Minister of National Revenue v. Shell Canada Ltd., (1998) 235 N.R. 384 (SCC)

• Judge: Binnie, J.
• Court: Supreme Court (Canada)
• Case Date: December 16, 1998
• Jurisdiction: Canada (Federal)
• Citations: (1998), 235 N.R. 384 (SCC)

MNR v. Shell Can. Ltd. (1998), 235 N.R. 384 (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: [1999] N.R. TBEd. MR.001

Shell Canada Limited (appellant/applicant) v. Her Majesty The Queen (respondent/respondent)

(26596)

Indexed As: Minister of National Revenue v. Shell Canada Ltd.

Supreme Court of Canada

Binnie, J.

December 16, 1998.

Summary:

Shell needed to borrow $100 million (U.S.) for working capital. The prevailing market rate was 9.1%. Shell borrowed the monies in New Zealand dollars at 15.4%. Shell then converted the monies to U.S. dollars (sepa­rate transaction). Since the future rate for New Zealand dollars was discounted against the U.S. dollar, Shell would receive more U.S. dollars with the loan proceeds than it would cost to retire the loan, creating a $21,165,000 (U.S.) gain. Shell deducted the 15.4% interest charge under s. 20(1)(c) of the Income Tax Act and, when the loan was retired, claimed a $21,165,000 (U.S.) capital gain. The Minister of National Revenue, for 1992 and 1993, disallowed the interest de­duction beyond the 9.1% market rate on the ground that interest over that amount was not reasonable, as required by s. 20(1)(c). Further, the Minister determined that the $21,165,000 (U.S.) was income, not a capital gain. Shell appealed.

The Tax Court of Canada allowed the appeal. The entire interest charges were deductible under s. 20(1)(c) and the $21,165,000 (U.S.) was a capital gain, not income. The Minister appealed.

The Federal Court of Appeal, in a judg­ment reported 223 N.R. 122, allowed the appeal in part. The court affirmed that the $21,165,000 (U.S.) was a capital gain. How­ever, the court held that interest in excess of the 9.1% rate was not deductible under s. 20(1)(c). Shell appealed respecting the inter­est deduction. Shell subsequently brought a motion for a ruling under rule 29 of the Rules of the Supreme Court of Canada that the failure of the Minister to seek leave to cross-appeal precluded it from challenging the Court of Appeal's decision that the $21,165,000 was a capital gain.

The Supreme Court of Canada, per Binnie, J., held that the Minister must obtain leave to cross-appeal before raising the capital gain issue on appeal. Where a respondent wishes to vary the judgment appealed from, the respondent must seek leave to cross-appeal that part of the judgment. Leave to cross-appeal was not required only where the respondent sought to uphold the judg­ment of the lower court on a ground not raised in the reasons for judgment appealed from.

Practice - Topic 9104

Appeals - Supreme Court of Canada - Cross-appeals - The Tax Court of Canada ruled that a taxpayer's interest charges were deduct­ible under s. 20(1)(c) of the Income Tax Act and that taxpayer received a capital gain, not income - The Minister appealed - The Federal Court of Appeal affirmed that there was a capital gain, but held that interest in excess of the 9.1% rate was not deductible under s. 20(1)(c) - Shell appealed respecting the inter­est de­duction - Shell subsequently brought a motion for a ruling under rule 29 of the Rules of the Supreme Court of Canada that the failure of the Minister to seek leave to cross-appeal precluded it from challenging the Court of Appeal's decision respecting the capital gain - The Supreme Court of Canada, per Binnie, J., held that the Min­ister must obtain leave to cross-appeal before raising the capital gain issue on appeal - Where a respondent wished to vary the judgment appealed from, the respondent must seek leave to cross-appeal that part of the judgment - Leave to cross-appeal was not required only where the respondent sought to uphold the judgment of the lower court on a ground not raised in the reasons for judgment appealed from.

Cases Noticed:

R. v. Keegstra (J.), [1995] 2 S.C.R. 381; 180 N.R. 120; 169 A.R. 50; 97 W.A.C. 50, refd to. [para. 9].

Statutes Noticed:

Rules of the Supreme Court of Canada, rule 29(1), rule 29(3) [para. 9].

Counsel:

[not disclosed]

This motion was heard before Binnie, J., of the Supreme Court of Canada, who delivered the following judgment in both official languages on December 16, 1998.