mattabi mines ltd. v. ont. (min. of revenue), [1988] 2 S.C.R. 175

Mattabi Mines Limited Appellant

v.

The Minister of Revenue (Ontario) Respondent

indexed as: mattabi mines ltd. v. ontario (minister of revenue)

File No.: 18871.

1988: February 1; 1988: October 20.

Present: Dickson C.J. and Estey*, McIntyre, Wilson, Le Dain^*, La Forest and L'Heureux‑Dubé JJ.

on appeal from the court of appeal for ontario

Taxation ‑‑ Corporation tax ‑‑ Company amending previous tax returns to become eligible for investment tax credit ‑‑ Whether Company eligible for tax credit ‑‑ Whether Company entitled to amend its previous tax returns ‑‑ Whether provincial authorities must accept amendments when federal authorities have done so pursuant to a federal administrative practice ‑‑ Interpretation of s. 106 of The Corporations Tax Act, 1972, S.O. 1972, c. 143.

Appellant began exploration and development of its mining properties in 1970 and came into production in reasonable commercial quantities in August 1972. Prior to 1971, companies involved in new mining developments were exempt from taxation, both federally and provincially, for a period of three years from the day on which the mine came into production in reasonable commercial quantities. In 1971, however, the federal government announced that the three‑year exemption would end as of December 31, 1973. The Ontario government also abolished the exemption as of that date but only announced its decision retroactively in April 1974. Appellant was therefore liable for both federal and provincial taxes in 1974. To reduce its provincial taxes for that year, appellant claimed an investment tax credit pursuant to s. 106(1) of The Corporations Tax Act, 1972. Although this credit was normally only available for the fiscal year in which the machinery and equipment was "acquired and used", s. 106(4) permitted it to be carried forward if the taxpayer had incurred a "net loss" in previous taxation years. The phrase "net loss" is defined in s. 106(5)(b) as "the amount ... by which the non‑capital losses exceed the incomes of a corporation for the fiscal years" ending between April 26, 1971 and April 1, 1973. In order to become eligible for the tax credit, appellant filed with its 1974 income tax return, claiming the credit, an amended return for the fiscal year 1971 claiming a loss of $100 by adding a capital cost allowance claim of that amount to the previously reported income of "nil". Appellant made an identical claim for 1972. The federal authorities accepted the 1971 amended return but the respondent did not and consequently disallowed the claim for a tax credit. The respondent also refused to accept two further amendments which would also have created a "net loss" for the appellant in the 1971 and 1972 taxation years. Appellant successfully appealed the respondent's decision on the capital cost allowance to the Supreme Court of Ontario but the judgment was set aside by the Court of Appeal. This appeal is to determine whether appellant can claim an investment tax credit for its 1974 taxation year.

Held: The appeal should be dismissed.

The requirements for claiming the tax credit set out in s. 106(1) are that the machinery and equipment must be used "for the purpose of earning income". There is no need to demonstrate a causal connection between a particular expenditure and a particular income, and no need for the income to be generated in the same year in which the expenditure was made. The only thing that matters is that the expenditures were a legitimate expense made in the ordinary course of business with the intention that the company could generate a taxable income some time in the future. The purchase of mining machinery and equipment by a mining company meets this general purpose or intention test. Appellant therefore met the qualifying provisions in s. 106(1) of the Act and qualified for the tax credit for 1971‑‑the year in which the expenditures were made.

However, the respondent's refusal to accept appellant's amended tax return for 1971 prevents it from taking advantage of the tax credit for the 1974 fiscal year. Although appellant was entitled by the federal Interpretation Bulletin IT‑112 to revise the capital cost allowance for 1971 and was required by the Ontario Reg. 350/73 to submit a similar revision to the province, there was nothing in the Act, the Regulation or any provincial Interpretation Bulletin which obliged the respondent to accept the appellant's revised return. The federal authorities accepted the revision pursuant to their own practice but there was no reason for them not to do so since the amendment was made to the federal return solely for the purpose of making the same amendment provincially.

The retroactive abolition of the tax exemption by the province could not per se constitute a reason for interpreting the Regulation so as to compel the respondent to accept the amendment. It was irrelevant to the issue of interpretation. The province's repeal of the tax exemption in no way changed the law applicable to the filing of amended returns and the question of whether, on the true interpretation of the provincial legislation, the respondent was obliged to accept them.

Appellant's alternative methods of creating a "net loss" so as to claim the investment tax credit were without merit. Appellant contended that the federal and the provincial authorities made an error when they accepted its choice to capitalize interest payments despite its failure to submit the appropriate documents for such election. While the interest expenses ought to have been treated as a deductible item for 1972, thereby creating a non‑capital loss for that year, the respondent was entitled to waive strict compliance with the statute and treat the appellant's reporting of the item in its corporations tax return for 1972 as an election. This technical oversight could not be used to demand what was effectively a reopening and revision of the 1972 return long after the time for assessment, objection and appeal had passed. There was, of course, no statutory provision to permit such a reopening.

Appellant contended also that the payment of $50 in capital tax in 1971, included by mistake in exploration and development expenses for 1972, constituted an error sufficiently egregious that it be required to alter its 1972 return by making this payment a deductible loss in 1972 pursuant to s. 60(1)(c) of the Act. Again, there was no statutory provision that required the respondent to accede to this request. The error was a minor one accepted by the respondent and the time for amending returns without authority was long past.

Finally, appellant was not entitled to reopen its 1974 return to deduct additional capital cost allowance given the disallowance of the investment tax credit. There was no statutory provision by which the respondent was required to accept this amendment.

