Mattabi Mines Ltd. v. Min. of Rev., [1982] CTC 382 (SCO), rev'd [1984] CTC 566 (Ont CA), which was, aff'd by [1988] 2 CTC 294, [1988] 2 S.C.R. 175

Keith, J:—This appeal from the notice of reassessment by the respondent of the appellant’s income for its fiscal year ending December 31, 1974, comes to this Court pursuant to the provisions of Part V, Division F, sections 155 to 160 inclusive of the Corporations Tax Act, 1972, being Statutes of Ontario, 1972, c 143 and which I will for convenience refer to as the Statute.

For purposes of this appeal, there are no facts in dispute.

The appellant was incorporated as a mining company in 1970, for the purpose of developing and bringing into production its mining property near Ignace in northwestern Ontario. Work commenced in the autumn of 1970, and by the time the mine came into production in reasonable commercial quantities as of August 1, 1972, upwards of $40,000,000 had been expended in building access roads, clearing the site, stockpiling material, erecting buildings and installing machinery.

For decades prior to 1972, new mines were exempted from taxation of income by both the Federal taxing authority and the Province of Ontario for a period of 36 months from the date fixed as the date that such new mine commenced production in reasonable commercial quantities. Thus when the decision was made in 1970 to develop the appellant’s mining property, its management expected to have 3 years of tax-free income to recover its enormous pre-production expenditure. (Ref. for Ontario — see subsection 75(2) of the Statute).

In the late spring of 1971, the Federal Government announced certain measures that it intended to take as part of a sweeping reform of its taxing policy. Included in these measures was the repeal of the legislation providing for the 36-month tax holiday theretofore granted by the Federal Government to new mining companies, effective from December 31, 1973.

Up until April, 1974, no similar announcement was made by the Ontario Government. The audited financial statements of the appellant for the year ending December 31, 1973, were released by its auditors under date of February 8, 1974. Note 3 to these financial statements reads as follows:

3. Under the provisions of income tax legislation, no taxes are exigible on the company’s income from the production of the mine during exempt periods commencing August 1, 1972 when it came into production and ending December 31, 1973 for federal taxes and July 31, 1975 for Ontario taxes. At December 31, 1973 the company had provided an amortization in its accounts which will be claimed, to the extent available, as deductions from taxable income subsequent to December 31, 1973, thus reducing income otherwise payable.

A similar note was appended to the 1972 financial statements.

The appellant’s corporation tax return for the fiscal year ended December 31, 1973, was filed on March 29, 1974, and showed no tax payable on income, but a tax payable on capital of approximately $53,000.

In April 1974, the Treasurer of Ontario, for the first time, announced that it too, would enact legislation terminating the 36-month tax exempt period for new mines, effective retroactively to December 31, 1973. The forecast legislation did not, in fact, become part of the law of Ontario until December 2, 1974!

This announcement brought about a major revision of the appellant’s planned accounting for tax purposes. These revisions which were rejected by the respondent for the 1974 taxation year are the subject of this appeal. The notice of reassessment under appeal dated November 16, 1977, calculated the company’s taxable income for the year ended December 31, 1974, at $24,988,804.06 and the tax thereon at 12% in the amount of $2,988,804.06.

The appellant had claimed a tax credit of $736,962.30 and based on this claim had paid income tax of $2,231,839. This is the claim that was disallowed in the reassessment. There are some adjustments required to the figures I have quoted, however, I have quantified the amount in issue, accurately enough, to indicate the magnitude of the appellant’s claim for relief.

The revisions that the appellant made when filing its 1974 corporation tax return in June 1975, were as follows:

(a) an amended tax return for its fiscal year ending December 31, 1971. The amendment reads as follows:

If this apparently minor amendment to the appellant’s 1971 corporation tax return is permitted by law, it provides the foundation for the appellant’s claim for relief to which I have referred with respect to the amount of tax payable on its 1974 taxable income. This result stems primarily from the application of section 106 of the Statute, and particularly subsection (1), (4) and 5(b). Section 106 reads as follows:

(1) There may be deducted from the tax otherwise payable under this Part for a fiscal year by a corporation an amount equal to 5 per cent of the cost of machinery and equipment acquired and used in that fiscal year by the corporation which machinery and equipment is acquired pursuant to an agreement entered into after the 26th day of April, 1971, and which shall be used by the corporation solely in Ontario prior to the 1st day of April, 1973, for the purpose of earning income.

(2) For the purposes of this section, where the machinery and equipment in respect of which the provisions of subsection 1 would otherwise apply, is not used by the corporation in the fiscal year in which it is acquired, such machinery and equipment shall be deemed to have been acquired and used by the corporation in the fiscal year in which it is first used.

(3) Any amount which may be deducted under subsection 1 may be deducted in subsequent fiscal years to the extent that the deduction allowed under subsection 1 exceeds the tax otherwise payable by the corporation in the previous fiscal years and, except as herein provided, no deduction shall be allowed in any fiscal year of the corporation ending after the 31st day of March, 1973, except that with respect to the first fiscal year of the corporation ending after the 31st day March, 1973, the amount which may be deducted from the tax otherwise payable for that fiscal year shall not exceed that portion of the tax otherwise payable for that fiscal year that the number of days in that fiscal year prior to the 1st day of April, 1973, bears to 365.

(4) Notwithstanding subsection 3, where a corporation has a net loss, any amount which may be deducted under subsection 1 may be deducted in subsequent fiscal years to the extent that the deduction allowed under subsection 1 exceeds the tax otherwise payable by the corporation in the previous fiscal years and, except as herein provided, no deduction shall be allowed in any fiscal year of the corporation ending after the 31st day of March, 1974, except that with respect to the first fiscal year of the corporation ending after the 31st day of March, 1974, the amount which may be deducted from the tax otherwise payable for that fiscal year shall not exceed the portion of the tax otherwise payable for that fiscal year that the number of days in that fiscal year prior to the 1st day of April, 1974, bears to 365.

(5) In this section,

(a) “machinery and equipment” means machinery and equipment prescribed by the regulations, but does not include automobiles and trucks, any property that is described in the corporation’s inventory or that part of any property in respect of which a loan is made under The Ontario Development Corporation Act, or The Northern Ontario Development Corporation Act;

(b) “net loss” means the amount, if any, by which the non-capital losses exceed the incomes of a corporation for the fiscal years ending between the 26th day of April, 1971, and the 1st day of April, 1973, except that,

(i) where the provisions of subsection 4 apply with respect to the first fiscal year of the corporation ending after the 31st day of March, 1973, in determining the net loss for the purpose of this section there shall be included that portion of the non-capital loss or income for that fiscal year that the number of days in that fiscal year prior to the 1st day of April, 1973, bears to 365, and

(ii) where, for the purposes of section 103, part of the taxable income of a corporation for a fiscal year is deemed to have been earned by the corporation in a jurisdiction outside Ontario, or, where the taxable income for that fiscal year is nil and, for the purposes of section 132, part of the taxable paid-up capital of the corporation is deemed to have been used in a jurisdiction outside Ontario, the non-capital loss or income for that fiscal year shall, in determining the net loss for the purpose of this section, be reduced in the same ratio that the tax payable under section 102 or 131 as the case may be, is reduced for that fiscal year;

(c) “tax otherwise payable” means the tax for the fiscal year otherwise payable by the corporation under this Part after making any deduction applicable under section 103.

There is no issue between the parties with respect to the fact that the appellant acquired and commenced to use for the purpose of earning income, a great quantity of machinery and equipment between April 26, 1971, and April 1, 1973. The appellant used a figure of $15,064,193 for the purpose of calculating the quantum of its claim for investment tax credit. This figure has not been verified by the Minister. If the appellant is successful, the relevant figures will be established by the parties in due course.

It is the position of the appellant that it is entitled by long standing practice to file an amended 1971 return long after the event, and that if this is so, it suffered a “net loss” in 1971 of not less than $100 and by virtue of subsection 106(4) it is entitled to claim the tax credit provided by subsection (1) in “its first fiscal year ending after March 31, 1974” ie its fiscal year ending December 31, 1974.

The appellant however, does not rest its case solely on an amended 1971 corporation tax return but defines the issue more broadly. The first issue which it puts before the Court is whether or not there was in fact and law a “net loss” for either or both of its fiscal years ending December 31, 1971, and December 31, 1972, and the second issue is whether there is any bar to the appellant making claim in 1974, to a “net loss” in either or both of these fiscal years, such claim not having been advanced in its original corporation tax returns for those years.

The respondent denies that the appellant has any right to amend its financial statements, whether by law or established practice after the time for filing an objection has expired, or having filed an objection to an assessment after the time for appeal from the confirmation of such assessment has passed.

Section 145 of the Statute requires every taxable corporation to file its tax return within 6 months after the close of its fiscal year. The Minister is required to examine the return and “with all due despatch . . . assess the tax, interest and penalties, if any, payable.” He must then deliver a notice of his assessment to the corporation (section 150).

The corporation then has 90 days from the date of the mailing of the notice of assessment to serve the Minister with notice of any objection that the corporation takes to the assessment. Upon receipt of a notice of objection, the Minister must “with all due despatch” reconsider the assessment objected to, and having either vacated, confirmed, varied or reassessed, notify the corporation of his decision. (section 154).

Once again, the corporation has 90 days within which to file a notice of appeal to this Court, (section 155). The Minister, on the other hand, is only required to reply to the notice of appeal “with all due despatch” whatever that phrase means, (subsection 156(1)). The Court or a judge thereof may permit amendments to be made to a notice of appeal, or strike out an improper notice of appeal and permit the filing of a new one, (subsection 156(2)).

Upon the filing of the required material “the matter shall be deemed to be an action in the Court”, (subsection 157(1)) and “the practice and procedure of the Supreme Court, including the right to appeal apply to every matter deemed to be an action under section 157”, (section 159).

I have referred to these sections because counsel for the respondent strenuously opposed the application made by counsel for the appellant, for leave to amend its notice of appeal by adding the following alternative claim:

25. In the alternative, if the Appellant is not entitled to deduct from the tax otherwise payable for 1974 under Part Il of the Act the investment tax credit permitted by Section 106 of the Act, then the Appellant respectfully requests an Order referring the assessment described in paragraph 20 above back to the Minister for reconsideration and reassessment so as to deduct in computing the Appellant’s income for 1974 additional capital cost allowance up to the maximum amount permitted by the Act and its regulations.

In support of his submission that the appellant is not entitled to raise any new claim for a deduction that was not raised in its notice of objection, and I would assume its notice of appeal, two cases were relied on. The first is reported as Archibald S Spence v MNR, 36 Tax ABC 312; 64 DTC 651. This case came before W O Davis, QC of the Federal Tax Appeal Board. In his reasons for his decision Mr Davis said at 313 [652]:

However, at the hearing, counsel for the appellant Spence sought to introduce a second branch of his client’s appeal in order to claim as a deduction certain alleged farm losses of the appellant. This matter arose long after the instant appeal had been filed with this Board against the notice of re-assessment dated October 22nd, 1962, to which the appellant had endeavoured to file an amended income tax return for the taxation year 1959 in order to incorporate therein his claimed farm losses, but the Minister declined to deal with it because the re-assessment of the appellant’s original return had culminated in an appeal to this Board which had not yet been dealt with. In view of the Minister’s refusal to process the amended return at that time, the appellant filed an amended notice of appeal with this Board approximately one month after the original notice of appeal had been filed, and in this amended notice of appeal the matter of the claim for a deduction of alleged farm losses was raised.

An appeal to this Board being from an assessment, and the matter of farm losses having formed no part of the assessment under appeal or of the notice of objection thereto, the Board has no choice but to decline to deal with this additional element raised by the taxpayer.

