Newfoundland and Labrador Corporation Ltd. et al. v. Attorney General of Newfoundland, 138 DLR (3d) 577, [1982] 2 SCR 260

Supreme Court of Canada

Newfoundland and Labrador Corporation Ltd. et al. v. Attorney General of Newfoundland, [1982] 2 S.C.R. 260

Date: 1982-08-09

Newfoundland and Labrador Corporation Limited (Intervener opposing the legislation in the Court of Appeal)

and

Javelin International Limited (Intervener opposing the legislation in the Court of Appeal) Appellants;

and

The Attorney General of Newfoundland (Supporting the legislation in the Court of Appeal) Respondent;

and

The Attorney General for Alberta, the Attorney General of Nova Scotia and the Attorney General for New Brunswick Interveners.

File No.: 16275.

1981: October 31; 1982: August 9.

Present: Laskin C.J. and Martland, Ritchie, Dickson, Beetz, Estey, McIntyre, Chouinard and Lamer JJ.

ON APPEAL FROM THE COURT OF APPEAL FOR NEWFOUNDLAND

Constitutional law—Taxation—Direct or indirect taxation—Taxes on income from mining and from mining rights—Whether or not taxes levied intra vires the province—Constitutional Act, 1867, ss. 91(2), 92(2)—The Mining and Mineral Rights Tax Act, 1975, 1975 (Nfld.), c. 68, ss. 2, 5, 7, 9, 10, 12—The Undeveloped Mineral Areas Act, R.S.N. 1970, c. 383, s.8.

The Newfoundland Mining and Mineral Rights Tax Act, 1975, provided for two separate and distinct kinds of taxation. One, the “Mining Tax”, was stated to be a percentage of the taxable income derived by the operator or the contractor from mining operations within the province. The other, the “Mineral Rights Tax”, was levied (a) against every operator and every contractor in accordance with a specific formula, and (b) against every person who received any money by way of rental, royalty or other payment for the grant to another of the right to engage in mining operations in accordance with another specified formula. The issues before this Court were whether or not the Act was ultra vires the New-

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foundland Legislature, in whole or in part, and if intra vires, whether or not it applied to the appellants herein.

Held: The appeal should be dismissed.

The annual tax imposed by s. 5 on taxable income derived from mining operations within the province was an income tax, and constituted direct taxation. That the tax was levied on a particular component of the taxpayer’s income did not alter that characterisation. The section 9 tax was a direct tax and formed part of a general taxation scheme. The taxation of government payments for the development of undeveloped land, pursuant to s. 10(1)(b), too, was a direct tax incapable of being passed on to anyone else. Section 10(1)(a) provided for a direct tax on royalties or receipts from the granting of a right to engage in mining operations despite the discretionary nature and restricted scope of the deductions allowed under it. This tax applied to appellants notwithstanding the fact that the royalties accrued in consequence of some event outside Newfoundland and despite the place of payment. Section 12(a) of The Mining and Mineral Rights Tax Act provided that the s. 10(1)(a) tax applied notwithstanding previous agreements or statutes. That a taxpayer would seek to pass this tax on to someone else did not make it an indirect tax. The section 10(1)(a) tax did not trespass upon the federal power over trade and commerce.

Canadian Industrial Gas & Oil Ltd. v. Government of Saskatchewan, [1978] 2 S.C.R. 545, followed; R. v. Caledonian Collieries, Ltd., [1928] A.C. 358, distinguished; Forbes v. Attorney-General of Manitoba, [1937] A.C. 260; Attorney-General for British Columbia v. Esquimalt and Nanaimo Railway Company, [1950] A.C. 87; Minister of Finance of New Brunswick v. Simpsons-Sears Ltd., [1982] 1 S.C.R. 144; Alworth v. Minister of Finance, [1978] 1 S.C.R. 447; Carnation Co. Ltd. v. Quebec Agricultural Marketing Board, [1968] S.C.R. 238, referred to.

APPEAL from a judgment of the Newfoundland Court of Appeal reference (1980), 115 D.L.R. (3d) 482, 28 Nfld. & P.E.I.R. 361, 79 A.P.R. 361, holding The Mining and Mineral Rights Tax Act intra vires the province. Appeal dismissed.

Stephen Scott and Charles Flam, for the appellants.

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James J. Greene, Q.C., and Joseph S. Hutchings, for the respondent.

James G. Spurr, for the intervener the Attorney General of Nova Scotia.

Alan D. Reid and Richard Speight, for the intervener the Attorney General for New Brunswick.

Brian C. Crane, Q.C., for the intervener the Attorney General for Alberta.

The judgment of the Court was delivered by

MARTLAND J.—The issue in this appeal is as to the constitutional validity of The Mining and Mineral Rights Tax Act, 1975, 1975 (Nfld.), c. 68, enacted by the Legislature of Newfoundland, hereinafter referred to as “the Act”. This issue was referred to the Court of Appeal of the Supreme Court of Newfoundland by an Order in Council dated April 22, 1980, pursuant to s. 6 of The Judicature Act, R.S.N. 1970, c. 187, as amended. The question was argued before the Court of Appeal. The appellants Newfoundland and Labrador Corporation Limited (“Nalco”) and Javelin International Limited (“Javelin”) formerly Canadian Javelin Limited as interveners were represented by counsel before the Court of Appeal. Nalco is a corporation incorporated by statute in Newfoundland. Javelin was incorporated under the laws of Canada and registered to do business in Newfoundland. Its head office, at the time the leases hereinafter mentioned were made, was in St. John’s, Newfoundland. At the time the present proceedings were commenced, its head office was in Montreal, Quebec.

