Ministre du Revenu national v. Construction Bérou Inc., (1999) 251 N.R. 115 (FCA)

• Judge: Desjardins, Létourneau and Noël, JJ.A.
• Court: Federal Court of Appeal (Canada)
• Case Date: November 15, 1999
• Jurisdiction: Canada (Federal)
• Citations: (1999), 251 N.R. 115 (FCA)

MNR v. Constr. Bérou Inc. (1999), 251 N.R. 115 (FCA)

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: [1999] N.R. TBEd. DE.035

Dans l'affaire de la Loi de l'impôt sur le revenu

Construction Bérou Inc. (anciennement Fortin & Moreau Inc.) (défenderesse/demanderesse reconventionnelle/appelante) c. Sa Majesté la Reine (demanderesse/défenderesse reconventionnelle/intimée)

(A-249-96)

Indexed As: Ministre du Revenu national v. Construction Bérou Inc.

Federal Court of Appeal

Desjardins, Létourneau and Noël, JJ.A.

November 15, 1999.

Summary:

Construction Bérou Inc. obtained trucks under a leasing agreement. For the year 1982, Construction Bérou deducted from its income capital cost allowance expenses of $84,219, expenses of $48,931 representing interest paid to obtain the trucks and an investment tax credit of $21,729. The Min­is­ter issued a reassessment and disallowed the capital cost allowance expenses and the investment tax credit. The Minister disal­lowed the interest expenses but allowed a $65,109 deduction for rental expenses. Con­struction Bérou objected to the reassessment. The Minister rejected the objection. Con­struction Bérou appealed.

The Tax Court of Canada, in a decision reported 90 D.T.C. 1436, allowed the appeal in part. The court allowed the $48,931 in­terest expense deduction and the $21,729 investment tax credit but affirmed the disallowance of the $84,219 capital cost allowance deduction. The Minister appealed.

The Federal Court of Canada, Trial Di­vision, in a decision reported 116 F.T.R. 267; 96 D.T.C. 6177, allowed the appeal. Construction Bérou appealed.

The Federal Court of Appeal, Noël, J.A., dissenting allowed the appeal.

Income Tax - Topic 1141

Income from a business or property - Deductions - General - Interest payments (other than on borrowed money) - For the 1982 taxation year, a Quebec taxpayer obtained trucks under a leasing agreement - The agreement provided that the lessee (the taxpayer) could not assign his interests in the lease or sub-lease the property leased without the written consent of the lessor - The agreement also gave the lessee an option to purchase the property at the end of the lease for a price less than the fair market value - The Federal Court of Appeal held that the taxpayer "acquired" the trucks within the meaning of s. 20(1)(c) of the Income Tax Act, and hence was entitled to deduct the interest paid in acquiring them - See paragraphs 1 to 51.

Income Tax - Topic 1177

Income from a business or property - Deductions - Capital cost allowance - Depreciable property - What constitutes - For the 1982 taxation year, a Quebec taxpayer obtained trucks under a leasing agreement - The agreement provided that the lessee (the taxpayer) could not assign his interests in the lease or sub-lease the property leased without the written consent of the lessor - The agreement also gave the lessee an option to purchase the prop­erty at the end of the lease for a price less than the fair market value - The Federal Court of Appeal held that the taxpayer "acquired" the trucks within the meaning of s. 13(21)(b) of the Income Tax Act, and hence was entitled to the capital cost al­lowance deduction - See paragraphs 1 to 51.

Income Tax - Topic 6874

Computation of tax - Rules for cor­porations - Investment tax credits - Qual­i­fied property - For the 1982 taxation year, a Quebec taxpayer obtained trucks under a leasing agreement - The agree­ment pro­vided that the lessee (the taxpayer) could not assign his interests in the lease or sub-lease the property leased without the writ­ten consent of the lessor - The agreement also gave the lessee an option to purchase the property at the end of the lease for a price less than the fair market value - The Federal Court of Appeal held that the taxpayer "acquired" the trucks within the meaning of s. 127(10.1)(d) of the Income Tax Act, and hence was entitled to an investment tax credit - See paragraphs 1 to 17, 52 to 56.

