T-6075-79
The Queen (Plaintiff)
v.
Hampton Golf Club Limited (Defendant)
INDEXED AS: CANADA V. HAMPTON GOLF CLUB LTD.
Trial Division, McNair J.-Saint John, New
Brunswick, May 21; Ottawa, October 1, 1986.
Income tax - Income calculation - Capital cost allowance
- Golf club greens and tees not depreciable assets within
meaning of Act - Neither "structures" within Class 3 of
Regulations nor "similar surface construction" within Class I
- Income Tax Act, S.C. 1970-71-72, c. 63, ss. 18(1)(b),
20(1)(a),(aa) - Income Tax Regulations, SOR/54-682, ss.
1100(1)(a)(i),(iii) (as am. by SOR/69-503, s. 1), 1102(2),
Schedule B, Classes 1, 3, 8 (as am. by SOR/72-273, s. 1;
73-324, s. 4; 73-684, s. 2) - Income Tax Regulations, C.R.C.,
c. 945, ss. 1100(1)(a)(i),(iii), 1102(2), Schedule II, Classes 1, 3,
8 - Excise Tax Act, R.S.C. 1970, c. E-13, s. 26(4)
Companies Act, R.S.N.B. 1952, c. 33, class 4 - Finance
(1909-10) Act, 1910, 10 Edw. 7, c. 8, s. 25(2) (U.K.)
Assessment Act, S.N.B. 1965-66, c. 110 - The Plant and
Machinery (Valuation for Rating) Order, 1927, St. R. & O.
1927, No. 480.
Shortly after its incorporation in 1971, the defendant com
pany started converting its land into an eighteen-hole golf
course. For its 1974 and 1975 taxation years, the defendant
claimed capital cost allowance on its greens and tees on the
basis that they were structures within the meaning of para
graph 20(1)(a) of the Income Tax Act and subparagraphs
1100(1)(a)(î) and (iii) of the Income Tax Regulations, which
refer to Classes 1 and 3 of Schedule B of the Regulations. The
defendant also claimed the cost of preparing the fairways as
landscaping expenses under paragraph 20(1)(aa) of the Act.
The Minister disallowed the capital cost allowance on the
greens and tees on the ground that they were not depreciable
assets. He allowed 15 per cent of the total expense of preparing
the fairways, greens and tees as landscaping expenses. The Tax
Review Board allowed the capital cost allowance on the basis
that the greens and tees were "similar surface construction"
within the meaning of Class 1, but agreed with the allowance of
15 per cent for landscaping costs. The Crown appeals the
decision on the depreciation aspect and the defendant cross-
appeals by way of counterclaim in respect of landscaping costs
and capital cost allowance.
Held, the plaintiff's appeal should be allowed and the
defendant's cross-appeal by way of counterclaim should be
disallowed.
In essence, the question is whether the greens and tees are
structural entities or land. In M.N.R. et al. v. Plastibeton Inc.,
MacGuigan J., speaking for the majority of the Federal Court
of Appeal in that case, set out three criteria for determining the
existence of a structure: "(1) it must be built or constructed;
(2) it must rest on or in the ground; (3) it must not be 'a part'
of another structure". Applying these criteria and examining
the wording of Class 3 leads to the conclusion that a "struc-
ture" is something in the nature of an artificially constructed
entity that is separate and distinct from the land itself. In this
case, the defendant's greens and tees are not so obviously
artificial as to be readily distinguishable from the natural earth
surroundings of the rest of the golf course. They are not
separate and distinct from the land itself. Nor are they "similar
surface constructions" within the meaning of Class 1.
As for the defendant's appeal against the 15 per cent deduc
tion for landscaping costs, since the greens and tees are not
structures within the meaning of Class 3, and since it was
conceded at trial that the fairways are not structures within the
meaning of Class 3, the amount allowed for landscaping costs is
reasonable and proper.
