Cullen,
J:
—This
is
an
appeal
by
way
of
statement
of
claim
from
a
notice
of
determination
of
a
loss
issued
by
the
Minister
of
National
Revenue
(the
Minister)
on
November
2,
1982.
This
notice
reduced
the
plaintiff's
noncapital
losses
for
both
its
1977
and
1978
taxation
years
under
Part
I
of
the
Income
Tax
Act,
1970-71-72,
c.
63
as
amended,
by
treating
the
cost
of
linefill
as
the
cost
of
a
depreciable
property
falling
within
paragraph
(b)
of
Class
2
of
Schedule
II
of
the
Regulations
for
the
purpose
of
calculating
the
capital
cost
allowance
per
paragraph
20(1)(a)
of
the
Act
and
Part
XI
of
the
Regulations.
The
appeal
is
in
respect
of
the
plaintiff's
1977
and
1978
taxation
years
and
relates
to
one
pipeline
purchased
in
1977
and
another
pipeline
built
in
1978.
As
the
facts
involve
the
same
issue
of
law,
the
matters
were
heard
together
on
common
evidence.
Facts
The
plaintiff
is
a
company
incorporated
under
the
laws
of
Alberta
and
is
a
wholly
owned
subsidiary
of
the
Alberta
Energy
Company
Limited.
The
plaintiff
is
involved
in
the
business
of
transporting
crude
oil.
There
is
no
significant
dispute
on
the
facts
and
I
have
therefore
taken
them
from
the
opening
portion
of
the
plaintiff's
argument.
In
1975
the
plaintiff
agreed
with
the
members
of
the
Syncrude
project
to
construct
a
main
pipeline
to
transport
crude
oil
between
Mildred
Lake
near
Fort
McMurray
and
the
terminal,
Pipeline
Alley,
in
Edmonton,
Alberta.
Pursuant
to
the
agreement
between
the
plaintiff
and
the
Syncrude
participants,
the
plaintiff
purchased
from
Imperial
Pipeline
Company,
a
subsidiary
of
Imperial
Oil,
the
pipeline
that
runs
from
Red
Water
north
of
Edmonton
to
the
proposed
terminal
point
of
the
main
pipeline
in
Pipeline
Alley.
The
purpose
for
that
acquisition
was
to
obtain
the
rights
of
way
which
were
associated
with
the
Red
Water
pipeline,
in
order
that
the
main
pipeline
could
be
constructed
on
that
same
right
of
way
and
that
is
not
in
question.
In
connection
with
the
purchase
of
the
Red
Water
pipeline,
the
plaintiff
also
purchased
from
Imperial
Pipeline
Company
approximately
37,000
barrels
of
conventional
crude
oil
which
at
that
moment
in
time
was
in
the
pipeline
as
linefill.
During
1977
and
the
early
part
of
1978,
the
plaintiff
constructed
the
main
pipeline
and
the
pumping
and
metering
and
installations
and
other
things
associated
with
it.
Before
the
main
pipeline
was
completed
and
ready
to
operate
on
the
basis
contemplated
in
the
agreement,
naphtha
and
gas
oil
were
introduced
into
the
main
pipeline
of
the
southerly
terminal
near
Edmonton
and,
with
the
benefit
of
a
borrowed
pump,
were
transported
in
a
northerly
direction
to
the
Syncrude
plant
to
be
used
in
start-up
operations.
After
the
desired
volumes
of
naphtha
and
gas
oil
were
introduced
into
the
main
pipeline
at
the
southerly
end,
conventional
crude
oil
was
borrowed
from
a
third
party
by
the
Syncrude
participants
and
that
was
also
put
into
the
southerly
end
of
the
main
pipeline
to
push
the
remaining
naphtha
and
gas
oil
that
was
in
the
line
out
of
the
line
at
the
Syncrude
plant.
The
borrowed
crude
was
not
pumped
out
of
the
pipeline
at
the
northerly
end,
and
it
stayed
in
the
line
where
the
line
or
the
construction
of
the
pipeline
facility
proceeded
and
was
completed.
