Tremblay,
T.C.J.:—This
appeal
was
heard
at
the
City
of
Regina,
Saskatchewan.
1.
Point
at
Issue
Pursuant
to
the
notice
of
appeal
and
the
reply
to
the
notice
of
appeal,
the
point
is
whether
the
appellant
is
correct
in
the
computation
of
his
income,
to
consider
as
"Nil"
the
far
market
value
of
royalty
interest
under
a
petroleum
and
natural
gas
lease
in
crude
oil
and
natural
gas
production
from
a
piece
of
land,
which
was
transferred
to
his
son.
This
transfer
was
done,
according
to
the
appellant,
on
June
2,
1983,
and,
according
to
the
respondent,
on
January
12,
1984.
The
appellant
admits
that
at
this
latter
date,
the
said
royalty
interest
was
assigned
to
his
son
and
contends
that
if
there
is
a
value,
it
is
not
more
than
40,000.
However,
the
respondent
contends
that
the
fair
market
value
of
such
royalty
interest
is
not
less
than
$300,000.
2.
Burden
of
Proof
2.01
The
burden
of
proof
is
on
the
appellant
to
show
that
the
respondent's
reassessments
are
incorrect.
This
burden
of
proof
results
particularly
from
several
judicial
decisions,
including
the
judgment
delivered
by
the
Supreme
Court
of
Canada
in
Johnston
v.
M.N.R.,
[1948]
S.C.R.
486;
[1948]
C.T.C.
195;
3
D.T.C.
1182.
2.02
In
the
same
judgment,
the
Court
decided
that
the
assumed
facts
on
which
the
respondent
based
his
reassessments
were
also
deemed
to
be
correct.
In
the
present
case,
the
assumed
facts
are
described
in
paragraphs
5(a)
to
(c)
of
the
reply
to
notice
of
appeal
as
follows:
5.
In
reassessing
the
appellant
as
he
did,
the
respondent
relies,
inter
alia,
upon
the
following
assumptions
of
facts:
(a)
The
appellant,
until
January
12,
1984,
was
the
beneficial
owner
of
property
that
was
any
rental
or
royalty
computed
by
reference
to
the
amount
or
value
of
production
from
an
oil
or
gas
well
in
Canada
(“the
property");
(b)
On
January
12,
1984,
the
appellant
transferred
the
property
to
his
son,
a
non-arm's
length
party,
for
consideration
of
$1;
(c)
as
at
January
12,
1984,
the
fair
market
value
of
the
property
was
not
less
than
$300,000.00.
3.
Facts
3.01
The
facts
alleged
by
the
appellant
in
his
notice
of
appeal
and
about
which
the
respondent
admits,
denies
or
has
no
knowledge,
are
as
follows:
1)
The
appellant
acquired
the
title
to
the
E1/2
1-5-6
W2nd,
Saskatchewan
along
with
other
lands,
which
incidentally
contained
a
title
to
the
mines
and
minerals
in
the
said
lands,
[admitted]
2)
The
appellant
farmed
these
lands
along
with
other
lands
in
the
vicinity
for
many
years
but
with
advancing
years,
his
son
Raymond
Lisafeld
of
Lampman,
Saskatchewan,
began
to
farm
the
said
lands
in
the
nature
of
a
tenant.
The
appellant
continuously
owned
the
said
lands
including
the
31st
day
of
December
1971.
[no
knowledge]
3)
At
the
time
of
the
acquisition
of
the
lands,
the
previous
owner
had
executed
a
Petroleum
and
Natural
Gas
Lease
and
Grant
with
Imperial
Oil
Ltd.
as
Lessee
providing,
inter
alia,
a
gross
royalty
of
production
of
12.5%
of
the
current
value
of
crude
oil
and/or
natural
gas
as
it
might
be
produced
from
time
to
time
to
the
Lessor.
The
said
grant
and
lease
was
for
an
indeterminate
period
of
time.
On
or
about
the
10th
of
June,
1950,
the
preceding
owner,
the
Lessor
herein,
assigned
the
said
Petroleum
and
Natural
Gas
Lease
and
Grant
to
the
appellant.
From
time
to
time
thereafter
production
of
crude
oil
occurred
on
the
said
lands
and
continues
to
be
produced.
[no
knowledge]
4)
On
or
about
the
2nd
day
of
June,
1983,
the
appellant
transferred
to
his
said
son,
Raymond
Lisafeld,
along
with
other
lands,
[admitted]
the
said
lands
and
incidentally
the
interest,
if
any,
the
appellant
held
in
the
mines
and
minerals
contained
therein
and
stated
that
the
fair
market
value
was
$140,000.00.
[denied]
5)
On
or
about
the
12th
day
of
January,
1984,
the
appellant
assigned
the
Petroleum
and
Natural
Gas
Lease
and
Grant
referred
to
above
to
his
said
son.
[admitted]
6)
The
said
Raymond
Lisafeld
continues
to
own
the
said
lands
and
receives
the
appropriate
proceeds
of
the
Petroleum
and
Natural
Gas
Lease
and
Grant.
[admitted]
3.02
Because
of
his
poor
health
(Exhibit
A-l)
and
his
old
age
(90
years
old),
the
appellant
was
not
able
to
attend
the
trial.
3.03
It
was
admitted
by
counsel
for
the
respondent
that
it
is
on
March
12,
1957,
that
the
appellant
acquired
for
$18,000
a
piece
of
land
containing
a
title
to
the
mines
and
minerals
as
described
above
(para.
3.01(1))
from
Mr.
and
Mrs.
Michael
Baumchen.
The
land
certificate
was
filed
as
Exhibit
A-2.
3.04
Counsel
for
the
appellant
also
filed
as
Exhibit
A-3
a
copy
of
an
assignment
dated
June
10,
1950
from
Mr.
Baumchen
(the
Vendor)
to
the
appellant
(the
Purchaser)
of
a
petroleum
and
natural
gas
lease
signed
on
April
26
1949
between
Mr.
Baumchen
(the
lessor)
and
Imperial
Oil
Ltd.
(the
lesser).
The
latter
document
is
appended
and
part
of
A-3.
Because
of
its
importance,
it
must
be
quoted
at
length.
It
reads
as
follows:
PETROLEUM
AND
NATURAL
GAS
LEASE
This
indenture
made
the
26th
day
of
April
A.D.
1949.
BETWEEN
Michael
Baumchen
|
of
|
Lampman,
Saskatchewan
|
|
(hereinafter
referred
to
as
"the
Lessor")
|
|
OF
THE
FIRST
PART
|
|
and
|
|
|
IMPERIAL
OIL
Ltd.,
a
body
corporate
having
|
its
Head
Office
at
the
City
of
Sarnia,
in
the
Province
of
Ontario,
(hereinafter
referred
to
as
"the
Lessee")
OF
THE
SECOND
PART
The
Lessor
being
registered
as
owner,
(or
entitled
to
become
registered
as
owner
under
an
Agreement
for
Sale
or
unregistered
Transfer
or
otherwise),
subject,
however,
to
such
mortgages
and
incumbrances
as
are
notified
by
memorandum
underwritten
or
endorsed
hereon,
of
the
petroleum
and
natural
gas
and
all
related
hydrocarbons
within,
upon
or
under
East
half
(E
1/2)
of
section
one"
(1)
in
Township
5,
Range
6,
West
of
the
2nd
Meridian
in
the
Province
of
Saskatchewan,
as
more
particularly
described
and
set
forth
in
Certificate(s)
of
Title
No(s).