Cases Cited

Referred to: Royal Trust Co. v. Minister of National Revenue, 1957 CanLII 302 (CA EXC), [1957] C.T.C. 32; Premium Iron Ores Ltd. v. Minister of National Revenue, 1966 CanLII 76 (SCC), [1966] S.C.R. 685; Minister of National Revenue v. M. P. Drilling Ltd., 76 D.T.C. 6028; The Queen v. Royal Trust Corp. of Canada, 1983 CanLII 5355 (FCA), [1983] C.T.C. 159; Stubart Investments Ltd. v. The Queen, 1984 CanLII 20 (SCC), [1984] 1 S.C.R. 536; Southside Car Market Ltd. v. The Queen, 1982 CanLII 5229 (FC), [1982] 2 F.C. 755; Stickel v. Minister of National Revenue, [1972] F.C. 672; Harel v. Deputy Minister of Revenue of Quebec, 1977 CanLII 10 (SCC), [1978] 1 S.C.R. 851; Nowegijick v. The Queen, 1983 CanLII 18 (SCC), [1983] 1 S.C.R. 29; Johns‑Manville Canada Inc. v. The Queen, 1985 CanLII 43 (SCC), [1985] 2 S.C.R. 46.

Statutes and Regulations Cited

Corporations Tax Act, 1972, S.O. 1972, c. 143, ss. 1(1)(48), 12, 22(1)(a), 25, 60(1)(c), 75(2)(a), 99(7)(b), 106(1), (4), (5)(b), 157(1), 159.

Income Tax Act, S.C. 1970‑71‑72, c. 63, ss. 18(1)(a), 21.

Income Tax Application Rules, 1971 (being Part III of the Income Tax Act, S.C. 1970‑71‑72, c. 63), s. 28.

Regulation made under The Corporations Tax Act, 1972, O. Reg. 350/73, s. 301(1).

Authors Cited

Interpretation Bulletin IT‑112, July 10, 1973, "Revision of Capital Cost Allowance Claims".

Interpretation Bulletin IT‑487, April 26, 1982, "General Limitation on Deduction of Outlays or Expenses".

APPEAL from a judgment of the Ontario Court of Appeal, 1984 CanLII 5821 (ON CA), [1984] C.T.C. 566, 3 O.A.C. 69, setting aside a judgment of Keith J., 1982 CanLII 5561 (ON SC), [1982] C.T.C. 382. Appeal dismissed.

Murray A. Mogan, Q.C., and John R. Sproat, for the appellant.

Gerald W. Sholtack and Augustine J. Arrigo, for the respondent.

The judgment of the Court was delivered by

1. Wilson J.‑‑The resolution of this appeal turns primarily on the interpretation of certain provisions in The Corporations Tax Act, 1972, S.O. 1972, c. 143, as amended (the Act). The principal issue is whether the appellant Mattabi Mines Limited can claim an investment tax credit for its 1974 taxation year.

I The Facts

2. Mattabi was incorporated in 1970 and began exploration and development of its mining properties in the same year. By August 1972, when production in reasonable commercial quantities was achieved, it had incurred total development costs of nearly $36 million. From then on it showed a profit. It made $7.3 million from August to December 1972 and $39.9 million in 1973. (Its fiscal year coincides with the calendar year). This profit, however, was exempt from all taxation since both the federal and provincial governments gave companies involved in new mining developments a 36‑month tax holiday on income from mining from the time that production in reasonable commercial quantities was begun: see s. 75(2)(a) of the Act and s. 28 of the Income Tax Application Rules, 1971, being Part III of the Income Tax Act, S.C. 1970‑71‑72, c. 63. Accordingly, in its 1972 and 1973 returns Mattabi reported its income as "nil" to both levels of government.

3. In June 1971 the federal government announced that the three‑year tax holiday would end as of December 31, 1973. The Ontario government also abolished the exemption as of December 31, 1973 but announced that decision retroactively in April 1974. Mattabi was therefore liable for both federal and provincial taxes in 1974. When it filed its 1974 return with the provincial government it attempted to reduce that liability by an investment tax credit. The criteria for qualifying for this credit are laid out in s. 106(1) of the Act which reads:

106.‑‑(1) There may be deducted from the tax otherwise payable under this Part for a fiscal year by a corporation an amount equal to 5 per cent of the cost of machinery and equipment acquired and used in that fiscal year by the corporation which machinery and equipment is acquired pursuant to an agreement entered into after the 26th day of April, 1971, and which shall be used by the corporation solely in Ontario prior to the 1st day of April, 1973, for the purpose of earning income.

Although this credit was normally only available for the fiscal year in which the machinery and equipment was "acquired and used", s. 106(4) permitted it to be carried forward if the taxpayer had incurred a "net loss" in previous taxation years. Section 106(5)(b) of the Act defined "net loss":

(b) "net loss" means the amount, if any, by which the non‑capital losses exceed the incomes of a corporation for the fiscal years ending between the 26th day of April, 1971, and the lst day of April, 1973 . . . .

4. Along with its 1974 return claiming the tax credit ($736,962) Mattabi also filed an amended return for the fiscal year ending December 31, 1971. This amended return claimed a loss of $100 for 1971 by adding a capital cost allowance claim of that amount to the previously reported income of "nil". Given that Mattabi's reported taxable income for the fiscal year 1972 was also "nil", it claimed a "net loss" of $100 for all fiscal years ending between April 26, 1971 and April 1, 1973 which brought it within the terms of the s. 106 carry forward provisions. The Minister refused to accept the amended return and consequently disallowed the claim for a tax credit. The Minister also refused to accept two further amendments to the 1971 and 1972 returns which would also have created a "net loss" for Mattabi. Mattabi successfully appealed the Minister's decision on the capital cost allowance to the Supreme Court of Ontario, 1982 CanLII 5561 (ON SC), [1982] C.T.C. 382, but the Court of Appeal for Ontario allowed an appeal from that decision by the Minister: 1984 CanLII 5821 (ON CA), [1984] C.T.C. 566.