The Court of Appeal decided, unanimously, that the legislation in issue was, in whole, intra vires of the Legislature of Newfoundland to enact. The appellants appealed to this Court. The Chief Justice stated the constitutional question as follows:

Is The Mining and Mineral Rights Tax Act, 1975, the Act No. 68 of 1975, ultra vires the Legislature of Newfoundland either in whole or in part, and, if so, in what particular or particulars and to what extent? Does the Act, if it is intra vires, apply to the Appellants in the present case?

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The Attorneys General of Quebec, New Brunswick, Nova Scotia, Alberta and Saskatchewan intervened but the Attorneys General of Quebec and Saskatchewan later withdrew their interventions. The others all supported the validity of the legislation. The Attorney General of Canada did not intervene.

The Act makes general provision for two separate and distinct kinds of taxation. One tax, which is dealt with in Part II under the heading “Mining Tax”, is stated to be a percentage of the taxable income derived by the operator or the contractor from mining operations within the province, determined in accordance with a formula set out in the Act. The other tax, which is dealt with in Part III under the heading “Mineral Rights Tax”, is levied (a) against every operator and every contractor in accordance with a specified formula, and (b) against every person who receives any money by way of rental, royalty or other payment for the grant to the operator, contractor or other person of the right to engage in mining operations in accordance with another specified formula.

The following provisions of the Act are relevant to the issues in this appeal:

2. In this Act

…

(c) “contractor” means any person who contracts with another person having a right to carry out mining operations to deliver minerals to that other person for a valuable consideration from lands on or in which such rights exist;

…

(e) “gross income” means the total income derived by an operator or a contractor from the sale of minerals consequent upon mining operations in a fiscal year and, if such minerals are processed prior to the sale, includes the income from processing;

…

(g) “mining operations” means the extraction or production within the province of minerals up to and including primary crushing, and includes the

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transportation, handling, storing, distribution and sale of such minerals, but does not include processing;

…

(i) “net income” means the gross income less those amounts permitted to be deducted from the gross income by Section 6;

(j) “operator” means a person who

(i) has the right to extract minerals, and

(ii) carries out mining operations on or under lands within the province;

…

(m) “processing” means processing minerals within the province, and includes concentrating, milling, pelletizing, smelting, refining and fabricating of minerals;

…

(p) “taxable income” means the net income less those payments permitted to be deducted from the net income by Section 7;…

…

PART II

Mining Tax

5.—(1) Subject to subsection (2), and Section 8, every operator and every contractor is liable for and shall pay to the Minister in the manner and at the time or times set out in this Act an annual tax of fifteen per centum (15%) of the taxable income derived by the operator or the contractor from mining operations within every mine within the province during each fiscal year.

(2) The Lieutenant-Governor in Council may by order declare with respect to any taxpayer that the tax payable by the operator or contractor under subsection (1) shall be based on the taxable income derived by the operator or contractor from mining operations within individual mines or groups of mines as may be prescribed in the order.

(3) For the purposes of subsection (2), “mine” means a work or undertaking in which mining operations are conducted, and includes a quarry.

6.—(1) Subject to subsection (2) of this section, the net income of a taxpayer shall be ascertained by deducting from the gross income of the taxpayer

(a) all expenses and outlays reasonably incurred in mining operations and in processing minerals

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extracted from land pursuant to those mining operations;

(b) such amount as may be prescribed for depreciation of the cost, exclusive of interest charges of any kinds of vehicles, machinery, plant, equipment, buildings and other assets of a capital nature used in mining operations, and processing minerals extracted from land pursuant to those mining operations, and for the purposes of this paragraph the regulations may prescribe different rates and methods of depreciation for different kinds of capital assets, but where the vehicles, machinery, plant, equipment and buildings or any part thereof have been disposed of in a fiscal year, the proceeds from the disposal shall be applied to reduce the cost or value of any additions thereto in that year, and where those proceeds exceed the cost of the additions the excess shall be applied to reduce the balance remaining to be depreciated of those assets required in previous fiscal years, and where no such balance remains to be depreciated the excess shall be applied to reduce deductions otherwise allowable under this subsection;

(c) such amount, if any, exclusive of interest charges of any kind, as the Minister in his absolute discretion allows for exploration and preproduction development expenditures exclusively and necessarily incurred for the proper conduct of those mining operations from which the gross income is generated, but the aggregate of the deductions made under this paragraph shall not exceed the total expenditures;

(d) all moneys paid to Her Majesty during the fiscal year by way of

(i) taxation imposed specifically upon the area or acreage of the land in which mining operations are being conducted within the province, whether or not the Act imposing the taxation is passed before or after the coming into operation of this Act, and

(ii) rentals, royalties, charges and other payments for the right to engage in the mining operations which generates all or part of the gross income, but not any payment by way of taxation, except as permitted by subparagraph (i) of this paragraph (d);

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(e) such reserves for doubtful debts as the Minister in his absolute discretion permits for the mining operations during the fiscal year;

(f) an amount by way of return on capital directly and necessarily employed by the taxpayer in processing minerals extracted from land pursuant to mining operations equal to eight per centum (8%) of the original cost, exclusive of interest charges, of the depreciable assets, including machinery, equipment, plant, buildings, works and improvements used by the taxpayer in the processing of such minerals, but the amount to be deducted under this paragraph shall not be in excess of sixty-five per centum (65%) of the portion remaining after deducting from the gross income the amounts specified in paragraphs (a) to (e) inclusive.