20-DY
and
129-DM
of
record
in
the
Land
Titles
Office,
The
Arcola
Land
Registration
District,
in
consideration
of
the
sum
of
thirty
two
dollars
($32)
Dollars
paid
to
the
Lessor
by
the
Lessee,
(the
receipt
whereof
is
hereby
acknowledged),
and
in
consideration
of
the
rents
and
reoyalties
hereinafter
reserved
and
the
covenants
of
the
Lessee
hereinafter
contained
DOTH
HEREBY
GRANT
AND
LEASE
unto
the
Lessee
all
the
petroleum
and
natural
gas
and
related
hydrocarbons
except
coal
and
valuable
stone,
(hereinafter
referred
to
as
the
"leased
substances”),
within,
upon
or
under
the
lands
hereinbefore
described
and
all
the
right,
title,
estate
and
interest
of
the
Lessor
in
and
to
the
leased
substances
or
any
of
them
within,
upon
or
under
any
lands
excepted
from,
or
roadways,
lanes,
or
rights-of-way
adjoining,
the
lands
aforesaid,
together
with
the
exclusive
right
and
privilege
to
explore,
drill
for,
win,
take,
remove,
store
and
dispose
of,
the
leased
substances
and
for
the
said
purposes
to
drill
walls,
lay
pipe
lines,
and
build
and
install
such
tanks,
stations,
structures
and
roadways
as
may
be
necessary,
and
insofar
as
the
Lessor
has
the
right
so
to
grant,
and
for
the
said
purposes,
the
right
of
entering
upon,
using
and
occupying
the
said
lands
or
so
much
thereof
and
to
such
an
extent
as
may
be
necessary
or
convenient.
TO
HAVE
AND
ENJOY
the
same
for
the
term
of
ten
(10)
years
from
the
date
hereof
and
so
long
thereafter
as
the
leased
substances
or
any
of
them
are
produced
from
the
said
lands,
subject
to
the
sooner
termination
of
the
said
term
as
hereinafter
provided.
PROVIDED
that
if
operations
for
the
drilling
of
a
well
are
not
commenced
on
the
said
lands
within
One
(1)
year
from
the
date
hereof,
this
Lease
shall
thereupon
terminate
and
be
at
an
end,
unless
the
Lessee
shall
have
paid
or
tendered
to
the
Lessor
the
sum
of
thirty
two
dollars
($32)
Dollars
(hereinafter
called
the
“annual
acreage
rental"),
which
payment
shall
confer
the
privilege
of
deferring
the
commencement
of
drilling
operations
for
a
period
of
One
(1)
year,
and
that,
in
like
manner
and
upon
like
payments
or
tenders,
the
commencement
of
drilling
operations
shall
be
further
deferred
for
like
periods
successively.
PROVIDED
FURTHER
that
if
at
any
time
during
the
said
Ten
(10)
year
term
and
prior
to
the
discovery
of
production
on
the
said
îands,
the
Lessee
shall
drill
a
dry
well
or
wells
thereon,
or
if
at
any
time
during
such
term
and
other
the
discovery
of
production
on
the
said
lands
such
production
shall
cease,
then
this
Lease
shall
terminate
at
the
next
ensuing
anniversary
date
hereof
unless
operations
for
the
drilling
of
a
further
well
on
the
said
lands
shall
have
been
commenced
or
unless
the
Lessee
shall
have
paid
or
tendered
the
annual
acreage
rental,
in
which
latter
event
the
immediately
preceding
proviso
hereof
governing
the
payment
of
the
annual
acreage
rental
and
effect
thereof,
shall
be
deemed
to
have
continued
in
force.
AND
FURTHER
ALWAYS
PROVIDED
that
if
at
any
time
after
the
expiration
of
the
said
Ten
(10)
year
term
the
leased
substances
are
not
being
produced
on
the
said
lands
and
the
Lessee
is
then
engaged
in
drilling
or
working
operations
thereon,
this
lease
shall
remain
in
force
so
long
as
such
operations
are
prosecuted
and,
if
they
result
in
the
production
of
the
leased
substances
or
any
of
them,
so
long
thereafter
as
the
leased
substances
or
any
of
them
are
produced
from
the
said
lands;
provided
that
if
drilling,
working
or
production
operations
are
interrupted
or
suspended
as
the
result
of
any
cause
whatsoever
beyond
the
Lessee's
control,
the
time
of
such
interruption
or
suspension
shall
not
be
counted
against
the
Lessee,
anything
hereinbefore
contained
or
implied
to
the
contrary
notwithstanding.
THE
LESSOR
AND
THE
LESSEE
HEREBY
COVENANT
AND
AGREE
AS
FOLLOWS:
1.
Interpretation:
—
In
this
Lease,
unless
there
is
something
in
the
subject
or
context
inconsistent
herewith,
the
expressions
following
shall
have
the
following
meaning,
namely:
(a)
“Commercial
production”
shall
mean
the
output
from
a
well
of
such
quantity
of
the
leased
substances
or
any
of
them
as,
considering
the
cost
of
drilling
and
production
operations
and
price
and
quality
of
the
leased
substances,
after
a
production
test
of
Thirty
(30)
consecutive
days,
would
commercially
and
economically
warrant
the
drilling
of
a
like
well
in
the
vicinity
thereof.
(b)
“Drilling
unit"
shall
mean
a
section,
legal
sub-division
or
other
unit
of
land
representing
the
minimum
area
in
which
any
well
may
be
drilled
on
or
in
the
vicinity
of
the
said
lands
as
defined
or
prescribed
by
or
under
any
law
of
the
Province
of
Saskatchewan
now
or
hereafter
in
effect
governing
the
spacing
of
petroleum
and/or
natural
gas
wells.
(c)
“Point
of
measurement”
with
respect
to:
(i)
crude
oil
and
crude
naphtha
means
the
production
tanks,
of
the
Lessee
to
which
any
well
on
the
said
lands
is
connected;
(ii)
absorption
gasoline
and/or
natural
gas
means
the
point
of
connection
with
the
gas
gathering
system
connected
to
the
well.
(d)
"Said
lands"
shall
mean
all
the
lands
hereinbefore
described
or
referred
to,
or
such
portion
or
portions
thereof
as
shall
not
have
been
surrendered.
2.
Royalties:
—
The
Lessee
shall
pay
or
deliver
to
the
Lessor
a
gross
royalty
as
hereinafter
specified,
on
the
leased
substances,
or
any
of
them,
produced,
saved
and
marketed
from
the
said
lands,
namely:
(a)
Crude
Oil—Twelve
and
one-half
(12
/2%)
per
cent
of
the
current
market
value
of
crude
oil
and/or
crude
naphtha
at
the
point
of
measurement.
(b)
Natural
Gas—Twelve
and
one-half
(12'/2%)
per
cent
of
the
current
value
at
the
point
of
measurement
of
natural
gas
markets
or,
if
the
same
be
treated
in
a
plant,
of
the
residue
gas
therefrom
marketed.