Cases Noticed:

Canada v. Olympia and York Development Ltd., [1981] 1 F.C. 691 (T.D.), consd. [para. 8, footnote 5].

Minister of National Revenue v. Wardean Drilling Ltd., [1969] 2 Ex. C.R. 166, consd. [para. 8, footnote 7].

Chambéry Court of Appeal, October 13 1975: Recueil Dalloz Sirey 1976, p. 25, refd to. [para. 35, footnote 17].

Court of Cassation, 3d Civ. Ch., June 10, 1980: Recueil Dalloz Sirey 1980, refd to. [para. 35, footnote 17].

Bordeaux Court of Appeal, November 28 1967: Gaz. Pal. 1968, pp. 1 and 233, refd to. [para. 35, footnote 17].

Genest, Laflamme et Lacroix v. Nashua Canada Ltée et autres, [1990] R.J.Q. 737; 29 Q.A.C. 241 (C.A.), refd to. [para. 40, footnote 22].

Compagnie d'expertise en sinistres Casual­ty Ltée et Trudeau v. Auto Hamer 1979 Ltd., Belmont Auto Leasing, Volkswagen Canada Inc., [1988] R.J.Q. 241; 12 Q.A.C. 247 (C.A.), refd to. [para. 40, footnote 22].

Ministre du Revenu national v. Mont-Sutton Inc. (1999), 247 N.R. 235 (F.C.A.), refd to. [para. 41, footnote 23].

R. v. Henuset Brothers Ltd. (1977), 77 D.T.C. 5169 (F.C.T.D.), refd to. [para. 72, footnote 37].

Garty v. R., [1994] 2 C.T.C. 2021 (Tax C.C.), consd. [para. 72, footnote 38].

Bédard Auto Ltée v. Minister of National Revenue, [1985] 2 C.T.C. 2354 (Tax C.C.), consd. [para. 72, footnote 39].

Harel v. Quebec, [1978] 1 S.C.R. 851; 18 N.R. 91; 71 D.T.C. 5438; [1977] C.T.C. 441, refd to. [para. 73, footnote 40].

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. 73, footnote 40].

Bronfman (Phyllis Barbara) Trust v. Minister of National Revenue, [1987] 1 S.C.R. 32; 71 N.R. 134; 87 D.T.C. 5059, consd. [para 81, footnote 52].

Compagnie Immobilière BCN Ltée v. Minister of National Revenue, [1979] 1 S.C.R. 865; 25 N.R. 361, refd to. [para. 83, footnote 54].

Hendrickson v. Mid-City Motors, [1951] 3 D.L.R. 276 (Alta. T.D.), consd. [para. 98, footnote 69].

Grey v. Inland Revenue Commission, [1960] A.C. 1 (H.L.), refd to. [para. 98, footote 69].

Laliberté v. Larue, [1931] S.C.R. 7, consd. [para. 99, footnote 70].

Minister of National Revenue v. Paxton (1996), 206 N.R. 241; 97 D.T.C. 5012 (F.C.A.), refd to. [para. 103, footnote 75].

Canada v. Lagueux et Frères Inc. (1974), 74 D.T.C. 6569 (F.C.T.D.), refd to. [para. 105, footnote 77].

Dumais (D.) et Fils Inc. v. Minister of National Revenue (1992), 92 D.T.C. 1107 (Tax. C.C.), refd to. [para. 107, footnote 80].

Location Gaétan Lévesque Inc. v. Minister of National Revenue (1991), 91 D.T.C. 1374 (Tax C.C.), refd to. [para. 108, footnote 81].

Laurent Goulet & Fils Inc. v. Minister of National Revenue (1992), 92 D.T.C. 1605 (Tax. C.C.), refd to. [para. 109, footnote 83].

Kirch Construction Ltd. v. Minister of National Revenue (1988), 23 F.T.R. 67; 88 D.T.C. 6503 (T.D.), consd. [para. 111, footnote 84].

