metal to Griffiths' mechanical contracting business, then provided a $75,000 loan guarantee to the Bank of Nova Scotia. Since Griffiths provided the loan guarantee with a view to maintaining an enduring benefit, namely, a continuing supply of sheet metal, the payment by Griffiths of the guarantee obligation when the subsidiary went into a bankruptcy was a non-deductible capital expenditure.

MNR v. Canadian Glassine Co. Ltd., 76 DTC 6083, [1976] CTC 141 (FCA)

The taxpayer, which was incorporated to manufacture grease-proof paper, paid for a portion of the costs incurred by a slush pulp and steam company ("Anglo-Canadian") in installing two pipelines, to be owned by Anglo-Canadian, which would be used on a long-term basis to supply the taxpayer with pulp and steam for its plant.

The payments were capital outlays since they established a permanent physical connection between the taxpayer's plant and the Anglo-Canadian plant, that enabled the taxpayer's plant to be readily and easily supplied with steam and pulp, and thereby increased the value and desirability of the taxpayer's plant.

Denison Mines Ltd. v. Minister of National Revenue, 74 DTC 6525, [1974] CTC 737, [1976] 1 S.C.R. 245

A mining company drove passageways into an ore body which were used to extract ore from the balance of the ore body. Although the passageways constituted an enduring benefit, the costs of creating the passageways were less than the revenues from the ore removed in creating the passageways and were deductible therefrom on ordinary principles. The costs accordingly were not capital expenditures.

Aluminium Co. of Canada Ltd. v. The Queen, 74 DTC 6408, [1974] CTC 471 (FCTD)

A payment made by the taxpayer to its Jamaican subsidiary as a result of a threat of the Jamaican authorities to reassess the subsidiary on the basis that it had earned a portion of amounts earned by the taxpayer, was characterized as "a pricing adjustment to the cost of raw material purchased by it in its business of manufacturing aluminium." Since the expenditure therefore should be regarded as having been "incurred in the process of operating a profit-making organization", it was incurred on revenue account.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 18 - Subsection 18(1) - Paragraph 18(1)(a) - Incurring of Expense voluntary expense increase 49

Asamera Oil (Indonesia) Ltd. v. The Queen, 73 DTC 5274, [1973] CTC 305 (FCTD)

The taxpayer's parent agreed to provide technical and financial assistance to an Indonesian oil company ("Permina") in return for the right to receive a percentage of the oil proceeds received by Permina. The costs (such as drilling costs and wages) incurred by the taxpayer under this agreement, after the assignment of the agreement to the taxpayer, were deductible because they did not bring an asset into existence, but instead were "expenditures by a provider of services to carry out the covenants in his contract for services." A bare right to receive income was not a capital asset.

Macmillan Bloedel (Alberni) Ltd. v. MNR, 73 DTC 5264, [1973] CTC 295 (FCTD)

The taxpayer was unsuccessful in deducting the portion of the cost of new trucks applicable to tires (which had a useful life of slightly over 12 months) as a current expense. Addy, J. stated: "In my view it is purely an arbitrary procedure to segregate these tires from the rest of the unit. This equipment was purchased as a package, not as a number of individual parts later assembled to form an operational machine."

Elias Rogers Co Ltd. v. MNR, 73 DTC 5030, [1972] CTC 601 (FCTD)

The taxpayer was entitled to deduct the costs of installing water heaters which it was leasing to its customers, notwithstanding that such costs would have been non-deductible if incurred by a businessman if he had bought a water heater and installed it in his own factory. "[T]he appellant has parted with the possession of the heaters in consideration of a monthly rental and it has no capital asset that has been improved or created by the expenditure of the installation costs ... [T]here is no difference between the installation costs and any other expenditure, such as those for repairs or removal of the heaters, that the appellant has to make in the course of its rental business."

Canada Steamship Lines Ltd. v. MNR, 66 DTC 5205, [1966] CTC 255 (Ex Ct)

The expenses of replacing the floors and walls of cargo-carrying holds in ships which had been worn out as a result of loading, carrying and unloading cargos were currently deductible. Jackett P. stated (p. 5207):

"I cannot accept the view that the cost of repairs ceases to be current expenses and becomes outlays of capital merely because the repairs required are very extensive or because their cost is substantial. There is, of course, in other types of case, a problem as to whether the thing replaced is, from the relevant point of view, an integral part of a larger asset or a distinct capital asset, that must be, from a businessman's point of view, treated separately."

In light of the second proposition, he found that the replacement of boilers in one of the ships was on capital account.

Minister of National Revenue v. Haddon Hall Realty Inc., 62 DTC 1001, [1961] CTC 509, [1962] S.C.R. 109

In finding that expenses incurred by the taxpayer in replacing stoves, refrigerators and window blinds which had become worn out, obsolete or unsatisfactory to the tenants of its apartment building were non-deductible, Abbott J. stated (p. 1002):

"Expenditures to replace capital assets which have become worn out or obsolete are something quite different from those ordinary annual expenditures for repairs which fall naturally into the category of income disbursements."

MNR v. Lumor Interests Ltd., 60 DTC 1001 (Ex Ct)

Costs incurred by a taxpayer, who owned and operated an office building, in replacing an elevator and rebuilding the elevator shaft represented capital expenditures given that the benefit arising from the expenditures would last for "a very long period" (the life of the new work was estimated to be at least 40 years), and that the expenditures were significant in amount in relation to the book value of the building and also exceeded the costs of repairing the previous elevator. Fournier J. also found that the outlays "were not current expenses made in the ordinary course of the respondent's business operations to earn income within the meaning of ... section 12(1)(a)".

MNR v. Vancouver Tug Boat Co. Ltd., 57 DTC 1126 (Ex Ct)

In finding that the cost of replacing an engine in a tug was a capital expenditure, Thurlow J. stated (at p. 1131) that "there is no continuous demand for replacement of the engine any more than there is continuous demand for replacement of the hull as a whole" and that the taxpayer's "trade has gained an advantage by the expenditure, in that the expenditure has provided an engine which makes the tug more reliable, keeps it more constantly in service, and enables it to earn greater revenue and at the same time avoids the abnormal repairs formerly required".

