Minister of National Revenue v. ATCO Electric Ltd., (2008) 379 N.R. 358 (FCA)

• Judge: Richard, C.J., Sexton and Evans, JJ.A.
• Court: Federal Court of Appeal (Canada)
• Case Date: April 22, 2008
• Jurisdiction: Canada (Federal)
• Citations: (2008), 379 N.R. 358 (FCA);2008 FCA 188

MNR v. ATCO Electric Ltd. (2008), 379 N.R. 358 (FCA)

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[French language version follows English language version]

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

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Temp. Cite: [2008] N.R. TBEd. AU.035

Her Majesty the Queen (appellant) v. ATCO Electric Ltd. (respondent)

(A-273-07; 2008 FCA 188; 2008 CAF 188)

Indexed As: Minister of National Revenue v. ATCO Electric Ltd.

Federal Court of Appeal

Richard, C.J., Sexton and Evans, JJ.A.

May 22, 2008.

Summary:

The taxpayer (ATCO) operated integrated coal-fired generating stations, where coal mines were exploited specifically to provide a source of fuel for the manufacture of electricity in adjacent power plants. In computing its income tax liability, ATCO computed its resource profits based on an imputed rate of return on coal handling equipment used up to the point that the coal had been pulverized inside the power plants and classified the equipment utilized up to that point as Class 41 assets pursuant to the Income Tax Regulations. It claimed special Capital Cost Allowance treatment, arguing that the assets were required to put coal into its "prime metal stage or its equivalent" (PMSE) (Income Tax Regulations, s. 1104(5)(a)(I)). The Minister reassessed ATCO for the 1997, 1998 and 2000 taxation years on the basis the PMSE of the coal had been reached at an earlier stage (primary crushing stage). A Tax Court judge allowed ATCO's appeal (see 2007 TCC 243). The Minister appealed respecting the 1997 and 1998 taxation 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 taxpayer (ATCO) operated integrated coal-fired generating stations, where coal mines were exploited specifically to provide a source of fuel for the manufacture of electricity in adjacent power plants - In computing its income tax liability, ATCO computed its resource profits based on an imputed rate of return on coal handling equipment used up to the point that the coal had been pulverized inside the power plants and classified the equipment utilized up to that point as Class 41 assets pursuant to the Income Tax Regulations - It claimed special Capital Cost Allowance treatment, arguing that the assets were required to put coal into its "prime metal stage or its equivalent" (PMSE) (Income Tax Regulations, s. 1104(5)(a)(I)) - The Minister reassessed ATCO for the 1997, 1998 and 2000 taxation years on the basis the PMSE of the coal had been reached at an earlier stage (primary crushing stage) - A Tax Court judge allowed ATCO's appeal - The Minister appealed respecting the 1997 and 1998 taxation years - The Federal Court of Appeal dismissed the appeal - The Tax Court Judge did not err in deciding that the PMSE could be interpreted to include the individual circumstances of the taxpayer, including the marketability of the product - The determination of the PMSE required an examination of the facts of the actual production and processing operation for each specific taxpayer, as well as the market faced by that taxpayer - The coal used by ATCO did not reach a marketable value until after the pulverizing stage.

Words and Phrases

Primed metal stage or its equivalent - The Federal Court of Appeal discussed the meaning on this phrase as it was used in ss. 1104(5)(a)(i) and 1204(1) of the Income Tax Regulations.

Cases Noticed:

Oligny v. Canada, 96 D.T.C. 1744 (Tax C.C.), refd to. [para. 16].

Canadian National Railway Co. and Canadian Pacific Ltd. v. Canada (1994), 171 N.R. 64 (F.C.A.), refd to. [para. 18].

Gulf Canada Resources Ltd. v. Minister of National Revenue (1996), 192 N.R. 283 (F.C.A.), refd to. [para. 18].

Housen v. Nikolaisen et al., [2002] 2 S.C.R. 235; 286 N.R. 1; 219 Sask.R. 1; 272 W.A.C. 1, refd to. [para. 22].

London Life Insurance Co. v. Minister of National Revenue (2000), 266 N.R. 130 (F.C.A.), refd to. [para. 40].

Statutes Noticed:

Income Tax Act Regulations (Can.), Income Tax Regulations, C.R.C. 1978, c. 945, sect. 1104(5)(a)(i) [para. 12]; sect. 1204(1) [para. 13].

Counsel:

William L. Softley and Belinda Schmid, for the appellant;

Curtis Stewart, for the respondent.

Solicitors of Record:

John H. Sims, Q.C., Deputy Attorney General of Canada, Ottawa, Ontario, for the appellant;

Bennett Jones LLP, Calgary, Alberta, for the respondent.

This appeal was heard at Edmonton, Alberta, on April 22, 2008, by Richard, C.J., Sexton and Evans, JJ.A., of the Federal Court of Appeal. The following decision of the court was delivered at Ottawa, Ontario, on May 22, 2008, by Sexton, J.A.