Canadian Rock Salt Co. v. Minister of National Revenue, (1974) 5 N.R. 209 (FCA)

• Judge: Jackett, C.J., Pratte, J. and Thurlow, J.
• Court: Federal Court of Appeal (Canada)
• Case Date: September 17, 1974
• Jurisdiction: Canada (Federal)
• Citations: (1974), 5 N.R. 209 (FCA)

Cdn. Rock Salt Co. v. MNR (1974), 5 N.R. 209 (FCA)

MLB headnote and full text

Canadian Rock Salt Company Ltd. v. Minister of National Revenue

Indexed As: Canadian Rock Salt Co. v. Minister of National Revenue

Federal Court of Appeal

Jackett, C.J., Pratte, J. and Thurlow, J.

September 27, 1974.

Summary:

This case arose out of a claim by a taxpayer to a $542,734. deduction for interest. The interest was paid on a loan of $5,427,000. which was borrowed by the taxpayer from its parent company, a corporation with which it did not deal at arm's length. The $5,427,000 was borrowed for the purpose of operating a mine. Income derived from the operation of the mine was income which was not subject to tax by virtue of s. 83(5) of the Income Tax Act. The Trial Division held that the taxpayer could not deduct from its taxable income the interest expense of $552,734.

On appeal to the Federal Court of Appeal the appeal was dismissed and the judgment of the trial court was affirmed. The Federal Court of Appeal stated that the interest expense was not "otherwise deductible" as required by s. 12(3) of the Income Tax Act and, accordingly, the interest paid was not a deductible expense.

Income Tax - Topic 1134

Income from a business - Deductions - Expenses arising out of non-arm's length transactions - Whether the expenses claimed as a deduction were "otherwise deductible" - Income Tax Act, s. 12(3) - Whether the taxpayer was entitled to deduct expenses that were incurred to earn exempt income - The taxpayer paid interest to a parent company on money borrowed from the parent company for the purpose of operating a mine - The income derived from the operation of the mine was not income subject to tax by virtue of s. 83(5) of the Income Tax Act - The Federal Court of Appeal held that the interest expense was not "otherwise deductible" as required by s. 12(3) and, accordingly, the interest paid was not a deductible expense.

Words and Phrases

Otherwise deductible - The Federal Court of Appeal discussed the meaning of the words "otherwise deductible" as found in s. 12(3) of the Income Tax Act, R.S.C. 1952, c. 148.

Cases Noticed:

Interprovincial Pipe Line Co. v. M.N.R., [1959] S.C.R. 763, dist. [para. 8]; refd to. [para. 24].

Canada Safeway Ltd. v. M.N.R., [1957] S.C.R. 717, folld. [para. 22].

Interprovincial Pipe Line Co. v. M.N.R., [1968] S.C.R. 498, refd to. [para. 24].

Statutes Noticed:

Income Tax Act, R.S.C. 1952, c. 148, sect. 12(3) [para. 2]; sect. 83(5) [para. 3].

Counsel:

J. Claude Couture, Q.C., and T.S. Gillespie, for the appellant;

Allan Garon, Q.C., and Louise Lamarre-Proulx, for the respondent.

This appeal was heard by the Federal Court of Appeal at Ottawa, Ontario on March 6 and September 17, 1974. Judgment was delivered by the Federal Court of Appeal on September 27, 1974 and the following judgments were filed:

JACKETT, C.J. - see paragraphs 1 to 10.

THURLOW, J. - see paragraphs 11 to 25.

PRATTE, J., concurred with JACKETT, C.J.