Aon Inc. v. R. - TCC: Replacing 50% of the roof of a parking garage ($4 million) a deductible expense.

Aon Inc. v. R. - TCC:  Replacing 50% of the roof of a parking garage ($4 million) a deductible expense.

Aon Inc. v. The Queen (August 31, 2017 – 2017 TCC 166, Jorré J.)


Précis:  The taxpayer expended roughly $4 million over a period of two years replacing a large portion of the roof of an underground parking garage that had been damaged by salt.  The taxpayer sought to deduct the expense as a current operating cost.  The area involved was roughly 47,000 square feet which was about 50% of the size of the parking area;  a sizeable portion of the remaining area was covered by three buildings and not exposed to the same damage.  CRA denied the deduction as being a capital expenditure.  The Tax Court accepted the position of the taxpayer and allowed the appeal with costs.


Decision:  On the face of it the taxpayer had a uphill battle on its hands since the numbers were large and the amount of work done extremely significant.  The taxpayer however managed to persuade the Court the the expense formed an integral part of the taxpayer’s ongoing business activities and did not enhance or augment its business premises:


[83]        Here we have significant work that will be enduring in the sense that the replaced area of the roof will likely be worry free for 20 to 30 years and will last longer than the worry free period. That is an enduring benefit and quite clearly points towards a depreciable expenditure.

[84]        If the new replaced area of the roof were something that could exist on its own like a motor then one would undoubtedly come to the conclusion that this was a capital expenditure in the sense of a depreciable expenditure.

[85]        However, the new replaced area of the roof, half the roof, is inseparable from the floor of the garage below it and from the entire garage. There is no structural separation between the garage and the buildings that sit on top of the garage; in addition there is a legal requirement for the buildings to have the parking spaces.

[86]        As a result, for the purpose of the analysis one consider the work in issue as work on a part of the entire Citi Centre complex. The replaced area of the roof has to be viewed as part of the whole complex. While it is a significant part of the complex, it is not a large part of the complex. Monetarily, the cost of some $4 million as compared with an estimated replacement cost of the whole complex of $59 million is also significant (about 7%) but not large in comparison to what replacing the whole would cost.

[87]        The purpose of the work is simply to allow the parking garage to be used in the same way as previously.

[88]        This question of simple repair as opposed to a betterment is one of the most difficult aspects of this case because, on the one hand, the parking garage has the same functionality after the work as before the work. It has the same number of spaces as it had originally. It is not better in a way that would allow the Appellant to charge or earn more although, considering some of the photos in evidence showing visible deterioration, it is no doubt more visually pleasing after the work than before the work, but no more so than when built. On the other hand, the new roof was built with newer technology with a significantly greater awareness of the problems caused by salt than existed some 35 years earlier when Citi Centre was built.

[89]        I have no doubt that some of the new techniques used to fight the effects of salt, whether required by the building code or not, result in a better roof in relation to the original construction techniques.

[90]        However, given that it is quite clear that there is no improvement in the functionality or profitability of the garage and given that there is no reason to conclude that the work has had any significant effect in terms of increasing the value of Citi Centre compared to its value with the garage in a good state of repairs, this is not a situation where the work has created something new. While there is a certain betterment, this is essentially a repair. Before the work there was a reinforced concrete roof; after the work there was a better built concrete roof.

[91]        As a result, while the expected duration of the work, the significance of the work and the fact that the roof uses better construction techniques make this a close case, the scale of the work in relation to the complex, the expected duration of the new portion of the roof and the technical improvements, technical improvements that do not increase the functionality of the garage, are not such as to tip the balance and make this a depreciable expenditure as opposed to a current expenditures.

[Footnotes omitted]

As a result the appeal was allowed with costs to the taxpayer.

Comment:  This is perhaps a uniquely Canadian case insofar as it deals the effects of continuing damage done to property by harsh Canadian winters and the measures that must be taken to combat them.  Counsel for the taxpayer did a service to other similarly placed taxpayers by presenting the case with such precision and clarity.