Digests

Canada v. Resman Holdings Ltd.

A-576-98

Sharlow J.A.

24/5/00

20 pp.

Appeal from Tax Court's decision expenses incurred in drilling 30 step-out wells in Alberta not "Canadian exploration expense" as defined in Income Tax Act, s. 66.1(6)--Step-out or delineation wells drilled at edge of known pool of oil or gas to further exploit pool--Respondents' developing methodology to determine, in advance of drilling, whether expenses meeting definition of "Canadian exploration expense"--Methodology assuming classification of expenses must be based on assessment of risk undertaken when decision made to drill--Definition of "Canadian exploration expense" asking, for expenses incurred before April 1987: (1) within six months after end of year, has it been determined well capable of production in reasonable commercial quantities from accumulation of petroleum or natural gas not previously known to exist; (2) if not, is it reasonable to expect well will not come into production in commercial quantities within 12 months of completion?--For expenses incurred after March 1987, definition asking: (1) did well result in discovery, at any time before six months after end of year, of natural accumulation of petroleum or natural gas; (2) if not, was well abandoned in year or within six months after end of year without ever having produced, otherwise than for specified purposes?--Questions not intended to elicit information about state of knowledge prior to drilling--Cannot be answered until result of drilling known--Statutory provisions in question part of legislative scheme intended to provide incentive to exploration, development of natural resources--Fiscal legislation intended to be incentive to particular activity to be interpreted in such way as to give effect to intention: Stubart Investments Ltd. v. The Queen, [1984] 1 S.C.R. 536--Incentive feature of regime not frustrated merely because most generous tax relief denied for expenditures established to be exploiting known resource--Statutory language cannot reasonably bear respondents' interpretation--Respondents arguing if Parliament meant to exclude cost of delineation or step-out wells from definition of "Canadian exploration expense", could have done so expressly--Definitions not so ambiguous as to justify application of implied exclusion principle--In determining whether expenses incurred in drilling particular well meeting definition of "Canadian exploration expenses", likelihood drilling will be successful not relevant--Meaning of "accumulation"--Alberta law requiring certain technical information to be provided to Energy Utilities Board (EUB) for every well--Every well indicated on map--First time particular pool of oil, gas encountered by drilling of well, pool given unique designation, well recorded as "discovery well" for that pool--For every well that encounters oil, gas, EUB analyses technical data to determine whether or not pool previously known--Analysis depending on pressure data--Must also conform to geological principles--EUB maintaining publicly accessible record of location, extent of all pools of oil, gas identified--As "accumulation" very general, meaning depending upon context--Word as general as "accumulation", when used in context of highly detailed statutory provisions intended to be of use to particular industry, intended to be read in sense in which would be understood in industry--In industry usage, "pool" of oil or gas generally defined by reference to accumulation of oil or gas--"Pool", "accumulation" conveying similar meanings in sense either term may be used to describe quantity of oil or gas defined by reference to its geological characteristics, including pressure regime--Review of dictionary definitions, statutory references indicating "accumulation", "gisement" as used in definition of "Canadian exploration expense" intended to convey meaning synonymous with word "pool" in various geological dictionaries, and having same meaning as "pool" in Alberta legislation--Respondents' 28 successful wells encountered previously known accumulations--Expenses incurred in drilling those wells not "Canadian exploration expense"--Respondents gave up all efforts to produce oil or gas from unsuccessful wells soon after completion of drilling--Nothing in Income Tax Act suggesting question of abandonment of well depending upon compliance with provincial regulations--Abandonment question of fact--Well not abandoned if still capable of being used in connection with exploitation of resource or if contractual obligations relating to well assumed by someone else--Evidence not establishing wells abandoned in fact--Expenses incurred in drilling those wells not "Canadian exploration expenses"--Income Tax Act, S.C. 1970-71-72, c. 63, s. 66.1(6) (as am. by S.C. 1980-81-82-83, c. 48, s. 34; c. 140, s. 34; 1986, c. 55, s. 12).