Gustayson Drilling (1964) Ltd. (Appellant)
v.
Minister of National Revenue (Respondent)
Court of Appeal, Thurlow J., Cameron and
Sweet D.JJ.—Ottawa, September 26 and 27,
1972.
Income tax—Statute, repeal of, effect on acquired rights—
Oil production company—Exploration expenses, deductibili-
ty of from future income—Whether an acquired right—
Interpretation Act, R.S.C. 1970, c. I-23, s. 35(c)—Income
Tax Act, R.S.C. 1952, c. 148, s. 83A(8a); am. 1962-63, c. 8,
s. 19(11).
By the end of 1960 appellant company had spent in
exploring for oil nearly two million dollars in excess of its
production income. In 1960 its assets were acquired by its
parent company to discharge a debt and appellant ceased
operations until 1964 when another company acquired con
trol of appellant. For 1965 and subsequent years appellant
in computing its income sought to deduct some of the
exploration expenses incurred by it prior to the end of 1960.
The Minister disallowed the deduction.
Under section 83A(1) and (3) of the Income Tax Act
exploration expenses incurred by an oil company of appel
lant's description are deductible in computing its subsequent
production income. Section 83A(8a), however, provides that
where one such oil company's assets are acquired by anoth
er, the latter also acquires the former's deductible explora
tion expenses, provided (prior to 1962) that the acquisition
meets conditions set forth in paragraphs (c) and (d) of
section 83A(8a). Those paragraphs were repealed in 1962.
The acquisition of appellant's assets by its parent company
in 1960 did not fall within those conditions. Section 35(c) of
the Interpretation Act provides that repeal of an enactment
does not affect "any right, privilege ... accrued, accruing or
incurred" under the repealed enactment.
Held (affirming Cattanach J. [1972] F.C. 92), appellant
was not entitled to the deduction claimed. Section 83A(8a)
as amended in 1962 was, from its language, clearly intended
to apply retrospectively.
Held also, appellant acquired no right under the para
graphs repealed in 1962 and consequently section 35(c) of
the Interpretation Act was inapplicable.
Hargal Oils Ltd. v. M.N.R. [1965] S.C.R. 291, referred
to.
APPEAL from Cattanach J. [1972] F.C. 92.
John G. McDonald, Q.C., for appellant.
L. P. Chambers for respondent.
THURLOW J.—This is an appeal from a judg
ment of the Trial Division [1972] F.C. 92 which
allowed an appeal from a judgment of the Tax
Appeal Board and restored assessments of
income tax for the years 1965, 1966, 1967 and
1968, all of which were made on the basis that
the appellant was not entitled to deductions
under section 83A of the Income Tax Act in
respect of drilling and exploration expenditures
which it had made between May 22, 1949, and
November 30, 1960.
In the Trial Division the question raised with
respect to these deductions was set out in para
graph 12 of the special case on which the
appeal was heard as follows:
12. The question for the opinion of the Court is whether
subsection (8a) of section 83A of the Income Tax Act as
amended by the repeal of paragraphs (c) and (d) thereof by
Statutes of Canada, 1962-63, c. 8, section 19, subsections
(11) and (15), precludes the Respondent from deducting in
the computation of its income for the 1965, 1966, 1967 and
1968 taxation years amounts on account of the drilling and
exploration expenses mentioned in paragraph 4 hereof,
which but for the repeal would have been deductible by the
Respondent under subsections (1) and (3) of section 83A of
the Act.
Mr. Justice Cattanach answered this question
in the affirmative and pronounced judgment
accordingly. The only issue in the present
appeal is whether he was right in so doing.
As the wording of section 83A is complicated
and confusing to anyone not familiar with it I
shall not reproduce the section but shall
endeavour to summarize the portions that
appear to me to bear on the problem raised in
the appeal. Subsections (1) and (3) of section
83A as enacted in 1955 provided that a corpora
tion whose principal business was production,
refining or marketing of petroleum, petroleum
products or natural gas or exploring or drilling
for petroleum or natural gas, might deduct, in
computing its income under Part I of the Act
for a taxation year certain drilling and explora
tion expenses incurred by it during the calendar
years 1949 to 1952 and subsequently thereto
but before the end of the taxation year in ques
tion. These provisions were enacted by section
22 of chapter 54 of the Statutes of Canada,
1955, and were made applicable to the 1955
and subsequent taxation years. An amendment
made in 1962 terminated the time for making
such expenditures at April 11, 1962. It is
common ground that the appellant's business
during the period between May 22, 1949, and
November 30, 1960, and the expenditures in
question made by it during that period were of
the kind referred to in these provisions.