When
the
Syncrude
plant
was
ready
to
commence
commercial
operations
in
accordance
with
the
Deficiency
and
Throughput
Agreement,
the
plaintiff
purchased
from
the
operators
of
the
Syncrude
plants
sufficient
synthetic
crude
oil
completely
to
fill
the
pipeline,
which
amounted
to
approximately
666,000
barrels
of
oil
at
a
cost
of
approximately
$11
million.
That
is
the
oil
that
is
called
"linefill".
In
Article
30
of
the
Deficiency
and
Throughput
Agreement,
the
linefill
was
introduced
into
the
main
pipeline
at
its
northerly
inlet
station,
and
as
it
was
pumped
into
the
main
pipeline
it
displaced
borrowed
crude
oil
in
a
southerly
direction
and
out
of
the
main
pipeline
at
the
southerly
terminus
where
it
was
returned
to
the
participants
in
the
Syncrude
project
or
to
the
person
or
company
from
whom
that
oil
had
been
borrowed.
In
order
to
insure
a
continuous
flow
of
product
into
and
out
of
pipelines,
pipelines
are
invariably
filled
with
what
is
called
a
“cargo”
or
what
has
been
called
the
contents
or
what
Mr.
Shwed
(expert
witness)
called
the
“linefill”.
When
the
substance
being
transported
is
being
introduced
in
the
inlet
end
of
the
pipeline
an
equal
volume
of
substance
is
delivered
at
the
outlet
end
of
the
pipeline
and
thus,
normally
the
pipeline
will
be
filled
with
a
substance
and
transported
and
that
has
been
called
"linefill",
and
that
is
the
meaning
of
the
term
linefill
which
has
been
adopted
by
the
defendant
in
their
statement
of
defence.
(The
confusion
is
that
the
term
linefill
in
the
plaintiff's
statement
of
claim,
and
the
term
linefill
in
the
Throughput
and
Deficiency
Agreement
is
not
intended
to
refer
to
the
oil
in
the
pipeline
at
any
particular
time
but
rather
refers
to
that
particular
oil
which
was
purchased
by
the
plaintiff.)
When
the
plaintiff
purchased
the
Red
Water
pipeline
system
it
was
filled
with
crude
oil
and
at
that
time
the
plaintiff
acquired
whatever
interest
the
vendor
of
the
Red
Water
pipeline
had
in
the
linefill
and
had
paid
cash
for
that
crude
oil.
The
plaintiff
was
obliged
to
purchase
from
participants
of
the
Syncrude
project
enough
synthetic
crude
to
fill
the
pipeline
and
that
amounted
to
666,000
barrels,
which
was
purchased
and
paid
for
by
the
plaintiff.
When
the
main
pipeline
was
completely
filled
with
the
synthetic
crude
oil
purchased
by
the
plaintiff,
then
the
main
pipeline
began
to
transmit
synthetic
crude
oil
owned
by
the
Syncrude
participants
and
produced
at
the
Syncrude
plant.
That
is
called
"shippers'
products"
under
the
agreement.
As
the
synthetic
crude
oil
was
transported
in
a
southerly
direction
through
the
main
pipeline,
it
displaced
the
linefill
that
had
been
purchased
by
the
plaintiff
and
that
linefill
was
discharged
at
the
southerly
outlet
of
the
main
pipeline
and
was
delivered
to
one
or
more
of
the
participants
in
the
Syncrude
project
or
to
their
order.
The
linefill
that
had
been
purchased
by
the
plaintiff
was
fully
displaced
and
delivered
in
this
manner
by
September
29,
1978,
and
well
before
the
end
of
the
1978
taxation
year.
Similarly,
all
of
the
conventional
crude
oil
contained
in
the
Red
Water
pipeline
at
the
date
of
its
purchase
by
the
plaintiff
was
pumped
out
of
the
Red
Water
pipeline
and
delivered
to
third
parties
prior
to
the
end
of
the
plaintiff's
1977
taxation
year.
