Hickman Motors Ltd. v. Minister of National Revenue, (1997) 213 N.R. 81 (SCC)

• Judge: Cory, McLachlin, Iacobucci and Major, JJ.
• Court: Supreme Court of Canada
• Case Date: Thursday June 26, 1997
• Jurisdiction: Canada (Federal)
• Citations: (1997), 213 N.R. 81 (SCC);[1998] 1 CTC 213;[1997] SCJ No 62 (QL);[1997] CarswellNat 3046;131 FTR 317;72 ACWS (3d) 194;148 DLR (4th) 1;1997 CanLII 357 (SCC);97 DTC 5363;EYB 1997-01534;JE 97-1394;213 NR 81;[1997] ACS no 62;[1997] 2 SCR 336;AZ-97111072

Hickman Motors Ltd. v. MNR (1997), 213 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: [1997] N.R. TBEd. JN.027

Hickman Motors Limited (appellant) v. Her Majesty The Queen (respondent)

(24994)

Indexed As: Hickman Motors Ltd. v. Minister of National Revenue

Supreme Court of Canada

La Forest, L'Heureux-Dubé, Sopinka,

Cory, McLachlin, Iacobucci and

Major, JJ.

June 26, 1997.

Summary:

On December 28, 1984, a subsidiary of the corporate taxpayer was wound-up into the corporate taxpayer. The assets of the sub­sidiary, including depreciable property with an undepreciated capital cost of $5,196,422, became the property of the corporate taxpayer. Five days later the corporate taxpayer transferred those assets to a newly created subsidiary. In its 1984 tax return, the corporate taxpayer claimed a capital cost allowance of $2,029,942 in respect of the assets which it had acquired from the sub­sidiary upon the winding-up. The Minister of National Revenue disallowed the claim on the basis that the corporate taxpayer had not acquired the property for the purpose of gaining or producing income. The corporate taxpayer appealed.

The Federal Court of Canada, Trial Divi­sion, in a decision reported at 59 F.T.R. 139, dismissed the appeal. The corporate taxpayer appealed.

The Federal Court of Appeal, in a decision reported at 185 N.R. 231, dismissed the appeal. The corporate taxpayer appealed.

The Supreme Court of Canada, Iacobucci, Sopinka and Cory, JJ., dissenting, allowed the appeal.

Income Tax - Topic 1129

Income from a business or property - Deductions - General - Requirement that expense be incurred for producing income - The Supreme Court of Canada, per L'Heureux-Dubé, J., discussed the distinc­tions between the "reasonable expectation of profit" test and the "purpose of produc­ing income" test - See paragraphs 67 to 72.

Income Tax - Topic 1129

Income from a business or property - Deductions - General - Requirement that expense be incurred for producing income - [See Income Tax - Topic 1199].

Income Tax - Topic 1140.4

Income from a business or property - Deductions - General - Business loss - Reasonable expectation of profit - [See first Income Tax - Topic 1129].

Income Tax - Topic 1199

Income from a business or property - Deductions - Capital cost allowance - Transferred from wound-up subsidiary - A subsidiary of the corporate taxpayer was wound-up into the corporate taxpayer - The assets of the subsidiary, including depreciable property with an undepreciated capital cost of $5,196,422, became the property of the corporate taxpayer - Five days later the corporate taxpayer trans­ferred those assets to a newly created subsidiary - The corporate taxpayer claimed a capital cost allowance in respect of the assets which it had acquired from the subsidiary upon the winding-up - The Supreme Court of Canada held that the corporate taxpayer was entitled to deduct the capital cost allowance where (1) the corporate taxpayer had a business source of income to which the assets related (Income Tax Act, s. 20(1)), and (2) the assets were acquired for the purpose of producing income (Regulation 1102(1)(c)) - See paragraphs 1 to 9.

Cases Noticed:

Clapham v. Minister of National Revenue (1970), 70 D.T.C. 1012, refd to. [para. 7].

Bolus-Revelas-Bolus Ltd. v. Minister of National Revenue (1971), 71 D.T.C. 5153 (Ex. Ct.), refd to. [para. 7].

Inland Revenue Commissioners v. West­minster (Duke), [1936] A.C. 1 (H.L.), refd to. [para. 8].

Stubart Investments Ltd. v. Minister of National Revenue, [1984] 1 S.C.R. 536; 53 N.R. 241, refd to. [para. 8].

Moldowan v. Minister of National Rev­enue, [1978] 1 S.C.R. 480; 15 N.R. 476; [1977] C.T.C. 310; 77 D.T.C. 5213; 77 D.L.R.(3d) 112, refd to. [para. 18].

Paquin v. Lessard et al., [1975] 1 S.C.R. 665; 10 N.R. 620, refd to. [para. 25].