(2) No deduction shall be made from the gross income under subsection (1) in respect of

(a) disbursements not wholly, exclusively and necessarily expended for the purpose of generating the gross income;

(b) expenditures for the provision or replacement of plant, machinery or equipment or any other item of a capital nature;

(c) any amount transferred or credited to a reserve contingent account or sinking fund, other than for permitted doubtful debts referred to in subsection (1);

(d) rentals, royalties and other payments paid by the taxpayer to any person, other than Her Majesty, under any Act, agreement, grant, lease or licence for the right to engage in mining operations;

(e) disbursements made for the purpose of maintenance of property not applied in the generation of the gross income during the fiscal year;

(f) any payment made for goods or services provided by a parent, subsidiary, affiliated or associated company in excess of the actual costs of those goods or services.

7. For the purposes of Section 5, the taxable income derived from mining operations by an operator and by a contractor is the net income less either

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(a) all moneys paid during the fiscal year, by way of rental, royalty or other payment to any person, other than to Her Majesty, for the grant of the right to engage in mining operations; or

(b) twenty per centum (20%) of the net income, whichever is the greater.

…

PART III

Mineral Rights Tax

(a) Tax Payable By Operators and Contractors

9.—(1) Subject to subsection (2), every operator and every contractor is liable for and shall pay to the Minister in the manner and at the time or times set out in this Act an annual tax of twenty per centum (20%) of the amount, if any, by which twenty per centum (20%) of the net income of the operator or contractor exceeds the aggregate of all moneys paid by the operator or contractor during the fiscal year by way of rental, royalty or other payment to any person, other than Her Majesty, for the grant of the right to engage in mining operations.

…

(b) Tax Payable By Recipients Of Rentals, Royalties and Like Payments

10.—(1) Every person who receives from

(a) an operator, contractor or any other person during a fiscal year any money by way of rental, royalty or other payment for the grant to the operator, contractor or other person of the right to engage in mining operations; or

(b) the Minister of Mines and Energy during a fiscal year any money by way of payment to that person, as owner of an undeveloped mineral area, pursuant to Section 8 of The Undeveloped Mineral Areas Act,

is liable for and shall pay to the Minister in the manner and at the time set out in this Act an annual tax of twenty per centum (20%) of the net revenue received in consideration of the grant of the right during that fiscal year.

(2) For the purposes of subsection (1), “net revenue” means the total sum received from the operator, contractor, person or the Minister of Mines and Energy during the fiscal year less

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(a) all administrative, accounting, legal and other expenses which in the opinion of the Minister are necessarily incurred by the taxpayer in the collection of the money from the operator or contractor;

(b) such amount, as the Lieutenant-Governor in Council may allow for any costs and outlays incurred by the taxpayer within the area of land in or upon which the taxpayer has the right to engage in mining operations or such other areas of land as may be prescribed; and

(c) all moneys paid during the fiscal year, by way of rental, royalty or other payment to any person, other than to Her Majesty, for the grant of the right to engage in mining operations.

…

12. Nothing in any Act of the province, or in any grant, deed, licence, contract, agreement or other document (whether or not such grant, deed, licence, contract, agreement or other document has received ratification by the Legislature), passed, given, made or entered into prior to the coming into operation of this Act, shall be construed so as

(a) to defeat the liability of a taxpayer to pay the tax required to be paid by Section 10 of this Part; or

(b) to enable any person who is liable for and required to pay a tax under Section 10 of this Act, to require the operator, contractor or any other person from whom such person receives any money by way of rental, royalty or other payment for the grant of the right to engage in mining operations,

(i) to pay such tax in its stead or place, or

(ii) to indemnify and save harmless such person against any such tax; or

(c) to impose any liability on the part of Her Majesty for loss or damage sustained,

and where any of the provisions contained in such Act, grant, deed, licence, contract, agreement or other document is in conflict with any of the provisions of this Act, the latter shall prevail.

The status of the appellants to challenge the validity of the Act was as recipients of rentals, royalties or other payments for grants to operators, contractors or other persons of the right to engage in mining operations. They were affected only by

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the tax imposed by s. 10(1)(a) of the Act. Their submissions to this Court related primarily to that subsection. They contended that the tax imposed by the subsection was not a direct tax and so could not be imposed by the Legislature of Newfoundland since s. 92(2)  of the Constitution Act, 1867 , limited provincial legislative powers in the field of taxation to “Direct Taxation within the Province in order to the raising of a Revenue for Provincial Purposes”.

The reference to the Newfoundland Court of Appeal raised only the question of the constitutional validity of the Act. The constitutional question in this Court included that question but also went on to put a further question: “Does the Act, if it is intra vires, apply to the Appellants in the present case?” With reference to this issue the appellants in their factum make the following submission, in paragraph 32:

32. The circumstances as to which Appellants dispute the constitutional applicability of s. 10(1)(a) of the Act, and of its associated provisions, are these, in general terms.

The Appellants dispute the constitutional application of these provisions to a payee who, outside Newfoundland, receives a payment of royalties in virtue of an agreement made outside Newfoundland and enforceable, at least as regards that payment, outside Newfoundland, the sum being payable only upon the occurrence of an event outside Newfoundland; and the payee not being engaged in any mining operations giving rise to the payment.

Paragraph 33 of the factum contains a statement of a number of facts. Paragraph 34 contains the statement that the appellants do not assert that the facts set out in paragraphs 32 and 33 can be established from the record on the appeal, but request the Court to determine the legal effects which would flow from establishing those facts.

