Date: 20010717
Docket: 2000-1497-IT-G
BETWEEN:
SUNCOR ENERGY INC.,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasons for Judgment
Bell, J.T.C.C.
[1] The issue is whether the amount of $746,033 ("expenditure') claimed by the Appellant in its 1990 taxation year for salary and employment benefits[1]:
(a) was deductible in computing its profit pursuant to subsection 9(1) of the Income Tax Act ("Act") for that year, or
(b) should be treated as an addition to the undepreciated capital cost, within the meaning of paragraph 13(21)(f) of the Act, of assets described in classes 41(b) and 10(g) of Schedule II of the Income Tax Regulations ("Regulations") on the basis that the Appellant's tailings ponds and dykes resulting from such expenditure constituted a "structure" eligible for capital cost allowance ("CCA") under paragraph 20(1)(a) of the Act.
FACTS:
[2] Both the past and present tenses are used in describing operations, the same processes having occurred in 1990 and since that time.
[3] The Appellant mines oil sands near Fort McMurray, Alberta. The oil sands operation involves three broad functions, namely: mining of the oil sands, extraction of bitumen[2] from the oil sands and the upgrading of bitumen into lighter crude oil products.
[4] Prior to the commencement of mining, the landscape typically consisted of 15 to 45 feet of inorganic overburden and 150 to 250 feet of ore (oil sand) above a limestone base. In essence, the mining phase involves the removal of muskeg and overburden to gain access to the oil sand and the removal of oil sand in order to extract bitumen therefrom. Accordingly, after an area is mined there will be a hole or "pit" up to 300 feet deep. Mammoth shovels load about 150,000 tons of oil sand per day into huge trucks, the largest of which carry 240 tons. The ore is transported to and crushed at a sizing plant. More than 6,000 tons of ore are then transported, by several kilometres of conveyor belt, to the extraction plant. As hot water and steam are added, the oil sand begins to separate into bitumen, sand and clay. In the separation cells, the sand settles to the bottom and the bitumen floats to the surface as a froth. The thick bitumen is diluted with naphtha so it can be separated and pumped. The diluted bitumen is put through centrifuges to remove remaining minerals and water. The water, clay, sand and residual bitumen, called fine tailings, are pumped into holding ponds. The clay and sand settle to the bottom while the water is recycled back to the extraction plant. Suncor is working with other industries and government to reduce or eliminate the amount of water stored in the ponds. Research to reclaim the ponds is ongoing so that trees, shrubs and grass can be planted.
[5] Coke drums separate the bitumen into coke and hydrocarbon vapours. The coke is a high sulphur fuel similar to coal. Some of it is used as a fuel source for the utilities plants. The rest is stockpiled. The hydrocarbon vapours are sent to the fractionator where they are separated into naphtha, kerosene, and gas oil. The utilities plant provides the water, steam and electricity that keep the entire operation in production. Sulphur, a by-product of the operation, is sold for the purpose of making fertilizer.
[6] The Appellant's operation results in the shipment of more than 26 million barrels of oil products by pipeline to Edmonton for distribution to markets across Canada and the United States of America.
[7] The extraction process, employing steam and hot water to separate the bitumen from the oil sand results in large volumes of "tailings" which are a mixture of water, sand and clay. Accordingly, the result of the mining and extraction operations is the continual generation of waste products: in particular, overburden and tailings. The tailings must continuously be discharged.
[8] The Appellant operates under a commitment to restore its oil sands leases and accumulated waste materials in an environmentally acceptable manner. The Appellant's integrated operations are designed to dispose of waste products in a manner that will return the land to a condition similar to its pre-mining state. In particular, the Appellant's systematic disposal of tailings is integral to the reclamation of the land.
