Cases
Pantorama Industries Inc. v. Canada, 2005 FCA 135
In finding that the variable components of fees paid by the taxpayer (“Snowcap”), which sold casual clothing through a chain of retail stores in leased premises primarily located in shopping malls, to a leasing agent were made on current account, Noël J.A. stated (at para. 24) that the taxpayer “had more than 200 such leases at the beginning of the period and payments which did nothing more than maintain this network in place did not add anything to [its] business which it did not already have” and (at para. 25) that “it can safely be said that the Minister would not have raised the assessments in issue if the services provided by Snowcap had been obtained in-house, and paid for in the form of salaries, travel expenses, etc.”
See Also
Ressources Eastmain Inc. v. Agence du revenu du Québec, 2021 QCCQ 4379
In finding that the recurring costs of racks and boxes incurred by an exploration company in order to store core samples were capital expenditures, Fournier J stated (at paras. 295-297, TaxInterpretations translation):
The core boxes and racks allowed for the permanent preservation of a duplicate of each sample taken during exploration, in accordance with the best practices of the exploration industry. In this sense, the expenses incurred for the purchase of core boxes and racks added value to the samples taken on the exploration sites since they were the result of a scientific process. The conservation of duplicate samples allowed the results obtained during exploration to be validated at any time.
Moreover, even if the exploration on a site lasted only one year, the expenses incurred for the purchase of the boxes and core racks would still be of a capital nature given the durable nature of the property acquired.
Nor is this a situation like Johns-Manville where the property acquired annually was, as it were, "consumed" in the mining process. That is not the case here, since the purchase of the core boxes and racks gave a lasting effect to the exploration carried out on REI's various exploration sites, which ensured an increase in value.
However, in finding that the costs of constructing dirt berms at the exploration sites to contain the escape of harmful effluent were currently deductible, Fournier J stated (at paras 317):
[T]he floor mats or environmental berms deteriorate and are damaged by bears. They must therefore be replaced each year. Even the ARQ acknowledges that the life span of these mats may not be very long, forcing REI to acquire them on an annual basis.
Commissioner of Taxation v Healius Ltd, [2020] FCAFC 173
A subsidiary (“Idameneo”) of an Australian public company provided medical centre facilities and services to doctors in consideration for 50% of the fees generated by them. In order to induce a doctor to join one of the medical centres operated by it, it would typically pay a lump sum in the range of $300,000 to $500,000 to the doctor in consideration for the doctor’s promise to conduct his or her practice from the medical centre for a specified period of around five years, along with an exclusivity covenant. The taxpayer entered into 505 such agreements in the four years that were assessed. The primary judge had found that such payments were not outgoings of “capital or of a capital nature” within the meaning of s 8-1(2)(a) of the Income Tax Assessment Act 1997 (Cth), so that they were deductible when incurred.
In finding that the payments (the “Lump Sums”) instead were capital expenditures, the Court stated (at paras 140, 144, 150 - 152):
… Just as much as the Centres needed the physical capital assets comprised by the bricks and mortar of the buildings, they also needed the capital asset of practitioner commitments to be at the Centre for five years (and thereafter subject themselves to the restraint). …
… The Lump Sum amounts were paid to achieve … lasting protection for the goodwill of the Centre. They did have an enduring character, at least to that extent.
… Each time it … made a payment of a further Lump Sum amount it was maintaining the structure of its business. It was ensuring it had in place the commitments that it needed to operate its business… .
… Those arrangements enabled Idameneo, in effect, to run the practices of the practitioners at Idameneo’s cost and in return to receive the agreed percentage of the fees earned. Its business activity was not focussed upon selling services to practitioners, it was focussed upon running the Centres and attracting patients. …
If all that Idameneo had done was to set up the Centres and then secured practitioners as customers to occupy the Centres and pay for services then term contracts with upfront lump sum payments might indeed be seen to be analogous to those made in BP Australia, National Australia Bank and Tyco. But, on the evidence, the Lump Sum amounts were not paid to secure the custom of the practitioners.
Administrative Policy
9 February 2022 Internal T.I. 2020-0873931I7 - Cover Letter - Mining Expenditure Review Table
Pre-feasibility and feasibility studies generally give rise to deductions under s. 9.
The following are deductible under s. 9 if incurred before making a decision to bring the mine into production (otherwise generally Class 41 or 41.2 assets or other depreciable property, or Class 14.1 if the property is not acquired – or CDE under para. (c.2) re the 1st or 5th item if to bring a new mine into production):
- Mine design or development studies
- Evaluation of transportation from the mine to the processing plant
- Evaluation of different technically feasible options for processing
- Process engineering studies
- Estimates of capital and operating costs
17 February 2010 Internal T.I. 2009-0348461I7 F - Transfert d'une PCMC à une société mère
After a subsidiary (“Imageco”) of a Canadian-controlled private corporation (“Canco”) produced a film and DVD (the "CFVPs"), being Canadian film or video productions for which Imageco received the film and video production tax credit, it transferred the CFVPs to Canco. The Directorate indicated that the CFVPs likely were acquired by Canco on capital account, and were to be included as a Class 10(x) asset.
29 July 2004 Internal T.I. 2004-0065971I7 F - Frais d'intégration de sociétés
After Bco, the parent of Aco, entered into an agreement to acquire two corporations, but before those corporations were acquired, Aco started incurring the fees of a firm respecting the proposed integration of the two targets into the Bco group business. Following the closing, the fees were invoiced to it and, in accordance with its practice, included in management fees charged by it to those corporations. The Directorate stated:
Aco was justified in deducting the integration costs in the computing its business income and not treating them as capital expenditures because it seems to us that the integration costs paid by Aco were not incurred to acquire the shares of the subsidiaries or to change the structure of Aco but were incurred by Aco for the same purpose as the payment of expenses in respect of its other subsidiaries, i.e., to receive management fees or to be reimbursed for the expenses. This expense does not have the character of an enduring benefit to Aco since the management fees were received in the same or subsequent year. In addition, incurring the integration fees on behalf of the Acquired Corporations was part of the management operations of Aco's business.
It further indicated that its general position would be that the expenses on-charged to the acquired subsidiaries would be deductible to them, but such determination would require more details.
14 May 2001 Internal T.I. 2001-0065717 F - PAIEMENT INCITATIF REVENUE DE LOCATION
CCRA indicated that tenant inducements made by a landlord in the form of building additions or improvements to the rented premises were non-deductible capital expenditures of the landlord.