McKeown
J.:—The
plaintiff,
Gulf
Canada
Resources
Ltd.
(Gulf),
appeals
two
notices
of
reassessment
for
the
1978
taxation
year.
In
computing
the
plaintiff’s
resource
profits
under
section
1204
of
the
Income
Tax
Regulations,
P.C.
1976-559,
SOR/76-188,
the
Minister
deducted
capital
cost
allowance
in
the
amount
of
$45,656,563
claimed
by
Gulf
with
respect
to
assets
at
the
Syncrude
project
and
interest
expense
in
the
amount
of
$9,504,816
incurred
by
the
plaintiff
in
the
1978
taxation
year
on
loans
or
indebtedness
in
respect
of
financing
for
the
Syncrude
project.
In
computing
the
plaintiff’s
capital
cost
of
properties
described
in
class
29,
Schedule
II
of
the
Regulations,
for
the
purpose
of
determining
the
plaintiff’s
capital
cost
allowance
pursuant
to
paragraph
21(a)
of
the
Income
Tax
Act,
R.S.C.
1985
(5th
Supp.),
c.
1
(the
"Act”)
and
for
the
purpose
of
determining
the
plaintiff’s
investment
tax
credit
under
subsection
27(9)
of
the
Act,
the
Minister
deducted
the
amount
of
$1,088,967.
The
plaintiff
takes
issue
with
these
deductions.
The
first
two
deductions
relate
to
the
"Syncrude
issue”.
The
question
to
be
determined
is
whether
there
was
any
source
of
income
in
1978
for
purposes
of
paragraph
1204(
1
)(b)
of
the
Regulations.
If
I
disagree
with
the
assertion
that
there
was
no
source
of
income
throughout
the
period
in
1978,
it
is
the
position
of
the
plaintiff
that
there
was
no
source
of
income
for
part
of
1978
and
the
amount
should
therefore
be
prorated.
The
second
issue
in
this
case
is
whether
the
expenditures
incurred
by
the
plaintiff
at
its
Clarkson
Refinery
in
extending
the
water
intake
further
into
Lake
Ontario
was
an
expenditure
in
respect
of
a
pipeline,
as
asserted
by
the
Minister
in
reclassifying
such
expenditure
from
class
29
to
class
2.
The
plaintiff
is
an
integrated
oil
company
which
had
as
its
principal
activities
during
the
1978
taxation
year
the
production,
refining
and
marketing
of
petroleum
and
petroleum
products.
These
activities
took
place
at
different
locations
and
in
different
capacities.
It
is
in
respect
of
two
completely
different
activities
and
locations
that
the
issues
arise
before
me,
and
I
propose
to
deal
with
the
facts
and
law
related
to
each
under
separate
headings.
Issue
I-Syncrude
project
The
first
question
relates
to
whether
Syncrude
was
a
source
of
income
in
1978
for
purposes
of
paragraph
1204(1)(b)
of
the
Regulations.
If
I
disagree
with
the
submission
that
there
was
no
source
of
income
throughout
the
period
of
1978,
it
is
the
position
of
the
plaintiff
that
there
was
no
source
of
income
for
part
of
1978
and
that
the
amount
should
be
prorated.
The
Syncrude
project
(Syncrude)
involves
the
production
of
synthetic
crude
oil
from
bituminous
sands
mined
from
a
bituminous
sands
deposit.
Facts
A.
History
The
history
of
Syncrude
goes
back
to
the
discovery
of
the
oil
sands
in
1778.
In
1920,
methods
were
identified
for
separating
bitumen
from
the
oil
sands.
In
1955,
Royalite
Oil,
a
predecessor
of
the
plaintiff,
acquired
the
Crown
lease
to
what
is
the
site
of
today’s
Syncrude
plant.
In
1958,
Royalite
brought
other
participants
into
Syncrude.
Royalite
and
British
American
Oil
amalgamated
and
were
continued
under
the
name
Gulf
Oil
Canada
Ltd.
In
1964,
Syncrude
Canada
Ltd.
(also
referred
to
as
"Syncrude")
became
the
agent
of
the
participants.
Up
until
December
1974,
the
participants
in
Syncrude
were
Atlantic
Richfield
Ltd.
(30
per
cent),
Canada
Cities
Service
Ltd.
(30
per
cent),
Gulf
Oil
Canada
Ltd.
(10
per
cent),
and
Imperial
Oil
Ltd.
(30
per
cent).
In
1966,
a
trial
mine
employing
earth
scrapers
was
developed
on
the
Syncrude
site.
In
September
1969,
the
Alberta
Energy
Conservation
Board
granted
approval
for
Syncrude
to
proceed
with
a
plant
to
produce
80,000
barrels
of
crude
oil
per
calendar
day,
provided
commercial
production
did
not
commence
prior
to
1976.
In
1971
and
1972,
this
approval
was
increased
to
129,400
barrels
per
calendar
day.
In
1972,
a
trial
mine
using
draglines
was
initiated
to
appraise
the
feasibility
of
mining
with
draglines
at
Syncrude.
In
December
1973,
initial
agreement
was
reached
with
Alberta
regarding
royalty
provisions
and
other
major
terms,
and
the
four
participants
agreed
to
proceed
with
Syncrude.
Agreement
was
also
reached
with
the
federal
Government
that
the
synthetic
crude
oil
produced
at
Syncrude
would
receive
world
price
and
that
royalty
payments
to
the
province
of
Alberta
would
be
deductible
for
tax
purposes.
It
was
further
agreed
that
there
would
be
no
restriction
on
the
quantity
of
oil
produced.
Site
clearing
started
in
the
same
month
and,
in
1974,
the
foundations
were
started
for
the
separation
and
upgrading
plants.
The
plant
foundations
were
not
without
risk
because
there
was
no
precedent
for
founding
major
structures
on
oil
sands.
In
addition,
some
permafrost
was
discovered
in
the
plant
area.
While
there
was
always
concern
about
the
viability
of
Syncrude
throughout
its
history,
in
1974
two
events
occurred
that
put
Syncrude
in
jeopardy.
The
first
event
was
the
Budget
of
the
federal
Government
of
May
6,
1974,
whereby
royalties
paid
to
Alberta
would
no
longer
be
deductible
from
income
under
the
Act.
The
second
event
occurred
in
December
1974,
when
the
major
contractor,
Canadian
Bechtel
Ltd.,
presented
a
revised
estimate
of
the
costs
of
Syncrude,
under
which
the
estimated
cost
was
increased
to
in
excess
of
$2
billion.
This
was
in
the
order
of
four
times
the
original
cost
estimate
(about
$600
million)
and
twice
the
more
recent
cost
estimates
(about
$1
billion).
As
a
result
of
these
two
events,
Atlantic
Richfield
Ltd.
withdrew
from
Syncrude.
In
an
effort
to
save
Syncrude,
the
remaining
participants,
Canada
Cities
Service
Ltd.,
Imperial
Oil
Ltd.
and
the
plaintiff,
met
in
Winnipeg
with
the
federal,
Alberta
and
Ontario
governments.
As
a
result,
an
agreement,
called
the
Winnipeg
Agreement,
dated
February
12,
1975,
was
reached
wherein
the
participants
and
their
interests
were
represented
as
follows:
Federal
Government:
15%
Alberta
Government:
10%
Ontario
Government:
5%
Cities
Services:
22%
Gulf:
16.75%
Imperial:
31.25%
As
part
of
this
agreement,
the
Alberta
Crown
Agreement
and
the
Alberta
Energy
Option
Agreement,
both
dated
February
4,
1975,
were
entered
into.
The
Alberta
Crown
Agreement
provided
for
the
payment
of
royalties
by
the
participants
in
Syncrude
to
the
province
of
Alberta.
These
royalties
were
to
commence
after
the
’’date
of
start
of
production”.
By
agreement,
"production"
did
not
commence
until
the
output
of
the
five
millionth
barrel
of
synthetic
crude
oil
at
Syncrude.
Under
the
Alberta
Energy
Option
Agreement,
the
participants
in
Syncrude
granted
Alberta
Energy
Corporation
(AEC)
an
irrevocable
option
to
acquire
a
participating
interest
in
Syncrude.
The
plaintiff
and
the
province
of
Alberta
also
entered
into
a
loan
agree-
ment
dated
April
30,
1976,
under
which
Alberta
provided
a
$100
million
loan
to
the
plaintiff
and
the
plaintiff
issued
a
convertible
debenture
to
Alberta.
The
proceeds
of
the
loan
were
to
be
used
by
the
plaintiff
towards
the
costs
of
Syncrude.
Alberta
was
given
the
right
to
convert
the
whole
or
any
part
of
the
principal
amount
of
the
debenture
into
a
percentage
equity
interest
in
Syncrude.
This
equity
interest
was
determined
by
reference
to
the
costs
incurred
at
Syncrude
prior
to
the
"date
of
start
of
production".
Again,
by
agreement,
"production"
did
not
commence
until
the
output
of
the
five
millionth
barrel
of
synthetic
crude
oil
at
Syncrude.
The
output
of
the
five
millionth
barrel
of
synthetic
crude
oil
at
Syncrude
(which
was
the
starting
date
of
production
for
purposes
of
the
Alberta
Crown
Agreement
and
the
loan
agreement)
occurred
in
March
1979.
By
agreement
between
Revenue
Canada
and
the
participants,
commercial
production
at
Syncrude
commenced
on
April
1,
1980.
The
plant
had
by
then
begun
three
months
of
sustained
production
at
rates
above
60
per
cent
of
design
production
rate
which
Dr.
Devenny,
the
plaintiff’s
expert,
and
one
of
the
few
experts
on
mega
projects,
agreed
was
one
of
the
tests
that
could
determine
the
start
of
commercial
production.
He
had
some
concerns
about
this
test,
however,
since
in
his
opinion,
the
plant
was
not
commercially
viable
at
60
per
cent
of
design
production.
In
June
1977,
the
mining
component
commenced
when
an
opening
cut
was
made
in
the
mine.
In
March
1978,
the
extraction
plant
started
to
process
feed
from
the
mine.
In
July
1978,
the
first
coker
began
to
process
the
bitumen
and
on
July
30,
1978,
the
first
barrel
of
synthetic
oil
was
produced.
This
latter
event
was
the
start
of
the
upgrading
component.
B.
Description
of
the
project
Syncrude
was
designed
to
produce
synthetic
crude
oil
from
the
oil
sand.
The
object
was
to
sell
the
synthetic
crude
oil
to
conventional
refineries.
The
plant
involves
three
major
components:
I.
mining,
which
lifts
the
bituminous
sands
from
the
bituminous
sands
deposit
and
transports
those
sands
from
the
mine
via
conveyor
belts
to
the
extraction
plant;
IT.
extraction
(i.e.,
separation),
which
separates
the
bitumen
from
the
sands;
and
III.
upgrading,
which
processes
the
bitumen
into
light
synthetic
crude
oil
so
that
it
can
then
be
pipelined
to
market
(the
light
synthetic
crude
oil
enters
the
Alberta
Oil
Sands
Pipeline
and
is
transported
to
Edmonton
to
be
further
refined).
Bituminous
sands
deposits
are
either
"shallow
deposits"
or
"deep
deposits".
A
"shallow
deposit"
is
covered
by
a
thin
overburden
and
is
exploited
by
surface
mining
methods.
This
involves
the
mining
of
the
bituminous
sands
from
the
bituminous
sands
deposit
and
the
subsequent
extraction
(1.e.,
separation)
of
the
bitumen
from
the
sands.
The
bituminous
sand
is
what
is
mined
from
the
deposit.
It
is
only
after
such
mining
that
the
bitumen
is
extracted
from
the
sand.
The
bituminous
sands
deposit
at
Syncrude
is
an
example
of
a
"shallow
deposit"
where
surface
mining
methods
are
employed.
In
contrast,
a
"deep
deposit"
is
exploited
using
in
situ
extraction
methods.
This
involves
the
drilling
of
wells
into
the
deposit
and
the
injection
of
steam
to
heat
the
deposit.
The
bitumen
itself
is
what
comes
forth
from
the
deposit.
This
bitumen
is
similar
to
the
bitumen
which
is
obtained,
after
mining,
in
the
extraction
process
in
a
"shallow
deposit".
The
bituminous
sands
deposit
at
Cold
Lake
is
an
example
of
a
"deep
deposit"
where
in
situ
extraction
methods
are
employed.
In
the
extraction
plant,
the
ore
is
separated
into
its
sand
(the
"solid")
and
hydrocomponents
(bitumen).
The
bitumen
then
becomes
feed
for
upgrading.
Primary
and
secondary
upgrading
is
necessary
to
convert
the
heavy,
sour
bitumen
to
light,
sweet
crude
that
can
be
pipelined
to
distant
refineries.