[9] The Suncor Mining Plan requires that substantially all of the overburden and tailings be deposited back into the previously mined-out areas of the pit. The first step in the proper disposal of tailings and overburden is the placing of overburden in the open pit so as to separate the disposal area from the area being actively mined. As such, the overburden is used to construct a dyke separating the disposal area from the active mining area. When the dyke reaches a sufficient height (30 to 60 feet), tailings are discharged on top of the dyke or directly into the disposal area ("tailings pond"). Sand and clay will settle out of the tailings that are discharged on top of the dyke, thereby adding to the dyke. Respecting tailings discharged into the pond, the sand forms a beach which helps to support the dyke. In both cases, tailings are disposed of over other tailings or overburden
[10] From the time that tailings begin to be discharged into the dyke, the dyke will be comprised mainly of tailings sand or a mixture of both tailings sand and overburden, depending on the particular dyke. The sand that settles out of the tailings as a result of the continuous discharge of tailings onto the dyke is compacted into "sand cells". Cells are used to retain and control the placement of sand. The cells are continually compacted by bulldozers during tailings discharge. The sand cells are packed by bulldozer to force the water out and to condense the sand so that the dyke remains stable. When bulldozers are not available for compaction, cell activities are discontinued. When an area being employed as a tailings pond disposal reaches the height permitted, new overburden and tailings will be directed to a new tailings disposal area.
[11] Each of the above continuous activities was undertaken as part and parcel of the ultimate reclamation process. As the lease continues to be mined, additional tailings disposal areas are created to return the overburden and tailings systematically to the previously mined area.
[12] The reclaimed land, restored to roughly the pre-mined elevation, will consist of an equivalent volume of tailings and sand to supplant the oil sand removed and will be capped with layers of overburden and muskeg. The former tailings disposal areas, when filled in, will not, upon reclamation, be distinguishable from the surrounding lands. Tailing disposal areas and dykes are part of the mining and extraction process and part of the reclamation of the mined area. The end result will be a landscape that is similar to the landscape that existed prior to mining.
[13] Over 99% of the expenditures were salary costs and employee benefits of the bulldozer drivers and other employees who compact the tailings into the dykes. Counsel for both parties agreed that the expenditures in issue were properly treated by the Appellant, under generally accepted accounting principles, as operating expenses for financial reporting purposes. The Appellant incurred similar expenses in compacting tailings in the years both prior to and subsequent to the 1990 taxation year. Such expenses are continuing and recurring. They have been incurred by the Appellant since the commencement of its oil sands business and will continue to be incurred each year until the termination of the oil sands operations at the Appellant's site.
[14] Douglas Andrew Kennedy ("Kennedy"), Director of Mine Engineering for the Appellant, testified that the waste materials from the plant operation were sand, silt, clay and water. He said that the Appellant had a large series of pumps and tailings lines that take the waste material from the extraction plant and pump them out for disposal, either on the tailings dykes directly or into the tailings ponds. He said also that water which is on the dyke runs off it into the pond. He stated that the objective with respect to the majority of the waste was to dispose of it within the mined-out area of the pit. He emphasized that the dykes were made of overburden hauled from the mine and sand from the extraction tailings. He said that about 20% to 40% of the tailings sand is placed on the dykes and the balance is pumped off the dyke and directly into the pond. He also said that the sand on the dyke is compacted by bulldozers. He stated further that the Appellant applied a great deal of engineering to ensure that the dykes were stable and that the seepage of water in the dyke was controlled. This was achieved by introducing impervious barriers within the dyke, usually clay materials from the Appellant's operation, that resisted the flow of water through the dyke. He said that the Appellant used filters that captured seepage within the dyke, the intent being to ensure that the pile of waste material was stable. When asked if materials other than what was extracted from the earth were used in the dyke, his response was:
No. There really aren't. These are the waste materials ... that came from either the mining process or the extraction process.
Kennedy said that the extraction plant could only operate as long as there was a place to put the tailings. He said that if the tailings lines were interrupted, the extraction plant would shut down immediately. Accordingly, he testified that if the lines were operating, it was important to continue to build the dykes up so that there would be a place to put waste materials from the plant. He said that at any particular time there would be enough capacity in the pond for two to six months' tailings. He emphasized his point by saying that if the extraction plant stopped working as a result of the compaction stopping, the Appellant would not be able to continue to produce the resource.
[15] Kennedy said that as well as putting the overburden material on the tailings dykes, sometimes it was put into simple dumps in a stockpile area often contained within the mined-out pit area. These waste dumps were also engineered according to the witness, it being important to ensure that the waste material was stable in the short term and acknowledging that it was creating a land form for longer term reclamation.