(And
there
is
an
admission,
in
fact,
that
this
linefill
was
in
fact
pumped
out
of
the
two
respective
pipelines
in
the
years
in
which
it
was
acquired.
That
has
been
admitted
in
discovery.)
The
Plaintiffs
Position
1.
The
purpose
of
the
purchase
of
the
pipeline
was
outlined
earlier.
This
pipeline
already
had
linefill
in
place,
about
37,000
barrels
of
conventional
crude,
which
was
purchased
along
with
"the
Red
River
Pipeline”.
This
linefill
was
fully
pumped
out
of
the
pipeline
and
delivered
to
third
parties
in
the
plaintiff's
1977
taxation
year.
In
calculating
its
income
for
the
1977
taxation
year,
the
plaintiff
treated
the
linefill
as
the
cost
of
property,
falling
with
Class
8,
Schedule
Il
of
the
Regulations
for
the
purpose
of
calculating
and
deducting
capital
cost
allowance,
pursuant
to
paragraph
20(1)(a)
of
Part
XI
of
the
Regulations.
2.
In
1977,
as
stated
earlier,
the
plaintiff
began
building
the
pipeline
for
the
transporting
of
synthetic
crude
oil
from
Mildred
Lake
to
Edmonton.
The
pipeline
was
completed
on
April
30,
1978,
and
under
an
agreement
with
the
Syncrude
participants,
the
plaintiff
was
the
owner
of
this
pipeline.
The
plaintiff
states
it
commenced
operations
on
May
1,
1978.
Before
operations
began
the
plaintiff
purchased
on
its
own
account
in
the
1978
taxation
year
sufficient
crude
oil
to
fill
the
pipeline,
and
did
so
pursuant
to
a
contractual
obligation
to
the
users
of
the
pipeline.
In
calculating
its
income
for
the
1978
taxation
year,
the
plaintiff
also
treated
the
cost
of
the
crude
oil
purchased
to
fill
the
pipeline
as
the
cost
of
property
falling
within
Class
8
of
Schedule
II
of
the
Regulations
for
the
purpose
of
calculating
and
deducting
the
capital
cost
allowance
as
per
paragraph
20(1)(a)
of
the
Act.
(Class
8
is
the
catch-all
class).
The
Defendant's
Position
The
Minister
reassessed
the
plaintiff
in
respect
of
its
1977
and
1978
taxation
years.
The
Minister
treated
the
cost
of
linefill
as
the
cost
of
depreciable
property
coming
within
paragraph
(b)
of
Class
2
of
Schedule
II
(pipelines)
of
the
Regulations,
for
the
purpose
of
calculating
and
deducting
the
capital
cost
allowance.
Notices
of
Objection
The
plaintiff
filed
notices
of
objection
dated
December
20,
1982
and
was
advised
by
notice
of
confirmation
dated
September
9,
1983
that
the
determination
of
the
losses
for
1977
and
1978
tax
years
were
confirmed.
The
Issues
(Plaintiff
and
Defendant)
The
Plaintiff:
The
plaintiff
denies
that
linefill
is
a
part
of
the
oil
pipeline
and
therefore
does
not
fall
within
paragraph
(b)
of
Class
2
of
Schedule
II
as
“pipeline”.
The
plaintiff
contends
that
linefill
is
a
tangible
capital
property,
not
included
in
any
class
listed
in
Schedule
II
and
therefore
falls
within
paragraph
(i)
of
Class
8
of
Schedule
II
for
the
purpose
of
calculating
capital
cost
allowance.
In
the
alternative,
the
plaintiff
argues
that
the
cost
of
the
linefill
was
an
expense
incurred
for
the
purpose
of
earning
income
from
a
business
in
the
1977
and
1978
taxation
years
which
did
not
bring
into
existence
an
asset
or
advantage
of
an
enduring
or
lasting
nature
and
therefore
is
deductible
pursuant
to
section
9
of
the
Act.