Dr.
Devenny
testified
that:
This
is
a
rather
unique
way
of
making
crude
oil.
Having
to
mine
it,
transport
it,
heat
it
up
to
extract
bitumen,
then
clean
that
bitumen
and
send
it
through
an
upgrader
is
an
awful
lot
of
work
compared
to
what
they
do
in
Saudi
Arabia,
or
in
easier
oil
fields
of
the
world
is
drill
a
well
and
put
appropriate
screens
on
but
pump
the
oil
directly
out
of
the
ground,
and
it’s
a
competitive
world,
so
that
production
from
this
plant
has
to
compete
with
that
oil
from
other
parts
of
the
world,
or
conventional
oil,
and
the
only
way
it
was
visualized
that
that
would
happen
is
this
project
had
to
be
huge
to
achieve
economy
of
scale
in
everything
that
it
did
so
that
it
would
get
the
operating
cost
down
quite
low.
That
philosophy
led
to
the
use
of
very
large
components
and
duplicate
trains
or
quadruplicate
trains,
so
there
would
be
efficiency
in
maintenance
and
in
the
mining
component.
These
are
biggest
units
or
amongst
the
biggest
units
available.
They
would-and
there’s
four-four
of
them
were
provided
to
achieve
the
production
rates
needed.
In
upgrading,
the
two
cokers
are
the
largest
in
the
world.
They
provided
two
of
them.
That
way
when
one
coker
is
down
for
its
annual
turnaround,
the
other
one
keeps
going,
and
so
there’s
production
continuing
on
in
a
part
of
the
plant,
so
that’s
the
design
philosophy.
The
other
part
of
the
design
philosophy
was
in
order
to
achieve
the
high
volume
throughput
planned,
all
the
pieces
in
this
plant
had
to
work
to
their
peak
capacity
or
at
their
design
rate
of
capacity,
and
they
not
only
had
to
work
individually,
they
had
to
work
together
without
a
lot
of
interference
between
the
different
units,
and
they
had
to
do
that
for
sustained
periods
of
time.
Extensive
support
facilities
maintain
the
main
production
components.
The
main
auxiliary
facility
is
the
utilities
plant.
It
provides
water,
steam,
electricity
and
compressed
air
to
the
main
components.
As
an
indication
of
its
size,
the
power
produced
by
the
utilities
plant
is
sufficient
to
support
a
city
of
250,000
people.
The
other
main
auxiliary
facility
is
the
waste
area
containing
the
tailings
pond.
In
addition,
to
support
the
upgrading
process,
the
following
peripheral
plants
are
required:
I.
hydrogen
plant
(to
produce
hydrogen
for
the
hydrotreaters);
IT.
sulphur
plant
(to
receive
the
hydrogen
sulphide
that
comes
off
the
hydrotreaters);
III.
sour
water
processing
unit
(to
treat
waste
water);
IV.
flare
system
(to
handle
combustible
waste
gas);
V.
heat
exchangers
(to
recover
excess
heat
which
can
then
be
recycled);
VI.
boilers
(to
provide
heat
needed
by
the
processors);
VII.
storage
tanks
(to
store
the
bitumen
and
its
by-products
between
the
process
units);
VIII.
pipeline
(to
transport
the
synthetic
crude
oil
to
market);
IX.
control
centre
(to
act
as
the
control
centre
for
upgrading);
X.
sewage
system
(to
handle
the
fluid
produced
in
the
plant
area);
and
XI.
maintenance
facilities
(to
maintain
the
units).
C.
Design
philosophy
There
was
a
two-part
design
philosophy
at
Syncrude.
The
first
part
was
to
achieve
a
low
per
unit
cost
through
economies
of
scale.
This
resulted
in
a
mega
project
that
uses
very
large
production
units.
Although
the
production
of
a
barrel
of
synthetic
crude
oil
at
Syncrude
involves
mining,
extraction
and
upgrading,
a
more
difficult
process
than
that
required
in
conventional
sources,
the
synthetic
crude
oil
produced
at
Syncrude
has
to
compete
with
oil
from
such
sources.
This
led
to
the
use
of
very
large
equipment
(the
equipment
at
Syncrude
had
never
previously
existed
on
as
large
a
scale
anywhere
in
the
world)
and
duplicate
(in
upgrading)
and
quadruplicate
(in
mining
and
extraction)
production
trains.
The
second
part
was
design
rates
of
production
which
required
that
all
production
units
work
without
interruption
at
capacity
for
extended
periods
of
time.
Each
part
in
the
operation
had
to
be
working,
and
all
parts
had
to
work
together.
Syncrude
is
a
highly
complex
integrated
facility.
Each
part
of
the
operations
at
Syncrude
had
to
work
at
high
throughput
rates.
This
had
to
occur
for
sustained
periods
without
interruption.
Plant
shutdown
periods
(for
plant
maintenance)
were
short,
in
order
to
maximize
production
time.
The
three
main
components
of
the
plant
are
de-linked
to
a
limited
extent
to
allow
for
small,
temporary
deficiencies
in
a
particular
component.
Mining
and
extraction
are
de-linked
by
the
dump
pocket,
extraction
and
upgrading
by
bitumen
tankage,
and
upgrading
and
the
pipeline
by
product
tankage.
There
is
also
some
de-linking
of
the
various
equipment
within
a
particular
component.
All
three
production
components
of
the
plant
were
needed
to
make
a
product
that
could
be
transported
(pipelined)
to
market
(distant
refineries).
Mined
ore
itself
had
no
value
because
there
was
no
market
for
it.
Similarly,
bitumen
had
no
value
because
there
was
no
way
of
moving
it
from
the
Syncrude
site
to
market.
Upgrading
was
needed
to
convert
the
bitumen
to
a
pipelineable
product.
Development
plans
recognized
the
need
for
all
components
to
work
together
before
there
can
be
a
marketable
product.
D.
Syncrude
as
a
mega
project
Syncrude
is
a
large
complex
plant.
Some
examples
will
illustrate
the
scale
of
its
size.
Lease
17
(one
of
the
two
leases
occupied
by
Syncrude)
has
an
area
of
about
200
square
km.
It
took
650,000
person
years
to
build
the
plant.
The
plant
contains
248,000
cubic
metres
of
concrete,
853
km
of
piping
in
the
plant,
2,920
km
of
wire
and
cable.
The
power
plant
is
large
enough
to
serve
a
city
of
250,000.
The
mine
is
one
of
the
biggest
open
pit
mines
in
the
world.
The
drag
lines
are
as
tall
as
a
25-storey
building.
Their
booms
are
as
long
as
a
Canadian
football
field.
There
are
over
50
km
of
conveyor
belts
in
the
mine.
The
cokers
are
the
largest
in
the
world.
The
enormity
of
this
project
gives
some
idea
of
the
difficulties
one
has
in
attempting
to
relate
Syncrude
to
other
businesses.
Dr.
Devenny
testified
that
the
phases
through
which
a
typical
mega
project
progresses
are
the
"construction
phase",
the
"debugging
phase"
and
"mature
operations".
There
is
no
precise
date
which
divides
these
phases
and,
furthermore,
there
is
overlap
between
them.
A
number
of
things
were
occurring
simultaneously
at
Syncrude
in
attempting
to
bring
it
"on
stream".
The
various
parts
of
the
operations
at
Syncrude
were
turned
over
from
construction
at
different
times.
While
some
parts
of
the
operations
were
turned
over
from
construction
earlier
than
others,
construction
of
the
remaining
parts
continued.
When
Dr.
Devenny
testified
that
the
construction
phase
ended
in
July
1978,
he
was
referring
to
only
one
component
of
the
operations
at
Syncrude,
namely
mining
which
was
completed
when
all
the
draglines
used
in
mining
had
been
turned
over
from
construction.
At
that
point,
construction
still
continued
in
extraction
and
upgrading.
For
example,
only
one
train
in
upgrading
had
been
turned
over
from
construction
in
July,
the
second
train
did
not
get
turned
over
until
later
in
1978.
As
stated
above,
for
the
plant
to
have
commercial
output,
each
part
of
the
operations
has
to
be
up
and
running.
In
addition,
in
December
1978,
$100
million
was
budgeted
for
remaining
construction
and
fix-up
at
Syncrude.
While
$100
million
is
an
enormous
amount
of
money,
it
is
less
than
five
per
cent
of
the
total
cost
of
the
project.
According
to
Dr.
Devenny,
it
is
only
after
the
"debugging
period"
that
Syncrude
was
complete
and
ready
for
commercial
use.
Dr.
Devenny
described
the
point
at
which
the
"construction
period"
ended
for
a
particular
part
of
the
operations
as
the
point
at
which
that
part
was
"turned
over"
from
construction.
In
this
description,
he
was
referring
to
the
turning
over
of
that
part
of
the
plant
from
the
construction
contractor
to
the
Syncrude
staff.
At
that
point,
the
equipment
had
to
be
tested
to
see
if
it
would
work
and
the
staff
had
to
be
trained
at
how
to
work
and
maintain
it.
Dr.
Devenny
described
this
period
of
testing
and
training
as
a
"debugging
period".
It
is
only
after
the
"debugging
period"
that
Syncrude
was
complete
and
ready
for
commercial
use.
Given
the
complexity
and
scale
of
the
plant
at
Syncrude,
it
was
a
long
and
arduous
process
to
get
through
this
period.
The
plant
at
Syncrude
was
not
complete
at
the
end
of
what
Dr.
Devenny
called
the
"construction
period".
Syncrude
was
not
a
"turnkey"
operation.
Equipment
was
not
"constructed"
in
one
day
and
in
operation
the
next.
The
only
way
to
get
through
the
"debugging
period"
was
by
actual
experience
and
practice
on
a
trial
and
error
basis.
The
only
way
to
determine
the
problems
that
will
be
encountered
in
running
a
plant
is
to
try
to
make
it
work.
Similarly,
the
only
way
to
come
up
with
solutions
to
such
problems
and
discover
whether
such
solutions
are
viable,
is
to
try
such
solutions
in
practice.
The
problems
that
will
be
encountered
in
the
"debugging
period"
or
how
long
this
period
might
last
cannot
be
determined
in
advance.
These
problems
defy
the
predictions
of
the
designers
and
the
plans
for
a
project.
At
Syncrude,
the
designers
knew
there
would
be
some
"debugging",
but
could
state
neither
how
extensive
it
might
be
nor
how
long
it
would
take.
A
"debugging
period"
is
typical
in
any
large
project.
Further,
the
length
of
this
period
and
the
problems
encountered
during
it
are
magnified
when
dealing
with
mega
projects.
Dr.
Devenny’s
opinion
on
this
is
supported
by
the
findings
of
the
Rand
Corporation.
The
experience
with
Syncrude
bears
this
out.
With
mega
projects,
there
are
always
problems
to
be
solved
and
learning
to
be
done
before
the
project
is
complete.
What
differentiates
the
"debugging"
period
from
"mature
operations"
is
the
frequency
with
which
those
problems
occur
and
the
impact
those
problems
have
on
the
operation.
E.
Problems
encountered
in
1978
and
subsequent
years
In
1978,
Syncrude
could
not
be
operated
in
a
commercial
manner
as
there
were
a
number
of
problems
which
not
only
prevented
it
from
moving
into
commercial
production,
but
which
Gulf
considered
threatened
the
existence
of
Syncrude.
In
the
winter
of
1978-79,
the
mine
fell
far
short
of
its
assignment
to
provide
feed
to
the
extraction
system.
The
feed
became
saturated
and
froze
and
there
was
difficulty
in
providing
feed
at
the
planned
rate.
It
was
very
important
for
the
plant
that
the
mine
produce
feed
on
a
reliable,
sustained
basis,
which
was
not
achieved
until
after
the
winter
of
1979.
Examples
of
the
problems
encountered
in
mining
included:
1.
Each
drag
line
had
to
be
taken
off
and
replaced.
While
the
one
drag
line
was
being
replaced,
the
other
three
were
operating.
The
replacement
of
the
drag
lines
was
not
completed
until
late
1979
or
early
1980.
2.
A
buried
stream
valley
was
encountered
in
the
centre
of
the
mine.
This
valley
had
soft
clay
in
it
and
could
not
support
major
equipment
such
as
the
draglines.
An
area
of
the
mine
called
a
"pillar"
had
to
be
abandoned.
Mining
in
the
quadrant
where
the
valley
was
found
"leapfrogged"
over
the
valley
and
a
second
cut
was
made
in
the
mine
where
mining
in
that
quadrant
later
continued.
3.
Problems
were
caused
by
the
stockpiling
of
the
bituminous
sands
in
the
windrows.
