Gulf Canada Resources Ltd. v. Minister of National Revenue, (1995) 91 F.T.R. 131 (TD)

• Judge: McKeown, J.
• Court: Federal Court (Canada)
• Case Date: March 03, 1995
• Jurisdiction: Canada (Federal)
• Citations: (1995), 91 F.T.R. 131 (TD)

Gulf Can. Resources Ltd. v. MNR (1995), 91 F.T.R. 131 (TD)

MLB headnote and full text

Gulf Canada Resources Limited (Previously Gulf Canada Limited) (plaintiff) v. Her Majesty the Queen (defendant)

(T-1184-89)

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

Federal Court of Canada

Trial Division

McKeown, J.

March 3, 1995.

Summary:

Gulf Canada appealed two notices of reassessment for the 1978 tax year. Gulf Canada challenged the Minister's deduction of capital cost allowance and interest expense from its "resource profits" under s. 1204 of the Income Tax Act Regulations in respect of its participation in the Syncrude project. Gulf claimed that Syncrude was not a "source" of income in 1978, accordingly, the Minister erred in deducting the amounts. Respecting another project, Gulf challenged the classification of a water intake pipe extension as a "pipeline", a Schedule II, Class 2 asset (for the purposes of capital cost allowance), claiming the extension was properly classified as a Class 29 asset.

The Federal Court of Canada, Trial Division, allowed the "resource profits" appeal. The Syncrude project was not a "source" of income in 1978, accordingly, the deductions from resource profits were improper. The court dismissed the capital cost allowance appeal, where the Minister did not err in classifying the water intake extension as a "pipeline" under Schedule II, Class 2.

Income Tax - Topic 1195

Income from a business or property - Deductions - Capital cost allowance - Oil and gas pipelines and pipeline systems - Gulf Canada extended two water intake lines further into Lake Ontario - The taxpayer claimed the extension was property falling under Class 29 of Schedule II of the Income Tax Act Regulations (capital cost allowance) - The Minister reassessed the extension as falling under Class 2 (pipelines) - The onus was on Gulf to rebut the Minister's assessment - The Federal Court of Canada, Trial Division, held that Gulf failed to discharge that onus - The court stated that "although a water intake line is not always considered to be a pipeline, the evidence did not show on a balance of probabilities that the water intake line in question was not a pipeline" - See paragraphs 103 to 112.

Income Tax - Topic 2784

Deductions in computing income - Resource and processing allowances - Resource profits - Calculation of - Section 1204(1) of the Income Tax Act Regulations required a taxpayer to compute its "resource profits" by determining the amount by which the aggregate of the taxpayer's incomes for the year from the various "sources" in paragraph (b) exceeded the aggregate of the taxpayer's losses for the year from those "sources" - The Federal Court of Canada, Trial Division, held that Gulf Canada had no "source" of income in 1978 from the Syncrude project - For there to be a source of income there had to be the "business" of "production" - Syncrude was not a source of income in 1978 unless there was a reasonable expectation of profit - In 1978, both cokers were not operational, so the operations were not expected to be profitable in 1978 or the near future - Accordingly, there was not a "business" at Syncrude in 1978 and the Minister erred in deducting capital cost allowance and interest expenses from "resource profits" - See paragraphs 56 to 102.

Statutes - Topic 1608

Interpretation - Extrinsic aids - Administrative policy and interpretation - In an income tax assessment appeal, the Minister sought to call the Director of Tax Legislation Interpretation with Natural Resources Canada to testify as to the administrative policy respecting the "prime metal stage" under s. 1204(1)(b)(ii)(B) of the Income Tax Act Regulations - The Federal Court of Canada, Trial Division, stated that if the Crown's policy was set out in published rulings or interpretation bulletins, it would be admissible - However, unpublished administrative policy was inadmissible - See paragraphs 47 to 52.

Cases Noticed:

Canadian National Railway Co. and Canadian Pacific Ltd. v. Canada (1994), 171 N.R. 64 (F.C.A.), refd to. [para. 48].

Fibreco Pulp Inc. et al. v. Minister of National Revenue (1994), 78 F.T.R. 161; 94 D.T.C. 6325 (T.D.), refd to. [para. 49].

