Supreme Court Judgments

Supreme Court of Canada

R. v. Malloney’s Studio Ltd., [1979] 2 S.C.R. 326

Date: 1979-03-20

Her Majesty The Queen Appellant;

and

Malloney’s Studio Limited Respondent.

1979: February 14, 15; 1979: March 20.

Present: Laskin C.J. and Pigeon, Dickson, Beetz and Estey JJ.

ON APPEAL FROM THE FEDERAL COURT OF APPEAL

Taxation—Sale of land clear of all buildings—Building demolished—Other buildings acquired—Capital cost allowance—Proceeds of disposition of depreciable property—Income Tax Act, R.S.C. 1952, c. 148, as amended, s. 20(5)(b)(c), (6)(g).

The respondent operated a restaurant in a building which it owned in downtown Toronto. The property adjoined a Hospital and in 1963 the respondent was notified by the Hospital, which had expropriation powers, that the property was required for expansion purposes. Negotiations ensued and eventually an agreement of purchase and sale was concluded wherein the respondent agreed to deliver to the purchaser vacant possession of the property clear of all buildings. The transaction eventually was closed on that basis, the buildings having been removed by respondent’s contractor at a cost of $750 plus all salvage. Prior to closing respondent had purchased alternative premises nearby, and had renovated them to make them suitable for its purposes. The appellant assessed the respondent on the basis that the respondent had disposed of depreciable property and had to set off against its undepreciated capital cost of class 3 assets $80,000 of the total selling price of $280,000 received from the sale. The Tax Appeal Board allowed respondent’s appeal stating that no portion of the selling price could reasonably be regarded as proceeds of disposition of the building. On appeal by trial de novo the assessment was restored but the Federal Court of Appeal held that there were no proceeds of disposition of depreciable property within the meaning of that phrase in the Act.

Held (Pigeon and Beetz JJ. dissenting): The appeal should be dismissed.

Per Laskin C.J. and Dickson and Estey JJ.: As the building was not made the subject of the contract no equitable interest arose in the Hospital. No part of the

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purchase price was therefore referable to any such interest in the building. The contract dealt only with land clear of buildings and, even if a court were able to go behind the contract and examine the negotiations, here the purchaser clearly required only the land, the vendor was aware of this and the vendor set out to sell only land. That the land had been valued on the basis of its value as a business did not qualify the nature of the contract nor did the fact that the Hospital had expropriating powers.

Section 20(6)(g) could not apply to the facts in this case. The rule in para. (g) applies to a situation where a taxpayer has disposed of depreciable property and something else and then permits a reasonable allocation. Here the contract demonstrably related only to the sale of vacant land. Further, to invoke the rule in para. (g) there must be a bilateral disposition not as here a demolition involving no recipient.

The argument that it would be unfair that the taxpayer would be entitled to take the sale proceeds free of any claim for recaptured capital cost allowance had no application. In the construction of a taxing statute one simply adheres to the words of the statute.

Per Pigeon and Beetz JJ. dissenting: Dubé J. hearing the case by trial de novo correctly held that that $80,000 should be regarded as consideration for the disposition of depreciable property. There was no doubt that the respondent made a disposition of its building, the only question was whether it disposed of it by its agreement of sale or by its demolition contract with the contractor. The situation should not be treated as if this was an owner who had decided to demolish a building because it appeared more profitable to own bare land. The consideration in the agreement of sale was really not only the bare land but the obligation to destroy the building and deliver vacant possession to the land clear of all buildings. Further, the sale price was arrived at on the basis of the value of the whole property to the owner: land, buildings and improvements, and in that situation it could not be said that the value of the building was not part of the consideration of the agreement of sale.

[The Queen v. Compagnie Immobilière BCN Limitée, [1979] 1 S.C.R. 865; Aberdeen Construction Group Ltd. v. Inland Revenue Commissioners, [1978] 2 W.L.R. 648; Partington v. Attorney-General (1869), L.R. 4 H.L. 100; Stanley v. M.N.R. 72 D.T.C. 6004, aff’g 69 D.T.C. 5286, 67 D.T.C. 700, referred to.]

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APPEAL from a judgment of the Federal Court of Appeal allowing an appeal from a judgment of Dubé J. allowing an appeal by trial de novo from a decision of the Tax Appeal Board. Appeal dismissed, Pigeon and Beetz JJ. dissenting.

L.P. Chambers and Johannes Van Iperen for the appellant.

Murray Mogan, Q.C., and John Burns for the respondent.

The judgment of Laskin C.J. and Dickson and Estey JJ. was delivered by

ESTEY J.—The disposition of this appeal calls for the interpretation of those sections of the Income Tax Act of Canada, R.S.C. 1952, c. 148 as amended, which relate to the allocation of proceeds on the disposition of depreciable property and other property, which in turn will determine the capital cost of certain of the property of the respondent for the purpose of calculating a deduction, commonly referred to as capital cost allowance, in computing the tax liability of the respondent in the years 1966 and 1967.

The factual background to this issue can be briefly stated. The taxpayer/respondent owned and operated a restaurant on land situated in downtown Toronto. This real property adjoined a hospital which had expropriating powers. The hospital notified the taxpayer that it required the property of the respondent for expansion purposes, and in the ensuing negotiations the parties agreed upon the terms of the sale which were reduced to a contract duly signed and executed wherein the respondent agreed to deliver on closing “vacant possession of the real property … to the purchaser, clear of all buildings”. This contract was set out on the standard Toronto Real Estate Board Agreement of Purchase and Sale, and apart from typewritten inserts with reference to the description of the parties and the property being bought and sold, as well as the price, time for searching title and date of closing, the only typewritten insert is the expression “clear of all buildings”. The transaction was, after some postponements, ultimately closed by the delivery of a deed from the vendor/respondent to the hospital dated October

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29, 1963 and registered in the Registry Office of Toronto on November 17, 1964. The evidence is that on closing the property so conveyed was “clear of all buildings”, these having been removed from the property by a contractor engaged by the respondent and which contractor was paid the fee of $750 plus all salvage, for so doing. Prior to closing, the respondent had been able to purchase replacement premises nearby and to move its business to those premises.

The appellant assessed the respondent on the basis that the respondent has disposed of depreciable property and accordingly must set off against its undepreciated capital cost of class 3 assets $80,000 of the $280,000 received from the sale. The Tax Appeal Board allowed the respondent’s appeal from the assessment, Board member W.O. Davis, Q.C. stating:

I am satisfied that no portion of the selling price of the property… can be reasonably regarded as proceeds of disposition of the building.

An appeal by way of trial de novo was taken by the Minister of National Revenue and was allowed by Dubé J. of the Federal Court of Canada who was of the view that part of the $280,000 was proceeds of disposition of depreciable property as “compensation for property destroyed” under s. 20(5)(c)(ii) of the Act. The Federal Court of Appeal allowed the taxpayer’s appeal from this judgment and held that there were no proceeds of disposition of depreciable property within the meaning of that phrase in the Act.

The appellant makes three principal arguments. Firstly, the appellant says that the building heretofore existing on the land owned by the respondent and which was in existence at the time the contract for sale was signed by both parties, became in equity the property of the purchaser (the Hospital), and therefore, the taxpayer did in fact and in substance, whatever the form of the agreement, sell the land and the buildings, thereby entitling

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the Minister to allocate as he did $80,000 of the proceeds of sale as the consideration paid for the building. The parties agree that in law, a purchaser, upon signing a contract to purchase, does indeed become the equitable owner of all property bargained for and sold under the contract of sale. The short answer to this proposition is that as the building is not made the subject of the contract, no equitable interest arose in the Hospital. No part of the purchase price can therefore be said to be referrable to any such interest in the building.

