Falconbridge Nickel Mines Limited (Appellant)
v.
Minister of National Revenue (Respondent)
Trial Division, Cameron D.J.—Ottawa, June 25,
November 8, 1971.
Income Tax—"Income derived from operation of mine"—
Exemption for 36 months—Profit from sale of ore extracted
before exempt period—Whether exempt—Income Tax Act, s.
83(5).
Ore extracted from appellant's mine was smelted and
refined, and the resultant nickel sold approximately four
months after the extraction of the ore. Section 83(5) of the
Income Tax Act provides: "Subject to prescribed condi
tions, there shall not be included in computing the income
of a corporation income derived from the operation of a
mine during the period of 36 months commencing with the
day on which the mine came into production".
Held, in computing the income of appellant derived from
the operation of its mine during the 36 months period, the
Minister properly included the income arising or accruing
from sales during those months of metal from ore extracted
prior thereto (viz, $214,317) and properly excluded the
income arising or accruing from sales after those months of
metal extracted during those months (viz, $682,620).
INCOME tax appeal.
Allen Findlay, Q.C. and B. W. Earle for
appellant.
George Ainslie, Q.C. and John R. Power for
respondent.
CAMERON D.J.—This is an appeal from a
re-assessment to income dated May 29, 1969,
with respect to the appellant's 1958 taxation
year. Prior to the hearing the parties had agreed
upon and filed a stated case and question
agreed to between the parties, which reads as
follows:
1. The Appellant was incorporated in 1928 under the
laws of Ontario and since its incorporation has carried on
the business of exploring for, mining and processing miner
als. The Appellant's fiscal year is the calendar year.
2. The only outstanding issue in the appeal from the
income tax assessment for the taxation year 1958 is as to
the method of computing the income of the Appellant which
was exempt from tax under section 83(5) of the Act (herein-
after referred to as the "new mine income issue"). The issue
as to whether certain legal expenses were deductible in
computing the income of the Appellant (hereinafter referred
to as the "legal expenses issue") has been settled. "Income"
as used in this Stated Case and Question means "income"
as defined in section 4 of the Act.
3. During the years 1951 to 1956, inclusive, the Appel
lant brought into production five nickel-copper mines in the
Sudbury District of Ontario (hereinafter referred to as the
"new mines"). Income derived from the operation of each
of the new mines during "the period of 36 months com
mencing with the day on which the mine came into produc
tion" (hereinafter referred to as the "36 months' period")
was certified as being exempt from tax under section 83(5)
of the Act.
4. The ore extracted from each of the new mines was
treated in concentrators and the smelter of the Appellant in
the Sudbury District and the resultant nickel-copper matte
was shipped by rail and water to Norway where it was
refined in the refinery of the Appellant. The metals from the
ore were then sold by the Appellant. The sale of the metals
took place approximately four months after the ore contain
ing the metals had been extracted from the new mines.
5. In the case of each of the new mines, because of the
lapse of time between the extraction of the ore and the sale
of the metals from such ore, sales were made during the 36
months' period of metals from ore which had been extract
ed from the new mine during approximately four months
immediately prior to the 36 months' period, and sales were
made during approximately four months immediately subse
quent to the 36 months' period of metals from ore which
had been extracted from the new mine during the 36
months' period. The amount of ore extracted from each of
the new mines during the four months immediately prior to
the 36 months' period and sold during such period was
substantially less than the amount of ore extracted from
each during the last four months of the 36 months' period
and sold subsequent to such period.
6. In computing under section 83(5) of the Act the
income of the Appellant derived from the operation of each
of the new mines during its 36 months' period, the Respond
ent included the income arising or accruing from all sales
made during the 36 months' period of metals from ore
which had been extracted from the mine (including sales of
metals from ore which had been extracted from the mine
prior to the commencement of the 36 months' period) but
excluded the income arising or accruing from sales made
after the 36 months' period of metals from ore which had
been extracted from the mine during the 36 months' period.