II The Judgments Below

(a) Supreme Court of Ontario

5. A preliminary issue raised on the appeal to Keith J. was whether Mattabi could submit an alternative claim to the one for the tax credit. In the event that it failed to get the credit, it wanted a re‑assessment of the 1974 return so that "additional capital cost allowance ... up to the maximum amount permitted by the ... Act and ... regulations" could be included. The company had not taken the maximum allowance because it expected to receive the investment tax credit. Keith J. allowed the amendment. He considered the procedures for the filing of notices of assessment, objection and appeals, particularly the fact that upon the filing of the required material "the matter shall be deemed to be an action in the Court" (s. 157(1)) and that pursuant to s. 159 of the Act "the practice and procedure of the Supreme Court, including the right of appeal ... apply to every matter deemed to be an action under section 157". He concluded at p. 387:

The practice of this Court has always been to permit amendments to pleadings that are required to form the foundation of a just judgment of the Court, at any stage of the proceedings, even extending to the end of a trial. On occasion it may be necessary to refuse an application to amend at a late time; on other occasions, it may be right and proper in the discretion of the judge, to impose terms on the applicant. The essential point however, is that no application for leave to amend a pleading is to be rejected on the sole ground that it is made at a late time in the proceedings. In any event, while the decisions of members of the Tax Appeal Board are always entitled to the greatest respect and in many cases have persuasive force, they are not binding on this Court.

6. On the principal issue Keith J. permitted the change to the 1971 return. He noted that while the federal government had announced an end to the tax holiday in June 1971, the province "remained silent for almost 3 years and then acted retroactively" (at pp. 389‑90):

When the Province belatedly took action, the appellant ... knew that its mining income for 1974 would be subject to provincial tax ... instead of being totally exempt for 1974 and the first 7 months of 1975, but it could hardly have expected to be deprived at the same time of the benefit of the incentive tax deduction contained in section 106 of the Statute.

What the appellant has sought to do in 1974 is not to alter its tax obligation for the fiscal year 1971, but to take the step it could and undoubtedly would have taken had the respondent made known its intention to terminate the 36‑month tax holiday at any time prior to June 30, 1972, the last day for filing its 1971 corporate tax return.

7. Keith J. also noted that the federal government's Interpretation Bulletins permitted such a revision of past capital cost allowance claims on certain conditions and had in fact done so in this case. This assumed a particular significance in the eyes of Keith J. because the applicable Ontario regulations required taxpayers to deduct the same capital cost allowance in the provincial return as they did in the federal return. He concluded at pp. 392‑93:

Thus in the case before me, there is a long standing departmental practice of the federal authorities, to permit and accept amended corporate income tax returns, to claim a revision of capital cost allowance in accordance with the Interpretation Bulletins I have quoted.

I am firmly of the opinion that the federal authorities having accepted such an amendment for the appellant's 1971 fiscal year, the respondent was obliged by the applicable Ontario regulations to do likewise.

That this amendment caused the appellant to qualify for an investment tax credit in 1974, provides no basis in law or logic for the respondent to refuse to accept such amendment.

8. Thereafter, without addressing the interpretation of the section, Keith J. found that Mattabi had incurred a "net loss" for purposes of s. 106(5)(b) and could claim the tax credit. Although he did not need to do so, Keith J. noted briefly that he would not have permitted Mattabi's alternative claim to create a net loss in 1972 by altering its characterization of certain interest expenditures from capital expense to interest expense. He made no comment on Mattabi's further alternative claim to the same end which was based on a $50 capital tax payment in 1971 allegedly erroneously recorded as part of exploration and development expenses. Because of his decision on the tax credit, Keith J. also did not discuss the merits of the alternative general claim for relief based on a reopening of the 1974 tax return.

(b) Ontario Court of Appeal

9. The Court of Appeal (Brooke, Weatherston and Robins JJ.A.) took a rather different approach to the issues before them. Robins J.A., for the Court, began by noting that it was irrelevant whether or not Mattabi could amend its 1971 return. Since in his view it did not affect the result, he was prepared to accept that it could do so, although he disagreed with Keith J. that the retroactive nature of the abolition was significant (at p. 570):

That section was repealed by a valid enactment of the provincial legislature. Its repeal in no way affects the law applicable to the filing of amended tax returns and is irrelevant to a determination of whether the Minister is obliged to accept an amended return.

10. Robins J.A. concentrated on the interpretation of s. 106(5)(b), the definition of "net loss". He noted the Company's argument that income exempt from tax was not to be included in the calculation of whether such a loss had occurred but rejected it. In his view the definition of "net loss" did not exclude income exempt from tax from the calculations. He noted that the section "speaks of "incomes" in the plural". In addition the tax credit provision itself, s. 106(1), required that the machinery be used "for the purpose of earning income", which the Company claimed was the case here. Robins J.A. thought the Company's position inconsistent and untenable (at p. 571):

...the Company's position is, on the one hand, that its income, even though non‑taxable, is to be taken into account in determining whether the Company qualifies in the first place for the tax incentive provided by subsection 106(1), while, on the other hand, that same income is not to be taken into account in determining whether the Company sustained a "net loss" as defined by subsection 106(5) for the purposes of subsection 106(4). I am unable to accept that position . . . .

In my view, "income" must be treated in a consistent manner and given the same meaning throughout the section. If non‑taxable income is to be considered "income" for the purpose of qualifying a corporation for the deduction under subsection 106(1), such income should also be included in the "incomes" to be taken into account in calculating the "net loss" under subsection 106(5). Conversely, if non‑taxable income is not to be considered "income" for the purposes of subsection 106(1), it should also be excluded from the "incomes" referred to in subsection 106(5).

Either way, the Company cannot succeed.

Robins J.A. found support for this interpretation in the policy of the Act and in principles of statutory interpretation. The result he had reached (at p. 572):

...is consonant with the purpose and intent of this tax incentive provision. Since the deduction was made available only as against tax payable, it could not have been intended (if, indeed, any thought was given to the highly unusual circumstances here) to benefit a mining company that had been given a full tax holiday under another section of the Act for the entire qualifying period. No genuine loss was suffered by the Company during that period and, in my view, section 106 cannot properly be construed so as to entitle the Company to the deduction claimed. A taxpayer must, of course, bring its claim within the express terms of the provision conferring a deduction and in the event of doubt or ambiguity, it is well‑established that the doubt or ambiguity must be resolved in favour of the Minister.