Minister of National Revenue v. Mara Properties Ltd., [1996] 2 S.C.R. 161; 197 N.R. 308, dist. [para. 34].

2747-3174 Québec Inc. v. Régis des permis d'alcool du Québec et autres, [1996] 3 S.C.R. 919; 205 N.R. 1, refd to. [para. 37].

Canadian Marconi Co. v. Minister of Na­tional Revenue, [1986] 2 S.C.R. 522; 70 N.R. 174, refd to. [para. 41].

Smith v. Anderson (1879), 15 Ch. D. 247 (C.A.), refd to. [para. 41].

Carland (Niagara) Ltd. v. Minister of National Revenue (1964), 64 D.T.C. 139, refd to. [para. 47].

Attridge v. Minister of National Revenue (1991), 41 F.T.R. 276; 91 D.T.C. 5161 (T.D.), refd to. [para. 48].

Bay Centre Apartments Ltd. v. Minister of National Revenue (1981), 81 D.T.C. 489 (T.R.B.), refd to. [para. 48].

Gloucester Railway Carriage and Wagon Co. v. Inland Revenue Commissioners (1923), 129 L.T.R. 691 (K.B.), affd. (1924), 40 T.L.R. 435 (C.A.), refd to. [para. 55].

R. v. Anderson Logging Co., [1925] S.C.R. 45, refd to. [para. 55].

Royal Trust Co. v. Minister of National Revenue (1957), 57 D.T.C. 1055 (Ex. Ct.), refd to. [para. 63].

Ghali v. Canada (Ministre des Transports) et al. (1996), 122 F.T.R. 205 (T.D.), refd to. [para. 63].

Mark Resources Inc. v. R. (1993), 93 D.T.C. 1004 (Tax C.C.), refd to. [para. 64].

Bellingham v. Minister of National Rev­enue, [1996] 1 F.C. 613; 190 N.R. 204 (F.C.A.), refd to. [para. 64].

Minister of National Revenue v. McLaren, [1991] 1 F.C. 468; 37 F.T.R. 241 (T.D.), refd to. [para. 64].

Vancouver Art Metal Works Ltd. v. Min­ister of National Revenue (1993), 152 N.R. 309; 93 D.T.C. 5116 (F.C.A.), refd to. [para. 80].

Docherty v. Minister of National Revenue (1991), 91 D.T.C. 537 (Tax C.C.), refd to. [para. 87].

Vander Nurseries Inc. v. Minister of Na­tional Revenue (1995), 95 D.T.C. 91 (Tax C.C.), refd to. [para. 87].

Mountwest Steel Ltd. v. Minister of Na­tional Revenue (1994), 2 G.T.C. 1087 (Tax C.C.), refd to. [para. 87].

Uphill Holdings Ltd. v. Minister of Na­tional Revenue (1993), 93 D.T.C. 148 (Tax C.C.), refd to. [para. 87].

Minister of National Revenue v. Wardean Drilling Ltd. (1969), 69 D.T.C. 5194 (Ex. Ct.), refd to. [para. 87].

Minister of National Revenue v. Société coopérative agricole de la vallée de Yamaska (1957), 57 D.T.C. 1078 (Ex. Ct.), refd to. [para. 87].

Weinberger v. Minister of National Rev­enue (1964), 64 D.T.C. 5060 (Ex. Ct.), refd to. [para. 87].

Naka v. Canada (1995), 95 D.T.C. 407 (Tax C.C.), refd to. [para. 87].

Page v. Canada (1995), 95 D.T.C. 373 (Tax C.C.), refd to. [para. 87].

Dobieco Ltd. v. Minister of National Rev­enue, [1966] S.C.R. 95, refd to. [para. 92].

Dalton Cartage Co. v. Continental Insur­ance Co. and St. Paul Fire and Marine Insurance Co., [1982] 1 S.C.R. 164; 40 N.R. 135, refd to. [para. 92].

Pallan v. Minister of National Revenue (1989), 90 D.T.C. 1102 (Tax C.C.), refd to. [para. 92].

Bayridge Estates Ltd. v. Minister of Na­tional Revenue (1959), 59 D.T.C. 1098 (Ex. Ct.), refd to. [para. 92].

Johnston v. Minister of National Revenue, [1948] S.C.R. 486, refd to. [para. 92].

Kennedy v. Minister of National Revenue (1973), 73 D.T.C. 5359 (F.C.A.), refd to. [para. 92].

First Fund Genesis Corp. v. Minister of National Revenue (1990), 34 F.T.R. 313; 90 D.T.C. 6337 (T.D.), refd to. [para. 92].

Kamin v. Minister of National Revenue (1992), 93 D.T.C. 62 (Tax C.C.), refd to. [para. 93].

Goodwin v. Minister of National Revenue (1982), 82 D.T.C. 1679 (T.R.B.), refd to. [para. 93].