The appellants further contend that they are exempted from the tax imposed by s. 10(1)(a) because of tax exemption provisions granted to Nalco and Javelin by agreements made with them by the Crown in right of Newfoundland which were approved by statute.

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I will deal first with the question of the constitutional validity of the Act. The answer to this question depends upon whether or not the tax which it imposes is direct or indirect.

In Canadian Industrial Gas & Oil Ltd. v. Government of Saskatchewan, [1978] 2 S.C.R. 545, Mr. Justice Dickson, who wrote the minority decision, reviewed a number of the leading authorities dealing with the test to be applied in determining that issue, which review was accepted in the reasons of the majority. At page 581 he pointed out that the established guide is the classical formulation of John Stuart Mill (Principles of Political Economy, Book V, c. 3):

Taxes are either direct or indirect. A direct tax is one which is demanded from the very person who it is intended or desired should pay it. Indirect taxes are those which are demanded from one person in the expectation and intention that he shall indemnify himself at the expense of another; such are the excise or customs.

The producer or importer of a commodity is called upon to pay a tax on it not with the intention to levy a peculiar contribution upon him, but to tax through him the consumers of the commodity, from whom it is supposed that he will recover the amount by means of an advance in price.

Mill’s well-known writings appeared not long before the drafting of the British North America Act, 1867, and were presumed by the Privy Council to be familiar to the Fathers of Confederation.

At page 582 he said:

Mill’s test became firmly established in Bank of Toronto v. Lambe [(1887), 12 App. Cas. 575]. In that case Lord Hobhouse said that while it was proper and, indeed, necessary to have regard to the opinion of economists, the question is a legal one, viz. what the words mean as used in the statute. The problem is primarily one of the law rather than of refined economic analysis. The dividing line between a direct and an indirect tax is referable to and ascertainable by the “general tendencies of the tax and the common understanding of men as to those tendencies”: Lambe’s case.

The general tendency of a tax is the relevant criterion. This must be distinguished from the ultimate incidence of the tax in the circumstances of the particular case:

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City of Halifax v. Fairbanks Estate [[1928] A.C. 117]; Attorney-General for British Columbia v. Kingcome Navigation Co. Ltd. [[1934] A.C. 45].

In City of Charlottetown v. Foundation Maritime Co. [[1932] S.C.R. 589], Rinfret J. pointed out that Mill’s canon is founded on the theory of the ultimate incidence of the tax, not the ultimate incidence depending on the special circumstances of individual cases.

The nature of the tax is a question of substance and does not turn on the language used by the Legislature: The King v. Caledonian Collieries Ltd. [[1928] A.C. 358].

At pages 583-84 he went on to say:

Clearly, direct and indirect taxation are terms of historical reference, and although there is no reason to believe that the B.N.A. Act is not a document of evolving meaning, not limited to its original inspiration, jurisprudence, in so far as concerns particular forms of taxation like income or property taxes, has captured the historical spirit of “direct” and “indirect” taxation and preserved it. The effect of this was explained by Lord Cave in City of Halifax v. Fairbanks Estate [[1928] A.C. 117], at p. 125:

What then is the effect to be given to Mill’s formula above quoted? No doubt it is valuable as providing a logical basis for the distinction already established between direct and indirect taxes, and perhaps also as a guide for determining as to any new or unfamiliar tax which may be imposed in which of the two categories it is to be placed; but it cannot have the effect of disturbing the established classification of the old and well known species of taxation, and making it necessary to apply a new test to every particular member of those species. The imposition of taxes on property and income, of death duties and of municipal and local rates is, according to the common understanding of the term, direct taxation, just as the exaction of a customs or excise duty on commodities or of a percentage duty on services would ordinarily be regarded as indirect taxation; and although new forms of taxation may from time to time be added to one category or the other in accordance with Mill’s formula, it would be wrong to use that formula as a ground for transferring a tax universally recognized as belonging to one class to a different class of taxation.

Historically well-understood categories of taxation have a known jurisprudential fate. Thus, a customs levy cannot be made by the Legislature whereas a property

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tax or income tax falls unquestionably within their competence.

I will turn first to the tax imposed by s. 5 of the Act. It requires every operator and contractor to pay an annual tax of 15 per cent of taxable income derived by the operator or the contractor from mining operations within every mine within the province. Taxable income means net income less payments permitted to be deducted by s. 7. Net income is gross income less amounts to be deducted under s. 6. Section 6 lists a number of permitted deductions from gross income and includes, inter alia, “all expenses and outlays reasonably incurred in mining operations and in processing minerals extracted from land pursuant to those mining operations”, reserves for doubtful debts and a return on capital employed in processing minerals.

In my opinion, this is an income tax and constitutes direct taxation. The fact that the tax is upon a particular component of the taxpayer’s income does not alter the situation. In Forbes v. Attorney-General of Manitoba, [1937] A.C. 260, at p. 269, Lord MacMillan, delivering the opinion of the Judicial Committee of the Privy Council, said:

A tax is not the less a tax on income because it is imposed on a particular component of the taxpayers’ income. It may be convenient to tax one part of the taxpayers’ income in one way, another part in another way.