In addition, the expenditure was made "to replace a substantial portion of the capital asset rather than to renew some minor item" (at p. 1132).

Thompson Construction (Chemong) Ltd. v. MNR, 57 DTC 1114 (Ex Ct)

In finding that the cost of a replacement engine for a power shovel was a capital expenditure, Cameron J. stated (at p. 1118) that he was influenced by the magnitude of the outlay (which exceeded the undepreciated capital cost of the shovel as a whole) and by the consideration that "the engine clearly was a marketable entity, readily detached from the power shovel by the removal of a few bolts, and capable of being used for other purposes".

Royal Trust Co. v. MNR, 57 DTC 1055, [1957] CTC 32 (Ex. Ct.)

The taxpayer paid both the admission fees and the annual membership dues of social clubs of which its officers were members. Thorson P. rejected a submission that the admission fees were payments on account of capital because they were made once and for all in respect of the officer in question:

"The reality is that in the first year of an officer's membership in a club the payments are higher than in subsequent years. The admission fee is only the first in a series of payments. It does not create any asset for the appellant or confer any lasting or enduring benefit upon it. It would be lost if the annual membership dues were not paid." (p. 1063)

See Also

Aon Inc. v. The Queen, 2017 TCC 166

replacing a parking garage roof with one better designed to deal with a problem was currently deductible

The taxpayer (“Aon”) built a large apartment complex (“Citi Centre”) in Peterborough in 1973 and 1974 and subsequently rented and operated it. As a result of significant water and salt damage to over half of the roof of the underground parking facility (which also served as a platform for traffic at ground level), Aon contracted for major work to replace the damaged roof in 2010-2011. The work did not increase any of the following: number of parking spots, parking rates, garage revenue, or apartment unit rates for Citi Centre tenants. The Minister treated Aon’s repair costs of over $4 million as the cost of a depreciable asset rather than as a currently deductible expense.

In finding that this amount was fully deductible, Jorré J first noted (at paras 83, 85):

Here we have significant work that will be enduring in the sense that the replaced area of the roof will likely be worry free for 20 to 30 years and will last longer than the worry free period. …

However, the new replaced area of the roof, half the roof, is inseparable from the floor of the garage below it and from the entire garage. There is no structural separation between the garage and the buildings that sit on top of the garage; in addition there is a legal requirement for the buildings to have the parking spaces.

He then concluded (at paras 90 and 91):

…[G]iven that it is quite clear that there is no improvement in the functionality or profitability of the garage and given that there is no reason to conclude that the work has had any significant effect in terms of increasing the value of Citi Centre compared to its value with the garage in a good state of repairs, this is not a situation where the work has created something new.

…[W]hile the expected duration of the work, the significance of the work and the fact that the roof uses better construction techniques make this a close case, the scale of the work in relation to the complex, the expected duration of the new portion of the roof and the technical improvements, technical improvements that do not increase the functionality of the garage, are not such as to tip the balance… .

Trustpower Ltd. v. Commissioner of Inland Revenue, [2016] NZSC 91

expenditures contributing to an expansion project but made before a decision to proceed were on capital account

The taxpayer (“Trustpower”), which was a New Zealand company engaged in the generation and sale of electricity, incurred costs totalling approximately NZ$17.7M in its 2006, 2007 and 2008 tax years in applying for and obtaining “resource consents” (i.e., land use consents, water permits and discharge permits) in relation to four proposed electricity generation projects (two wind, and two hydro-electric). The projects had not been further proceeded with excepting the first stage of one of the wind farms, nor had any of them been abandoned.

In finding that the expenditures were capital expenditures (so that their current deduction was prohibited by the relevant statutory “capital limitation”), Young J (speaking for the bench of five) stated (at paras. 48, 51):

The possibility that some, or all, of the expenditure may in the end turn out to be wasted does not displace the operation of the capital limitation. …

There is some Canadian authority [citing Bowater and Wacky Wheatley's] to the effect that expenditure on a capital project which does not result in the acquisition of a capital asset is deductible. The preponderance of authority, however, is to the effect that expenditure on a capital project is on capital account even though the project is never completed.

He then concluded (at paras. 71-72):

The expenditure on obtaining resource consents… was directly related to specific projects that would be on capital account if they came to fruition. The projects could not proceed without resource consents. Obtaining the consents thus represented tangible progress towards their completion.

… [H]owever...expenditure associated with early stage feasibility assessments may be deductible. Such assessments can be seen as a normal incident of business. … Expenditure which is not directed towards a specific project or which is so preliminary as not to be directed towards the advancement of such a project is likely to be seen as being on revenue account.

Jennings v. The Queen, 2015 DTC 1117 [at 743], 2015 TCC 96 (Informal Procedure)

rezoning expense to maintain existing rental use was running expense

In 1987, the taxpayers acquired a three-unit rental property which, they were informed in 1993, was not zoned to permit three rental units. They applied for rezoning approval in 1993, and were required to re-apply in 2010, with their application then being granted. In finding that their related 2010 expenditures (approximately $21,000 in application and consulting fees) were deductible running expense rather than capital expenditures, Woods J noted (at para. 14) that "it is the nature of the expenditures from a practical perspective that should govern," and stated (at paras. 16-18):

Zoning compliance was an ongoing matter from the time the property was acquired in 1987, until the zoning amendment was finally approved in 2010.

Throughout this whole period, the use of the property did not change.

…[T]he expenditures should be viewed as ordinary expenditures incurred in connection with the day-to-day management of the rental property. It is true that the expenditures would likely have a long term benefit ... . However, I do not think that this should tip the balance to result in the expenditures being non-deductible capital expenditures.

