Minister of National Revenue v. Gifford, (2002) 293 N.R. 111 (FCA)

• Judge: Stone, Rothstein and Sexton, JJ.A.
• Court: Federal Court of Appeal (Canada)
• Case Date: May 16, 2002
• Jurisdiction: Canada (Federal)
• Citations: (2002), 293 N.R. 111 (FCA);2002 FCA 301

MNR v. Gifford (2002), 293 N.R. 111 (FCA)

MLB headnote and full text

Temp. Cite: [2002] N.R. TBEd. AU.014

Her Majesty The Queen (applicant) v. Thomas Gifford (respondent)

(A-191-01; 2002 FCA 301)

Indexed As: Minister of National Revenue v. Gifford

Federal Court of Appeal

Stone, Rothstein and Sexton, JJ.A.

August 12, 2002.

Summary:

A financial advisor purchased a co-work­er's client list. He sought to deduct the amount paid to the co-worker as a current expense. He also sought to deduct interest and insurance paid on a loan used to pay the co-worker as a current expense. The Minis­ter of National Revenue disallowed the deduc­tions, claiming that the payments constituted "payments on account of capital" and were not deductible pursuant to s. 8(1)(f)(v) of the Income Tax Act. The advisor appealed.

The Tax Court of Canada allowed the appeal, holding that the payments were current expenses and not capital outlays. Therefore, they were deductible. The Minis­ter applied for judicial review.

The Federal Court of Appeal allowed the application, holding that the payments were capital outlays.

Income Tax - Topic 587

Income from office or employment - De­ductions - Sales expenses - Gifford, a financial advisor, purchased a co-worker's client list - The co-worker also agreed to endorse Gifford to the clients and not to compete - Gifford sought to deduct the amount paid to the co-worker as a current expense - The Minister of National Rev­enue disallowed the deduction, claiming that the payments constituted "payments on account of capital" and were not deductible pursuant to s. 8(1)(f)(v) of the Income Tax Act - The Federal Court of Appeal held that the payment was not deductible - The payment was a capital expenditure and not a current expense - The employer's in­volvement or the fact that Gifford and the co-workers were employees as opposed to carrying on their own businesses did not affect the result - See paragraphs 7 to 28.

Income Tax - Topic 587

Income from office or employment - De­ductions - Sales expenses - A financial advisor purchased a co-worker's client list - He sought to deduct interest paid on a loan used to pay the co-worker as a cur­rent expense - The Minister of National Rev­enue disallowed the deduction, claim­ing that the payments constituted "pay­ments on account of capital" and were not deductible pursuant to s. 8(1)(f)(v) of the Income Tax Act - The Federal Court of Appeal held that the interest was not de­ductible by reason of s. 8(1)(f)(v) - The court stated that absent special provisions for deductibility, such as ss. 8(1)(j) or 20(1)(c) of the Act, interest was a capital expendi­ture and was not deductible as an expense in calculating income - The Act provided a complete code dealing with interest deductibility and precluded deductibility - See paragraphs 29 to 52.

Income Tax - Topic 595

Income from office or employment - De­ductions - Interest - The Federal Court of Appeal stated that the Supreme Court of Canada had determined that, absent special provisions in the Income Tax Act for deductibility, interest was a capital expen­diture and not a current expense - Further, the Act provided a complete code dealing with interest deductibility - However, the court, in obiter, provided some foundation for its view that interest, by its nature, was generally a current expense, although regard had to be had to the purpose of the borrowing or the use of the funds during the relevant period - The court opined that "when the principal sum was paid to acquire and hold an asset to earn income, even though the purpose is asset-related, the interest is a current expense" - See paragraphs 53 to 61.

Income Tax - Topic 595

Income from office or employment - De­ductions - Interest - [See second Income Tax - Topic 587 ].

Income Tax - Topic 1141

Income from a business or property - Deductions - General - Interest - [See first Income Tax - Topic 595 ].

Statutes - Topic 6143.1

Operation and effect - Effect on earlier statutes - Amendments - Inference from failure to amend - Supreme Court of Canada jurisprudence held that interest was a payment on account of capital and was not deductible from income tax - How­ever, ss. 8(1)(j) and 20(1)(c) of the Income Tax Act provided circumstances where interest could be deducted - The Federal Court of Appeal held that ss. 8(1)(j) and 20(1)(c), and the Act's other provisions dealing with interest, constituted a com­plete code of the deductibility of interest, at least when the borrowing was for a capital purpose - The court held that that view was supported by the fact that in its re-enactments and amendments of those provisions, Parlia­ment had never repudi­ated the Supreme Court jurisprudence - Although it was not permissible to auto­matically equate legis­lative inaction with the adoption of juris­prudence, it was per­missible to draw an inference to that effect in appropriate circumstances - Despite the real opportun­ity to amend the Act, Parlia­ment did not - It was a reasonable con­clusion that the Parliamentary intention was consistent with the Supreme Court jurisprudence - See paragraph 52.

Cases Noticed:

Johns-Manville Inc. v. Minister of Na­tional Revenue, [1985] 2 S.C.R. 46; 60 N.R. 244, refd to. [para. 10].

Cumberland Investments Ltd. v. Minister of National Revenue, [1975] C.T.C. 439; 11 N.R. 165 (F.C.A.), folld. [para. 12].