The next matter to be considered is the tax imposed under s. 9. This section provides for an annual tax upon operators and contractors of 20 per cent of the amount, if any, by which 20 per cent of net income exceeds the aggregate of all moneys paid by way of rental, royalty or other payment to any person other than Her Majesty for the grant of the right to engage in mining operations. It should be noted that under s. 7 in computing taxable income, for the purposes of the s. 5 tax, the taxpayer can deduct from net income all moneys paid by way of rental, royalty or other payment to any person, other than Her Majesty for the right to engage in mining operations, or 20

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per cent of net income, whichever is the greater. The position is, therefore, that if a taxpayer has to pay more than 20 per cent of net income for the grant of the rights to mine, that amount may be deducted from net income in computing taxable income, in respect of tax under s. 5, and he would not be liable to pay tax under s. 9. If, however, the payment for the right to mine is less than 20 per cent of net income, he may, in computing taxable income for the purposes of s. 5, deduct 20 per cent from net income, but he must pay tax under s. 9 at the rate of 20 per cent on the difference between 20 per cent of net income and the amount actually paid by way of royalty, etc., for the right to mine.

In substance, the tax which may become payable by an operator or contractor under s. 9 in the circumstances above mentioned is related to the concession made in s. 7 as to the computation of taxable income for the purposes of s. 5 and forms a part of the general scheme for the taxation of income derived from mining operations. In my opinion, it is a direct tax imposed upon the very person who it is intended should pay it.

The next matter for consideration is the constitutional validity of s. 10 which is the provision which affects the appellants. This section provides in para. (a) of subs. (1) that every person who receives during a fiscal year from an operator or contractor or other person a rental, royalty or other payment for the grant to the operator, contractor of other person of the right to engage in mining operations should pay an amount of 20 per cent of the net revenue received in consideration for the grant during the fiscal year.

Paragraph (b) of subs. (1) imposes a like tax upon any person receiving, as owner of an undeveloped area, a payment from the Minister of Mines and Energy pursuant to s. 8 of The Undeveloped Mineral Areas Act, R.S.N. 1970, c. 383. This Act enabled the Lieutenant Governor in Council to declare certain areas as undeveloped

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mineral areas, as defined in the Act. The Minister could then make agreements for their development and provide from payments by the operator for the rights granted to him. Section 8 provides for payments by the Minister to the owner of the land of a portion of the moneys received from the operator. These are statutory payments by the Crown. Paragraph (b) of subs. (1) provides for a tax on the net revenue received. This is an income tax and there is no way in which the recipient of the funds could pass on the tax to anyone else. In my opinion this is a direct tax.

I will revert now to para. (a). This involves a tax on net revenue received for granting a right to mine. Subsection (2) defines net revenue as the total sum received less certain permitted deductions:

(a) a deduction is permitted in respect of expenses necessarily incurred in the collection of the money from the operator or contractor. It is the opinion of the Minister which determines the necessity of the expenditure.

(b) Such amounts as the Lieutenant Governor in Council may allow for costs and outlays incurred by the taxpayer within the area of land in which the taxpayer has the right to engage in mining operations.

(c) All moneys paid during the fiscal year by way of rental, royalty or other payment to any person, other than Her Majesty, for the right to engage in mining operations.

The tax imposed by para. (a) is in respect of the receipt by an owner of payments made by a producer of minerals for the right to engage in mining operations on the owner’s land. It is not a tax upon production. It is a tax on moneys received for the granting of a right to mine. The fact that the payment may, in the case of a royalty, be measured in-relation to the minerals produced does not make the tax a production tax.

The appellants’ submission is that the para. (a) tax is not a tax upon income, but it is a tax upon gross revenue, and that the general economic tend-

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ency would be for the taxpayer to pass the tax on to some other person, thus making the tax indirect.

The basis for the contention that the tax is not truly an income tax is that the deductions from total sums received, which are permitted by s. 10(2), in order to arrive at net revenue, are too limited in scope and are dependent on ministerial discretion. Reference is made to the difference between the deductions permissible under s. 6 in computing taxable income for the purposes of the tax imposed by s. 5 and those permitted under s. 10(2) for the purpose of computing net revenue for the purposes of the tax imposed by s. 10(1)(a).

This comparison overlooks the difference between the tax imposed by s. 5 and that imposed by s. 10(1)(a). The former is a tax on taxable income derived from mining operations. The income of the taxpayer is derived from the production of minerals and this involves the kind of outlays which are provided for in s. 6. The tax imposed by s. 10(1)(a) is upon a person who has the right to engage in mining operations, but who instead of engaging in mining operations himself, by contract grants the right to conduct such operations to someone else in return for payments to be made by the producer. The deductions from revenue, to arrive at net revenue, permitted by s. 10(2) are appropriate to that situation.

In my opinion the tax imposed by s. 10(1)(a) is an income tax and not a tax on gross revenue.

The appellants assume that a tax on gross revenue would necessarily be an indirect tax and rely upon the judgment of the Privy Council in R. v. Caledonian Collieries, Ltd., [1928] A.C. 358. That case involved a tax imposed by an Alberta statute upon every mine owner of a percentage of the gross revenue of his mine during each preceding month. The tax was held to be an indirect tax.

This conclusion was not reached upon the basis that, as a tax on gross revenue, it must be presumed to be indirect. The reason for the decision is

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stated in the following passage from the judgment at p. 362:

What then is the general tendency of the tax now in question?

First it is necessary to ascertain the real nature of the tax. It is not disputed that, though the tax is called a tax on “gross revenue,” such gross revenue is in reality the aggregate of sums received from sales of coal, and is indistinguishable from a tax upon every sum received from the sale of coal.

The respondents are producers of coal, a commodity the subject of commercial transactions. Their Lordships can have no doubt that the general tendency of a tax upon the sums received from the sale of the commodity which they produce and in which they deal is that they would seek to recover it in the price charged to a purchaser. Under particular circumstances the recovery of the tax may, it is true, be economically undesirable or practically impossible, but the general tendency of the tax remains.