Drago v. The Queen, 2013 DTC 1226 [at 1245], 2013 TCC 257 (Informal Procedure)

relevance of quantum of expenses

In denying current deductions for $30,939 of the $36,939 costs of renovating two rental suites, Jorré J stated (at para. 23):

Although the quantum of expenses in itself does not prove anything, it could, for example, in comparison with a recent purchase price, be an indication that it was an improvement. ...

[That the taxpayer] spent almost $37,000 in addition to having worked between 30 and 40 hours a week for four months, a very large investment when compared with the purchase price of $75,000, is also an indication of improvements rather than mere repairs.

Mbénar v. The Queen, 2011 DTC 1230 [at 1336], 2011 TCC 246 (Informal Procedure)

complete rehabilitation

Considering repair expenses on a rental property, Favreau J. stated (at paras. 12-13):

In fact, it was a complete rehabilitation of the building that was in total disrepair and dangerous for the tenants.

The expenditures in question were significant, close to $175,000 in total, in comparison with the purchase price of the building, which was $98,500, that is, 1.75 times higher than the acquisition cost. Such expenditures cannot in any way be considered as being for minor repairs or regular maintenance.

Norton v. The Queen, 2010 DTC 1068 [at 2863], 2010 TCC 62 (Informal Procedure)

The taxpayers were partners in a fishing business. Webb J. found that the taxpayers' costs to acquire new lobster traps and nets were a repair expense to the extent that they were acquired to replace worn or lost cages, and a capital expenditure to the extent that they replaced sold equipment or increased the taxpayers' equipment amounts above prior levels.

Martinello v. The Queen, 2010 DTC 1300 [at 4076], 2010 TCC 432 (Informal Procedure)

The taxpayer rented out several houses. One of them was severely damaged by a storm - it was lifted off its foundation, the mean floor beam cracked, and the most of the floor fell in. Boyle J. held that the taxpayer's repairs to restore the house to its original condition were income expenses. The facts were dissimilar to other cases where house repair deductions were capital expenses, because in those cases the property had been acquired, or rented out, only after the damage had occurred.

Heron Bay Investments Ltd. v. The Queen, 2009 DTC 1606, 2009 DTC 1288

The taxpayer incurred an expense of $89,799 for the rezoning of a parking lot so that the construction of a condominium building would be permitted. The condominium project later was cancelled. The taxpayer sought to deduct the expenditure on the basis that this was equivalent to having added the expenditure to the cost of its parking lot, viewed as land inventory, and then deducting this amount in light of a decline in the value of the property. Hogan, J. dismissed the taxpayer's appeal with respect to this issue because no evidence or submissions were provided by it, and noted that in light of the jurisprudence "it could be argued that the cost incurred for the rezoning should be added to the land" (para. 124).

Words and Phrases
ordinary course

Daoust v. The Queen, 2008 DTC 4614, 2008 TCC 316 (Informal Procedure)

The complete replacement of old walls of a purchased triplex with new ones gave rise to capital expenditures, as did the replacement of fuse panels by circuit breaker panels, the addition of soundproofing and of insulation. The leveling of the floors of the triplex gave rise to deductible expenditures.

Bishop v. The Queen, 2009 DTC 1213, 2009 TCC 323 (Informal Procedure)

In finding that expenditures incurred in three taxation years of approximately $27,000, $40,000 and $46,000 to renovate a rental property that was "worn out" and had substantial deficiencies were on capital account, Angers, J. stated (at para. 10) that once the repairs were completed "a totally different house was created that now could satisfy the requirements of the insurer, a house that according to the evidence, was more secure and habitable".

Lewin v. The Queen, 2009 DTC 1, 2008 TCC 618 (Informal Procedure)

An expenditure to replace a deck on a rental residential property of the taxpayer was fully deductible notwithstanding that there were some changes in the materials used compared to those used in the previous deck.

Labrèche c. La Reine, 2007 DTC 1511, 2007 TCC 413 (Informal Procedure)

Expenditures incurred by the taxpayers in redoing the lower unit of a duplex including pouring a new foundation in cement only (whereas the previous foundation had been stone and cement), and completely redoing the walls, bathroom and kitchen and adding beams to the ceiling, were on capital account.

Di Fruscia c. La Reine, 2007 DTC 1160, 2007 TCC 310 (Informal Procedure)

Costs of repairing the garage floor and replacing brick on the exterior wall of a building were currently deductible expenditures, whereas transfer tax paid on the purchase of the building was a capital expenditure.

Gruber v. The Queen, 2007 DTC 1136, 2007 TCC 340 (Informal Procedure)

Expenditures on a rental condominium apartment that included such items as kitchenware, small appliances, decorations, sheets, and cookware were deductible expenditures. Beaubier J. stated (at para. 4) that "these are allowed because they appear to be portable unattached items which are easily broken, stolen or lost by tenants and need constant replacing". However, renovation expenses including new countertops, a toilet and custom draperies, and the cost of removing asbestos, were capital expenditures.

ATCO Electric Ltd. v. The Queen, 2007 DTC 974, 2007 TCC 243

$622,990 which the taxpayer spent in the taxation year in question in replacing 709 of its smaller transformers was a fully deductible expense incurred on income account given that in the context of the size of the taxpayer's electrical distribution system the replacement of small transformers was analogous to replacing a spark plug in an engine, that their replacement did not enhance its system but merely restored it to the state required to keep it functioning as intended, and that while any given transformer might remain useful for 33 years, at any given moment there would always be another, somewhere in the system, that needed to be replaced.

O'Rourke Marketing Corporation Ltd. v. The Queen, 2006 DTC 2743, 2006 TCC 5

Work on a property that the taxpayer had purchased from a shareholder with a view to making it suitable for use as its offices, including converting the existing garage into office space, replacing garage doors with windows, converting the former office space into a storage room, putting a second storey containing a bedroom above the former garage, installing a new sloped roof, installing a new staff washroom and replacing the septic system all were expenditures on capital account. Although some of the work eliminated the need to address deficiencies in the existing building, this was not a basis for regarding a portion of the work as a cluster of disparate repairs.

