A J Frost:—This is an appeal from the appellant’s income tax assessments for the 1968 and 1969 taxation years in which the only question to be decided is whether interest claimed by the appellant in respect of the indebtedness on a property maintained by the appellant is deductible in computing his income for those years.
The appellant purchased a property on the Niagara River Parkway in April of 1968, containing 7.8 acres and two buildings comprising a 7-room house and a 22-room house. The appellant owned over 600 paintings and works of art and decided to establish an art gallery. He employed a full-time curator and borrowed considerable sums of money to restore and improve the larger of the two buildings which he envisaged as a gallery. This building was constructed in 1833 and is of some historical significance. Dr Afrukhteh began collecting works of art as a boy until his hobby became an avocation. He is a very knowledgeable man and a very devoted and successful individual both in medicine and art. His plans, however, were frustrated when the Niagara Parks Commission refused him permission to establish an art gallery at the location he had chosen.
The Minister of National Revenue in assessing the appellant did not accept an part of the interest on borrowed money as an allowable expense. During the hearing the Board found the story of the appellant’s achievements of great interest and regarded his collection of many valuable works of art as an important accomplishment. However, the income tax aspect of his case is a different matter. Interest on borrowed money during construction or reconstruction is a capital item from both an accounting*and legal viewpoint. In Sherritt Gordon Mines Ltd v MNR, [1968] CTC 262; 68 DTC 5180, it was clearly established that, in accordance with generally accepted accounting principles, at least where amounts are significant to the taxpayer’s business, the Income Tax Act requires the capitalization of interest charges during periods of construction.
Hence, even if the appellant had not been frustrated in his attempts to establish a gallery to display his works of art on a revenue-producing basis, the Board would still be obliged to hold that the interest outlay, prior to the opening of the gallery, was of a capital nature under the appropriate provisions of the Income Tax Act, RSC 1952, c 148, as amended. The Board has no alternative but to dismiss the appeal.
Appeal dismissed.