October 07, 2011

National Gypsum (Canada) Ltd. (Appellant) v. Minister of National Revenue (Respondent)

68 DTC 268
Tax Appeal Board
February 26, 1968

Deductions — Provincial taxes paid — Expense of producing income — Quarrying of gypsum — Income Tax Act, R.S.C. 1952, ss. 11(1)(p) and 12(1)(a) — Income Tax Regulations, ss. 701(1)(b) and 701 (2)(a)(i) and (ii).

The appellant gypsum mining company in computing its income for the years 1960 and 1961 sought to deduct a amount it paid to the Province of Nova Scotia for those years under the Gypsum Mining Income Tax Act of that province. It is provided in that Act that every person quarrying gypsum shall pay a tax on the annual income derived from mining operations at a fixed rate, or, at a flat rate per ton of gypsum mined in the preceding year. The selection of the method of taxation is at the discretion of the taxpayer. The appellant elected to pay the tax at the flat rate and for the years 1960 and 1961 paid $116,699.28 and $90,743.46 respectively. The Minister alleged that the amounts paid to the province by the appellant were taxes on income from mining operations and therefore subject to the provisions of section 11(1)(p) of the Income Tax Act and section 701(1)(b) of the Regulations. The company appealed on the grounds that the money it had paid was a severance tax or royalty.

Held: The appeal was allowed. The amounts paid were neither income taxes on income from mining operations nor a severance tax or royalty but a expense by the taxpayer for the purpose of producing income from the business of quarry- gypsum. The payment of the tax was a legitimate cost and precondition of doing business and unless the tax was paid the appellant was not at liberty to proceed with its mining operations.