Work done on another property that the taxpayer leased, consisting of upgrading the existing electrical wiring (including resulting required repairs to drywall) and replacing worn carpets, gave rise to fully deductible expenditures.

Gabriel v. The Queen, 2006 DTC 2292, 2005 TCC 799

Various expenditures incurred by the taxpayers in repairing or modifying a building they had purchased for use in providing storage units to the public, including replacing the heating system (which broke down suddenly 18 months after purchase) with a differently designed system, installing various divisions among new storage units, and replacing doors, were incurred on income account given that these expenditures were of a recurring nature or did not give rise to an enduring benefit in light of the limited useful life and future of the building.

Pantorama Industries Inc. v. The Queen, 2004 DTC 2536, 2004 TCC 256

Monthly fees that the taxpayer (a public company operating several chains of clothing stores in Canada) paid to an independent lease company for its services in negotiating and renegotiating leases for the taxpayer's stores and shopping centres were paid on capital account given that the overriding purpose of the expenditures was to expand the taxpayer's business by entering into new leases and by extending expiring ones, the leases were part of the structure of the taxpayer's business and they represented an enduring benefit given that they had terms ranging from five to seven years.

Maysky v. The Queen, 2003 DTC 991, 2003 TCC 387 (Informal Procedure)

Maintenance and repairs expenses incurred with respect to a house of the taxpayer were on capital account given that there was no expectation of rental revenue from the property and the expenses were instead incurred in order to maintain the value of the property as collateral and for possible resale purposes.

L.d.g. 2000 Inc. v. The Queen, 2003 DTC 827 (TCC)

The taxpayer purchased for $285,000 a building with a leaky roof. After evaluating the possibility of repairing the old roof, the taxpayer determined to construct a new roof, with a different slope, on top of the old roof, so that the old roof would then serve as a partition. The $57,304 expense incurred in performing this work was a capital expenditure.

Kelowna Flightcraft Air Charter Ltd. v. The Queen, 2003 DTC 611, 2003 TCC 347

The installation of a system on aircraft of the taxpayer in order for them to comply with new regulations that required the aircraft to be quieter on takeoff, approach and landing, merely allowed the aircraft to maintain their normal values and to continue operating under the new noise regulations in the same way as they had done in the past. Accordingly, the costs of purchase and installation were fully deductible on income account.

Suncor Energy Inc. v. The Queen, 2001 DTC 660 (TCC), aff'd 2002 DTC 7395, 2002 FCA 350

The taxpayer used the overburden and tailings produced or extracted by it in the process of extracting bitumen from oil sands deposits to construct dykes separating disposal areas from active mining areas, and deposited the balance of the tailings in the disposal areas. Bell T.C.J. found that the expenditures made in this operation (primarily on payroll) were not capital expenditures given that similar expenditures would have to be made in each of the subsequent taxation years and that the tailings had to be disposed of as part and parcel of the production process, and stated (at p. 668) that:

"No asset of enduring benefiting was created, the tailings ponds and dykes in each year having been limited in capacity and usefulness by the expenditures made on them in that year for that year only."

CIR v. New Zealand Forest Research Institute, [2000] BTC 245 (PC)

The formula for ascertaining the cash consideration paid by the taxpayer on the purchase of the assets of a business involved calculating the value of the assets transferred to it and deducting an estimated sum in respect of accrued staff liabilities. The total consideration given by the taxpayer was expressed to be that cash consideration together with the assumption of liabilities, including all liabilities of the vendor in respect of the transferred employees. Because the accrued staff liabilities had been assumed by the taxpayer as part of the consideration for the purchase of the assets, the discharge of that liability was a capital expenditure. Lord Hoffmann noted (at p. 247) that "there can be no doubt that the discharge of the vendor's liability to a third party, whether vested or contingent, can be part of the purchase price".

Auckland Gas Co. Ltd. v. CIR (2000), 19 NZTC 15702, [2000] 3 NZLR 6 (PC)

The taxpayer, which distributed natural gas through a low pressure network of underground cast iron pipes ("mains") and smaller steel spurs running from the mains to individual premises ("services"), inserted polyethylene pipes into a significant portion of its mains and services in the taxation years in question. After accepting that the relevant asset was the entirety of the system, Lord Nicholls indicated that because, after this change, gas was no longer distributed through the mains and services but, rather, through polyethylene pipes (with the mains and services serving only to help protect the polyethylene pipes) and because this change effected a significant improvement (given that the new pipes were virtually leak free, were better suited to the passage of natural gas and carried the gas at a higher pressure), the related expenditures were on capital account. "Far from restoring the gas distribution system to its original state, the work changed the character of the existing gas distribution system ... ." (at p. 255).

Marklib Investment II-A Ltd. v. The Queen, 2000 DTC 1413 (TCC)

Before finding that the corporate taxpayer was entitled to currently deduct substantial expenditures incurred by it in restoring various apartment buildings, Brulé TCJ. stated (at p. 1421):

"A pitched roof performs the same function as a flat roof ... . It is the question of whether an improvement or upgrade has been made to the building that impacts substantially on the original structure not whether the same function is being performed."

Rainbow Pipeline Co., Ltd. v. The Queen, 99 DTC 1081 (TCC)

The cost incurred by the taxpayer in replacing approximated 5.7% of the total length of its main trunk line was a capital expenditure. (Mogan TCJ. indicated that although replacing parts of a complicated machine representing from 5% to 10% of the physical size of the machine likely would be a current expense, a different approach applied where the "whole is composition of homogeneous parts like a railway running from Vancouver to Calgary" (p. 1092). On the other hand, expenditures incurred in replacing part or all of a pipe joint, applying sleeves to an existing length of pipe or removing a defect by sanding the surface represented current expenses given that these repairs would probably occur to some degree each year (or every fifth year as part of a survey for corrosion) and no single site or location would represent a major repair.

