October 07, 2011

Teck-Bullmoose Coal Inc. (Appellant) v. Her Majesty the Queen (Respondent)

98 DTC 6363
Federal Court of Appeal
May 21, 1998

(Court File No. A-949-96.)

Deductions — Eligible capital expenditures or Canadian exploration expense (“CEE”) — Corporate taxpayer holding a 51 per cent interest in a joint venture formed to develop a coal mine — New heavy duty road built from mine site to public highway — Whether expenditures on such new road CEE, or “eligible capital expenditures” — Income Tax Act, R.S.C. 1985 (5th Supp.), c. 1, as amended, ss. 14(5)(b) and 66.1(6)(a).

The corporate taxpayer held a 51 per cent interest in a joint venture formed to develop a coal mine. A new heavy duty road was built from the mine site to the public highway. In assessing the taxpayer for 1983, the Minister denied it a deduction for its share of the road construction costs (which it had included in its CEE). In dismissing the taxpayer’s appeal (97 DTC 792), the Tax Court of Canada concluded that the road in issue had not been built “for the purpose of bringing a mineral resource in Canada into production” within the meaning of subparagraph 66.1(1)(a)(iii.1) of the Act. In the Tax Court’s view, therefore, the road construction costs involved were not CEE, but they were “eligible capital expenditures” as defined in paragraph 14(5)(b) of the Act. Accordingly, the taxpayer was denied the deduction which it had claimed. The taxpayer appealed to the Federal Court of Appeal.

Held: The taxpayer’s appeal was dismissed. Despite the taxpayer’s argument to the contrary, the Tax Court Judge had not misinterpreted the provisions of subparagraph 66.1(6)(a)(iii.1) of the Act. The cost incurred by the taxpayer was not a cost incurred for the purpose of bringing the mineral resource into production. This conclusion was required by a proper reading of the words used by Parliament in subparagraph 66.1(1)(a)(iii.1) of the Act. The Minister’s assessment was affirmed accordingly.