Through
the
summer
of
1978,
the
bituminous
sands
stayed
in
the
windrows,
was
rained
on
and
oxidized,
causing
problems
and
interruptions
when
extraction
began
to
process
the
sands.
In
addition,
during
the
winter
of
1978-79,
these
wet,
water-
soaked
windrows
froze
making
handling
by
the
bucketwheels
very
difficult.
4.
There
were
several
defects
in
the
bucketwheels.
First,
the
shaft
of
the
bucketwheel
could
not
handle
the
tremendous
torque
that
drives
the
wheel
and
it
wore
out.
Secondly,
the
buckets
on
the
wheel
originally
picked
up
large
rocks
(which
would
slice
the
conveyor
belts),
requiring
the
installation
of
false
bottoms
on
each
bucket
(to
restrict
the
entrance
to
the
bucket).
Lastly,
the
ballbearing
ring
in
the
base
unit
that
supports
the
revolving
bucketwheel
had
to
be
replaced
by
a
stronger
system,
requiring
the
bucketwheel
to
be
taken
apart
and
causing
it
to
be
out
of
commission
for
a
month
or
two.
By
the
end
of
1977,
there
were
four
million
tons
of
feed
stockpiled,
which
is
not
a
large
amount
by
Syncrude
standards
since
there
was
usually
much
more.
However,
the
problem
was
that
the
bucketwheels
were
not
in
place
at
the
end
of
1977.
Therefore,
the
feed
could
not
be
transferred
to
the
extraction
plant.
There
was
sufficient
feed
available
to
start
only
one
train.
Examples
of
the
problems
encountered
in
extraction
were
as
follows:
1.
Early
on,
there
was
extensive
down
time
with
the
centrifuges.
The
water
nozzles
in
the
centrifuges
very
frequently
wore
out,
requiring
a
centrifuge
to
be
taken
off
line,
torn
down
and
the
nozzles
repaired.
The
balls
in
the
centrifuges
(which
came
from
Sweden)
were
also
wearing
out
with
the
result
that,
at
any
one
time,
a
third
of
Syncrude’s
stock
of
centrifuges
was
in
transit
to
or
from
Sweden,
and
a
third
was
under
repair
in
Sweden,
leaving
only
the
remaining
third
working.
Further,
muskeg
fibres
got
into
the
very
fine
openings
in
the
centrifuges
through
which
water
and
clay
were
intended
to
pass,
requiring
frequent
shutdown
to
clean
these
out.
This
was
all
occurring
during
1978.
These
problems
were
subsequently
resolved
and
today
the
centrifuges
run
for
long
periods
of
time
without
interruption.
2.
There
were
problems
with
the
screen
system
requiring
large
amounts
of
time
to
maintain.
3.
There
was
a
lack
of
instrumentation
to
control
the
process
in
the
primary
separation
vessel.
4.
The
rake
that
"stirred"
the
sands
in
the
primary
separation
vessel
would
frequently
burn
out.
Examples
of
the
problems
encountered
in
upgrading
are
as
follows:
1.
The
cokers
at
Syncrude
are
the
largest
in
the
world
and
problems
were
encountered
in
getting
them
to
run.
It
was
necessary
to
learn
how
to
achieve
proper
operating
conditions,
such
as
temperature,
feed
rates,
the
rate
the
coke
is
moved
around
inside
the
coker,
and
the
size
of
the
coke
particles
themselves.
It
was
also
necessary
to
learn
how
to
achieve
design
(or
near
design)
throughput
rates.
Initially,
coker
throughput
was
well
below
design
rates,
due
in
part
to
problems
with
the
coker
(also
due
to
limitations
in
feed
rates
to
the
coker,
caused
by
problems
in
mining
and
extraction).
Further,
changes
were
required
in
the
coker
internals
and
to
operating
procedures
to
resolve
problems
with
the
coke
removal
system
and
to
fix
damage
caused
by
sudden
fluctuations
in
operating
conditions.
2.
The
cokers
are
the
core
of
upgrading
and
any
disruption
to
coker
operation
forces
a
shutdown
of
the
plant.
In
addition,
the
turnaround
time
is
much
longer
for
an
unplanned
as
opposed
to
a
planned
shutdown.
In
a
planned
shutdown,
the
feed
rate
to
the
coker
can
be
adjusted
and
the
coker
can
be
shut
down
empty,
in
which
case,
it
may
take
only
a
day
or
two
to
weather
the
shutdown
and
get
it
running
again.
In
an
unplanned
shutdown,
the
coker
suddenly
shuts
down
full
of
bitumen
and
coke,
which
hardens,
thereby
making
it
very
difficult
and
time
consuming
to
clean
the
coker
out.
The
turnaround
caused
by
an
unplanned
shutdown
is
even
longer
in
the
winter
months.
In
the
early
years,
including
1978,
there
were
many
unplanned
shutdowns
of
the
cokers.
In
addition
to
problems
with
the
cokers
themselves,
these
were
caused
by
problems
with
the
services
that
support
the
cokers.
For
example,
any
interruption
in
power
supply
to
a
coker,
however
brief,
would
cause
an
unplanned
shutdown.
Coker
8-1,
also
referred
to
as
coker
No.
1,
went
down
in
September
1978
for
91
days.
There
appears
to
be
two
reasons
why
it
was
down
for
so
long.
Firstly,
it
took
a
long
time
cleaning
it
out,
and
making
repairs
was
very
time
consuming.
Secondly,
an
employee
of
Gulf
indicated
that
there
may
not
have
been
enough
feed
to
supply
two
cokers.
Coker
8-1
was
down
for
an
additional
193
days
in
1979
which
again
may
have
been
because
of
a
lack
of
feed.
3.
There
are
a
few
thousand
miles
of
piping
which
sit
outside
in
the
wintertime
and
problems
were
encountered
in
the
systems
which
prevent
this
piping
from
freezing.
In
the
winter
of
1978-79,
the
electrical
heat
tracing
(which
was
the
technique
originally
used)
failed
in
numerous
locations
throughout
the
plant,
resulting
in
frozen
lines
and
many
interruptions.
The
steam
based
system
(which
replaced
the
heat
tracing)
was
itself
a
problem,
as
the
plant
was
short
of
steam.
Problems
during
the
"debugging
period"
also
affected
the
auxiliary
plants.
Examples
of
these
are
as
follows:
1.
The
standard
to
which
the
utilities
plant
was
designed
was
found
to
be
inadequate
for
purposes
of
supporting
upgrading.
Any
interruption
in
the
power
supply
to
a
coker
would
cause
an
unplanned
coker
shutdown.
In
addition,
in
the
early
years,
the
many
safety
checks
in
utilities
would
detect
problems
in
operating
conditions
and
shut
down
the
plant,
again
causing
an
unplanned
coker
shutdown.
These
sudden
shutdowns
were
made
more
frequent
by
faulty
instrumentation
in
the
utilities
plant.
Further,
the
cogeneration
unit,
which
was
supposed
to
supply
steam
to
the
utilities
plant,
collapsed
and
never
worked,
causing
a
shortage
in
the
power
supply.
These
problems
continued
throughout
1978.
2.
Some
time
in
1979,
one
of
the
main
compressor
units
in
the
hydrogen
plant
exploded,
resulting
in
the
loss
of
half
of
the
hydrogen
plant.
In
addition,
there
were
general
problems
that
affected
each
part
of
the
operations
during
the
"debugging
period".
Examples
of
these
are
as
follows:
1.
As
stated
above,
Syncrude
is
a
highly
complex
integrated
facility.
Thus,
problems
encountered
in
one
part
of
the
operations
affect
the
whole
operation.
It
took
some
time
for
the
various
parts
to
work
together
efficiently.
2.
The
technology
used
at
Syncrude
was
"new
technology"
as
defined
in
various
studies
done
by
the
Rand
Corporation.
To
provide
some
examples
some
of
the
technology
was
wholly
new,
there
were
new
configurations
of
existing
technology,
much
of
the
technology
had
never
previously
existed
on
as
large
a
scale,
and
all
of
the
technology
was
new
to
the
staff
who
were
going
to
run
Syncrude:
"the
staff
that
were
going
to
operate
[the
technology]
were
all
green".
It
was
therefore
necessary
for
the
staff
to
learn
how
to
run
the
various
complex
machinery
and
procedures
had
to
be
developed
for
the
maintenance
of
this
machinery
with
a
minimum
of
interference
with
operations.
3.
There
was
a
totally
new
organization
brought
in
to
run
Syncrude.
There
was
a
fresh
staff
of
3,500
employees
and
approximately
2,000
contract
personnel.
It
took
some
time
for
them
to
work
together
as
an
organization.
Dr.
Devenny
testified
that
Syncrude
would
not
have
been
viable
and
would
have
been
terminated
if
the
problems
experienced
in
1978
persisted
and
it
was
expected
that
they
were
not
repairable.
The
output
would
have
been
too
low,
since
cokers
8-1
and
8-2
were
both
operational
at
the
same
time
for
only
six
days
during
1978.
Dr.
Devenny
testified
that
the
debugging
period
for
Syncrude
was
from
July
1978
to
April
1980.
F.
Accounting
The
plaintiff
accounted
for
its
interest
in
Syncrude
in
1978
on
a
capital
basis.
It
capitalized
(1.e.,
included
in
its
share
of
the
costs
of
the
Syncrude
plant
and
equipment)
its
share
of
the
costs
incurred
at
Syncrude
in
1978
(all
costs,
not
merely
those
on
tangible
capital),
after
netting
(deducting)
the
"incidental
revenue"
or
"early
flow
of
revenue"
received
from
the
sale
of
its
share
of
the
output
of
synthetic
crude
oil
at
Syncrude
in
1978
($7
million).
The
plaintiff
continued
to
capitalize
all
of
its
costs
and
net
revenues
to
the
balance
sheet
up
to
March
1979,
when
it
commenced
to
amortize
its
costs
on
the
income
statement.
According
to
Mr.
Quinn,
the
plaintiffs
manager
of
taxation,
the
plaintiff
started
accounting
for
the
Syncrude
revenues
on
a
profitable
basis
in
March
1979
because
of
a
significant
event
which
occurred
at
that
time.
He
described
the
significant
event
as
the
production
of
the
five
millionth
barrel
of
oil
which
triggered
the
account
for
the
Alberta
royalty
calculations
and
it
also
triggered
the
account
for
the
Alberta
loan
conversion.
However,
Mr.
Quinn
admitted
that
this
was
not
a
normal
measure
of
commercial
production.
I
agree
with
Mr.
Quinn,
but
this
does
not
mean
that
management
was
wrong
in
concluding
there
was
no
commercial
production
in
1978.
It
is
of
no
assistance
to
me
that
Imperial
Oil
chose
to
commence
amortizing
the
costs
when
it
had
production
of
30,000
barrels
for
30
consecutive
days.
I
was
not
provided
with
any
rationale
for
this
policy
and,
accordingly,
I
do
not
find
it
to
be
relevant
to
the
matter
before
me.
This
accounting
policy
derived
from
the
following
decisions
of
management:
I.
Syncrude
was
not
yet
substantially
complete
and
capable
of
reasonable
commercial
output
in
1978;
and
II.
given
the
status
of
Syncrude
in
1978,
accounting
on
a
capital
basis
was
the
proper
accounting
policy.
I
am
satisfied
that
Syncrude
was
not
capable
of
reasonable
commercial
output
in
1978.
The
plaintiffs
accounting
policy
was
in
accordance
with
generally
accepted
accounting
principles
(GAAP).
The
alternative
accounting
method
was
for
the
plaintiff
to
account
for
its
interest
in
Syncrude
in
1978
on
a
profit
and
loss
basis.
Given
management’s
decision
regarding
the
status
of
Syncrude
in
1978,
the
plaintiff’s
accounting
policy
(i.e.,
capitalization)
gave
a
truer
picture
of
its
financial
position
with
respect
to
Syncrude
than
this
alternative.
Following
from
its
accounting
policy,
no
amount
with
respect
to
Syncrude
was
shown
in
any
profit
and
loss
statement
of
the
plaintiff
in
1978.
From
a
financial
accounting
perspective,
the
plaintiff
had
no
’’income”
or
"loss”
from
Syncrude
in
1978.
While
"income"
equals
"revenue"
minus
"expenses",
the
"revenue"
and
"expenses"
must
be
related
to
profitmaking
activities
for
there
to
be
"income".
G.
Processing
Tar
sand
(bituminous
sand)
is
petroleum.
Bitumen
is
petroleum.
The
froth
(dirty
bitumen)
that
comes
off
the
top
of
the
primary
separation
vessel
in
the
extraction
plant
is
petroleum.
A
diluted
crude
product
is
achieved
in
the
extraction
plant
some
place
between
the
froth
stage
and
where
the
diluent
(naphtha)
is
added
to
go
through
the
centrifuges.