Mr Davis’ decision was no doubt correct in so far as the Tax Appeal Board was concerned, but has not the slightest application to an appeal under the Ontario Statute and much less, if possible, to a matter that is “deemed to be an action” in the Supreme Court of Ontario and subject to the practice and procedure of this Court. The practice of this Court has always been to permit amendments to pleadings that are required to form the foundation of a just judgment of the Court, at any stage of the proceedings, even extending to the end of a trial. On occasion it may be necessary to refuse an application to amend at a late time; on other occasions, it may be right and proper in the discretion of the judge, to impose terms on the applicant. The essential point however, is that no application for leave to amend a pleading is to be rejected on the sole ground that it is made at a late time in the proceedings. In any event, while the decisions of members of the Tax Appeal Board are always entitled to the greatest respect and in many cases have persuasive force, they are not binding on this Court.

Mr Davis expressed his previous point of view in the case of G Rosenberg v MNR, [1968] Tax ABC 1131; 68 DTC 830 when he said at 834:

Mr Goodman further argued that, notwithstanding the fact that the appellant had objected only to the disallowance of the deduction of his personal loans to the company as a bad debt (which he then referred to as amounting to $3,500 but which he has established in his evidence as amounting to $3,550), he was nevertheless entitled to include in his notice of appeal to this Board a claim in connection with the additional amount of $2,450 which he was obliged to pay to the bank on his guarantee.

I find this submission completely unacceptable. Bearing in mind the progressive provisions of the Income Tax Act, beginning with s 58(1) dealing with the filing of a notice of objection within 90 days from the date of mailing of the notice of assessment challenged, which requires the taxpayer to set out therein “the reasons for the objection and all relevant facts”, I must hold that, having failed to deal with the bank payment of $2,450 in his notice of objection to the assessment bearing date the 13th day of September, 1965, in respect of his income for the taxation year 1964, the appellant cannot, at this later stage, raise this point in his notice of appeal to this Board as, by so doing, he has deprived the respondent of the right of reconsideration thereof at the notice of objection stage.

I therefore hold that this Board is without jurisdiction to deal with the amount of $2,450 which the appellant was obliged to pay to the bank in connection with his guarantee of the company loan and overdraft. See Archibald S Spence v Minister of National Revenue, 36 Tax ABC 312; 64 DTC 651.

I must say that I am at a total loss to understand what objection there could be to ordering the taxing authority to consider all relevant factors, no matter how late in time a point might be raised, before finally coming to a decision as to how much of the taxpayer’s income shall be taken from him for taxes. This would appear to be the approach taken when appeals against assessment were taken directly to the Exchequer Court of Canada which, of course, has now been replaced by the Federal Court of Canada.

The issue arose squarely in the case of Benaby Realities Limited v MNR, [1965] CTC 273; 65 DTC 5161. In granting leave to the appellant to amend its notice of appeal at trial, Noel, J said at 281 [5166]:

Having reached the conclusion that the appeal should be allowed in respect of the profit from the expropriation if this point had been properly raised, I must now consider whether the appeal should be allowed in respect of that profit notwithstanding that it was not so raised. Section 98(3) of the Income Tax Act requires the appellant to “set out” in the notice of appeal “a statement” of inter alia the “reasons which the appellant intends to submit in support of his appeal”. This particular reason was not included in the notice of appeal. Indeed, it was raised for the first time during the course of final argument by counsel for the appellant. Had the respondent at that time objected to the point being taken by the respondent, I am inclined to the view that I would have put the appellant to a choice of taking leave to amend his notice of appeal under section 99(2) of the Income Tax Act upon terms as to costs or of abandoning the point. Counsel for the respondent did not however make such an objection and, indeed, having regard to the manner in which he strove to avoid the decision of Dumoulin, J in the related appeal of Ben Lechter, which decision had been delivered some five days before the argument in this case, I can only assume that he anticipated that the point would be taken. I therefore order that the appellant be permitted to make an amendment to the notice of appeal raising this point in an appropriate way.

