Minister of National Revenue v. Yonge-Eglinton Building Ltd., (1974) 2 N.R. 125 (FCA)

JudgeThurlow, J., Lacroix, D.J. and Sweet, D.J.
CourtFederal Court of Appeal (Canada)
Case DateJanuary 16, 1974
JurisdictionCanada (Federal)
Citations(1974), 2 N.R. 125 (FCA)

MNR v. Yonge-Eglinton Building Ltd. (1974), 2 N.R. 125 (FCA)

MLB headnote and full text

Minister of National Revenue v. Yonge-Eglinton Building Ltd.

Indexed As: Minister of National Revenue v. Yonge-Eglinton Building Ltd.

Federal Court of Appeal

Thurlow, J., Lacroix, D.J. and Sweet, D.J.

February 25, 1974.

Summary:

This case arose out of a disallowance by the Minister of National Revenue of the deduction of certain payments to a finance company by the taxpayer. The taxpayer owned and operated an office building in downtown Toronto. The taxpayer in order to obtain financing for the office building agreed to pay a finance company 1% of its gross rental income for a period of twenty-five years in any year which the taxpayer earned a net profit - see paragraph 2. The agreement between the taxpayer and the finance company was dated July, 1962. The Minister of National Revenue disallowed deductions of the amounts listed below in the years indicated: 1965 - $ 11,695.00 1966 - 12,263.00 1967 - 12,584.00 1968 - 13,143.00 On appeal by the taxpayer to the Trial Division of the Federal Court of Canada the appeal was allowed and the Trial Division held that the amounts listed above were deductible under s. 11(1)(d) of the Income Tax Act.

On appeal to the Federal Court of Appeal the appeal was dismissed and the judgment of the Trial Division was affirmed except that the Federal Court of Appeal stated that the amounts were deductible under s. 11(1)(cb) and not under s. 11(1)(d).

The Federal Court of Appeal stated that the amounts in question qualified as "expenses incurred ... in the course of borrowing money used ... for the purpose of earning income" - see s. 11(1)(cb)(ii) as set out in paragraph 57. The Federal Court of Appeal stated that the test to be applied is whether the expense arose from the borrowing regardless of when the expense was incurred - see paragraph 13.

Sweet, D.J., dissenting, would have allowed the appeal by the Minister of National Revenue and would have held that the amounts in question were not deductible by the taxpayer in computing its income. Sweet, D.J., stated that the obligation to the finance company was not incurred in the course of borrowing because the obligation to pay the amounts was uncertain. Sweet, D.J., also stated that the expenses were not incurred in the course of the borrowing because they were incurred after the last advances had been made by the finance company to the taxpayer - see paragraphs 66 to 69.

Income Tax - Topic 1130

Income from property - Deductions - Expenses incurred in borrowing money for the purpose of earning income - The taxpayer in order to finance the construction of an office building agreed to pay a lender 1% of its gross rental income for a period of twenty-five years - Income Tax Act, s. 11(1)(cb)(ii) - The Federal Court of Appeal held that the payments to the lender were deductible expenses incurred in the course of borrowing money for the purpose of earning income.

Words and Phrases

Bonus - The Federal Court of Appeal discussed the meaning of the word "bonus" as found in s. 11(1)(cb)(iii) of the Income Tax Act, R.S.C. 1952, c. 148 - See paragraph 15.

Cases Noticed:

Equitable Acceptance Corporation v. M.N.R., 1964 C.T.C. 74, folld. [fn. 4].

Consumers Gas Company v. M.N.R., 1965 C.T.C. 225, folld. [fn. 4].

Sheritt Gordon Mines Ltd. v. M.N.R., 1968 C.T.C. 262 at 290, folld. [fn. 4].

Canada Permanent Mortgage Corporation v. M.N.R., 1971 C.T.C. 694, folld. [fn. 4].

Riviera Hotel Co. Ltd. v. M.N.R., 1972 C.T.C. 157, folld. [fn. 4].

Lomax v. Dixon, [1943] 2 All E.R. 255, dist. [para. 15].

Statutes Noticed:

Income Tax Act, R.S.C. 1952, c. 148, sect. 11(1)(cb)(ii) [para. 57].

Counsel:

N.A. Chalmers, Q.C. and M.R.V. Storrow, for the appellant;

J.A. Bradshaw, for the respondent.

This case was heard by the Federal Court of Appeal at Toronto, Ontario on January 16, 1974. Judgment was delivered on February 25, 1974, and the following opinions were filed:

THURLOW, J. - see paragraphs 1 to 16;

LACROIX, D.J. - see paragraphs 17 to 44;

SWEET, D.J. - see paragraphs 45 to 76.

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