The
material
handled
throughout
extraction
and
upgrading
is
petroleum
and
such
material
becomes
a
lighter,
more
concentrated
and
purer
form
of
petroleum
as
it
progresses
through
these
components.
Diluted
crude,
similar
to
that
which
is
the
output
of
the
extraction
plant,
is
received
by
refineries.
The
activities
that
take
place
in
upgrading
at
Syncrude
are
very
similar
to
the
activities
that
take
place
in
a
typical
refinery,
and
the
equipment
used
in
upgrading
is
similar.
The
upgrading
at
Syncrude
and
a
typical
refinery
both
have
fractionation,
gas
oil
and
naphtha
hydrotreating,
hydrogen
generation,
the
blending
of
treated
products
to
make
a
saleable
product,
cokers,
a
very
large
utilities
plant
supplying
steam,
air
and
power,
sulphur
plants,
etc.
Income
tax
legislation
In
order
to
review
the
Syncrude
issue,
it
is
necessary
to
review
section
1204
of
the
Income
Tax
Regulations.
The
relevant
parts
of
subsection
1204(1)
are
as
follows:
1204(1)
For
the
purposes
of
this
Part,
"resource
profits"
of
a
taxpayer
for
a
taxation
year
means
the
amount,
if
any,
by
which
the
aggregate
of
(b)
the
amount,
if
any,
of
the
aggregate
of
his
incomes
for
the
year
from
(i)
the
production
of
petroleum,
natural
gas
or
related
hydrocarbons
from
oil
or
gas
wells
in
Canada
operated
by
him,
(ii)
the
production
in
Canada
of
(A)
petroleum,
natural
gas
or
related
hydrocarbons,
or
(B)
metals
or
minerals
to
any
stage
that
is
not
beyond
the
prime
metal
stage
or
its
equivalent,
from
mineral
resources
in
Canada
operated
by
him,
exceeds
(c)
the
aggregate
of
his
losses
for
the
year
from
the
sources
described
in
paragraph
(b),
computed
in
accordance
with
the
Act,
on
the
assumption
that
he
had
during
the
year
no
incomes
or
losses
except
from
those
sources
and
was
allowed
no
deductions
in
computing
his
income
for
the
year
other
than
(f)
such
other
deductions
for
the
year
as
may
reasonably
be
regarded
as
applicable
to
the
sources
of
income
described
in
paragraph
(b)....
The
words
"mineral
resource"
and
"minerals"
are
defined
in
section
248
of
the
Act
as
follows:
"Mineral
resource".-"mineral
resource"
means
(a)
a
base
or
precious
metal
deposit,
(b)
a
coal
deposit,
(c)
a
bituminous
sands
deposit,
oil
sands
deposit
or
oil
shale
deposit,
or....
"Minerals".—"minerals"
do
not
include
petroleum,
natural
gas
or
related
hydrocarbons
(except
coal,
bituminous
sands,
oil
sands
or
oil
shale);
Evidence
ruling
During
the
course
of
the
trial
I
was
asked
to
make
a
ruling
with
respect
to
proposed
evidence
to
be
given
by
Robert
Clark,
Director
of
Tax
Legislation
Interpretation
with
Natural
Resources
Canada,
since
the
summer
of
1991.
He
was
going
to
provide
evidence
with
respect
to
the
ad-
ministrative
policy
on
the
prime
metal
stage,
which
is
relevant
under
Regulation
1204(1).
This
subsection
provides
that
resource
profits
means
the
amount,
if
any,
of
the
taxpayer’s
incomes
for
the
year
from
"(B)
metals
or
minerals
to
any
stage
but
not
beyond
the
prime
metal
stage
or
its
equivalent,
from
mineral
resources
in
Canada
operated
by
him".
Gulf
took
objection
to
this
evidence
on
four
grounds:
1.
Mr.
Clark
was
testifying
on
a
matter
of
law;
2.
he
was
asked
for
an
opinion
and
is
not
qualified
as
an
expert;
3.
the
evidence
is
irrelevant
in
any
event;
and
4.
the
evidence
is
hearsay.
The
Crown
submitted
that
the
evidence
was
admissible
pursuant
to
the
judgment
of
Mahoney
J.A.
in
Canadian
National
Railway
Co.
and
Canadian
Pacific
Ltd.
v.
Canada
(1994),
171
N.R.
64
(F.C.A.).
In
that
case
the
appellant,
The
Queen,
argued
that
the
conclusion
that
the
"prime
metal
stage"
is
reached
at
the
point
where
a
metal
is
refined
to
the
point
of
purity
is
nourished
by
a
departmental
excise
tax
ruling
dated
March
25,
1985.
The
Court
of
Appeal
was
dealing
with
a
published
ruling.
Mahoney
J.A.
stated
at
page
74:
Departmental
rulings
are
not
definitive
but,
I
accept,
departmental
policy
and
practice
is
not
irrelevant.
I
do
not
think,
however,
that
the
appellants
can
draw
comfort
from
the
ruling
recited
above....
The
Crown
took
the
position
that
it
was
not
relevant
to
the
decision
that
the
departmental
ruling
was
published.
However,
in
my
view
there
is
a
distinction
between
administrative
policy
or
rulings
which
are
published
and
those
which
are
unpublished.
I
am
in
agreement
with
the
reasoning
of
Muldoon
J.
in
Fibreco
Pulp
Inc..
v.
Canada,
[1994]
2
C.T.C.
114,
94
D.T.C.
6325,
where
he
stated
at
page
123
(D.T.C.
6330):
The
subjects
of
the
admissibility
of
the
defendant’s
administrative
practice
in
regard
to
the
legislation
in
question,
and
of
the
use
of
Hansard,
both
as
aids
to
the
interpretation
of
that
selfsame
legislation,
were
debated
by
the
parties’
respective
counsel
at
great
length.
The
defendant’s
counsel
sought
strenuously
to
introduce
both
categories
of
evidence
and
the
plaintiffs’
counsel
objected
adamantly.
There
is
one
factor
common
to
both
subjects
which
militates
against
the
admission
of
the
evidence,
and
that
is
the
rule
of
law.
It
will
be
discussed
further
on
in
these
reasons.
Muldoon
J.
continued
at
pages
128-29
(D.T.C.
6334):
The
defendant
sought
to
introduce
the
government’s
administrative
practice
in
dealing
with
first
grantees
and
later
taxpayers
in
order
to
bolster
its
case
against
the
present
plaintiffs.
Included
would
be
policy
formulations
and
memoranda
between
government
offices.
This
is
rather
like
communications
between
one
synapse
of
the
government’s
"brain",
and
another
synapse-it
is
all
within
the
government’s
"mind".
It
is
utterly
disregarded
by
this
Court
on
that
very
basis.
To
do
what
the
defendant
wants
to
do
here
is
to
breach
the
rule
of
law,
whose
principles
inform
and
motivate
the
Constitution
of
Canada.
Given
that
in
this
tax
case,
as
in
all
others
where
the
government
is
the
adversary
with
all
the
weight
of
the
eternal
intimidating
State,
the
previous
unadjudicated
practices
of
the
government’s
servants
unfairly
bear
on
the
taxpayers.
To
assert
that
government’s
view
of
the
law
can
be
proved
and
enforced
because
its
view
is
supported
by
how
the
government
has
previously
always
dealt
with
taxpayers
is
to
assert
autocracy.
Fair
enough
if
the
government
puts
its
view
of
the
law
before
the
Court
in
intellectual
competition
with
the
plaintiffs’
view,
but
when
the
government
seeks
to
adduce
evidence
of
its
own
previous
practices
to
support
the
alleged
correctness
of
its
own
interpretation
of
the
law,
the
government
seeks
to
breach
the
rule
of
law.
It
would
be
condoning
special
pleading
to
permit
the
proof
of
public
servants’
own
agreed
internal
interpretations
of
the
law
to
be
offered
to
the
Court
in
support
of
the
government’s
contentions....
He
went
on
to
find
that
if
the
government
believes
that
the
advice
was
so
good
in
interpreting
statutory
provisions
at
page
129
(D.T.C.
6335):
..the
Crown
may
submit
the
same
advice
in
the
form
of
legal
argument
to
the
Court.
If
the
Crown
adopts
that
advice
as
argument,
it
will
be
before
the
Court,
without
its
being
considered
to
be
evidence....
The
case
of
Fibreco
Pulp
Inc.,
supra,
is
under
appeal
but
until
such
time
as
the
result
may
be
changed,
I
agree
with
the
reasoning
contained
therein.
I
do
agree
with
the
Crown
that
where
the
Government’s
policy
is
set
out
in
published
rulings
or
interpretation
bulletins,
such
as
are
published
by
Revenue
Canada,
that
this
part
of
administrative
policy
can
be
admitted.
I,
therefore,
rule
that
if
Mr.
Clark
had
any
published
administrative
policy
to
present
to
the
Court,
that
he
could
be
questioned
on
this,
but
I
will
not
permit
the
introduction
into
evidence
of
unpublished
administrative
policy.
The
Crown
should
not
be
able
to
elevate
a
good
argument
on
the
interpretation
of
Regulation
1204
into
evidence.
I
do
not
agree
with
the
plaintiff
that
the
evidence
of
Mr.
Clark
was
expert
opinion.
The
Crown
specifically
stated
that
it
did
not
intend
to
ask
Mr.
Clark
his
opinion
of
any
of
the
policy,
but
rather
solely
on
what
was
the
policy
with
respect
to
the
prime
metal
stage.
In
my
view
the
Crown
is
not
assisted
by
Hard
v.
D.M.R.
(Quebec),
[1978]
1
S.C.R.
851,
[1977]
C.T.C.
441,
77
D.T.C.
5438,
at
page
859
(C.T.C.
448,
D.T.C.
5442),
where
de
Grandpré
J.
states:
Once
again,
I
am
not
saying
that
the
administrative
interpretation
could
contradict
a
clear
legislative
text,
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.
Following
my
ruling
the
Crown
elected
not
to
ask
any
further
questions
of
Mr.
Clark
and
he
was
not
cross-examined
by
counsel
for
Gulf.
Analysis
The
parties
agree
with
respect
to
the
following
two
matters.
Firstly,
there
is
a
bituminous
sand
deposit
at
Syncrude,
and
secondly,
if
Syncrude
was
being
operated
in
1978
it
was
operated
by
Gulf
as
a
participant
in
the
Syncrude
project.
In
1978,
the
plaintiff,
in
calculating
its
general
or
worldwide
income,
deducted
capital
cost
allowance
(CCA)
with
respect
to
the
assets
at
Syncrude.
It
also
deducted
the
interest
paid
to
the
Alberta
government
with
respect
to
a
loan
incurred
to
purchase
its
interest
in
Syncrude.
Under
the
Income
Tax
Act
calculation
of
resource
profits
is
a
separate
code
and
distinguished
from
the
calculation
of
income
under
Part
I.
When
one
looks
at
paragraph
1204(1)(f),
the
effect
of
it
is
that
if
Syncrude
is
not
the
source
of
income
under
paragraph
1204(l)(b)
the
CCA
deduction
and
the
interest
deduction
cannot
reduce
income,
because
it
cannot
be
reasonably
regarded
as
applicable
to
the
source
of
income
described
in
paragraph
(b).
Accordingly,
the
key
issue
is
whether
Syncrude
is
a
source
of
income
under
paragraph
1204(l)(b).
The
plaintiff
Gulf
submits
that
whatever
production
means
under
Regulation
1204(1)(b)
it
cannot
include
processing
petroleum,
natural
gas
or
related
hydrocarbons.
Gulf
relies
on
Regulation
1204(3)
which
reads
as
follows:
1204(3)
Income
or
loss
from
a
source
described
in
paragraph
(l)(b)
does
not
include
income
or
loss
derived
from
transporting,
transmitting
or
processing
petroleum,
natural
gas
or
related
hydrocarbons.
Subsection
1204(1)
of
the
Regulations
requires
a
taxpayer
to
compute
its
"resource
profits"
by
determining
the
amount
by
which
the
aggregate
of
the
taxpayer’s
incomes
for
the
year
from
the
various
"sources"
described
in
paragraph
(b)
exceeds
the
aggregate
of
the
taxpayer’s
losses
for
the
year
from
those
"sources".
"Resource
profits"
is
a
"source-by-source"
computation.
It
includes
each
of
the
types
of
"sources"
of
income
described
in
paragraph
1204(1)(b),
from
(i)
through
(v),
and
any
number
of
"sources"
within
each
type.