11. This conclusion meant also that, even if permitted, the alternative attempts to create a net loss would not do so. Robins J.A. therefore did not discuss them. He did, however, specifically reject the Company's alternative claim for relief based on amendments to the 1974 return. He said at p. 572:

...there is no valid basis upon which this Court can or should order the Minister to permit the Company to deduct in computing its income for 1974 additional capital cost allowance up to the maximum permitted by the Act. The subject‑matter of the Minister's reassessment in no way, directly or indirectly, related to or involved a claim for the maximum capital cost allowance the Company might have claimed in 1974. The Minister was not called upon to consider or to determine any request for relief of this nature. The matter was simply not in issue in the proceedings up to the Minister's reassessment or, indeed, at any time before the amendment was asked for at trial. Furthermore, it is evident that the order requested would involve the reopening of assessments subsequent to 1974 that are not subject to objection or appeal. The Company chose the course it wished to pursue in regard to its 1974 taxation year. Neither the applicable statutory provisions or the case law to which we were referred lend support, in my view, to the contention that the Company, having failed in that course, is now entitled to compel the Minister to permit it to adopt an approach to its 1974 tax accounting wholly unrelated to the matters in issue in its appeal from the Minister's reassessment.

III The Interpretation of s. 106

12. Leaving aside for the moment questions relating to the specific grounds on which Mattabi claims that it can create a "net loss" for the qualifying period, the threshold issue in this appeal concerns the interpretation of s. 106. In particular, it is necessary to decide the meaning of "for the purpose of earning income" in s. 106(1) and "incomes" in s. 106(5)(b). The requirements for claiming the tax credit set out in s. 106(1) are that, inter alia, the machinery and equipment must be used "for the purpose of earning income". What does this phrase mean? The Court of Appeal held that "income" must mean taxable income under Division B of the Act, not tax exempt income. In other words, there must be a direct connection between expenditures eligible for the investment tax credit and the earning of taxable income.

13. With respect, I do not agree. Similar qualifying provisions have been held to impose only a general purpose or intention test. In both the Act (s. 22(1)(a)) and the federal Income Tax Act, S.C. 1970‑71‑72, c. 63, s. 18(1)(a), as amended, the phrase "for the purpose of gaining or producing income" is used in the general sections specifying allowable deductions:

22.‑‑(1) In computing the income of a corporation from a business or property no deduction shall be made in respect of,

(a) an outlay or expense except to the extent that it was made or incurred by the corporation for the purpose of gaining or producing income from the business or property;

18. (1) In computing the income of a taxpayer from a business or property no deduction shall be made in respect of

(a) an outlay or expense except to the extent that it was made or incurred by the taxpayer for the purpose of gaining or producing income from the business or property;

The jurisprudence interpreting this phrase has provided some clear principles. In Royal Trust Co. v. Minister of National Revenue, 1957 CanLII 302 (CA EXC), [1957] C.T.C. 32 (Ex. Ct.), Thorson P. said this about the provision in the federal act (then s. 12(1)(a)), at pp. 43‑44:

It is not necessary that the outlay or expense should have resulted in income. In Consolidated Textiles Limited v. M.N.R., 1947 CanLII 291 (CA EXC), [1947] Ex. C.R. 77 at 81; [1947] C.T.C. 63, I expressed the opinion that it was not a condition of the deductibility of a disbursement or expense that it should result in any particular income or that any income should be traceable to it and that it was never necessary to show a causal connection between an expenditure and a receipt. And I referred to Vallambrosa Rubber Co. v. C.I.R. (1910), 47 S.C.L.R. 488 as authority for saying that an item of expenditure may be deductible in the year in which it is made although no profit results from it in such year and to C.I.R. v. The Falkirk Iron Co. Ltd. (1933), 17 T.C. 625, as authority for saying that it may be deductible even if it is not productive of any profit at all . . . .

The essential limitation in the exception expressed in Section 12(1)(a) is that the outlay or expense should have been made by the taxpayer "for the purpose" of gaining or producing income "from the business". It is the purpose of the outlay or expense that is emphasized but the purpose must be that of gaining or producing income "from the business" in which the taxpayer is engaged. If these conditions are met the fact that there may be no resulting income does not prevent the deductibility of the amount of the outlay or expense. Thus, in a case under the Income Tax Act if an outlay or expense is made or incurred by a taxpayer in accordance with the principles of commercial trading or accepted business practice and it is made or incurred for the purpose of gaining or producing income from his business its amount is deductible for income tax purposes. [Emphasis added.]

Similar views were expressed by this Court in Premium Iron Ores Ltd. v. Minister of National Revenue, 1966 CanLII 76 (SCC), [1966] S.C.R. 685. A majority of the Court found that the taxpayer was permitted to deduct legal expenses incurred in successfully resisting a tax demand by the United States Internal Revenue Service. In separate opinions, Martland, Abbott and Hall JJ., all noted that the current s. 18(1)(a), which dates from 1948, liberalized claims for deductible expenses. The previous provision, s. 6(a) of the Income War Tax Act, R.S.C. 1927, c. 97, had read:

6. In computing the amount of the profits or gains to be assessed, a deduction shall not be allowed in respect of

(a) disbursements or expenses not wholly, exclusively and necessarily laid out or expended for the purpose of earning the income; [Emphasis added by Martland J.]

In addition, the old Act had defined "income" as "the annual net profit or gain . . . ." According to Martland J. "the present wording of para. (a)...was intended to broaden the definition of deductible expenses...[a]s now worded, [it] permits the deduction of any expense made for the purpose of producing income from a property or business" (p. 702). He then went on to take a broad approach to the meaning of "purpose" (at p. 703):

Clearly these expenses were not made solely for the purpose of earning income in the year in which they were incurred. They did not directly result in the earning of income at all. But they were made with a view to protecting the income earning capacity of the company . . . .

Hall J. adopted a similarly broad view of income when used in the phrase "gaining or producing income". He said at p. 711:

The limitation, spelled out in s. 12(1)(a), does not, in referring to `producing income from the property or business of a taxpayer', limit the words quoted solely to the taxation year in which the deduction is being claimed. It is a clear indication to me that the income thus referred to may be the income of the taxation year under review or of a succeeding year.

A company such as the appellant exists to make a profit. All its operations are directed to that end. The operations must be viewed as one whole and not segregated into revenue producing as distinct from revenue retaining functions, otherwise a condition of chaos would obtain.