Bowland v. The Queen, 99 DTC 998 (TCC)

In finding that the costs of substantial repairs incurred to remedy extensive fire damage were capital expenditures, Hamlyn TCJ. stated (at p. 1000) that "the effect of the expenditures brought the rental property back into existence. The house was virtually rebuilt and resulted in a new capital asset".

Splend'or Industries Ltd. v. The Queen, 99 DTC 560 (TCC)

The taxpayer was unable to deduct the cost of replacing the roof of premises that were rented to it because such repair was the responsibility of the landlord (its shareholder).

F.A.S. Seafood Producers Ltd. v. The Queen, 98 DTC 2034 (TCC)

$150,000 paid for the acquisition of fishing licences by a company in the business of catching and selling fish was a capital expenditure. First, the licences were "a necessary foundation of a fishing business in the same way as a boat and nets or other tackle". Second, although the licences were only for a short term and had to be renewed annually, the "expectation of a long series of renewals in the future" represented an asset of an enduring nature (p. 2037).

Sergerie v. MNR, 95 DTC 243 (TCC)

An expenditure of $4,360 made by the taxpayer to replace the motor of his "skidder" was found to be fully deductible given that the cost of the reconditioned motor was equal to what would have been the cost of repairing the existing motor.

Gartry v. The Queen, 94 DTC 1947 (TCC)

Before finding that various expenditures made by the taxpayer in respect of a vessel, before the vessel sank and before the taxpayer acquired title to it, were either currently deductible expenditures or part of the cost of a depreciable asset that thereby gave rise to a terminal loss, Bowman TCJ. stated (p. 1952) that if the expenditures:

"did not result in the acquisition of an asset for the enduring benefit of the business they cannot ... be regarded as capital in nature."

The Crown's position, that the expenditures were non-deductible capital expenditures, was "inconsistent with ordinary fairness, common sense and commercial reality".

Canaport Ltd. v. The Queen, 93 DTC 1226 (TCC)

The $4,000,000 costs of installing a fiberglas liner in a subsea crude oil pipeline which had suffered unanticipated substantial corrosion from sea water were fully deductible given that the work did not add to the originally anticipated lifetime of the pipeline and that the liner did not constitute a separate structure (given that it could not function at all if it had not been situated and sealed within the pipeline).

Harwill Investment Corp. v. The Queen, 93 DTC 247 (TCC)

The taxpayer, which was a co-owner of a shopping plaza, arranged for the parking facilities to be expanded by having the City of Montreal close off a street, convey the related lands to the co-owners, and re-open the street onto land further to the north that was conveyed to the City by the co-owners. A cash payment of $480,900 that reimbursed the City for related expenditures was a capital expenditure because it was made by the taxpayer in connection with expanding the parking capacity of the shopping centre, i.e., for the purpose of expanding the taxpayer's operating structure.

Earl v. The Queen, 93 DTC 65 (TCC)

In finding that the cost of replacing a leaking flat roof by a pitched roof was not deductible, Rowe D.J. stated (p. 68):

"The new pitched roof created an improvement to the building of an enduring nature and was a differing kind from the old flat roof. The appearance of the building was not changed and the new roof did not cause any increase in value of the building ... The new roof did, however, comprise a substantially different integral part of the capital asset."

McLaughlin v. MNR, 92 DTC 1030 (TCC)

The taxpayer spent $60,836 on improving a dilapidated house which he had purchased for rental purposes. The deduction by the taxpayer of $19,420 of this amount was affirmed on the basis that it represented repairs to put the house back to its original state and not to effect a lasting permanent structural improvement, e.g., painting and wallpapering, repairs of floors, and replacement of drywall and fixtures.

Boucher v. MNR, 91 DTC 1435 (TCC)

A consultation fee of $20,000 which the taxpayer paid for several real property studies on various income-producing properties (three of which the taxpayer acquired in the year in question) was deductible on income account given that the studies were valid only for a limited time. $2,000 in notarial fees also were deductible.

Redmond v. MNR, 91 DTC 1128 (TCC)

The deductibility of soft costs incurred by the taxpayer in connection with the acquisition of condominium units from a developer was not affected by the fact that such soft costs exceeded the amount of current expenditures incurred by the developer in connection with the condominium units.

Dyer v. MNR, 91 DTC 630 (TCC)

The cost of various repairs to a house such as new floor coverings, repairs to windows and window boxes, refacing fireplaces, replacing fire brick, fixing old plumbing, refacing interior walls of chimneys, replastering and repainting the interior were attributable to normal wear and tear and, therefore, were deductible. However, the replacement of the oil furnace with baseboard, the erection of a fire-rated partition, the insulation steel-enclosed doors, and the cost of new kitchen cabinets and the expansion of a bathroom in the basement were capital expenditures.

Baggs v. MNR, 90 DTC 1296 (TCC)

A winter storm blew off the asphalt layer on the taxpayer's apartment building. The cost of replacing the asphalt and repairing consequential damage to other parts of the building, was deductible.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 18 - Subsection 18(3.1) expenses related to repair period which interrupted expansion program 109

Le sous-Ministre du revenu du Quebec c. Denise Goyer, 1987 538 (QC CA)

summarized in Earl v. The Queen, 93 DTC 65 (TCC)

Expenditures to completely replace the wooden flooring to balconies in a duplex which had rotted through and to completely replace inadequate plumbing were fully deductible given that they did not increase the "normal" value of the duplex, i.e., its value if such items had been kept in repair on a current basis.

