McGILL LAW JOURNAL
Volume 12
Montreal
1966
Number 2
Liberalized Expense Deductibility –
Whither the Capital Outlay ?
Edwin C. Harris *
Some years ago Mr. Heward Stikeman called attention to a
striking development in income tax jurisprudence – The Vanishing
Capital Gain. I As he and other commentators have perceived, our
tax tribunals, while paying lip service to the classical criteria for
identifying the capital receipt, have in fact substantially expanded
the scope of revenue receipts and correspondingly narrowed that of
capital receipts, so that at one point it seemed that the tax-free
capital gain might vanish altogether as a matter of case law, without
any statutory capital gains tax. More recent decisions, however,
have established that there still remains a definite, though restricted,
place for the capital gain, which has not and probably will not
vanish completely without legislative intervention. 2 The focus of
discussion has now shifted from analysis of the existing case law
on capital versus revenue receipts to a debate on the merits of
imposing a capital gains tax by legislation. 3
The purpose of this article is to consider whether we are witness-
ing, by the superimposition of recent statutory amendments upon
a more liberal jurisprudence, an analogous development on the
deduction side of the income tax coin. The old restrictive judicial
approach to deductibility of business expenses seems to have been
* Of the law firm of Daley, Black, Moreira & Piercey, Halifax; Associate
Professor of Law, Dalhousie University.
1 Richard De Boo Limited (1956).
2 See, e.g., Irrigation Industries Ltd., 62 DTC 1131
(Sup. Ct. Can.), and
Valclair Investment Co. Ltd., 64 DTC 5014 (Ex. Ct.).
3 See, e.g., Robertson, Capital Gains –
to Tax or Not to Tax, 13 Can. Tax J.
355 (1965).
McGILL LAW JOURNAL
[Vol. 12
discarded by almost all of the recent decisions on expense deduction
of the Supreme Court of Canada and the Exchequer Court, and a
more reasonable approach to deductibility has gained a foothold
even in the Tax Appeal Board. 4 It may now be said with somewhat
greater confidence than a few years ago that the former and
unlamented “profit-earning process” test of deductibility is either
dead or rapidly dying; 5 and a more careful judicial regard for the
actual language of paragraphs (a) and (b) of section 12(1) of
the Income Tax Act, together with a more realistic view of the
relation between business outlays and business revenues, has led
at least our higher tax tribunals to recognize that almost any business
outlay is made “for the purpose of gaining or producing income”
within section 12 (1) (a) and that the real issue, in most deductibility
cases, is whether the expenditure is a -capital outlay under section
12(1) (b). 6 The old view that paragraphs (a) and (b) were two
sides of the same coin, or negative and positive ways of saying the
same thing, has been rejected, and the annulment of the marriage
between these provisions has led to an expanded range of deduc-
tibility. 7 Recent deductibility cases have tended to concentrate on
the capital outlay question, and here too a more liberal approach
can be detected. S
In addition to these case-law developments, the formerly impreg-
nable citadel of the capital outlay has been assaulted as well by a
number of recent amendments to section 11 of the Income Tax Act.
Until last year, the most important of such amendments were
section 11(1) (cb), on expenses of issuing shares or borrowing
money;
section
11(1) (qb) & (qc), on tuition fees; and section 11(1) (w), on
expenses of objecting to or appealing an income tax assessment. At
a later point we shall consider the further additions to section 11
included in the 1965 amendments to the Act.
section 11(1) (ia), on
convention
expenses;
All of these amendments have proved welcome to Canadian
businessmen and their tax advisers and have removed some of the
4 See, e.g., Evans, 60 DTC 1047 (Sup Ct. Can.); Royal Trust Co., 57 DTC
1055 (Ex. Ct.); Sorin, 64 DTC 62.
5 See K. E. Eaton, The Death of the “Profit Earning Process Test”, 5 Can.
Tax J. 271 (1957).
6 See a recent analysis of the problem by Gibson J. in Johnston Testers Ltd.,
65 DTC 5069, 5074 (Ex. Ct.).
7 See Harris, The Annulment of a Marriage, 9 Can. Tax J. 370 (1961).
sSee, e.q., Johnston Testers Ltd., note 6 supra; cf. B.P. Australia Ltd. v.
Comm’r of Taxation, [1965] 3 All E. R. 209 (P.C.), noted 13 Can. Tax J.
493 (1965).