There can be no doubt that the contract did indeed deal only with land “clear of buildings”, and even if a court is entitled to go behind the contract and examine the negotiations leading up to its signature, it is clear that the purchaser required only the land, and the vendor, being aware of this set out to sell only land to the hospital. The fact that a vendor may have established the worth of the land to it on the basis of its usefulness to it in its business of operating a restaurant does not, in my view, qualify the nature of the resulting contract in any substantive way. Furthermore, the circumstance that the hospital had expropriating powers and could, if it so desired, have taken the land with the building on it, has no bearing on the classification of the transaction in law, or the application of the relevant provisions of the Tax Act to that transaction. For whatever reason, the record reveals that neither the hospital nor the respondent wished to have recourse to their respective rights on expropriation and hence agreement was reached and reduced to the above-described contract.

The appellant’s second submission is that the sale of the property by the taxpayer produced “proceeds of disposition” as that term is defined in s. 20(5)(c) of the Tax Act which provides as follows:

(5) In this section and regulations made under paragraph (a) of subsection (1) of section 11,

…

(c) “proceeds of disposition” of property include

(i) the sale price of property that has been sold,

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(ii) compensation for property damaged, destroyed, taken or injuriously affected, either lawfully or unlawfully, or under statutory authority or otherwise,

(iii) an amount payable under a policy of insurance in respect of loss or destruction of property,

These proceeds, in the appellant’s view, fall within subs. (c)(ii) because the sale entailed a destruction of the building and hence a portion of the sale proceeds is compensation to the respondent for this destruction. This argument was advanced in the Federal Court of Appeal, and Mr. Justice Urie, in speaking for the Court, disposed of such submission as follows:

In so far as section 20(5)(c)(ii) is concerned, in our view, it has no application. As we read it, the “compensation” for property “damaged”, “destroyed”, “taken” or “injuriously affected” there referred to is an amount received or receivable from a third person who has damaged, destroyed, taken or injuriously affected property of the taxpayer[1]. When the appellant sold land “clear of all buildings”, the sale price, in our view, was payment for the land and no part of it can be regarded as “compensation” for buildings that the appellant had to remove between the making of the agreement for sale and its completion in order to carry out the agreement in accordance with its terms.

With respect, I adopt this reasoning as completely disposing of such submission.

The appellant then submits that a right of allocation of the sale proceeds as between land and building is to be found in s. 20(6)(g) of the Income Tax Act which provides as follows:

(6) For the purpose of this section and regulations made under paragraph (a) of subsection (1) of section 11, the following rules apply:

…

(g) where an amount can reasonably be regarded as being in part the consideration for disposition of depreciable property of a taxpayer of a prescribed class and as being in part consideration for something else, the part of the amount that can reasonably be regarded as being the consideration for such disposi-

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tion shall be deemed to be the proceeds of disposition of depreciable property of that class irrespective of the form or legal effect of the contract or agreement; and the person to whom the depreciable property was disposed of shall be deemed to have acquired the property at a capital cost to him equal to the same part of that amount;

There are two fatal obstacles to the application of this subsection of s. 20 to the facts of this case. Firstly, it is argued by the appellant that demolition is equal to disposition and counsel for the respondent accepts this submission. However, that is not the end of the problem. In the opening portions of rule (g), provision is made for the allocation of so much of the consideration as can reasonably be regarded as being in part the consideration for the disposition of depreciable property and for the allocation otherwise of that part of the consideration which can be reasonably regarded as having been paid for “something else”. The rule therefore applies to the situation where the taxpayer has disposed of two types of property, first depreciable property and secondly, something else. When this factual situation occurs, the rule then permits the allocation of that part of the consideration received in the total transaction to depreciable assets as “can reasonably be regarded as being in part the consideration for disposition of depreciable property of a taxpayer”. The rule does not permit the Minister to characterize a transaction as one which could reasonably be regarded as being in part the sale of depreciable property and in part the sale of something else. The rule operates only as a second stage, the first stage being the agreement or valid determination that the sale involves both a sale of depreciable property and a sale of something else. Here the contract demonstrably relates only to the sale of vacant land. There is no contractual reference to depreciable property and no bill of sale or other transfer, deed, or assignment was delivered on closing relating to any depreciable asset. Only the deed conveying the land on which no buildings were then located, was delivered upon receipt of the consideration of $280,000.