14. Similar comments to the effect that there need be no specific relationship between the expenditure and any particular income may be found in Minister of National Revenue v. M. P. Drilling Ltd., 76 D.T.C. 6028 (F.C.A.), and The Queen v. Royal Trust Corp. of Canada, 1983 CanLII 5355 (FCA), [1983] C.T.C. 159 (F.C.A.) Although none of these cases deal specifically with taxpayers who are temporarily exempt from tax, I think the principles emerging from them are applicable here. (I would note in passing that I attach no significance to the use of the word "earning" rather than "gaining" or "producing" income). If there is no need to demonstrate a causal connection between a particular expenditure and a particular income, and no need for the income to be generated in the same year in which the expenditure was made, then it would not seem to matter whether Mattabi suffered tax losses in 1971 or that it would have been exempt from tax had it made a profit. The only thing that matters is that the expenditures were a legitimate expense made in the ordinary course of business with the intention that the company could generate a taxable income some time in the future. It seems to me self‑evident that the purchase of mining machinery and equipment by a mining company meets this general purpose or intention test. I would, therefore, respectfully disagree with Robins J.A. when he states that the phrase "for the purpose of earning income" is necessarily a bar to a claim by a taxpayer temporarily exempt from tax.

15. I find support for this conclusion in the federal government's Interpretation Bulletin dealing with s. 18(1)(a). An Interpretation Bulletin does not, of course, have the binding effect of law (I discuss this later) but such Bulletins do have persuasive force in the event of ambiguity. The federal government's Bulletin IT‑487, April 26, 1982, entitled "General Limitation on Deduction of Outlays or Expenses", states in part:

16. The Department's views may be helpful in the interpretation of certain phrases used in the opening words of subsection 18(1) and in paragraph 18(1)(a), but it should be remembered that these phrases must also be considered in relation to the wording of the paragraph as a whole.

(b) `. . . for the purpose . . .'. It is not necessary to show that income actually resulted from the particular outlay or expenditure itself. It is sufficient that the outlay or expense was a part of the income‑earning process.

(c) `. . . gaining or producing income . . .'. The word "income" refers to income after deductions as computed under Division B of the Income Tax Act. An expense would not be disallowed simply because the income‑earning process produced a loss as long as the intention in making the expenditure was to produce income. Outlays or expenses made or incurred to maintain income or to reduce other expenses are also deductible as their purpose would be to increase income whether or not such an increase resulted. [Emphasis added.]

As I have indicated, this Bulletin is in accord with the interpretation the courts have put on phrases such as "gaining or producing income" and "earning income". I conclude that Mattabi meets the qualifying provisions in s. 106(1) of the Act.

16. My conclusion to this point only assists Mattabi to qualify for the tax credit in the year in which the expenditures were made, i.e., 1971. But the Company was exempt from tax in that year and thus for the credit to be of any practical use the Company must be able to carry it forward. The conditions under which that may be done are set out in s. 106(2) to (4):

(2) For the purposes of this section, where the machinery and equipment in respect of which the provisions of subsection 1 would otherwise apply, is not used by the corporation in the fiscal year in which it is acquired, such machinery and equipment shall be deemed to have been acquired and used by the corporation in the fiscal year in which it is first used.

(3) Any amount which may be deducted under subsection 1 may be deducted in subsequent fiscal years to the extent that the deduction allowed under subsection 1 exceeds the tax otherwise payable by the corporation in the previous fiscal years and, except as herein provided, no deduction shall be allowed in any fiscal year of the corporation ending after the 31st day of March, 1973, except that with respect to the first fiscal year of the corporation ending after the 31st day of March, 1973, the amount which may be deducted from the tax otherwise payable for that fiscal year shall not exceed that portion of the tax otherwise payable for that fiscal year that the number of days in that fiscal year prior to the 1st day of April, 1973, bears to 365.

(4) Notwithstanding subsection 3, where a corporation has a net loss, any amount which may be deducted under subsection 1 may be deducted in subsequent fiscal years to the extent that the deduction allowed under subsection 1 exceeds the tax otherwise payable by the corporation in the previous fiscal years and, except as herein provided, no deduction shall be allowed in any fiscal year of the corporation ending after the 31st day of March, 1974 . . . .

The crucial phrase here is "net loss", which is defined in s. 106(5)(b):

(5) In this section,

(b) "net loss" means the amount, if any, by which the non‑capital losses exceed the incomes of a corporation for the fiscal years ending between the 26th day of April, 1971, and the 1st day of April, 1973 . . . .

17. This is a definition peculiar to s. 106. It requires Mattabi to establish that its "non‑capital losses" exceeded its "incomes" in the relevant years, i.e., 1971 and 1972. What do these terms mean? The Court of Appeal thought the word "incomes" should be construed as referring to more than one income in any given year. In its view, it would cover both taxable and exempt income in a particular year. I would attribute a different significance to the use of "incomes" in the plural. It seems to me that the plural was used because the necessary calculation includes more than one fiscal year. This view is supported by the fact that neither "income" nor "non‑capital loss" is defined in s. 106. One must turn therefore to the Act in general for their meaning.

18. Income is dealt with in Part II of the Act which covers ss. 8 to 122 and therefore includes s. 106. Division B of Part II entitled "Computation of Income" begins with the formula for determining the income of a corporation in any fiscal year (s. 12). The section begins:

19. The income of a corporation for a fiscal year for purposes of this Part is its income for the year determined by the following rules...[Emphasis added.]

"This Part" is, as noted above, Part II and includes s. 106. The rules laid out in s. 12 are followed by a large number of sections dealing with what must be included, what may be deducted, and so on. Subdivision F of Division B headed "Amounts Not Included in Computing Income" contains s. 75(2)(a):

Subject to the 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 thirty‑six months commencing with the day on which the mine came into production.