The Appellant, on the other hand, included the income
arising or accruing from sales of metals from all ore which
had been extracted from the mine during the 36 months'
period (including sales of metals from such ore made subse
quent to the 36 months' period) but excluded the income
arising or accruing from sales made during the 36 months'
period of metals from ore which had been extracted from
the mine prior to the commencement of the 36 months'
period. Both the Respondent and the Appellant, in comput
ing the income derived from the operation of each of the
new mines, assumed that the metals from the first ore
extracted from the new mine were the first metals sold.
7. The effect of applying the different methods adopted
by the Respondent and the Appellant of computing the new
mine income entitled to exemption from tax under section
83(5) may be illustrated by reference to one of the new
mines, the East Mine, for which the 36 months' period was
from November 1, 1954, to October 31, 1957:
Exempt Income Exempt Income
as computed by as computed by
the Respondent the Appellant
Income from sales
made during the 36
months' period of
metals from ore ex- Included Excluded
tracted from the ($214,317.28)
mine in the four
months prior to the
36 months' period—
Income from sales
made during the 36
months' period of
metals from ore ex- Included Included
tracted from the
mine during the 36
months' period—
Exempt Income Exempt Income
as computed by as computed by
the Respondent the Appellant
Income from sales
made in the four
months subsequent
to the 36 months' Excluded Included
period from ore ex- ($682,620.26)
tracted from the
mine during the 36
months' period—
Amount by which the total exempt income derived from the
East Mine, as computed by the Appellant, was reduced on
assessment by the Respondent: $468,302.98.
8. The question in issue is whether in computing under
section 83(5) of the Act the income of the Appellant derived
from the operation of each of its new mines during the 36
months' period
(i) there is to be included income arising or accruing from
sales made during the 36 months' period of metals from
ore which had been extracted from the mine prior to the
36 months' period; and
(ii) there is to be excluded income arising or accruing
from sales made subsequent to the 36 months' period of
metals from ore which had been extracted from the mine
during the 36 months' period.
9. The parties agree that if the above question is
answered in the affirmative, the appeal in respect of the
new mine income issue is to be dismissed with costs and the
assessment referred back to the Respondent for re-assess
ment to give effect to the settlement of the legal expenses
issue; and that if the question is answered in the negative,
the appeal in respect of the new mine income issue is to be
allowed with costs and the assessment referred back to the
Respondent for re-assessment in accordance with such
answer and to give effect to the settlement of the legal
expenses issue.
The hearing of the appeal was therefore limit
ed to argument on the question in issue as
above stated in paragraph 8 based on the facts
set out in the stated case. As the answer to the
question so raised is dependent on the interpre
tation to be placed on section 83(5) of the
Income Tax Act, R.S.C. 1952, c. 148 as amend
ed, I shall set out at once the provisions of that
subsection and of subsection (6) as well as
section 1900 of Part XIX of the Regulations (as
they were in 1958).
83. (5) Subject to prescribed conditions, there shall not
be included in computing the income of a corporation
income derived from the operation of a mine during the
period of 36 months commencing with the day on which the
mine came into production.
83. (6) In subsection (5),
(a) "mine" does not include an oil well, gas well, brine
well, sand pit, gravel pit, clay pit, shale pit or stone quarry
(other than a deposit of oil shale or bituminous sand); and
(b) "production" means production in reasonable com
mercial quantities.
1900. For the purpose of subsection (5) of section 83 of
the Act, the following conditions are hereby prescribed:
(a) the corporation shall maintain separate accounting
records in respect of the mine
(i) for the period beginning with the commencement of
operation of the mine by the corporation and ending
with the day before the day on which the mine came
into production, and
(ii) for each taxation year of the corporation which
includes a part of the 36 months beginning with the day
on which the mine came into production;
(b) if the operation of the mine was the only business
carried on by the corporation on the day before the day
on which the mine came into production, the corporation
shall end its taxation year and close its books of account
as of that day;
(c) if paragraph (b) does not apply, the corporation shall
close its accounting records in respect of the mine on the
day that is 36 months after the day on which the mine
came into production; and
(d) the corporation shall file a return in triplicate in
prescribed form with the Minister.