By section 23 of chapter 39 of the Statutes of
Canada, 1956, there was added to section 83A a
subsection numbered (8a), which provided that
where a corporation (referred to as a successor
corporation) whose principal business was pro
duction etc., of petroleum etc., had at any time
after 1954 acquired from a corporation whose
principal business was production etc., of
petroleum etc., all or substantially all of the
property of the latter corporation (which is
referred to as a predecessor corporation) used
by it in carrying on its business:
(c) pursuant to the purchase of such property by the
successor corporation in consideration of shares of the
capital stock of the successor corporation, or
(d) as a result of the distribution of such property to the
successor corporation upon the winding-up of the pre
decessor corporation subsequently to the purchase of all
or substantially all of the shares of the capital stock of the
predecessor corporation by the successor corporation in
consideration of shares of the capital stock of the succes
sor corporation,
the successor corporation might deduct in com
puting its income under Part I for a taxation
year, as therein set out, the drilling and explora
tion expenses incurred by the predecessor cor
poration and that in respect of any such
expenses no deduction might be made by the
predecessor corporation under section 83A in
computing its income for the taxation year in
which the property so acquired was acquired by
the successor corporation or its income for any
subsequent taxation year. This provision was
made applicable in respect of property of a
corporation acquired after 1954, except that in
computing the income of a successor corpora
tion for a taxation year prior to the 1956 taxa
tion year, no amount was deductible under sub
section (8a) as so enacted.
On or about November 30, 1960, the Shar-
ples Oil Corporation, of which the appellant,
then known as Sharples Oil (Canada) Limited,
was a wholly owned subsidiary, acquired from
the appellant, in consideration for the cancella
tion of a debt, substantially all the property
used by the appellant in carrying on its business
and thereafter for several years the appellant
was inactive. It is common ground as well that
though the principal business of Sharples Oil
Corporation at all material times was the pro
duction etc., of petroleum etc., as referred to in
subsection (8a), the right to make deductions
under section 83A(1) and (3) in respect of some
$2,000,000 theretofore expended by the appel
lant for drilling or exploration did not accrue to
the Sharples Oil Corporation upon its acquisi
tion of the appellant's property, but remained
with the appellant, since the transaction by
which the property was acquired was not of
either of the kinds referred to in subsection (8a)
of section 83A.
By subsection (11) of section 19 of chapter 8
of the Statutes of Canada, 1962-63, however,
which came into effect on November 29, 1962,
and was by-• subsection (15) made applicable to
the 1962 and subsequent taxation years, para
graphs (c) and (d) of subsection (8a) of section
83A, and a further paragraph (da) which had
been enacted in 1961, were repealed, thus elimi
nating any restrictions as to the type of acquisi
tion transactions referred to in the subsection
and causing the subsection as so amended to
refer by its terms to the acquisition transaction
in question.
Thereafter, in March 1963, the Sharples Oil
Corporation went into liquidation and the
shares of the appellant were distributed to its
shareholders who, in June 1964, sold them to
Mikas Oil Co. Ltd. In October 1964, the appel
lant's name was changed to Gustayson Drilling
(1964) Limited and subsequently the company
recommenced and carried on as its principal
business the production etc., of petroleum etc.,
as referred to in section 83A.
In its income tax returns for the taxation
years 1965, 1966, 1967 and 1968 the appellant
claimed deductions in respect of the $2,000,000
of drilling and exploration expenses incurred by
it prior to November 10, 1960, but as previous
ly mentioned these deductions were disallowed
by the Minister. An appeal to the Tax Appeal
Board from this disallowance was successful
but as already mentioned that judgment was
reversed by the Trial Division of this Court and
the re-assessments based on such disallowance
were restored.
The submissions put forward in this Court on
behalf of the appellant fell under two heads. It
was said first that the amendment of 1962,
which broadened the scope of subsection (8a)
so as to embrace transactions of the kind by
which the property of the appellant was
acquired by the Sharples Oil Corporation,
should not be construed retrospectively so as to
deprive the appellant of a right which had
accrued as a result of the incurring of the
expenditures or as retrospectively referring to
the completed acquisition transaction and giving
to it tax consequences which it did not have
when made.
In my opinion the effect of the 1962 amend
ment in question was not retrospective in enact
ing that in future taxation years 1 certain new
taxation rules should apply, which referred to
and were defined by the circumstances and
effect of past transactions, that is to say, as
applied to this case, the transaction by which
the appellant's property was acquired by the
Sharples Oil Corporation in 1960—a transaction
which in that taxation year involved no tax
consequence at all. See R. v. Inhabitants of St.
Mary's Whitechapel (1848) 12 Q.B. 120, Master
Ladies Tailors Organization v. Minister of
Labour [1950] 2 All E.R. 525, Re A Solicitor
Clerk [1957] 1 W.L.R. 1219, and Maxwell on
Interpretation of Statutes, 12th ed., page 217.