No. 2]
LIBERALIZED EXPENSE DEDUCTIBILITY…
147
anomalies and hardships that flowed from the combination of (a)
a prima facie prohibition in section 12(1) (b) against deduction
of capital outlays and (b) a restricted range of capital outlays that
qualify for capital cost allowance under Part XI of the Income Tax
Regulations. From this situation arose the notorious “nothings” –
outlays that were not currently deductible because they were of a
capital nature and that were not deductible in subsequent years
because they did not qualify for capital cost allowance. The existence
of these “nothings” has led to considerable criticism of our income
tax system. Thus, Gwyneth McGregor has noted –
A business expenditure that is made or incurred for the purpose of
gaining or producing income is no less a cost of doing business because it
is not attached to depreciable property; and it is difficult to see what
possible justification there is for the continued existence of the nothings. 9
Professor W. G. Leonard, who has written frequently on this subject,
has pointed out that –
All expired costs that were
laid out for business purposes should
logically be deductible from the revenue of some year or years in which
the costs have contributed to the revenue-earning process. 30
As yet, the income tax administration has not seen fit to accede
to the many representations made to it over the years to introduce
broad legislation that would sweep the “nothings” out of our tax
closet. The (Carter) Royal Commission on Taxation has heard
many recommendations along these lines; 11 and it is naturally
hoped and expected by those who find the existence of these
“nothings” to be unpalatable that when the Commission’s long-
delayed reports appears, it will contain simple and straightfor-
ward proposals (which the government could not afford to ignore)
that will do away with the “nothings”. It seems fair however, to
point out that the “nothing” category has already been shrinking,
through a process of both judicial and legislative attrition; this
legislative attrition has even accelerated during the past year –
when for the most part the federal government had been content
to “hold the line” on tax reform, pending release of the Carter
9 McGregor, More Ado About Nothings, 12 Can. Tax J. 268, 271 (1964).
10 Leonard, in Legal vs. Accounting Principles in
the Courts, Can. Tax
Foundation, Proceedings 12th Tax Conf. 362, 371
(1958). See also Leonard,
Income Determination for Tax Purposes, 7 Can. Tax 3. 240 (1959); Leonard,
A Jumble of Alien Rules, 8 Can. Tax J. 328 (1960); Accounting v. Tax Income,
Can. Tax Foundation, Proceedings 16th Tax Conf. 350 (1962); A. K. Eaton,
Where Angels Fear to Tread, 7 Can. Tax J. 432, 446-47 (1959).
11 See Royal Commission on Taxation, Summary of Public Hearings 268-77
(CCH 1964).
McGILL LAW JOURNAL
[Vol. 12
Report. In this atmosphere, the significance of the recent statutory
changes may not have been fully appreciated.
Judicial attrition of the “nothings” has mostly taken the form of
narrowing the scope of capital outlays – which are prohibited
deductions under section 12(1) (b) unless expressly permitted else-
where in the Act. Thus, outlays made to maintain or preserve capital
assets or to reduce expense or made in connection with an illegal
activity, which were treated as “nothings” under the earlier case
law, are now being held deductible. 12 To the extent that these
former “nothings” are no longer held to be capital outlays, they
are deductibe in full in the year in which made or incurred, and so
the question of claiming capital cost allowance on the outlay does
the “nothing” category has
not arise. Occasionally, however,
contracted because of a more liberal judicial interpretation of the
capital cost allowance rules; as a result some capital outlays that
were formerly treated as result some capital outlays that were
formerly treated as “nothings” are now held to be depreciable, though
still not currently deductible, for income tax purposes. 13
Similarly, legislative attrition of the “nothings” has taken place
almost exclusively by permitting current deduction of what might
otherwise be capital outlays rather than by expanding the classes
of capital outlay that qualify for capital cost allowance. An interest-
ing exception, however, is found in the provisions of section 11 (17),
added in 1965, which permits a taxpayer to elect 10% straight-line
depreciation of outlays that otherwise would qualify for current
deduction under section 11(1) (aa), also added in 1965. These
provisions will presently be discussed more fully.
1965 Amendments to Section 11
It is proposed now to consider some of the implications of the
1965 amendments to section 11 of the Income Tax Act that extend
the deductibility of business outlays. Under section 11(1) (y), a
taxpayer may deduct.
… an amount, that would not otherwise be deductible, paid by the taxpayer
in the year to a person with whom he was dealing at arm’s length for the
cancellation of a lease of property of the taxpayer leased by him to that
person.