A short summary of the agreed facts will be
helpful at this point. The issue is regarding the
method to be used in computing the income of
the appellant which was exempt from tax under
section 83(5) for "new mine income". During
the years 1951 to 1956 inclusive, the appellant
brought into production five nickel-copper
mines in the Sudbury District and paragraph 6
of the stated case indicates the methods respec
tively used by the respondent and the appellant
in computing the income of the appellant there
from "during the period of 36 months com
mencing with the day on which the mines came
into production", the word "production" being
defined in section 83(6)(b) as "production in
reasonable commercial quantities". The ore
extracted from the new mine was treated in
concentrators and a smelter of the appellant in
the Sudbury district and the resultant nickel-
copper matte was shipped to Norway where it
was refined in the appellant's refinery there,
and the metals from the ore were then sold.
Normally there was a delay of 4 months
between the date of extraction of the ore and
the date of sale of the metals obtained there
from; as will be seen later, it is this delay which
has resulted in the present dispute as to the
proper interpretation of section 83(5).
By way of illustrating the effect of applying
the methods used respectively by the respond
ent and the appellant in computing the exempt
income, the East Mine is taken as an example,
the resulting figures being shown in para. 7.
Counsel for the appellant admitted that for each
of the five "new mines" the appellant had
received the usual certificates from the
respondent giving the dates of commencement
and termination of "the period of 36 months"
commencing with the day on which each new
mine came into production in reasonable com
mercial quantities, such period in respect of the
East Mine being from November 1, 1954, to
October 31, 1957; he also agreed that the appel
lant in respect of each new mine had complied
with the prescribed conditions set out in Regu
lation 1900 (supra).
It will be noted from paragraph 7:
(a) that both parties in computing the exempt income for
that period included therein the income arising or accru
ing from sales made during that period of 36 months of
metals from ore extracted during the said period of 36
months;
(b) that the respondent in so computing the exempt
income of the appellant included income arising or accru
ing from sales made during the period of 36 months of
metals from ore extracted from the mine in the 4 months
prior to the period of 36 months, whereas the appellant
excluded that income of $214,317.28 from its claim for
exemption; and
(c) that in respect of income arising or accruing from
sales of metals made in the 4 months subsequent to the
period of 36 months from ore extracted from the mine
during the period of 36 months ($682,620.26) the appel
lant included that amount in computing its exempt
income, whereas the respondent disallowed that claimed
exemption in toto.
It is common ground that income was not
realized by the appellant corporation until the
metals produced from the ores extracted were
actually sold. In this connection reference may
be made to section 4 of the Income Tax Act
which reads:
Subject to the other provisions of this Part, income for a
taxation year from a business or property is the profit
therefrom for the year.
Put shortly, the problem before me is to
endeavour to construe the provisions of section
83(5) so as to determine whether or not the
phrase "during the period of 36 months" refers
to "income derived", as submitted by the
respondent; or whether the phrase refers to the
immediately preceding words "the operation of
a mine", as submitted by the appellant. If the
appellant's contention is correct, namely that
the intention of Parliament was to grant an
exemption from income tax in respect of all
production of ore from a new mine during the
period of 36 months, and whether the metals
produced from the ore were sold and income
derived in or after that period of 36 months,
then the questions submitted will be answered
in the negative and the appeal allowed. If on the
other hand the Minister's contention that the
phrase "during the period of 36 months" refers
to "income derived" and that Parliament intend
ed not to exempt from income tax all ore pro
duced during that period but rather only income
arising or accruing in the exempting period of
36 months from production of the new mine,
then the questions submitted must be answered
affirmatively and the appeal would be
dismissed.
It will be convenient to refer generally to the
phrase "during the period of 36 months" as
"the exemption period".
The onus is on the taxpayer to establish the
existence of facts or law showing an error in
relation to the taxation imposed (see Johnston
v. M.N.R. [1948] S.C.R. 486). It must also be
kept in mind that section 83(5) is an exempting
section and must therefore be strictly con
strued. Reference may be made to the state
ment of Sir W. J. Ritchie C.J., of the Supreme
Court of Canada in Wylie v. Montreal (1885) 12
S.C.R. 384 at p. 386, where he said:
I am quite willing to admit that the intention to exempt
must be expressed in clear unambiguous language; that
taxation is the rule and exemption the exception, and there
fore to be strictly construed.