For
the
purposes
of
the
"resource
profits"
computation,
incomes
and
losses
from
the
"sources"
described
in
paragraph
1204(1)(b)
are
to
be
determined
in
accordance
with
the
provisions
of
the
Act,
on
the
assumptions
that
the
taxpayer
had
no
incomes
or
losses
except
from
those
"sources"
and
was
allowed
no
deductions
in
computing
such
incomes
and
losses
other
than
those
specifically
enumerated
in
paragraphs
(d)
through
(f).
This
is
not
the
first
case
between
the
parties
dealing
with
Syncrude
and
whether
it
is
a
"source"
of
income.
Gulf
Canada
Ltd.
v.
The
Queen,
[1991]
1
C.T.C.
99,
90
D.T.C.
6622
(F.C.T.D.);
aff’d
[1992]
1
C.T.C.
183,
92
D.T.C.
6123
(F.C.A.),
leave
to
appeal
to
the
Supreme
Court
of
Canada
refused
in
[1992]
2
S.C.R.
ix,
dealt
with
the
plaintiff’s
1974
and
1975
taxation
years
and
the
predecessor
provisions
to
subsection
1204(1)
of
the
Regulations.
It
was
determined
in
that
case
that
Syncrude
was
not
a
"source”
of
income
under
those
provisions
in
those
years.
The
case
was
heard
by
McNair
J.,
in
the
Trial
Division,
and
his
judgment
was
upheld
on
appeal
in
a
unanimous
decision
of
the
Court
of
Appeal
delivered
by
Hugessen
J.A.
Leave
to
appeal
to
the
Supreme
Court
of
Canada
was
refused.
The
parties
have
consented
to
judgment
for
the
1976
and
1977
taxation
years
on
the
basis
that
Syncrude
was
not
a
"source”
of
income
in
those
years.
The
legislation
at
issue
in
those
years
was
the
same
as
the
legislation
before
this
Court.
Subsection
1204(1)
of
the
Regulations
sets
up
a
separate
and
complete
code
for
the
determination
of
a
taxpayer’s
"resource
profits”.
See
McNair
J.
in
Gulf,
supra,
at
page
112
(D.T.C.
6632):
In
my
opinion,
sections
124.1
and
124.2
[the
predecessor
provisions
to
subsection
1204(1)]
set
up
their
own
separate
scheme
of
inclusions
and
exclusions
from
income
for
purposes
of
the
special
incentive
programs.
It
is
apparent
that
the
concept
of
a
separate
code
extends
to
both
income
inclusions
and
deductions.
A
"source"
of
income
is
relevant
in
the
computation
of
"resource
profits”,
and
an
income
or
loss
computation
is
to
be
made
in
respect
of
such
"source”,
only
if
it
is
found
to
be
one
of
the
enumerated
"sources"
of
income
in
paragraph
1204(1)(b).
Similarly,
a
deduction
is
to
be
taken
in
the
computation
of
incomes
and
losses
from
the
enumerated
"sources"
only
if
the
deduction
is
described
in
one
of
paragraphs
1204(1)(d)
through
(f).
In
the
case
at
bar
only
paragraph
1204(1)(f)
is
relevant.
The
"sources"
of
income
described
in
paragraph
1204(I)(b)
of
the
Regulations
are
much
more
specific
and,
thus,
narrower
in
scope
than
the
"sources"
of
income
which
are
relevant
in
computing
a
taxpayer’s
income
under
Part
I
of
the
Act
(which
calculates
income
from
all
"sources").
The
primary
"sources"
of
income
under
Part
I
are
business,
property
and
employment,
whereas
paragraph
1204(1
)(b)
of
the
Regulations
describes
a
limited
number
of
narrow
and
specific
"sources".
Hugessen
J.A.,
for
the
Court
of
Appeal
in
Gulf,
supra,
recognized
this,
at
page
186
(D.T.C.
6126):
The
structure
of
the
two
sections
[the
predecessor
provisions
to
subsection
1204(1)
of
the
Regulations]
is
clearly
such
as
to
identify
and
isolate
income
from
certain
specific
and
described
"sources"
of
income
and
then
to
subtract,
therefore
(sic),
the
aggregate
of
the
losses
from
those
same
sources
together
with
five
specific
and
described
categories
of
“deductions”….
Hugessen
J.A.
restates
this
principle
later
in
his
judgment.
Having
recognized
that
"source"
of
income
means
"business",
he
states
in
the
passage
set
out
below
that
it
does
not
follow
that
the
"sources"
of
income
described
in
paragraph
1204(
1
)(b)
refer
to
Gulf’s
"upstream
business"
or
its
overall
"business",
at
page
187
(D.T.C.
6127):
That
does
not,
however,
assist
us
in
determining
what
is
meant
by
"production"
or
what
is
included
in
the
business;
it
certainly
does
not
support
the
Crown’s
argument
that
"production"
comprises
the
whole
of
the
"upstream"
end
of
the
taxpayer’s
business,
including
exploration
and
development
and
whether
or
not
there
is
any
actual
production,
a
contention
for
which
there
is
no
warrant
whatsoever
in
the
sections.
The
taxpayer,
as
an
integrated
oil
company,
also
has
refining,
distribution
and
marketing
as
parts
of
its
whole
business,
but
it
could
not
be
seriously
suggested
that
they,
too,
should
be
included
in
the
concept
of
production
as
a
source
of
income....
The
"source"
of
income
at
issue
in
this
action
is
described
in
subparagraph
1204(1
)(b)(ii)
of
the
Regulations.
That
subparagraph
refers
to:
incomes...from...the
production
in
Canada
of...petroleum,
natural
gas
or
related
hydrocarbons,
or...metals
or
minerals
to
any
stage
that
is
not
beyond
the
prime
metal
stage
or
its
equivalent,
from
mineral
resources
in
Canada
operated
by
him.
Subparagraph
1204(l)(b)(ii)
contains
two
clauses,
clause
(A),
which
refers
to
"petroleum,
natural
gas
or
related
hydrocarbons",
and
clause
(B),
which
refers
to
"metals
or
minerals
to
any
stage
that
is
not
beyond
the
prime
metal
stage
or
its
equivalent".
These
clauses
merely
describe
the
subject
matter
of
the
"production".
Hugessen
J.A.
dealt
with
the
question
as
to
whether
clause
(A)
was
the
relevant
clause
for
determining
the
existence
of
a
source
of
income
in
Gulf,
supra,
when
he
stated
at
page
186
(D.T.C.
6126):
Again,
for
present
purposes,
the
"source"
of
income
described
in
paragraph
(l)(b)
of
both
sections
which
is
of
concern
to
us
is
the
"production"
of
"petroleum,
natural
gas
or
related
hydrocarbons"
from
mineral
resources
or
oil
or
gas
wells
in
Canada
"operated
by"
the
taxpayer.
In
that
case
however,
Hugessen
J.A.
did
not
address
the
question
of
clause
(B).
As
a
result,
the
question
as
to
whether
(A)
or
(B)
was
the
proper
clause
was
not
argued;
both
parties
proceeded
on
the
assumption
that
Syncrude
fell
under
(A).
Hugessen
J.A.
established
the
applicability
of
clause
(A)
in
his
decision.
I
have
discussed
clause
(A),
and
its
relevance
to
the
present
case,
below.
The
parties
were
not
in
agreement
however,
on
the
applicability
of
clause
(B).
Gulf
has
argued
that
clause
(B)
has
been
precluded
from
this
matter
as
a
result
of
Justice
Hugessen’s
decision.
The
Crown
did
not
accept
this
argument
and
I
agree
the
question
is
not
res
judicata
since
the
question
was
not
argued.
As
a
result,
I
find
it
necessary
to
briefly
examine
clause
(B)
in
conjunction
with
the
facts
of
this
case.
In
this
instance,
the
Crown
submitted
that
Syncrude
met
the
following
tests.
There
must
be
production
in
Canada
of
minerals
to
any
stage,
not
beyond
the
prime
metal
stage
or
its
equivalent,
from
a
mineral
resource
in
Canada
operated
by
the
taxpayer.
Thus,
Syncrude:
constituted
a
source
within
the
meaning
of
clause
1204(l)(b)(ii)(B)
in
1978.
I
cannot
agree
with
the
Crown
that
the
Syncrude
project
is
a
mine
from
which
a
mineral-oil
sands-is
produced
to
the
synthetic
crude
oil
stage.
The
definition
of
"minerals"
in
subsection
248(1)
of
the
Act
states:
"Minerals".-"minerals"
do
not
include
petroleum...
(except...bituminous
sands...)
Parliament
has
clearly
stated
that
bituminous
sand
is
petroleum.
The
Crown
contends
that
minerals
are
not
petroleum,
however,
the
definition
of
"minerals"
excludes
only
certain
forms
of
petroleum.
In
particular,
bituminous
sands
are
excluded
from
the
types
of
petroleum
which
are
deemed
not
to
be
"minerals".
Accordingly,
bituminous
sand
is
both
a
mineral
and
petroleum.
Clause
(B)
covers
the
activities
done
to
get
materials
to
the
equivalent
of
the
prime
metal
stage,
that
is,
in
the
case
of
Syncrude,
to
the
prime
mineral
stage.
By
definition
under
the
Act,
the
mineral
is
the
bituminous
sands.
Therefore,
Syncrude
has
already
achieved
the
prime
mineral
stage
with
mining.
That
is,
the
material
entering
the
extraction
plant,
bituminous
sands,
is
already
to
the
prime
mineral
stage.
Consequently,
Syncrude
is
not
processing
to
the
prime
mineral
stage,
because
the
material
had
already
arrived
at
that
stage
at
the
start
of
the
processing.
None
of
the
processing
which
occurs
at
Syncrude
makes
the
material
a
"purer"
form
of
bituminous
sands.
Any
processing
which
occurs
at
Syncrude
is
processing
of
material
after
the
prime
mineral
stage
has
been
reached.
I
reach
this
conclusion
by
applying
the
definition
of
"mineral"
to
the
facts
at
Syncrude.
The
evidence
of
the
witnesses
was
that
petroleum
is
a
broad
concept
encompassing
a
range
of
material,
including
the
bituminous
sands,
the
bitumen
removed
therefrom,
diluted
bitumen,
naphtha,
heavy
gas
oil,
light
gas
oil
and
synthetic
crude
oil.
By
definition
none
of
these
forms
of
petroleum,
except
the
bituminous
sands,
are
a
"mineral".
Therefore,
processing
of
the
nonmineral
petroleum
substances
cannot
be
regarded
as
processing
to
the
prime
mineral
stage
but
rather
in
the
case
of
Syncrude
it
is
processing
at
or
beyond
that
stage.
Further,
the
subsequent
amendment
of
subparagraph
1204(l)(b)(ii)
is
clearly
founded
upon
the
premise
that
activities
carried
on
at
tar
sand
locations
subsequent
to
the
lifting
of
the
bituminous
sands
are
the
"processing"
of
such
sands.
Effective
for
taxation
years
commencing
after
November
12,
1981,
subparagraph
1204(l)(b)(ii),
as
it
applies
to
a
bituminous
sands
deposit,
reads
as
follows:
(ii)
the
production
and
processing
in
Canada
of
(C)
tar
sands
ore
[defined
to
include
ore
extracted
from
a
mineral
resource
that
is
a
deposit
of
bituminous
sand]
from
mineral
resources
in
Canada
operated
by
him
to
any
stage
that
is
not
beyond
the
crude
oil
stage
or
its
equivalent
It
is
apparent
from
this
amended
language
that
the
activities
being
carried
on
in
extraction
and
upgrading
now
constitute
"processing"
for
purposes
of
section
1204,
including
subsection
1204(3)
of
the
Regulations.
This
conclusion
is
confirmed
by
reference
to
the
contemporaneous
amendment
to
subsection
1204(3)
of
the
Regulations.
As
amended,
that
subsection
provides:
1204(3)
Income
or
loss
from
a
source
described
in
paragraph
(1)(b)
does
not
include
income
or
loss
derived
from
transporting,
transmitting
or
processing
(other
than
processing
described
in
clause
(1
)(b)(ii)(C),
(iii)(C)
or
(iv)(C)
or
subparagraph
(l)(b)(v))
petroleum,
natural
gas
or
related
hydrocarbons.
If
"processing"
the
bituminous
sands,
such
as
which
occurs
in
extraction
and
upgrading
at
Syncrude,
was
not
"processing...petroleum"
as
that
phrase
appears
in
the
subsection,
it
would
be
unnecessary
to
specifically
exclude
it
therefrom.
I
agree
with
the
plaintiff’s
submission
that
these
amendments
are
so
fundamental
that
it
cannot
be
held
to
be
declaratory.
Accordingly,
subsection
45(2)
of
the
Interpretation
Act
is
not
applicable
as
suggested
by
the
Crown.