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The second obstacle to the applicability of rule (g) when bare demolition occurs with nothing more arises from the portion of the rule appearing after the semicolon, which provides:

; and the person to whom the depreciable property was disposed of shall be deemed to have acquired the property…

Grammatically, the depreciable property there referred to is the same depreciable property as referred to in the opening of rule (g), and the past tense “was disposed of” likewise refers back to the “disposition” mentioned in the second line of the opening part of rule (g). Thus it seems abundantly clear that for the purposes of the invocation of rule (g), the disposition in question must be bilateral and include both a disposer and “the person to whom the depreciable property was disposed of, whether or not such person may thereupon become entitled to any capital cost allowance under the Act. Here the demolition involved no recipient, at least as regards the hospital. It may conceivably be argued that the taxpayer disposed of the building by selling it to the demolition contractor and the proceeds of sale would at the most be the saving effected by the taxpayer in avoiding the cost of tearing the building down himself. This is rather fanciful, and in any case, would not advance the position of the appellant. In both form and substance, the disposition here, in the bilateral sense, relates only to vacant land.

It is well before proceeding further with the submissions made before this Court, to point out that we are not here concerned with disposition only, but with the “proceeds of disposition”, for it is that quantity which is applied against the undepreciated capital cost by way of deduction which sequentially determines the amount of capital cost allowance to which the respondent will thereafter be entitled; and hence will influence its tax obligation. Under s. 20(5)(b) it is provided:

(5) In this section and regulations made under paragraph (a) of subsection (1) of section 11,

…

(b) “disposition of property” includes any transaction or event entitling a taxpayer to proceeds of disposition of property;

[Underlining added]

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Demolition of a building does not in ordinary parlance or arrangements produce an entitlement in the owner to proceeds of disposition where the demolition is carried out by that owner. It may be argued in these circumstances that when the respondent so ordered his affairs as to be able to sign a contract obligating it to remove the building and thereafter did remove the building, demolition was indeed an “event entitling a taxpayer to proceeds of disposition …” of the building. The taxpayer has covenanted only to deliver on closing “vacant possession of real property … clear of all buildings”. It was open to the respondent to transport the building as a unit to other property without any claim for adjustment or breach of contract by the purchaser. Similarly, it was open to the respondent, as indeed it may well have done, to remove some or all of the fixtures installed in the building for the conduct of the business of the taxpayer. Again such removal would entail no adjustment on closing or damages for breach of contract. This is factually the reverse of the Aberdeen case, infra, where in order to sell one asset, the taxpayer was required by contract to liquidate another. In my view of these facts there has been no “disposition of property” within the meaning of that expression as it is employed in s. 20(5). We are here, of course, dealing with a taxation statute and a clear and unambiguous wording would be required in the Act to support the appellant’s submission with reference to s. 20(5).

The appellant made reference in the course of argument to the decision of this Court in Her Majesty The Queen v. Compagnie Immobilière BCN Limitée[2], pronounced on February 6, 1979, wherein reference is made to some aspects of the capital cost provisions in the Income Tax Act. In that case, however, the taxpayer conveyed the building in question to a third party by an emphyteutic lease for the purpose of enabling the third party to whom the building was so conveyed to demolish it and to build a new building on the lands in question. Mr. Justice Pratte, in giving judgment for the Court, said:

The Transportation Building which was in the full ownership of respondent was conveyed by it to the

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Société in January 1965 under the second lease and it was immediately demolished.

The nature of the transaction in that case was thus quite different from that in the appeal now before this Court.