In reaching the above conclusion with regard to the taxability of the profits from the disposition of the vacant lands, I have not taken into account the evidence concerning the transactions in land of the shareholders in the appellant company, which was admitted subject to the appellant’s very strong objections and in view of the conclusion which I have reached without reference to this evidence, it therefore becomes unnecessary for me to rule with regard to its admissibility.

Consequently, upon the appellant amending its notice of appeal pursuant to the leave herein granted, there will be judgment allowing the appeal and referring the assessment back to the Minister for re-assessment by excluding the profit from the expropriation from the appellant’s income for the 1955 taxation year and dismissing the appeal in all other respects.

In the subsequent case of Vineland Quarries and Crushed Stone Limited v MNR, [1970] CTC 12; 70 DTC 6043, it was the Minister who sought leave to amend his reply to the appellant’s notice of appeal. In allowing the amendment Cattanach, J said at 15 [6045]:

As I understand the basis of an appeal from an assessment by the Minister, it is an appeal against the amount of the assessment.

In Harris v MNR, [1965] 2 Ex CR 653 [64 DTC 5332], my brother Thurlow said at page 662:

“.. . On a taxpayer’s appeal to the Court the matter for determination is basically whether the assessment is too high. This may depend on what deductions are allowable in computing income and what are not but as I see it the determination of these questions is involved only for the purpose of reaching a conclusion on the basic question . ..”

Here the Minister does not seek to increase the amount of the assessment. He seeks to maintain the assessment at the amount he assessed. However by his amendment to his Reply he seeks to ensure that, if the Court should find that the basis of his asessment was wrong, he might then, pursuant to reference back, assess a considerably lesser amount on what he forsees the Court might say is the correct basis of assessment.

In MNR v Beatrice Minden, 62 DTC 1044, Thorson P, the former President of this Court, said at page 1050:

. . In considering an appeal from an income tax assessment the Court is concerned with the validity of the assessment, not the correctness of the reasons assigned by the Minister for making it. An assessment may be valid although the reason assigned by the Minister for making it may be erroneous. This has been abundantly established.

In effect the Minister says that for a reason he thinks to be correct he assessed the appellant to income tax at “X” dollars. The appellant says that the reason assigned by the Minister was incorrect. The Minister then says if the Court should hold the basis for his assessment of “X” dollars is erroneous, then for what the court might find to be the correct reason, he would assess the appellant at “X” minus “Y” dollars.

This I think the Minister is entitled to do and accordingly I would allow the motion and permit the Minister to amend his Reply to the Notice of Appeal as requested.

Counsel for the respondent in the present case did not seek to amend its reply nor ask for any other term or condition but simply took the position that the Court was powerless to permit an amendment raising a new point, for the first time, when the case was called for trial.

For the reasons I have stated, I cannot agree and the motion to amend is allowed.

In submitting that the appellant is not barred from amending its 1971 corporate tax return in 1974, or from now seeking amendments to its 1972 financial statements for the purpose of showing a loss in 1972, counsel has stated firmly that the appellant does not seek any equitable relief but on the contrary a strict compliance with the relevant sections of the Statute and the Regulations, and that equity has no place in the construction of the taxing statute citing Partington v Attorney General (1869), LR 4 HL 100 at 122 and Cape Brandy Syndicate v IRC, [1921] 1 KB 64 at 71.

Be that as it may, the intention of the federal taxing authority to terminate the 36-month tax holiday for mining companies effective December 31, 1973, was made known to the public in June 1971, whereas the Government of Ontario remained silent for almost 3 years and then acted retroactively. During this 3 years the 1971, 1972 and 1973 fiscal years of the appellant had closed.

When the Province belatedly took action, the appellant of course, knew that its mining income for 1974 would be subject to provincial tax which turned out to amount to almost 3 million dollars, instead of being totally exempt for 1974 and the first 7 months of 1975, but it could hardly have expected to be deprived at the same time of the benefit of the incentive tax deduction contained in section 106 of the Statute.