CASES JUDICIALLY CONSIDERED
APPLIED:
British Columbia Forest Products Ltd. v. Minister of
National Revenue, [ 1972] S.C.R. 101; (1971), 71 DTC
5178; Superior Pre-Kast Septic Tanks Ltd. et al. v. The
Queen, [1978] 2 S.C.R. 612; (1978), 21 N.R. 73; M.N.R.
et al. v. Plastibeton Inc., [1986] 2 C.T.C. 211; 86 DTC
6400 (F.C.A.); reversing (1985), 85 DTC 5240
(F.C.T.D.).
CONSIDERED:
Cardiff Rating Authority and Cardiff Assessment Com
mittee v. Guest Keen Baldwin's Iron and Steel Co., Ld.,
[1949] 1 K.B. 385 (C.A.); Inland Revenue Commission
ers v. Smyth, [1914] 3 K.B. 406; Edinboro Co. v. U.S.,
224 F.Supp. 301 (W.D. Pa.) (1963); Acadian Pulp &
Paper Ltd. v. Minister of Municipal Affairs (1973), 6
N.B.R. (2d) 755 (C.A.).
REFERRED TO:
Moran & Son, Ld. v. Marsland, [1909] 1 K.B. 744;
Hobday v. Nichol, [1944] 1 All E.R. 302 (K.B.).
COUNSEL:
Paul Plourde and Bonnie F. Moon for
plaintiff.
Robert G. Vincent for defendant.
SOLITICORS:
Deputy Attorney General of Canada for
plaintiff.
McKelvey, Macaulay, Machum, Saint John,
New Brunswick, for defendant.
The following are the reasons for judgment
rendered in English by
McNAtx J.: There are two points involved in
this action by way of appeal and cross-appeal.
First and foremost is the question whether golf
greens and tees are depreciable assets within the
meaning of the Income Tax Act [R.S.C. 1952, c.
148 (as am. by S.C. 1970-71-72, c. 63, s. 1)] and
Regulations [Income Tax Regulations, SOR/54-
682]. The second issue is whether landscaping
expenses are properly deductible. The appeals are
from a decision of the Tax Review Board dated
August 27, 1979 whereby the defendant's appeal
from assessments of income tax for the 1974 and
1975 taxation years were allowed in part. The
hearing of the appeals is still a trial de novo where
the matter in issue is the validity of the Minister's
assessment.
The taxpayer claimed capital cost allowance on
its greens and tees on the basis that they were
structures within the meaning of the Act and
Regulations and it claimed the cost of building the
fairways as landscaping expenses. The Minister
disallowed the capital cost allowance on the greens
and tees by reason that they were not depreciable
assets. He allowed 15 per cent of the total expense
of building the fairways, greens and tees as land
scaping expenses. The Tax Review Board allowed
capital cost allowance on the greens and tees on
the basis that they were property in the nature of
"similar surface construction" within the meaning
of Class 1 of Schedule B of the Regulations, but
agreed with the allowance of 15 per cent for
landscaping costs. The Crown appeals the decision
on the depreciation aspect and the defendant
cross-appeals by way of counterclaim in respect of
landscaping costs and capital cost allowance, the
contention regarding the latter being that the
greens and tees are structures within the meaning
of Class 3 of Schedule B.
The defendant is a company which owns and
operates an eighteen-hole golf course in Hampton,
New Brunswick, consisting of a club house, out
building, fairways, greens and tees, and surround
ing land. The company was incorporated in 1971
under the New Brunswick Companies Act
[R.S.N.B. 1952, c. 33]. Shortly thereafter, it
began the task of converting its land into a golf
course. By 1974, nine of the eighteen holes had
been completed.
Greens and tees are essential and relatively per
manent features of any golf course. They are built
up to required heights, after initial excavation, by
successive layers of earth material. The usual
sequence is a bottom layer of gravel or other
coarse fill, followed by a layer of subsoil sealer.
Then comes a layer of nine inches or so of topsoil.