MacIsaac v. Minister of National Revenue (1974), 74 D.T.C. 6380 (F.C.A.), refd to. [para. 93].

Zink v. Minister of National Revenue (1987), 87 D.T.C. 652 (Tax C.C.), refd to. [para. 93].

Maglib Development Corp. v. Minister of National Revenue (1986), 7 F.T.R. 258; 87 D.T.C. 5012 (T.D.), refd to. [para. 94].

Waxstein v. Minister of National Revenue (1980), 80 D.T.C. 1348 (T.R.B.), refd to. [para. 95].

Roselawn Investments Ltd. v. Minister of National Revenue (1980), 80 D.T.C. 1271 (T.R.B.), refd to. [para. 95].

Gelber v. Minister of National Revenue (1991), 91 D.T.C. 1030 (Tax C.C.), refd to. [para. 96].

C.B.A. Engineering Ltd. v. Minister of National Revenue, [1971] C.T.C. 504 (F.C.T.D.), refd to. [para. 135].

Poulin v. Canada (1993), 94 D.T.C. 1674 (Tax C.C.), refd to. [para. 135].

Vincent v. Minister of National Revenue, [1965] 2 Ex. C.R. 117, refd to. [para. 135].

Boma Manufacturing Ltd. et al. v. Cana­dian Imperial Bank of Commerce, [1996] 3 S.C.R. 727; 203 N.R. 321; 82 B.C.A.C. 161; 133 W.A.C. 161, refd to. [para. 141].

Statutes Noticed:

Income Tax Act, S.C. 1970-71-72, c. 63, sect. 20(1) [para. 2]; sect. 88(1) [para. 5].

Income Tax Act Regulations (Can.), C.R.C., c. 945, reg. 1102(1)(c) [para. 2]; reg. 1102(14) [para. 5].

Authors and Works Noticed:

Arnold, B.J. et al., Materials on Canadian Income Tax (10th Ed.), p. 189 [para. 135].

Beechy, Thomas H., Canadian Advanced Financial Accounting (2nd Ed. 1990), pp. 38, 39, 40 [para. 83].

Bennion, F.A.R., Statutory Interpretation (2nd Ed. 1992), pp. 805 et seq. [para. 37].

Canadian Institute of Chartered Accountants Handbook, s. 1000.16 [para. 84].

Chasteen, Lanny G., et al., Intermediate Accounting (1st Canadian Ed. 1992), p. 35 [para. 83].

Couzin, Robert, Current Tax Provisions Relating to the Deductibility and Trans­fer of Losses, in Policy Options for the Treatment of Tax Losses in Canada, (1991), pp. 3:3, 3:12 [para. 20].

Driedger, Elmer A., Construction of Stat­utes (3rd Ed. 1994), p. 198 [para. 37].

Durnford, J., The Distinction Between Income from Business and Income from Property, and the Concept of Carrying on Business (1991), 39 Cdn. Tax J. 1131, p. 1191 [para. 47].

Harris, Edwin C., Canadian Income Tax­ation (4th Ed. 1979), pp. 99 [para. 135]; 143 [para. 144]; 159 [para. 159].

Hogg, Peter W. and Magee, Joanne E., Principles of Canada Income Tax Law (1995), p. 195 [para. 144].

Kerans, Roger P., Standards of Review Employed by Appellate Courts (1994), p. 203 [para. 26].

Krishna, Vern, The Fundamentals of Ca­na­dian Income Tax (5th Ed. 1995), pp. 260, 276, [para. 144]; 277, 772 [para. 41].

Owen, John R., The Reasonable Expecta­tion of Profit Test: Is There a Better Approach? (1996), 44 Cdn. Tax J. 979, generally [para. 72].

Wilson, Michael, A Corporate Loss Trans­fer System for Canada, Department of Finance Budget Papers, Budget Speech, Canada (May 1985), p. 3 [para. 19].

Counsel:

James R. Chalker, for the appellant;

Roger Taylor and André LeBlanc, for the respondent.

Solicitors of Record:

Chalker, Green & Rowe, St. John's, New­foundland, for the appellant;

George Thomson, Deputy Attorney Gen­eral of Canada, Ottawa, Ontario, for the respondent.

This appeal was heard on October 30, 1996, before La Forest, L'Heureux-Dubé, Sopinka, Cory, McLachlin, Iacobucci and Major, JJ., of the Supreme Court of Canada.

The judgment of the court was delivered in both official languages on June 26, 1997, and the following opinions were filed:

McLachlin, J. (La Forest and Major, JJ., concurring) - see paragraphs 1 to 9;

L'Heureux-Dubé, J. - see paragraphs 10 to 101;

Iacobucci, J., dissenting (Sopinka and Cory, JJ., concurring) - see paragraphs 102 to 162.