Start-Up and Close-Down Expenditures

Various professional expenses that the taxpayer incurred with respect to a proposed venture of providing on-site mobile message therapy services to corporate clients through massage buses were for the creation of a business entity or structure and, therefore, on capital account.

The taxpayer was incorporated in 1963 for the primary purpose of marketing liquified petroleum gases in the Pacific Rim, and incurred substantial losses due to substantial expenditures on feasibility studies done before it was determined, over two years later, that carrying out the original plan would not succeed. The taxpayer then commenced a profitable drilling business.

The expenditures were characterized as being incurred for "doing the normal things that any new business must do to bring its wares to the market place" rather than capital expenditures for the creation of a business structure.

The taxpayer, which was a construction company, caused its subsidiary ("Wentworth") to enter into a contract with the City of Hamilton respecting a major project for the redevelopment of the downtown. The taxpayer through Wentworth (which Noel J. concluded should be regarded in this regard as an agent of the taxpayer) spent $1.1 million over a period of four years on the planning, architectural and financing aspects of the project before the project fell through due to a failure to obtain financing. The expenses were deductible by the taxpayer when incurred since they were incurred as part of the taxpayer's construction business in order to earn profit from the construction of the proposed complex.

The cost of engineering studies commissioned by the taxpayer (an operating hydro-electric company) to determine the feasibility of establishing hydro-electric facilities at various sites within its territory were found to be fully deductible given that its business required a continuous evaluation and appraisal of its power resources and its methods of operation; and expenditures incurred in this connection were part of its current operations.

A joint venture consisting of two companies ("Mannix" and "Canadian Pipe") successfully bid for a contract to construct a major pipeline. The taxpayer, which was attempting to enter the business in a substantial way and which had been unsuccessful in the competitive bid, paid $230,000 to Canadian Pipe for an assignment of all its rights in respect of the contract for the construction of the pipeline. Cattanach J. held (p. 1281):

"Had the appellant been successful in its attempt to obtain the prime contract there is no doubt that the expenses incurred in negotiating that contract would not have been a capital outlay. Accordingly, it would follow that expenses incurred to acquire the prime contract or a part thereof from the successful contractor and the right to enter into a novation with the owner would properly be a revenue expenditure rather than a capital outlay."