Friesen v. Minister of National Revenue, (1995) 186 N.R. 243 (SCC)
| Judge | Iacobucci and Major, JJ. |
| Court | Supreme Court (Canada) |
| Case Date | March 01, 1995 |
| Jurisdiction | Canada (Federal) |
| Citations | (1995), 186 N.R. 243 (SCC);[1995] 2 CTC 369;57 ACWS (3d) 667;[1995] SCJ No 71 (QL);AZ-95111095;186 NR 243;127 DLR (4th) 193;[1995] ACS no 71;1995 CanLII 62 (SCC);[1995] 3 SCR 103;49 DTC 5551 |
Friesen v. MNR (1995), 186 N.R. 243 (SCC)
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[French language version follows English language version]
[La version française vient à la suite de la version anglaise]
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Jake Friesen (appellant) v. Her Majesty the Queen (respondent)
(23922)
Indexed As: Friesen v. Minister of National Revenue
Supreme Court of Canada
L'Heureux-Dubé, Sopinka, Gonthier,
Iacobucci and Major, JJ.
September 21, 1995.
Summary:
A businessman acquired a parcel of land for resale at a profit. The land decreased in value. The businessman sought to deduct the decrease in value as a business loss for taxation years prior to sale, submitting that the land was inventory in a business, entitling him to write down the value from cost to market value under s. 10(1) of the Income Tax Act. The Minister disallowed the business losses. The businessman appealed.
The Federal Court of Canada, Trial Division, in a decision reported at 53 F.T.R. 49, dismissed the appeal. The businessman appealed.
The Federal Court of Appeal, in a decision reported at 156 N.R. 199, dismissed the appeal. The businessman appealed.
The Supreme Court of Canada, Gonthier and Iacobucci, JJ., dissenting, allowed the appeal.
Income Tax - Topic 1055
Income from a business or property - Income from business - "Adventure or concern in the nature of trade" - The Supreme Court of Canada held that land held for resale as an adventure in the nature of trade may be valued as inventory under s. 10(1) of the Income Tax Act - See paragraph 3.
Income Tax - Topic 1055
Income from a business or property - Income from business - "Adventure or concern in the nature of trade" - The Supreme Court of Canada discussed the requirements for an adventure in the nature of trade - See paragraphs 14 to 19.
Income Tax - Topic 1102
Income from a business or property - Income - General - Profit - What constitutes - The Supreme Court of Canada stated that the Income Tax Act did not define profit and did not provide specific rules for computation of profit - The court stated that the determination of profit under s. 9(1) of the Act is a question of law to be determined according to the business test of "well-accepted principles of business or accounting practice" or "well-accepted principles of commercial trading" except where these are inconsistent with the specific provisions of the Income Tax Act - See paragraph 41.
Income Tax - Topic 1341
Income from a business or property - Business inventory - General - The Supreme Court of Canada stated that the first point to notice about the definition of inventory in the Income Tax Act, s. 248(1), is that property is not required to contribute directly to income in a taxation year in order to qualify as inventory - "Provided that the cost or value of an item of property is relevant in computing business income in a year that property will qualify as inventory. Generally the cost or value of an item of property will appear as an expense (and the sale price as revenue) in the computation of income" - See paragraphs 20 to 38.
Income Tax - Topic 1342
Income from a business or property - Business inventory - Valuation - The Supreme Court of Canada stated that the valuation of business inventory at the lower of cost or market value (permitted under s. 10(1) of the Income Tax Act) is a well-accepted accounting and commercial principle - The court also stated that the valuation method in s. 10(1) was available for inventory held as part of an adventure in the nature of trade - See paragraphs 39 to 49.
Income Tax - Topic 1342
Income from a business or property - Business inventory - Valuation - A businessman acquired land for resale at profit - The land decreased in value - The businessman sought to deduct the decrease in value as a business loss for taxation years prior to sale - He submitted that the acquisition was an adventure in the nature of trade and the land was inventory in a business, entitling him to write down the value from cost to fair market value pursuant to s. 10(1) of the Income Tax Act - The Supreme Court of Canada affirmed that the businessman was entitled to value the land as inventory in a business under s. 10(1) and was entitled to the write down - See paragraphs 12 to 71.
Income Tax - Topic 1348
Income from a business or property - Business inventory - Inclusions - Requirement of matching costs with related revenues - A businessman acquired land for resale at profit - The land decreased in value - The businessman sought to deduct the decrease in value as a business loss for taxation years prior to sale - He submitted that the land was inventory in a business, entitling him to write down the value from cost to fair market value pursuant to s. 10(1) of the Income Tax Act - The Minister argued that the land was only inventory in the year of sale - The Supreme Court of Canada held that the land need only be relevant in a single year to qualify as inventory both in the year of sale and in preceding years - See paragraphs 23 to 38.