The appellant found support for its principal submission with reference to the true substance of the transaction of sale here before the Court in the decision of the House of Lords in Aberdeen Construction Group Ltd. v. Inland Revenue Commissioners[3]. There the taxpayer sold its shares in a subsidiary corporation for a sale price of £250,000 which was some £136,000 in excess of its cost of acquiring those shares ten years earlier. In the meantime, the subsidiary had incurred substantial losses made good in part by loans from the taxpayer totalling £500,000 at the time of the sale of its shares in the subsidiary. Under the terms of the contract of sale relating to these shares, the taxpayer as a condition of the sale agreed to “waive the loan” of £500,000. The taxpayer challenged the assessment for the “profit” of £136,000 on the grounds that in order to realize the proceeds of sale, the taxpayer incurred a loss of the capital advanced to the subsidiary of £500,000. Lord Wilberforce describes the factual basis for the transaction at p. 651 as follows:

At March 10, 1971, on the basis of Rock Fall’s draft balance sheet at December 31, 1970, the Rock Fall shares had little or no value: certainly they could not be worth par; still more certainly they could not be worth £2 each, a value they would have to possess if a price of £250,000 was to be justified. On the other hand, if the debt of £500,000 were to be removed the position would be very different: there would be tangible assets and tax losses which might well be of considerable value to a purchaser. The agreement of March 10, 1971, is drafted so as to deal with this situation; it does so by paragraph l,”Aberdeen waive the loan.” I can only read this as a contractual provision to be performed by the sellers of the shares: in other words, leaving aside the subsidiary matters dealt with in the other clauses, the contract is that (1) the appellants shall transfer the shares and waive the loan, (2) Westminster will pay £250,000. The effect of this is that Westminster was paying

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£250,000 not only for the shares, but for the composite obligation undertaken by the appellants. If this is right, in order to ascertain what Westminster was paying and the appellants receiving for their shares, an apportionment would have to be made of the sum of £250,000 between these two obligations.

Unlike the case now before the Court, the value of the asset being sold by the taxpayer was enhanced by the performance of the condition that the loan be waived, and it mattered not whether the formal waiver occurred before or after the closing. The taxpayer here did not increase the value of the real estate by clearing the land of buildings except to the extent that it would have saved the purchaser the $750 fee for demolition which I have mentioned. At most, the purchaser would have an action for breach of contract against the vendor for failure to clear the land with damages amounting to $750 (and perhaps damages for delay thereby occasioned). In the Aberdeen case, supra, the shares as found by the House of Lords had little or no value unless the vendor waived the loan and thereby freed the subsidiary, whose shares were the subject of the contract for sale, of the burden of repayment. Lord Fraser at p. 657 put it this way:

The contract was not for the purchase of shares in a company whose loan capital had already been extinguished, but was for the purchase of shares on condition that the seller also undertook to extinguish the loan.

The Law Lords dissenting (Viscount Dilhorne and Lord Russell of Killowen) took the view that the sale was of shares only and no apportionment of price between the shares and the waiver could be made and therefore the £250,000 was referrable alone to the transfer of the shares. Far from supporting the appellant, the Aberdeen case, supra, in my view, underlines the submissions of the respondent that the sale of the land here was independent of and entirely free from any association with the prior existence of the building.

The appellant argues that it is an unfair and unrealistic result that the taxpayer is, after this

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transaction is complete, entitled to take the sale proceeds, free of any claim for recaptured capital cost allowance. Mutuality of tax treatment of parties to the same transaction, or even the avoidance of double taxation have never been principles with which the draftsmen of taxing statutes have ever regarded themselves as saddled. Indeed, “fairness and realism” have never been the governing criteria for the interpretation of taxing statutes. Lord Cairns in Partington v. Attorney-General[4] at p. 122 put it this way:

I am not at all sure that, in a case of this kind—a fiscal case—form is not amply sufficient; because, as I understand the principle of all fiscal legislation, it is this: if the person sought to be taxed comes within the letter of the law he must be taxed, however great the hardship may appear to the judicial mind to be. On the other hand, if the Crown, seeking to recover the tax, cannot bring the subject within the letter of the law, the subject is free, however apparently within the spirit of the law the case might otherwise appear to be. In other words, if there be admissible, in any statute, what is called equitable construction, certainly such a construction is not admissible in a taxing statute where you simply adhere to the words of the statute.