[16] On cross-examination, Kennedy said that the Appellant had a full grouping of drawings and reports for each dyke. He said that the tailings ponds with their perimeter dykes were built to contain the tailings produced by mine extraction and that they were so built with consideration for geo-technical requirements to ensure stability. He stated that if they were not so built to ensure stability they could fail with the consequent catastrophic flooding of the mine pit. He also described coke drains which collected seepage and drained water, the drains being connected to pipes. Those pipes ran to the outside of the dyke to drain water away. He also stated that the coke drains could be about five feet thick and 100 feet long. Kennedy also described sand filters whose purpose was to accommodate seepage. He discussed a design summary and recommendations respecting stability, seepage and monitoring and investigation. He said that it was prepared by Hardy BBT, a consulting engineering company. For monitoring purposes, standpipes were used to measure the level of water in the deck. Instruments to measure water pressure were employed as were slope indicators whose function was to measure water movement. Kennedy said that the dykes could be as high as 300 feet. He also said that, by looking at them, one could not tell a dyke from a waste dump.
[17] The Respondent produced a witness, Dr. Peter Byrne ("Byrne"), a professional engineer who was qualified to give opinion evidence in the field of geotechnical engineering and, in particular, with respect to the questions of whether, from a theoretical and a practical engineering perspective the ponds and attendant dykes of the Appellant would be considered as structures, and also, what engineered attributes of their design, physical nature and purpose would constitute them as structures.
[18] Byrne stated that, from reading reports, his perception was that the Appellant's main concern was about failure of the pond and that they had to remove water from what was pumped up to the site with the resultant compaction of the coarser part of the tailings to make it strong. He stated that it was cheaper to use overburden than the tailings so that the engineering was "really about trying to make it safe at the minimum cost". He said that Hardy Associates[3] were well recognized as geotechnical engineers in the area of tailings disposal. He stated that the dykes were well engineered because they took account of strength, stability and leakage. He referred to the clay barriers used to ensure that water would not leak out and, if so, that it was collected in pipes and returned to the pond. He referred to the operations as minimizing cost and said that the balance between safety and the cost made good engineering. He said that the drains were sometimes made of coke material and sometimes of sand.
[19] Byrne's report read in part:
The sands in the cells were mechanically compacted using bulldozers to increase their strength and prevent failure by liquefaction. In addition, filters and drains were installed to control porewater pressures and provide additional strength. The materials used for the filters and drains were not derived from the tailings, but were specially selected, and included plastic drainpipes. In addition, an impervious barrier or clayey core zone was commonly added in the upper region of the dyke to control seepage, an instrumentation to measure porewater pressures was installed. These are all indications of an engineered structure, and a concern for stability.
[20] In direct examination, in response to a query as to why he said materials were specially selected, Byrne stated that:
... they mentioned coke, and I presumed they had found that the coke had the right properties for the drain. They also mentioned using sand and I would think that they would have had to process that sand to make it okay for a drain.
Byrne also states in his report that:
The dykes at the Suncor impoundment are about 200 to 300 ft in height. As such, they are very large structures forming the perimeter of an impounding structure that has been designed and constructed to contain the bulk of the waste material or tailings. The dykes themselves are largely comprised of a portion of the tailings which has been compacted to increase their strength. In addition, they contained filters and drains to reduce porewater pressures that further increase strength and stability. In their upper regions, the dykes also contain a clayey core to reduce seepage. Thus, the tailings ponds and attendant perimeter dykes are engineered structures which use a portion of the tailings themselves to contain the bulk of the tailings. Although this can be a very cost-efficient procedure, it does require careful engineering design and planning to avoid failures. The numerous reports by Hardy Associates, whose engineers were and are well recognized in geotechnical engineering and design of earth structures, attest to the fact that these structures were carefully engineered from beginning to end.
The fact that the tailings ponds with attendant perimeter dykes were carefully engineered to contain the tailings allows them to be considered as "structures". The key aspects involved are:
1) Control of seepage by seepage barriers.
2) Compaction of the tailings in the cells of the retention dykes to provide strength and stability and so prevent failure and release of tailings.
3) Reduction in porewater pressures by inclusion of drainage to increase strength of the tailings in the dyke.
4) Control of placement rates of the beach deposits to allow time for drainage and consolidation and reduce the possibility of liquefaction failure.
5) Control of erosion by inclusion of filters which prevents erosion failure and assures the drains in the dykes do not clog.