In this connection, counsel for the respondent made a curious statement in the course of argument, namely that the appellant, and I suppose all other mining companies in a similar position “should have anticipated that the Provincial law would follow the Federal”. It seems to be implicit in this submission that an astute taxpayer would have filed tax returns in 1971 and 1972 claiming losses in those years just to be on the safe side and that had that been done in either of both of those years, the investment tax credit would have had to be allowed as a deduction from the 1974 Provincial corporate income tax.

Why any taxpayer should be expected to anticipate 3 years in advance what a legislature or a Parliament would or was likely to do in changing tax laws escapes me.

What the appellant has sought to do in 1974 is not to alter its tax obligation for the fiscal year 1971, but to take the step it could and undoubtedly would have taken had the respondent made known its intention to terminate the 36-month tax holiday at any time prior to June 30, 1972, the last day for filing its 1971 corporate tax return.

Indeed it might well have been argued that such announcement at any time up to March 5, 1974, would have opened the door to the appellant to claim a loss for the 1971 taxation year since the respondent issued a second notice of reassessment of 1971 taxes on December 5, 1973, and the time for filing a notice of objection which might well have contained the substance of the claim made in 1975 to amend the 1971 return by claiming a net loss arising from a claim for capital cost allowance of $100 to create a “net loss” in 1971, did not expire until March 5, 1974. Unfortunately the announcement was made about 6 weeks later.

Mr Sato, the tax auditor of the respondent responsible for assessing the appellant’s 1974 and amended 1971 tax return, in giving evidence said that the practice of his department would be to accept an amended return at any time up to 90 days from the date of assessment which he thought in his evidence-in-chief, would have been in late 1972.

In cross-examination he was reminded of the late reassessment and conceded that according to his department’s practice, that reassessment reopened the time to amend for 90 days from December 5, 1973. He went on to infer that while normally his department would follow the practice of the Federal Department, it would act quite independently if an amendment would result in a significant tax change.

What he failed to recognize was that the significant tax change could not be in the year for which the taxpayer sought to amend its return, ie 1971, but for a later year, ie fiscal year 1974.

The practice of permitting a taxpayer to file a revised claim for capital cost allowance is the subject of two interpretation bulletins issued by the federal income tax office, and both pre-date the amended return filed federally and provincially in 1975 for the appellant’s 1971 taxation year. The relevant portions of Interpretation Bulletin 13 dated June 11, 1971 under the Income Tax Act (Canada read as follows:

From time to time, the Department of National Revenue receives requests from taxpayers to permit a revision of capital cost allowance claims for previous taxation years. As well, the situation often arises where a revision results from a reassessment by the Department. This bulletin outlines the types of revision which generally occur and the circumstances under which requests for a revision will be accepted by the Department.

Where a taxpayer requests a revision of capital cost allowance claimed in a year which was assessable to a “nil” income tax (because of a loss in that year, the application of a loss of another year, or the fact that income was exempt from tax in that year), such requests will be allowed only if there is no resulting change in the tax assessed for the year or any other year of the taxpayer for which the time has expired for filing a notice of objection.

Interpretation Bulletin 112 dated July 10, 1973, which replaced IT-13, contained, inter alia, the same provisions.

RRO 1970, in effect December 31, 1971, contained Regulation 139 made under the then Corporations Tax Act, para 401(1) reading as follows:

401. (1) Under clause a of subsection 2 of section 23 of the Act, every corpor- tion shall deduct for each fiscal year the same part of the capital cost to the corporation of property, or the same amount in respect of the capital cost to the corpo ration of property, as is deducted by the corporation under clause a of subsection 1 of section 11 of the Income Tax Act (Canada) for the same fiscal year . . .

This was replaced by Ontario Regulation 350/73 enacted pursuant to the Corporations Tax Act, 1972, and is to the same effect.

Simultaneously with the filing of the amended 1971 corporations tax return with the Ontario department, the appellant filed a similarly amended return with the federal income tax department. In accordance with Interpretation Bulletin 112, the Federal authorities accepted the claim for $100 capital cost allowance for the 1971 taxation year.

