Digests

Bow River Pipelines Ltd. v. Canada

A-359-98

Rothstein J.A., Robertson J.A. dissenting

18/1/00

25 pp.

Appeal from Tax Court of Canada decision cost which appellant entitled to add to cumulative Canadian oil and gas property expense (COGPE) account under Income Tax Act, s. 66.4(5)(a),(b) nil--Taxpayer, Lone Rock Resources Ltd. Alberta corporations involved in oil and gas exploration--In January 1986, both corporations formed limited partnership--Numbered company designated general partner, Lone Rock limited partner--In September 1986, Lone Rock, wholly owned subsidiary of taxpayer, assigned to taxpayer all property, assets, business--Only asset of substance of Lone Rock 99.99% limited partnership interest in LRR Limited partnership--On September 29, 1986, Lone Rock dissolved--On September 30, 1986, taxpayer entered into distribution agreement with LRR Limited Partnership pursuant to which limited partnership transferred all assets to taxpayer--Assets included Canadian resource property having undisputed fair market value of $12,276,297--Taxpayer submitting in order to acquire Canadian resource property from limited partnership, gave up interest as assignee of Lone Rock's limited partnership interest, such interest having fair market value of $12,276, 297--Appeal allowed [Robertson J.A. dissenting)--Per Rothstein J.A.: Reasons given by Tax Court Judge not reflecting words of Income Tax Act, s. 98(1)(a)--Provision simply stating partnership "deemed not to have ceased to exist until such time as all of the partnership property . . . has been distributed to the persons entitled by law to receive it"--Assignee interest in limited partnership personal property--Outlay, expense need not be made in cash--Outlay herein giving up of personal property assignee interest in limited partnership for assets of limited partnership--Taxpayer entitled, as of right, to obtain Canadian resource property upon dissolution--Right arising as taxpayer has assignee interest in limited partnership--What is relevant value, not cost of assignee interest to taxpayer--To say taxpayer incurred no cost to obtain Canadian resource property to deny any value to assignee interest--Taxpayer entitled to add to COGPE account under Act, s. 66.4(5)(a) in respect of Canadian resource property received on termination of LRR Limited Partnership cost of $12,276,297--Per Robertson J.A. (dissenting): Taxpayer not entitled to add any amount to cumulative COGPE account in respect of Canadian resource properties received on termination of limited partnership--Failed to incur outlay, expense as contemplated by Act, s. 66.4(5)(a),(b), to give "valuable consideration" for properties in question--Taxpayer acquired property without incurring enforceable legal obligation--Therefore, fair market value of property could not be added to taxpayer's COGPE account--All that taxpayer has done to acquire Canadian resource properties originally owned by Lone Rock, indirectly rather than directly and without incurring legal obligation which could be regarded as expense, outlay--Appeal dismissed--Income Tax Act, S.C. 1970-71-72, c. 63, ss. 66.4(5) (as enacted by S.C. 1980-81-82-83, c. 48, s. 37(1)), 98(1) (as am. by S.C. 1976-77, c. 4, s. 37(1)).