Eaton (T.) Co. v. Minister of National Revenue, (1999) 239 N.R. 102 (FCA)

• Judge: Strayer, Linden and Robertson, JJ.A.
• Court: Federal Court of Appeal (Canada)
• Case Date: April 09, 1999
• Jurisdiction: Canada (Federal)
• Citations: (1999), 239 N.R. 102 (FCA)

Eaton Co. v. MNR (1999), 239 N.R. 102 (FCA)

MLB headnote and full text

Temp. Cite: [1999] N.R. TBEd. AP.023

The T. Eaton Company Limited (formerly T. Eaton Holdings Limited) (appellant) v. Her Majesty The Queen (respondent)

(A-861-96)

Indexed As: Eaton (T.) Co. v. Minister of National Revenue

Federal Court of Appeal

Strayer, Linden and Robertson, JJ.A.

April 9, 1999.

Summary:

An anchor tenant was entitled under the "participation clause" of a long-term lease to 20% of the shopping centre's annual net profits over the lease term. In 1989, the centre "bought out" the tenant's entitlement under the clause for $9.25 million. The tenant claimed the monies as a capital gain. The Minister reassessed the monies as busi­ness income, being monies substituting for future income. The tenant appealed.

The Federal Court of Appeal allowed the appeal. The $9.25 million was a capital receipt, not income. The participation clause was an integral part of the capital asset (lease) and termination of that clause di­minished the value of the tenant's capital asset by $9.25 million. Had the clause not been an integral component of the capital asset, the monies replacing a future income source would have been an income receipt.

Income Tax - Topic 1105

Income from a business or property - Income - General - Monies received on termination of contract or contractual right - An anchor tenant was entitled under the "participation clause" of a long-term lease to 20% of the shopping centre's annual net profits over the lease term - In 1989, the centre "bought out" the tenant's entitlement under the clause for $9.25 million - The tenant claimed the monies as a capital gain - The Minister reassessed the monies as business income, being monies replacing future income - The Federal Court of Appeal held that the $9.25 million was a capital receipt, not income - The partici­pation clause was an integral part of the capital asset (lease) and termination of that clause diminished the value of the tenant's capital asset by $9.25 million - Had the clause not been an integral component of the capital asset, the monies replacing a future income source would have been an income receipt.

Income Tax - Topic 1742

Capital gains and losses - Capital gains - Capital receipt v. income - [See Income Tax - Topic 1105 ].

Income Tax - Topic 1747

Capital gains and losses - Capital gains - Monies received on termination of contract or contractual right - [See Income Tax - Topic 1105 ].

Cases Noticed:

London & Thames Haven Oil Wharves Ltd. v. Attwool, [1976] 2 All E.R. 124 (C.A.), refd to. [para. 2, footnote 1].

Canadian National Railway Co. v. Minister of National Revenue (1988), 21 F.T.R. 81; 88 D.T.C. 6340 (T.D.), refd to. [para. 2, footnote 2].

Golden et al. v. Minister of National Rev­e­nue (1986), 65 N.R. 135; 86 D.T.C. 6138 (S.C.C.), refd to. [para. 4, footnote 3].

Friesen v. Minister of National Revenue, [1995] 2 C.T.C. 369; 186 N.R. 369 (S.C.C.), dist. [para. 5, footnote 4].

Ikea Ltd. v. Minister of National Revenue, [1998] 1 S.C.R. 196; 222 N.R. 161, refd to. [para. 10, footnote 5].

Mohawk Oil Co. v. Minister of National Revenue (1992), 140 N.R. 225; 92 D.T.C. 6135 (F.C.A.), refd to. [para. 10, footnote 5].

Pe Ben Industries Ltd. v. Minister of National Revenue, [1988] 2 C.T.C. 120; 21 F.T.R. 90 (T.D.), refd to. [para. 19, footnote 8].

Commissioners of Inland Revenue v. Fleming & Co. (Machinery) Ltd. (1951), 33 T.C. 57 (Ct. Sess.), dist. [para. 20, footnote 9].

Canderel Ltd. v. Minister of National Revenue, [1998] 1 S.C.R. 147; 222 N.R. 81, refd to. [para. 25, footnote 10].

Toronto College Park v. Minister of National Revenue, [1998] 1 S.C.R. 183; 222 N.R. 189, refd to. [para. 25, footnote 10].

Westfair Foods Ltd. v. Minister of National Revenue (1991), 40 F.T.R. 207; 91 D.T.C. 5073 (T.D.), affd. (1991), 137 N.R. 74; 91 D.T.C. 5625 (F.C.A.), refd to. [para. 33, footnote 12].

Statutes Noticed:

Income Tax Act, R.S.C. 1985 (5th Supp.), c. 1, sect. 39(1)(a), sect. 39(1)(b) [para. 9]; sect. 54(b) [para. 8].

Counsel:

Brian G. Morgan and Nancy Stitt, for the appellant;

Elizabeth Chasson and J.S. Gill, for the respondent.

Solicitors of Record:

Osler, Hoskin & Harcourt, Toronto, Ontario, for the appellant;

Morris Rosenberg, Deputy Attorney Gen­eral of Canada, Ottawa, Ontario, for the respondent.

This appeal was heard on March 2, 1999, at Toronto, Ontario, before Strayer, Linden and Robertson, JJ.A., of the Federal Court of Appeal.

On April 9, 1999, Robertson, J.A., delivered the following judgment for the Court of Appeal.