12 See, e.g., Dole Refrigerating Products Ltd., 60 DTC 416; Bedford Overseas
Freighters Ltd., 59 DTG 1008 (Ex. Ct.); Espie Printing Co. Ltd., 60 DTC 1087
(Ex. Ct.).
13 See Weinberger, 64 DTC 5060 (Ex. Ct.), reversing 60 DTC 322; Lions
Equipment Ltd., 64 DTC 35.
No. 2]
LIBERALIZED EXPENSE DEDUCTIBILITY…
149
As in the case of the other 1965 amendments to be considered, this
amendment requires that the deduction be claimed in the year in
which the amount is paid, even though the Act elsewhere contemplates
use of the accrual method, under which the timing of recognition of
expenses is related to when the expense is incurred rather than
when it is paid. 14
It is not clear why these new provisions should
make the cash method mandatory in accounting for these outlays. 15
Perhaps the Taxation Division would argue that these are artificial
deductions anyway, allowed as a matter of legislative grace, and that
it is much easier for the administration to keep track of them if
they are accounted for on a purely cash basis; in fact, however, these
outlays are not artificial but legitimate business expenditures, and
the administrative problem is no greater here than for other expenses.
Unfortunately, section 11(1) (y) is subject to several further
limitations, which render the scope of its relief quite narrow:
(1)
the payment must be made in an arm’s length transaction, so that
under non-arm’s-length leases, even cancellation payments that are
fair and reasonable in the circumstances do not qualify; (2) the
payments must be made to cancel a lease and not a license, franchise,
or other similar contractual arrangement that does not technically
qualify as a lease, though the provision is broad enough to include
leases of personal or movable property as well as leases of real or
immovable property; (3)
the property that is leased must belong
to the taxpayer and not some third party, and thus payments to
cancel a sublease made by the lessee to the sublessee may not be
deductible under this provision; 16 (4) the cancellation payment must
be made by the lessor to the lessee and not vice versa. Because of
the frequency of and economic justification for cancellation payments
made to secure the early termination of leases and similar contractual
arrangements, none of the foregoing limitations seem desirable;
government revenues are amply protected by the provisions of
section 12(2), which restrict any expense deduction to an amount
that is reasonable in the circumstances.
Yet the fact that an outlay fails to meet one or more of the
limitations in section 11(1) (y) does not necessarily mean that it is
14 See section 12(1)
(a) of the Income Tax Act, and see generally Harris,
When to Deduct ?, 13 Can. Tax J. 536 (1965).
15 The same is true of section 11(1)
16 In view of the very broad definition of “property” in section 139 (1) (ag),
a leasehold interest would seem to be property of the lessee, and it may be
argued that a sublease is “a lease of property of the taxpayer” under section
11(1) (y).
(w), added in 1964.
McGILL LAW JOURNAL
[Vol. 12
nondeductible. Under the liberalized case law referred to earlier,
many outlays of this nature are now being held to be currently
deductible. Indeed, in defending the restriction of deductibility under
section 11(1) (y)
to payments by lessors, the former Minister of
Finance stated that such payments by
lessees are now being
allowed; 17 but if this is the administrative practice, why not codify
it in the Act ? In the present state of the case law, some cancellation
payments by lessors and some cancellation payments by lessees are
deductible, if they are not capital outlays under section 12 (1) (b) ; 18
others would be capital outlays and nondeductible. 19 There seems to
be no more justification for legislating in the one case than in the
other. In contrast with the new legislation, which tends to be
artificially narrow, there is scope under our case law for recognizing
similarities and differences of principle; thus, our courts will apply
the same general criteria of capital expenditure to cancellation pay-
ments by lessors and by lessees, to payments made to cancel leases,
subleases, licenses, and franchises, and to situations where the
parties do and do not deal at arm’s length. Fortunately the new
provision does not preclude deductibility under the case law; but
the opportunity was missed to eliminate much of the remaining
uncertainty in the case law and to do away with the former
“nothings” in the area of contract cancellation payments; most of
these “nothings” will still survive.
On another occasion I attempted to summarize the case law on
deductibility of payments to cancel contracts, as follows –
(1)
the total duration of the contract;
It is difficult to extract from the decided cases a clear-cut criterion for
determining whether a payment made to cancel a contract is a capital one.