[21] On cross-examination, Byrne said that the compaction activity is an on-going activity to ensure that the strength remained. Byrne also said that no compaction would be necessary if the material (obviously tailings) "wasn't coming". He testified that he had no opportunity or occasion to discuss what the word "structure" meant in case law and had no idea of that. He said that it was his view:
... if it's engineered for stability and seepage control, that would make it a structure.
[22] Then followed this exchange:
Q. So if I find something that is engineered and that has seepage control, you would say to me, "that's a structure"?
A. I suppose you might get into this thing about "if it was very badly engineered, would it be a structure or not?"
Q. No, let's assume it's very well engineered.
A. Well, I'm a little nervous in here about the direction you might be going. You might ... you might ... you might produce some example that I would sort of say, "well, gee, I'm not sure I'd call that a structure". I've mentioned already that if it wasn't a reasonable size, perhaps I wouldn't call it a structure.
Q. Let's assume it's very large and it's very well engineered and it's engineered for stability and it's engineered for seepage control. If I were able to point to something like that would you then say to me, "That is definitely a structure"?
A. That would be my tendency but I have a feeling that I'm kind of walking into a trap in here.
[23] Byrne then agreed with Appellant counsel's suggestion that since the overburden was from the mine site there were no "borrowed" materials used in this dyke. He also agreed with counsel that a normal reference to component parts in a building included cement, steel, wiring et cetera and that the dyke was not really built of component parts in that sense. He also agreed that it was made from the excavated earth.
[24] Byrne sought to draw a "huge difference" between the tailings pond and waste dumps indicating that a waste dump would result in a gentle slope movement but a failure of a tailings dam "could kill a lot of people". He then referred to the tailing ponds as "major structures".
[25] Byrne agreed with Appellant counsel's suggestion that the ultimate aim of the manner of building the tailings disposal pond was reclamation. He also agreed with counsel that tailings dams are designed to be abandoned and not operated and further that the Appellant was designing them with a view to abandoning them to the land. Byrne then agreed with counsel that the tailings pond would ultimately become part of the land and that the Appellant would reclaim it and walk away from it. He also agreed with counsel's suggestion that the tailings pond was unlike water retention dams which are designed to be operated as such not being designed to be abandoned like the tailings ponds. Further, Byrne agreed with counsel that the pond was a staged conventional embankment as opposed to a conventional dammed embankment, the word "staged" being used to describe the step by step building of it as needed. He further agreed with counsel's suggestion that:
... what's going on here is the approach we're using is essentially allowing us to build as much as we need to deposit the current year's waste, and then to deposit next year's waste, we're going to spend more money to deposit that year's waste.
Byrne then agreed with Appellant's counsel that one of the reasons there was water in the pond is because it was needed for sedimentation and reclamation.
APPELLANT'S SUBMISSIONS
[26] Appellant's counsel asserted that the expenditures did not result in any advantage or benefit extending beyond the 1990 taxation year. He said that similar expenditures are incurred each year and that the expenses incurred in one year cannot be found to relate to revenues earned in any subsequent year. In short, the Appellant's position was that the expenditures were incurred to dispose of the waste generated by the mining operations in 1990 and in that year only. Counsel also submitted that the expenses were reclamation costs which the Appellant must incur in order to return the land to its previous state.
[27] Counsel also argued that the Appellant's activities did not result in the acquisition of an asset. He said that:
Tailings ponds and dykes have no inherent value; they are essentially waste dumps that are designed from day one to be abandoned.
He said further that they were a liability, not an asset, and that they were not included as assets on the Appellant's balance sheet.
[28] Counsel noted further, as agreed by Respondent's counsel, that the deduction of the expenditures as operating expenses was made according to generally accepted accounting principles ("GAAP").
RESPONDENT'S SUBMISSIONS
[29] Counsel for the Respondent submitted that the expenditures were capital in nature made to provide long term containment and storage for tailings and water. Counsel submitted that the tailings ponds and dykes should not be characterized differently from assets:
... that could be said to have a role in waste disposal such as the bulldozers that are compacting the waste on the dykes which, I would submit, would most obviously be viewed as a capital asset.
[32] Respondent's counsel, in discussing whether the tailings ponds and dykes were structures said:
... if the characterization of these as structures under the Regulations would seem to apply, and I would submit they clearly apply, and so these are assets that are recognized in the Income Tax Act that are being produced, this is very relevant to the question of whether or not the purpose of the expenditure to acquire those assets ought to be characterized as creating an enduring benefit by virtue of the acquisition of that asset.
