INCOME TAX
Non-residents
Appeal from Tax Court of Canada (T.C.C.) decision ([2004] 5 C.T.C. 2133) dismissing appeal from assessment under Income Tax Act (ITA), Part XII (s. 212(1)(d))—Tax assessed on payment of US$40 million made as consideration for anticipatory breach of agreement under which rent would have been payable for use in Canada of offshore drilling rig— Transocean non-resident corporation affiliated with two American corporations: Transocean Offshore Inc. (Transocean Parent), Transocean Offshore Ventures Inc. (Transocean # 2) —Transocean owner of Transocean Explorer, semi-submersible offshore drilling rig—In 1997, Petro-Canada (on own behalf and that of co-venturers) entered into agreement (bareboat charter) requiring Transocean Parent to provide Explorer for use in Terra Nova Project for two-year term (Transocean to make Explorer available for required term)— Second agreement providing Transocean # 2 would operate, maintain Explorer during two-year term—Estimated total rent for term US$43.8 million—Bareboat charter requiring co-venturers to pay for specified upgrades (at initial estimated cost of approximately US$52 million, later, US$75 million) to Explorer, and mobilization fee of US$11 million to move Explorer from North Sea to shipyard in Canada for upgrades— Due to escalating costs, co-venturers deciding to repudiate bareboat charter, entering into agreement releasing co-venturers from obligations under bareboat charter, co-venturers to pay US$40 million to Transocean as full and final conside-ration for voluntary termination thereof, approximately US$1.9 million to Transocean # 2 to cover “upgrade team expenses”— Explorer remaining idle from December 1998 until April 2004 —Co-venturers made US $40 million payment to Transocean, withholding 25%, remitting it to Canadian tax authorities on account of any possible Part XII tax liability in respect of payment—Transocean application for refund denied in July 2000 assessment on basis payment considered in lieu of payment of rent within meaning of Income Tax Act (ITA), s. 212(1)(d)—T.C.C. dismissed appeal from assessment, finding compensatory monetary amount paid as, on account of or in lieu of payment, or in satisfaction of, rent or similar payment for use of property in Canada, or for right to use thereof— Appeal dismissed—Only factual controversy herein: why US$40 million payment made—Given evidence presented, open to T.C.C. to conclude payment made to compensate for rent that would have been paid under bareboat charter if latter had not been repudiated, and not for anything else—Legal issue whether ITA, s. 212(1)(d) broad enough to cover situa-tion herein—As amount paid instead of payment of particular legal character, or in place of such payment, not having same legal character, Parliament, in using words “in lieu of” in Income Tax Act, s. 212(1)(d), must have intended to expand scope thereof to include payments other than payments having legal character of rent—French version of s. 212(1)(d) at least as broad as English version—Case of Harold F. Puder v. Minister of National Revenue (1963), 63 DTC 1282 (Ex. Ct.) distinguished—Approach to statutory interpretation has changed since then (where prevailing view that taxing statutes to be strictly construed)—Now interpretation of statutes requiring search for intent of Parliament by reading words of provision in context, according to grammatical, ordinary sense, harmoniously with scheme, object of statute: R. v. Jarvis, [2002] 3 S.C.R. 757—Latter approach requiring, at least, favouring interpretation giving meaning to phrase “in lieu of” over interpretation rendering it redundant—The Queen v. Atkins (1976), 68 D.L.R. (3d) 187 (F.C.A.), affg (1975), 59 D.L.R. (3d) 276 (F.C.T.D.) also distinguished—Income Tax Act, R.S.C., 1985 (5th Supp.), c. 1, s. 212(1)(d).
Transocean Offshore Ltd. v. Canada (A-385-04, 2005 FCA 104, Sharlow J.A., judgment dated 21/3/05, 25 pp.)