Precambrian Shield Resources Limited v. Alberta (Provincial Treasurer), [1991] 2 CTC 140

Côté, J.A. (for the Court): —Here the vendor appellant had some producing resource properties on which it wished to raise money. The purchaser (not a party here) had some tax losses which it wished to sell. They and the appellant vendor's bank entered into a number of simultaneous and interdependent transactions. At their heart was a carve-out, i.e., a sale of some of the resource properties for a limited period of time. While there were other unlikely alternatives, in substance the sale was to last until the purchaser got back the purchase price plus interest plus a 15 per cent fee for its tax losses. The appellant vendor kept possession and control of the assets during this time.

But the purchaser got no real benefit except the 15 per cent fee for its tax losses. The purchaser put up no money, for the purchase price was provided entirely by the appellant vendor's bank. The purchaser incurred no other risks or obligations. It did not have to pay or guarantee the bank loan, and the bank's only recourse was against the property temporarily purchased. Nor did the purchaser get any other benefits, for all the revenue from the properties and all the government grants were assigned to the bank and to be applied against the loan. In oral argument we heard of an option to buy one-half per cent, but the appellant says little weight should be put on that.

It was agreed that such government grants would be applied for. One such grant was the Alberta Royalty Tax Credit, designed to offset the fact that resource companies could not deduct certain Alberta royalties paid on Crown minerals when calculating their federal income tax. There was a ceiling on how much such grant money one company could get from the Alberta government, and the appellant vendor had reached that ceiling.

The legislation governing such grants, Part 6(1) of the Alberta Income Tax Act, contains a subsection, 26.1(10), which allows the Provincial Treasurer under certain circumstances to declare two companies associated. They then must share the one ceiling between the two companies. The Treasurer, after discussions, declared the appellant vendor and the purchaser so associated because of the transaction described. An appeal to the Court of Queen's Bench was dismissed, after the trial judge heard oral evidence and considered bulky documentary exhibits, and reserved judgment.

There are at least two grounds on which the Act lets the Treasurer so associate companies. One is a transaction with no substantial business pur- pose. Whether purchasing tax losses is such a substantial business purpose is an interesting question, but we say nothing about it. Instead, we turn to the second ground permitted by subsection 26.1(10) of the Act. That is one or more transactions which artificially increase the Alberta Royalty Tax Credit which may be applied for, in the opinion of the Treasurer.

Here, there is additional Alberta Royalty Tax Credit claimed beyond the ceiling only because a new purchaser has intervened. But that is a purchaser who contributes nothing, risks nothing, and gets nothing. It gets but the empty skin of the fruit, and pays nothing for it. Apart from sale of tax losses, which is a quite separate matter, it would be fair to say that the purchaser merely lends its name.

Where Alberta Royalty Tax Credits are involved, a reasonable person might take the view that what counted was beneficial interests and obligations, not bare trusts or nominee holdings. That being so, the purchaser here might not qualify at all. Therefore, it seems perfectly reasonable to take the view that if this transaction does increase the Alberta Royalty Tax Credit payable (by circumventing the ceiling), it does so artificially. That is just what was found here by the Provincial Treasurer and the trial judge. In our view that finding cannot be successfully attacked, and still less can it be said that a reasonable person could not be of that opinion.

The appellant suggests that the Provincial Treasurer took into account some irrelevant considerations. While his reasons are lengthy (as is fitting), and while he goes into some considerations which we would not necessarily advance as independent reasons for such a finding, if the original opinion sought were ours, we see no true irrelevance. The matters which the Treasurer discusses are germane and do bear, directly or indirectly on the question, as a matter of logic. They are not totally unconnected. Nor are they forbidden, such as matters of sex, religion, political opinion, or the like. What is more, we see no prospect that eliminating one of these matters impugned from consideration would cause a reasonable person to reverse his opinion, so strong are the relevant facts outlined above and considered by the Treasurer. There was no suggestion that the Treasurer was acting in bad faith or for oblique motives here. And he gave the appellant a chance to make submissions before he directed that the two companies be associated. Therefore, even if we thought that irrelevant matters had been considered (which we do not), ordering reconsideration or a new trial would be pointless. Therefore we need not consider the other argument, that the appeal is from the tax assessment, not from the Treasurer's reasons.

The statute gives us the power to make the order which should be made, and in our view the trial judge's decision was therefore right. We dismiss the appeal.

Appeal dismissed.