A-160-73
Geophysical Engineering Limited (Appellant)
v.
Minister of National Revenue (Respondent)
Court of Appeal, Thurlow and Urie JJ., MacKay
D.J.—Toronto, Nov. 26, 27, 28 and 29, 1974.
Income tax—Mining syndicate—Profit on shares of mining
company—Claim for exemption of moneys expended on
"prospecting"—Income Tax Act, R.S.C. 1952, c. 148, s. 83.
The taxpayer was an amalgamation of three companies, of
which one, Keevil Consultants Limited, was a member of a
syndicate that acquired shares of a mining company in 1962
and sold them at a profit in 1963 and 1965. It sought
exemption from income of an amount expended on pros
pecting of the successful project. The work in question,
carried out by F, consisted of examining maps and reports
and going over a property. F was a regular employee of K
Mining Group Limited (KMG). The latter charged Geophysi
cal Engineering and Surveys Limited and, through that
company, it charged the syndicate for the time spent by F
on the project. The taxpayer paid Geophysical and Engi
neering Surveys Limited its pro rata share of the cost of
prospecting. The claim for exemption in 1965 was disal
lowed by the Trial Division on an appeal from the decision
of the Tax Appeal Board disallowing the claim. The taxpay
er appealed to the Court of Appeal.
Held, dismissing the appeal, the provisions for exemption
in section 83 brought into play the definition of "prospec-
tor" in section 83(1)(c). The Court assumed, without decid
ing, a point not disputed, that the work done by F amounted
to "prospecting". But F had not worked "on behalf of
himself" or "on behalf of himself and others". He engaged
in no venture of his own; he was entitled only to his regular
salary; the work he performed was done as an employee
rather than as a contractor. He was not, however, an
employee of the syndicate. No master and servant relation
ship was established; no arrangement was made with F as an
independent prospector under a contract to provide ser
vices. He was an employee of KMG receiving his salary and
instructions from it. The moneys expended on Fs work
were outside the exemption in section 83.
Foster v. M.N.R. [1971] C.T.C. 335, followed. Winchell
v. M.N.R. [1974] C.T.C. 177, distinguished.
INCOME tax appeal.
COUNSEL:
D. J. Wright, Q.C., and R. N. Waterman for
appellant.
N. A. Chalmers, Q.C., and J. R. Power for
respondent.
SOLICITORS:
Lang, Michener, Cranston, Farquharson &
Wright, Toronto, for appellant.
Deputy Attorney General of Canada for
respondent.
The following are the reasons for judgment
delivered orally in English by
THURLOW J.: The issue in this appeal is
whether Keevil Consultants Limited, one of
three companies later amalgamated to form the
appellant, was entitled to exemption under
section 83 of the Income Tax Act in respect of
profit realized in 1963 and 1965 upon the sale
of certain shares of Silverfields Mining Corpo
ration Limited which, as one of the members of
a syndicate, it had acquired in 1962 in the
course of the events described in the reasons of
the learned Trial Judge. Both he and the learned
member of the Tax Appeal Board who dealt
with the earlier appeal to that Board held that
the taxpayer was not entitled to the exemption
claimed.
For the purposes of section 83 the term
"prospector" was defined by paragraph 83(1)(c)
as meaning:
an individual who prospects or explores for minerals or
develops a property for minerals on behalf of himself, on
behalf of himself and others or as an employee.
The exemption is claimed under subsection
83(3) which read as follows:
83. (3) An amount that would otherwise be included in
computing the income for a taxation year of a person who
has, either under an arrangement with the prospector made
before the prospecting, exploration or development work or
as employer of the prospector, advanced money for, or paid
part or all of, the expenses of prospecting or exploring for
minerals or of developing a property for minerals, shall not
be included in computing his income for the year if it is the
consideration for
(a) an interest in a mining property acquired under the
arrangement under which he made the advance or paid the
expenses, or, if the prospector was his employee, acquired
by him through the employee's efforts, or
(b) shares of the capital stock of a corporation received
by him in consideration for property described in para
graph (a) that he has disposed of to the corporation,
unless it is an amount received by him in the year as or on
account of a rent, royalty or similar payment.
