In December 1991 the taxpayers (who were Canadian residents) acquired most of the partnership interests in a U.S. partnership ("Klink") that had been formed approximately 12 years earlier and whose principal asset, in December 1991, was an IBM mainframe computer which originally had cost U.S.$3.7 million but which had a current fair market value of $5,000. Klink then transferred the computer to a recently-formed British Columbia limited partnership in consideration for a partnership interest therein.
Noël J.A. found that although the allocation by Klink of losses to the taxpayers based on the original historical cost of the computer to Klink accorded with the clear words on the statute, this result (p. 7179):
"Is contrary to the scheme of the capital cost allowance provisions which limits the deduction of capital expenditures to those incurred for the purpose of earning income under the Act."
Accordingly, the taxpayers had misused the particular provisions giving this result (in particular paragraph 13(21)(f) and subsection 20(16)), and had abused the capital cost allowance system generally.