(c)
Plant
Products—In
the
event
that
natural
gas
is
transported
to
a
plant
for
the
purpose
of
extracting
natural
gasoline
therefrom,
or
of
extracting,
condensing
or
saving
additional
petroleum
products,
the
royalty
shall
be
one-eighth:
(i)
of
the
amount
received
by
the
Lessee
from
the
owner
of
such
plant
in
the
event
that
the
Lessee
is
not
the
owner
or
operator
at
the
plant,
or
(ii)
of
the
percentage
computed
in
accordance
with
the
following
table:
|
WEIGHTED
AVERAGE
|
PLANT
PRODUCT
CONTENT
IN
|
|
PRICE
OF
PLANT
|
IMPERIAL
GALLONS
PER
MCF.
|
|
PRODUCTS
IN
CENTS
|
|
|
PER
IMPERIAL
|
0.0
to
0.99
|
1.00
to
1.9
9
|
2.00
or
|
|
GALLON
|
over
|
|
|
PER
CENT
|
|
|
0.0
to
3.9
|
15
|
20
|
25
|
|
|
4.0
to
5.9
|
20
|
25
|
30
|
|
|
6.0
to
7.9
|
25
|
30
|
33
|
|
|
8.0
to
9.9
|
30
|
33
|
33
|
|
|
10.00
or
over
|
33
|
33
|
33
|
|
(or
of
such
other
percentage
as
may
be
fixed
or
determined
from
time
to
time
by
governmental
authority
as
payable
by
the
plant
owner
to
the
well
owner)
of
the
current
market
price
of
such
products
at
the
said
plant
in
the
event
that
the
Lessee
be
the
owner
or
operator
thereof.
Such
gasoline
or
other
petroleum
product
content
shall
be
determined
at
the
point
of
measurement
of
the
natural
gas
in
accordance
with
any
method
accepted
as
standard
by
the
Natural
Gasoline
Association
of
America.
The
royalty
as
determined
under
this
clause
shall
be
payable
on
the
20th
day
of
the
month
following
upon
the
month
in
which
any
well
drilled
on
the
said
lands
shall
have
been
brought
into
production
of
the
leased
substances
shall
be
saved
and
sold
from
the
said
lands.
PROVIDED
ALWAYS
the
Lessor
shall
have
the
option,
on
Thirty
(30)
days'
written
notice
to
the
Lessee,
to
take
one-eighth
(1/8)
of
all
the
crude
oil
and/or
crude
naphtha
produced
and
saved
from
the
said
lands
in
lieu
of
the
said
cash
royalty
payable
under
sub-clause
(a)
of
this
Clause
2,
and
may
on
like
notice
revoke
such
option.
The
Lessor
may
not
exercise
his
said
option
more
often
than
once
in
any
Twelve
(12)
months’
period.
If
the
Lessor
elects
to
receive
such
royalty
oil
in
kind,
the
Lessee
will
provide,
free
of
cost,
production
tanks
for
not
more
than
Ten
(10)
days’
accumulation
of
the
Lessor's
royalty
oil
and
will
deliver
the
same
to
the
Lessor
at
such
tank
outlets
in
accordance
with
usual
and
customary
pipe
line
and
shipping
practices.
Notwithstanding
anything
to
the
contrary
herein
contained
or
implied,
the
Lessee
shall
be
entitled
to
use,
free
from
the
payment
of
royalty,
such
part
of
the
production
of
the
leased
substances
from
the
said
lands
required
and
used
by
the
Lessee
in
its
operations
hereunder.
3.
Gas
Wells:-
Provided
no
royalties
are
otherwise
paid
hereunder,
the
Lessee
shall
pay
to
the
Lessor
each
year
as
royalty
the
sum
of
Fifty
Dollars
($50)
or
the
annual
acreage
rental
(whichever
is
the
greater)
for
all
wells
on
the
said
lands
where
gas
only
or
primarily
is
found
and
the
same
is
not
used
or
sold,
and
while
the
said
royalty
is
so
paid
each
such
well
shall
be
deemed
to
be
a
producing
well
hereunder.
4.
Lesser
Interest:
—
If
the
Lessor's
interest
in
the
leased
substances
be
less
than
the
entire
and
undivided
fee
simple
estate
therein,
then
the
royalties
and
rentals
herein
provided
shall
be
paid
the
Lessor
only
in
the
proportion
which
his
interest
bears
to
the
whole
and
undivided
fee.
5.
Taxes
Payable
By
The
Lessor:
—
The
Lessor
shall
promptly
satisfy
all
taxes,
rates
and
assessments
that
may
be
assessed
or
levied,
directly
or
indirectly,
against
the
Lessor
by
reason
of
the
Lessor's
interest
in
production
obtained
from
the
said
lands,
or
the
Lessor's
ownership
of
mineral
rights
in
the
said
lands,
and
shall
further
pay
all
taxes,
rates
and
assessments
that
may
be
assessed
or
levied
against
the
surface
of
the
said
lands
during
the
continuance
of
the
term
hereby
granted
or
any
extension
thereof
if
and
so
long
as
the
said
surface
of
the
said
lands
is
or
continues
to
be
owned
by
the
Lessor.
6.
Taxes
Payable
By
The
Lessee:
—
The
Lessee
shall
pay
all
taxes,
rates
and
assessments
that
may
be
assessed
or
levied
in
respect
of
the
undertaking
and
operations
of
the
Lessee
on,
in,
over
or
under
the
said
lands,
and
shall
further
pay
all
taxes,
rates
and
assessments
that
may
be
assessed
or
levied
directly
or
indirectly
against
the
Lessee
by
reason
of
the
Lessee's
interest
in
production
from
the
said
lands.
The
Lessee
shall
on
the
written
request
of
the
Lessor,
accompanied
by
such
tax
receipts,
statements
or
tax
notices
as
the
Lessee
may
require,
reimburse
the
Lessor
for
seven-eights
(7/8ths)
of
any
taxes
assessed
or
imposed
during
the
currency
of
this
Lease
by
reason
of
the
Lessor
being
the
registered
owner
of
the
leased
substances
or
being
entitled
to
become
such
owner.
7.
Use
of
Gas
By
Lessor:
—
If
as
a
result
of
drilling
operations
of
the
Lessee
on
the
said
lands,
surplus
dry
natural
gas
is
produced
which
is
not
needed
for
the
operations
hereunder,
the
Lessee
shall
supply
at
the
sole
risk
of
the
Lessor,
free
of
charge
to,
and
not
subject
to
the
payment
of
royalty
by,
the
Lessee,
such
surplus
dry
natural
gas
to
the
Lessor
for
domestic
use
in
his
principal
dwelling
only
on
the
said
lands,
but
all
the
necessary
installations
on
the
well
site
for
the
supply
of
the
said
gas
shall
be
made
by
the
Lessee
at
the
expense
of
the
Lessor.
8.
