T-2009-77
T-2010-77
Fonthill Lumber Limited (Plaintiff)
v.
The Queen (Defendant)
Trial Division, Jerome A.C.J.—Toronto, April 14;
Ottawa, October 15, 1981.
Income tax — Income calculation — Capital cost allowance
— Appeal from reassessment of capital cost allowances to
which plaintiff was entitled during its 1973 and 1974 taxation
years — Plaintiff borrowed money from the Ontario Develop
ment Corporation for the purpose of acquiring capital assets
— Loan agreement provided for possible forgiveness of half of
loan provided that certain conditions were fulfilled — First act
of forgiveness did not take place in either of plaintiff s 1973 or
1974 taxation years — Minister of National Revenue submits
that plaintiff was not entitled to claim capital cost allowance
on forgiveable part of loan pursuant to s. 13(7)(e) of Income
Tax Act — Whether forgiveable part of loan is "a grant,
subsidy or other assistance" — Whether assessment that
plaintiff not entitled to capital cost allowance on forgiveable
part of loan during its 1973 and 1974 taxation years was
correct — Appeal allowed — Income Tax Act, S.C. 1970-71-
72, c. 63, ss. 13(7)(e), 172.
G.T.E. Sylvania Canada Ltd. v. The Queen [1974] 1 F.C.
726, distinguished.
INCOME tax appeal.
COUNSEL:
John Clow and Joanne Swystun for plaintiff.
I. MacGregor for defendant.
SOLICITORS:
Goodman and Carr, Toronto, for plaintiff.
Deputy Attorney General of Canada for
defendant.
The following are the reasons for judgment
rendered in English by
JEROME A.C.J.: This action is brought by the
plaintiff in accordance with section 172 of the
Income Tax Act, S.C. 1970-71-72, c. 63, as an
appeal from the reassessment by the Minister of
National Revenue of the capital cost allowances to
which the plaintiff was entitled during its 1973
and 1974 taxation years. The facts are not com
plicated and the issue is a very narrow one.
This plaintiff was engaged in the business of
manufacturing and selling wood products at
Fonthill, Ontario, and on December 13, 1972,
entered into an agreement to borrow the sum of
$103,950 from the Ontario Development Corpora
tion for the purpose of the acquisition of certain
capital assets. The plaintiff expended the full sum
in the acquisition of capital assets during its 1973
taxation year. The loan agreement was filed as an
exhibit and discloses that of the borrowed sum,
half was repayable at interest in regular install
ments and is referred to as "term monies" while
the other half was borrowed without interest unless
and until demand for payment had been made and
is referred to as "demand monies". The agreement
also contained the following forgiveness clause:
The Corporation [the O.D.C.] will forgive repayment of the
demand monies or so much thereof as are advanced on the
following basis:
on the 1st day of the 13th month — 10% of the
following the date of the final advance demand
of monies hereunder monies
advanced
on the 1st day of the 25th month — 10% of the
following the date of the final advance demand
of monies hereunder monies
advanced
on the 1st day of the 37th month — 10% of the
following the date of the final advance demand
of monies hereunder monies
advanced
on the 1st day of the 49th month — 10% of the
following the date of the final advance demand
of monies hereunder monies
advanced
on the 1st day of the 61st month — 10% of the
following the date of the final advance demand
of monies hereunder monies
advanced
on the 1st day of the 73rd month — the balance of
following the date of the final advance the demand
of monies hereunder monies
advanced
provided that the Borrower has at all material times prior to
each of the dates upon which repayment of monies is to be
forgiven, operated its business (or the portion thereof connected
with the project if the Borrower carries on other lines of
business or carries on business at other locations) in a manner
satisfactory to the Corporation [the O.D.C.], and without
limiting the generality of the foregoing, it has continuously
(having regard to the nature of its business) carried on the
business of the manufacture of wood products for the building
trade at the Village of Fonthill in the County of Welland.
The granting of any forgiveness hereunder shall not bind the
Corporation [the O.D.C.] to grant any further forgiveness.
The final advance of monies was June 11, 1973,
so that the first forgiveness date was July 1, 1974,
which falls beyond both taxation years in issue
here.
During the plaintiff's 1973 taxation year and
prior to March 27, 1973, the Ontario Development
Corporation advanced the term monies in full
($51,975) and on March 27, 1973, advanced
$33,950 of the demand monies. The remaining
$18,025 of the demand monies was not advanced
until June 11, 1973, which falls within the plain
tiffs 1974 taxation year. The first forgiveness in
accordance with the agreement did take place on
July 1, 1974, and in due course, all of the demand
monies were forgiven. I will not recite the
chronology of returns and notices of reassessment
and objections. The Minister has taken the posi
tion that the taxpayer is not entitled to claim
capital cost allowance on the demand monies by
virtue of section 13(7)(e):
13. (7) ...
(e) where a taxpayer has received or is entitled to receive
from a government, municipality or other public authority, in
respect of or for the acquisition of property, a grant, subsidy
or other assistance other than an amount authorized to be
paid under an Appropriation Act and on terms and condi
tions approved by the Treasury Board for the purpose of
advancing or sustaining the technological capability of
Canadian manufacturing or other industry, the capital cost
of the property shall be deemed to be the capital cost thereof
to the taxpayer minus the amount of the grant, subsidy or
other assistance.