Assuming that the part played by Mr. Frantz
in examining maps and reports and going over
the Fabre Township property is to be regarded
as prospecting within the meaning of this sub
section, and there is no dispute on this point, in
my opinion, Frantz, was not, at any material
time, a person who prospected or explored for
minerals "on behalf of himself" within the
meaning of the definition of prospector, either
in the sense that what he did was done for the
purpose of acquiring an interest for himself in
minerals or in the somewhat wider sense in
which that part of the definition was interpreted
in Foster v. M.N.R.' . In that case, Jackett P. (as
he then was) considered the expression broad
enough to include someone who was in the
business of prospecting for a fee or
remuneration.
Frantz was not such a person. He was not
engaged in any such business. He made no
contract with the syndicate to carry out pros
pecting services. He engaged in no venture of
his own and was entitled to nothing but his
regular salary for what he did. What he did was
done as an employee rather than as a
contractor.
Was he then at the material times an
employee of the syndicate or, conversely, as the
question is posed by subsection 83(3), was the
syndicate at the material times his employer?
I think not. Keevil Mining Group Limited
(hereafter KMG) was his regular employer
throughout the period. That company paid him
'[1971] C.T.C. 335.
his salary. It charged Geophysical Engineering
and Surveys Limited, and through it the syndi
cate, for the time Frantz spent on the project.
The syndicate paid him nothing. The prospect
ing that was carried out was done because his
employer, KMG, through Dr. Keevil had bidden
him to do it. No witness testified that there had
been any express agreement to transfer Frantz's
employment to the syndicate for the particular
project and in my opinion the evidence does not
warrant the implication of such an agreement.
The appeal therefore fails and I would dismiss
it with costs.
* *
The following are the reasons for judgment
delivered orally in English by
URIE J.: I agree with the conclusions and
reasons therefor of my brother Mr. Justice
Thurlow, and wish only to add a few observa
tions of my own. He has stated the issues with
precision so that I need not restate them. More
over, the learned Trial Judge thoroughly
reviewed the evidence in his reasons for judg
ment so that it will be unnecessary for me to
deal therewith any further except to the extent
necessary to show the factual basis for my
conclusions.
To establish its entitlement to the exemption
provided by section 83(3) of the Income Tax
Act as it read in the year 1965, the appellant
must first show that the prospector with whom
it was associated falls within the definition of
that word contained in section 83(1)(c) which
then read as follows:
83. (1) In this section,
(c) "prospector" means an individual who prospects or
explores for minerals or develops a property for minerals
on behalf of himself, on behalf of himself and others or as
an employee.
It will be seen that an individual to qualify as
a prospector must be one who prospects or
explores for minerals "on behalf of himself, on
behalf of himself and others or as an
employee." Assuming without deciding that
what Joseph Frantz, the alleged prospector, did
in this case was prospecting, a review of the
record shows conclusively, in my view, that he
did not do so either on his own behalf or on his
own behalf and others. Any prospecting which
he had previously done during the course of his
employment with the appellant and its predeces
sor was on its behalf, as its employee and never
in any way on his own behalf. In that respect his
situation differed from that of the prospector
Tilsley in the case of Winchell v. M.N.R. [1974]
C.T.C. 177, affirmed by this Court in an as yet
unreported decision rendered in October of this
year. In that case Mr. Tilsley was found to be a
prospector within the meaning of subsection
(1)(c) of section 83 since part of the conditions
of his employment was that he could prospect
on his own account and, in fact, had done so on
several occasions. Notwithstanding this finding,
he was found on the occasion in question not to
be prospecting for the appellant Winchell. For
this and other reasons the appeal was dismissed.
No evidence of a similar nature was adduced in
this case in respect of Mr. Frantz' right to
prospect nor that in respect of any prospecting
in the Township of Fabre in the Province of
Quebec, he was prospecting on his own behalf
or on his own behalf and for others. In fact all
evidence was to the contrary in that it clearly
showed that at no time had he any personal
beneficial interest in any of the claims at issue.