Offset
Wells:
—
In
the
event
of
commercial
production
being
obtained
from
any
well
drilled
on
any
drilling
unit
laterally
adjoining
the
said
lands
and
not
owned
by
the
Lessor,
or,
if
owned
by
the
Lessor,
not
under
lease
to
the
Lessee,
the
Lessee
shall
commence
or
cause
to
be
commenced
within
Six
(6)
months
from
the
date
of
such
well
being
placed
on
production,
the
drilling
of
an
offset
well
on
the
drilling
unit
of
the
said
lands
laterally
adjoining
the
said
drilling
unit
on
which
production
is
being
so
obtained,
and
thereafter,
shall
drill
the
same
to
the
horizon
in
the
formation
from
which
production
is
being
obtained
from
the
said
adjoining
drilling
unit;
PROVIDED
that
if
such
well
drilled
on
lands
adjoining
the
said
lands
has
been
proved
to
be
productive
primarily
or
only
of
natural
gas,
the
Lessee
shall
not
be
obligated
to
drill
an
offset
well
unless
an
adequate
and
commercially
profitable
market
for
natural
gas
which
might
be
produced
from
the
offset
well
can
be
previously
arranged
and
provided.
9.
Pooling
Due
to
Regulations
:
—
The
Lessee
is
hereby
given
the
right
and
power
at
any
time
and
from
time
to
time
to
pool
or
combine
the
said
lands,
or
any
portion
thereof,
with
other
lands
adjoining
the
said
lands,
but
so
that
any
one
such
pool
or
unit
(herein
referred
to
as
a
"unit")
shall
not
exceed
one
drilling
unit
as
hereinbefore
defined,
when
such
pooling
or
combining
is
necessary
in
order
to
conform
with
any
regulations
or
orders
of
the
Government
of
the
Province
of
Saskatchewan
or
any
other
authoritative
body,
which
are
now
or
may
hereafter
be
in
force
in
relation
thereto.
In
the
event
of
such
pooling
or
combining,
the
Lessor
shall,
in
lieu
of
the
royalties
elsewhere
herein
specified,
receive
on
production
of
leased
substances
from
the
said
unit,
only
such
portion
of
the
royalties
stipulated
herein
as
the
area
of
the
said
lands
placed
in
the
unit
bears
to
the
total
area
of
lands
in
such
unit.
Drilling
operations
on,
or
production
of
leased
substances
from,
any
land
included
in
such
unit
shall
have
the
same
effect
in
continuing
this
Lease
in
force
and
effect
during
the
term
hereby
granted,
or
any
extension
thereof,
as
to
all
the
said
lands,
as
if
such
operation
or
production
were
upon
or
from
the
said
lands,
or
same
portion
thereof.
10.
Operations:
—
The
Lessee
shall
conduct
all
its
operations
on
the
said
lands
in
a
diligent,
careful
and
workmanlike
manner
and
in
compliance
with
the
provisions
of
law
applicable
to
such
operations,
and
where
such
provisions
of
law
conflict
or
are
at
variance
with
the
provisions
of
this
Lease,
such
provisions
of
law
shall
prevail.
11.
Records
of
Productions
:
—
The
Lessee
shall
make
available
to
the
Lessor
during
normal
business
hours
at
the
Lessee's
address
hereinafter
mentioned
the
Lessee's
records
relative
to
the
quantity
of
leased
substances
produced
from
the
said
lands
and
as
ascertained
at
the
point
of
measurement.
12.
Indemnification
:
—
The
Lessee
shall
indemnify
the
Lessor
against
all
actions,
suits,
claims
and
demands
by
any
person
or
persons
whomsoever
in
respect
of
any
loss,
injury,
damage
or
obligation
to
compensate
arising
out
of
or
connected
with
the
work
carried
on
by
the
Lessee
on
the
said
lands
or
in
respect
of
any
breach
of
any
of
the
terms
and
conditions
of
this
Lease
insofar
as
the
same
relates
to
and
affects
the
said
lands.
13.
Compensation:
—
The
Lessee
shall
pay
and
be
responsible
for
actual
damages
caused
by
its
operations
to
the
surface
of,
and
growing
crops
and
improvements
on,
the
said
lands.
14.
Discharge
of
Encumbrances
:
—
The
Lessee
may
at
the
Lessee's
option
pay
or
discharge
the
whole
or
any
portion
of
any
tax,
charge,
mortgage,
lien
or
encumbrance
of
any
Kind
or
nature
whatsoever
incurred
or
created
by
the
Lessor
and/or
the
Lessor's
predecessors
or
successors
in
title
or
interest
which
may
now
or
hereafter
exist
on
or
against
or
in
any
way
affect
the
said
lands
or
the
leased
substances,
in
which
event
the
Lessee
shall
be
subrogated
to
the
rights
of
the
holder
or
holders
thereof
and
may
in
addition
thereto
at
the
Lessee's
option,
reimburse
itself
by
applying
on
the
amount
so
paid
by
the
Lessee
the
rentals,
royalties,
or
other
sums
accruing
to
the
Lessor
under
the
terms
of
this
Lease.
15.
Surrender:
—
Notwithstanding
anything
herein
contained,
the
Lessee
may
at
any
time
or
from
time
to
time
determine
or
surrender
this
Lease
and
the
term
hereby
granted
as
to
the
whole
or
any
part
or
parts
of
the
leased
substances
and/or
the
said
lands,
upon
giving
the
Lessor
written
notice
to
that
effect,
WHEREUPON
this
Lease
and
the
said
term
shall
terminate
as
to
the
whole
or
any
part
or
parts
thereof
so
surrendered
and
the
annual
acreage
rental
shall
be
extinguished
or
proportionally
reduced
as
the
case
may
be,
but
the
Lessee
shall
not
be
entitled
to
a
refund
of
any
such
rent
theretofore
paid.
16.
Removal
of
Caveat:
—
In
the
event
of
the
Lessee
having
registered
in
the
Land
Titles
Office
for
the
area
in
which
the
said
lands
are
situated
this
Lease
or
any
caveat
or
other
document
in
respect
thereof,
the
Lessee
shall
withdraw
or
discharge
the
document
so
registered
within
a
reasonable
time
after
termination
of
this
Lease
for
any
reason.
17.
Removal
of
Equipment:
—
The
Lessee
shall
at
all
times
during
the
currency
of
this
Lease
and
for
a
period
of
Six
(6)
months
from
the
termination
thereof,
have
the
right
to
remove
all
or
any
of
its
machinery,
equipment,
structures,
pipe
lines,
casing
and
materials
from
off
the
said
lands.
18.
Default:
—
In
the
case
of
the
breach
or
non-observance
or
non-performance
on
the
part
of
the
Lessee
of
any
covenant,
proviso,
condition,
restriction
or
stipulation
herein
contained
and
which
ought
to
be
observed
or
performed
by
the
Lessee
and
which
has
not
been
waived
by
the
Lessor,
the
Lessor
may
give
to
the
Lessee
written
notice
requiring
it
to
remedy
such
default,
and
in
the
event
of
the
Lessee
failing
to
remedy
such
default
within
a
period
of
Ninety
(90)
days
from
receipt
of
such
notice,
this
Lease
shall
thereupon
terminate
and
it
shall
be
lawful
for
the
Lessor,
into
and
upon
the
said
lands
(or
any
part
thereof
in
the
name
of
the
whole),
to
re-enter
and
the
same
to
have
again,
repossess
and
enjoy,
anything
herein
contained
to
the
contrary
notwithstanding.
