Income Tax Application Rules

The taxpayer, who was hospitalized and treated as an out-patient for severe depression until March 1973 and then returned to work until 1983, when he stopped work because of his disability, was not grandfathered. Linden J.A. found (p. 6359) that "the 'event' that must occur before 1974 is the actual disability which prevents someone from working at full capacity, resulting in a loss of employment income as a consequence of that disability ... . [T]he reoccurrence of a pre-1974 disability after a period during which the taxpayer was not incapacitated is no different than if the first incapacity appeared after 1974."

As a consequence of an amendment to the Forest Act (British Columbia) which gave holders of existing timber rights and privileges the entitlement to replace their existing rights with new timber licences governed by the new provisions of that Act, in 1979 the taxpayer exercised this right of replacement to obtain replacement licences that covered identical areas subject to the terms of the same tree farming licence. Desjardins found that as a result of this exchange, the taxpayer had acquired the replacement licences, with the result that it had not owned such licences without interruption from December 31, 1971 onwards.

S.21(3)(a) avoids a distinction between a "licence" and a "lease". A government lease for use of lands as a "bungalow camp" was found to be "substantially similar" (within the meaning of s. 21(3)(a)(iii)(B) to the preceding government licence for the use of the lands as a "bungalow camp".

The failure of the taxpayer to make a purported election under s. 26(7) resulted in the cost of his shares being determined without reference to that subsection.

The taxpayer made continual outlays on scientific research carried out by its personnel in order to identify improvements to its methods for processing ores. In accepting the taxpayer's position that these expenditures (which were deducted by it under s. 72 of the pre-1972 Act) were not deductible from its resource profits for purposes of the depletion allowance. After asserting that "if a patent is obtained the patent will represent a capital asset" (p. 5349), Cattanach J. went on to state that he was "unable to distinguish between an expenditure on scientific research which results in a patent and a similar expenditure which does not result in a patent but does result in the accumulation of a store of new knowledge upon which the appellant can draw and does draw to keep itself to the forefront of the particular trade in which it is engaged" (p. 5349).