Echo Bay Mines Ltd. v. Minister of National Revenue, (1992) 56 F.T.R. 114 (TD)

• Judge: MacKay, J.
• Court: Federal Court (Canada)
• Case Date: June 13, 1991
• Jurisdiction: Canada (Federal)
• Citations: (1992), 56 F.T.R. 114 (TD)

Echo Bay Mines Ltd. v. MNR (1992), 56 F.T.R. 114 (TD)

MLB headnote and full text

Echo Bay Mines Ltd. (plaintiff) v. Her Majesty the Queen (defendant)

(T-2933-85)

Indexed As: Echo Bay Mines Ltd. v. Minister of National Revenue

Federal Court of Canada

Trial Division

MacKay, J.

August 13, 1992.

Summary:

The plaintiff taxpayer was involved in mining precious metals in the northern part of Canada. In 1980 the taxpayer realized a gain of $29,359,967 on the settlement of forward sales contracts for delivery of silver in that year, which the taxpayer included in income for tax purposes. The taxpayer and Minister of National Revenue agreed that the $29,359,967 was properly included as income, but an issue arose respecting whether the sum was properly included as "resource profits" within the meaning of s. 1204(1)(b)(ii)(B) of the Income Tax Regula­tions. The importance of the resource profits calculation was its use as a base in calculating the resource allowance deduction under s. 20(1)(v.1) of the Income Tax Act and the depletion allowance under Part XII of the Regulations and s. 65(1) of the Act. The M.N.R. reassessed the taxpayer on the basis that the sum was not resource profits and adjusted the deduction calculations accordingly. The taxpayer appealed.

The Federal Court of Canada, Trial Divi­sion, allowed the appeal.

Income Tax - Topic 2782

Deductions in computing income - Resource and processing allowances - Computation of base figure - Resource profits - In 1980 the taxpayer, a mining company, realized a gain of $29,359,967 on the settlement of forward sales con­tracts for delivery of silver - The taxpayer declared the income as resource profits and calculated its resource and depletion al­lowances accordingly - The M.N.R. reassessed the taxpayer, arguing that the $29,359,967 was not "resource profits" within the meaning of Income Tax Regu­lation 1204(1) - The Federal Court of Canada, Trial Division, held that the trans­actions respecting the future sales contracts constituted "hedging", as opposed to futures speculation for investment purposes - The transactions were an integral aspect of the taxpayer's silver production and the returns from those activities were income from production of metals under s. 1204(1).

Words and Phrases

Production - The Federal Court of Canada, Trial Division, interpreted the word "production" as it was used in s. 1204(1) of the Income Tax Regulations.

Cases Noticed:

McClurg v. Minister of National Revenue, [1991] C.T.C. 169; 119 N.R. 101; 91 D.T.C. 5001 (S.C.C.), refd to. [para. 9].

Marsh & McLennan Ltd. v. Minister of National Revenue, [1984] 1 F.C. 609; 48 N.R. 103; 83 D.T.C. 5180; [1983] C.T.C. 231 (F.C.A.), dist. [paras. 27-34].

Minister of National Revenue v. Ensite Ltd., [1986] 2 S.C.R. 509; 70 N.R. 189; 86 D.T.C. 6521; [1896] 2 C.T.C. 459, dist. [paras. 27-34].

Imperial Tobacco Co. (of Great Britain and Ireland) Ltd. v. Kelly (H.M. Inspec­tor of Taxes) (1943), 25 T.C. 292 (C.A.), refd to. [paras. 27, 35].

March Shipping Ltd. v. Minister of Na­tional Revenue, [1977] C.T.C. 2527; 77 D.T.C. 371 (T.R.B.), refd to. [para. 32].

International Nickel Co. of Canada Ltd. v. Minister of National Revenue, [1976] 2 S.C.R. 675; 7 N.R. 351; 75 D.T.C. 5460; [1975] C.T.C. 620, refd to. [para. 37].

Gunar Mining Ltd. v. Minister of National Revenue, [1968] C.T.C. 22; 68 D.T.C. 5053 (S.C.C.), refd to. [para. 37].

Cominco Ltd. v. Minister of National Revenue, [1984] C.T.C. 548; 84 D.T.C. 6535 (F.C.T.D.), refd to. [para. 37].

Westar Mining Ltd. v. Minister of National Revenue (1988), 23 F.T.R. 71; 88 D.T.C. 6505 (T.D.), revsd. 141 N.R. 145 (F.C.A.), refd to. [para. 38].

Gulf Canada v. Minister of National Rev­enue, [1991] 1 C.T.C. 99; 38 F.T.R. 81; 90 D.T.C. 6622 (T.D.), affd. 136 N.R. 187 (F.C.A.), refd to. [para. 39].

Texaco Exploration Co. v. Minister of National Revenue, [1976] 1 F.C. 323; 75 D.T.C. 5288; [1975] C.T.C. 404 (T.D.), refd to. [para. 39].

Minister of National Revenue v. Imperial Oil Ltd., [1960] S.C.R. 735; 60 D.T.C. 1219; [1960] C.T.C. 275, refd to. [para. 40].

Tip Top Tailors Ltd. v. Minister of Na­tional Revenue, [1957] S.C.R. 703; 57 D.T.C. 1232; [1957] C.T.C. 309, refd to. [para. 45].

Atlantic Sugar Refineries v. Minister of National Revenue, [1949] S.C.R. 706; 49 D.T.C. 602; [1949] C.T.C. 196, refd to. [para. 48].

Statutes Noticed:

Income Tax Act, S.C. 1970-71-72, c. 63, sect. 20(1)(v.1); sect. 65(1) [para. 6].

Income Tax Act Regulations (Can.), sect. 1204(1) [para. 2 et seq.]; sect. 1204(1)(b)(ii)(B) [para. 3 et seq.]; sect. 1204(3) [para. 3]; sect. 1210, Part XII [para. 6].

Counsel:

W. Mitchell, Q.C., J.B. Taylor and J.H.G. Roche, for the plaintiff;

J.S. Gill and M.T. Boris, for the defendant.

Solicitors of Record:

Thorsteinssons, Vancouver, British Col­umbia, for the plaintiff;

John C. Tait, Q.C., Deputy Attorney Gen­eral of Canada, Ottawa, Ontario, for the defendant.

This appeal was heard in Vancouver, British Columbia, on June 13, 1991, before MacKay, J., of the Federal Court of Canada, Trial Division, who delivered the following decision on August 13, 1992.