Finally, a seed bed is placed over the topsoil to a
depth of about one and one-half inches. The design
and construction of greens and tees is complicated
and time-consuming. Much attention has to be
paid to achieving good drainage. The construction
of tees is similar to that of greens, although slight
ly less complicated. Tees and greens are the plat
forms used by golfers to make their shots at holes
and thereafter to complete the holes. Virtually all
of the building materials or components for the
greens and tees was trucked in from outside.
It seems to me that the whole point of the case is
whether the greens and tees are artificially created
natural components, separate and distinguishable
from the land itself, or whether they are merely
the end result of the reshaping of land. Counsel for
the defendant conceded at trial that the fairways
were no longer an issue. Shortly put, the question
is whether the greens and tees are structural enti
ties or land.
The relevant statutory scheme is contained in
paragraphs 18(1)(b), 20(1)(a) and 20(1)(aa) of
the Income Tax Act, Regulation 1100 [as am. by
SOR/69-503, s. 1] and Schedule B thereunder,
now Schedule II [of the Income Tax Regulations,
C.R.C., c. 945]. For convenience of reference, I
will utilize the Schedule II designation.
Paragraph 18(1)(b) of the Income Tax Act,
S.C. 1970-71-72, c. 63, reads:
18. (1) In computing the income of a taxpayer from a
business or property no deduction shall be made in respect of
(b) an outlay, loss or replacement of capital, a payment on
account of capital or an allowance in respect of depreciation,
obsolescence or depletion except as expressly permitted by
this Part;
Paragraphs 20(1)(a) and (aa) of the Act state:
20. (1) Notwithstanding paragraphs 18(1)(a),(b) and (h),
in computing a taxpayer's income for a taxation year from a
business or property, there may be deducted such of the
following amounts as are wholly applicable to that source or
such part of the following amounts as may reasonably be
regarded as applicable thereto:
(a) such part of the capital cost to the taxpayer of property,
or such amount in respect of the capital cost to the taxpayer
of property, if any, as is allowed by regulation;
(aa) an amount paid by the taxpayer in the year for the
landscaping of grounds around a building or other structure
of the taxpayer that is used by him primarily for the purpose
of gaining or producing income therefrom or from a business;
The provisions of the Regulations that are par
ticularly relevant are subparagraphs 1100(1)(a)(i)
and (iii) [the form below is that of C.R.C., c. 945],
which provide:
1100. (1) For the purposes of paragraph 20(1)(a) of the
Act, there is hereby allowed to a taxpayer, in computing his
income from a business or property, as the case may be,
deductions for each taxation year equal to
Rates
(a) such amounts as he may claim in respect of property of
each of the following classes in Schedule II not exceeding in
respect of property
(i) of Class 1, 4 per cent,
(iii) of Class 3, 5 per cent,
of the amount remaining, if any, after deducting the amounts,
determined under sections 1107 and 1110 in respect of the
class, from the undepreciated capital cost to him as of the end
of the taxation year (before making any deduction under this
subsection for the taxation year) of property of the class;
Class 1 and Class 3 [again the form below is
that of C.R.C., c. 945], as above referred to, are
specifically defined in Schedule II of the Regula
tions [formerly Schedule B], which provides in
part as follows:
SCHEDULE II
CAPITAL COST ALLOWANCES
CLASS 1
(4 per cent)
Property not included in any other class that is
(g) a road, sidewalk, airplane runway, parking area, storage
area or similar surface construction, acquired before May 26,
1976;
CLASS 3
(5 per cent)
Property not included in any other class that is
(a) a building or other structure, including component parts
such as electric wiring, plumbing, sprinkler systems, air-con
ditioning equipment, heating equipment, lighting fixtures,
elevators and escalators;
The Crown's basic position is that the building
of tees and greens is nothing more than landscap
ing involving the reshaping of the land itself, which
is not depreciable by virtue of the combined effect
of subsection 1102(2) of the Regulations and Class
8 [as am. by SOR/72-273, s. 1; 73-324, s. 4;
73-684, s. 2] of Schedule II thereunder. Counsel
for the Crown further contends that the ejusdem
generis rule serves to limit the general to the
particular class enumerated in paragraph (g) of
Class 1 so as to exclude anything that is not in the
nature of "similar service construction" upon
which people walk or vehicles travel. Hence, the
only permissible deduction is that provided for by
paragraph 20(1)(aa), which the Minister allowed
at a reasonable amount.