19. Two possible ways of interpreting the relationship between s. 75(2)(a) and s. 106 were advanced by the parties. The Company's argument was simply that the plain meaning of the Act resulted in Mattabi having no income for the purposes of Part II (including s. 106) during this period. The Minister implicitly accepted that this correctly represented the plain meaning but urged this Court to hold that the carry forward provisions "could not have been intended to apply to corporations which earned large incomes but which were exempted under other provisions of the Act from paying taxes on those incomes during the qualifying period". To qualify, he submitted, a taxpayer must have incurred a "true net loss". The Minister supported this interpretation by noting that the credit was designed to provide an incentive to purchase equipment and that such incentive would only be effective in the case of a company that actually paid tax. Therefore, it could not in his submission have been intended to apply in the present case.

20. The Minister, in effect, asks the Court to find, in the absence of a separate definition for the section, that "income" has a different meaning in s. 106 from its meaning "for the purposes of" Part II of the Act in which the section appears. Robins J.A. in the Court of Appeal seems to have accepted this submission. He concludes that "income" in s. 106 is, in effect, a synonym for profit. Accordingly, it does not matter whether the profit is tax exempt or not. The difficulty with this position, as I see it, is that a taxing statute is a highly technical piece of legislation which requires an interpretation that will ensure certainty for the taxpayer. Many of the words used carry a very specific and technical meaning because they identify the fundamental concepts underpinning the legislation. "Income" is one of those fundamental concepts.

21. "Net loss" is a defined item for purposes of s. 106(5)(b). Both "income" and "non‑capital loss" are defined for the purposes of the Act. (Non‑capital loss is defined in ss. 1(1)(48) and 99(7)(b)). The legislature did not enact a separate definition of "income" for s. 106, which it could easily have done, and in my view it should not readily be taken to have intended it to have a different meaning in s. 106 from its meaning in Part II generally.

22. The Minister, however, relies on this Court's judgment in Stubart Investments Ltd. v. The Queen, 1984 CanLII 20 (SCC), [1984] 1 S.C.R. 536, and in particular on one of the guidelines to the interpretation of taxing statutes set out by Estey J. at pp. 579‑80:

23. Moreover, the formal validity of the transaction may also be insufficient where:

(c) the object and spirit' of the allowance or benefit provision is defeated by the procedures blatantly adopted by the taxpayer to synthesize a loss, delay or other tax saving device, although these actions may not attain the heights of artificiality' in s. 137. This may be illustrated where the taxpayer, in order to qualify for an allowance' or a benefit', takes steps which the terms of the allowance provisions of the Act may, when taken in isolation and read narrowly, be stretched to support. However, when the allowance provision is read in the context of the whole statute, and with the `object and spirit' and purpose of the allowance provision in mind, the accounting result produced by the taxpayer's actions would not, by itself, avail him of the benefit of the allowance.

With respect, I do not think Stubart supports the Minister's interpretation of "income" here. The issue in Stubart was whether a corporate taxpayer, with the avowed purpose of reducing its taxes, can establish an arrangement whereby future profits are routed through a subsidiary in order to avail itself of the latter corporation's loss carry‑forward. It was held that it could since (at p. 581):

Neither the loss carry‑forward provisions, nor any other provision of the Act, have been shown to reveal a parliamentary intent to bar the appellant from entering into such a binding transaction and to make the payments here in question. Once the tax loss concept is included in the statute, the revenue collector is exposed to the chance, if not the inevitability, of the reduction of future tax collections to the extent that a credit is granted for past losses.

23. The submission of the Minister is that a reading of the whole statute according to its plain meaning can defeat a narrow, technical interpretation of a particular provision. However, in the present case consideration of the whole statute reveals, if anything, support for the Company's position. "Income" is a defined term in Part II of the Act and the failure to define income differently for purposes of s. 106 which is contained in Part II has to be treated as significant. Interpretation according to the "object and spirit" of the legislation cannot, in my view, overcome a clear statutory definition. This is not a case in which the Court has a choice of the interpretations it may put upon the language used by the legislature. The legislature has specifically addressed the subject. I would therefore conclude that in assessing whether Mattabi had a "net loss" one must start with the finding that for purposes of s. 106(5)(b) its "incomes" were "nil".

24. Section 106(5)(b) requires that "non‑capital losses" be deducted from "incomes" in the search for a net loss. "Non‑capital loss" is defined in ss. 1(1)(48) and 99(7)(b) of the Act. I do not intend to analyze these provisions, however, since it is common ground that Mattabi's "non‑capital losses" for the relevant period were "nil". Its "net loss" is therefore also "nil" unless it can produce a negative sum for non‑capital losses by revising its 1971 or 1972 tax return.

IV Revision of the 1971 Return

25. The appellant submitted that it was not only entitled to revise its 1971 return in 1974 but was, indeed, required to do so in the circumstances. It cited the federal government's Interpretation Bulletin IT‑112 of July 10, 1973 which states:

26. Where a taxpayer requests a revision of capital cost allowance claimed in a year which was assessable to a "nil" income tax (because of a loss in that year, the application of a loss of another year, or the fact that income was exempt from tax in that year), such requests will be allowed only if there is no resulting change in the tax assessed for the year or any other year of the taxpayer for which the time has expired for filing a notice of objection. [Emphasis added.]

Mattabi had submitted such a revision for 1971 to the federal government in 1975 along with its 1974 return and the federal government accepted it. We were referred to Ontario Regulation 350/73, s. 301(1), which states:

allowances in respect of capital cost

301.‑‑(1) Except as otherwise provided in this section, every corporation shall, for the purposes of clause a of subsection 1 of section 24 of the Act, deduct for each fiscal year the same part of the capital cost to the corporation of property, or the same amount in respect of the capital cost to the corporation of property, as is deducted by the corporation under paragraph a of subsection 1 of section 20 of the Income Tax Act (Canada) . . . .

26. Combining the federal Interpretation Bulletin (to which the provincial government admits that it adheres) and the provincial Regulation, the appellant submitted that it was entitled by the Bulletin to revise the capital cost allowance in 1971 if it met the necessary conditions and that it was required by the Regulation to submit a similar revision to the Ontario government. The appellant further submitted that the Regulation requires Ontario to accept the revision when the federal authorities have done so. This latter submission is strongly resisted by the Minister.

