Issue 435, November 2017

In an August 31, 2017 Tax Court of Canada case (AON Inc. vs. H.M.Q., 2015-1043(IT)G), at issue was whether over $4,000,000 spent replacing much of a parking garage roof was a current or capital expense. The complex, Citi Centre Place, covered an entire city block. The portion of garage roofing replaced covered about 50% of the garage.

The case discussed 12 common considerations, however, turned on the following key items:

  1. An enduring benefit would be provided: 20-30 years of worry free roofing would be obtained. This suggested a capital expense.

the expenditure in relation to whole cost 

  1. The roof could not exist on its own. It is inseparable from the rest of the building. Therefore, the cost must be considered in context of the complex as a whole. It cost approximately $4 million in comparison to an estimated replacement cost of $59 million for the complex as a whole. This suggested a repair.
  2. The work simply allowed the garage to be used in the same way as before. This suggested a repair.
  3. New technology and techniques were used, the visual appearance was improved, and the roof was better in relation to the original version. This suggested a capital expenditure. However, the same functionality and income earning/profitability potential existed (same number of parking spaces were provided and there was no ability to charge more), and there was no significant increase in value as compared to its value were it in a good state of repair. This suggested a repair.

whether the repair enhances profitability or value of the asset

Taxpayer wins
On one hand, indications of a capital expenditure were demonstrated by the large cost, the improved lifespan, and the fact that the new roof was simply better. However, the Court opined that the expectation of consistent profitability and value, in combination with the small cost in relation to the building as a whole, were more significant indicators that expenditures were not capital in nature. The expenditures were determined to be current deductible expenses, and not required to be capitalized to the cost of the building.

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