In this connection see also the decision of
Thorson P., in the Exchequer Court of Canada,
in Lumbers v. M.N.R. [1943] Ex.C.R. 202,
which was affirmed by the Supreme Court of
Canada [1944] S.C.R. 167, and also a further
decision by Thorson P. in W. A. Sheaffer Pen
Co. v. M.N.R. [1953] Ex.C.R. 251, in which he
said at p. 255:
Then I put the rule of construction of an exempting
provision of the Income War Tax Act as follows:
Just as receipts of money in the hands of a taxpayer are
not taxable income unless the Income War Tax Act has
clearly made them such, so also, in respect of what would
otherwise be taxable income in his hands a taxpayer
cannot succeed in claiming an exemption from income tax
unless his claim comes clearly within the provisions of
some exempting section of the Income War Tax Act: he
must show that every constituent element necessary to
the exemption is present in his case and that every
condition required by the exempting section has been
complied with.
A similar rule of construction should be applied in the
case of a statutory right of deduction such as that conferred
by section 5(p) from which it follows that if a taxpayer
cannot clearly bring his claim for deduction within the
express terms of the provision conferring the right of
deduction he is not entitled to it.
The precise point here in issue has not previ
ously been raised so far as I am aware, except
in one case before the Tax Appeal Board in
Newfoundland Minerals Ltd. v. M.N.R. [1969]
Tax A.B.C. 436. The decision of the Board was
stated in the headnote as follows:
Held: What was exempted by section 83(5) was the
income expressed in dollars and cents during the 36-month
period in respect of the mine. It follows that the profit
realized subsequently from ore mined during that period
was taxable. Appeal dismissed.
An appeal was taken by the taxpayer to the
Exchequer Court of Canada and, according to
the material before me, the Minister at the
hearing moved to strike out the Notices of
Appeal on the ground, inter alia, that neither the
Appeal Board nor the Exchequer Court had
jurisdiction to hear an appeal from a "notifica-
tion" that no tax was payable, and that the
Minister had not either re-assessed or con
firmed the assessment of October 6, 1965, but
had, pursuant to section 58(3), vacated the
assessment. In the result, the motion by the
Minister was granted, the endorsement by the
Court on the record being stated:
Order to go striking out the Notices of Appeal herein on the
grounds that there is no right of appeal because the notice
from the Minister dated 14 September, 1966, was a notice
of the Minister's vacation of his 1963 assessment of the
taxpayer for tax.
Subsection 83(5) was considered in Hollinger
North Shore Exploration Co. v. M.N.R. [1960]
Ex.C.R. 325, but on another point. In that case,
Thurlow J. came to the conclusion that the
word "derived" as used in the subsection was
equivalent to "arising or accruing", stating at p.
332:
I can see no distinction for the present purpose between
the meaning of the expression "income derived from min
ing," which was considered in the Gilhooly case [1945]
Ex.C.R. 141, and that of "income derived from the opera
tion of a mine." In each case, I think the word "derived" is
broader than "received" and is equivalent to "arising or
accruing" (vide Commissioner of Inland Revenue v. Kirk
[1900] A.C. 588), but in neither case is the expression
limited to income arising or accruing from the operation of a
mine by the particular taxpayer.
The appeal in that case was with respect to
the taxpayer's income for 1956, and at p. 328 of
the judgment it states: "It is not disputed that
the whole of the year 1956 was within the
period of 36 months after the mine came into
production". An appeal from that judgment was
dismissed by the Supreme Court of Canada
[1963] S.C.R. 131, the Court stating at p. 134:
I share the view expressed by the learned trial judge that
the ordinary meaning of the words "derived from the opera
tion of a mine" is broader than that contended for by
appellant, that the word "derived" in this context is broader
than "received" and is equivalent to "arising or accruing"
(vide Commissioner of Taxation v. Kirk [1900] A.C. 588 at
592) and that the expression is not limited to income arising
or accruing from the operation of a mine by a particular
taxpayer.