The learned Trial Judge was correct, therefore,
in my view, in concluding that on the whole of
the evidence it was apparent that Mr. Frantz
was not acting as an independent prospector,
either for himself or for himself and others, in
respect of the Fabre Township claim within the
meaning of section 83(1)(c) even on the some
what extended interpretation given that subsec
tion by Jackett P., as he then was, in the case of
Foster v. M.N.R. [1971] C.T.C. 335. Chief Jus
tice Jackett there was of the opinion that the
definition could include a prospector whose sole
occupation is prospecting for minerals as an
independent prospector for others. Obviously
Mr. Frantz was not such an independent pros
pector since he was the full time employee of
Keevil Mining Group Limited (hereinafter
called "KMG") and there was no evidence that
at any material time he was entitled to provide
prospecting services for others in a capacity
independent of his regular employment.
To succeed, therefore, the appellant had to
establish that Mr. Frantz was exploring and
prospecting the mining claims at issue as an
employee of the syndicate of which the appel
lant was a member and not during the course of
his regular employment with KMG. He had also
to show, if he established such employment,
that the syndicate advanced money for or paid
part or all of the expenses of prospecting or
exploring. It was to this issue that counsel for
the appellant directed most of his argument and
it is, I believe, the sole issue in this appeal.
In his submission appellant's counsel sought
to avoid any implication which might have
arisen by reason of Mr. Frantz' continued
employment by KMG by analogy to a line of
cases in tort matters involving the transfer of an
employee by his so-called general employer to a
temporary employer for a limited purpose. In
my opinion this argument fails to advance his
case to any extent because, even if the validity
of his contention is accepted, he must, by virtue
of the requirements imposed by the Income Tax
Act, show that Mr. Frantz became an employee
of the syndicate either permanently or tem
porarily and that the syndicate advanced money
for prospecting expenses. In my opinion, he has
failed to make out such a case.
The findings of the learned Trial Judge, which
are amply supported by the evidence and ought
not to be disturbed by this Court, negate any
possible conclusion that his employment was
ever transferred to the syndicate by KMG, his
regular employer. Evidence confirming that
such a transfer occurred, if it did, could easily
have been established by calling as a witness
Dr. Keevil Sr., the person from whom Mr.
Frantz normally took instructions during the
course of his regular employment but Dr. Keevil
did not testify. At page 16 of his Reasons the
learned Trial Judge makes these important
findings:
On the contrary, it is abundantly clear that he was at all
times under the direction of Dr. Keevil Senior and his
business associates who had employed him for many years
and this arrangement was by no means terminated or altered
in connection with this specific project. He was not taken
off the KMG pay roll but remained on it throughout the
period. I cannot conclude, therefore, that he was an
independent prospector, and, as I indicated previously, the
fact that appellant paid its pro rata share to Geophysical of
the cost of prospecting and staking the claims in question
which cost included the salary of Mr. Frantz during the
period that he was prospecting does not make him an
employee of appellant. He was and remained in the employ
of KMG and the fact that appellant is one of a group of
companies associated with KMG and for whom KMG ren
ders accounting and other services does not make him an
employee of appellant either.
From these findings it is quite apparent that
the appellant's contention fails. Its position is
not assisted, in my view, by its counsel's fre
quent reference during the course of argument
to evidence that at all material times both the
syndicate's solicitor and Mr. Frantz were aware
of the requirements of section 83 and intended
to comply with them. To have any cogency this
intention had to be shown to have been trans
lated into reality. The Trial Judge's findings
obviated that possibility. No master and servant
relationship based on a contract of service was
established nor, as I have found above, was an
arrangement made with Mr. Frantz at any time
as an independent prospector under a contract
to provide services. The test to be applied in
any given set of circumstances to determine the
nature of the employment, as derived from
modern decisions, is succinctly set forth in
Market Investigations Limited v. Minister of
Social Security [1969] 2 Q.B. 173 at 184.
Accordingly, in my view, the appeal should be
dismissed with costs.
* * *
MACKAY D.J. concurred.
You are being directed to the most recent version of the statute which may not be the version considered at the time of the judgment.