The defendant proceeds on the contrary premise
that the greens and tees are constructed from
natural elements designed for the sole purpose of
putting together artificial structures of appreciable
size and relative permanence with good drainage
that will provide level playing surfaces or plat
forms for golfers. Counsel for the defendant con
tends that there are instances where earth ma
terials formed part of what were held to be
structures, and he cites several cases to support
this submission: Moran & Son, Ld. v. Marsland,
[1909] 1 K.B. 744; and Hobday v. Nichol, [1944]
1 All E.R. 302 (K.B.). In the Moran case, reser
voirs on concrete flooring, with walls of brickwork
backed by concrete and earth, covered by brick
arches which themselves were covered with a layer
of concrete and earth on top, were held to be
"buildings or structures" within the meaning of a
building statute. In Hobday v. Nichol, galvanized
iron tanks filled with earth and hardcore, which
were erected behind a concrete wall along the bank
of a river, were held to be "structures" in the
ordinary acceptation of the word and were thus
within the meaning of a drainage by-law sufficient
to justify a conviction thereunder.
Counsel for the defendant acknowledges that
the biggest hurdle the golf club has to clear is the
fact that when all is said and done the completed
structures of greens and tees look very much like
the surrounding natural structure, that is, the land
itself.
It has been laid down by the Supreme Court of
Canada that the word "structure", as it is used in
Class 3, is not to be interpreted ejusdem generis
with the word "building" with which it is associat
ed: see British Columbia Forest Products Ltd. v.
Minister of National Revenue, [1972] S.C.R. 101;
(1971), 71 DTC 5178; and Superior Pre-Kast
Septic Tanks Ltd. et al. v. The Queen, [1978] 2
S.C.R. 612; (1978), 21 N.R. 73. The meaning of
the word "structure" must be determined in rela
tion to its use in the statutory provision in ques
tion. However, it is proper to consider what has
been considered to be a structure in connection
with other taxing statutes: see Superior Pre-Kast,
supra, at pages 619 S.C.R.; 79 N.R.
The Superior Pre-Kast case involved a claim for
exemption from sales tax where the narrow point
in issue was whether a septic tank was a "struc-
ture" within the meaning of subsection 26(4) of
the Excise Tax Act [R.S.C. 1970, c. E-13] where
in the words used were "building or other struc
ture". The exemption was allowed.
Martland J., for the court, stated the ratio at
pages 619-620 S.C.R..; 79-80 N.R.:
With respect, in my opinion the fact that a septic tank is used
as a part of the sanitary system of a residence, not on a sewer
line, does not make it a part of the residence building. I would
consider a water tower constructed to store water for use in the
residence to be a structure in itself. It is not a part of the
building, though constructed for the use of the residents of the
building.
The septic tanks in question here are things which are built
or constructed. They are designed to be placed underground
and become a part of the land in which they are installed. They
are manufactured in competition with persons who construct
such tanks at the site. In my opinion they are structures within
the meaning of s. 26(4) and the appellants are entitled to the
exemption provided by that subsection.
A case frequently relied on by the courts in
interpreting the word "structure" is Cardiff
Rating Authority and Cardiff Assessment Com
mittee v. Guest Keen Baldwin's Iron and Steel
Co., Ld., [1949] 1 K.B. 385 (C.A.). The point
requiring determination was whether movable tilt
ing furnaces in a steel works were in the nature of
"buildings or structures" within the meaning of
class 4 of the schedule to The Plant and Ma
chinery (Valuation for Rating) Order, 1927 [St. R.