19.
Quiet
Enjoyment:
—
The
Lessor
covenants
and
warrants
that
he
has
good
title
to
the
leased
substances
and
the
said
lands
as
hereinbefore
set
forth,
has
good
right
and
full
power
to
grant
and
demise
the
same
in
manner
aforesaid,
and
that
the
Lessee,
upon
observing
and
performing
the
covenants
and
conditions
on
the
Lessee's
part
herein
contained,
shall
and
may
peaceably
possess
and
enjoy
the
same
durin
the
said
term
and
any
extension
thereof
without
any
interruption
or
disturbance
from
or
by
the
Lessor
or
any
other
person
whomsoever.
20.
Covenant
For
Further
Assurance:
—
The
Lessor
and
the
Lessee
hereby
agree
that
they
will
each
do
and
perform
all
such
acts
and
things
and
execute
all
such
deeds,
documents
and
writings
and
give
all
such
assurance
as
may
be
necessary
to
give
effect
to
this
Lease
and
all
covenants
herein
contained.
21.
Assignments:
—
The
parties
hereto
may
each
or
either
of
them
delegate,
assign
or
convey
to
any
other
person
or
persons,
corporation
or
corporations,
all
or
any
of
the
property,
powers,
rights
and
interests
obtained
by
or
conferred
upon
them
respectively
hereunder
and
may
enter
into
all
agreements,
contracts
and
writings
and
do
all
necessary
acts
and
things
to
give
effect
to
the
provisions
of
this
clause;
PROVIDED
however,
no
assignment
of
royalties
or
other
moneys
payable
hereunder
shall
be
binding
upon
the
Lessee
unless
and
except
the
same
be
for
the
entire
interest
of
the
Lessor
in
all
of
the
said
sums
remaining
to
be
paid
or
to
accrue
hereunder.
22.
Manner
of
Payment:
—
All
payments
to
the
Lessor
provided
for
in
this
Lease
shall,
at
the
Lessee's
option,
be
paid
or
tendered
either
to
the
Lessor,
or
for
the
Lessor's
credit
in
the
Bank
of
Montreal
(Bank)
at
Lampman,
Sask.,
or
its
successors,
which
said
Bank
and
its
successors
shall
be
deemed
the
Lessor's
agents
and
continue
as
the
depository
for
receipt
of
any
and
all
sums
payable
hereunder
regardless
of
changes
in
ownership
(whether
by
assignment
or
otherwise)
of
the
said
lands
or
of
the
leased
substances
or
of
the
royalties
or
rentals
to
accrue
hereunder
unless
and
until
the
Lessee
shall:have
been
notified
in
writing
by
the
Lessor
to
make
such
payments
to
another
depository
in
Canada
which
shall
be
either
a
bank
or
a
trust
company
and
whose
name
and
address
shall
be
specified
in
such
notice;
PROVIDED
that
only
one
such
depository
shall
be
designated
as
aforesaid.
All
such
payments
or
tenders
may
be
made
by
cheque
or
draft
of
the
Lessee
either
mailed
or
delivered
to
the
Lessor
or
to
the
depository
by
him
designated
as
aforesaid.
23.
Entire
Agreement:
—
The
terms
of
this
Lease
express
and
constitute
the
entire
agreement
between
the
parties,
and
no
implied
covenant
or
liability
of
any
kind
is
created
or
shall
arise
by
reason
of
these
presents
or
anything
herein
contained.
24.
Notices:
—
All
notices
to
be
given
hereunder
may
be
given
by
registered
letter
addressed
to
the
Lessee,
care
of
Messrs.
Thom,
Bastedo
&
Company,Barristers,
etc.,
1778
Scarth
Street,
Regina,
Saskatchewan.
and
to
the
Lessor
at
Lampman,
Sask.
or
such
other
address
as
the
Lessor
and
the
Lessee
may
respectively
from
time
to
time
appoint
in
writing,
and
any
such
notice
shall
be
deemed
to
be
given
to
and
received
by
the
addressee
Seven
(7)
days
after
the
mailing
thereof,
postage
prepaid.
IMPERIAL
OIL
Ltd.,
the
above
mentioned
Lessee,
doth
accept
this
Lease
of
the
above
described
land,
to
be
held
by
it
as
tenant,
and
subject
to
the
conditions,
restrictions
and
covenants
above
set
forth.
IN
WITNESS
WHEREOF
the
Lessor
and
the
Lessee
have
executed
and
delivered
this
Lease,
the
day
and
year
first
above
written.
SIGNED,
SEALED
AND
DELIVERED
by
the
Lessor,
in
the
presence
of:
Michael
Baumchen
R.J.C.
Dunsmore
IMPERIAL
OIL
Ltd.,
Assistant-Secretary
3.05
The
land
titles
certified
copy
of
a
certificate
of
title
number
63R-17211(1)A
dated
May
15,
1963
was
filed
as
A-4.
It
certifies
that
the
appellant
is
the
owner
of
the
land
including
mines
and
minerals.
3.06
The
transfer
executed
by
the
appellant
to
his
son
Raymond
Herbert
Lisafeld,
the
transferee,
on
June
2,
1983,
certified
by
the
land
titles,
is
filed
as
exhibit
A-5.
This
transfer
was
done
for
the
consideration
of
one
dollar.
The
appellant
transferred
“all
my
estate
and
interest
on
the
said
piece
of
land”.
In
the
affidavit,
the
appellant
(the
transferor)
says:
That
the
transferee
named
in
the
within
Transfer
is
the
owner
in
fee
simple
of
the
surface
rights
and
I
have
not
retained
any
interest
by
way
of
lease,
profit-a-prendre
or
other
agreement
in
the
minerals
transferred
and
sold
and
have
not
obtained
an
agreement,
oral
or
written,
under
which
the
transferee
named
in
the
within
Transfer
covering
agrees
to
convey
any
such
interest
in
the
minerals
described
herein
to
me
or
to
my
nominee.
3.07
An
assignment
of
petroleum
and
natural
gas
lease
dated
January
9,
1984
from
the
appellant
to
his
son
was
filed
as
exhibit
A-6.
3.08
Counsel
for
the
appellant
filed
as
exhibit
A-7,
chapter
0.2
of
the
Saskatchewan
Oil
and
Gas
Conservation
Act,
as
in
force
in
1983.
3.09
Exhibit
A-8
consists
of
a
copy
of
the
order
in
council
dated
August
12,
1968,
published
in
the
Saskatchewan
Gazette
on
August
23,
1968
and
a
copy
of
the
legislated
agreement
of
May
1961
known
as
the
Steelman
Unit
No.
IV
unitization
of
the
field
in
which
the
piece
of
land
in
dispute
is
involved.
3.10
A
document
entitled
"Mineral
Certificate"
dated
October
18,
1983,
was
filed
as
exhibit
A-9.
It
certifies
that
Peter
Lisafeld
was
the
correct
registered
owner
when
he
disposed
of
his
interest
on
June
2,
1983
“in
mines
and
mineral
described
in
the
said
disposition
and
contained
within,
upon
or
under
the
following
lands:
all
that
portion
of
the
SE
1/4
of
Sec.
1-5-6-W2nd
shown
as
Parcel
"M"
on
Plan
No.