The
Defendant:
In
assessing
the
plaintiff,
the
Minister
assumed
the
following
facts:
1.
the
plaintiff
owned
and
managed
both
pipelines;
2.
the
plaintiff
was
in
the
business
of
transporting
crude
oil
and
synthetic
crude
oil
belonging
to
other
parties;
3.
before
using
the
pipeline
for
the
transport
of
crude
oil
(referring
to
the
pipeline
bought
in
1977),
the
plaintiff
purchased
on
its
own
account
enough
crude
oil
to
fill
the
pipeline;
4.
with
respect
to
the
pipeline
built
by
the
plaintiff,
the
cost
of
the
synthetic
crude
oil
initially
pumped
into
the
pipeline
to
make
it
operational
was
part
of
the
capital
cost
of
the
pipeline;
5.
during
the
operational
life
of
the
pipeline
the
linefill
does
not
suffer
any
loss
in
volume.
The
defendant
maintains
that
linefill
is
an
integral
component
of
a
functioning
pipeline
and
that
linefill
is
required
at
all
times
to
facilitate
the
continuous
flow
through
the
pipeline.
Further,
that
at
any
time,
the
oil
or
synthetic
crude
shipped
to
a
particular
purchaser
would
provide
the
linefill
to
the
pipeline.
Therefore,
it
was
not
necessary
for
the
plaintiff
to
purchase
the
initial
amount
of
oil
to
fill
the
pipeline
at
the
commencement
of
operations
as
the
linefill
would
have
been
provided
by
the
initial
shipment
of
oil.
Given
the
above,
the
linefill
is
a
part
of
the
pipeline
and
its
cost
is
part
of
the
capital
cost
of
the
pipeline
and
therefore
properly
treated
by
the
Minister
as
falling
within
paragraph
(b)
of
class
2
of
Schedule
Il
of
the
Regulations
(6%).
In
the
alternative,
the
defendant
submits
that
in
calculating
the
plaintiff's
income,
any
deduction
of
the
capital
cost
allowance
(as
it
relates
to
linefill)
would
unduly
or
artificially
reduce
the
plaintiff's
income,
as
linefill
is
not
a
depreciable
asset
and
its
purchase
was
not
required
for
the
operation
of
the
pipeline.
Therefore,
the
deduction
of
the
capital
cost
allowance
would
be
prohibited
by
subsection
245(1)
of
the
Act.
The
defendant
contends
that
the
linefill
was
not
acquired
by
the
plaintiff
for
the
purpose
of
gaining
or
producing
income,
that
the
linefill
has
no
separate
existence
as
a
tangible
asset
in
the
plaintiff's
business.
Also,
the
defendant
submits
that
if
the
linefill
is
not
a
part
of
the
pipeline,
and
as
no
part
of
the
linefill
was
consumed
during
the
operation,
it
was
an
asset
of
an
enduring
or
lasting
nature,
therefore
the
expense
incurred
in
acquiring
the
linefill
was
on
capital
account
and
the
deduction
would
be
prohibited
under
paragraph
18(1)(b)
of
the
Act.
The
defendant
adds
that
if
the
linefill
is
not
part
of
the
pipeline
any
deduction
of
the
linefill
as
capital
cost
allowance
would
not
be
reasonable
as
the
linefill
did
not
suffer
any
loss
of
quantity
during
the
year.
Hence
the
deduction
is
prohibited
by
section
67
of
the
Act.
The
defendant
also
submits,
in
the
alternative,
that
the
plaintiff
did
not
acquire
the
linefill
for
the
purpose
of
gaining
or
producing
income,
as
per
the
requirements
of
paragraph
1102(1)(c)
of
the
Regulations
and
therefore
the
plaintiff
is
not
entitled
to
a
deduction
for
capital
cost
allowance
pursuant
to
paragraph
20(1)(a)
of
the
Act
and
paragraph
1102(1
)(c)
of
the
Regulations.