Income Tax - Topic 3901
Interpretation - General - The Supreme Court of Canada discussed the correct approach in interpreting the Income Tax Act, stating that "the plain meaning of the relevant sections of the Income Tax Act is to prevail unless the transaction is a sham" - See paragraphs 9 to 11.
Cases Noticed:
Stubart Investments Ltd. v. Minister of National Revenue, [1984] 1 S.C.R. 536; 53 N.R. 241; 10 D.L.R.(4th) 1; 84 D.T.C. 6305; [1984] C.T.C. 294, refd to. [para. 10].
Antosko v. Minister of National Revenue, [1994] 2 S.C.R. 312; 168 N.R. 16; [1994] 2 C.T.C. 25; 94 D.T.C. 6314, refd to. [para. 11].
Californian Copper Syndicate v. Harris (1905), 5 T.C. 159 (Scot. Ex.), refd to. [paras. 15, 96].
Bailey v. Minister of National Revenue, 90 D.T.C. 1321 (Tax C.C.), refd to. [paras. 19, 79].
Minister of National Revenue v. Irwin, [1964] S.C.R. 662, refd to. [paras. 21, 109].
Dresden Farm Equipment Ltd. v. Minister of National Revenue, [1984] 1 C.T.C. 99; 91 N.R. 325 (F.C.A.), refd to. [para. 23].
Weatherhead v. Minister of National Revenue, [1990] 1 C.T.C. 2579 (Tax C.C.), refd to. [paras. 37, 79].
Van Dongen v. Minister of National Revenue (1990), 38 F.T.R. 110; 90 D.T.C. 6633 (T.D.), refd to. [paras. 37, 79].
Skerrett v. Minister of National Revenue, 91 D.T.C. 1330 (Tax C.C.), refd to. [paras. 37, 131].
Cull v. Minister of National Revenue (1987), 14 F.T.R. 232; 87 D.T.C. 5322 (T.D.), refd to. [para. 37].
Gresham Life Assurance Society v. Styles, [1892] A.C. 309 (H.L.), refd to. [para. 41].
Neonex International Ltd. v. Minister of National Revenue (1978), 22 N.R. 284; 78 D.T.C. 6339 (F.C.A.), refd to. [paras. 41, 118].
Symes v. Minister of National Revenue, [1993] 4 S.C.R. 695; 161 N.R. 243, refd to. [paras. 41, 121].
Ostime v. Duple Motor Bodies Ltd., [1961] 2 All E.R. 167 (H.L.), refd to. [para. 47].
Minister of National Revenue v. Anaconda American Brass Ltd., [1956] A.C. 85 (P.C.), refd to. [para. 50].
Whimster & Co. v. Inland Revenue Commissioners (1925), 12 T.C. 813 (Scot. Ct. Sess.), refd to. [paras. 50, 109].
B.S.C. Footwear Ltd. v. Ridgway, [1972] 2 All E.R. 534 (H.L.), refd to. [paras. 50, 109].
Minister of National Revenue v. Consolidated Glass Ltd., [1957] S.C.R. 167, refd to. [paras. 56, 105].
Shofar Investment Corp. v. Minister of National Revenue, [1980] 1 S.C.R. 350; 30 N.R. 60, refd to. [para. 81].
Edwards v. Bairstow, [1956] A.C. 14 (H.L.), refd to. [para. 96].
Irrigation Industries Ltd. v. Minister of National Revenue, [1962] S.C.R. 346, refd to. [para. 96].
Regal Heights Ltd. v. Minister of National Revenue, [1960] S.C.R. 902, refd to. [para. 96].
Cyprus Anvil Mining Corp. v. Minister of National Revenue (1989), 104 N.R. 299; 90 D.T.C. 6063 (F.C.A.), refd to. [para. 101].
Daley v. Minister of National Revenue, [1950] C.T.C. 254 (Ex. Ct.), refd to. [para. 103].
Dominion Taxicab Association v. Minister of National Revenue, [1954] S.C.R. 82, refd to. [para. 104].
Friedberg v. Minister of National Revenue, [1993] 4 S.C.R. 285; 160 N.R. 312, refd to. [para. 105].
Oryx Realty Corp. v. Minister of National Revenue, [1974] 2 F.C. 44; 4 N.R. 463 (F.C.A.), refd to. [para. 111].
