Imperial Oil Ltd. v. Minister of National Revenue, (2006) 353 N.R. 201 (SCC)

• Judge: McLachlin, C.J.C., Binnie, LeBel, Deschamps, Fish, Abella and Charron, JJ.
• Court: Supreme Court (Canada)
• Case Date: October 20, 2006
• Jurisdiction: Canada (Federal)
• Citations: (2006), 353 N.R. 201 (SCC);2006 SCC 46

Imperial Oil v. MNR (2006), 353 N.R. 201 (SCC)

MLB headnote and full text

[French language version follows English language version]

[La version française vient à la suite de la version anglaise]

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Temp. Cite: [2006] N.R. TBEd. OC.014

Her Majesty The Queen (appellant) v. Imperial Oil Limited (respondent)

(30695)

Her Majesty The Queen (appellant) v. Inco Limited (respondent) and Teck Cominco Limited (intervenor)

(30849; 2006 SCC 46; 2006 CSC 46)

Indexed As: Imperial Oil Ltd. v. Minister of National Revenue

Supreme Court of Canada

McLachlin, C.J.C., Binnie, LeBel, Deschamps, Fish, Abella and Charron, JJ.

October 20, 2006.

Summary:

In 1999, Imperial Oil redeemed debentures issued in 1989 in U.S. dollars. Since the exchange rate for Canadian and U.S. dollars changed in the 10 year period, Imperial Oil incurred $27,831,712 in total redemption costs. Imperial Oil sought to deduct the en­tire total redemption cost under s. 20(1)(f)(i) of the Income Tax Act, which permitted de­duc­tion of financing costs incurred to earn income from a business or property. The Min­ister rejected the deduc­tion. Three issues were referred to the Tax Court of Canada. At issue was whether all or part of the total redemption cost was deduct­ible under s. 20(1)(f)(i) or (ii) or a deemed capital loss under s. 39(2). The Tax Court ruled that $1,548,325 was deductible under s. 20(1)(f)(i), nothing was deductible under s. 20(1)(f)(ii) and the balance ($26,283,387) was a capital loss under s. 39(2). Imperial Oil appealed, submitting that 75% of the total redemption cost should be deducted under s. 20(1)(f)(ii) and 25% should be a deemed capital loss under s. 39(2). The Min­ister cross-appealed.

The Federal Court of Appeal, in a judg­ment reported (2004), 327 N.R. 329, allowed the appeal and the cross-appeal. The court held that no amount was deductible under s. 20(1)(f)(i), $20,873,784 was deductible un­der s. 20(1)(f)(ii) and there was no deemed capital loss under s. 39(2). For the same rea­sons, the court ruled in favour of another tax­payer (Inco Ltd.) in an appeal raising the same issue (see [2005] N.R. Uned. 13). The Minister appealed both appeal decisions.

The Supreme Court of Canada, Binnie, Fish and Charron, JJ., dissenting, allowed the appeal and restored the Minister's assess­ments. Section 20(1)(f) did not permit the deductions claimed. The taxpayers were limited to a capital loss under s. 39.

Income Tax - Topic 1130

Income from a business or property - De­duc­­tions - General - Expenses of issuing or selling units, interests or shares or bor­rowing money - [See Income Tax - Topic 1786 ].

Income Tax - Topic 1786

Capital gains and losses - Capital losses - Foreign currency fluctuation loss - In 1999, Imperial Oil redeemed debentures is­sued in 1989 in U.S. dollars - Since the ex­change rate for Canadian and U.S. dol­lars changed in the 10 year period, Im­per­ial Oil incurred $27,831,712 in total re­demption costs - Another company (In­co) also incurred foreign currency losses in repurchasing and cancelling debentures is­sued in U.S. dollars - The Supreme Court of Canada held that s. 20(1)(f)(i) of the Income Tax Act, which permitted deduc­tion of financing costs incurred to earn income from a business or property, did not apply to foreign exchange losses, which must be claimed as a capital loss un­der s. 39 - A foreign exchange loss was a cost of borrowing only where the thing borrowed was foreign currency - Where there was no disposition of currency, but merely repayment of principal by a debtor to a creditor, there could be no profit or loss - Parliament's intention was to limit s. 20(1)(f) to a specific class of financing costs arising out of the issuance of debt instruments at a discount - Foreign ex­change losses were treated as capital losses, unless the underlying transaction was on account of income - The court stated that "the deduction in s. 20(1)(f) is in respect of a point-in-time expense that is actually incurred only when the debt is re­paid - it does not encompass the appreci­a­tion or depreciation of the principal amount over time" - Where the obligation is denominated or repaid in something other than Canadian dollars, s. 20(1)(f) did not encompass the cost of dealing in com­mod­ities or foreign currencies - See para­graphs 31 to 69.

Statutes - Topic 522

Interpretation - General principles - Taxing statutes - The Supreme Court of Canada, in discussing the principles of interpreting tax statutes, stated, inter alia, that "the strict approach to the interpretation of tax statutes is no longer appropriate and that the modern approach should also apply to such statutes [i.e. words of Act read in their entire context and in their grammati­cal and ordinary sense harmoniously with the scheme of the Act] ... Despite this en­dorsement of the modern approach, the par­ticular nature of tax statutes and the peculiarities of their often complex struc­tures explain a continuing emphasis on the need to carefully consider the actual words of the [Income Tax Act], so that taxpayers can safely rely on them when conducting busi­ness and arranging their tax affairs. Broad considerations of statutory purpose should not be allowed to displace the spe­cif­ic language used by Parliament" - See para­graphs 24 to 29.