Accordingly,
such
activities
as
extraction
and
upgrading
cannot
fall
within
clause
(B).
I
cannot
agree
with
the
defendant
that
an
interpretation
of
production
that
would
exclude
processing
would
also
result
in
anomalies
in
the
scheme
of
the
Act.
For
example,
as
subparagraph
1204(l)(b)(iii)
applies
only
to
"processing...to
any
stage
that
is
not
beyond
the
prime
[mineral]
stage...",
processing
of
bituminous
sands
from
a
mineral
resource
not
operated
by
the
operator
of
the
plant
would
not
fall
within
this
subparagraph
for
the
same
reasons
that
such
processing
at
Syncrude
does
not
fall
within
clause
(B)
of
subparagraph
1204(l)(b)(ii)
of
the
Regulations.
Therefore,
the
disharmony
which
the
defendant
alleges
does
not
occur.
As
stated
earlier,
the
deduction
in
paragraph
1204(l)(f)
may
be
taken
in
the
computation
of
income
and
losses
from
the
enumerated
sources.
Under
that
paragraph,
a
deduction
is
to
be
taken
in
the
computation
of
"resource
profits"
only
if,
or
to
the
extent
that,
the
deduction
"may
reasonably
be
regarded
as
applicable
to"
the
"source"
of
income
described
in
paragraph
1204(1)(b).
The
phrase
"may
reasonably
be
regarded
as
applicable
to"
was
interpreted
by
Rand
J.
in
Home
Oil
Co.
v.
M.N.R.,
[1955]
S.C.R.
733,
[1955]
C.T.C.
192,
55
D.T.C.
1149,
as
meaning
"specifically
or
directly
related
to"
(at
page
736
(C.T.C.
196,
D.T.C.
1150)).
Accordingly,
for
the
purposes
of
this
action,
the
plaintiff’s
capital
cost
allowance
claim
and
interest
expense
are
deductible
in
the
computation
of
its
"resource
profits"
only
if
or
to
the
extent
they
are:
...specifically
or
directly
related
to
incomes...from...the
production
in
Canada
of...petroleum,
natural
gas
or
related
hydrocarbons...from
mineral
resources
in
Canada
operated
by
him.
The
amount
arrived
at
as
the
plaintiff’s
"resource
profits"
is
used
for
the
purpose
of
determining
the
following:
I.
the
plaintiff’s
"depletion
deduction"
authorized
by
section
65
of
the
Act
and
section
1200
of
the
Regulations,
and
II.
the
plaintiffs
"resource
allowance"
authorized
by
paragraph
20(l)(v.l)
of
the
Act
and
section
1210
of
the
Regulations.
These
are
referred
to
as
the
"special
incentive
programs"
mentioned
by
McNair
J.
in
Gulf,
supra.
I
will
now
review
why,
in
my
view,
there
was
no
source
of
income
in
1978
from
Syncrude
or
any
part
thereof.
1.
The
requirement
for
a
"business"
Production
is
not
a
source
of
income
in
and
of
itself.
For
there
to
be
a
source
of
income
described
in
subparagraph
1204(l)(b)(ii)
of
the
Regulations,
there
must
be
the
"business"
of
"production".
It
follows
from
the
requirement
for
a
"business"
that
"production"
in
the
context
of
the
computation
of
"resource
profits"
requires
more
than
the
mere
extraction
of
material
from
the
ground
since
it
cannot
in
itself
generate
income.
A
"business"
is
a
profit-making
activity
and,
accordingly,
"production"
as
a
"business"
must
include
the
disposition
of
the
material
by
sale
or
otherwise.
In
Gulf,
supra,
the
Crown
advanced
the
argument
that
"production"
in
the
computation
of
"resource
profits"
means
the
"business"
of
"production".
Hugessen
J.A.,
at
page
187
(D.T.C.
6127),
stated:
Finally,
we
would
simply
mention
the
Crown’s
argument
to
the
effect
that
"production"
simpliciter
cannot
be
a
"source"
of
income
and
that
it
is
rather
the
"business"
of
production
which
is
in
fact
the
source.
To
the
extent
that
the
argument
is
one
of
semantics,
it
is
meritorious
but
sterile.
It
is
true
that
the
mere
physical
act
of
taking
minerals
or
oil
or
gas
from
the
ground
does
not
and
cannot
produce
income;
when
Parliament
has
described
“production”
as
being
a
"source",
as
it
clearly
has
in
sections
124.1
and
124.2,
[the
predecessor
provisions
to
subsection
1204(1)]
it
must
be
understood
as
the
business
of
production....
Judson
J.
in
Imperial
Oil
Ltd.
v.
M.N.R.,
[1960]
S.C.R.
735,
[1960]
C.T.C.
275,
60
D.T.C.
1219,
at
page
749
(C.T.C.
288
(D.T.C.
1224),
took
the
same
view
of
the
requirement
for
a
business
when
he
stated.
No
company
makes
an
actual
profit
merely
by
producing
oil.
There
is
no
profit
until
the
oil
is
sold....
The
same
principles
have
been
applied
in
the
context
of
the
phrase
"income
derived
from
the
operation
of
a
mine".
That
phrase
appeared
in
a
three-year
exemption
from
tax
granted
to
"new
mines"
which
was
found
in
various
sections
of
the
Act
and
the
Income
Tax
Application
Rules.
Mahoney
J.A.,
in
We
star
Mining
Ltd.
v.
Canada,
[1992]
2
C.T.C.
11,
92
D.T.C.
6358
(F.C.A.),
summarized
the
principles
as
enunciated
in
similar
cases.
After
reviewing
M.N.R.
v.
Bethlehem
Copper
Corporation
Ltd.,
[1973]
C.T.C.
345,
73
D.T.C.
5281
(F.C.A.);
aff’d
[1975]
2
S.C.R.
790,
[1974]
C.T.C.
707,
74
D.T.C.
6520;
Falconbridge
Nickel
Mines
Ltd.
v.
M.N.R.,
[1972]
C.T.C.
374,
72
D.T.C.
6337
(F.C.A.),
and
Gunnar
Mining
Ltd.
v.
M.N.R.,
[1968]
S.C.R.
226,
[1968]
C.T.C.
22,
68
D.T.C.
5035,
Mahoney
J.A.
stated
at
page
17
(D.T.C.
6363),
of
Westar,
supra:
It
is
the
operation
of
a
mine
as
an
economic
activity,
not
the
physical
acts
involved
in
extracting
and
processing,
that
generates
income.
2.
When
a
"business"
comes
into
existence
There
are
two
conditions
to
the
existence
of
a
"source"
of
income.
The
first
is
a
reasonable
expectation
of
profit.
This
question
has
generally
been
examined
in
the
context
of
cases
in
which
losses
have
been
claimed
in
respect
of
farming
businesses.
Dickson
J.
in
Mo
I
do
wan
v.
The
Queen,
[1978]
1
S.C.R.
480,
[1977]
C.T.C.
310,
77
D.T.C.
5213,
at
page
485
(C.T.C.
313,
D.T.C.
5215)
stated:
Although
originally
disputed,
it
is
now
accepted
that
in
order
to
have
a
"source
of
income"
the
taxpayer
must
have
a
profit
or
a
reasonable
expectation
of
profit.
Source
of
income,
thus,
is
an
equivalent
term
to
business:
Dorfman
v.
M.N.R.,
[1972]
C.T.C.
151,72
D.T.C.
6131....
The
question
then
becomes
what
is
the
threshold
for
a
reasonable
expectation
of
profit.
I
point
out
that
the
difference
between
the
case
at
bar
and
most
of
the
previous
cases
is
that
in
the
previous
cases
the
taxpayer
wants
the
date
of
commencement
of
existence
of
the
business
to
be
as
early
as
possible
and
the
Minister
has
been
opposed.
In
this
case,
due
to
the
unusual
nature
of
resource
profits,
the
parties
are
on
the
opposite
sides
as
the
taxpayer
is
seeking
to
put
off
the
commencement
date
for
the
existence
of
the
business.
Taylor
J.T.C.C.
in
McClure
v.
M.N.R.,
[1988]
2
C.T.C.
2140,
88
D.T.C.
1504,
at
pages
2154-55
(D.T.C.
1514),
stated:
I
am
not
impressed
with
the
view
that
"a
source
of
income",
means
merely
that
revenue
can
or
will
be
generated.
The
operation
should
have
the
potential,
not
only
of
producing
revenue,
but
the
prospect-even
the
fairly
immediate
prospect
in
most
cases-of
showing
an
excess
of
revenue
over
expenditures.
The
word
"income",
even
in
the
phrase
"source
of
income",
as
I
understand
it,
has
a
much
closer
affinity
to
"profit",
than
merely
to
"revenue"
(see
section
9
of
the
Act).
The
term
"start-up
costs"
in
my
view,
does
not
represent
all
outlays
and
expenses
incurred
to
start
a
business,
it
does
signify
the
accumulation
of
such
outlays
and
expenses
from
the
start
of
the
business
up
to
the
point
of
profit.
A
"business",
is
an
economically
viable
operation
from
which
it
can
be
determined
at
that
point
in
time
that
there
is
a
"reasonable
expectation
of
profit”.
"Reasonable"
is
a
term
encompassing
both
objective
and
subjective
considerations;
"expectation",
means
something
more
than
mere
"hope"-perhaps
it
is
closer
to
"anticipation";
and
"profit",
is
a
calculation
taking
into
account
the
Act
and
GAAP,
with
little
need
for
subjectivity
in
my
view....
This
demonstrates
that
"start-up"
refers
to
the
period
from
the
commencement
of
a
"business"
to
the
date
when
the
"business"
realizes
a
profit.
Start-up
costs
depend
on
the
facts
in
each
case.
See
Cullen
J.
in
Timpson
v.
The
Queen,
[1987]
1
C.T.C.
389,
87
D.T.C.
5266
(F.C.T.D.),
at
page
394
(D.T.C.
5270);
(reversed
on
other
grounds,
[1993]
2
C.T.C.
55,
93
D.T.C.
5281
(F.C.A.)).
Start-up
costs
must
be
distinguished
from
costs
which
are
properly
characterized
as
being
anterior
to
the
commencement
of
the
business,
as
in
the
case
of
Merchant
v.
The
Queen,
[1984]
C.T.C.
253,
84
D.T.C.
6215
at
page
259
(D.T.C.
6220)
(F.C.T.D.).
The
plaintiff
submits
that
before
a
business
can
be
considered
to
exist,
in
addition
to
a
reasonable
expectation
of
profits,
there
must
be
a
capital
and
asset
base
which
is
sufficiently
constructed,
improved
and
established
so
as
to
be
structurally
capable
of
supporting
the
operations
which
are
expected
to
be
profitable.
The
case
law
is
not
clear
in
this
respect.
In
the
farming
cases,
the
taxpayers
were
working
"to
get
the
property
to
a
condition
which
would
support
what
they
wanted
to
do
with
it".
See
Rip,
J.T.C.C.
in
Craddock
et
al.
v.
M.N.R.,
[1986]
1
C.T.C.
2006,
86
D.T.C.
1014
(T.C.C.),
at
page
2009
(D.T.C.
1016).
In
the
case
at
bar,
over
90
per
cent
of
the
capital
expenditures
had
been
completed,
although
$100
million
remained
to
be
spent.
In
my
view,
the
more
important
feature
is
that
the
cokers
were
not
fully
operational,
as
evidenced
by
the
fact
that
cokers
8-1
and
8-2
operated
concurrently
for
only
six
days
during
1978.
Without
both
cokers
operational,
it
is
difficult
to
find
that
the
operations
were
expected
to
be
profitable.
This
same
problem
does
not
arise
in
the
farming
cases.
In
my
view,
a
"source"
of
income
comes
into
existence
only
when
all
the
activities
making
up
the
"source"
are
being
carried
on.
It
is
not
sufficient
that
there
is
an
expectation
that
the
remainder
of
the
activities
that
are
not
being
carried
on
will
follow
shortly.
See
Sweet
D.J.
in
Falconbridge
Nickel
Mines
Ltd.,
supra,
at
page
378
(D.T.C.
6341),
where
he
stated:
I
am
of
the
opinion
that
the
relief
which
is
granted
by
the
quoted
legislative
provision
is
confined
to
the
36
months’
period
during
which
that
enterprise,
in
its
entirety,
and
which
has
for
its
purpose
the
operation
of
the
mine,
is
being
conducted.
I
agree
with
the
Crown
that
there
is
a
rebuttable
presumption
that
income
from
an
activity
which
was
included
in
the
constituting
documents
of
a
corporation
was
income
from
that
business.
However,
as
Taylor
J.T.C.C.
stated
in
McClure,
supra,
it
is
necessary
to
distinguish
between
determining
that
revenue
can
or
will
be
generated
and
determining
that
profits
can
be
expected.