In Craies on Statute Law 6th ed., p. 66, it
states:
The cardinal rule for the construction of Acts of Parlia
ment is that they should be construed according to the
intention expressed in the Acts themselves. "The tribunal
that has to construe an Act of a legislature, or indeed any
other document, has to determine the intention as expressed
by the words used. And in order to understand these words
it is natural to inquire what is the subject-matter with
respect to which they are used and the object in view." In
Barnes v. Jarvis Lord Goddard C.J. said: "A certain amount
of common sense must be applied in construing statutes.
The object of the Act has to be considered." If the words of
the statute are themselves precise and unambiguous, then
no more can be necessary than to expound those words in
their ordinary and natural sense. The words themselves
alone do in such a case best declare the intention of the
lawgiver.
Where the language of an Act is clear and explicit, we
must give effect to it, whatever may be the consequences,
for in that case the words of the statute speak the
intention of the legislature.
The rule now under review is expressed in various terms
by different judges. The epithets "natural," "ordinary,"
"literal," "grammatical" and "popular" are employed
almost interchangeably, but their indiscriminate use leads to
some confusion, and probably the term "primary" is prefer
able to any of them, if it be remembered that the primary
meaning of a word varies with its setting or context and
with the subject-matter to which it is applied; for reference
to the abstract meaning of words, if there be any such thing,
is of little value in interpreting statutes.
Section 83(5) is part of the Income Tax Act
and the subject matter is the computation of the
income of certain corporations. The object in
view in enacting this -subsection was clearly to
provide an incentive to bring new mines into
production by permitting a corporation to
exclude from the computation of its income tax
income derived (arising or accruing) from the
operation of a mine during the period of exemp-
tion—i.e. 36 months—commencing with the day
on which the mine came into production in
reasonable commercial quantities. All this is
clear from the language of the subsection itself
and I recall no argument by either party at the
hearing which would suggest otherwise.
Now if the subsection had to be read in
isolation, assisted only by the findings which I
have made as to its subject matter and the
object in view of Parliament in enacting it, there
might possibly be uncertainty as to whether
"the exemption period" referred to "income
derived" or to the words "the operation of a
mine". In my view, however, the task of inter
preting the meaning of the subsection is not
limited to a consideration of the words of the
subsection itself, but regard may be had to the
terms of the statute.
In Maxwell on Interpretation of Statutes 12th
ed., at pp. 58 and 62, it is said under the
heading: "An Act is to be regarded as a whole",
on page 58:
Passing from the external aspects of the statute to its
contents, it is an elementary rule that construction is to be
made of all the parts together, and not of one part only by
itself. It has been said that one of the safest guides to the
construction of sweeping general words which are hard to
apply in their full literal sense is to examine other words of
like import in the same instrument, and to see what limita
tions must be imposed on them; and if it is found that a
number of such expressions have to be subjected to limita
tions and qualifications, and that such limitations and
qualifications are of the same nature, that circumstance
forms a strong argument for subjecting the expression in
dispute to a like limitation and qualification.
And on page 62:
(iii) Lastly, the meaning of a section may be deter
mined, not so much by reference to other individual
provisions of the statute, as by the scheme of the Act
regarded in general.
The scheme of the Income Tax Act, at least
in part, may be ascertained from a reading of
the following sections, all of which are well
known to those having to deal with income tax
matters.
2. (1) Residents. An income tax shall be paid as hereinaf-
ter required upon the taxable income for each taxation year
of every person resident in Canada at any time in the year.
(3) Taxable income. The taxable income of a taxpayer for
a taxation year is his income for the year minus the deduc
tions permitted by Division C.
3. World income. The income of a taxpayer for a taxation
year for the purposes of this Part is his income for the year
from all sources inside or outside Canada and, without
restricting the generality of the foregoing, includes income
for the year from all
(a) businesses,
(b) property, and
(c) offices and employments.
4. Income from business or property, Subject to the other
provisions of this Part, income for a taxation year from a
business or property is the profit therefrom for the year.