For these reasons I therefore would dismiss the appeal with costs.

The judgment of Pigeon and Beetz JJ. was delivered by

PIGEON J. (dissenting)—Malloney’s Studio Limited (the “taxpayer”) operated a restaurant in a building of which it was the owner in downtown Toronto. In 1963, it was informed that the land on which the building stood was required by the Women’s College Hospital, a corporation which had expropriation powers in respect of this land. The taxpayer thereupon negotiated with one Murray Bosley, a real estate agent acting for the hospital. In view of the sale of the property on the basis of the value of the whole to the owner, Bosley offered $250,000. The taxpayer offered to sell for $300,000. Then, on September 4, 1963, it accepted an offer of $280,000. The agreement of purchase and sale signed on that date provides:

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This transaction of purchase and sale is to be completed on or before the 1st day of July 1964 on which date vacant possession of the real property is to be given to the Purchaser clear of all buildings. [What I have underlined is typewritten on the printed form.]

On October 11, 1963, the taxpayer executed with a contractor a contract for the demolition of the building for the price of $750. This contract contained the following stipulation:

In addition to the stated price, all salvageable materials shall belong to the CONTRACTOR…

It called for the work to be completed by July 1, 1964, this being the delivery date fixed in the agreement of sale, but the taxpayer obtained an extension to November 1964. The deed of sale was then executed dated 29 October 1963 and was registered on November 17, 1964. In the meantime, the taxpayer had acquired another property in the vicinity and had renovated it to make it suitable for its purposes.

The question which arises is whether any part of the selling price of $280,000 is attributable to the building for capital cost allowance purposes under the provisions of para. 20(6)(g) of the Income Tax Act (R.S.C. 1952, c. 148 as amended):

(g) where an amount can reasonably be regarded as being in part the consideration for disposition of depreciable property of a taxpayer of a prescribed class and as being in part consideration for something else, the part of the amount that can reasonably be regarded as being the consideration for such disposition shall be deemed to be the proceeds of disposition of depreciable property of that class irrespective of the form or legal effect of the contract or agreement; and the person to whom the depreciable property was disposed of shall be deemed to have acquired the property at a capital cost to him equal to the same part of that amount;

Under the decision of this Court in Stanley v. M.N.R.[5] it is clear that, if the taxpayer had sold

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the whole property to the hospital, a part of the sale price corresponding to the value of the building to the seller would have to be regarded as being the consideration for its disposition, although this building was of no value to the buyer and was intended to be demolished immediately. The question that arises in the present case is whether it makes a difference that the vendor contracted to have the building removed before delivery of the land so as to deliver it bare.

Dubé J. hearing the case by trial de novo in the Federal Court, on appeal from the Tax Appeal Board (71 D.T.C. 551) held in effect that it made no difference and that $80,000 should be regarded as consideration for the disposition of depreciable property (75 D.T.C. 5377). This judgment was reversed by the Federal Court of Appeal (78 D.T.C. 6278) hence the present appeal by leave of this Court.

In my view, Dubé J. reached the proper conclusion. There is no doubt that the taxpayer made a disposition of its building; the only question is whether it disposed of it by its agreement of sale of the land or by its demolition contract with a wrecker. I cannot agree with the Court of Appeal that the taxpayer did not make a disposition of the building by the agreement of sale because this agreement called for delivery of the bare land and therefore reserved the building to its owner. This is to overlook an essential aspect, the nature of the property which was the subject matter of the operation. All the taxpayer owned was land, it did not own the building otherwise than as part of the freehold. This structure could not remain a building apart from the land. It could have remained a building only if the owner had retained an interest in the land which, of course, was exactly what was not intended.