Conclusions
The
plaintiff
referred
to
confusion
between
its
definition
of
linefill
and
the
defendant's.
Linefill
to
the
plaintiff
meant
and
means
the
oil
purchased
in
both
instances
to
enable
the
operation
to
begin.
The
defendant,
on
the
other
hand,
sees
linefill
as
the
oil
in
the
pipeline
at
any
particular
time.
To
add
to
this
confusion
about
the
meaning
of
the
term,
it
also
is
possible
to
see
linefill
as
part
of
the
original
purchase
and
part
of
the
shippers'
product
before
all
the
originally
purchased
oil
is
displaced.
This
case
is
also
made
more
difficult
in
that
each
side
sees
the
pipeline
as
operational
or
functioning
at
a
different
time.
Mr.
Fowler,
Director
of
Corporate
Taxation
and
Treasurer
Operations
of
Alberta
Energy
Company
Limited,
in
his
evidence,
sees
it
this
way:
Q.
Mr.
Fowler,
can
a
pipeline
transmit
before
it’s
full?
A.
It
has
to
have
something
to
transmit.
Q.
Do
I
take
that
the
answer
is
yes,
that
it
must
—
the
pipeline
must
be
full
of
line
fill
to
transmit?
A.
Not
necessarily.
As
the
product
enters
the
inlet,
I
would
think
that
would
be
transmitting
it
even
though
the
pipeline
itself
may
be
empty
at
that
time.
Q.
Is
a
pipeline
operational
before
it’s
full?
A.
I
believe
it
starts
to
operate
at
the
inlet
pipe
as
soon
as
the
first
barrel
is
introduced.
Q.
So
it
operates
initially
when
it's
empty?
When
you
start
putting
in
the
linefill,
you're
saying
that
it’s
operational
or
it’s
transmitting?
A.
I
believe
it’s
—
it
can
be
said
that
it
commences
to
operate
with
the
operation
of
product
at
the
inlet.
Q.
Does
it
commence
to
transmit!
A.
As
soon
as
it
enters,
it
operates.
I
believe
it
is
transmitting.
[Emphasis
added.]
Mr.
Shwed,
the
expert
witness
called
by
the
defendant,
saw
"linefill
as
an
integral
part
of
the
pipeline"
and
when
asked
to
expand
on
that,
stated
at
page
198
of
the
transcript:
A.
Well,
I
don't
visualize
how
pipeline
can
function
without
the
linefill,
because
the
main
purpose
would
be
defeated.
It's
a
volume
of
oil
contained
in
the
pipe
which
had
to
be
moved
between
two
points.
So
linefill,
from
design
point
of
view,
from
operational
point
of
view,
it
has
to
be
an
integral
part
of
the
pipeline.
In
my
mind,
there
are
no
two
ways
about
it.
Q.
Cana
a
pipeline
function
or
work
without
linefill?
A.
No,
sir.
[Emphasis
added.]
With
all
due
respect
to
expert
witnesses,
it
is
the
Court's
constant
wish
that
they
would
limit
themselves
to
being
a
witness
and
not
act
or
behave
as
counsel
for
the
party
that
retained
them.
This
often
leads
to
evasiveness
in
the
answers
in
an
apparent
attempt
to
aid
the
client.
A
classic
example
is
Mr.
Shwed's
evasiveness
on
cross-examination:
Q.
What
do
you
call
the
thing
which
is
—
which
would
be
a
pipeline
if
it
was
filled
with
oil
and
gas,
but
is
not
filled
with
oil
and
gas
at
the
particular
moment.
What
is
that
thing?
A.
Would
you
be
more
precise?
Q.
You
understand
what
I'm
talking
about;
you've
been
designing
oil
and
gas
pipelines
for
your
whole
career.
And
the
last
thing
that
occurs
—
the
first
thing
that
the
separation
point
between
the
completion
of
construction
is
the
completion
of
testing
and
the
use
of
the
facilities
starts
with
the
oil
and
gas
being
introduced
into
it.
