Cudd Pressure Control Inc. v. Canada (1998)

Date: 19981019

Docket: A-369-95

CORAM: STRAYER J.A.

ROBERTSON J.A.

McDONALD J.A.

BETWEEN:

CUDD PRESSURE CONTROL INC.,

Appellant

- and -

HER MAJESTY THE QUEEN

Respondent

Heard at Toronto, Ontario, on Tuesday, June 2, 1998

Judgment delivered at Ottawa, Ontario, on Monday, October 19, 1998

REASONS FOR JUDGMENT BY: ROBERTSON J.A.

CONCURRED IN BY: STRAYER J.A.

CONCURRING REASONS BY: McDONALD J.A.

Date: 19981019

Docket: A-369-95

CORAM: STRAYER J.A.

ROBERTSON J.A.

McDONALD J.A.

BETWEEN:

CUDD PRESSURE CONTROL INC.,

Appellant

- and -

HER MAJESTY THE QUEEN

Respondent

REASONS FOR JUDGMENT

ROBERTSON J.A.

[1] The primary issue on appeal is whether Judge Sarchuk of the Tax Court of Canada erred in concluding that $2,516,690.00 of notional "rent" could not be deducted by Cudd Pressure Control Inc. in computing the net industrial and commercial profit attributable to its permanent establishment in Canada, as required by the Canada-United States Reciprocal Tax Convention ["the 1942 Convention"], for the taxation year ending June 30, 1985.

[2] After carefully summarizing the facts, the experts' testimony, and the parties' submissions, Judge Sarchuk concluded that Cudd could only have claimed a capital cost allowance for the use of the snubbing units against the income from its permanent establishment, based on paragraph 4(b) of the Income Tax Conventions Interpretation Act , because such an expense is allowed under Canada's internal law, namely the Income Tax Act . He added that paragraph 4(b) was intended to ensure that permanent establishments taxed on profits under the 1942 Convention could not deduct amounts which were unavailable to Canadian taxpayers in calculating their business income. Since, in his respectful opinion, Cudd had failed to meet the meaning of "expense" and "incurred" for the purposes of Canadian tax law, its notional "rent" was not deductible in computing its profit for the purposes of Article III of the 1942 Convention. In spite of his general finding that deductions of notional amounts ...

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