Canderel Ltd. v. Minister of National Revenue, (1995) 179 N.R. 134 (FCA)

• Judge: Stone, Desjardins and Robertson, JJ.A.
• Court: Federal Court of Appeal (Canada)
• Case Date: February 13, 1995
• Jurisdiction: Canada (Federal)
• Citations: (1995), 179 N.R. 134 (FCA)

Canderel Ltd. v. MNR (1995), 179 N.R. 134 (FCA)

MLB headnote and full text

Her Majesty The Queen (appellant) v. Canderel Limited (respondent)

(A-62-94)

Indexed As: Canderel Ltd. v. Minister of National Revenue

Federal Court of Appeal

Stone, Desjardins and Robertson, JJ.A.

February 13, 1995.

Summary:

Canderel developed an office building. To attract tenants, Canderel disbursed $1,208,369 in "tenant inducement payments" in 1986. The inducements were paid upon tenants signing leases with terms of three to 10 years. Canderel deducted the full amount of inducements in calculating its 1986 income. The Minister of National Revenue disallowed a full deduction, determining that the inducements should be amortized over the life of the respective leases and deducted accordingly. Canderel appealed.

The Tax Court of Canada, in a judgment reported (1994), 94 D.T.C. 1133, allowed the appeal. The court determined that the full amount of inducements were "running expenses", accordingly, Canderel was not required to apply the "matching principle". The full amount of the inducements was deductible in 1986. The Minister appealed.

The Federal Court of Appeal allowed the appeal, set aside the Tax Court's decision and restored the Minister's reassessment. The inducements were not "running expenses". The matching principle applied and the inducements had to be amortized over the life of the respective leases.

Income Tax - Topic 1004

Income from business or property - Ap­plication of generally accepted accounting principles - A landlord disbursed tenant inducement payments in 1986 to tenants signing leases with terms of three to 10 years - The landlord deducted the full amount of the inducements in 1986 (ex­pensing method) - The Minister reas-sessed, determining that the inducements had to be amortized over the life of the respective leases and deducted accordingly (amortization method) - Both methods accorded with generally accepted account­ing principles - The Federal Court of Appeal, in determining that the amorti­zation method had to be used for tax pur­poses, stated that where there were two approved methods, the method presenting the "truer picture" of the taxpayer's reve­nue (matches revenues and expenses) had to be used - See paragraph 2.

Income Tax - Topic 1150.8

Income from business or property - De­ductions - Tenant inducement payments - Canderel developed an office building - To attract tenants, Canderel disbursed $1,208,369 in "tenant inducement pay­ments" in 1986 to tenants signing leases with terms of three to 10 years - The Federal Court of Appeal held that the full amount of inducements could not be deducted in 1986 (the year they were paid) - Current expenses need not be matched with corresponding items of revenue for tax purposes if they were "running expenses" - However, the tenant induce­ment payments were not "running expenses" - The inducements were not incurred in earning income solely in the 1986 taxation year, but in all of the years during which the leases were to run - The inducements could be matched with reve­nue from particular leases in accordance with the "matching principle" - Ac­cordingly, the inducements were to be amortized over the life of the respective leases and deducted accordingly - See paragraphs 1 to 7.

Cases Noticed:

West Kootenay Power and Light Co. v. Minister of National Revenue (1991), 136 N.R. 146; 92 D.T.C. 6023 (F.C.A.), refd to. [para. 2].

Naval Colliery Co. v. Inland Revenue Commissioners (1928), 12 T.C. 1017 (K.B.), refd to. [para. 3].

Vallambrosa Rubber Co. v. Farmer (Sur­veyor of Taxes) (1910), 5 T.C. 529 (Ct. Sess.), refd to. [para. 4].

Duple Motor Bodies Ltd. v. Ostime (H.M. Inspector of Taxes) (1961), 39 T.C. 537 (H.L.), refd to. [para. 4].

Oxford Shopping Centres Ltd. v. Canada, [1980] 2 F.C. 89; 79 D.T.C. 5458 (T.D.), dist. [para. 5].

Cummings v. Revenue Canada (1981), 37 N.R. 574; 81 D.T.C. 5207 (F.C.A.), dist. [para. 5].

Silverman v. Minister of National Revenue (1960), 60 D.T.C. 1212 (Ex. Ct.), refd to. [para. 5].

Symes v. Minister of National Revenue, [1993] 4 S.C.R. 695; 161 N.R. 243; 94 D.T.C. 6001, refd to. [para. 24].

Mattabi Mines Ltd. v. Ontario (Minister of Revenue), [1988] 2 S.C.R. 175; 87 N.R. 300; 29 O.A.C. 268, refd to. [para. 24].