Isn't
that
correct?
A.
No.
What
I
said
—
not
being
introduced,
being
delivered
at
the
outgoing
end.
Q.
What's
the
difference
between
—
how
can
it
be
introduced
.
.
.?
A.
—introduced
at
the
receiving
point.
Drilling
in
the
line,
and
then
you're
in
the
business
of
—
Q.
I
say,
before
the
line
is
—
anything
has
gone
into
the
line
at
the
inlet
point,
what
do
you
call
the
thing?
A.
Well,
you're
filling
the
line
—
Q.
No,
I'm
talking
about
all
that
hardware
that
cost
millions
of
dollars
buried
in
the
ground,
and
all
the
pumping
stations
and
all
of
the
weights
and
all
of
the
valves.
What
is
that
called?
A.
Well,
you're
constructing
a
pipeline.
Q.
No,
no,
you're
not
constructing
it
now
because
it’s
—
the
construction
phase
is
finished.
What's
it
called?
A.
Well,
it's
construction
of
a
pipeline
and
your
pipe
is
ready
to
proceed
with
testing,
or
opening
—
Q.
No,
not
testing,
Mr.
Shwed,
it’s
finished.
Testing’s
done
with
inert
gas
or
water.
A.
Right.
Q.
And
it’s
put
in
and
sent
out.
A.
Yes.
Now,
you
start
filling
in.
Q.
In
what?
A.
Into
that
facility.
Q.
What
is
that
facility
called,
Mr.
Shwed?
A.
Well,
that
facility’s
called
the
"pipeline".
It
is
quite
possible
from
the
evidence
that
no
linefill
need
be
purchased,
or
no
linefill
need
be
in
place
when
the
“pipeline”
becomes
operational.
Here,
were
it
not
for
a
clause
in
a
contract
requiring
the
plaintiff
to
purchase
linefill
at
no
cost
to
the
shippers,
the
pipeline
would
become
“operational”
with
the
introduction
of
the
first
barrel
of
the
shippers'
crude.
In
that
situation,
when
the
pipeline
held
approximately
666,000
barrels
of
shippers'
crude
it
would
comprise
the
linefill.
The
pipeline,
however,
became
operational
without
any
linefill
with
the
introduction
of
the
first
barrel
of
shippers'
crude.
It
is
inconceivable
to
me
that
the
definition
of
pipeline
in
Class
2
includes
linefill.
Were
it
the
intention
that
linefill
be
taxed
under
that
class,
it
would
have
been
a
simple
matter
to
say
“pipeline,
including
linefill”
but
that
in
fact
was
not
done.
The
problem
facing
the
taxpayer
could
have
been
easily
resolved
by
the
drafters
of
the
Regulations.
If
ambiguity
arises
the
benefit
must
fall
to
the
taxpayer.
In
Johns-Mansville
Canada
Inc.
v.
The
Queen,
[1985]
2
C.T.C.
111
at
126;
85
D.T.C.
5373
at
5384,
Estey,
J.
states:
Such
a
determination
is,
furthermore,
consistent
with
another
basic
concept
in
tax
law
that
where
the
taxing
statute
is
not
explicit,
reasonable
uncertainty
or
factual
ambiguity
resulting
from
lack
of
explicitness
in
the
statute
should
be
resolved
in
favour
of
the
taxpayer.
In
Canterra
Energy
Ltd.
v.
The
Queen,
[1987]
1
C.T.C.
89
at
95;
87
D.T.C.
5019
at
5023
Urie
J.
states:
.
.
.
l
have
not
been
persuaded
by
my
analysis
of
the
regulation
that
that
was
not
the
result
which
the
Governor
in
Council
intended.
If
he
did
not,
then
the
appropriate
remedy
for
the
future
is
readily
available
to
him.
If
the
regulation
was
not
aptly
worded
to
carry
out
his
original
intention
it
does
not
mean
that
this
Court
should
preclude
the
taxpayer
from
taking
advantage
of
the
benefits
of
the
provision
as
worded.