Carver v. Duncan; Bosanquet v. Allen, [1985] BTC 248 (HL)

"[E]xpenditure incurred for the benefit of the whole estate is a capital expense." Insurance policy premiums were paid "for the benefit of the whole of their respective trust funds because the capital of the trust will be augmented by the policy moneys which will be received if and when the policies mature", and accordingly were capital expenditures. Similarly, annual fees paid "to a firm of investment advisers to keep under review and to advise changes in investments comprised in the trust fund" were "incurred for the benefit of the estate as a whole because the advice of the investment advisers will affect the future value of the capital of the trust fund and the future level of income arising from that capital", and accordingly were capital expenditures.

Jeffs v. Ringtons Ltd., [1985] BTC 585 (HCJ.)

Regular contributions that were made by the taxpayer of 5% of its annual profits to a trustee with a view to building up a trust fund that would supplement a state pension plan, were deductible.

Pitt v. Castle Hill Warehousing Co. Ltd. (1974), 49 TC 638 (Ch. D.)

In order to provide an alternate means of access by its customers to its warehouses, the taxpayer (which carried on the trade of providing warehouse space) made an agreement with the local authority where upon it conveyed to the local authority a strip of land for the purpose of depriving itself of access to the existing road, and it was permitted to construct at its own expense a new access road across land belonging to the authority, with a perpetual easement of way. In reversing a finding of the Special Commissioners (who had found "that no new capital asset has been created when the Company for the sake of its good name gave up one road and built another"), Megarry J. found that the expenditures of the taxpayer were capital expenditures and stated (at p. 645) that "the Company acquired an asset with enduring qualities, intended to be used indefinitely in the manner of a fixed asset of a capital nature, as appurtenant to certain existing fixed assets, consisting of its warehouses".

William P. Lawrie v. Commissioners of Inland Revenue (1952), 34 TC 20 (C.S. (1st. Div.))

After finding that an expenditure made by the taxpayer in lengthening and heightening a building and constructing a new roof represented a capital outlay, the Court rejected an argument that the items of expenditure should be dissected so as to attribute so much to a hypothetical repair and the balance to hypothetical renewal or improvement.

C.I.R. v. Adam (1928), 14 TC 34 (C.S. (1st. Div.))

In finding that £3,200 paid by the taxpayer (a carting contractor) in half-yearly instalments over an eight-year period for the right to deposit waste soil on the counterparty's land, were capital expenditures, Lord President Clyde stated (at p. 42) that "the provision of dumping accommodation, which was secured by means of the contract, was in the same position as the provision of premises, or any other capital asset of a relatively permanent character".

C.I.R. v. Granite City Steamship Co., Ltd. (1927), 13 TC 1 (C.S. (1st. Div.))

The taxpayer owned one ship only, which was seized by the Germans in 1914 and returned in 1918 in a condition which required extensive repairs. In finding that these expenditures were not deductible, Lord Sands noted (at p. 16) that if the taxpayer "had purchased another dilapidated ship and reconditioned her the expense of such reconditioning would have been held to be capital outlay, Law Shipping Co., Ltd, ..." and that here, it made no difference that the ship in question had previously been the taxpayer's ship. He also stated (at p. 14) that "broadly speaking, outlay is deemed to be capital when it is made for the initiation of a business, for extension of a business, or for a substantial replacement of equipment".

British Insulated and Halsby Cables, Ltd. v. Atherton, [1926] A.C. 205 (HL)

pension fund settlement was one-time expenditure for enduring benefit

In finding that a lump sum paid by the taxpayer to establish a pension fund for the benefit of its employees was a non-deductible capital expenditure, Viscount Cave L.C. stated (pp. 213-214):

"... When an expenditure is made, not only once and for all, but with a view to bringing into existence an asset or an advantage for the enduring benefit of a trade, I think that there is very good reason (in the absence of special circumstances leading to an opposite conclusion) for treating such an expenditure as properly attributable not to revenue but to capital ... The object and effect of the payment of this large sum was to enable the company to establish the pension fund and to offer to all its existing and future employees a sure provision for their old age, and so to obtain for the company the substantial and lasting advantage of being in a position throughout its business life to secure and retain the services of a contented and efficient staff."

Robert Addie and Sons' Collieries, Ltd. v. Commissioners of Inland Revenue (1924), 8 TC 676 (Ct. Ses. (1st Div.))

The terms of the underground lease entered into by a coal mining company required it to restore all grounds damaged by the taxpayer on the termination of the lease or to instead pay an amount in satisfaction of this obligation. An amount so paid by the taxpayer was a capital expenditure given that this obligation was part of the consideration for the acquisition by the taxpayer of the lease, which was a capital asset.

Ounsworth v. Vickers, Ltd. (1915), 6 TC 671 (K.B.D.)

Because the Harbour Authority had been delinquent in doing any dredging work over a 15-year period, the channel to the taxpayer's ship-building works became silted up. Because the Authority did not have the necessary funds for complete restoration of the channel, dredging was performed to a lesser depth and the taxpayer was provided with a deep-water berth, with both the taxpayer and this Authority contributing funds to the scheme.

Rowlatt J. noted (at p. 675) that if the taxpayer, itself, had done dredging every, say, three years, such expenditures would have been deductible stating "the real test is between expenditure which is made to meet a continuous demand for expenditure, as opposed to an expenditure which is made once for all ...". Here, however, the expenditure was on capital account because, on a true view, it "was incurred in making what was in effect a new means of access from their works to the sea ..." (at p. 678).

Administrative Policy

S3-F4-C1 - General Discussion of Capital Cost Allowance

Incidental capital expenditure

1.3 … Where only a minor part of the expenditure is of a capital nature, the CRA's practice is to treat the whole expenditure as a current expense.

Enduring benefit test

1.4 An expenditure will normally be considered capital in nature if it brings into existence an asset or advantage that has an enduring benefit. For example, the cost of replacing a building's exterior wood siding at the end of its useful life with new vinyl siding is likely a capital expense because it is substantially different from what it replaced and has an enduring benefit. … [T]he cost of periodically repainting the wood siding from the previous example is likely a current expense.