It seems, though, that one or more of the following factors are being treated
as relevant:
(2) perhaps, the
remaining term of the contract at the time it is cancelled;
(3) whether
the contract is central to the payor’s business,
in the sense that the
business would be very different without the contract –
or, as the courts
sometimes unhelpfully put it, whether the contract is part of the payor’s
“fixed capital”;
(4) what the payor is paying for; this is a question of
the parties’
intention, which would make relevant a consideration of
matters such as the amount of the payment.
… If a payment made [by the lessee] to obtain cancellation of a long-
term lease is intended simply as an additional rental payment to give
17 See Hansard, June 25, 1965, p. 2850.
Is A cancellation payment made by a lessee was held deductible in A. Leon Co.
Ltd., 61 DTC 517.
19 Thus, a payment by a lessee for the privilege of surrendering a long-term
lease was interpreted as having been made for the purpose of partially going
out of business and was held to be a capital outlay in Mallett V. Staveley Coal
& Iron Co. Ltd., [1928] 2 K.B. 405, 13 T.C. 772 (C.A.).
No.2]
LIBERALIZED EXPENSE DEDUCTIBILITY…
151
the lessor time, without loss of revenue, to find another lessee on equally
attractive terms to the lessor, the payment seems to be of the nature of
rent and should be deductible; if, on the other hand, the payment is designed
to compensate the lessor for loss of an advantageous long-term investment,
particularly where his chances of re-renting
the premises on equally
attractive terms appear doubtful, the payment could be said to have been
made to get rid of an “onerous capital asset’ and therefore to be on
account of capital. 20
This analysis seems to be supported by the Exchequer Court in
Johnston Testers Ltd. v. N. R., 21 where a licensee was held entitled
to deduct a large sum paid by it to cancel a license that still had 15
years to run, on the ground that the payment was in lieu of, and
based upon, the royalties that would have been payable if the license
had run its course. Decisions of the Tax Appeal Board have not been
uniform on deductibility of cancellation payments made by lessors; 22
cancellation payments received by lessors have frequently been held
to be revenue rather than capital receipts. 23 Some cancellation
payments made by licensors have been held not deductible, 24 and
this hardship will not be relieved by section 11(1) (y). Thus the
new amendment will not simplify the law or remove all the anomalies
in it; all that can be said is that section 11(1) (y) will contribute in
a small degree to the liberalizing tendencies already evident in the
case law.
Section 11(1) (z) now permits a taxpayer to deduct
… an amount paid by the taxpayer in the year for the landscaping of
grounds around a building or other structure of the taxpayer that is used
by him primarily for the purpose of gaining or producing income therefrom
or from a business.
This is a very useful provision, because hitherto landscaping expenses
have been considered part of the cost of the land and therefore
nondepreciable capital outlays. 25 Again, however, some unfortunate
limitations are imposed:
the amount must have been paid in
the year; (2) “landscaping” is not defined but might not extend
to clearing, draining, or supporting land, to reclaiming land under
water, or to protecting land against flooding or erosion;
(3) the
(1)
20 Harris, in Income Tax Workshop, Can. Tax Foundation, Proceedings 18th
Tax Conf. 138, 147 (1964).
21 Note 6 supra.
22 Cf. Schakfran, 54 DTC 497, and Dyment Ltd., 57 DTC 492, with Shuchat, 61
DTC 119.
23 Farb Investments Ltd., 59 DTC 1058 (Ex. Ct.); Grader, 62 DTC 1070
(Ex. Ct.); MacDonald, 64 DTC 91.
24 Mandrel Industries Inc., 65 DTC 5142 (Ex. Ct.)
–
an unsatisfactory
decision.
25 Oriole Park Fairways Ltd., 56 DTC 537.
McGILL LAW JOURNAL
[Vol. 12
phrase “around a building or other structure” requires that there
be a building or other structure and suggests that the landscaping
must be in proximity to it, but it is not clear how far from the
building the landscaping may go and still qualify under this provision;
(4) the building or other structure must belong to the taxpayer,
though, paradoxically, the land being landscaped need not; (5) the
building must be primarily devoted to an income-earning use, so
that where, for example, a portion less than 50% of the value of
the building is devoted to an income-earning use and therefore
qualifies for partial capital cost allowance under section 20(6) (e),
no part of the landscaping costs would be deductible. There is not
much chance for landscaping costs to be deductible apart from
section 11 (1) (z), unless, of course, the taxpayer is a dealer in land,
so that the landscaping constitutes an addition to inventory cost.
