Gustavson Drilling Ltd. v. MNR (1975), 7 N.R. 401 (SCC)
MLB headnote and full text
Gustavson Drilling (1964) Ltd. v. Minister of National Revenue
Indexed As: Gustavson Drilling (1964) Ltd. v. Minister of National Revenue
Supreme Court of Canada
Martland, Judson, Pigeon, Dickson and de Grandpré, JJ.
December 4, 1975.
Summary:
This case arose out of a claim by an oil company for the deduction of drilling and development expenses of $1,485,922. which sum was accumulated prior to 1960. In 1960, all of the assets of the oil company were transferred to another company but because of the then existing wording of s. 83A of the Income Tax Act the right to deduct the accumulated drilling and development expenses could not be transferred. In 1964, the oil company resumed operations and in computing its income for 1965, 1966, 1967 and 1968 the company claimed deductions of $119,290., $447,369., $888,084., and $31,179. respectively for drilling and developmental expenses (incurred prior to 1960). The Minister disallowed the deductions claimed because of a 1962 amendment to s. 83A of the Income Tax Act. A literal reading of s. 83A after the 1962 amendment supported the Minister’s position. However, the taxpayer claimed that the 1962 amendment did not affect the taxpayer’s claim for a deduction because of the presumption against retrospectivity and because of the presumption against the abridgment of vested rights.
On appeal to the Tax Appeal Board the company’s appeal was allowed and the Minister’s assessment was set aside.
On appeal to the Trial Division of the Federal Court of Canada the appeal was allowed and the decision of the Tax Appeal Board was set aside.
On appeal to the Federal Court of Appeal the appeal was dismissed and the judgment of the Trial Division of the Federal Court of Canada was affirmed.
On appeal to the Supreme Court of Canada the appeal was dismissed and the judgment of the Federal Court of Appeal was affirmed. The Supreme Court of Canada stated that the 1962 amendment did not operate retrospectively and that before the 1962 amendment the taxpayer did not have any vested or accrued right with respect to the accumulated development expenses.
Pigeon and de Grandpré JJ., dissenting, in the Supreme Court of Canada, would have allowed the appeal and would have restored the judgment of the Tax Appeal Board. Pigeon, J., stated that the intention of the Parliament in making the 1962 amendment was to facilitate the transfer of the right to deductions and the intention was not to effect a forfeiture of the rights of the oil company. Pigeon, J., stated that the Minister’s interpretation of the 1962 amendment resulted in an entirely unjustified forfeiture or confiscation of valuable rights – see paragraph 29.
Income Tax – Topic 2687
Deductions in computing income – Exploration and development expenses of an oil company – Income Tax Act, s. 83A – Loss of the right to deduct accumulated drilling and development expenses of $1,987,547. (incurred prior to 1960) as a result of a 1962 amendment to s. 83A – The Supreme Court of Canada stated that a literal reading of the 1962 amendment resulted in a loss of the taxpayer’s right to deduct the development expenses in 1962 and subsequent years – The taxpayer claimed a deduction for drilling and development expenses (incurred prior to 1960) of $1,485,922. in the taxation years of 1965, 1966, 1967 and 1968 – The taxpayer claimed that the 1962 amendment did not affect the taxpayer’s claim for a deduction because of the presumption against retrospectivity and because of the presumption against the abridgment of vested rights – The Supreme Court of Canada disallowed the taxpayer’s claim for a deduction of the development expenses – The Supreme Court of Canada stated that the 1962 amendment did not operate retrospectively – The Supreme Court of Canada stated that before the 1962 amendment the taxpayer did not have any vested or accrued right with respect to the accumulated development expenses.
Statutes – Topic 2261
Interpretation – Presumptions in aid – Presumption against the abridgment of proprietary rights – The Supreme Court of Canada stated that such a presumption only applies where the legislation in question is in some way ambiguous and reasonably susceptible of two constructions – See paragraph 15.
Income Tax – Topic 7453
Exemptions – Onus of proof – The Supreme Court of Canada stated that a taxpayer who claims an exemption must bring himself clearly within the language in which the exemption is expressed – See paragraph 7.
Cases Noticed:
Assessment Commission of the Corporation of the Village of Stouffville v. Mennonite Home Association of York County and Corporation of the Village of Stouffville, [1973] S.C.R. 189, folld. [para. 7].
Acme Village School District v. Steele-Smith, [1933] S.C.R. 47, refd to. [para. 10]; dist. [para. 30].
Spooner Oils Ltd. v. Turner Valley Gas Conservation Board, [1933] S.C.R. 629, folld. [para. 15].
Abbott v. Minister of Lands, [1895] A.C. 425, folld. [para. 16].
Western Leaseholds Ltd. v. Minister of National Revenue, [1961] C.T.C. 490, folld. [para. 16].
Director of Public Works v. Ho Po Sang, [1961] 2 All E.R. 721, folld. [para. 16].
Hargal Oils Ltd. v. Minister of National Revenue, [1965] S.C.R. 291, refd to. [para. 18].
Reid v. Reid (1886), 31 Ch.D. 402, folld. [para. 25].
Statutes Noticed:
Income Tax Act, R.S.C. 1952, c. 148, sect. 83A(8a) [para. 5].
Interpretation Act, R.S.C. 1970, c. I-23, sect. 35 [para. 17].
Counsel:
John McDonald, Q.C., F.R. Matthews, Q.C. and D.C. Nathanson, for the appellant;
G.W. Ainslie, Q.C. and L.P. Chambers, for the respondent.
This appeal was heard by the Supreme Court of Canada on November 1 and November 5, 1974. Judgment was delivered by the Supreme Court of Canada on December 4, 1975 and the following opinions were filed:
DICKSON, J. – see paragraphs 1 to 20.
PIGEON, J. – dissenting, see paragraphs 21 to 32.
MARTLAND and JUDSON, JJ., concurred with DICKSON, J.
de GRANDPRE, J., concurred with PIGEON, J.
