Oerlikon Aérospatiale Inc. v. Canada
A-460-97
Noël J.A.
13/4/99
17 pp.
Appeal from Tax Court of Canada judgment dismissing appeal by Oerlikon-Canada against assessment issued by Minister of National Revenue with respect to 1989 taxation year-In 1986, company Oerlikon-Büherle entering into agreement with Canadian government to supply equipment to establish low-altitude air defence system-OerlikonBüherle granting subcontract to Oerlikon-Canada to assemble one of system's components-Financing for activities related to assembly of components at issue by Oerlikon-Canada to come in form of advances-As at December 31, 1989, balance of advances $235,585,097, after deducting amounts invoiced by Oerlikon-Canada-In 1988, Oerlikon-Canada entering into another agreement with Martin Marietta Corp. which made advances to OerlikonCanada under this contract-As at December 31, 1989, latter advances totalling $8,907,076-At same date, after deducting amounts billed for merchandise delivered to clients, value of advances $244,492,173-In computing capital for purposes of tax set out in Act, Part I.3, Oerlikon-Canada choosing not to include $244,492,173, despite fact amount identified as advance in financial statements-In notice of assessment issued March 26, 1993, Minister adding this amount to computation of Oerlikon-Canada's capital for 1989 taxation year-Whether Tax Court Judge justified in finding advances totalling $244,492,173 granted to Oerlikon-Canada as at December 31, 1989 required to be included in computation of capital under Act, Part I.3-With exception of depreciation and depletion, definition of "reserves" in Income Tax Act, s. 181(1) unlimited in scope and suggests at first glance any amount which forms part of corporation's reserves contemplated by Part I.3-Term includes all amounts constituting corporation's reserves, whether reserves arise under Act or in accordance with generally accepted accounting principles-Tax Court Judge properly held only accounting reserves which have not given rise to deduction under Part I must, under s. 181.2(3)(b), be added to computation of corporation's capital-Ontario Court of Appeal decision in TransCanada Pipelines Ltd. v. Ontario (Minister of Revenue), [1993] 1 C.T.C. 277 applicable here-Both cases dealt with payments made in advance for eventual performance of resulting reciprocal obligation-Appellant could not claim use of conjunction "and" in phrase "loans and advances" in s. 181.2(3)(c) indicates only advances which are "loans" in strict sense of word contemplated by Part I.3-Advances integral part of financial resources available to appellant at end of 1989 fiscal year according to financial statements filed by appellant, and nothing either in legislation or tax policy which led to enactment thereof indicating Parliament intended to exclude advances from Part I.3-Accordingly, Tax Court Judge properly held advances in amount of $244,492,173 granted to appellant as at December 31, 1989, and identified as such in appellant's financial statements, required to be included in computation of capital for 1989 taxation year-Appeal dismissed-Income Tax Act, S.C. 1970-71-72, c. 63, ss. 181(1) (as enacted by S.C. 1990, c. 39, s. 48(1)), 181.2(3) (as enacted idem).