Tara Exploration and Development Co. v. Minister of National Revenue, 70 D.T.C. 6370 (Ex. Ct.), affd. [1974] S.C.R. 1057, refd to. [para. 114].
West Kootenay Power and Light Co. v. Minister of National Revenue, [1992] 1 F.C. 732; 136 N.R. 146 (F.C.A.), refd to. [para. 118].
Tobias v. Canada, 78 D.T.C. 6028 (F.C.T.D.), refd to. [para. 118].
Steeves (Ken) Sales Ltd. v. Minister of National Revenue, 55 D.T.C. 1044 (Ex. Ct.), refd to. [para. 122].
Minister of National Revenue v. Publishers Guild of Canada Ltd., 57 D.T.C. 1017 (Ex. Ct.), refd to. [para. 122].
Associated Investors of Canada Ltd. v. Minister of National Revenue, 67 D.T.C. 5096 (Ex. Ct.), refd to. [para. 122].
Maritime Telegraph and Telephone Co. v. Minister of National Revenue (1990), 41 F.T.R. 301; 91 D.T.C. 5038 (T.D.), refd to. [para. 122].
Statutes Noticed:
Income Tax Act, Interpretation Bulletin IT-218, generally [para. 16].
Income Tax Act, Interpretation Bulletin IT-218R, generally [para. 17].
Income Tax Act, Interpretation Bulletin IT-459, generally [para. 16].
Income Tax Act, Interpretation Bulletin IT-473, sect. 4 [para. 62].
Income Tax Act, S.C. 1970-71-72, c. 63, sect. 9 [para. 26]; sect. 10 [para. 78]; sect. 10(1) [para. 12]; sect. 38 [para. 26]; sect. 248(1) [para. 13].
Income Tax Act Regulations (Can.), C.R.C. 1978, c. 945, sect. 1801 [para. 62].
Authors and Works Noticed:
Arnold, Brian J., Timing and Income Taxation: The Principles of Income Measurement for Tax Purposes (1983), pp. 332 to 333 [paras. 56, 121]; 333 [para. 107].
Arnold, Brian J., Edgar, Tim, and Li, Jinyan, Materials on Canadian Income Tax (10th Ed. 1993), pp. 291 [para. 41]; 297 [paras. 8, 58]; 303 et seq. [para. 96]; 336 et seq. [para. 104].
Canada, Royal Commission Report on Taxation (1966), vol. III, pp. 62 to 67 [para. 8].
Canadian Institute of Chartered Accountants, Terminology for Accountants (3rd Ed. 1983), p. 81 [paras. 33, 130].
Canadian Institute of Public Real Estate Companies, Handbook (September 1990), ss. 301, 302 [para. 48].
Canadian Institute of Public Real Estate Companies, Recommended Accounting Practices for Real Estate Companies (November 1985), p. 204-1 [para. 33].
Carter Report - see Canada, Royal Commission on Taxation (1966).
Driedger, E.A., Construction of Statutes (2nd Ed. 1983), p. 87 [para. 10].
Harris, Edwin C., Canadian Income Taxation (1979), p. 170 [para. 96].
Hogg, Peter W. and Magee, Joanne E., Principles of Canadian Income Tax Law (1995), pp. 453 to 454 [paras. 11, 59].
Huot, René, Understanding Income Tax for Practitioners (1994-95 Ed.), p. 299 [paras. 41, 104].
Kieso, Donald E., et al., Intermediate Accounting (2nd Ed. 1986), pp. 421, 422 [para. 45].
Krishna, Vern, The Fundamentals of Canadian Income Tax (4th Ed. 1993), pp. 275 et seq. [para. 104]; 278 to 279 [para. 108]; 279 [para. 118]; 324 [para. 110].
Counsel:
Craig C. Sturrock, for the appellant;
Roger E. Taylor and Al Meghji, for the respondent.
Solicitors of Record:
Thorsteinssons, Vancouver, British Columbia, for the appellant;
George Thomson, Deputy Attorney General of Canada, Ottawa, Ontario, for the respondent.
This appeal was heard on March 1, 1995, before L'Heureux-Dubé, Sopinka, Gonthier, Iacobucci and Major, JJ., of the Supreme Court of Canada. On September 21, 1995, the judgment of the court was delivered in both official languages and the following opinions were filed:
Major, J. (L'Heureux-Dubé and Sopinka, JJ., concurring) - see paragraphs 1 to 72;
Iacobucci, J., dissenting (Gonthier, J., concurring) - see paragraphs 73 to 137.
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