[31] Counsel also urged the Court to adopt Byrne's testimony that the tailings ponds and dykes were structures from an engineering perspective in determining whether they were a structure for purposes of the Act.
ANALYSIS AND CONCLUSION
[32] The Appellant, relying upon GAAP, in computing its income for the 1990 taxation year, obviously regarded the expenditures as current operating expenses, saying that they were properly so deductible under subsection 9(1) of the Act which reads as follows:
Subject to this Part, a taxpayer's income for a taxation year from a business or property is his profit therefrom for the year.
This would be normal procedure in computing income but for paragraph 18(1)(a). It is not the starting point for deductions. It simply prohibits the deduction of certain outlays and expenses. It reads as follows:
In computing the income of a taxpayer from a business or property no deduction shall be made in respect of ... an outlay or expense except to the extent that it was made or incurred by the taxpayer for the purpose of gaining or producing income from the business or property;
The parties agree that the expenditures were made for the purpose of gaining or producing income from a business. The question then arises as to whether they were on account of income or capital.
[35] Paragraph 18(1)(b) states that no deduction shall be made in respect of:
... an outlay, loss or replacement of capital, a payment on account of capital or an allowance in respect of depreciation, obsolescence or depletion except as expressly permitted by this Part;
If the Minister is of the view that an outlay or expense is not properly deductible in the computation of profit he must, for purposes of paragraph 18(1)(b), determine that the amount is capital in nature and must do so without resort to the description of assets in Schedule II of the Regulations ("Schedule II"). Only then and only in certain circumstances does paragraph 20(1)(a) invite examination of the classes of assets described in Schedule II as qualifying for capital cost allowance. That paragraph provides that notwithstanding paragraphs 18(1)(a) and (b), there may be deducted:
... such part of the capital cost to the taxpayer of property, or such amount in respect of the capital cost to the taxpayer of property, if any, as is allowed by regulation;
[34] The Respondent made its assessment, denying the deduction of the expenditures in the determination of profit, by combining Class 41(b) and Class 10(g) of Schedule II. The pertinent part of Class 41(b) reads:
Property ... that is property ... that would otherwise be included in ... Class 10
The pertinent part of Class 10(g) reads as follows:
Property not included in any other class that is ... a building or other structure
with certain exceptions not applicable here.
[35] Respecting the Appellant's position, there is no doubt that it made the expenditures in relation to its production of income for the 1990 year only. Similar expenditures would have to be made in each of the subsequent taxation years. If the overburden and waste products were not used in building the tailings ponds and dykes no extraction operations could be performed, there being no ability to dispose of those components. Clearly, similar outlays or expenses had to be made in each subsequent year. Over 99% of the expenditures were salary costs and employee benefits in relation to the compacting services provided by the bulldozer operators. Those expenditures were approximately 0.25% of the Appellant's total operating costs.
[36] Although the tailings pond and dykes were the result of the expenditures, those expenditures were made in respect of services which were part of the Appellant's operation of its business. As referred to in Johns-Manville Canada Inc. v. The Queen, 85 DTC 5373 at 5377, Dixon, J. in Hallstroms Pty. Ltd. v. Federal Commissioner of Taxation (1946) 72 C.L.R. 634, 648, in relation to the ascertainment of whether an expense is capital or income said that the answer:
depends on what the expenditure is calculated to effect from a practical and business point of view rather than upon the juristic classification of the legal rights, if any, secured, employed or exhausted in the process.
[37] In B.C. Electric Railway Co. Ltd. v. M.N.R., 58 DTC 1022 (S.C.C.) Mr. Justice Abbott, at 1027 and 1028, said:
Since the main purpose of every business undertaking is presumably to make a profit, any expenditure made "for the purpose of gaining or producing income" comes within the terms of s. 12(1)(a)[4] whether it be classified as an income expense or as a capital outlay.
Once it is determined that a particular expenditure is one made for the purpose of gaining or producing income, in order to compute income tax liability it must next be ascertained whether such disbursement is an income expense or a capital outlay. The principle underlying such a distinction is, of course, that since for tax purposes income is determined on an annual basis, an income expense is one incurred to earn the income of the particular year in which it is made and should be allowed as a deduction from gross income in that year. Most capital outlays on the other hand may be amoritized or written off over a period of years depending upon whether or not the asset in respect of which the outlay is made is one coming within the capital cost allowance regulations made under s. 11(1)(a)[5] of the Income Tax Act. (emphasis added)
In this case, the expenditures were incurred to earn the income of 1990, being the year in which those expenditures were made.
