October 07, 2011

Kevin J. Campbell, Edward Dielschneider, Rocky Oishi, and Don Price (Appellants) v. Her Majesty the Queen (Respondent)

99 DTC 297
Tax Court of Canada
January 7, 1999

(Court File Nos. 96-1239(IT)G, 96-1248(IT)G, 96-1231(IT)G and 96-1235(IT)G.)

Deductions — Canadian Exploration Expense (“E”) — Taxpayers members of a group of some 200 investors purchasing flow-through shares issued by two corporations involved in mineral exploration programs — Whether expenses incurred by such corporations as taxpayers’ agents constituting deductible E in taxpayers’ hands — Income Tax Act, R.S.C. 1985 (5th Supp.), c.?1, as amended, ss.?66.1(6)(a) and 66.1(3).

During 1985 to 1988, some 200 investors, including the taxpayers, purchased flow-through shares issued by two corporations involved in mineral exploration programs in British Columbia. In reassessing the taxpayers for 1985 to 1988, the Minister disallowed a substantial portion of the Canadian Exploration Expense (“E”) claimed by them as a deduction in computing their income for those years. The taxpayers appealed to the Tax Court of Canada.

Held: The taxpayers’ appeals were allowed. The evidence of the taxpayers’ witnesses (to the effect that all monies expended on the mineral properties in question were for the purpose of exploration for mineral resources) was to be accepted. Furthermore, the activities described in the said evidence (i.e., prospecting, carrying out geological, geophysical or geochemical surveys, rotary, diamond, and percussion drilling and trenching, and preliminary sampling) all fell within the statutory definition of E in paragraph 66.1(6)(f) of the Act. As a result, all expenses incurred by the taxpayers (through the said corporations as their agent) were deductible, with the consequent depletion benefits. The Minister was ordered to reassess accordingly.