In my opinion, the appellant was obliged to file the amended return in Ontario having regard to the regulations in effect at all material times, and the fact that the federal authorities accepted a retroactive amending return pursuant to a well-known departmental practice is irrelevant.

Much reliance was placed by counsel for the respondent on the case of Western Smallware and Stationery Co Ltd v MNR, [1972] CTC 7; 72 DTC 6037, a judgment of Cattanach, J in the Federal Court of Canada.

In that case, the appellant had received written approval on behalf of the Minister with respect to the deduction from taxable income of corporate contributions to pension plans for senior executives. After the plan had been in operation for several years, the Minister disallowed the deductions claimed. It was argued that the Minister could not change the rules retroactively and in effect was estopped from departing from the previously expressed approval of such deductions.

Cattanach, J held, following the judgment of the Supreme Court of Canada in the case of MNR v Inland Industries Limited, [1972] CTC 27; 72 DTC 6013, that the statute did not permit these contributions to be deducted. There had been no change in the law and the Minister was in no way bound by the prior written approval relied on by the taxpayer.

That case however, has no application to the case before me. In the present case there was a very drastic change in the Ontario mining corporation tax law, made retroactively to impose on the appellant in this case a liability for income tax amounting to approximately $3,000,000 on its 1974 income, a liability which did not exist in law until December, 1974. But that is no reason to prevent the appellant from having the benefit of an incentive tax credit if it can qualify for it under section 106 of the Statute.

Much more in point is the judgment of the Supreme Court of Canada in Harel v Deputy Minister of Revenue Quebec, [1978] 1 S.C.R. 851. The appellant in that case was a police officer employed by the City of Montreal from 1930 until his retirement in 1968. By practice and laterly pursuant to a collective agreement, such employees were entitled to a certain number of days for sick leave with full pay in each year, and unused days in any year accumulated to the following year or years. At the time of the appellant’s retirement he had accumulated enough unused sick leave to oblige the City of Montreal to pay him in lieu, a lump sum of about $12,000. He filed his tax return claiming the benefit of section 45 of the Quebec Income Tax Act which provided that “In the case of a lump sum payment to an employee or former employee, out of or pursuant to a pension fund, or upon retirement of an employee in recognition of long service . ..” (italics added) rather than including the amount of such lump sum in computing his income for the year in which it was received, the taxpayer, at his option was entitled to average the sum over a period of 3 years in accordance with a formula set Out in that section. Similar provisions were contained in the federal Income Tax Act and for years before and after Quebec had a provincial income tax Act, the federal authorities interpreted such payments to be subject to averaging in a more generous way than a very strict interpretation of such a provision might require.

Such an interpretation favourable to the taxpayer by the federal authorities was well known to the Quebec authorities and followed by them in all relevant years down to the end of 1967. Without explanation the Quebec department, in 1968, departed from the federal practice and proceeded to tax the appellant, who had the misfortune to retire in 1968, as if the lump sum he received was entirely income in 1968, and denied him the benefit of section 45 to which I have referred.

The Supreme Court of Canada restored the trial judgment and in reversing the Quebec Court of Appeal, de Grandpré, J, delivering the judgment of the Court, said at 858-859:

If I had the slightest doubt on this subject, I would nevertheless conclude in favour of appellant on the basis of respondent’s administrative policy. Clearly, this policy could not be taken into consideration if it were contrary to the provisions of the Act. In the case at bar, however, taking into account the historical development that I will review rapidly, this administration practice may validly be referred to since the best that can be said from respondent’s point of view is that the legislation is ambiguous.

