Suncor – CRA abandons attempt to impute a hedging contract between Petro-Canada and an indirect UK subsidiary

When an indirect UK subsidiary of Petro-Canada acquired another UK company with an interest in a North Sea oilfield, Petro-Canada effectively locked in the price of oil in relation to this acquisition by entering into a forward contract with Morgan Stanley and Deutsche Bank respecting a specified quantity of 28,000 barrels of oil per day for a 3.5 year period under which it would be required to make cash payments to the counterparties if the price of oil went up, and conversely if the price of oil went down. The price of oil went up so that it incurred monthly cash payments totaling US$287 million in the first few months of the contract, and closed out all of its post-2007 obligations in November and December 2007 for a settlement payment of US$1.72 billion.

CRA did not deny the resulting 2007 loss to Petro-Canada of Cdn.$2.02 billion, but instead applied s. 247(2)(c) to include Cdn.$2.02 billion in the 2007 income of Petro-Canada as an imputed reimbursement to Petro-Canada by its UK subsidiary of the settlement payments (and assessed a s. 247(3) penalty for failure to prepare contemporaneous documentation in connection with the imputed reimbursement.) This was a difficult assessing position to support because, in fact, there was no hedging contract between Petro-Canada and its UK subsidiary to adjust under s. 247(2)(c).

The case has now been settled on the basis of CRA abandoning its position.

Neal Armstrong. Summary of Suncor Energy Inc. (as successor to Petro-Canada) v. The Queen, 2014-4179(IT)G: Notice of Appeal filed on 21 November 2014; Reply dated 13 April 2015; Answer filed on 10 July 2015; Partial Consent to Judgement dated 21 November 2016; and Judgment dated 5 December 2016; See also Suncor Press Release dated 5 December 2016 “Suncor Energy successfully resolves $1.3 billion tax dispute with Canada Revenue Agency.”