Under section 11(1) (aa), a taxpayer may deduct
… an amount paid by the taxpayer in the year as or on account of
incurred by him in making any representation relating to a
expenses
business carried on by him,
(i)
to the government of a country, province or state or to a
in
municipal or public body performing a function of government
Canada, or
(ii)
to an agency of a government or of a municipal or public
body referred to in subparagraph (i) that has authority to make rules,
regulations or by-laws relating to the business carried on by the
taxpayer,
including any representation for the purpose of obtaining a licence, permit,
franchise or trade mark relating to the business carried on by the taxpayer.
Section 11(17) permits a taxpayer who qualifies for a deduction
under section 11 (1) (aa) to elect instead to amortize the deduction
equally over the ten-year period commencing in the year in which the
amount in question was paid. If as outlay allowable under either
of these provisions results in the acquisition of a patent, franchise,
concession, or license for a limited period or of other depreciable
property, the outlay is deemed by section 20(10)
to have been
granted as capital cost allowance and therefore is subject to recapture
under section 20 (1) on resale of the depreciable property; however,
some strange results can be anticipated in attempting to combine
section 11 (17) and section 20 (10).
Again there are some important limitations:
(1) subject to the
possibility but doubtful advisability of using section 11(17),
the
outlay must have been paid in the year in which the deduction is
claimed; (2)
if the representation is made to a senior level of
government or its agency, the government may be anywhere, but
if the representation is made to a municipal or public body or its
No. 2]
LIBERALIZED EXPENSE DEDUCTIBILITY…
153
(3)
agency, it must be in Canada –
a particularly unfortunate and
the representation must relate to a
unnecessary limitation;
business carried on by the taxpayer, so that, for example, the costs
of attempting to secure a change in municipal zoning for the benefit
of an existing or projected rental-producing property of the taxpayer
would normally not qualify, whereas similar costs relating to a
taxpayer’s place of business, if in Canada, would qualify; (4) the
meaning of the terms “agency” and “public body” is not clear, so
that it is debatable whether costs of making representations to a
crown corporation such as a government-owned public utility would
be deductible under this provision.
Notwithstanding these limitations, however, section 11(1) (aa)
is startlingly broad in scope and should greatly expand deductibility
in an area in which “nothings” have heretofore abounded. The full
extent of this provision seems not to have been generally realized:
it is easy to be misled by the specific reference in the paragraph
to representations relating to licenses and the like into concluding
that the listed categories exhaust the scope of the permissible deduc-
tion; but this is not the case: the listed items are merely included
for greater certainty. So pervasive is government regulation of
business today and so frequent (and sometimes expensive) are the
contacts between business and the various levels of government and
their agencies, bureaux, and departments, that it would be impossible
to list all of the other circumstances to which this provision may
extend. Yet a few instances may be cited to indicate its importance.
Lawyers and public accountants were somewhat pleased in 1964
when the addition of section 11(1) (w) to the Income Tax Act
permitted taxpayers to deduct costs of objecting to and appealing
an income tax assessment, thereby in many cases cutting in half
the burden to clients of paying their professional fees in this
somewhat restricted field. They should be even happier that their
fees are now also deductible when they negotiate or dispute with
income tax or other tax authorities – whether federal, provincial,
on tax matters affecting a client’s business, regardless
or local –
of whether an assessment has been issued and whether a formal
It has been
objection or appeal has been or will be instituted.
particularly embarrassing in the past for the tax consultant to
have to admit to his client in many cases that his own fees were not
deductible. 26 The provisions of section 11(1) (aa) are probably
broad enough to extend to the costs of research or other homework
26 The classical case on the former state of the law was Smith’s Potato
Estates Ltd. v. Bolland, [1948] A.C. 508, 30 T.C. 267 (H.L.).
154
McGILL LAW JOURNAL
[Vol. 12
to making a submission to government;
preparatory
though if
research is done and an opinion is rendered but no representations
ensue, the new paragraph will be of no help. Costs of making sub-
missions to public utility boards and similar ratemaking bodies will
now be deductible; and, for the first time, 27 business expenses
incurred in attempting to bring about changes in legislation or
governmental regulations (including the tax laws) may be deducted,
if they involve representations to governmental bodies or public
officials; but taxpayers will still encounter difficulties with expenses
incurred in trying to influence public opinion to bring about a
change in legislation or regulations. 28
There is no requirement that the representations be successful
for their cost to be deductible.
It remains to be seen, however,
whether expenses of “representation” can extend to the costs of
seeking a long-term government contract or to bribes paid to public
officials. Under the previous law, expenses of representation were
and still are deductible if not of a capital nature, but most representa-
tions to governments and related bodies were treated as capital
outlays. Consequently section 11(1) (aa) is of considerable interest,
though an effort should be made to remove its ambiguities.