It seems clear to me therefore that the Act
contemplates that each taxpayer (since the defi
nition of "person" in section 139(1)(ac)
includes a body corporate) shall in each of its
taxation years pay an income tax upon its tax
able income for such taxation year. Were it not
for the provisions of s. 83(5) the income arising
or accruing from the operation of a mine would
form part of the computation of the corporation
in determining its taxable income in each year.
By s. 4, income for a taxation year from a
business or property (which would include
mining) is the profit therefrom for the year—
subject, of course, to the provisions of Part I.
In s. 83(5) the word "income" is used twice
and I see no reason why its meaning should not
be the same on each occasion. I think also that
as income is not defined in the Interpretation
section 139, it should here have the same mean
ing as that contained in s. 4 inasmuch as section
83(5) is dealing (1) with a computation of the
income of a corporation (which would normally
comprise all its profits for the year, subject to
any permitted deductions) and (2) the income
derived from the operation of a mine during a
period of 36 months commencing with the day
on which the mine came into production in
reasonable commercial quantities.
Applying these basic principles and the mean
ing of "derived" as "arising or accruing" (as
stated in the case of Hollinger North Shore
Exploration Co. v. M.N.R. (supra) section 83(5)
would then be read as following:
83. (5) Subject to prescribed conditions, there shall not
be included in computing the profit of a corporation from its
business or property for the year the profit from its busi
ness or property for the same year arising or accruing from
the operation of a mine during the period of 36 months
commencing with the day on which the mine came into
production in reasonable commercial quantities.
I think it may be said that section 83(5)
relates primarily to the computation of the
profit of the corporation for a taxation year
which, by the very terms of the subsection,
does not include the profit from what may be
called "a new mine". But the exemption is
clearly not intended to be a permanent exemp
tion. Since the first computation of the corpora
tion to ascertain its profit must be for its taxa
tion year, it is inconceivable that the subsection
could possibly bear the meaning that there
should not be included in that computation
income or profit arising or accruing at any time
after the expiry of the period of exemption.
I should state that when I first examined the
subsection, it seemed to me that its meaning
was clear and unambiguous, namely that the
exemption applied to all income (or profit) aris
ing or accruing by sales of minerals within the
36-month period of exemption—as submitted
by the respondent, and further consideration
strengthens that opinion. The provision for
exemption requires a separate computation of
profit derived from the new mine by the taxpay
er and, to determine profit, means to ascertain
on generally accepted accounting principles the
profits for the taxation year after deducting
expenses of that taxation year.
If the contention of the appellant were
accepted that the exemption relates to all pro
duction of the mine during the 36-month period
of exemption, whenever the mine be sold, a
number of questions and problems would arise:
(1) There is nothing in the section which in
clear terms exempts production of a mine
from tax. The only use of the word "produc-
tion" is in the phrase "commencing with the
day on which the mine came into
production";
(2) Such an interpretation would mean that
the corporation could possibly mine all or a
very substantial quantity of the ore during a
period of exemption, stock-pile it and sell it at
any time thereafter, possibly 5, 10, 20 years
or more after the end of the exemption
period, and thus avoid payment of all income
tax on income arising from such sales. If that
had been the intention of Parliament it could
have used apt words to produce such a result.
In my view, the essential condition of the
subsection is that there should be a realization
of income during the 36-month period, regard
less of the time when the ore was extracted.
There is no realization of income or profit
therefrom except by sale.
The interpretation of the section advanced by
the appellant is not in harmony with the general
scheme of the Act, and in particular with the
requirements that call for an annual tax return
showing income (or profits) for the year, which
can only be arrived at by deducting from
income the cost of production and other deduc
tions for that year.
Had I come to the conclusion that the mean
ing of s. 83(5) was uncertain and ambiguous and
permitted the two interpretations advanced on
behalf of the parties, I would have had to con
sider the opening words of the section, namely
"Subject to prescribed conditions" and the
regulation passed thereunder, namely 1900 of
the Regulations, supra. The general authority
for the making of regulations by the Governor
in Council is found in s. 117 which reads in part
as follows:
117. (1) The Governor in Council may make regulations
(a) prescribing anything that, by this Act, is to be pre
scribed or is to be determined or regulated by regulation,
In Craies on Statute Law, 6th ed., it is stated
at p. 157:
8. REFERENCE TO STATUTORY RULES MADE
UNDER THE ACT
Where the language of an Act is ambiguous and difficult to
construe the court may for assistance in its construction
refer to rules made under the provisions of the Act, espe
cially where such rules are by the statute authorising them
directed to be read as part of the Act.