59A03981.
A
five-page
document
dated
May
15,
1963
and
entitled
“Instructions
for
continuation
of
certificate
of
title”
is
part
and
parcel
of
exhibit
A-9.
3.11
Mr.
Raymond
Lisafeld,
the
appellant's
son,
a
farmer
in
the
municipality
of
Steelman,
Saskatchewan,
stated
that
his
father
during
his
life
until
1958
was
strictly
a
farmer
and
mostly
a
grain
farmer.
At
that
time,
nobody
paid
any
attention
to
oil
and
gas
activity.
He
put
together
various
parcels
of
land
totalling
eleven
(11)
quarters.
In
1958,
the
appellant
moved
to
town
and
the
witness
continued
to
farm,
pursuant
to
a
lease
contract
until
he
purchased
the
land
in
June
1983,
a
transfer
for
a
consideration
of
$1
(par.
3.06,
exhibit
A-5).
3.12
The
first
oil
field
installation
on
the
east
half
of
quarter
was
in
1957
or
1958.
In
1983,
there
were
four
installations.
One
is
a
water
injection
well,
one
an
injector
well
and
two
are
producer
wells.
3.13
It
was
admitted
by
counsel
for
the
appellant
that
the
appellant
received
the
following
royalties:
|
1980
|
$23,632
|
|
1981
|
$51,509
|
|
1982
|
$67,736
|
|
1983
|
$115,029
|
In
1984,
the
witness
Raymond
Lisafeld
admitted
that
he
received
royalties
amounting
to
between
$60
and
$70,000.
3.14
Mr.
Lloyd
Watson,
a
technical
witness,
worked
for
Gulf
Oil
of
Canada
for
29
years.
He
was
responsible
for
looking
after
their
land
problems
and
land
acquisition
in
southeast
Saskatchewan.
And
that
activity,
of
course,
involved
the
acquisition
of
surface
leases,
oil
and
gas
leases,
and
related
matters
(S.N.
p.
17).
3.15
Pursuant
to
his
own
experience,
the
five
(5)
main
elements
of
a
petroleum
and
natural
gas
lease
are:
1)
A
registered
owner
of
the
land
and
the
minerals
2)
The
description
of
the
land
3)
The
term
of
the
lease.
Whatever
the
term
of
the
lease,
for
instance
10
years,
the
wording
of
the
lease
is
such
that
if
there
is
production,
the
term
carries
itself,
by
the
terms
of
the
lease,
beyond
the
10
year
period.
As
long
as
there
is
production
coming
from
the
land
and
royalties
are
being
paid,
the
lease
is
in
full
force
and
effect.
4)
The
bonus
consideration.
The
appellant
explained
that
if
the
lease
was
signed
at
the
time
when
there
was
no
exploration
activity
in
the
vicinity
of
the
land,
the
bonus
was
correspondingly
low.
According
to
him,
in
the
present
lease,
the
bonus
consideration
of
$32.
for
320
acres
i.e.
10
cents
an
acre,
was
normal.
Indeed
the
lease
was
signed
in
1949.
To
his
knowledge,
there
was
then
no
general
oil
field
activity
in
the
area
of
the
subject
land.
5)
Royalty:
12
and
a
half
per
cent.
“For
years,
for
several
years
after
the
inception
of
the
oil
industry
in
western
Canada,
that
figure
remained
standard
at
12
and
a
half
per
cent.
In
recent
years,
it’s
become
a
lot
more
flexible.
There
are
very
few
leases
nowadays
that
carry
a
royalty
of
less
than
15
per
cent.
And
if
it’s
very
close
to
production,
it
might
be
negotiated
considerably
higher
than
that.
(S.N.
p.
22)
As
is
stated
in
that
particular
lease
that
Mr.
Kohaly
showed
me,
it
means
that
he
would
get
12
and
a
half
out
of
every
100
barrels
to
the
credit
of
the
lessor.
Generally
free
and
clear
of
encumbrances.
(S.N.
p.
24)
3.16
Mr.
Watson
also
testified
that
it
is
the
lessee,
Imperial
Oil
in
the
present
case,
that
bears
the
cost
of
acquisition,
the
development
expense,
the
exploration
expense,
transportation
expense,
marketing
expense.
The
lessor
has
not
any
expense
to
bear.
He
only
receives
the
royalty.
3.17
According
to
Mr.
Watson,
the
lessor
can
do
nothing
to
terminate
the
lease
if
the
lessee
meets
the
rental
payments.
In
the
normal
circumstances,
a
lease
is
terminated
when
the
lessee
send
a
notice
to
the
lessor
that
he
wishes
to
terminate.
Ordinarily,
this
occurs
when
no
oil
or
gas
remains
to
be
produced.
3.18
Concerning
the
Steelman
Unit
No.
IV
unitization,
about
which
exhibit
A-8
was
filed
(par.
3.09),
Mr.
Watson
explained
that
when
"an
operator
drills
a
discovery
well,
all
of
industry
becomes
interested
and
you
get
an
influx
of
operators
all
over
the
place.
There
is
a
great
competition
for
land
and
a
reat
competition
for
drilling
rights
and
the
rest
of
it.”
(TS,
p.
32-33).
"And
while
all
that
is
going
on,
there
is
a
great
competition
between
these
parties.
But
eventually,
the
whole
pool
is
developed
and
there
is
no
reason
then
for
those
companies
to
be
competitors”.
(TS,
p.
33).
So
they
enter
into
a
unit
agreement.
It
is
the
voluntary
unitization.
The
unitization
may
also
originate
from
a
decision
of
the
Department
of
Energy
and
Mines.
It
is
a
conservation
measure.
Indeed
the
department
"is
always
interested
in
getting
as
much
oil
out
of
the
ground
as
they
can.
It
is
in
everybody's
interest
to
nave
the
field
operated
efficiently.
And
they
may
designate
that
a
certain
pool
be
unitized."
(TS,
p.
34)
The
Steelman
Unit
No.
IV
unitization
originated
from
a
decision
of
the
department.
3.19
In
cross-examination,
concerning
the
taxes
to
be
paid
by
the
lessor
and
by
the
lessee
(para.
5
and
6
of
the
contract
between
Mr.
Baumchen
and
Imperial
Oil
Ltd.
quoted
at
length
in
the
above
paragraph
3.04),
Mr.
Watson
explained
that
these
taxes
are
paid
to
the
government
of
Saskatchewan
by
the
lessor
(para.
5
of
the
contract),
7/8
of
which
are
reimbursed
by
the
lessee
(para.
6
of
the
contract).
4.
Law-Cases
at
Law-Analysis
4.01
Law
The
provisions
of
the
Income
Tax
Act,
R.S.C.
1952,
c.
148
(am.
S.C.
1970-71-72,
c.
63)
(the
"Act")
involved
in
this
appeal
are
subsection
59(1),
paragraph
59.2(c),
subsection
59(3.1),paragraphs
59(3.2)(c)
and
66(15)(c),
subsection
66.2(1).
They
will
be
cited
in
the
analysis
if
required.
4.02
Cases
at
law
The
cases
at
law
referred
to
the
Court
by
the
parties
are
as
follows:
1.
McColl-Frontenac
Oil
Co.
