Irving Oil Ltd. v. Minister of National Revenue, (1988) 16 F.T.R. 253 (TD)

• Judge: Muldoon, J.
• Court: Federal Court (Canada)
• Case Date: May 11, 1987
• Jurisdiction: Canada (Federal)
• Citations: (1988), 16 F.T.R. 253 (TD)

Irving Oil Ltd. v. MNR (1988), 16 F.T.R. 253 (TD)

MLB headnote and full text

Irving Oil Limited v. Her Majesty The Queen

(No. T-3100-79)

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

Federal Court of Canada

Trial Division

Muldoon, J.

March 4, 1988.

Summary:

Irving Oil Ltd. was approximately equally owned by Standard Oil (Socal) and the Irvings and they equally shared control. Irving purchased crude oil for its refinery from its wholly owned Bermuda subsidiary (Irvcal). Irvcal purchased the oil from Socal. Socal sold to Irvcal at cost and Irvcal sold to Irving at fair market value. The price differential was shared by Socal and Irving as nontaxable non-Canadian production and transportation profits. For the income tax years 1971-1975 Irving deducted the price paid to Irvcal. The Minister of National Revenue disallowed the full deduction on the ground that the overstated costs to Irving would unduly or artificially reduce Irving's income contrary to s. 245(1) of the Income Tax Act. The disallowed deductions totalled $141,946,190.00. The Minister concluded that Irvcal's inclusion in the supply chain was a "sham", therefore Irving's deduction was limited to the price paid to Socal by Irvcal. Irving appealed the Minister's assessments.

The Federal Court of Canada, Trial Division, allowed the appeal. The court held that the full price paid by Irving was deductible. The full cost was incurred to produce income and, where it represented the fair market value, there was no undue or artificial reduction of income. The court stated that Irvcal was created for a bona fide business purpose and the supply chain created, although reducing tax, was not a sham or artifice.

Courts - Topic 5

Stare decisis - Authority of judicial decisions - Authority and use of precedents - General - The Federal Court of Canada, Trial Division, stated that "it is trite law that where a court gives two or more reasons for allowing an appeal, each reason is binding and forms part of the ratio of the decision" - See paragraph 105.

Income Tax - Topic 7955

Returns, assessments and appeals - Appeals to tax review board - From nil assessment - The Federal Court of Canada, Trial Division, stated that a taxpayer has no right of appeal from a nil assessment - See paragraph 113.

Income Tax - Topic 9543

Tax evasion - Artificial transaction - What constitutes - Socal and the Irvings equally owned and controlled Irving Oil - Irving purchased crude oil for its refinery from its wholly owned Bermuda subsidiary (Irvcal) - Irvcal purchased the oil from Socal - Socal sold to Irvcal at cost; Irvcal sold to Irving at fair market value - The price differential was shared by Irving and Socal as nontaxable non-Canadian production and transportation profits - For income tax purposes Irving deducted the price paid to Irvcal - The Minister of National Revenue disallowed the full deduction on the ground that the overstated costs unduly and artificially reduced Irving's income, contrary to s. 245(1) of the Income Tax Act, and held that the deduction was limited to the lower price paid by Irvcal - The Minister claimed Irvcal's inclusion in the supply chain was a "sham" to reduce taxes - The Federal Court of Canada, Trial Division, held that the full price was properly deducted - The court held that (1) the oil purchases were incurred for the purpose of earning income (s. 18(1)(a)); (2) the price paid (fair market value) was reasonable (s. 67); (3) there was no undue or artificial reduction of income (s. 245), where Irving did not pay in excess of fair market value; (4) Irvcal's inclusion in the supply chain was not a sham; and (5) the sales were structured as such for a bona fide business purpose, to allow Socal and Irving to share non-Canadian production and transportation profits without having to pay Canadian taxes - The court stated that there was no intention to hide the true agreement between Socal and Irving; there was no deceit or false appearance - The court considered the most crucial factor in Irving's favour as being that Irving did not pay an inflated price to reduce tax, but always paid in the fair market value range.

Income Tax - Topic 9545

Tax evasion - Artificial transaction - "Sham" defined - [See Income Tax - Topic 9543 above].