Borstad Welding Supplies (1972) Ltd. v. Minister of National Revenue (1993), 67 F.T.R. 118; 93 D.T.C. 5457 (T.D.), consd. [para. 113, footnote 86].

Tancred's Settlement, Re, [1903] 1 Ch. 715, refd to. [para. 122, footnote 95].

Henty House Property Ltd. v. Federal Commissioner of Taxation (1953), 88 C.L.R. 141 (Aust.), refd to. [para. 122, footnote 95].

Robertson v. Minister of National Revenue (1990), 105 N.R. 123; 90 D.T.C. 6070 (F.C.A.), refd to. [para. 126, footnote 101].

Mitsui & Co. (Canada) Ltd. v. Royal Bank of Canada et al., [1995] 2 S.C.R. 187; 180 N.R. 161; 142 N.S.R.(2d) 1; 407 A.P.R. 1; 123 D.L.R.(4th) 339, refd to. [para. 126, footnote 101].

Pitman v. Minister of National Revenue, 50 D.T.C. 295, refd to. [para. 126, foot­note 101].

Burns (J.F.) Sand and Gravel Ltd. v. Minister of National Revenue, 68 D.T.C. 226, refd to. [para. 126, footnote 101].

Minister of National Revenue v. Shell Canada Ltd. (1999), 247 N.R. 19 (S.C.C.), refd to. [para. 127, footnote 104].

Williams Machinery & Supply Co. v. Morin, [1933] S.C.R. 570, refd to. [para. 127, footnote 104].

Chibougamau Lumber Ltd. v. Minister of National Revenue, [1973] C.T.C. 2174, refd to. [para. 127, footnote 104].

Canderel Ltd. v. Minister of National Revenue (1998), 222 N.R. 81; 98 D.T.C. 6100 (S.C.C.), refd to. [para. 130, foot­note 107].

Moore v. R., [1986] 2 C.T.C. 22 (F.C.A.), refd to. [para. 130, footnote 107].

Statutes Noticed:

Civil Code of Québec, L.Q. 1991, c. 64, art. 1603 [para. 61].

Income Tax Act, S.C. 1970-71-72, c. 63, sect. 13(21)(b) [paras. 1, 23]; sect. 20(1)(c) [para. 1]; sect. 54(c)(i), sect. 54(c)(v) [para. 3]; sect. 127(10.1)(d) [paras. 1, 52]; sect. 248(3) [para. 4].

Income Tax Act, the Canada Pension Plan, the Cultural Property Export and Import Act, the Income Tax Conventions Inter­pretation Act, the Tax Court of Canada Act, the Unemployment Insurance Act, the Canada-Newfoundland Atlantic Ac­cord Implementation Act, the Canada-Nova Scotia Offshore Petroleum Re­sources Accord Implementation Act and certain related Acts, S.C. 1991, c. 49, sect. 192(5) [para. 5, footnote 4].

Income Tax Act, Interpretation Bulletin IT-233R, para. 1, para. 2, para. 3, para. 4, para. 5, para. 6 [para. 74]; para. 7 [paras. 55, 74].

Income Tax Act, Interpretation Bulletin IT-170R, para. 4 [para. 122, footnote 95].

Interpretation Bulletin - see Income Tax Act.

Authors and Works Noticed:

Black's Law Dictionary, "beneficial owner" [para. 98, footnote 69].

Blondeau, A., Jurisprudence française 1968-1976, vol. 2, 1978, p. 1199 [para. 35, footnote 17].

Canada, Report of the Royal Commission on Taxation (Carter Report) (1966), generally [para. 3, footnote 1].

Canada, Revenue Canada, Policy and Legislation Branch, Income Tax Techni­cal News, No. 5, July 28, 1995, gen­erally [para. 79, footnote 50].

Canadian Tax Foundation, Report of the Proceedings of the Fortieth Tax Con­ference, Vancouver, 1988, p. 53:104 [para. 79, footnote 47].