Farquhar Bethune Insurance Ltd. v. Minis­ter of National Revenue, [1982] C.T.C. 282; 43 N.R. 66 (F.C.A.), refd to. [para. 13].

Tomenson Inc. v. Minister of National Revenue, [1986] 2 F.C. 413; 4 F.T.R. 1 (T.D.), refd to. [para. 14].

Aliments CA-MO Foods Inc. v. Her Maj­esty The Queen (1980), 80 D.T.C. 6043 (F.C.T.D.), refd to. [para. 15].

Rigid Box Co. v. Minister of National Revenue, [1991] 2 C.T.C. 2374; 91 D.T.C. 1173 (Tax C.C.), refd to. [para. 15].

Burlan v. Minister of National Revenue (1976), 76 D.T.C. 6444 (F.C.T.D.), refd to. [para. 15].

99901659 Ontario Inc. v. Canada, [1997] T.C.J. No. 1110, refd to. [para. 15].

Graham (Bruce R.) Ltd. v. Minister of National Revenue (1986), 86 D.T.C. 1256 (Tax. C.C.), refd to. [para. 15].

Today's Business Products Ltd. v. Minister of National Revenue, [1991] 1 C.T.C. 2142; 91 D.T.C. 148 (Tax C.C.), refd to. [para. 15].

Halliday Fuels Ltd. v. Minister of National Revenue (1960), 60 D.T.C. 541 (Tax Ap. Bd.), refd to. [para. 16].

British Salmson Aero Engines Ltd. v. Commissioner of Inland Revenue (1937), 22 T.C. 29 (C.A.), refd to. [para. 19].

Algoma Central Railway v. Minister of National Revenue, [1968] S.C.R. 447, refd to. [para. 19].

BP Australia Ltd. v. Commissioner of Taxation of the Commonwealth of Aus­tralia, [1966] A.C. 224 (H.L.), refd to. [para. 19].

Commissioner for Taxes v. Nchanga Con­solidated Copper Mines Ltd., [1964] A.C. 948 (H.L.), refd to. [para. 19].

Hallstroms Pty. Ltd. v. Federal Commis­sioner of Taxation (1946), 72 C.L.R. 634 (Aust. H.C.), refd to. [para. 20].

Sun Newspapers Ltd. v. Federal Commis­sioner of Taxation (1938), 61 C.L.R. 337 (Aust. H.C.), refd to. [para. 20].

Tucker v. Granada Motorway Services Ltd., [1979] 2 All E.R. 801, refd to. [para. 20].

British Insulated and Helsby Cables Ltd. v. Atherton, [1926] A.C. 205 (H.L.), refd to. [para. 20].

Canada v. Baine Johnstone & Co., [1977] C.T.C. 556; 77 D.T.C. 5394 (F.C.T.D.), refd to. [para. 25].

Wharf Properties Ltd. v. Commissioner of Inland Revenue, [1997] 2 W.L.R. 334; 211 N.R. 312 (P.C.), consd. [para. 32].

Steele v. Deputy Commissioner of Tax­ation (1999), 161 A.L.R. 201 (H.C.), refd to. [para. 32].

Minister of National Revenue v. Shell Canada Ltd. (1999), 247 N.R. 19; 99 D.T.C. 5669 (S.C.C.), refd to. [para. 35].

Canada Safeway Ltd. v. Minister of Na­tional Revenue, [1957] S.C.R. 17; 57 D.T.C. 1239, refd to. [para. 36].

Phyllis Barbara Bronfman Trust v. Minis­ter of National Revenue (1987), 71 N.R. 134; 87 D.T.C. 5059 (S.C.C.), refd to. [para. 37].

Tennant v. Minister of National Revenue, [1996] 1 S.C.R. 305; 192 N.R. 365; 96 D.T.C. 6121, refd to. [para. 39].

Studer v. Cowper, [1951] S.C.R. 450, refd to. [para. 52].

Statutes Noticed:

Income Tax Act, R.S.C. 1985 (5th Supp.), c. 1, sect. 8(1)(f) [para. 6].

Authors and Works Noticed:

Arnold, Brian J., Is Interest a Capital Expense? (1992), 40 Can. Tax J. 533, generally [para. 32]; pp. 536 et seq. [para. 40].

Driedger, Elmer A., Construction of Stat­utes (3rd Ed. 1994), p. 477 [para. 52].

Frankovic, Joseph, Why Interest Should be Considered a Current Expense (2002), 49 Can. Tax J. 859, generally [para. 32].

Krishna, The Fundamentals of Canadian Income Tax (6th Ed.), generally [para. 32].

Nitikman's, Joel, Is Interest a Current Expense? (2000), 48 Can. Tax J. 133, generally [para. 32]; pp. 134 et seq. [para. 40].

Counsel:

Daniel Bourgeois and Pascal Tetrault, for the applicant;

Gregory J. DuCharme and Michael Templeton, for the respondent.

Solicitors of Record:

Morris Rosenberg, Deputy Attorney Gen­eral of Canada, Ottawa, Ontario, for the applicant;

McLachlan Froud & DuCharme, North Bay, Ontario, for the respondent.

This application was heard at Toronto, Ontario, on May 16, 2002, by Stone, Roth­stein and Sexton, JJ.A., of the Federal Court of Appeal. Rothstein, J.A., delivered the following decision for the Court of Appeal on August 12, 2002.