& O. 1927, No. 480], so as to be rateable there-
under. It was held that they were.
Denning L.J. made this statement at page 396:
In this case the learned recorder seems to have thought that
these were not structures or in the nature of structures because
they were movable. In my opinion, that was a misdirection. A
structure is something which is constructed, but not everything
which is constructed is a structure. A ship, for instance, is
constructed, but it is not a structure. A structure is something
of substantial size which is built up from component parts and
intended to remain permanently on a permanent foundation;
but it is still a structure even though some of its parts may be
movable, as, for instance, about a pivot. Thus, a windmill or a
turntable is a structure. A thing which is not permanently in
one place is not a structure, but it may be "in the nature of a
structure" if it has a permanent site and has all the qualities of
a structure, save that it is on occasion moved on or from its site.
The earlier English case of Inland Revenue
Commissioners v. Smyth, [1914] 3 K.B. 406 posed
the borderline situation of whether a road was a
"structure" within the meaning of subsection
25(2) of the Finance (1909-10) Act, 1910 [10
Edw. 7, c. 8] (U.K.) and the court held that it was.
Scrutton J. drew some interesting analogies and
summed up his concept of a structure in this way
at pages 421-422:
In my view it is a question of fact in each case; a gravel path
though from repeated gravellings it is harder than the sur
rounding soil would not in my opinion be a structure, while the
roads one is familiar with in Switzerland, the Tyrol, and Italy,
in parts built up on mountain sides, in parts cut out of solid
rock, would I think clearly be structures, as would the elaborate
compositions of concrete, wood blocks, and tarmac used for
heavy motor traffic at the present day. Between the two there is
every variety of degree of solidity and permanence .... I think
a structure is something artificially erected, constructed, put
together, of a certain degree of size and permanence, which is
still maintained as an artificial erection, or which, though not
so maintained, has not become indistinguishable in bounds
from the natural earth surrounding. What degree of size and
permanence will do is a question of fact in every case.
In Edinboro Co. v. U.S., 224 F.Supp. 301 (W.D.
Pa.) (1963), a case strongly relied on by the
plaintiff, the question was whether the taxpayer
was entitled to claim depreciation for an 18-hole
golf course in respect of a purchase price alloca
tion to buildings and equipment and the cost of
improvements and the court disallowed the
depreciation claimed. The court held that the land
itself was not subject to depreciation allowance for
income tax purposes since it had an unlimited
useful life. The same principle was applied by
analogy to the cost of improvements for tees,
greens, fairways, traps and other hazards.
Willson D.J. said at page 303:
This Court is in agreement with government counsel when he
says that the tees, greens, fairways, traps and other hazards are
not distinguishable from the land which is molded and reshaped
to form them. Like the land they have an unlimited useful life.
The New Brunswick case of Acadian Pulp &
Paper Ltd. v. Minister of Municipal Affairs
(1973), 6 N.B.R. (2d) 755 (C.A.) is closely on
point. The issue was whether a wharf and retain
ing wall were "structures" within the meaning of
the province's Assessment Act [S.N.B. 1965-66, c.
110], or whether they fell within the category of
land.
Hughes C.J.N.B. concluded at page 759:
The appellant's wharf, although built up from component
parts consisting of large concrete boxes in and upon.. which
stone, gravel and fill was placed is, in my opinion, indistinguish
able from the rest of the site upon which the refinery is
constructed, except that the wharf has on its seaward side a
vertical retaining wall made of heavy corrugated steel. The
wharf constitutes an extension into the harbour of the land area
of the refinery site made by the addition of fill stabilized by the
concrete blocks and protected from erosion by the corrugated
steel retaining wall. In my opinion the wharf, other than the
retaining wall, is land and should be assessed on the principles
by which land is assessed and not as a structure based on its
cubic content. [Emphasis added.]