The
test
should
be
that
the
operation
must
have
the
potential
not
only
of
producing
revenue,
but
also
the
prospect
of
showing
an
excess
of
revenue
over
expenditures
in
the
fairly
near
future.
Syncrude
did
generate
$7
million
of
income
in
1978,
but
it
cannot
be
forgotten
that
this
is
a
mega
project
and
that
$7
million
revenue
must
be
looked
at
in
light
of
the
$2,400,000,000
investment
in
the
project.
The
facts
in
any
tax
case
involving
a
mega
project
must
be
looked
at
very
closely
so
that
abstract
numbers
are
not
given
undue
influence.
3.
No
"business"
at
Syncrude
in
1978
In
my
view
there
was
no
source
of
income
described
in
subparagraph
1204(1
)(b)(ii)
of
the
Regulations
at
Syncrude
in
1978.
As
stated
earlier,
in
assessing
whether
a
"source"
of
income
existed
at
Syncrude
in
1978,
I
must
look
at
the
overall
operations
and
not
into
any
particular
part
of
those
operations.
The
only
"source"
of
income
which
can
be
found
to
exist
at
Syncrude
is
the
"production"
of
synthetic
crude
oil.
I
found
that:
(1)
Syncrude
was
designed
to
produce
synthetic
crude
oil
from
bituminous
sands
mined
from
a
bituminous
sands
deposit;
and
(2)
there
was
no
marketable
product
at
Syncrude
other
than
synthetic
crude
oil,
as
neither
the
bituminous
sand
(the
output
from
mining)
nor
the
bitumen
(the
output
from
extraction)
was
marketable.
In
addition,
in
assessing
whether
a
"source"
of
income
existed
at
Syncrude
in
1978,
when
I
look
at
all
the
parts
of
the
operations,
including
all
the
equipment
that
makes
up
the
various
trains,
the
duplicate
production
trains
that
make
up
the
various
components,
and
the
three
main
and
additional
auxiliary
components
that
make
up
these
operations,
I
do
not
find
that
they
were
working
together
at
the
design
rates
of
production
for
sustained
periods
without
interruption
during
1978.
I
find
that
in
1978
Syncrude
was
not
capable
of
being
operated
on
a
scale
which
could
be
expected
to
be
profitable
in
1978
or
the
near
future.
The
plant
could
not
attain
output
of
crude
oil
in
quantities
that
could
give
rise
to
profits.
At
no
time
in
1978
was
the
plant
capable
of
being
profitable.
I
accept
the
evidence
of
Dr.
Devenny.
Dr.
Devenny
is
one
of
the
few
experts
in
the
world
on
mega
projects.
I
realize
that
he
was
employed
by
the
plaintiff
in
the
past
and
continues
to
represent
the
plaintiff
in
the
Syncrude
project,
but
his
evidence
was
candid,
forthright
and
very
credible.
I
do
not
accept
the
position
of
the
defendant
that
his
evidence
was
not
supported
by
academic
writings.
Since
mega
projects
are
so
rare
in
the
world
today,
one
would
hardly
expect
there
to
be
a
vast
amount
of
literature
on
the
subject.
In
any
event,
there
was
no
literature
produced
that
contradicted
the
testimony
of
Dr.
Devenny.
I
have
earlier
reviewed
much
of
Dr.
Devenny’s
testimony
and
do
not
intend
to
review
it
in
detail
again
at
this
time.
Dr.
Devenny
testified
that
Syncrude
would
not
have
been
viable
and
would
have
been
terminated
if
the
problems
experienced
in
1978
persisted
and
it
was
determined
that
they
were
not
repairable.
This
evidence
is
important
to
the
issue
of
Syncrude’s
viability
as
a
business.
Dr.
Devenny’s
evidence
with
respect
to
whether
there
was
a
source
of
income
in
1978
was
supported
by
the
plaintiff’s
expert
in
accounting.
While
the
defendant’s
accounting
expert’s
evidence
was
very
helpful
on
whether
GAAP
mandated
a
particular
accounting
treatment,
she
expressed
no
opinion
as
to
when
a
source
of
income
came
into
existence
at
Syncrude.
I
find
that
the
necessary
economic
elements
were
not
in
place
and
therefore
determine
that
there
was
not
a
business
at
Syncrude
in
1978.
Dr.
Devenny
testified
that
in
mega
oil
sands
projects
such
as
these
there
must
be
an
intermediate
phase
between
the
time
you
finish
construction
and
the
time
you
start
commercial
production.
In
his
opinion,
in
1978
Syncrude
was
in
this
intermediate
period
which
he
called
the
start-up
mode.
He
agreed
with
counsel
for
the
Minister
that
a
coker
was
working
and
barrels
of
oil
were
coming
out.
The
significance
of
this
was
Syncrude
had
a
product
that
could
be
marketed.
He
said,
however,
that
there
is
no
market
for
bitumen
until
there
is
a
commencement
of
the
upgrading
process.
He
therefore
selected
April
1980
as
the
date
production
started.
He
selected
that
date
because
it
met
the
accounting
definition
of
production
and
it
is
significant
also
that
the
plant
had
produced
five
million
barrels
of
oil.
Furthermore,
the
designer
was
off
the
hook
after
the
plant
was
running
for
12
months,
which
by
this
time
it
had.
Despite
this,
Dr.
Devenny
did
not
think
that
60
per
cent
of
design
rate
was
a
good
guideline,
since
the
plant
was
not
economic
at
that
rate.
He
testified
that
he
wanted
to
delay
production
commencement
until
there
was
a
positive
rate
of
return.
I
am
satisfied
that
the
plaintiff
has
met
the
onus
of
showing
that
the
two
deductions
relating
to
the
Syncrude
issue
should
not
have
been
deducted
and
the
plaintiff
is
entitled
to
judgment
accordingly.
In
light
of
my
finding
that
there
was
no
source
of
income
as
described
in
paragraph
1204(l)(b)
of
the
Regulations
at
Syncrude
in
1978,
I
do
not
have
to
deal
with
the
alternative
arguments
relating
to
attribution
and
prorationing
of
income.
Issue
Il-water
intake
line
In
computing
the
plaintiffs
capital
costs
of
properties
described
in
class
29,
Schedule
II
of
the
Regulations,
for
the
purpose
of
determining
the
plaintiffs
capital
cost
allowance
pursuant
to
paragraph
21(a)
of
the
Act,
and
for
the
purpose
of
determining
the
plaintiffs
investment
tax
credit
under
subsection
27(9)
of
the
Act,
the
Minister
deducted
the
amount
of
$1,088,967.
Evidence
There
was
a
statement
of
agreed
facts
with
respect
to
the
Clarkson
Refinery
water
intake,
the
relevant
parts
of
which
I
shall
set
out:
The
parties
agree
to
the
following
facts
being
true
but
reserve
the
right
to
introduce
further
evidence
at
trial
and
to
make
submissions
as
to
the
relevance
of
any
of
the
agreed
facts:
1.
During
the
1978
taxation
year,
the
plaintiff
owned
the
Clarkson
Refinery
("the
refinery")
located
on
Lake
Ontario
west
of
Toronto.
2.
The
refinery
processed
crude
oil
into
consumer
products,
including
gasoline.
This
crude
oil
was
delivered
to
the
refinery
through
the
interprovincial
pipeline
from
western
Canada.
3.
The
refinery
could
not
operate
without
water
and,
in
particular,
required
water
for
four
purposes:
—
as
a
coolant
in
the
heat
exchangers
—
as
make-up
water
to
the
lube
area
cooling
system
—
to
produce
steam
in
the
utility
plant
—
to
fight
fires
4.
Approximately
80
per
cent
of
the
water
used
in
the
refinery
was
used
as
a
coolant
in
the
heat
exchangers.
These
were
pipes
which
ran
in
close
proximity
to
the
processing
units
in
order
to
draw
off
the
heat.
The
water
circulated
through
these
pipes
on
a
once
through
basis.
5.
The
remaining
20
per
cent
of
the
water
was
used
in
other
areas
of
the
refinery.
Approximately
ten
per
cent
was
used
in
the
area
where
lubricating
oils
were
made.
It
acted
as
a
coolant,
but
unlike
the
water
circulating
through
the
heat
exchangers,
this
water
was
used
to
top
up
a
closed
system
and
was
recirculated.
The
other
ten
per
cent
was
used
to
feed
the
boilers
in
the
utility
plant
which
furnished
steam
for
the
processing
unit.
6.
The
water
used
as
a
coolant
in
the
heat
exchangers
was
untreated
other
than
being
chlorinated
which
was
done
in
the
pumphouses.
The
water
used
in
the
lube
area
and
the
utility
plant
required
additional
chemical
treatment
to
adjust
the
PH
level
and
the
mineral
content.
7.
The
facilities
which
supplied
water
to
the
refinery
served
three
functions:
(A.)
to
bring
water
into
the
refinery;
(B.)
to
store
the
water;
and
(C.)
to
distribute
the
water
throughout
the
refinery
A.
The
Water
Intake
8.
Water
was
supplied
to
the
refinery
via
two
concrete
water
intake
lines
(lines
"A"
and
"B")
which
extended
into
Lake
Ontario
and
were
buried
approximately
three
feet
below
the
lake
bed.
9.
The
water
intake
lines
commenced
inside
the
refinery
and
extended
into
Lake
Ontario.
Most
of
the
length
of
the
line
was
outside
the
refinery.
10.
The
main
water
intake
was
line
B,
built
in
two
stages.
The
first
stage
was
built
in
1954.
It
was
six
feet
in
diameter
and
extended
into
the
lake
approximately
900
feet
to
a
depth
of
approximately
14
feet.
11.
Algae
build-up
and
ice
restricted
the
flow
of
water
and
ultimately
led
to
processing
interruptions.
To
remedy
this,
a
2200-
foot
extension
was
added
to
line
B
in
1978
so
that
the
intake
extended
approximately
3100
feet
to
a
depth
of
36
feet.
This
extension
was
seven
feet
in
diameter.
12.
At
issue
in
this
appeal
is
the
extension
made
to
line
B
in
1978.
13.
Water
flowed
through
the
lines
by
means
of
gravity
and
without
any
power
from
pumps
or
other
machinery
and
without
requiring
day
to
day
operation.
14.
The
water
flowed
into
the
wells
and
rose
to
the
level
of
the
lake.
15.
A
screen
covered
the
well
intake
to
prevent
any
debris
from
reaching
the
wells.
16.
The
only
routine
maintenance
of
the
lines
and
wells
was
an
annual
visual
inspection.
17.
The
water
intake
lines
were
not
built
to
specifications
applicable
to
pressurized
lines.
B.
Storage
18.
The
water
from
lines
A
and
B
was
received
in
two
wells
(wells
"A"
and
"B")
located
within
the
refinery
boundaries
approximately
15
feet
from
the
shoreline
of
the
lake.
19.
These
wells
were
rectangular
concrete
cisterns
located
side
by
side
and
joined
together
by
a
3
foot
x
6.8
foot
concrete
channel.
They
were
built
below
ground
and
were
approximately
the
following
dimensions:
well
A:
62
ft.
long
x
24.5
ft.
wide
x
25
ft.
deep
well
B:
29.6
ft.
long
x
28.3
ft.
wide
x
28
ft.
deep
C.
Distribution
20.
Situated
on
top
of
the
wells
were
pumphouses
which
housed
pumps
and
other
machinery
necessary
to
chlorinate
and
pump
the
water
from
the
wells.
21.
There
were
11
pumps
located
in
these
pumphouses
which
pumped
the
water
to
two
main
"header"
pipes.
22.
The
water
was
distributed
throughout
the
refinery
by
means
of
various
pipes
which
branched
off
from
these
headers.
Three
experts
testified
on
the
meaning
of
a
pipeline.
The
plaintiff’s
expert,
Mr.
Moffatt,
concluded
that
the
extension
to
intake
line
B
was
not
a
pipeline
within
the
ordinary
or
technical
engineering
meaning
of
the
term.
I
find
that
he
did
not
substantiate
this
opinion
from
an
engineering
point
of
view.
His
opinion
relied
heavily
on
dictionary
meanings
of
the
term
and
he
was
not
an
expert
on
dictionaries.
In
his
report,
he
set
out
the
features
of
a
prototypical
pipeline
as
follows:
The
pipeline
would
use
steel
pipes
as
a
primary
component,
but
would
also
include
fittings,
valves,
pumps,
control
systems,
communication
systems,
and
other
components.
It
would
extend
over
a
considerable
distance
(perhaps
hundreds
of
miles),
and
would
operate
at
elevated
pressure.
