Daishowa-Marubeni International Ltd. v. Minister of National Revenue, 2011 FCA 267

• Judge: Nadon, Layden-Stevenson and Mainville, JJ.A.
• Court: Federal Court of Appeal (Canada)
• Case Date: September 23, 2011
• Jurisdiction: Canada (Federal)
• Citations: 2011 FCA 267;(2011), 422 N.R. 108 (FCA)

Daishowa-Marubeni Intl. Ltd. v. MNR (2011), 422 N.R. 108 (FCA)

MLB headnote and full text

Temp. Cite: [2011] N.R. TBEd. OC.023

Daishowa-Marubeni International Ltd. (appellant) v. Her Majesty The Queen (respondent)

(A-287-10; 2011 FCA 267)

Indexed As: Daishowa-Marubeni International Ltd. v. Minister of National Revenue

Federal Court of Appeal

Nadon, Layden-Stevenson and Mainville, JJ.A.

September 23, 2011.

Summary:

The taxpayer sold timber resource properties to separate purchasers. The purchasers assumed the taxpayer's liability for current and long-term silviculture liability (reforestation obligation). The purchase price was reduced by the independent valuation of that liability. The Minister, in assessing the taxpayer's 1999 and 2000 income tax liability, included the full amount of the assumed liability in the taxpayer's disposition of proceeds (Income Tax Act, s. 13(21)). The taxpayer appealed.

The Tax Court of Canada, in a judgment reported 2010 TCC 317, allowed the appeal in part. Respecting both sales, the Minister was correct to include the assumed liabilities in the disposition of proceeds. Although the full amount of the assumed current liability was to be included in the proceeds of disposition, only 20% of the future assumed liability was to be included. The taxpayer appealed, arguing that the court erred in including the assumed liabilities in the proceeds of disposition. The Minister cross-appealed, arguing that the court erred in discounting the value of the future liabilities rather than using the independent valuation accepted by both the taxpayer and the purchasers.

The Federal Court of Appeal, Mainville, J.A., dissenting, dismissed the taxpayer's appeal respecting one sale and allowed the Minister's cross-appeal. Respecting the second sale, the taxpayer's appeal was allowed and the Minister's cross-appeal was dismissed (for want of adequate reasons for judgment).

Courts - Topic 583

Judges - Duties - Re reasons for decisions - The taxpayer sold two timber resource properties - The purchasers assumed the taxpayer's liability for current and long-term silviculture liability (reforestation obligation) - The first contract provided that the valuation was part of the consideration, subject to later adjustment - The second contract was more precise - The Minister, in assessing the taxpayer's income tax liability, included the full amount of the assumed liability in the taxpayer's disposition of proceeds (Income Tax Act, s. 13(21)) - The Tax Court of Canada held that the full amount of the assumed current liability was to be included in the proceeds of disposition (from both sales), but only 20% of the future assumed liability was to be included because the valuation was an estimate only - The Federal Court of Appeal held that the purchasers' assumption of the taxpayer's reforestation liability constituted consideration and was properly included as proceeds of disposition - In the first sale, the Tax Court erred in including only 20% of the agreed value of assumed liability - Under the purchase contract, the independent valuation was accepted by the parties as consideration, subject to the specified adjustment procedure - It was not an estimated valuation - The amount agreed upon between the parties was the value to be included in the proceeds of disposition - The Tax Court then stated that the second sale was to be treated the same way - No reasons were provided - The factual differences between the two sales were not addressed - The Federal Court of Appeal allowed the taxpayer's appeal respecting the second sale, as the Tax Court's reasons were inadequate to permit meaningful appellate review - As it was not the court's role to undertake a fact-finding mission, the matter was remitted to the Tax Court for reconsideration to make the required findings - See paragraphs 110 to 118.

Income Tax - Topic 1743

Capital gains and losses - Capital gains - Proceeds of disposition - The taxpayer sold timber resource property - The purchaser assumed the taxpayer's liability for current and long-term silviculture liability (reforestation obligation) - Independent accountants valued the liability - The contract provided that the valuation was part of the consideration, subject to later adjustment - The Minister, in assessing the taxpayer's income tax liability, included the full amount of the assumed liability in the taxpayer's disposition of proceeds (Income Tax Act, s. 13(21)) - The Tax Court of Canada held that the full amount of the assumed current liability was to be included in the proceeds of disposition, but only 20% of the future assumed liability was to be included because the valuation was an estimate only - The Federal Court of Appeal held that the purchaser's assumption of the taxpayer's reforestation liability constituted consideration and was properly included as proceeds of disposition - The taxpayer conceded that had liability not been assumed, the cash or other consideration paid would have been greater - The Tax Court erred in including only 20% of the agreed value of assumed liability - Under the purchase contract, the independent valuation was accepted by the parties as consideration, subject to the specified adjustment procedure - It was not an estimated valuation - The amount agreed upon between the parties was the value to be included in the proceeds of disposition - The court stated that "if the parties to an agreement attribute a value to a future liability, then the Minister is entitled to add this amount to the vendor's proceeds of disposition - whether or not the liability assumed by the purchaser is contingent or absolute" - The issue was whether the taxpayer received consideration for the assumption of liability - Whether that liability was contingent or absolute was irrelevant - The taxpayer was not entitled to an equivalent offsetting deduction of an expense arising from the inclusion of proceeds of a disposition of a capital asset - See paragraphs 42 to 94.