On the other hand I am not persuaded that
the 1962 amendment is not retrospective in
denying the appellant the right, given in 1955
and made applicable to the 1955 and subse
quent taxation years, to deduct in subsequent
taxation years expenditures which it had made
by the end of 1960, and which at that point
qualified for deduction by the appellant. How
ever, even if the effect of the 1962 amendment
is retrospective in this or other respects the
language of section 83A(8a) which results from
the repeal and removal therefrom of paragraphs
(c), (d) and (da) is, in my opinion, such as to
make perfectly clear that subsection (8a) as so
amended does refer and was intended to refer
to situations of the kind here in question. That
language includes the wording "has at any time
after 1954, acquired" and with this may be
coupled the fact that the wording of subsection
(6) of section 23 of chapter 39 of the Statutes
of Canada, 1956, made subsection (8a), when
originally enacted, retrospectively applicable in
respect of property acquired after 1954. The
fact that in general a transfer of the right to
deduct is contemplated by subsection (8a),
rather than an outright destruction of the right,
to my mind also tends to weaken the force of
any presumption against retrospective operation
and in that sense to support the view that sub
section (8a) as originally enacted was intended
to be capable of operating retrospectively and
to have retrospective effect in some situations.
I am also of the opinion that the repeal of
paragraphs (c), (d) and (da) of subsection (8a),
which broadened the application of the subsec
tion and caused it to read as including transac
tions of the kind here in question by which a
corporation "has at any time after 1954,
acquired", sufficiently shows the intention that
the subsection as so broadened should also be
read retrospectively, the effect which such a
reading, would otherwise have with respect to
the tax consequences of the transaction in prior
years, being modified by subsection (15) of the
amending section which made subsection (8a),
as amended by the repeal of paragraphs (c), (d)
and (da), applicable only to the 1962 and subse
quent taxation years.
The appellant also relied on paragraphs (b)
and (c) of section 35 2 of the Interpretation Act
but in my opinion it cannot be said that the
repeal of paragraphs (c), (d) and (da) affected
their previous operation or anything done or
suffered by the appellant thereunder since para
graphs (c), (d) and (da) never had any operation
upon or application to anything done or suf-
fered by the appellant. Nor can any right
acquired under them be said to have been
affected by their repeal, since no right was ever
acquired by the appellant under any of them.
Under the other head, as I understood the
argument, it was submitted, that to treat the
1962 amendment as making subsection (8a)
refer to the transaction in question from the
time of the amendment leads to the absurd
result that in computing its income for the taxa
tion year 1961 the appellant would have been
entitled to a deduction under section 83A, if it
had had any income, and that as a result of the
amendment the Sharples Oil Company would
also have become entitled to a deduction in
computing its income for the 1962 taxation year
in respect of the same drilling and exploration
expenses.
It was pointed out by Martland J. in Hargal
Oils Ltd. v. M.N.R. [1965] S.C.R. 291 that the
wording of subsection (8a) is complicated and
that its meaning is far from clear and for this
reason, if for no other, it appears to me that the
Court should confine its attention to the prob
lem before it and not attempt the task of resolv
ing or reconciling the results of hypothetical
situations that may conceivably arise. Nor do I
think such an approach will lead to a solution of
the present problem. Rather, in my opinion, the
problem must be resolved by a straightforward
application of the wording of the subsection to
the facts as they have been agreed. If by such
an approach the application of the subsection
with respect to the appellant is clear, that as I
see it is all that requires to be decided in the
present appeal.
Approaching the matter in this way, whether
or not the result may be to give subsection (8a),
as so amended, some retrospective effect on
rights which the appellant formerly had, and
regardless of what rights if any may, as a result
of the amendment, have been conferred on the
successor company in computing its income for
taxation years prior to 1962, which it is not
necessary to determine, it appears to me to be
plain and clear from the language of the subsec-
tion that upon the coming into force of chapter
8 of the Statutes of Canada, 1962-63, which
repealed paragraphs (c), (d) and (da) of subsec
tion (8a) and which repeal was made applicable
to the 1962 and subsequent taxation years, the
appellant became a predecessor corporation and
was no longer to have and no longer did have
any right arising from drilling and exploration
expenditures theretofore made by it to deduc
tions under section 83A for the purpose of
computing its income for the 1962 or any
subsequent taxation year. That conclusion
alone, as I see it, is sufficient to dispose of the
appeal and in my opinion it should be dismissed
with costs.
* * *
CAMERON and SWEET D.M. concurred.
1 Having become law on November 29, 1962, the amend
ment is no doubt retrospective with respect to the 1962
taxation year in the case of a corporation whose 1962
taxation year had already ended and with respect to transac
tions already completed by a corporation in the 1963 taxa
tion year but as I understand the submissions no point is
made on this feature of the amendment.
2 R.S.C. 1970, c. 1-23
35. Where an enactment is repealed in whole or in part,
the repeal does not
(b) affect the previous operation of the enactment so
repealed or anything duly done or suffered thereunder;
(c) affect any right, privilege, obligation or liability
acquired, accrued, accruing or incurred under the enact
ment so repealed;
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.