Statutes - Topic 1845

Interpretation - Intrinsic aids - Titles, head­ings and section numbers - Headings and mar­ginal notes - The Supreme Court of Can­ada stated that "although marginal notes are not entirely devoid of usefulness, their value is limited for a court that must ad­­dress a serious problem of statutory in­ter­pretation. I would be loath to rely on one for that purpose ..." - See paragraph 57.

Cases Noticed:

Gaynor v. Minister of National Revenue (1991), 131 N.R. 65; 91 D.T.C. 5288 (F.C.A.), dist. [para. 6].

Stubart Investments Ltd. v. Minister of National Revenue, [1984] 1 S.C.R. 536; 53 N.R. 241, refd to. [para. 25].

Ludco Enterprises Ltd. et al. v. Minister of National Revenue, [2001] 2 S.C.R. 1082; 275 N.R. 90; 2001 SCC 62, refd to. [para. 25].

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. 27].

Mathew v. Canada - see Kaulius et al. v. Minister of National Revenue.

Kaulius et al. v. Minister of National Rev­enue, [2005] 2 S.C.R. 643; 339 N.R. 323; 2005 SCC 55, refd to. [para. 27].

Minister of National Revenue v. Shell Canada Ltd., [1999] 3 S.C.R. 622; 247 N.R. 19, refd to. [para. 32].

Tip Top Tailors Ltd. v. Minister of Na­tional Revenue, [1957] S.C.R. 703, refd to. [para. 32].

Eli Lilly and Co. (Canada) Ltd. v. Minister of National Revenue, [1955] S.C.R. 745, refd to. [para. 41].

Alberta Gas Trunk Line Co. v. Minister of National Revenue, [1972] S.C.R. 498, refd to. [para. 42].

Imperial Tobacco v. Kelly, [1943] 2 All E.R. 119 (C.A.), refd to. [para. 43].

Bentley v. Pike (1981), 53 T.C. 590 (H.C.J.), refd to. [para. 48].

Pattison (Inspector of Taxes) v. Marine Midland Ltd., [1984] 1 A.C. 362 (H.L.), refd to. [para. 49].

Capcount Trading v. Evans (1992), 65 T.C. 545 (C.A.), refd to. [para. 51].

Nowegijick v. Minister of National Rev­enue et al., [1983] 1 S.C.R. 29; 46 N.R. 41, refd to. [para. 59].

Minister of National Revenue v. Canadian Pacific Ltd., [2001] 3 F.C. 170; 284 N.R. 216; 2001 FCA 398, refd to. [para. 79].

Montreal Coke and Manufacturing Co. v. Minister of National Revenue, [1944] A.C. 126 (P.C.), affing. [1942] S.C.R. 89, refd to. [para. 103].

Montreal Light, Heat and Power Consoli­dated v. Minister of National Revenue - see Montreal Coke and Manufacturing Co. v. Minister of National Revenue.

Phyllis Barbara Bronfman Trust v. Minis­ter of National Revenue, [1987] 1 S.C.R. 32; 71 N.R. 134, refd to. [para. 103].

Tennant v. Minister of National Revenue, [1996] 1 S.C.R. 305; 192 N.R. 365, refd to. [para. 103].

Statutes Noticed:

Income Tax Act, R.S.C. 1985 (5th Supp.), c. 1, sect. 18(1)(b) [para. 17]; sect. 20(1)(f) [para. 14]; sect. 39(2) [para. 19]; sect. 39(3) [para. 20].

Authors and Works Noticed:

Côté, Pierre-André, Interpretation of Legis­lation in Canada (3rd Ed. 2000), pp. 548, 549 [para. 88].

Driedger, Elmer A., Construction of Stat­utes (2nd Ed. 1983), p. 87 [para. 25].

Krishna, Vern, The Fundamentals of Cana­dian Income Tax (8th Ed. 2004), pp. 353, 772 [para. 62].

Counsel:

Wendy Burnham and Rhonda Nahorniak, for the appellant;

Al Meghji and Edward C. Rowe, for the respondent, Imperial Oil Ltd.;

Warren J. Mitchell, Q.C., and Michael W. Colborne, for the respondent, Inco Ltd.;

William Lefebvre, Q.C., and Dominic C. Belley, for the intervenor (written sub­missions only).

Solicitors of Record:

Department of Justice, Ottawa, Ontario, for the appellant;

Osler, Hoskin & Harcourt, Toronto, On­tario, for the respondent, Imperial Oil Ltd.;

Thorsteinssons, Toronto, Ontario, for the respondent, Inco Ltd.;

Ogilvy Renault, Montreal, Quebec, for the intervenor.

These appeals were heard on February 7, 2006, before McLachlin, C.J.C., Binnie, LeBel, Deschamps, Fish, Abella and Char­ron, JJ., of the Supreme Court of Canada.

On October 20, 2006, the judgment of the Court was delivered in both official lan­guages and the following opinions were filed:

LeBel, J. (McLachlin, C.J.C., Deschamps and Abella, JJ., concurring) - see para­graphs 1 to 69;

Binnie, J. (Fish and Charron, JJ., concur­ring), dissenting - see paragraphs 80 to 105.