Practice - Topic 8817

Appeals - General principles - Duty of appellate court where trial judge fails to give or gives inadequate reasons for judgment - [See Courts - Topic 583 ].

Cases Noticed:

Housen v. Nikolaisen et al., [2002] 2 S.C.R. 235; 286 N.R. 1; 219 Sask.R. 1; 272 W.A.C. 1; 2002 SCC 33, refd to. [para. 36].

Minister of National Revenue v. Calgary (City) (2010), 403 N.R. 41; 2010 FCA 127; 2010 G.T.C. 1043, leave to appeal granted (2010), 413 N.R. 398 (S.C.C.), refd to. [para. 39].

Minister of National Revenue v. General Motors of Canada Ltd. (2008), 379 N.R. 60; 292 D.L.R.(4th) 331; 2008 D.T.C. 6381; 2008 FCA 142, refd to. [para. 39].

R. v. R.E.M., [2008] 3 S.C.R. 3; 380 N.R. 47; 260 B.C.A.C. 40; 439 W.A.C. 40; 2008 SCC 51, refd to. [para. 40].

Canada (Minister of Human Resources Development) v. Mahy (2004), 327 N.R. 287; 2004 FCA 340, refd to. [para. 40].

M.A.N.-B&W Diesel and Port Weller Dry Docks v. Kingsway Transports Ltd. et al. (1997), 99 O.A.C. 69; 33 O.R.(3d) 355 (C.A.), refd to. [para. 41].

Minister of National Revenue v. Nunn (2006), 367 N.R. 108; 2007 D.T.C. 5111; 2006 FCA 403, refd to. [para. 41].

Kettle River Sawmills Ltd. v. Minister of National Revenue, [1994] 1 C.T.C. 182; 164 N.R. 241 (F.C.A.), refd to. [para. 44].

Currie v. Nisa (1875), L.R. 10 Ex. Ch. 153, affd. 1 App. Cas. 554, refd to. [para. 47].

Krauss v. Minister of National Revenue, 2009 D.T.C. 1394; 2009 TCC 597, refd to. [para. 49].

TELUS Communications (Edmonton) Inc. v. Minister of National Revenue (2009), 386 N.R. 354; 2009 FCA 49, refd to. [para. 49].

Loyens v. Minister of National Revenue, 2003 D.T.C. 354; 2003 TCC 214, refd to. [para. 49].

Teleglobe Inc. v. Minister of National Revenue (2002), 296 N.R. 268; 2002 FCA 408, refd to. [para. 67].

Minister of National Revenue v. Shell Canada Ltd., [1999] 3 S.C.R. 622; 247 N.R. 19, refd to. [para. 70].

Singleton v. Minister of National Revenue, [2001] 2 S.C.R. 1046; 275 N.R. 133, refd to. [para. 7].

Ludco Enterprises Ltd. et al. v. Ministre du Revenu national, [2001] 2 S.C.R. 1082; 275 N.R. 90, refd to. [para. 70].

British Columbia Electric Co. v. Minister of National Revenue, [1958] S.C.R. 133, refd to. [para. 88].

Canadian Reynolds Metals Co. v. Minister of National Revenue (1996), 197 N.R. 272 (F.C.A.), refd to. [para. 88].

Northwood Pulp & Paper Ltd. v. Minister of National Revenue, [1999] 1 C.T.C. 53; 233 N.R. 196 (F.C.A.), refd to. [para. 95].

R. v. Sheppard (C.), [2002] 1 S.C.R. 869; 284 N.R. 342; 211 Nfld. & P.E.I.R. 50; 633 A.P.R. 50, refd to. [para. 107].

Brokenhead First Nation et al. v. Canada (Attorney General) et al. (2011), 419 N.R. 289; 2011 FCA 148, refd to. [para. 115].

Minister of National Revenue v. Canada Trustco Mortgage Co., [2005] 2 S.C.R. 601; 340 N.R. 1; 2005 SCC 54, refd to. [para. 129].

Authors and Works Noticed:

Fridman, G.H.L., The Law of Contract in Canada (4th Ed. 1999), p. 83 [para. 47].

Gamble, Ian, Taxation of Canadian Mining, pp. 6-10 to 6-13 [para. 137].

Krishna, Vern, The Fundamentals of Canadian Income Tax Law (9th Ed. 2006), pp. 322, 323 [para. 88].

Counsel:

John Saunders, for the appellant;

David Jacyk and Matthew Turnell, for the respondent.

Solicitors of Record:

Wilson & Partners LLP, Vancouver, B.C., for the appellant;

Myles J. Kirvan, Deputy Attorney General of Canada, Ottawa, Ontario, for the respondent.

This appeal and cross-appeal were heard on May 3, 2011, at Vancouver, B.C., before Nadon, Layden-Stevenson and Mainville, JJ.A., of the Federal Court of Appeal.

On September 23, 2011, the judgment of the Court was delivered at Ottawa, Ontario, and the following opinions were filed:

Nadon, J.A. (Layden-Stevenson, J.A., concurring) - see paragraphs 1 to 124;

Mainville, J.A., dissenting - see paragraphs 125 to 144.