[38] In Johns-Manville (supra) the company excavated ore from an open pit mine. To accommodate safe and economic mining the taxpayer maintained the pit walls at a certain slope. As the excavations became deeper, in order to retain the appropriate wall slope the Appellant was continuously purchasing land adjoining the expanding pit. It deducted the cost of the land as business expenses but the Minister disallowed that deduction on the basis that they were capital expenditures. The Supreme Court of Canada determined that the land costs were operating expenses. The Court found that the expenditures were incurred bona fide in the course of its regular day-to-day business operation. At 5384 Estey J. said:
... Common sense dictated that these expenditures be made, otherwise the taxpayer's operation would, of necessity, be closed down. These expenditures were not part of a plan for the assembly of assets. Nor did they have any semblance of a once and for all acquisition. These expenditures were in no way connected with the assembly of an ore body or a mining property which could itself be developed independently of any ore body ...
[39] In Canderel Limited v. Her Majesty the Queen, 98 DTC 6100 (S.C.C.) the Appellant deducted all tenant inducement payments made by it during its 1996 year. The Minister disallowed such deductions. The appeal was allowed. At 6107, Iacobucci J. said:
... Generally speaking, the courts are free, in the absence of contrary legislation or established rules of law, to assess the taxpayer's computation of income in accordance with well-accepted business principles.
At 6110 the learned justice, in summarizing relevant principles, said:
The profit of a business for a taxation year is to be determined by setting against the revenues from the business for that year the expenses incurred in earning said income ...
In seeking to ascertain profit, the goal is to obtain an accurate picture of the taxpayer's profit for the given year.
Although the tailings ponds and dykes were of use to the Appellant for disposal purposes, the services performed by the bulldozer operators were absolutely part and parcel of, and essential to, the mining of ore resulting in the production of revenue.
[40] In Denison Mines Limited v. M.N.R., 74 DTC 6525 (S.C.C.) the appellant, for purposes of its uranium mining operations, drove passageways into the ore body and extended them into rectangular rooms where the ore was mined. All such passageways were driven through the ore body. The value of the ore extracted from those passageways exceeded the cost of opening them, stated to be in excess of $21,000,000. In its 1961 return (the first year it was subject to tax following the statutory three-year exemption) the company sought to deduct $9,000,000 of this amount as capital cost allowance. It contended that the amount spent on the passageways was a capital expenditure, and that the passageways were main haulageways designed and constructed for continuing use after the mine came into production within the meaning of the Act. The Minister disallowed the deduction. The Supreme Court of Canada agreed with the decision of Jackett C.J. of the Federal Court of Appeal, who said:
In considering that question, it must be emphasized that, as far as appears from the pleadings or the evidence, no more money was spent on extracting the ore the extraction of which resulted in the haulageways than would have been spent if no long term continuing use had been planned for them. ...
We are of the view that, even though the appellant planned his extraction operations so as to leave it in the result with "haulageways" that are of enduring benefit to its business, the cost of such extraction operations is, in accordance with ordinary business principles, the costs of earning the profits made by selling the ore extracted from them. If that is right, there was no cost, and therefore no "capital cost", of acquiring the haulageways.
[41] The Appellant's tailing ponds and dykes were useful to it only to the extent of outlays or expenses in a given year in which expenses were incurred so that the mining operation could continue in that year.
[42] The Appellant made lengthy submissions as to why the tailings pond and dykes did not constitute a "structure" within the meaning of the above quoted Regulations. He referred to a number of authorities in this regard[6]. Respondent's counsel sought to draw distinctions in some of the quoted cases and drew upon Byrne's evidence in an attempt to persuade the Court that Byrne's engineering view of the tailings ponds and dykes constituting a structure should be adopted by the Court.