In Plastibeton Inc. v. M.N.R. et al. (1985), 85
DTC 5240 (F.C.T.D.) Mr. Justice Dubé held that
median polymer strips installed as traffic barriers
in the centre of Metropolitan Boulevard in Mon-
tréal were structures and exempt from sales tax
under subsection 26(4) of the Excise Tax Act but
that the precast polymer panels erected as side
barriers along the Boulevard were not. The learned
Judge did an extensive review of the authorities
and resorted to the standard dictionary definitions
of the word "structure". The case went on appeal
and the Federal Court of Appeal held that the
median polymer strip could not qualify for sales
tax exemption as an "other structure" within the
meaning of subsection 26(4) of the Act on the
ground that it was not a separate structure:
M.N.R. et al. v. Plastibeton Inc., [1986] 2 C.T.C.
211; 86 DTC 6400.
MacGuigan J. alluded to the opinion of Mart-
land J. regarding the septic tank in Superior Pre-
Kast Septic Tanks, supra, and stated at pages 214
C.T.C.; 6402 DTC:
It séems to me that in this analysis Martland, J. endorses
three criteria for determining the existence of a structure: (1) it
must be built or constructed; (2) it must rest on or in the
ground (3) it must not be "a part" of another structure.
The learned Judge went on to conclude at pages
215 C.T.C.; 6402 DTC:
The learned trial judge here adequately took account of the
positive characteristic but not of the negative one. The median
strip has no purpose other than that of forming part of the
highway. It is a common, even a usual feature, of such high
ways. It is not separate and apart from the highway like a
tower or a cabin, but is entirely co-extensive with it, having no
distinctive shape or existence. It is a part or incident of the
highway, and cannot therefore qualify as an "other structure"
from it for purposes of paragraph 24(4)(a).
Marceau J. agreed with the result but had some
reservations about his colleague's endorsement of
criteria of general application for determining the
existence of a "structure" beyond the particular
facts involved in the Superior Pre-Kast decision.
He preferred to approach the problem of structur
al differentiation from the standpoint of function
rather than construction. I am bound, of course, by
the majority opinion.
The words "building or other structure" in para
graph (a) of Class 3 of the Regulations, having
regard both to the enumerated inclusions therein
and the specific exclusion of land in the other
regulatory provisions creates, in my view, more of
the impression or image in the mind's eye of
something in the nature of an artificially con
structed entity or structure that is separate and
distinct from the land itself. Narrowing the range
of imagery to a golf course, one can readily envi
sion as structures such artificial works as a pavil
ion, fence, outdoor lighting stanchion, rain shelter
and the like. By the same token, it is difficult to
visualize greens and tees as other than part of the
fairways and surrounding landscape. In my opin
ion, the defendant's greens and tees are not so
obviously artificial as to be readily distinguishable
from the natural earth surroundings of the rest of
the golf course. In short, they are not separate and
distinct from the land itself. In the result, I find
that the greens and tees are not structures within
the meaning of Class 3 of the Regulations.
Turning to Class 1 of the Regulations, I am
unable to conclude that the greens and tees come
within the terminology of surface construction
similar to a road, sidewalk, airplane runway, etc.,
as used therein. It is my opinion therefore that the
greens and tees are not similar surface construc
tions within the meaning of Class 1.
The final point in the defendant's appeal con
cerns the 15 per cent deduction for landscaping
costs allowed by the Minister pursuant to para
graph 20(1) (aa) of the Income Tax Act. As stated,
it was conceded at trial that the fairways are not
structures within the meaning of Class 3 of the
Regulations. I have found that the greens and tees
are not structures within the meaning thereof.
Under the circumstances, I consider that the
amount allowed by the Minister for landscaping
costs is reasonable and proper in the circum
stances.
For the foregoing reasons, the plaintiffs appeal
is allowed, with costs. The defendant's cross-
appeal by way of counterclaim is disallowed with
costs. Judgment will go accordingly.
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.