27. Crucial to a resolution of this issue is an understanding of the legal effect of administrative practice as publicized in Interpretation Bulletins. As already mentioned, the latter are not authoritative sources for the interpretation of taxing statutes. As Cattanach J. put it in Southside Car Market Ltd. v. The Queen, 1982 CanLII 5229 (FC), [1982] 2 F.C. 755 (T.D.), at p. 770, "an interpretation is not law until so interpreted by a court of competent jurisdiction". The same judge noted in Stickel v. Minister of National Revenue, [1972] F.C. 672 (T.D.), at p. 684, that "[t]he Deputy Minister does not have the power to legislate". Interpretation Bulletins, however, do have some persuasive force where there is an ambiguity in the legislation. In Harel v. Deputy Minister of Revenue of Quebec, 1977 CanLII 10 (SCC), [1978] 1 S.C.R. 851, this fact was recognized in a case in which Quebec considered a lump sum payment to be taxable as such while the federal government treated it as eligible for forward averaging. De Grandpré J. said at pp. 858‑59:

That was the situation in 1954 when the provincial law closely modelled on the federal law was adopted. At that time, the provincial legislator was familiar not only with the wording of s. 36(1) of the federal Act but also, undoubtedly, with the administrative interpretation there, which was to the effect that taxpayers in Mr. Harel's situation could avail themselves of the averaging provided for in the section. Although the wording of s. 45 of the provincial Act differs somewhat from that of s. 36(1) of the federal Act, the concept is the same. Consequently, when c. 17 of the Statutes of Quebec, 1953‑54 was adopted, the administrative interpretation of the federal Act gave it a colour that the provincial legislator could not ignore. The 1954 provincial Act became c. 69 of the 1964 Revised Statutes, and in 1965 c. 26 of 13‑14 Eliz. II revoked s. 45 and replaced it with the section currently in effect. At that time, the administrative interpretation of the provincial Act was consistent with that of the federal Act, so that in 1965 a case similar to that of appellant would have been decided in his favour. This administrative interpretation was maintained until 1968, at which time, for reasons that have not been explained, the department reversed its policy.

Once again, I am not saying that the administrative interpretation could contradict a clear legislative text; but in a situation such as I have just outlined, this interpretation has real weight and, in case of doubt about the meaning of the legislation, becomes an important factor. [Emphasis added.]

28. Harel was affirmed recently in Nowegijick v. The Queen, 1983 CanLII 18 (SCC), [1983] 1 S.C.R. 29. Dickson J., as he then was, stated at p. 37:

Administrative policy and interpretation are not determinative but are entitled to weight and can be an "important factor" in case of doubt about the meaning of legislation: per de Grandpré J., Harel v. Deputy Minister of Revenue of Quebec....

29. I have no doubt that the legislation creates an ambiguity in this area. The Ontario regulation requires a taxpayer to submit the same capital cost allowance claim that it submits to the federal government but it does not in terms require the Ontario authorities to accept the claim. Should the latter be forced to adopt the appellant's capital cost revision on the basis of the federal government's practice? The appellant submits that it should on the basis that the ambiguity arising from the combined effect of the federal Interpretation Bulletin and the provincial Regulation should be resolved in favour of the taxpayer. This Court's judgment in Johns‑Manville Canada Inc. v. The Queen, 1985 CanLII 43 (SCC), [1985] 2 S.C.R. 46, is cited in support.

30. In Johns‑Manville Estey J. said at p. 67:

...if the interpretation of a taxation statute is unclear, and one reasonable interpretation leads to a deduction to the credit of a taxpayer and the other leaves the taxpayer with no relief from clearly bona fide expenditures in the course of his business activities, the general rules of interpretation of taxing statutes would direct the tribunal to the former interpretation.

Later in his judgment at p. 72 he referred to:

...another basic concept in tax law that where the taxing statute is not explicit, reasonable uncertainty or factual ambiguity resulting from lack of explicitness in the statute should be resolved in favour of the taxpayer.

Although Estey J. was referring to ambiguity within a single statute, I believe these principles are not inappropriate to a case like the present in which the ambiguity stems from the interplay of a provincial Regulation and federal administrative practice.

31. They do not, however, assist the appellant here. Mattabi can hardly claim to have had "no relief from clearly bona fide expenditures". It had relief in the form of a total exemption from taxation during the qualifying period. It was in fact enjoying a complete tax holiday. I see no reason therefore to interpret the provincial Regulation as imposing an obligation on the Ontario authorities to accept the appellant's revised return when there is nothing in the Act, the Regulation or any provincial Interpretation Bulletin to support it. While the federal authorities accepted the revision pursuant to their own practice, there was no reason for them not to do so since the amendment was made to the federal return solely for the purpose of making the same amendment provincially. We do not know whether or not the federal authorities would have so readily accepted it had it been attended by the same consequences under the federal legislation as under the provincial.

32. It is my view, moreover, that the retroactive abolition of the tax holiday by the province cannot per se constitute a reason for interpreting the Regulation so as to compel the authorities to accept the amendment. The fact that the tax holiday in the case of the province was abolished retroactively, thereby depriving the appellant of the opportunity to make out its return in the manner most advantageous to it, obviously influenced the trial judge. I agree, however, with Robins J.A. in the Court of Appeal for the reasons he gives that it is irrelevant to the issue of interpretation. The Province's repeal of the tax holiday in no way changes the law applicable to the filing of amended returns and the question whether on the true interpretation of the provincial legislation the Minister is obliged to accept them. It goes without saying, of course, that it may be very relevant to the decision the Minister makes in the exercise of his discretion whether to accept them or not.

33. I would conclude, for the reasons I have indicated, that this Court cannot compel the Ontario government to accept the appellant's revision to its 1971 tax return. It may do so if it wishes but it remains, in my opinion, a matter within the scope of the Minister's discretion.

V Mattabi's Alternative Claims

34. These claims are threefold: the first two represent alternate methods of creating a net loss in the 1971 and 1972 taxation years so as to claim the investment tax credit; the third is a claim that the 1974 return be reopened so that the Company can readjust its deductions in light of its failure to be allowed that credit. I will deal with each of them in turn.

