Tomenson Inc. v. Minister of National Revenue, (1986) 4 F.T.R. 1 (TD)

• Judge: Rouleau, J.
• Court: Federal Court (Canada)
• Case Date: October 22, 1985
• Jurisdiction: Canada (Federal)
• Citations: (1986), 4 F.T.R. 1 (TD)

Tomenson Inc. v. MNR (1986), 4 F.T.R. 1 (TD)

MLB headnote and full text

Tomenson Inc. v. Minister of National Revenue

(T-342-82)

Indexed As: Tomenson Inc. v. Minister of National Revenue

Federal Court of Canada

Trial Division

Rouleau, J.

May 2, 1986.

Summary:

The plaintiff insurance broker bought some general insurance agency lists of customers from a group of insurance agencies, one or more of which were in the process of liquidation. The insurance broker alleged that the purchase price was a deductible expense, while the Minister of National Revenue alleged that the expenditure was a capital outlay and therefore not deductible. The Minister reassessed the broker's 1975 taxes. The broker brought an action disputing the reassessment.

The Federal Court of Canada, Trial Division, agreed with the Minister's contention and confirmed the reassessment of 1975 taxes. Accordingly, the court dismissed the insurance broker's action.

Income Tax - Topic 1303

Income from business or property - Deductions not allowed - Respecting capital outlays - The Federal Court of Canada, Trial Division, referred to the two tests adopted by the courts to determine if a payment is an expense or a capital outlay, namely, the "accretion to the income earning structure of the business" test or an "enduring benefit" test - See paragraphs 33 to 41 - The court held that the substance, and not the form of the transaction or the words used by the parties to describe it, is the critical factor in determining the characterization of an outlay - See paragraph 44.

Income Tax - Topic 1303

Income from business or property - Deductions not allowed - Respecting capital outlays - An insurance broker bought general insurance agency customer lists - The vendor was in liquidation, had relinquished its proprietary right to its lists, and was a competitor - Competitors were not given details concerning the customers' coverage - The method of payment showed that the lists were considered by the broker to be a profit yielding asset capable of projected earning capacity - The broker amortized the cost of acquiring the lists over the future, when the benefits associated with the purchase would be realized - The broker acquired key personnel from the insolvent vendor, as a crucial factor in the acquisition of the lists, both as a means to eliminate them as competitors and to use their knowledge to the broker's benefit - The Federal Court of Canada, Trial Division, held that the payment was a capital outlay and was not deductible in computing taxable income - See paragraphs 48 to 61.

Cases Noticed:

Murray S. Partykan v. M.N.R., 80 D.T.C. 1475 (T.R.B.), consd. [para. 19].

Harbord Investments Limited v. M.N.R., 70 D.T.C. 1488 (T.A.B.), consd. [para. 19].

Cumberland Investments Limited v. Minister of National Revenue (1975), 11 N.R. 165; 75 D.T.C. 5309 (F.C.A.), refd to. [para. 23].

C.I.R. v. Muller & Co's Margarine Ltd., [1901] A.C. 217, refd to. [para. 30].

Burian v. M.N.R., [1976] C.T.C. 725, refd to. [para. 31].

Sun Newspapers Ltd. et al. v. Federal Commissioner of Taxation (1938), 61 C.L.R. 337, appld. [para. 34].

Canada Starch Company Ltd. v. M.N.R., 68 D.T.C. 5320 (Ex. Ct.), refd to. [para. 35].

Hallstroms Pty Ltd. v. Federal Commissioner of Taxation (1946), 72 C.L.R. 634, refd to. [para. 36].

Commissioner of Taxes v. Nchanga Consolidated Copper Mines Ltd., [1964] A.C. 948, refd to. [para. 37].

British Insulated and Helsby Cables Ltd. v. Atherton, [1926] A.C. 205, appld. [para. 38].

Vallambrosa Rubber Co. v. Farmer, [1910] S.C. 519, refd to. [para. 39].

Hinton v. Maden and Ireland Ltd., [1959] 1 W.L.R. 875, refd to. [para. 41].

Minister of National Revenue v. Baine, Johnstone & Company Limited, 77 D.T.C. 5394, refd to. [para. 44].

Tucker v. Granada Motorway Services, [1979] 2 All E.R. 801, refd to. [para. 45].

Statutes Noticed:

Income Tax Act, S.C. 1970-71-72, c. 63, sect. 18(1)(b) [paras. 1, 42].

Counsel:

S.E. Edwards, Q.C., and I.V.B. Nordheimer, for the plaintiff;

P. Mallett, and N. Ross, for the defendant.

Solicitors of Record:

Fraser and Beatty, Toronto, Ontario, for the plaintiff;

Frank Iacobucci, Q.C., Deputy Attorney General of Canada, for the defendant.

This action was heard before Rouleau, J., of the Federal Court of Canada, Trial Division, at Toronto, Ontario, on October 22, 1985. The decision of Rouleau, J., was delivered on May 2, 1986.