The situation in that case is not analogous to that of persons required to pay tax under s. 10(1)(a). The persons required to pay the tax are not producers of minerals, the subject of commercial transactions. They cannot seek to recover the tax in the price charged to purchasers of the minerals produced. They could not seek to recover the tax imposed upon them from the operators or contractors without an agreement on the part of the persons to whom the rights to mine were granted, to increase the payments stipulated in the grant. Even if such an agreement were possible, it would be in breach of s. 12(b) of the Act.

I agree with the comments of Chief Justice Mifflin speaking for the Court of Appeal in this case. After referring to a passage from the reasons of the Privy Council in the Caledonian Collieries case, he said:

A tax on gross revenue is actually a tax on the total sales which can be very easily tacked onto the price and passed along to the consumer. The tax imposed by Section 10 is not a gross revenue tax, nor is it a commodity tax. It is a tax on net revenues or income from rentals, royalties and like payment arrived at by deducting from the total sum received certain amounts

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for specified expenses allowed by the Act. The fact that the amounts of administrative and other expenses allowed under Subsection (a) of Section 10 of the Act are in the discretion of the Minister does not make the tax a gross revenue tax. The nature of the deductions are spelled out; there can be no doubt that amounts are deductible and what the Minister may do is to quantify these amounts. The same remark is applicable to the deductions allowed under Subsection (2)(b) of Section 10 where the amount is left to the discretion of the Lieutenant-Governor in Council. This Court ought not to ascribe to the Minister or Lieutenant-Governor in Council motives that would amount to an improper exercise of these discretionary powers, which would result in no deductions being permitted, thus imposing a tax on gross rentals, royalties and like payments.

With respect to the submission of the appellants that the economic tendency would be for the taxpayer to seek to pass the tax on to someone else, the answer is that this is not sufficient, in itself, to make the tax an indirect tax.

In Attorney-General for British Columbia v. Esquimalt and Nanaimo Railway Company, [1950] A.C. 87, Lord Greene, who delivered the reasons of the Privy Council, said, at p. 119:

It is probably true of many forms of tax which are indisputably direct that the assessee will desire, if he can, to pass the burden of the tax on to the shoulders of another. But this is only an economic tendency. The assessee’s efforts may be conscious or unconscious, successful or unsuccessful; they may be defeated in whole or in part by other economic forces. This type of tendency appears to their Lordships to be something fundamentally different from the “passing on” which is regarded as the hallmark of an indirect tax.

In a recent case in this Court, Minister of Finance of New Brunswick v. Simpsons-Sears Ltd., [1982] 1 S.C.R. 144, the issue was as to the constitutional validity of a New Brunswick statute which imposed a sales tax upon the respondent company in respect of the free distribution of catalogues to persons in that province. One of the issues in the case was as to whether the tax was an indirect tax. In support of the contention that the tax was indirect, evidence was given by officers of

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the respondent company that the cost of the catalogues, including the sales tax, would be recovered in the fixing of prices to customers. This argument was not accepted. Chief Justice Laskin, who delivered the unanimous decision of the Court, said at pp. 161-62:

There is no doubt, on the evidence, and on ordinary economic considerations which are obvious enough to justify a Court in taking judicial notice of them, that the company would seek, if it could, to include the cost to it of its catalogues and the tax payable on their free distribution in its expense of doing business, and thus seek to pass this expense on to its customers. However, economic considerations are not invariable touchstones of legal incidence. Although the tests of direct and indirect taxation have, almost from the beginning of Canadian federalism, been based on Mill’s Political Economy, they have necessarily been placed in a legal setting and have been applied as providing a legal definition and not an economic one. There is a passage in Bank of Toronto v. Lambe (1887), 12 App. Cas. 575, at p. 583, which is an appropriate reference here, although it deals with a different type of tax. The passage is as follows:

…the tax now in question is demanded directly of the bank apparently for the reasonable purpose of getting contributions for provincial purposes from those who are making profits by provincial business. It is not a tax on any commodity which the bank deals in and can sell at an enhanced price to its customers. It is not a tax on its profits, nor on its several transactions. It is a direct lump sum, to be assessed by simple reference to its paid-up capital and its places of business. It may possibly happen that in the intricacies of mercantile dealings the bank may find a way to recoup itself out of the pockets of its Quebec customers. But the way must be an obsure and circuitous one, the amount of recoupment cannot bear any direct relation to the amount of tax paid, and if the bank does manage it, the result will not improbably disappoint the intention and desire of the Quebec Government. For these reasons their Lordships hold the tax to be direct taxation within class 2 of sect. 92 of the Federation Act.

The “general tendency” argument, found, for example, in the Caledonian Collieries case, is not one that establishes a principle outside of the context in which it was used in that case. Where, as in the present case, the tax imposed in respect of the free distribution of catalogues takes no account of what ultimately happens to

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the catalogues, whether they are used or discarded, and is unrelated to any purchases made from the catalogues, it is manifest to me that the tax is so diffused in its impact that it cannot be said that there is any clearly traceable way in which the tax can be passed on.

Moreover, to borrow a phrase from the reasons of Rand J. in C.P.R. v. Attorney General for Saskatchewan, [1952] 2 S.C.R. 231, at p. 251, the tax in the present case is not “related or relatable” to any unit of a commodity or its price; indeed, no commodity is involved.