(a) Capitalization of Interest Expense

35. When the appellant's mining operations came into production in reasonable commercial quantities in 1972 it was required to close its books and reopen them immediately because this date represented the point at which the tax holiday began. When it did so it had a choice of how to deal with $1,183,477 paid in interest during the first seven months of 1972. It could treat this sum as a deductible expense or it could elect to include it as pre‑production capital expenditure. These options are provided for in s. 25 of the Act and s. 21 of the Income Tax Act. Since its income for 1972 was "nil", Mattabi chose to capitalize the interest payments but failed to submit the appropriate documents for such election. Despite this failure, both levels of government accepted the election.

36. The appellant now argues, somewhat ironically, that it should not be permitted to get away with this oversight. Interest expenses ought to be treated as a deductible item for 1972 which would create a non‑capital loss for 1972 and therefore a net loss for the qualifying period under s. 106 of the Act.

37. I find no merit in this argument. Keith J. had this to say on it at p. 393:

I am of the opinion that the Minister is entitled to waive strict compliance with the Statute and treat the appellant's reporting of the item in its financial statements and corporations tax return for 1972 as an election.

I would agree. The Company made its choice of how to characterize the interest payments in 1972. The choice may not have turned out to be the best one but that fact plus a technical oversight cannot be used to demand what is effectively a reopening and revision of the 1972 return long after the time for assessment, objection and appeal has passed. There is, of course, no statutory provision to permit such a reopening. I would reject this ground of appeal.

(b) 1972 Capital Tax Payment

38. I find even less merit in this claim. In 1971 the appellant paid $50 in capital tax under Part III of the Act. This was erroneously included in exploration and development expenses for 1972. Again, the appellant asks this Court to hold that this error, accepted or overlooked by both taxing authorities, was sufficiently egregious that it be required to alter its 1972 return by making this $50 payment a deductible loss in 1972 pursuant to s. 60(1)(c) of the Act. Precisely the same considerations lead me to reject this argument. The appellant can cite no authority that requires the government to accede to this request. The error was a minor one accepted by the government and the time for amending returns without authority is long past. I have no doubt that, if the government were attempting at this stage to alter these returns, the Company would be strenuously arguing an estoppel based on the intervening years and the earlier acceptance of the returns by the authorities. I find no merit in this claim.

(c) The 1974 Return

39. The appellant's final claim is an alternative pleading to all of its other contentions. If, for one reason or another, it is denied the 1974 investment tax credit, then it asks the Court:

...is the Appellant entitled to deduct in computing its income for 1974 additional capital cost allowance (greater than the amount of capital cost allowance deducted in the Appellant's 1974 tax return) up to the maximum amount permitted by the Ontario Act and its regulations?

In support of this claim Mattabi points out that it did not claim the maximum capital cost allowance in 1974 because it assumed it would receive the tax credit and did not wish to reduce the tax against which the credit would be applied. It puts its claim for relief this way:

In preparing a tax return under the Ontario Act, each corporate taxpayer must, of necessity, make a number of assumptions as to how certain amounts are to be calculated, characterized, claimed and apportioned. Some of these assumptions will suggest or dictate other calculations or claims that must, or should reasonably, be made. Thus, in this case the Appellant, assuming that it was entitled to a substantial investment tax credit for 1974, did not deduct all of the capital cost allowance which was available in 1974 because to do so would have reduced the Appellant's income, taxable income and resulting tax against which the investment tax credit was to be applied. Conversely, the only prudent decision for the Appellant, if it was not entitled to the investment tax credit for 1974, was to deduct such amount of capital cost allowance as would minimize its tax liability for 1974.

There is no opportunity, in preparing a tax return, for the taxpayer to claim in the alternative. Thus, an honest and prudent taxpayer, such as the Appellant, may file a tax return making certain legal or factual assumptions, only to find later that those assumptions are not well founded in law or in fact.

40. It should be noted that the issue of capital cost allowances in 1974 was not the subject of any objection by the Company prior to trial. It arose for the first time in the form of an amendment to the pleadings at trial, and, indeed, a large part of Keith J.'s reasons is concerned with whether such an amendment could be allowed. The view that I take of this matter makes it unnecessary to go into this question. I will assume that the amendment to the pleadings can be made, but I do not think the appellant can succeed in its amended claim.

41. The hurdle that the Company must overcome on this issue is, as with the other claims, that it cannot cite any statutory provision by which the government is required to accept this amendment. Indeed, these provisions militate against the claim because Ontario Regulation 350/73, cited above, requires that the same capital cost allowance be claimed in the provincial return as is claimed in the federal return. The Company would therefore have to attempt a revision of its 1974 federal return which I do not think it is entitled to do at this stage.

42. A second reason for not allowing this claim at this stage is that, as the appellant concedes, the result would be that it has overstated its capital cost allowances for 1975 and 1976. The time limit for objections and appeals for those years has expired but a re‑assessment would have to take place. Again, returns made to the federal government, not a party to this appeal, would also have to be revised.

43. I am not suggesting here that the Minister could not, if he wished, allow changes to the 1974 return provided he conformed to the requirements of Ontario Regulation 350/73. The issue before this Court is whether he can be compelled to do so. The only cases cited to us by the appellant go to the issue of whether the amendment could be added to the pleadings at trial and I have already noted that I am prepared to assume, without deciding, that it can. But accepting the amendment is not the same as allowing the claim and on the principal point I would agree with Robins J.A. in the Court of Appeal (at p. 572):

Neither the applicable statutory provisions or the case law to which we were referred lend support, in my view, to the contention that the Company, having failed in that course, is now entitled to compel the Minister to permit it to adopt an approach to its 1974 tax accounting wholly unrelated to the matters in issue in its appeal from the Minister's reassessment. [Emphasis added.]

VI Disposition

44. For all the foregoing reasons I would dismiss the appeal with costs.

Appeal dismissed with costs.

Solicitors for the appellant: Miller, Thomson, Sedgewick, Lewis & Healy, Toronto.

Solicitor for the respondent: The Minister of Revenue (Ontario), Toronto.

* Estey and Le Dain JJ. took no part in the judgment.