Ltd.
v.
Hiram
Hamilton,
[1953]
1
S.C.R.
127;
[1953]
1
D.L.R.
721;
2.
Keyes
v.
Saskatchewan
Mineral
(1970),
12
D.L.R.
(3d)
637
(Sask.
C.A.);
3.
Berkheiser
v.
Berkheiser
and
Glaister
[1957]
S.C.R.
387;
7
D.L.R.
(2d)
721;
4.
McDougall
Ross
v.
M.N.R.,
[1950]
Ex.
C.R.
411;
[1950]
C.T.C.
169;
50
D.T.C.
775.
4.03
Analysis
4.03.1
Did
the
transfer
of
the
appellant's
property
to
his
son
occur
on
June
2,
1983
or
on
January
12,
1984?
Concerning
this
point,
it
was
admitted
during
the
submission
that
whatever
date,
the
same
legal
provision
applies,
i.e.,
paragraph
66(15)(c)
of
the
Act,
which
defines
Canadian
resource
property.
It
was
applicable
to
the
taxation
years
ending
after
December
11,
1979.
Paragraph
66(15)(c)
reads
as
follows:
66.(15)
.
.
.
(c)
“Canadian
resource
property”
of
a
taxpayer
means
any
property
acquired
by
him
after
1971
that
is
(i)
any
right,
licence
or
privilege
to
explore
for,
drill
for
or
take
petroleum,
natural
gas
or
related
hydrocarbons
in
Canada,
(ii)
any
right,
licence
or
privilege
to
(A)
store
underground
petroleum,
natural
gas
or
related
hydrocarbons
in
Canada,
or
(B)
prospect,
explore,
drill
or
mine
for
minerals
in
a
mineral
resource
in
Canada,
(iii)
any
oil
or
gas
well
in
Canada,
(iv)
any
rental
or
royalty
computed
by
reference
to
the
amount
or
value
of
production
from
an
oil
or
gas
well
in
Canada,
(v)
any
rental
or
royalty
computed
by
reference
to
the
amount
or
value
of
production
from
a
mineral
resource
in
Canada,
(vi)
any
real
property
in
Canada
the
principal
value
of
which
depends
upon
its
mineral
resource
content
(but
not
including
any
depreciable
property
used
or
to
be
used
in
connection
with
the
extraction
or
removal
of
minerals
therefrom),
or
(vii)
any
right
to
or
interest
in
any
property
(other
than
property
of
a
trust)
described
in
any
of
subparagraphs
(i)
to
(vi)
(including
a
right
to
receive
proceeds
of
disposition
in
respect
of
a
disposition
thereof);
[Emphasis
added.]
The
provision
was
amended
in
1985
by
substituting
"of
the
taxpayer"
in
paragraph
66(15)(c)
for
"acquired
by
him
after
1971”.
Provision
66(15)(c)(vii)
was
also
amended
and
this
new
provision
reads
as
follows:
(vii)
any
right
to
or
interest
in
any
property
described
in
any
of
the
subparagraphs
(i)
to
(vi),
other
than
such
a
right
or
interest
that
the
taxpayer
has
by
virtue
of
being
a
beneficiary
of
a
trust.
These
amendments
are
applicable
to
taxation
years
commencing
after
1984.
Other
amendments
also
occurred
in
1986
but
they
are
not
relevant
to
the
present
case.
4.03.2
Appellant's
submission
4.03.2(1)
"Acquired
after
1971”.
According
to
the
appellant,
the
case
is
simple.
As
the
above
cited
provision
is
applicable
from
the
end
of
December
1979
to
the
end
of
1984,
therefore
it
is
applicable
to
determine
the
points
in
law
involved
in
the
present
case.
As
the
appellant
acquired
the
subject
property
in
1957
(para.
3.03),
and
as
the
applicable
legal
provision
(paragraph
66.15(c)
of
the
Act)
for
1983
and
1984,
concerns
properties
"acquired
after
1971”,
consequently
the
reassessment
cannot
stand.
4.03.2(2)
Counsel
for
the
appellant
stressed
that
the
appellant
was
a
farmer
and
not
a
man
who
was
in
the
business
of
oil
and
gas
exploration,
production
and
development.
He
expressed
himself
as
follows:
If
you
observe
the
transfer,
A-2,
from
Baumchen
to
this
Peter
Lisafeld,
you
will
see
that
he
not
only
bought
the
two
quarters
that
are
the
east
half
of
1,
but
right
on
the
selfsame
document,
he
bought
two
other
farm
quarters,
neither
of
which
have
had
any
minerals
in
them.
So,
they"re
not
relevant
to
this.
But
it
is
relevant
that
he
was
in
the
business
of
farming,
not
in
the
business
of
acquiring
mineral
rights.
They
were
only
incidental
to
the
acquisition
of
his
farm.
The
fact
he
didn"t
get
it
on
the
other
two
quarters
was
of
no
moment.
(T.S.,
p.
57)
According
to
the
witness
Watson,
in
1950
there
was
a
minimal
amount,
if
any,
of
oil
and
gas
activity
(para.
3.15(4).
Mr.
Raymond
Lisafeld
said
nobody
paid
any
attention
to
them
(3.11).
It
is
therefore
only
incidental
that
minerals
later
became
valuable.
4.03.2(3)
Counsel
for
the
appellant
contends
that
the
indenture
signed
on
April
26,
1949
between
Mr.
Baumchen
and
Imperial
Oil
Ltd.
(Exhibit
A-3)
is
more
descriptive
of
a
contract
of
sale
of
an
asset
than
it
is
of
a
lease
of
an
asset.
He
stated
what
follows:
Once
[sic]
certainly
wouldn't
use
the
word
"title"
or
“estate”
in
the
English
sense
if
you
were
talking
about
a
lease.
Yes,
you
would
if
you
were
talking
about
a
grant,
a
right
of
interest
in
the
land.
(T.S.,
pp.
61-62)
He
then
referred
the
Court
to
paragraphs
9
and
19
of
the
indenture
(Exhibit
A-3)
quoted
above
(para.
3.04).
He
also
referred
the
Court
to
McColl-Frontenac
Oil
Co.
Ltd.,
supra,
rendered
by
the
Supreme
Court
of
Canada
which
decided
that
a
lease
contract
which
includes
a
demise
is
a
contract
for
the
sale
of
property.
At
pages
136-37
(D.L.R.
730),
the
Supreme
Court
referred
to
many
decisions,
i.e.,
in
Gowan
v.
Christie
[L.R.
2
H.L.
sc.
273
at
284:
.
.
.for
although
we
speak
of
a
mineral
lease,
or
a
lease
of
mines,
the
contract
is
not
in
reality,
a
lease
at
all
in
the
sense
in
which
we
speak
of
an
agricultural
lease.
.
.
In
Gowan’s
case
the
lease
was
of
"the
freestone
and
minerals
.
.
.
lying
in
and
under"
certain
lands
"with
power
to
search
for,
work
and
carry
away”
the
same
at
a
rent
of
£200
per
annum.
As
already
pointed
out,
the
instrument
here
in
question
is
a
demise
of
the
whole
quarter-section
for
the
purpose
of
producing
oil
and
gas,
with
a
covenant
on
the
part
of
the
appellant
to
use
only
such
portion
thereof
as
may
be
necessary
for
its
operations.