Income Tax - Topic 9546

Tax evasion - Artificial transaction - Bona fide business purpose - [See Income Tax - Topic 9543 above].

Practice - Topic 9100

Appeals - Supreme Court of Canada - Refusal of Supreme Court of Canada to grant leave to appeal - Effect of - The Federal Court of Canada, Trial Division, referred to a statement of a judge of the Supreme Court of Canada that "although the refusal to grant leave to appeal does not necessarily connote full accord with the decision below, such refusals (no reasons being given ...) are part of the jurisprudence of the court and may be worth noting according to the nature of the issues disposed of in the courts below" - See paragraph 107.

Cases Noticed:

Hillsdale Shopping Centre v. Minister of National Revenue, [1981] D.T.C. 5261; 38 N.R. 103 (F.C.A.), refd to. [para. 9].

Snook v. London and West Riding Investments Ltd., [1967] 1 All E.R. 518, refd to. [para. 67].

Stubart Investments Limited v. Minister of National Revenue, [1984] 1 S.C.R. 536; 53 N.R. 241; 84 D.T.C. 6305 (S.C.C.), appld. [para. 68].

Spur Oil Ltd. v. Minister of National Revenue, [1982] 2 F.C. 113; 42 N.R. 131 (F.C.A.), appld. [para. 68].

Dominion Bridge Company v. The Queen, 75 D.T.C. 5150, refd to. [para. 73].

Phyllis Barbara Bronfman Trust v. Minister of National Revenue, [1987] 1 S.C.R. 32; 71 N.R. 134, refd to. [para. 74].

Inland Revenue Commissioners v. Duke of Westminster, [1936] A.C. 1 (H.C.), refd to. [para. 76].

Parsons v. Minister of National Revenue, [1984] 2 F.C. 909; 54 N.R. 227 (F.C.A.), refd to. [para. 91].

Schulman v. M.N.R., [1961] Ex. C.R. 410, affd. [1962] S.C.R. viii; [1962] D.T.C. 1166 (S.C.C.), refd to. [para. 92].

Consolidated-Bathurst Ltd. v. Minister of National Revenue, [1987] 2 F.C. 3; 72 N.R. 147; 87 D.T.C. 5001 (F.C.A.), refd to. [para. 92].

Indalex Limited v. Minister of Nation al Revenue (1987), 73 N.R. 81 (F.C.A.), dist. [para. 95].

Sigma Explorations Ltd. v. The Queen, 75 D.T.C. 5121 (F.C.T.D.), refd to. [para. 97].

Jacobs v. London County Council, [1950] A.C. 361, refd to. [para. 105].

London Jewellers Ltd. v. Attenborough, [1934] 2 K.B. 206, refd to. [para. 105].

Behrens v. Bertram Mills Circus Ltd., [1957] 2 Q.B. 1, refd to. [para. 105].

Cane v. Royal College of Music, [1961] 2 Q.B. 89, refd to. [para. 105].

R. v. Gary Bowl Limited (1974), 4 N.R. 172; 74 D.T.C. 6401 (F.C.A.), refd to. [para. 112].

Statutes Noticed:

Income Tax Act, S.C. 1970-71-72, c. 63, sect. 18(1)(a) [para. 86]; sect. 67 [para. 89]; sect. 152(4) [para. 7]; sect. 245(1) [para. 90].

Authors and Works Noticed:

Restrictive Trade Practices Commission, Competition in the Canadian Petroleum Industry (1986) [para. 62].

Counsel:

J.E. Sexton, Q.C., and R.F. Lindsay, Q.C., for the plaintiff;

J.R. Power, Q.C., D. Olsen and B. Moon, for the defendant.

Solicitors of Record:

Osler, Hoskin and Harcourt, Toronto, Ontario, for the plaintiff;

Frank Iacobucci, Q.C., Deputy Attorney General of Canada, Ottawa, Ontario, for the defendant.

This appeal was heard on May 11, 1987, at Toronto, Ontario, before Muldoon, J., of the Federal Court of Canada, Trial Division, who delivered the following judgment on March 4, 1988.