Also,
there
is
no
question
that
the
plaintiff
was
under
a
contractual
obligation
to
buy
the
initial
linefill.
The
plaintiff
had
to
weigh
this
obligation
against
saying
no
and
possibly
losing
the
contract
to
transport
shippers'
crude
for
the
25-year
term,
a
significant
“consideration”.
Also,
the
tariff
to
be
charged
the
shippers
would
be
different
and
higher
in
light
of
the
obligation
imposed
on
the
plaintiff
to
buy
the
linefill.
Tax
Treatment
In
the
light
of
these
conclusions
what
should
be
the
tax
treatment
of
the
linefill?
If
Class
8,
the
catch-all
clause,
is
to
have
any
meaning
in
the
circumstances
of
this
case,
the
plaintiff
must
be
entitled
to
the
benefit
of
its
provisions.
As
between
Class
2
and
Class
8,
linefill
is
a
depreciable
or
capital
property
acquired
by
the
plaintiff
and
characterized
as
Class
8.
To
summarize
then,
the
cost
to
the
plaintiff
of
the
pipeline
linefill
purchased
by
it
in
respect
of
both
pipelines
is
the
cost
of
depreciable
property.
This
cost
is
added
to
the
undepreciated
capital
cost
of
the
class
to
which
the
property
belongs,
namely
Class
8.
The
undepreciated
capital
cost
can
be
increased
by
additional
Class
8
acquisitions
and
can
be
reduced
by
the
proceeds
of
Class
8
dispositions
as
well
as
by
amounts
of
capital
cost
allowance
claimed.
The
remaining
balance
of
the
undepreciated
capital
cost
at
the
end
of
the
taxation
year
is
the
amount
on
which
capital
allowance
for
the
year
is
calculated
(as
set
out
in
Schedule
2).
As
long
as
this
taxpayer
continues
to
own
Class
8
assets
he
can
claim
capital
cost
allowance
on
the
undepreciated
capital
cost
in
that
class.
Not
until
the
taxpayer
has
disposed
of
all
the
assets
in
that
class
(Class
8)
does
he
obtain
a
right
to
claim
a
deduction
(in
the
proper
circumstances)
on
the
remainder
of
any
undepreciated
capital
cost
of
that
class.
I
am
buttressed
in
this
view
by
the
comments
of
Dubé,
J.
in
Nova,
an
Alberta
Corporation
v.
The
Queen,
[1987]
1
C.T.C.
265
at
270;
87
D.T.C.
5146
at
5150:
In
my
view,
the
various
definitions
of
"pipeline"
in
the
federal
and
provincial
acts
serve
merely
the
purposes
of
those
acts
and
do
not
govern
the
interpretation
of
the
Income
Tax
Act.
The
Act
must
be
construed
according
to
its
own
definitions,
or
the
ordinary
meaning
of
the
words
used,
or
the
common
usage
by
the
people
in
the
relevant
industry.
As
indicated
earlier,
even
the
expert
witness
called
by
the
defendant,
after
much
evading
of
the
issue,
conceded
a
pipeline
could
be
a
pipeline
without
linefill.
Alternative
Positions
Taken
by
the
Defendant:
These
alternative
pleas
by
the
defendant
were
not
assumptions
upon
which
the
assessments
were
made
and
therefore
the
onus
to
establish
them
falls
to
the
defendant.
Rand,
J.'s
opinion
in
Johnston
v.
M.N.R.,
[1948]
S.C.R.
486;
[1948]
C.T.C.
195,
is
considered
authority
for
the
proposition
that
a
taxpayer
has
the
onus
of
proof
with
respect
only
to
the
findings
or
assumptions
of
fact
made
by
the
M.N.R.
at
the
time
of
assessment.
Later
court
decisions
have
refined
Rand,
J.'s
limitation
on
the
taxpayer's
onus
of
proof.
In
M.N.R.
v.