[43] I have concluded that the expenditures made by the Appellant in its 1990 taxation year were properly deductible in computing its profit within the meaning of section 9 of the Act. The Appellant's activities can be described, in part, as moving waste and arranging it to accommodate the arrival of more waste in the most efficient and cost effective manner. No asset of enduring benefit was created, the tailings ponds and dykes in each year having been limited in capacity and usefulness by the expenditures made on them in that year for that year only. It is, accordingly, unnecessary for me, having reached the above conclusion, to discuss Byrne's evidence and the authorities and submissions of each counsel respecting "structure" and to make a determination in that regard. Even if I concluded that the tailings pond and dykes were a capital asset, it is my impression that they cannot be described as a "structure" within the meaning of the Regulations. Inter alia it appears that the Respondent, having difficulty with resisting the logic of the expenditures being on income account, motored straight to the Regulations. As stated, the Respondent cannot, by attempting to characterize a tailings pond and dykes as a "structure", categorize them as a capital asset for purposes of the Act. The attempt so to do is implicit in Respondent's counsel's submission set out above that the characterization
... as structures under the Regulations ... is very relevant to the question of whether or not the purpose of the expenditure to acquire those assets ought to be characterized as creating an enduring benefit by virtue of the acquisition of that asset.
Driedger on the Construction of Statutes, 3rd Edition at 246 says:
Where the provision to be interpreted appears in a regulation, it is read in the context of both the regulation and the enabling Act as a whole. ... Because regulations are a subordinate form of legislation, usually made after the enabling Act has been passed, they have limited value in interpreting provisions of the Act.[7]
[44] The appeal is allowed with costs.
Signed at Ottawa, Canada this 18th day of July 2001
"R.D. Bell"
J.T.C.C.
COURT FILE NO.: 2000-1497(IT)G
STYLE OF CAUSE: Suncor Energy Inc. and The Queen
PLACE OF HEARING: Calgary, Alberta
DATE OF HEARING: May 16, 2001
REASONS FOR JUDGMENT BY: The Honourable Judge R.D. Bell
DATE OF JUDGMENT: July 18, 2001
APPEARANCES:
Counsel for the Appellant: A. Meghji
Gerald A. Grenon
Counsel for the Respondent: William L. Softley
M.B. Taylor
COUNSEL OF RECORD:
For the Appellant:
Name: Gerald A. Grenon
Firm: Donohue Ernst & Young
Calgary, Alberta
For the Respondent: Morris Rosenberg
Deputy Attorney General of Canada
Ottawa, Canada
2000-1497(IT)G
BETWEEN:
SUNCOR ENERGY INC.,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Appeal heard on May 16, 2001 at Calgary, Alberta, by
the Honourable Judge R.D. Bell
Appearances
Counsel for the Appellant: A. Meghji
Gerald A. Grenon
Counsel for the Respondent: William L. Softley
M.B. Taylor
JUDGMENT
The appeal from the reassessment made under the Income Tax Act for the 1990 taxation year is allowed, with costs, and the reassessment is referred to the Minister of National Revenue for reconsideration and reassessment in accordance with the attached Reasons for Judgment.
Signed at Ottawa, Canada this 18th day of July 2001.
|
"R.D. Bell" |
J.T.C.C.
[1] Including minimal amounts for small tools, supplies, lubricants and gas.
[2] Viscous liquid consisting largely of hydrocarbons.
[3] Different name from that used by Kennedy, but obviously the same firm.
[4] now 18(1)(a)
[5] now 20(1)(a)
[6] Driedger on "The Construction of Statutes", 3rd Edition by Ruth Sullivan, Pfizer Co. Ltd. v. Deputy M.N.R., [1977] 1 S.C.R. 456, British Columbia Telephone Company v. The Queen, 92 DTC 6129 (F.C.A.), Inland Revenue Commissioners v. Smyth [1914] 3 K.B. 406, The Queen v. Hampton Golf Club, 86 DTC 6513 (F.C. T.D.), Hobday v. Nicol, [1944] 1 All E.R. 302, Cardiff Rating Authority v. Guest Keen Baldwin's Iron and Steel Co. Ltd. [1949] 1 K.B. 385 (C.A.), British Columbia Forest Products Limited v. M.N.R.,, 71 DTC 5178, Acadian Pulp & Paper Ltd. v. Minister of Municipal Affairs, [1973] 6 N.B.R. (2d) 755 (C.A.), Plastibeton Inc. v. M.N.R. et al, 86 DTC 6400 (F.C.A.), Superior Pre-Kast (supra).
[7] See Ontario Hydro v. Canada [1997] 3 F.C. 565 at 573.