In my opinion the tax imposed by s. 10(1)(a) is demanded from the very person who it is intended should pay it. It was not imposed in the expectation or with the intention that it should be passed on to another. It is a direct tax which the Legislature of Newfoundland had the power to impose.

The appellants contended that the tax imposed by s. 10(1)(a) even if valid, did not apply to them. In substance, their contention was that, in the light of the circumstances under which their royalties were paid and received, a tax upon those royalties would not be a taxation within the province.

No material was filed in the Court of Appeal or in this Court in support of the appellants’ contention. As I have already noted, the factual basis for this submission appears only in the appellants’ factum and the Court has been asked to rule on the question as to whether, if those facts could be established, the appellants would be liable to tax.

I do not regard this procedure to be proper on an appeal in a constitutional reference and any attempt in the future to follow a similar course should be discouraged. However, the issue was argued before us by counsel on both sides and, in view of the conclusion I have reached, I am prepared to consider it.

I have already referred to the fact that Nalco was incorporated by a special Act of the Legislature of Newfoundland. Javelin is a federally incorporated company. Its head office is presently in Montreal. It is registered to do business in Newfoundland and, up to and including the year 1980, it filed annual returns with the Registrar of Com-

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panies there, describing its business as “exploration and development of mineral properties”.

Wabush Iron Company Limited was incorporated under the laws of the State of Ohio and is registered to do business in Newfoundland as a foreign company. Pickands Mather & Co. is a partnership registered under the laws of the State of Ohio and is registered to do business in Newfoundland. They are the managing operators of the joint venture hereinafter mentioned. Steel Company of Canada is federally incorporated and is registered to do business in Newfoundland.

By lease dated May 26, 1958, the Government of Newfoundland leased to Nalco an area known as the Wabush Deposit. On the same day, Nalco, by way of sub-lease, leased the same deposit to Javelin.

The Nalco-Javelin (Mineral Lands) Act, 1957 (Nfld.), c. 84, was enacted by the Legislature of Newfoundland. It authorized the Lieutenant Governor in Council to enter into agreements with all of the parties above named. Section 3 provided that such agreements must be substantially similar to the terms of the “statutory agreement” which appeared as a schedule to the Act. Leases were then made between Javelin, as lessor, and Pickands Mather and the Steel Company of Canada, as lessees, covering the westerly portion of the Wabush Deposit, and between Javelin, as lessor, and Wabush Iron Company Limited, as lessee, in respect of the easterly portion of that deposit.

The Nalco-Javelin (Mineral Lands) Act, 1960, 1960 (Nfld.), c. 41, provided for what is called a “Statutory Supplementary Agreement”. This agreement, which forms part of the legislation, consolidated and amended the two leases made pursuant to the original Act. This agreement, dated September 2, 1959, is the one which is concerned in the appellants’ submission regarding tax liability.

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The granting clause demised to the lessee the described land, together with the exclusive right to explore, investigate, develop, produce, extract, remove by open pit method or other method of mining, smelt, reduce and otherwise process, make merchantable, store, sell and ship all iron ore products. An annual rental was fixed at $360 subject to certain deductions. The term was up to and including May 20, 2055.

A. AND the Lessee hereby covenants with the Lessor as follows:

1. That the Lessee will, during the term of this Indenture, pay to the Lessor on or before the 25th day of January, April, July and October (hereinafter called “Quarterly Payment Dates”) in each and every year or if such day falls on a Sunday or a holiday then on the next ensuing day, as royalty for each Gross Ton of Iron Ore Products shipped from the Demised Premises during the calendar quarter immediately preceding the first day of the month in which payment is to be made as aforesaid, an amount equal to seven per cent (7%) of the Seven Islands Price thereof, or the sum of seventy-five cents (75 c), Canadian Funds, whichever shall be greater (the royalty so paid or payable being hereinafter called “Earned Royalties”);

In addition, there was provision for a minimum royalty, calculated on a different basis, payable whether or not the lessee conducted operations on the demised premises.

The “Seven Islands Price” was defined as a price determined by a method of computation which was provided in the lease.

The place of payment of royalties was not stipulated.

The contention of the appellants is that the s. 10(1)(a) tax cannot apply to them because of the fact that the iron ore produced from the leased lands is shipped out of Newfoundland, ultimately to Seven Islands, in Quebec, for processing, that this product is then delivered to a carrier for shipment to the consumer, that the amount of the royalty is only determined at that time, and that

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Javelin receives payment of its royalties at its head office in Montreal.

In my opinion, these facts are irrelevant to the obligation of Javelin to pay the tax. The tax is not imposed upon operations outside Newfoundland. This is a tax imposed upon a person who has obtained the right to engage in mining operations for the production of a mineral resource in Newfoundland and who has granted the right to engage in such operations to someone else in return for payments made by the recipient of the grant. Javelin obtained its right to conduct mining operations on certain lands in Newfoundland from Nalco on the very day that Nalco had itself obtained such rights from the Crown. Javelin granted the right to conduct such mining operations to its lessee. The lessee agreed to pay a royalty “for each Gross Ton of Iron Ore shipped from the Demised Premises”. The royalty accrued from the date of actual shipment. Shipment was deemed to occur when the ore was delivered to a carrier at the Demised Premises or from stockpile grounds or from the plant or plants, as the case may be, for shipment to the consumer thereof.