Pillsbury
Holdings
Ltd.,
[1965]
1
Ex.
C.R.
676;
[1964]
C.T.C.
294,
the
plaintiff
(M.N.R.)
had
not
alleged
that
he
assumed,
in
making
the
assessments,
that
the
waiver
of
interest
was
an
arrangement
or
deduction
adopted
by
the
corporation
to
confer
a
benefit
or
advantage
on
Pillsbury
qua
shareholder.
Accordingly,
Cattanach,
J.
considered
there
was
no
onus
on
Pillsbury
to
disprove
that
fact.
Cattanach.
J.
noted
that
beyond
the
facts
found
or
assumed
in
assessing
Pillsbury,
it
was
open
to
the
Minister
to
have
alleged
further
or
other
facts
which
would
support
the
assessment.
“If
he
had
alleged
such
further
or
other
facts,
the
onus
would
presumably
have
been
on
him
to
establish
them.":
Pillsbury
(supra)
at
page
686
(C.T.C.
302).
Further,
in
Quality
Chekd
Dairy
Products
v.
M.N.R.,
[1967]
C.T.C.
452;
67
D.T.C.
5303,
Gibson,
J.
found
that
there
was
not
sufficient
evidence
before
the
Court
to
entitle
the
Crown
to
succeed
on
its
pleaded
alternative
position.
That
is
precisely
the
conclusion
one
has
to
reach
here.
Certainly
the
defendant
was
unable
to
establish
that
the
plaintiff
need
not
or
was
under
no
obligation
to
purchase
the
linefill;
in
fact
all
the
evidence
was
to
the
contrary.
Similarly,
the
alternative
argument
that
the
purchase
or
cost
or
expense
entailed
in
purchasing
the
linefill
did
not
result
in
profits
to
the
plaintiff
is
really
not
credible
given
all
the
evidence
(i.e.,
no
purchase
of
the
linefill
by
the
plaintiff
—
no
contract
to
the
plaintiff
to
transport
the
shippers'
crude).
It
hardly
qualifies
under
section
67
and
the
Regulations
of
the
Act
as
an
unreasonable
expense
in
the
circumstances
here,
and
in
this
business
transaction
the
plaintiff
was
accepting
that
expense
for
profits
to
be
earned
and
that
it
in
fact
earned
even
during
construction.
Ownership
The
extent
to
which
the
depreciation
is
permitted
under
Class
8
of
course
is
determined
by
the
question,
who
owns
the
linefill?
In
my
view,
the
plaintiff
is
at
all
times
the
owner
of
the
linefill,
and
though
all
of
the
“initial
linefill”
is
displaced
by
shippers'
oil,
the
linefill
remains
for
all
practical
purposes
the
same
product.
The
shippers'
ownership
of
linefill
ends
when
100,000
barrels
leaves
the
south
end
of
the
pipeline.
It
seems
absurd
that
a
plaintiff's
lien
could
be
put
on
its
own
linefill,
but
of
course
practical
methods
to
secure
a
lien
are
possible.
The
plaintiff
was
in
a
position
to
take
possession
of
the
shippers’
product
at
the
outlet
end
and
transmit
it
to
a
customer
for
a
price
or
could
construct
holding
tanks
to
take
the
shippers'
product
and
keep
it
in
storage
until
that
lien
was
paid
off.
Another
weapon
in
the
lien
arsenal
could
be
a
refusal
to
transmit
any
of
a
particular
shipper's
oil
until
the
lien
was
paid.
Accordingly,
the
reassessments
for
1977
and
1978
taxation
years
are
set
aside,
and
the
question
of
the
plaintiff's
1977
and
1978
taxation
years
[is]
referred
back
to
Revenue
Canada
on
the
basis
that
the
linefill
is
owned
by
the
plaintiff
and
is
to
be
assessed
under
Class
8,
Schedule
II
of
the
Regulations.
The
plaintiff
is
entitled
to
its
costs
of
this
action.
Appeal
allowed.
Email this Content