Gulf Canada Ltd. v. Minister of National Revenue, (1990) 38 F.T.R. 81 (TD)

• Judge: McNair, J.
• Court: Federal Court (Canada)
• Case Date: June 19, 1990
• Jurisdiction: Canada (Federal)
• Citations: (1990), 38 F.T.R. 81 (TD)

Gulf Can. Ltd. v. MNR (1990), 38 F.T.R. 81 (TD)

MLB headnote and full text

Gulf Canada Limited (previously Gulf Oil Canada Ltd.) (plaintiff) v. Her Majesty The Queen (defendant)

(T-1741-84; T-286-89)

Indexed As: Gulf Canada Ltd. v. Minister of National Revenue

Federal Court of Canada

Trial Division

McNair, J.

October 25, 1990.

Summary:

Gulf Canada appealed decisions of the Minister of National Revenue respecting the deductibility of certain items in the calculation of Gulf's base for depletion allowance, petroleum profits abatement and corporate surtax.

The Federal Court of Canada, Trial Division, allowed the appeals in part.

Income Tax - Topic 2684

Deductions in computing income - Exploration and development expenses - Canadian exploration expenses - Gulf made 1974 and 1975 rental payments to three provinces for subsurface gas and oil rights - Gulf claimed the payments were "Canadian exploration expenses" under s. 66.1(6)(a) of the Income Tax Act and thereby included in the earned depletion base in s. 1205(a)(ii) of the Income Tax Act Regulations for the purposes of depletion allowance under s. 65 of the Act - The Minister claimed the lease rental payments were "Canadian development expenses", which by s. 1205(a)(iii)(c) of the Regulations were excluded from the earned depletion base - The Federal Court of Canada, Trial Division, stated that the lease payments were not "Canadian exploration expenses", but were "Canadian development expenses" and were, accordingly, excluded from the earned depletion base - See paragraphs 15 to 32.

Income Tax - Topic 2695

Deductions in computing income - Exploration and development expenses - "Taxable production profits" - Gulf claimed capital cost allowance for assets purchased for the Syncrude project - The purchases occurred when Syncrude was not in operation and before construction commenced - Gulf claimed the allowance was not deductible in calculating its "taxable production profits" for purposes of determining the corporate surtax, petroleum profits abatement and depletion allowance - The Federal Court of Canada, Trial Division, stated that the calculation of "taxable production profits" in ss. 124.1 and 124.2 of the Act was referrable to production, therefore, the allowances were not deductible in calculating "taxable production profits" - See paragraphs 48 to 49.

Income Tax - Topic 2695

Deductions in computing income - Exploration and development expenses - "Taxable production profits" - Gulf spent monies for scientific research in various sectors from which no oil and gas was produced in the year of the expense - The issue was whether the expenditures were included in the calculation of "taxable production profits" under ss. 124.1 and 124.2 of the Income Tax Act and "resource profits" under Part 12 of the Income Tax Act Regulations, for the purposes of the corporate surtax (s. 123.2(1)), the petroleum profits abatement (s. 124(2.1)) and depletion allowance (s. 65(1)) - The Federal Court of Canada, Trial Division, stated that the expenses, related to Gulf's long-term objectives and not actual present production from mineral resources, were not included in the calculation of "taxable production profits" or "resource profits" - See paragraphs 33 to 47.

Income Tax - Topic 2782

Deductions in computing income - Depletion allowances - Computation of base figure - [See Income Tax - Topic 2684].

Cases Noticed:

New Continental Oil Co. of Canada Ltd. v. Minister of National Revenue, 76 D.T.C. 6038 (T.D.), affd. 15 N.R. 508; 77 D.T.C. 5202 (F.C.A.), refd to. [para. 24].

Edmonton Liquid Gas Ltd. v. Minister of National Revenue (1984), 56 N.R. 321; 84 D.T.C. 6526 (F.C.A.), refd to. [para. 25].

Lor-Wes Contracting Ltd. v. Minister of National Revenue (1985), 60 N.R. 321; 85 D.T.C. 5310 (F.C.A.), refd to. [para. 28].

Western Leaseholds Ltd. v. Minister of National Revenue, 61 D.T.C. 1309, refd to. [para. 30].

International Nickel Co. of Canada Ltd. v. Minister of National Revenue (1975), 7 N.R. 351; 75 D.T.C. 5460 (S.C.C.), affing. 4 N.R. 451; 74 D.T. C. 6382 (F.C.A.), refd to. [para. 35].

Cominco Ltd. v. Minister of National Revenue, 84 D.T.C. 6535 (F.C.T.D.), refd to. [para. 35].

Texaco Exploration Co. v. Minister of National Revenue, 75 D.T.C. 5288 (F.C.T.D.), refd to. [para. 35].

Statutes Noticed:

Income Tax Act, S.C. 1970-71-72, c. 63, sect. 3, sect. 4 [para. 42]; sect. 18(1)(m) [para. 23]; sect. 20(1)(a) [para. 12]; sect. 20(1)(t), sect. 37(1)(a) [para. 8]; sect. 65 [para. 4]; sect. 66(15)(b) [para. 32]; sect. 66(15)(c) [para. 23]; sect. 66(15)(d) [para. 32]; sect. 66.1(6)(a)(i), sect. 66.1(6)(a)(iii) [para. 17]; sect. 66.2(5)(a)(iii) [para. 22]; sect. 78(2) [para. 13]; sect. 123.2(1), sect. 124(2.1) [para. 7]; sect. 124.1, sect. 124.2 [para. 38].

Income Tax Act Regulations, sect. 1201 [para. 15]; sect. 1204 [para. 14]; sect. 1205(a)(ii), sect. 1205(a)(iii)(c) [para. 16]; sect. 2900 [para. 33].

Industrial Research and Development Incentives Act, R.S.C. 1970, c. I-10, generally [para. 9].

Counsel:

J.L. Finley and T.B. Akin, for the plaintiff;

R. McMechan and S. Burnham, for the defendant.

Solicitors of Record:

McCarthy, Tétrault, Toronto, Ontario, for the plaintiff;

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

These appeals were heard on June 19, 1990, at Toronto, Ontario, before McNair, J., of the Federal Court of Canada, Trial Division, who delivered the following judgment on October 25, 1990: