Global Communications Ltd. v. Canada
A-426-97 / A-427-97
Robertson J.A.
18/6/99
26 pp.
Appeals from Tax Court of Canada decision ruling purchase of seismic data used for licensing purposes qualified as Canadian exploration expense but limiting deduction to amount of cash outlay-Income Tax Act, s. 66 permitting taxpayer to deduct from income "Canadian exploration expense" defined as expense incurred for purpose of determining existence, location of oil and gas reserves in Canada-Term "seismic data" used to describe geophysical information obtained by installing sound recorders in earth's surface, tracing results of explosion-Appellant taxpayer purchasing seismic data for $15 million-$1.8 million paid in cash, balance of $13.2 million secured by limited recourse promissory note-Global deducting full purchase price from income for 1991, 1992 taxation years on basis amount qualified as Canadian exploration expense within meaning of Act, s. 66.1(6)-MNR disallowing deduction in entirety on ground acquisition of data with view to licensing not within purpose test set out in provision-Taxpayer not entitled to tax deduction, in whole or in part-Tax strategy defective in design, execution-Seismic data purchased for purpose of resale, licensing not qualified as Canadian exploration expense within meaning of s. 66.1(6)-Global not establishing oil and gas exploration carried out on its behalf with aid of seismic data it had purchased-If activities of Global satisfy purpose test set out in s. 66.1(6)(a), Global limited to Canadian exploration expense deduction of $1.8 million for two reasons-First, Global failed to establish seismic data had fair market value greater than cash amount-Second, balance of purchase price secured by promissory note contingent liability, not deductible from income for year in which obligation arose-Tax law not permitting deduction of expense which may not have to be paid-Appeals dismissed-Income Tax Act, R.S.C., 1985 (5th Supp.), c. 1, s. 66.1(6)(a).