Minister of National Revenue v. 3850625 Canada Inc., 2011 FCA 117

• Judge: Noël, Pelletier and Trudel, JJ.A.
• Court: Federal Court of Appeal (Canada)
• Case Date: March 07, 2011
• Jurisdiction: Canada (Federal)
• Citations: 2011 FCA 117;(2011), 417 N.R. 265 (FCA)

MNR v. 3850625 Can. Inc. (2011), 417 N.R. 265 (FCA)

MLB headnote and full text

Temp. Cite: [2011] N.R. TBEd. AP.022

Her Majesty the Queen (appellant) v. 3850625 Canada Inc. (respondent)

(A-116-10; 2011 FCA 117)

Indexed As: Minister of National Revenue v. 3850625 Canada Inc.

Federal Court of Appeal

Noël, Pelletier and Trudel, JJ.A.

March 24, 2011.

Summary:

The Minister of National Revenue appealed a Tax Court decision which allowed a corporate taxpayer's appeal and remitted to the Minister the assessment issued with respect to the taxpayer's 1997 taxation year for reassessment on the basis that a $6,474,459.61 refund of interest was to be included in the calculation of the taxpayer's resource income. The refund arose out of a dispute between the taxpayer and the Minister with respect to reassessments for prior years.

The Federal Court of Appeal dismissed the appeal.

Income Tax - Topic 2784

Deductions in computing income - Resource and processing allowances - Resource profits - Calculation of - The Minister of National Revenue appealed a Tax Court decision which allowed a corporate taxpayer's appeal and remitted to the Minister the assessment issued respecting the taxpayer's 1997 taxation year for reassessment on the basis that a $6,474,459.61 refund of interest was to be included in the calculation of its resource income - The refund arose out of a dispute between the taxpayer and the Minister with respect to reassessments for prior years - The Federal Court of Appeal dismissed the appeal - The Tax Court judge applied the correct test, i.e., whether the refund interest was sufficiently connected to the production and processing activities to constitute income from that source - She conducted a two part analysis - First, she characterized the nature of the refund received - She relied on two decisions to the effect that interest income paid as a result of the management of tax obligation could constitute income from a business - She noted that although the decisions dealt with different schemes, they were still useful - She relied on the decisions to dispose of the Minister's assertion that there was an insufficient connection between income tax and production and processing activities because income tax was paid after those activities were completed - There was no error in that regard - She then focused on whether the refund was sufficiently connected to the production and processing activities to constitute income from that source - She observed that the taxpayer earned its refund in the course of managing its tax obligations which in turn arose as a consequence of earning profits from the production and processing of coal - She also considered the nature of the dispute which gave rise to the refund - She concluded that the refund interest was sufficiently connected to the taxpayer's production and processing activities to constitute income from that source - That finding was open to her on the evidence - Having conducted her analysis on the basis of the proper test, the Minister had to show that an error of a palpable and overriding nature was committed in applying it - No such error was demonstrated.

Cases Noticed:

Echo Bay Mines Ltd. v. Minister of National Revenue, [1992] 3 F.C. 707; 56 F.T.R. 114; 92 D.T.C. 6437 (T.D.), refd to. [para. 9].

Munich Reinsurance Co. v. Minister of National Revenue, 2000 D.T.C. 2009 (T.C.C.), affd. (2001), 281 N.R. 377; 2002 D.T.C. 6701 (F.C.A.), refd to. [para. 10].

Irving Oil Ltd. v. Minister of National Revenue (2001), 284 N.R. 255; 2002 D.T.C. 6716 (F.C.A.), refd to. [para. 10].

Gulf Canada Resources Ltd. v. Minister of National Revenue (1990), 38 F.T.R. 81; 90 D.T.C. 6622 (T.D.), affd. (1992), 136 N.R. 187; 92 D.T.C. 6123 (F.C.A.), refd to. [para. 13].

Cominco Ltd. v. Minister of National Revenue, [1984] C.T.C. 548; 84 D.T.C. 6535 (F.C.T.D.), refd to. [para. 13].

Gunnar Mining Ltd. v. Minister of National Revenue, [1968] S.C.R. 226; 68 D.T.C. 5035, refd to. [para. 14].

Statutes Noticed:

Income Tax Act, R.S.C. 1985 (5th Supp.), c. 1, sect. 20(1)(v.1) [para. 3]; sect. 77(15) [para. 6].

Income Tax Act Regulations (Can.), Income Tax Regulations, C.R.C. 1978, c. 945, sect. 1204(1) [para 5]; sect. 1206(2) [para. 6].

Counsel:

Marta Burns and Marla Teeling, for the appellant;

Gerald Grenon and Patrick Lindsay, for the respondent.

Solicitors of Record:

Myles J. Kirvan, Deputy Attorney General of Canada, Ottawa, Ontario, for the appellant;

Osler Hoskin & Harcourt LLP, Calgary, Alberta, for the respondent.

This appeal was heard at Calgary, Alberta, on March 7, 2011, by Noël, Pelletier and Trudel, JJ.A., of the Federal Court of Appeal. Noël, J.A., delivered the following reasons for judgment for the court on March 24, 2011.