Canderel Ltd. v. Minister of National Revenue, (1998) 222 N.R. 81 (SCC)

• Judge: Gonthier, Cory, Iacobucci, Major and Bastarache, JJ.
• Court: Supreme Court (Canada)
• Case Date: February 12, 1998
• Jurisdiction: Canada (Federal)
• Citations: (1998), 222 N.R. 81 (SCC);77 ACWS (3d) 446;1998 CanLII 846 (SCC);AZ-98111028;[1998] 1 SCR 147;JE 98-386;[1998] 2 CTC 35;222 NR 81;155 DLR (4th) 257;52 DTC 6100;[1998] CarswellNat 80;[1998] ACS no 13;[1998] SCJ No 13 (QL)

Canderel Ltd. v. MNR (1998), 222 N.R. 81 (SCC)

MLB headnote and full text

[French language version follows English language version]

[La version française vient à la suite de la version anglaise]

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Temp. Cite: [1998] N.R. TBEd. FE.012

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

(24663)

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

Supreme Court of Canada

Gonthier, Cory, Iacobucci, Major and Bastarache, JJ.

February 12, 1998.

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 could be deducted in 1986. The Minister appealed.

The Federal Court of Appeal, in a judg­ment reported 179 N.R. 134, 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. Canderel appealed.

The Supreme Court of Canada allowed the appeal and restored the judgment of the Tax Court of Canada.

Income Tax - Topic 1004

Income from business or property - Ap­plication of generally accepted accounting principles - [See Income Tax - Topic 1102 ].

Income Tax - Topic 1102

Income from business or property - Income - Profit - What constitutes - The Supreme Court of Canada stated that "(1) The deter­mination of profit is a question of law. (2) The profit of a business for a taxation year is to be determined by setting against the revenues from the business for that year the expenses incurred in earning said income. ... (3) In seeking to ascertain profit, the goal is to obtain an accurate picture of the taxpayer's profit for the given year. (4) In ascertaining profit, the taxpayer is free to adopt any method which is not inconsistent with (a) the provisions of the Income Tax Act; (b) established case law principles or 'rules of law'; and (c) well-accepted business prin­ciples. (5) Well-accepted business prin­ciples, which include but are not limited to the formal codification found in G.A.A.P., are not rules of law but interpretive aids. To the extent that they may influence the calcula­tion of income, they will do so only on a case-by-case basis, depending on the facts of the taxpayer's financial situation. (6) On reassessment, once the taxpayer has shown that he has provided an accurate picture of income for the year, which is consistent with the Act, the case law, and well-accepted business principles, the onus shifts to the Minister to show either that the figure provided does not represent an accurate picture, or that another method of computation would provide a more accu­rate picture." - See paragraph 53.

Income Tax - Topic 1150.8

Income from business or property - De­ductions - Tenant inducement payments - To attract tenants, Canderel disbursed $1,208,369 in "tenant inducement pay­ments" in 1986 to tenants signing leases with terms of 3-10 years - The Federal Court of Appeal held that the full amount of inducements could not be deducted in 1986 - Current expenses need not be matched with corresponding items of reve­nue for tax purposes if they were "running expenses" - However, the in­ducements were not "running expenses" - They were not incurred in earning income solely in 1986, 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 had to be amortized over the life of the respective leases and deducted accordingly - The Supreme Court of Canada held that the inducements could be deducted entirely in 1986 - Can­derel's method was consistent with the law and well-accepted business principles and gave at least as accurate a picture of income as the amortization method - The inducements qualified as running expenses to which the matching principle did not apply - See paragraphs 54 to 66.

Words and Phrases

Profit - The Supreme Court of Canada discussed the meaning of "profit", as found in s. 9(1) of the Income Tax Act, S.C. 1970-71-72, c. 63 - See paragraphs 28 to 44.