Whether or not, in fact, the royalties payable to Javelin accrue here in consequence of some event outside Newfoundland and wherever Javelin elected to receive payments of its royalties cannot affect the application of the tax to those royalties. The tax arises when Javelin receives payment for its grant to its lessee of the right to engage in mining operations on Javelin’s land in Newfoundland. The essence of the tax is that it is imposed in respect of income derived from a grant of the right to mine a Newfoundland reserve from the taxpayer’s land in Newfoundland.

The case of Alworth v. Minister of Finance, [1978] 1 S.C.R. 447, is of some assistance here. It involved a tax imposed by a British Columbia statute on income “derived from logging operations in British Columbia”. Payment was resisted

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by the appellants on the ground that they were not in the province in any of the respective taxation years and that, in consequence, a tax upon them was not taxation in the province. Their appeal was dismissed. Chief Justice Laskin, delivering the judgment of the Court, said at p. 452:

Essentially, what is involved in the present case is an appreciation of the incidence of the tax, based, as that appreciation must be, on the subject-matter of the statute and the source of the income in respect of which the tax is levied. I regard it as too mechanical to find that an in personam tax is imposed here merely because the charging section stipulated that a “taxpayer” must pay it. The obligation to pay, a common one in tax legislation, does not necessarily determine the incidence of the tax. The definition of taxpayer is not limited to persons who reside in the Province but points rather to a class of persons identified with the operations in respect of which tax is imposed, regardless of their place of residence. It is the income derived from those operations, which themselves are limited to the Province, that, in my view, carries the burden of the tax. Whether the tax be characterized as an income tax or a tax respecting certain economic activity in the Province the result is the same, namely, that it is taxation within the Province. It would be to substitute form for substance and, indeed, empty the charging section of substance (by inviting easy evasion) to hold that a personal tax is imposed by the Act.

The position of the appellants in the present case is much weaker than that of the appellants in the Alworth case. Nalco is a Newfoundland company. Javelin has residence in Newfoundland by being registered to do business there. By virtue of its sub-lease from Nalco it has acquired mining rights in lands in Newfoundland granted to Nalco by the Crown.

In my opinion, the tax created by s. 10(1)(a) applies to the appellants.

The appellants suggested that the legislation in issue was invalid because it trespassed on federal legislative powers under s. 91(2)  of the Constitution Act, 1867 , “The Regulation of Trade and Commerce”.

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There is no substance in this submission. The Act under consideration is a tax upon income. There is no suggestion that it is aimed at the regulation of interprovincial or international trade. The mere fact that Javelin’s lessees remove the iron ore to another province for processing and sale does not convert the Act which imposes a tax on Javelin into legislation for the regulation of trade and commerce. (See Carnation Co. Ltd. v. Quebec Agricultural Marketing Board, [1968] S.C.R. 238).

The final point for consideration is the appellants’ contention that the s. 10(1)(a) tax cannot be imposed upon them because of the provisions of agreements made by the Crown granting them certain tax exemptions.

The appellants place reliance upon the provisions of s. 8K(2) of The Newfoundland and Labrador Corporation Limited (Amendment) Act, 1959 (Nfld.), c. 34, which replaced the same numbered provision in The Newfoundland and Labrador Corporation Limited Act, 1951, 1951 (Nfld.), c. 88. This subsection provided for the payment by the Corporation, or such person, firm or company actually carrying on mining operations of 22 cents per gross ton of iron ore mined and shipped from the demised premises, subject to variation as provided, and went on to say:

and such payment shall be in lieu of any and all taxes that would otherwise be payable by the Corporation or any lessee, sublessee, assignee or transferee of such premises under The Mining Tax Act, chapter 43 of The Revised Statutes of Newfoundland, 1952, as amended from time to time, or under any Act standing in the place of The Mining Tax Act as so amended, and any taxes for which the taxes now imposed by The Mining Tax Act are declared by that Act to be substituted, and any taxes imposed either generally or specifically upon mines or minerals or specifically upon persons carrying on the business of mining, in respect of operations under the said mining leases or in respect of iron ore mines or iron ore products made, produced, won, gotten, raised or removed under the provisions of the said mining leases.

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The appellants contend that the list of taxes referred to in this passage would include the type of tax imposed by s. 10(1)(a). The respondent argues that the tax imposed by that subsection is not a tax of the kind defined in s. 8K(2).

I do not find it necessary to make a decision on that point because s. 12(a) of The Mining and Mineral Rights Tax Act, 1975, provides that:

12. Nothing in any Act of the province, or in any grant, deed, licence, contract, agreement or other document (whether or not such grant, deed, licence, contract, agreement or other document has received ratification by the Legislature), passed, given, made or entered into prior to the coming into operation of this Act, shall be construed so as

(a) to defeat the liability of a taxpayer to pay the tax required to be paid by Section 10 of this Part;

The effect of this provision is that the tax imposed by s. 10(1)(a) has to be paid by the taxpayer notwithstanding the provisions of any agreement previously made, or any statute previously enacted. Within the limits of its constitutional legislative jurisdiction, the provincial legislature is sovereign. It is not precluded from legislating in its own field by any earlier agreement or statute. It could therefore provide that the tax which it imposed should be payable by the taxpayer in any event. In my opinion this submission of the appellants fails.

For these reasons, as well as for the reasons stated by Mifflin C.J. in the Court of Appeal, I would dismiss this appeal. The respondent should be entitled to costs in this Court as against the appellants. There should be no costs payable by or to any of the inverveners.

Appeal dismissed with costs.

Solicitors for the appellants: Halley & Hunt, St. Johns, Newfoundland.

Solicitors for the respondent: James J. Greene and Joseph S. Hutchings, St. John’s, Newfoundland.