By contracting to deliver the land without the building the taxpayer in effect contracted to turn this part of the realty into personalty. This destroyed the building as such, that is, as a piece of real estate. As a result of the agreement of sale

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of the land, the building severed from the land became an obligation instead of an asset. The taxpayer having contracted to deliver the land without it could not even give it away for nothing, it had to pay for having it removed. This was done only because, by the agreement of sale, the taxpayer was obliged to do so. The buyer was entitled to specific performance and would have been entitled to an order from the Court to have the removal effected at the expense of the vendor if the latter had failed to do it.

It is therefore incorrect to treat the situation as if this was an owner who had decided to demolish a building because it appeared more profitable to own bare land. The contract with the wrecker was entered into only after the agreement of sale had been made. In my view this shows that the consideration for that agreement was really not the bare land only but also the obligation of making the land bare, which implied the obligation to destroy the building as a building.

The taxpayer’s building was not like the stamp mill of the mining licensee in Liscombe Falls Gold Mining Co. v. Bishop[6]. That stamp mill was a chattel, not part of any land. Here we are dealing with a building of the usual kind which was clearly part of the land and would effectively be destroyed as a piece of real estate by being severed. In Gateway Lodge Ltd. v. M.N.R.[7] Jackett P., as he then was, said when dealing with buildings on a leasehold interest, (at p. 5142):

…it seems clear that the appellant’s leasehold interest in the land, of which the buildings formed, in the view of the law, a part, falls within prescribed class 13 and not within prescribed class 6. Class 6 extends only to property “not included in any other class” that is a building and the appellant’s leasehold interest clearly falls within class 13.

Here the taxpayer was the owner of the freehold and therefore the building was part of the land. By contracting to deliver the bare land the taxpayer

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effectively contracted to remove the building therefrom and therefore to turn into personalty. The demolition contract was not a contract for the disposition of land but of personalty. That contract was but a legal consequence of the agreement of sale, the fulfilment of an obligation undertaken thereunder. The destruction of the value of the building did not arise out of that later contract, but out of the agreement of sale and therefore it was part of the consideration for which this was made.

I do not find it necessary to discuss at great length the definitions of “disposition of property” and of “proceeds of disposition” in subs. 20(5) of the Act. So far as relevant, these read:

(b) “disposition of property” includes any transaction or event entitling a taxpayer to proceeds of disposition of property;

(c) “proceeds of disposition” of property include

(i) the sale price of property that has been sold,

(ii) compensation for property damaged, destroyed, taken or injuriously affected, either lawfully or unlawfully, or under statutory authority or otherwise,

…

In the recent judgment of this Court in Her Majesty The Queen v. Compagnie Immobilière BCN Limitée[8], Pratte J. said for the Court:

In the context of s. 20(5), the definitions of “disposition of property” and “proceeds of disposition” cannot be said to be exhaustive; these expressions must bear both their normal meaning and their statutory meaning; it would be wrong to restrict the former because of the latter.

In that case, it was held that a building was disposed of when the land on which it stood was conveyed by emphyteutic lease with the stipulation that it be demolished and a new building erected.

I have so far considered the situation only from the point of view of the legal effects of the operation, but I do not overlook the words in para. (g) “irrespective of the form or legal effect of the contract or agreement”. Looking at the matter

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from that angle, I fail to see how it can be said that the value of the building was not part of the consideration of the agreement of sale, when it is established without contradiction that the sale price was arrived at on the basis of the value of the whole property to the owner; land, building, and improvements.

For those reasons, I would allow the appeal, set aside the judgment of the Federal Court of appeal and restore the judgment at trial with costs throughout against respondent.

Appeal dismissed with costs PIGEON and BEETZ JJ. dissenting.

Solicitor for the appellant: R. Tassé, Ottawa.

Solicitors for the respondent: Miller, Thomson, Sedgewick, Lewis & Healy, Toronto.