Restoration to original condition

1.5 Where an expenditure made in respect of a property serves only to restore it to its original condition, that fact is one indication that the expenditure is of a current nature. …

Technological improvements

1.6 A repair often involves some degree of improvement in technology, materials or workmanship. This does not necessarily mean the cost of the repair is a capital expenditure. For example, the cost of replacing a window with one that has a higher insulation value may still be a current expense if it otherwise qualifies. Whether the market value of the property is increased as a result is not a major factor in characterizing the expenditure.

Integral part of separate asset

1.8 Another point to consider is whether the expenditure is made to repair a part of a property (generally a current expense) or whether it is made to acquire a property that is itself a separate asset (generally a capital outlay). For example, the cost of replacing the rudder or propeller of a ship is typically regarded as a current expense. …

Relative value

1.9 … [W]here the engine in an automobile is replaced, it is not only likely that such a replacement will substantially improve or prolong the useful life of the automobile, but the cost is also likely to be substantial in relation to the total value of the property of which the engine forms a part. In such a case, the expenditure would likely be regarded as capital in nature.

Readying a used property for rental or other use

1.11 Costs to ready depreciable property for use are generally capital expenditures. Likewise, a taxpayer might acquire used property that needs repairs or replacements to put it in suitable condition for use. The cost of such work is regarded as capital in nature… .


1.12 Repairs made in anticipation of the sale of a property or as a condition of the sale are generally regarded as capital in nature. On the other hand, where the repairs would have been made in any event and the sale was negotiated during the course of the repairs, or after their completion, the cost should be classified as though no sale was contemplated.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 13 - Subsection 13(21) - Undepreciated Capital Cost - A 669
Tax Topics - Income Tax Act - Section 13 - Subsection 13(21) - Depreciable Property 170
Tax Topics - Income Tax Act - Section 16.1 - Subsection 16.1(1) 248
Tax Topics - Income Tax Act - Section 13 - Subsection 13(28) 194
Tax Topics - Income Tax Act - Section 13 - Subsection 13(27) 178
Tax Topics - Income Tax Act - Section 13 - Subsection 13(29) 145
Tax Topics - Income Tax Regulations - Regulation 1100 - Subsection 1100(2) 184
Tax Topics - Income Tax Regulations - Regulation 1100 - Subsection 1100(2.2) 267
Tax Topics - Income Tax Regulations - Regulation 1100 - Subsection 1100(3) 60
Tax Topics - Income Tax Act - Section 18 - Subsection 18(3.1) 140
Tax Topics - Income Tax Act - Section 13 - Subsection 13(7.5) 167
Tax Topics - Income Tax Act - Section 261 - Subsection 261(2) 53
Tax Topics - Income Tax Act - Section 128.1 - Subsection 128.1(1) - Paragraph 128.1(1)(b) 204
Tax Topics - Income Tax Regulations - Regulation 1102 - Subsection 1102(1) - Paragraph 1102(1)(c) 150
Tax Topics - Income Tax Act - Section 13 - Subsection 13(7) - Paragraph 13(7)(e) 55
Tax Topics - Income Tax Act - Section 43 - Subsection 43(1) 142
Tax Topics - Income Tax Act - Section 68 153
Tax Topics - Income Tax Act - Section 13 - Subsection 13(21.1) - Paragraph 13(21.1)(a) 65
Tax Topics - Income Tax Act - Section 13 - Subsection 13(21.1) - Paragraph 13(21.1)(b) 117
Tax Topics - Income Tax Act - Section 13 - Subsection 13(1) 403
Tax Topics - Income Tax Act - Section 8 - Subsection 8(2) 65
Tax Topics - Income Tax Act - Section 20 - Subsection 20(16.1) 142
Tax Topics - Income Tax Act - Section 13 - Subsection 13(9) 207
Tax Topics - Income Tax Act - Section 152 - Subsection 152(4) 299
Tax Topics - Income Tax Regulations - Schedules - Schedule II - Class 8 214
Tax Topics - Income Tax Act - Section 13 - Subsection 13(5) 259
Tax Topics - Income Tax Act - Section 13 - Subsection 13(6) 191

S2-F1-C1 - Health and Welfare Trusts

Fund surplus

1.21 Employer contributions to a health and welfare trust must not exceed the amount required to provide health and welfare benefits to employees. ...

Deductibility of contributions

1.26 ...To the extent that they are reasonable and laid out to earn income from business or property, contributions paid or payable to a health and welfare trust are generally deductible in the tax year in which the legal obligation to make the contributions arose...[as] confirmed by...Labow...2011 FCA 305... .

1.29 Employer contributions that are not deducted in a year...can generally be deducted in a subsequent year when the health and welfare trust uses the contributions to provide health and welfare benefits to employees (for example, premiums paid or payable by the trust to acquire insurance coverage for that subsequent year, or to fund health and welfare benefits paid or payable in that subsequent year).

Loss of status as a health and welfare trust

1.30 After a trust loses its status as a health and welfare trust, any contributions made to the trust will be treated as capital contributions. These amounts will not be deductible by the employer pursuant to paragraph 18(1)(b),

23 December 2014 Internal T.I. 2014-0535921I7 F - Commission d'agent de location

leasing commissions currently deductible

In finding that commissions paid by a trust owning rental buildings to leasing agents were currently deductible rather than being additions to Class 13 (as claimed by the trust, a non-resident, on disposing of the building, the Directorate cited Canderel and stated (TaxInterpretations translation) that the commissions:

gave rise only to short term advantages – immediate or at most limited to the term of the lease. The fact that the expenses must be renewed each year supports this viewpoint.

18 December 2013 External T.I. 2013-0479421E5 F - Section 30 and Cranberry Farm

cranberry plants were "land"

The cost of cranberry plants (which can live for 100 years) acquired in constructing and establishing a cranberry farm should be capitalized as part of the cost of the land. However, "the cost of subsequently replacing plants which have become unproductive or which have been destroyed by extreme weather, can constitute, depending on the circumstances, a current expense" (TaxInterpretations translation).