Cases Noticed:

Toronto College Park Ltd. v. Minister of National Revenue (1998), 222 N.R. 189 (S.C.C.), refd to. [para. 3].

Ikea Ltd. v. Minister of National Revenue (1998), 222 N.R. 161 (S.C.C.), refd to. [para. 3].

Vallambrosa Rubber Co. v. Farmer (1910), 5 T.C. 529 (Ct. of Sess.), refd to. [para. 14].

Naval Colliery Co. v. Commissioners of Inland Revenue (1928), 12 T.C. 1017 (H.L.), refd to. [para. 14].

Oxford Shopping Centres Ltd. v. Minister of National Revenue (1979), 79 D.T.C. 5458 (F.C.T.D.), refd to. [para. 14].

Cummings v. Revenue Canada (1981), 37 N.R. 574; 81 D.T.C. 5207 (F.C.A.), refd to. [para. 15].

Neonex International Ltd. v. Minister of National Revenue (1978), 78 D.T.C. 6339 (F.C.T.D.), refd to. [para. 16].

Symes v. Minister of National Revenue, [1993] 4 S.C.R. 695; 161 N.R. 243, consd. [para. 16].

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. 16].

Minister of National Revenue v. Tower Investment Inc., [1972] F.C. 454 (T.D.), refd to. [para. 17].

West Kootenay Power and Light Co. v. Minister of National Revenue (1991), 136 N.R. 146; 92 D.T.C. 6023 (F.C.A.), consd. [para. 19].

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. 23].

Friedberg v. Minister of National Revenue, [1993] 4 S.C.R. 285; 160 N.R. 212, refd to. [para. 23].

Commissioners of Inland Revenue v. Gardner Mountain & D'Ambrumenil Ltd. (1947), 29 T.C. 69 (H.L.), refd to. [para. 25].

Minister of National Revenue v. Irwin, [1964] S.C.R. 662, refd to. [para. 30].

Associated Investors of Canada Ltd. v. Minister of National Revenue, [1967] 2 Ex. C.R. 96 (Ex. Ct.), refd to. [para. 30].

Friesen v. Minister of National Revenue, [1995] 3 S.C.R. 103; 186 N.R. 243, consd. [para. 34].

Royal Bank of Canada v. Sparrow Electric Corp., [1997] 1 S.C.R. 411; 208 N.R. 161; 193 A.R. 321; 135 W.A.C. 321, refd to. [para. 41].

Canadian Glassine Co. v. Minister of Na­tional Revenue, [1976] 2 F.C. 517; 12 N.R. 382 (F.C.A.), refd to. [para. 46].

Johnston v. Minister of National Revenue, [1948] S.C.R. 486, refd to. [para. 52].

Statutes Noticed:

Income Tax Act, S.C. 1970-71-72, c. 63, sect. 9(1), sect. 18(1)(a), sect. 18(9) [para. 13].

Authors and Works Noticed:

Hogg, Peter W., and Magee, Joanne E., Principles of Canadian Income Tax Law (2nd Ed. 1997), pp. 180, 181 [para. 33].

McDonnell, T.E., Running Headlong into the GAAP (Again) (1995), 43 C.T.J. 179, generally [para. 57].

Thomas, Richard B., The Matching Prin­ciple: Legal Principle or a Concept? (1996), 44 C.T.J. 1693, generally [para. 45].

Counsel:

Guy Du Pont and Samuel Minzberg, for the appellant;

Roger Taylor and J.S. Gill, for the respon­dent.

Solicitors of Record:

Goodman, Phillips & Vineberg, Montreal, Quebec, for the appellant;

Attorney Gen­eral of Canada, Ottawa, Ontario, for the respondent.

This appeal was heard on December 2, 1997, before Gonthier, Cory, Iacobucci, Major and Bastarache, JJ., of the Supreme Court of Canada.

On February 12, 1998, Iacobucci, J., delivered the following judgment in both official languages for the Supreme Court of Canada.