Obviously, a loan is not a grant, but can a
forgiveable loan be a grant or a subsidy or, if not,
can it be "other assistance"? On this general
question of interpretation Cattanach J. had the
following to say in G.T.E. Sylvania Canada Ltd. v.
The Queen':
Again referring to the dictionary meanings of the words
"grant" and "subsidy" there is one common thread throughout,
that is a gift or assignment of money by government or public
authority out of public funds to a private or individual or
commercial enterprise deemed to be beneficial to the public
interest. Subject to minor refinements the words "grant" and
"subsidy" appear from their dictionary meanings to be almost
synonymous.
I am of the view that rules of interpretation or canons of
construction which have been established judicially must be
applied where pertinent and in or saying I do so fully cognizant
that such rules, particularly the principle of ejusdem generis,
are a useful servant but a dangerous master.
The ejusdem generis doctrine is as old as Bacon's maxims.
That rule, which I repeat, is that where general words follow an
enumeration of particular things they do not introduce changes
of a different character.
In my judgment the familiar rule that where there are
general words following particular and specific words all of one
genus, the general words are presumed to be restricted to the
same genus as the particular words,—applies to the words
"grant, subsidy or other assistance" as used in section 20(6)(h)
of the Income Tax Act. In this section there are the specific
words "grant" and "subsidy" followed by the general words "or
other assistance".
The fact is that the general words "or other assistance" can
hardly avoid being ancillary in nature to the words "grant" and
"subsidy". It seems to me that where there are ancillary words
of this nature it is a sound rule not to give such a construction
to the ancillary words as will wipe out the significance of the
particular words which antecede them.
As I have said before the constant and dominating feature in
the words "grant" and "subsidy" is that each contemplates the
gift of money from a fund by government to a person for the
public weal. Something concrete and tangible is to be bestowed.
For the reasons I have expressed the general words "or other
assistance" must be coloured by the meaning of those words.
In the Sylvania decision Cattanach J. concluded
that special tax consideration in which no funds
passed to the taxpayer would be an unwarranted
extension of the genus of grant or subsidy. In the
present case, however, there has been a transfer of
funds to the taxpayer for the purpose of the capital
acquisitions in question and, in respect to the
demand monies, there is the possibility that repay
' [1974] 1 F.C. 726, at pp. 736-737.
ment will be forgiven which would not be available
except under such a publicly-funded program. In
my opinion, therefore, the forgiveable portion of
the loan in this case may become a grant or
subsidy at the time of forgiveness, and in any event
can certainly be included in the words "other
assistance" without offending the ejusdem generis
doctrine.
The intent and the language of section 13(7)(e)
are not difficult to comprehend i.e. that the tax
payer's capital cost allowance ought not to be
based on a cost which the taxpayer does not incur
but which is borne in whole or in part out of public
funds. The clause concerns itself with the accuracy
of capital cost and as such directs itself to the time
of acquisition by the taxpayer. It is agreed that
during the 1973 taxation year this plaintiff
expended $103,950 on capital acquisitions, for the
purpose of the project which is the subject of the
agreement with the Ontario Development Corpo
ration, and included this sum in the larger amount
of its overall capital cost. If the Minister's conten
tion is valid the taxpayer was obliged by virtue of
section 13(7)(e) to reflect the fact that $51,975
was not a cost incurred by the taxpayer because it
had been made with money which the taxpayer
had borrowed and would not be obliged to repay,
but I am of the opinion that the taxpayer was not
in a position to make such a declaration at that
time. Certainly since the facts disclose without
dispute that some $18,025 of the demand monies
was not advanced until the plaintiff's 1974 taxa
tion year, the Minister's contention could only be
sustained, if at all, in respect of the $33,950 which
was actually advanced during the 1973 year but
the deciding point is more fundamental than
merely a question of whether the demand monies
were received in the 1973 or the 1974 taxation
year.
At the moment of acquisition the taxpayer had
not received the proceeds of the loan and even
after receipt could only know that no interest was
payable in respect of the demand monies upon a
demand for repayment, presumably because of
some failure in the project. Such interest relief
might be of taxation significance but it could not
influence the original capital cost and neither, in
my opinion, could the forgiveness feature so long
as it remained a future and contingent event. The
first time the taxpayer could be certain that a
portion of its 1973 capital cost had not been
incurred by it, but had been borne out of public
funds, was upon fulfillment of the conditions and
thereafter the actual act of forgiveness by the
Ontario Development Corporation. The first act of
forgiveness did not take place in either of the
plaintiff's 1973 or 1974 taxation years and, there
fore, while I find that in general terms this forgive-
able loan program falls within the meaning of
section 13(7)(e) I am of the view that the Minis
ter's assessment that the taxpayer was not entitled
to capital cost allowance on the demand portion of
the monies during its 1973 and 1974 taxation
years "on the ground that in accordance with the
provisions of subsection 13(7) of the Act, the
Taxpayer is not entitled to an allowance under
paragraph 20(1)(a) of the Act in respect of the
amount of $51,975 received in 1973 from the
Ontario Development Corporation ...", was an
incorrect assessment. The appeal is allowed and
the matter is referred back to the Minister for the
appropriate reassessment of the plaintiff's capital
cost allowance during its 1973 and 1974 taxation
years.
You are being directed to the most recent version of the statute which may not be the version considered at the time of the judgment.