16 November 2001 External T.I. 2001-010105 -

ground contamination clean-up

Respecting whether costs incurred to clean up leakage from an underground fuel tank at a gas station were currently deductible, the Directorate stated that "costs incurred to remove pollutants or to modify a condition that was caused or is directly attributed to the business, and that will not contribute value to the land beyond what it would be worth in an undisturbed state, would generally be considered to be current expenses.

13 January 1999 Memorandum 983283 [replacing vines or trees]

replacing vines or trees

Replacement plantings of grape wines would be considered to be deductible expenses, whereas replacing one type of fruit by another (e.g., an apple tree with a cherry tree) would not be on income account.

Income Tax Technical News, No. 12 under "'Millennium Bug' Expenditures"

If a particular software program is only restored to its original condition so that it performs the same applications but the problems of the millennium bug have been eliminated, the expenditures incurred to eliminate the bug would normally be considered to be of a current nature".

14 January 1997 Memorandum 962492 [massive upgrade]

massive upgrade

In finding that a massive upgrading to old buildings was made on capital account, RC indicated that "whether or not a particular outlay should be treated as a current expense or capitalized is a determination to be made in accordance with GAAP", and then referred to the definition of "betterment" in paragraph 3060.29 of the CICA Handbook.

1996 Ontario Tax Conference Round Table under "Purchase and Sale of Computer Software, Q. 1", 1997 Canadian Tax Journal, Vol. 45, No. 1, at pp. 219-220

"The fact that particular software may be upgraded regularly would indicate that its useful life will last beyond one year. Accordingly, annual upgrade fees incurred for computer software would in most cases be included in the capital cost ... ."

Ibid., Q. 2

Discussion of circumstances in which computer software developed for the taxpayer's own use should be capitalized.

Ibid., Q. 3-4

The cost of developing software for sale to customers, including the cost of development of a custom software program for a single customer, should be included in inventory. However, where the developed software will be licensed as opposed to sold, the development costs should be capitalized.

23 May 1995 Internal T.I. 7-951033 -

Costs incurred, apparently by a purchaser,in connection with the clean-up of environmentally contaminated land (apparently, vacant land) was considered to be on capital account on the basis that they related to the preservation or improvement of a capital asset. Head Office apparently accepted a comment that a distinction should be drawn between this situation and the incurring of reclamation costs that are costs directly attributable to the earnings process and which "are considered to be expense because the business activity that caused the environmental damage was carried on by the same party that incurred the clean-up costs".

16 August 1993 Memorandum (Tax Window, No. 33, p. 1, ¶2636)

Costs incurred by commercial landlords in removing asbestos from buildings are capital expenditures.

93 C.P.T.J. - Q.19

Whether or not a particular item included in CEE, CDE or COGPE would be deductible in the absence of the specific provisions of ss.66.1, 66.2 and 66.4 is a question of fact.

7 October 1991 Memorandum (Tax Window, No. 10, p. 10, ¶1503)

Land owned by a taxpayer in the waste disposal business and used as a landfill site is a capital asset.

4 September 1991 T.I. (Tax Window, No. 8, p. 12, ¶1438)

Contributions made by a U.K. partnership to a U.K. pension plan will be deductible in computing the income of a Canadian partner unless the deduction is prohibited or limited by a specific provision of the Act.

28 August 1991 Memorandum (Tax Window, No. 8, p. 8, ¶1422)

In considering the "enduring benefit" test, the basic question is whether the benefit of the expenditure may reasonably be expected to last longer than one year or one operating cycle.

11 June 1991 Memorandum (Tax Window, No. 4, p. 24, ¶1295)

RC normally will not consider an outlay for an asset to be a capital expenditure if the asset has a life expectancy of under three years and costs under $90. RC also will consider items which are consumed in the income-earning process or are technically obsolete due to changing customer requirements to be inventory subject to valuation under s. 10(1).

1 March 1991 T.I. 7-4631

Only feasibility study costs in relation to a mineral deposit which are of a current rather than a capital nature are deductible under section 9.

14 May 1990 T.I. (October 1990 Access Letter, ¶1463)

A payment made by a public corporation to acquire a contractual right to share in a partnership's net proceeds from the purchase, processing and sale of natural gas and the construction of gas transportation pipelines constituted a capital expenditure for the acquisition of property.

89 C.P.T.J. - Q20

Site reclamation costs, incurred to return a previously-producing well-site to an environmentally-acceptable condition after the well has been abandoned will be treated as a period cost. If the well has never produced, the cost will be treated as CEE.

88 CPTJ - Q. 20

Delay lease rentals are considered to be payments on account of capital and are a cost of a resource property.

87 C.R. - Q.16

Position re lease inducement payments is as in 85 Round Table.

86 C.R. - Q. 28

Expenses of a feasibility study are deductible until a decision is made to proceed.

85 C.R. - Q.49

Classification of lease inducement payments as capital expenditures, eligible capital expenditures and current expenditures.

81 C.R. - Q.22

Trustee fees chargeable against income account are allowable where they meet the usual criteria.

IT-304R "Capital Cost Allowance - Condominiums" under "Repairs and Renovations"

IT-105 "Administrative Costs of Pension Plans"

IT-283R2 "Capital Cost Allowance - Video Tapes, Videotape Cassettes, Films, Computer Software and Master Recording Media"

Software is considered to be a capital asset where its useful life is anticipated to last beyond one year.

Technical Advice Memorandum (TAM) 9315004, dated April 1993

Discussion of when environmental clean-up expenditures mandated by the Environmental Protection Agency will be deductible under s. 165 of the Internal Revenue Code.


Tremblay, Aston, "The Deductibility of Environmental Clean-Up Costs", Canadian Current Tax, September 1991, p. C77.

Smith, "Repair or Renewal? A Reappraisal of the Schedule D Rules", 1982 British Tax Review, p. 360.