As the Provincial Court and the Court of Appeal pointed out, the provincial income tax statute was modelled on the federal Act. It was by c 43, s 2 of the Statutes of Canada 1944-45, that Parliament intorduced into the Income War Tax Act the concept of recognition of long service. This philosophy was further developed two years later in s 8(2) of c 55 of the 1946 Statutes of Canada. In 1948, the Act was completely rewritten and became c 52 of the Statutes of Canada for that year. With some amendments, the 1948 Act became c 148 of the Revised Statutes of 1952 and the section dealing with situations similar to the one before this Court became s 36(1) of the federal Act.

That was the situation in 1954 when the provincial law closely modelled on the federal law was adopted. At that time, the provincial legislator was familiar not only with the wording of s 36(1) of the federal Act but also, undoubtedly, with the administrative interpretation there, which was to the effect that taxpayers in Mr Harel’s situation could avail themselves of the averaging provided for in the section. Although the wording of s 45 of the provincial Act differs somewhat from that of s 36(1) of the federal Act, the concept is the same. Consequently, when c 17 of the Statutes of Quebec, 1953-54 was adopted, the administrative interpretation of the federal Act gave it a colour that the provincial legislator could not ignore. The 1954 provincial Act became c 69 of the 1964 Revised Statutes, and in 1965 c 26 of 13-14 Eliz 11 revoked s 45 and replaced it with the section currently in effect. At that time, the administrative interpretation of the provincial Act was consistent with that of the federal Act, so that in 1965 a case similar to that of appellant would have been decided in his favour. This administrative interpretation was maintained until 1968, at which time, for reasons that have not been explained, the department reversed its policy.

Once again, I am not saying that the administrative interpretation could contradict a clear legislative test; but in a situation such as I have just outlined, this interpretation has real weight and, in case of doubt about the meaning of the legislation, becomes an important factor.

It is true that the Court in that case interpreted the payment made to Harel as falling within the meaning of the words in section 45 “upon retirement of an employee in recognition of long service” and hence supported by statute, but that interpretation was founded on long standing departmental practice.

Thus in the case before me, there is a long standing departmental practice of the federal authorities, to permit and accept amended corporate income tax returns, to claim a revision of capital cost allowance in accordance with the Interpretation Bulletins I have quoted.

I am firmly of the opinion that the federal authorities having accepted such an amendment for the appellant’s 1971 fiscal year, the respondent was obliged by the applicable Ontario regulations to do likewise.

That this amendment caused the appellant to qualify for an investment tax credit in 1974, provides no basis in law or logic for the respondent to refuse to accept such amendment.

I find therefore, that the appellant did incur a “net loss” in fiscal 1971 within the meaning of paragraph 106(5b) of the Statute and hence is entitled to the benefit of the provisions of subsection 106(4).

Having come to this conclusion, it is unnecessary for me to deal with other grounds of appeal that were urged with respect to alleged losses in the 1972 fiscal year. In my opinion however, there was no net loss for that year.

It is true that when a mining corporation came into production “in reasonable commercial quantities” during a fiscal period, it was required to close its books as of the end of the pre-production period and re-open them immediately to start the income earning period. But regardless of the division, the corporation is still operating within a single fiscal period.

As far as the appellant is concerned, in 1972, the year it came into production, it had a very substantial earned income in excess of 7 million dollars for the last 5 months. The appellant had very substantial payments to make for interest on borrowed money. It treated these payments as a pre- production capital expenditure in so far as the first 7 months of the year were concerned as it was entitled to do, but overlooked making the election so to do in “prescribed manner” according to section 25 of the Statute. The Minister accepted the appellant’s financial statements as if interest expenditure had been properly capitalized pursuant to formal election. The appellant now argues that this cannot be done because the method prescribed by the Statute was not followed and hence it is entitled to deduct interest as an expense against income in 1972.

I am of the opinion that the Minister is entitled to waive strict compliance with the Statute and treat the appellant’s reporting of the item in its financial statements and corporations tax return for 1972 as an election. The 1972 tax return will therefore stand as filed, in this respect.

In the result therefore, the appeal is allowed and the assessment under appeal for the 1974 fiscal year of the appellant is referred back to the Minister to assess in accordance with this judgment. The appellant is, of course, entitled to its costs of the appeal.