It
would
have
been
designed
in
accordance
with
specialized
and
specific
pipeline
engineering
standards,
and
would
be
operated
(typically
by
a
distinct
pipeline
company)
using
specialized
operators.
However,
in
cross-examination
he
admitted
that
there
was
little,
and
in
many
instances,
no
authority
in
his
field
requiring
the
presence
of
those
features
he
believed
were
important
for
something
to
be
a
pipeline.
In
other
instances,
he
himself
admitted
that
these
features
were
not
necessary.
He
also
admitted
that
the
fundamental
prototypical
pipeline
upon
which
he
based
his
opinion
was
not
adequately
descriptive
of
many
types
of
pipelines,
only
that
he
selected
a
type
typical
in
the
oil
and
gas
industry.
I
preferred
the
evidence
of
Professors
Chakma
and
Nandakumar
as
being
more
representative
of
the
view
in
the
engineering
field.
However,
I
found
their
evidence
was
not
definitive
on
the
issue
as
to
whether
the
Clarkson
intake
line
is
a
pipeline.
The
word
"pipeline"
means
different
things
to
different
people
and
much
depends
upon
the
purpose
for
which
people
wish
to
define
it.
In
particular,
Professor
Nandakumar
very
candidly
admitted
on
cross-
examination
that
the
word
"pipeline"
is
used
in
different
contexts
depending
upon
who
you
are
speaking
with.
Professor
Nandakumar
referred
to
certain
engineering
treatises
and
found
that:
In
all
these
sources,
the
term
pipeline
is
used
and
understood
to
broadly
mean
a
connected
sequence
of
pipes
used
in
the
transportation
of
fluids
from
one
location
to
another.
Both
professors
for
the
defence
admitted,
notwithstanding
their
definitions,
a
water
intake
line
could
be
described
simply
as
that
and
not
a
pipeline.
Legislation
With
respect
to
the
issue
of
whether
the
Clarkson
Refinery
water
intake
is
a
pipeline,
the
statutory
framework
is
found
in
section
1100
of
the
Regulations
where
it
sets
out:
1100(1)
For
the
purposes
of
paragraph
20(1
)(a)
of
the
Act,
there
is
hereby
allowed
to
a
taxpayer,
in
computing
his
income
from
a
business
or
property,
as
the
case
may
be,
deductions
for
each
taxation
year
equal
to
Rates
(a)
such
amounts
as
he
may
claim
in
respect
of
property
of
each
of
the
following
classes
in
Schedule
II
not
exceeding
in
respect
of
property
(i)
of
class
1,
4
per
cent,
(ii)
of
class
2,
6
per
cent,
(iii)
of
class
3,
5
per
cent,
(iv)
of
class
4,
6
per
cent,
(v)
of
Class
5,
10
per
cent,
(vi)
of
Class
6,
10
per
cent,
(vii)
of
class
7,
15
per
cent,
(viii)
of
Class
8,
20
per
cent,
(ix)
of
class
9,
25
per
cent,
(x)
of
Class
10,
30
per
cent,
(xi)
of
Class
11,
35
per
cent,
(xii)
of
Class
12,
100
per
cent,
(xiii)
of
Class
16,
40
per
cent,
(xiv)
of
Class
17,
8
per
cent,
(xv)
of
Class
18,
60
per
cent,
(xvi)
of
Class
22,
50
per
cent,
(xvii)
of
Class
23,
100
per
cent,
(xviii)
of
Class
25,
100
per
cent,
(xix)
of
Class
26,
5
per
cent,
(xx)
of
Class
28,
30
per
cent,
(xxi)
of
Class
30,
40
per
cent,
(xxii)
of
Class
31,
1
per
cent,
(xxiii)
of
Class32,
10
per
cent,
(xxiv)
of
Class
33,
15
per
cent,
and
(xxv)
of
Class
35,
7
per
cent,
of
the
undepreciated
capital
cost
to
him
as
of
the
end
of
the
taxation
year
(before
making
any
deduction
under
this
subsection
for
the
taxation
year)
of
property
of
the
class;
As
well,
class
2
and
class
29
properties
are
described
as
follows:
Class
2
(6
per
cent)
Property
that
is
(b)
a
pipeline,
other
than
gas
or
oil
well
equipment,
unless,
in
the
case
of
a
pipeline
for
oil
or
natural
gas,
the
Minister
in
consultation
with
the
Minister
of
Energy,
Mines
and
Resources,
is
or
has
been
satisfied
that
the
main
source
of
supply
for
the
pipeline
is
or
was
likely
to
be
exhausted
within
15
years
from
the
date
on
which
operation
of
the
pipeline
commenced,
Class
29
Property,
that
would
otherwise
be
included
in
another
class,
(a)
that
is
property
manufactured
by
the
taxpayer,
the
manufacture
of
which
was
completed
by
him
after
May
8,
1972,
or
other
property
acquired
by
the
taxpayer
after
May
8,
1972,
(i)
to
be
used
directly
or
indirectly
by
him
in
Canada
primarily
in
the
manufacturing
or
processing
of
goods
for
sale
or
lease,
or
(ii)
to
be
leased,
in
the
ordinary
course
of
carrying
on
a
business
in
Canada
of
the
taxpayer,
to
a
lessee
who
can
be
reasonably
expected
to
use,
directly
or
indirectly,
the
property
in
Canada
primarily
in
the
manufacturing
or
processing
by
him
of
goods
for
sale
or
lease,
if
the
taxpayer
is
a
corporation
whose
principal
business
is
(A)
leasing
property,
(B)
manufacturing
property
that
it
sells
or
leases,
(C)
the
lending
of
money,
(D)
the
purchasing
of
conditional
sales
contracts,
accounts
receivable,
bills
of
sale,
chattel
mortgages,
bills
of
exchange
or
other
obligations
representing
part
or
all
of
the
sale
price
of
merchandise
or
services,
or
(E)
selling
or
servicing
a
type
of
property
that
it
also
leases,
or
any
combination
thereof,
unless
use
of
the
property
by
the
lessee
commenced
before
May
9,
1972,
and
(b)
that
is
(i)
property
that,
but
for
this
class,
would
be
included
in
class
8,
but
not
including
railway
rolling
stock
or
a
property
described
in
paragraph
(e)
of
class
8,
(ii)
an
oil
or
water
storage
tank,
(iii)
a
powered
industrial
lift
truck,
(iv)
electrical
generating
equipment
described
in
class
9,
or
(v)
property
described
in
paragraph
(b)
or
(fa)
of
class
10.
Analysis
The
Clarkson
Refinery
issue
is
an
example
of
a
case
in
which
the
onus
is
very
important.
The
law
is
clear
that
the
onus
is
on
the
plaintiff
to
rebut
the
Minister’s
assessment,
as
per
Pollock
v.
Canada,
[1994]
1
C.T.C.
3,
94
D.T.C.
6050
(F.C.A.).
In
my
view,
the
plaintiff
has
not
met
this
onus.
As
I
stated
earlier,
Mr.
Moffatt
did
not
rely
on
his
engineering
expertise,
but
rather
common
dictionary
meanings
to
establish
that
the
water
intake
line
was
not
a
pipeline.
Thus,
although
a
water
intake
line
is
not
always
considered
to
be
a
pipeline,
the
evidence
did
not
show
on
a
balance
of
probabilities
that
the
water
intake
line
in
question
was
not
a
pipeline.
The
test
that
should
be
applied
to
pipelines
was
set
out
by
the
Federal
Court
of
Appeal
in
Nova,
an
Alberta
Corp.
v.
The
Queen,
[1988]
2
C.T.C.
167,
88
D.T.C.
6386,
at
page
174
(D.T.C.
6390),
where
Urie
J.A.
(MacGuigan
J.A.
concurring)
stated:
The
Income
Tax
Act
itself
applies
to
all
taxpayers
earning
taxable
income.
Class
2
in
Schedule
B
certainly
does
not
relate
solely
to
the
natural
gas
industry…
Clause
(b)
relates
to
pipelines
without
reference
to
what
is
transmitted
through
them
be
it
gas,
oil,
water,
steam
or
solids.
I
would
have
thought
that
in
construing
it
in
its
"popular
sense"
would
mean
that
sense
"which
people
conversant
with
the
subject
matter
with
which
the
statute
is
dealing
[in
this
case
those
utilizing
the
service
of
the
pipeline
for
the
transmission
of
gas,
oil,
water,
steam
or
solids]
would
attribute
to
it"
not
the
popular
sense
derived
from
the
perception
of
the
man
in
the
street
not
conversant
with
either
the
user
industries
or
pipelines....
Accordingly,
it
is
not
the
view
of
the
person
in
the
oil
and
gas
industry
but
rather
the
view
of
people
"conversant
with
the
subject
matter
with
which
the
statute
is
dealing"
that
is
relevant.
In
my
view,
the
evidence
of
Professors
Chakma
and
Nandakumar
more
appropriately
meets
the
test
enunciated
by
the
Federal
Court
of
Appeal
in
Nova,
supra,
because
(1)
their
opinions
are
based
upon
scientific
literature
within
the
areas
of
their
engineering
expertise,
and
their
opinions
are
referenced
to
and
supported
by
this
literature;
and
(2)
their
opinions
canvassed
the
literature
in
order
to
ascertain
the
accepted
understanding
among
engineers
as
to
the
meaning
of
the
word
"pipeline".
While
the
definition
of
"pipeline"
is
not
as
wide
as
Professors
Chakma
and
Nandakumar
would
have
it,
in
my
view
the
plaintiff
has
not
met
the
onus
of
showing
that
the
water
intake
line
is
not
a
pipeline.
The
definition
of
a
pipeline
is
not
as
narrow
as
Mr.
Moffatt
attempted
to
make
it.
Therefore,
on
this
second
issue
of
the
Clarkson
Refinery,
the
Minister’s
assessment
stands
and
the
plaintiff’s
appeal
is
dismissed.
Conclusion
Judgment
will
go
allowing
the
plaintiff’s
appeal
on
the
Syncrude
issue
and
the
matter
is
referred
back
to
the
Minister
in
accordance
with
these
reasons.
On
the
second
issue
of
the
Clarkson
Refinery
the
plaintiff’s
appeal
is
dismissed.
On
consent
judgment
will
also
go
as
follows:
The
matter
be
referred
back
to
the
Minister
for
reconsideration
and
reassessment
on
the
basis
that:
1.
The
expenditures
in
the
amount
of
$1,182,298
described
by
the
plaintiff
as
frontier
development
expenditures
will
be
classified
as
pre-production
operating
expenses;
2.
Gulf’s
eligible
capital
expenditures
under
paragraph
14(5)(b)
of
the
Income
Tax
Act
for
its
1978
taxation
year
will
be
reduced
by
the
amount
of
$43,300.
This
will
result
in
a
reduction
to
the
cumulative
eligible
capital
amount
and
a
reversal
of
the
deduction
of
$2,165
allowed
by
the
Minister
as
an
eligible
capital
amount
under
paragraph
20(1
)(b)
of
the
Act;
3.
Gulf
will
be
allowed
a
deduction
as
an
operating
expense
in
respect
of
the
$43,300
reclassified
by
the
Minister
as
an
eligible
capital
expenditure;
4.
The
amount
of
$716,805
claimed
by
Gulf
as
a
scientific
research
expenditure
will
be
reclassified
as
an
operating
expense.
The
amount
of
$35,840
allowed
as
an
investment
tax
credit
in
respect
thereof
will
be
disallowed;
and
5.
Gulf’s
resource
profits
under
section
1204
of
the
Regulations
for
purposes
of
computing
its
depletion
deduction
under
section
65
of
the
Act
and
section
1200
of
the
Regulations
and
its
resource
allowance
under
paragraph
20(l)(v.l)
of
the
Act
and
section
1210
of
the
Regulations
for
its
1978
taxation
year
as
calculated
under
the
further
notice
of
reassessment
mailed
April
27,
1993
will
be
increased
by
the
amount
of
$1,105,322.
6.
Gulf’s
resource
profits
under
section
1204
of
the
Regulations
for
purposes
of
computing
its
depletion
deduction
under
section
65
of
the
Act
and
section
1200
of
the
Regulations
and
its
resource
allowance
under
paragraph
20(l)(v.l)
of
the
Act
and
section
1210
of
the
Regulations
for
its
1978
taxation
year
as
calculated
under
the
further
notice
of
reassessment
mailed
April
27,
1993
will
be
increased
by
the
amount
of
$724,840
in
respect
of
Syncrude
scientific
research
expenditure.
The
parties
shall
bear
their
own
costs
with
respect
to
the
settled
issues.
The
parties
may
speak
to
me
about
costs
with
respect
to
the
disputed
issues,
if
they
cannot
agree.
Appeal
allowed
in
part.
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