Canadian Tax Foundation, Report of the Proceedings of the Forty-Second Tax Conference, Montréal, 1990, p. 50:43 [para. 79, footnote 48].

Canadian Tax Foundation, Report of the Proceedings of the Forty-Third Tax Conference, Toronto, 1991, p. 50:74 [para. 79, footnote 49].

CCH Canadian Ltd., Analysis of the White Paper on Tax Reform (1969), generally [para. 3, footnote 3].

Centre de recherche en droit privé et com­paré du Québec, Dictionnaire du droit privé, "acquisition" ("acquisition") [para. 72, footnote 34].

De Cannart D'Hamale, E., Vanderberghe, G., "Le contrat de leasing et l'infor­matique", in Le Droit des contrats infor­matiques: principes-applications, 1983, p. 476 [para. 34, footnote 16].

de l'Étoile, Jacques, & Saint-Pierre, Michel, La définition statutaire de l'ex­pression "disposition de biens" et son interprétation jurisprudentielle (1984), 6 R.P.F.S. 325, pp. 329-330 [para. 122, footnote 95].

Ewens, Douglas S., When is a "Disposi­tion", Report of Proceedings of the Twenty-Sixth Tax Conference, No­vember 11-13, 1974, pp. 529 [para. 103, footnote 75]; 532 [para. 122, footnote 95]; 538 [para. 98, footnote 69].

Fridman, Gerald Henry Louis, Sale of Goods in Canada (3rd Ed. 1986), p. 70 [para. 125, footnote 99].

Gilbert, Claude, La nature et l'intérêt du crédit-bail en informatique (1988), 29 C. de D. 815, p. 818 [para. 33, footnote 15].

Godin, Robert P., Le crédit-bail, La Ré­forme du Code civil, Obligations, contrats nommés, 1993, p. 681 [para. 37, footnote 19].

Howick, Wallace M., "Leasing" in Income Tax Considerations in Corporate Financ­ing, 1986 Corporate Management Tax Conference (1986), p. 261 [para. 79, footnote 46].

Jobin, Pierre-Gabriel, Le Louage de choses, 1988-89, pp. 55 [para. 40, foot­note 22]; 69 [para. 8, footnote 6]; 71 [para. 12]; 72 [para. 85, footnote 55].

Mazeaud, Henri, Léon et Jean, Leçons de droit civil, tome 3, "Sûretés, Publicité foncière et Principaux contrats", 2e éd., p. 754 [para. 40, footnote 21].

McDonald, J.G., Canadian Royal Commis­sion on Taxation: Capital Gains and Losses (1968), p. 9 [para. 3, footnote 2].

Petit Robert, "acquérir" ("acquire") [para. 72, footnote 34].

Québec, Assemblée Nationale, Bill re­spect­ing the leasing of things, Explana­tory notes, generally [para. 86, footnote 56].

Québec, Assemblée Nationale, Journal des Débats (Commissions parlementaires), 30th Legislature, 1st session, Bill No. 2, Act respecting hire of things, December 21, 1973, No. 12, pp. B-215, B-219 and B-221 [para. 36, footnote 18].

Québec, Ministère de la Justice, Com­mentaires du ministre de la Justice, Le Code civil du Québec, tome II, 1993, pp. 1156 [para. 40, footnote 21]; 1157, 1162 [para. 86, footnotes 57 and 58].

Counsel:

Claude P. Desaulniers and Patrick-James Blaine, for the appellant;

Chantal Jacquier, for the respondent.

Solicitors of Record:

McCarthy Tétrault, Montreal, Quebec, for the appellant;

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

This appeal was heard at Montreal, Que­bec, on May 13, 1999, by Desjardins, Létourneau and Noël, JJ.A, of the Federal Court of Appeal.

The decision of the Court of Appeal was delivered at Ottawa, Ontario, on November 15, 1999, and the following reasons were filed:

Desjardins, J.A. - see paragraphs 1 to 17;

Létourneau, J.A. - see paragraphs 18 to 56;

Noël, J.A., dissenting - see paragraphs 57 to 135.