Under section 11(1) (ab) a taxpayer may deduct
… an amount paid by the taxpayer in the year for investigating the
suitability of a site for a building or other structure planned by the taxpayer
for use in connection with a business carried on by him.
is claimed; and (2)
Here again, (1) the amount must be paid in the year in which the
deduction
the projected building must be
connected with the taxpayer’s business and not, for example, intended
to be leased to another where the earning of rental income does not
constitute a business of the taxpayer’s. This, too, is a useful and
welcome provision as far as it goes, since most such outlays have
been treated as “nothings”, 29 though in special circumstances the
expenses of investigating a building site might have been depreciable
under the previous law. so It should be noted that no building need
actually be erected as a result of the investigation; if one is erected,
there is no provision comparable to section 20(10), deeming the
27 See Arreo Playing Card Co. Ltd., 57 DTC 1227 (Ex. Ct.); No. 489, 58
DTC 95.
2 sSee, e.g., Kitchener Hotels Ltd., 62 DTC 127; but of. Morgan V. Tate &
Lyle Ltd., [1955] A.C. 21, 35 T.C. 406 (H.L.).
29 Newfoundland Light & Power Co. Ltd., 58 DTC 711.
30 See Harris, in Income Tax Workshop, Can. Tax Foundation, Proceedings,
18th Tax Conf. 138, 152-53 (1964).
No. 2]
LIBERALIZED EXPENSE DEDUCTIBILITY…
155
investigation expenses to be capital cost allowances for purposes of
subsequent recapture.
Finally, the farmer has not been neglected, because by section
11(16),
… there may be deducted in computing a taxpayer’s income for a taxation
year from a business that is farming, amounts paid by him in the year for
clearing land, levelling land or laying tile drainage for the purpose of
carrying on the farming business.
The scope of the deduction here permitted seems broader than that
permitted under section 11 (1) (z)
in relation to the landscaping of
grounds, and it is not necessary here that the land be associated
with any building. Yet
(1) here, too, the amount must have
been paid in the year; and (2) the deduction is confined to persons
in the farming business. The new provision will be welcome to
farmers, because this kind of outlay can be expensive and in the
past has been held to be a “nothing”. 31 The former Minister of
Finance has declared that in practice the costs of open ditching are
allowed as current deductions; 32 for the sake of certainty and
completeness, however, this kind of outlay should also be included
in the legislation.
Is the Capital Outlay Vanishing ?
Is the capital outlay then vanishing ? Do we need but a few
well chosen words from the Carter Commission to put section
12(1) (b)
into limbo ? Certainly one of the most knowledgeable
authorities on this matter, the late Dr. A. K. Eaton, would have
heartily approved. In his view,
… the only practical solution would seem to be, first, of all to establish
in law the general prineiple of full deductibility for all capital expenditure
in the taxation year in which they were incurred, and second to legislate
exceptions to this general rule and require (not merely allow as at present)
amortization of certain named items through capital cost allowances…” 33
This recommendation seems to have much merit. Whatever integrity
the system of capital cost allowance may once have had in postponing
but not ultimately denying the deduction of expenditures that gave
31 McDonald, 50 DTC 149.
32 Hansard, June 25, 1965, p. 2851.
33A. K. Eaton, note 10 supra, at 443. A somewhat more cautious approach
is recommended in McGregor, note 9 supra, at 273, where it is suggested that
current deduction be permitted of all capital outlays less than a certain amount,
say $1,000, and that an arbitrary capital cost allowance class be provided for
all the rest.
156
McGILL LAW JOURNAL
[Vol. 12
rise-to a long-term advantage has been substantially eroded in recent
years by the growing tendency to grant rapidly accelerated -capital
cost. allowance as a tax incentive and by the recent amendments to
section 11, which arbitrarily confer full current deductibility upon
various kinds of capital outlay that in principle have little or nothing
in common.
both judicial and legislative –
While we should continue to strive for, and obviously still need,
considerable
improvement in the law of expense deduction for
income tax purposes, we should not ignore the substantial progress
that has taken place in recent
–
years. Certainly the capital outlay has far from vanished from
our tax law; but it will be interesting to observe, while the proposals
of the Carter Commission are being debated, digested, and translated
into legislation, how liberally the 1965 amendments will be interpreted
and applied in practice.
