Neonex International Ltd. v. Minister of National Revenue, (1978) 22 N.R. 284 (FCA)

• Judge: Urie, Ryan and Le Dain, JJ.
• Court: Federal Court of Appeal (Canada)
• Case Date: June 22, 1978
• Jurisdiction: Canada (Federal)
• Citations: (1978), 22 N.R. 284 (FCA)

Neonex Intl. Ltd. v. MNR (1978), 22 N.R. 284 (FCA)

MLB headnote and full text

Neonex International Ltd. v. Minister of National Revenue

(No. A-648-77)

Indexed As: Neonex International Ltd. v. Minister of National Revenue

Federal Court of Appeal

Urie, Ryan and Le Dain, JJ.

June 22, 1978.

Summary:

This headnote contains no summary.

Income Tax - Topic 1751

Capital gains - Foreign exchange gains on a loan for a capital purpose - A Canadian holding company borrowed $10,000,000 from a U.S. bank to finance the takeover of a company by share purchase - On repayment of the loan the holding company realized a gain of $305,007 - The Federal Court of Appeal held that the foreign exchange gain was not income because the loan was made to finance a capital acquisition - See paragraphs 6 to 19.

Income Tax - Topic 1130

Income from property - Deductions - Expenses incurred in borrowing money - Income Tax Act, s. 11(1)(cb)(ii) - A taxpayer applied to a bank for a loan - As a condition of granting the loan the bank insisted that a prior loan be prepaid - The taxpayer prepaid the prior loan but was required to pay a prepayment penalty of $105,000 - The Federal Court of Appeal held that the $105,000 was not a deductible expense because it could not be characterized as a cost of borrowing from the bank as required by s. 1(1)(cb)(ii) of the Income Tax Act - See paragraphs 20 to 28.

Income Tax - Topic 1142

Income from a business or property - Deductions - Legal expenses - A taxpayer incurred legal expenses in connection with the purchase of shares in other companies - The taxpayer carried on an active program of acquisition of profitable companies - The Federal Court of Appeal held that such legal expenses were not deductible because the expenses were incurred in connection with an investment transaction which was capital in nature - See paragraphs 29 to 32.

Income Tax - Topic 1348

Income from a business - Business inventory - Inclusions in inventory, requirement of matching costs with related revenues - A sign manufacturer had partially completed signs on hand at the end of a fiscal period - All of the signs were made to order - The manufacturer claimed a deduction for the costs incurred for the incomplete signs - The Federal Court of Appeal disallowed such a deduction because generally accepted accounting principles required the matching of costs to related revenues - The Federal Court of Appeal stated that the costs in question were incurred to earn income in the next taxation year - See paragraphs 33 to 41.

Cases Noticed:

British Columbia Electric Railway Company Limited v. M.N.R., [1958] S.C.R. 133, refd to. [para. 17].

Tip Top Tailors Limited v. M.N.R., [1957] S.C.R. 703, refd to. [para. 19; footnote 1].

Montreal Coke and Manufacturing Co. v. M.N.R., [1944] A.C. 126, refd to. [para. 19; footnote 1].

Bennett and White Construction Company Limited v. M.N.R., [1949] S.C.R. 287, refd to. [para. 19; footnote 1].

Columbia Records of Canada Ltd. v. M.N.R., [1971] C.T.C. 839, refd to. [para. 19; footnote 1].

Stewart and Morrison Ltd. v. M.N.R., [1972] C.T.C. 73, refd to. [para. 19; footnote 1].

M.N.R. v. Yonge-Eglinton Ltd., 2 N.R. 125, [1974] F.C. 636, refd to. [para. 24].

Riviera Hotal Ltd. v. M.N.R., [1972] F.C. 645, refd to. [para. 25].

M.N.R. v. Anaconda American Brass Ltd., [1956] A.C. 85, refd to. [para. 37].

Associated Investories of Canada Ltd. v. M.N.R., [1967] 2 Ex. C.R. 96, refd to. [para. 37].

Wilson and Wilson Ltd. v. M.N.R., [1960] Ex. C.R. 205, dist. [para. 40].

Statutes Noticed:

Income Tax Act, R.S.C. 1952, c. 148, sect. 11(1)(cb)(ii) [para. 23].

Counsel:

I.H. Pitfield, for the appellant;

D. Aylen, Q.C. and E.G. Cleland, for the Minister.

This appeal was heard by URIE, RYAN and LE DAIN, JJ. at Vancouver, British Columbia on May 2 and 3, 1978.

The judgment of the Federal Court of Appeal was delivered by URIE, J. at Ottawa, Ontario on June 22, 1978.