For not only is every part of the statute itself to be taken
into consideration in order to ascertain the meaning of any
obscure expression, but "recourse may [also] be had to
rules which have been made under the authority of the Act,
if the construction of the Act is ambiguous and doubtful on
any point; and if we find that in the rules any particular
construction has been put on the Act, it is our duty to adopt
and follow that construction." (Per James and Mellish L.J.
in Ex p. Wier (1871) L.R. 6 Ch. App. 875, 879. Cf. Re
Andrew (1875) 1 Ch.D. 358; Att.-Gen. v. De Keyser's Royal
Hotel [1920] A.C. 508, 551, Lord Moulton.
It is not necessary to repeat the provisions of
Regulation 1900. Its scope is limited to section
83(5) and it prescribes the "conditions" author
ized by the opening words of that subsection. It
requires the corporation to maintain separate
accounting records in respect of the mine; these
must be filed in triplicate in prescribed form
with the Minister, doubtless for the purpose of
checking their contents to determine whether
the exemptions of income so claimed are cor
rect. These returns must be made for each
taxation year of the corporation which includes
a part of the 36 months beginning with the day
on which the mine came into production; and if
the new mine was not the only business carried
on by the corporation on the day before the day
on which the mine came into production (as it is
in the instant case), the corporation is required
to close its accounting records in respect of the
new mine on the day that is 36 months after the
day on which the mine came into production.
It is clear therefore that the requirement that
the corporation must maintain separate
accounting records in respect to the mine does
not extend beyond the termination of the 36-
month period of exemption, namely in the case
of the East Mine, on October 31, 1957. It
unquestionably follows from the regulation (and
the appellant admits having complied with its
conditions) that the 36-month period of exemp
tion ending on October 31, 1957, is the only
period when income arising or accruing from
the operation of a mine was exempt from inclu
sion in the total income of the corporation. No
provision is made in the Regulations requiring
the corporation to maintain "accounting
records" after the expiry of the day that is 36
months after the day on which the mine came
into production. It may be noted also that in
Regulation 1900 it is provided by paragraph (a)
thereof that the corporation shall maintain sepa
rate accounting records in respect of the mine
for the period beginning with the commence
ment of the operation of the mine by the corpo
ration and ending with the day before the day
on which the mine came into production. In my
view, this provision makes it clear that any
income earned in the period of exemption from
ore produced prior thereto is not exempt from
taxation.
In my opinion the terms of Regulation 1900
establish also that the phrase "during the period
of 36 months" refers to "income derived" and
not to "the operation of a mine".
It is of some importance to note that Regula
tion 1900 in the form earlier set out herein, was
enacted many years ago and has remained
unchanged.
For the reasons stated, I have come to the
conclusion that the re-assessment dated May
29, 1969, with respect to the appellant's 1958
taxation year, in so far as it relates to the new
mine income issue and applicable to all 5 mines
brought into production during the years 1951
to 1956 (as set out in para. 3 of the Stated Case)
must be affirmed.
Accordingly I answer the two questions set
out in para. 8 of the Stated Case in the affirma
tive and, consequently, as provided in para. 9
thereof, the appeals in respect of the new mine
income issue will be dismissed with costs.
However, as provided in para. 9, the re
assessment will be referred back to the
respondent for a further re-assessment to give
effect to the settlement of the "legal expenses
issue". Minutes of settlement on that issue were
filed as exhibit 1 at the hearing and provided:
(a) that the appeal of the appellant in regard
to legal expenses be allowed;
(b) that in respect to the issue the Minister
will re-assess the appellant for its 1958 taxa
tion year allowing the appellant to deduct
one-half of the legal expenses of $18,930.12;
and
(c) that there will be no order as to costs with
respect to that issue.
You are being directed to the most recent version of the statute which may not be the version considered at the time of the judgment.