Maritime Telegraph and Telephone Co. v. Minister of National Revenue (1992), 140 N.R. 284; 92 D.T.C. 6191 (F.C.A.), refd to. [para. 27].

Friedberg v. Minister of National Revenue (1991), 135 N.R. 61; 92 D.T.C. 6031 (F.C.A.), affd. [1993] 4 S.C.R. 285; 160 N.R. 312; 93 D.T.C. 5507, refd to. [para. 27].

Minister of National Revenue v. Tower Investment Inc., [1972] F.C. 454; 72 D.T.C. 6161 (T.D.), refd to. [para. 38].

Russell v. Town & Country Bank (1888), 13 A.C. 418 (H.L.), refd to. [para. 40].

Whimster & Co. v. Inland Revenue Com­missioners (1925), 12 T.C. 813, refd to. [para. 41, footnote 7].

Roenisch v. Minister of National Revenue (1930), 1 D.T.C. 199, refd to. [para. 41, foot­note 7].

Macdonald (J. Bert) & Sons Ltd. v. Minister of National Revenue (1970), 70 D.T.C. 6032 (Ex. Ct.), refd to. [para. 41, footnote 7].

Associated Investors of Canada Ltd. v. Minister of National Revenue, [1967] 2 Ex. C.R. 96; 67 D.T.C. 5096 (Ex. Ct.), refd to. [para. 41, footnote 7].

Oxford Shopping Centres Ltd. v. Canada, [1980] 2 F.C. 89; 79 D.T.C. 5458 (F.C.T.D.), affd. (1980), 81 D.T.C. 5065 (F.C.A.), refd to. [para. 44].

Canadian Glassine Co. v. Minister of National Revenue, [1976] 2 F.C. 517; 12 N.R. 382; 76 D.T.C. 6083 (F.C.A.), refd to. [para. 47].

Rossmor Auto Supply Ltd. v. Minister of National Revenue, [1962] C.T.C. 123 (Ex. Ct.), refd to. [para. 47, footnote 12].

Consolidated Textiles Ltd. v. Minister of National Revenue, [1947] C.T.C. 63; 3 D.T.C. 958 (Ex. Ct.), refd to. [para. 47, footnote 12].

Inland Revenue Commissioners v. Gardner Mountain and D'Ambrumenil Ltd. (1947), 29 T.C. 69 (H.L.), refd to. [para. 55].

Steeves (Ken) Sales Ltd. v. Minister of National Revenue, [1955] Ex. C.R. 108; 55 D.T.C. 1044 (Ex. Ct.), refd to. [para. 56, footnote 15].

Urbandale Realty Corp. v. Minister of National Revenue (1992), 93 D.T.C. 154 (T.C.C.), refd to. [para. 56, footnote 15].

Neonex International Ltd. v. Minister of National Revenue (1978), 22 N.R. 284; 78 D.T.C. 6339 (F.C.A.), refd to. [para. 56, footnote 15].

Remington v. Minister of National Reve­nue (1994), 174 N.R. 51; 94 D.T.C. 6549 (F.C.A.), refd to. [para. 70].

Statutes Noticed:

I Income Tax Act, S.C. 1970-71-72, c. 63, sect. 9(1) [para. 2, footnote 1]; sect. 18(1)(a) [para. 9].

Authors and Works Noticed:

Arnold, B.J., The Concept of Profit, Tim­ing and Income Taxation: The Principles of Income Measurement for Tax Pur­poses, Canada Tax Paper No. 71 (1983), pp. 10 to 23 [para. 41, footnote 7].

Hansen, B.G., Krishna, V., and Rendall, J.A., Essays on Canadian Taxation: Basic Accounting Concepts (1978), p. 115 [para. 38].

Jackett, W.R., Computation of Business Profits for Tax Purposes, Notes For Talk at Canadian Tax Foundation 1981 Cor­porate Management Tax Conference, pp. 285 [para. 39]; 287, footnote 4 [para. 67, footnote 16].

McDonnell, T.E., Current Cases - More on GAAP and Profit (1994), 42 Can. Tax J. (No. 2) 452, p. 454 [para. 27].

Counsel:

Roger Taylor and Al Meghji, for the ap­pellant;

Guy Du Pont and Stephen Klar, for the respondent.

Solicitors of Record:

George Thomson, Deputy Attorney Gen­eral of Canada, Ottawa, Ontario, for the appellant;

Phillips & Vineberg, Montreal, Quebec, for the respondent.

This appeal was heard on November 22-25, 1994, at Ottawa, Ontario, before Stone, Desjardins and Robertson, JJ.A.

The judgment of the Federal Court of Appeal was delivered on February 13, 1995, and the following opinions were filed:

Stone, J.A. (Robertson, J.A., concurring) - see paragraphs 1 to 7;

Desjardins, J.A. - see paragraphs 8 to 71.