Harel v. Quebec, [1978] 1 S.C.R. 851; 18 N.R. 91; 77 D.T.C. 5438, refd to. [para. 54].

Gulf Canada Ltd. v. Minister of National Revenue (1990), 38 F.T.R. 81; 90 D.T.C. 6622 (T.D.), affd. 92 D.T.C. 6123; 136 N.R. 187 (F.C.A.), refd to. [para. 61].

Home Oil Co. v. Minister of National Revenue (1955), 55 D.T.C. 1148 (S.C.C.), refd to. [para. 81].

Minister of National Revenue v. Imperial Oil Ltd. (1960), 60 D.T.C. 1219 (S.C.C.), refd to. [para. 88].

Westar Mining Ltd. v. Minister of National Revenue (1992), 141 N.R. 145; 92 D.T.C. 6358 (F.C.A.), refd to. [para. 89].

Minister of National Revenue v. Bethlehem Copper Corp. (1973), 73 D.T.C. 5281 (F.C.A.), refd to. [para. 89].

Falconbridge Nickel Mines Ltd. v. Minister of National Revenue (1972), 72 D.T.C. 6337 (F.C.A.), refd to. [para. 89].

Gunnar Mining Ltd. v. Minister of National Revenue, [1968] S.C.R. 226, refd to. [para. 89].

Moldowan v. Minister of National Revenue, [1978] 1 S.C.R. 480; 15 N.R. 476; 77 D.T.C. 5213; [1977] C.T.C. 310; 77 D.L.R.(3d) 112, refd to. [para. 90].

McClure v. Minister of National Revenue, [1988] 2 C.T.C. 2140 (Tax C.C.), refd to. [para. 91].

Timpson v. Minister of National Revenue (1987), 11 F.T.R. 236; 87 D.T.C. 5266 (T.D.), revd. (1993), 157 N.R. 237; 93 D.T.C. 5281 (F.C.A.), refd to. [para. 93].

Merchant v. Canada (1984), 84 D.T.C. 6215 (F.C.T.D.), refd to. [para. 93].

Craddock et al. v. Minister of National Revenue (1985), 86 D.T.C. 1014 (Tax C.C.), refd to. [para. 94].

Pollock v. Minister of National Revenue (1993), 161 N.R. 232; 94 D.T.C. 6050 (F.C.A.), refd to. [para. 109].

Nova, An Alberta Corp. v. Minister of National Revenue (1988), 87 N.R. 101; 88 D.T.C. 6386 (F.C.A.), refd to. [para. 110].

Statutes Noticed:

Income Tax Act, S.C. 1970-71-72, c. 63, sect. 14(5)(b), sect. 20(1)(b) [para. 115]; sect. 20(1)(v.1) [para. 83]; sect. 21(1)(a), sect. 27(9) [para. 1]; sect. 65 [para. 83]; sect. 248 [para. 46].

Income Tax Act Regulations (Can.), Income Tax Act Regulations, sect. 1100(1)(a) [para. 108]; sect. 1200 [para. 83]; sect. 1204(1)(b) [para. 45]; sect. 1204(1)(b)(ii)(C) [para. 77]; sect. 1204(1)(b)(iii) [para. 81]; sect. 1204(1)(c), sect. 1204(1)(f) [para. 45]; sect. 1204(3) [para. 58]; sect. 1210 [para. 83]; Schedule II, Classes 2, 29 [para 108].

Income Tax Act Regulations (Can.), Income Tax Application Rules, generally [para. 89].

Interpretation Act, R.S.C. 1985, c. I-21, sect. 45(2) [para. 80].

Counsel:

John Finlay and Thomas Akin, for the plaintiff;

Roger Taylor, Wendy Burnham and Al Meghji, for the defendant.

Solicitors of Record:

McCarthy Tétrault, Toronto, Ontario, for the plaintiff;

George Thomson, Deputy Attorney General of Canada, Ottawa, Ontario, for the defendant.

This appeal was heard on June 7-10, 1994 and September 26-29, 1994, at Vancouver, B.C., and Ottawa, Ont., before McKeown, J., of the Federal Court of Canada, Trial Division, who delivered the following judgment on March 3, 1995.