Whether
the
proper
construction
of
the
instrument
is
that,
with
respect
to
minerals,
it
is
a
grant
of
the
minerals
as
land,
as
in
Gowan's
case,
or
a
demise
of
the
surface
to
which
is
super-added
a
profit
àprendre,
the
result
is,
in
my
opinion,
the
same.
The
instrument
provides
for
the
sale
of
property,
and
under
the
first
subsection,
there
being
an
absence
of
fraud
on
the
part
of
the
purchaser,
the
respondent
wife
is
"deemed"
to
have
consented
to
the
sale
“in
accordance
with
the
provisions
of
this
Act".
Moreover,
counsel
for
the
appellant
referred
to
the
definition
of
"profit
à
prendre"
from
DiCastri
in
Law
of
Vendor
and
Purchaser,
volume
1,
paragraph
38.
It
reads
as
follows:
A
profit
a
prendre
is
a
right
to
take
something
off
another
person's
land.
The
right
does
not
prevent
the
owner
from
taking
the
same
sort
of
thing
off
his
own
land.
The
first
right
may
limit,
but
does
not
exclude,
the
second.
An
exclusive
right
may
be
granted
but
is
not
to
be
inferred
unless
clearly
and
explicitly
expressed.
The
distinction
between
a
profit
à
prendre
and
a
licence
is
important.
The
former
is
an
interest
in
land,
whereas
a
licence
passes
no
interest,
nor
alters
or
transfers
property
in
anything,
but
only
makes
an
action
lawful
which
without
the
licence
would
have
been
unlawful.
A
profit
à
prendre
created
by
deed
confers
a
legal
estate
to
the
grantee.
Unless
it
is
explicitly
stated
in
the
deed
that
the
grantee
has
the
exclusive
right
to
the
profit,
the
owner
of
the
land
may
also
remove
from
the
land
the
substance
which
is
the
subject
matter
of
the
grant.
The
owner
of
a
rofit
may
assign
it
unless
expressly
prohibited
by
the
grant;
not
so
in
the
case
of
a
icence.
He
also
referred
to
the
Keyes
case,
supra,
concerning
the
definition
of
“royalty”
at
page
643:
The
term
"royalty"
may
be
used
in
various
senses
and
with
different
meanings.
It
may
be
used
merely
to
indicate
a
basis
for
computing
compensation
for
consideration
given,
and
thus
establish
a
contractual
right
to
recover
that
compensation.
4.03.2(4)
The
second
argument
of
counsel
for
the
appellant
is
that
the
legislator
never
envisaged
in
the
total
context
of
resource
property
legislation,
never
envisaged
the
asset
flowing
from
a
petroleum
and
natural
gas
lease
in
the
hands
of
a
freeholder,
who
simply
made
a
deal
and
turned
it
over
to
entrepreneur,
imperial
oil
unit
operators,
all
those
kind
of
people
that
the
total
legislation
on
resource
property
read
in
context,
could
not
have
meant
to
apply
to
a
freeholder
such
as
Lisafeld
who
had
an
incidental,
non-effective
interest
yielding
only
a
money
consideration
(T.S.,
p.
71).
According
to
him,
the
provisions
of
the
Act
concerning
the
Canadian
exploration
expense
(66.
1(6)(a)),
the
Canadian
development
expense
(66.2(5)(a)),
the
Canadian
oil
and
gas
property
expense
(66.4(5)(a))
cannot,
in
their
wildest
extension,
apply
to
a
freeholder's
interest
in
oil
and
gas
because
the
freeholder
has
no
input
into
the
cost
factors.
All
the
expenses
referred
to
above
are
"an
integral
part
of
the
entire
platform
of
dealing
with
resource
property
taxation
in
Canada".
This
applies
to
the
major
oil
producers:
Imperial
Oil,
Gulf,
Shell,
etc.,
and
not
to
a
freeholder.
Therefore,
counsel
for
the
appellant
concluded
that
there
is
no
disposition
in
which
an
assessment
could
be
made
in
any
amount.
"Not
$140,000.,
and
not
$300,000,
and
not
any
figure”.
When
the
appellant
assigned
the
petroleum
and
natural
gas
right
to
receive
second
consideration
negotiated
by
Mr.
Baumchen,
it
was
not
“a
resource
property
it
was
nothing
more
than
money."
4.03.2(5)
The
third
argument
of
counsel
for
the
appellant
is
that
the
provision
of
the
Act
which
applies
to
his
client
is
paragraph
12(1)(g)
which
reads
as
follows:
12.(1)
There
shall
be
included
in
computing
the
income
of
a
taxpayer
for
a
taxation
year
as
income
from
a
business
or
property
such
of
the
following
amounts
as
are
applicable:
(g)
any
amount
received
by
the
taxpayer
in
the
year
that
was
dependent
upon
the
use
of
or
production
from
property
whether
or
not
that
amount
was
an
instalment
of
the
sale
price
of
the
property
(except
that
an
instalment
of
the
sale
price
of
agricultural
land
is
not
included
by
virtue
of
this
paragraph);
With
the
present
assessment,
counsel
for
the
appellant
contends
that
the
respondent
taxes
“all
the
oil
and
gas
that
underlies
the
east
half
of
1.
They
accelerate
the
production
for
right
now,
date
of
disposition,
and
tax
on
the
entire
capital
of
the
pool
under
the
east
half
of
1.
.
.
.
The
good
Lord
doesn't
produce
oil
in
a
matter
of
a
few
years.
It
takes
millions
of
years.
So,
when
this
is
all
produced
on
an
annual
basis
and
paid
for
on
an
annual
basis,
it
will
be
the
self-same
oil
that
Revenue
Canada
wishes
to
tax
in
one
lump”
(T.S.,
p.
74-75).
It
is
a
double
taxation.
4.03.2(6)
Moreover,
as
fourth
argument
the
counsel
contends
that
under
the
involuntary
unitisation
(para.
3.18),
the
resource
property
became
simply
a
right
to
receive
money
from
a
business
venture
calculated
by
a
tract
factor
converted
to
a
royalty
converted
to
money.
A
tract
factor
is
not
contemplated
in
the
Act.
4.03.3
Respondent's
submission
4.03.3(1)
Counsel
for
the
respondent
does
not
deny
that
the
property
was
acquired
before
1971.
He
contends
that
the
provision
which
applies
is
not
paragraph
66(15)(c)
referred
to
above
(para.
4.03(1))
by
counsel
for
the
appellant
but
subsection
(59(3.1)
when
property
was
owned
on
December
31,
1971
and
after
until
the
date
of
the
disposition.
It
reads
as
follows:
59.(3.1)
Where
a
taxpayer
has
made
a
disposition
of
property
owned,
or
deemed
to
have
been
owned,
by
him
on
December
31,
1971
and
thereafter
without
interruption
until
the
date
of
disposition
and
that
property
is
property
described
in
any
of
subparagraphs
66(15)(c)(i)
to
(vii)
and
is
not
property
described
in
paragraph
(1.2)(b),
the
following
rules
apply:
(a)
the
relevant
percentage
of
the
taxpayer's
proceeds
of
disposition
therefrom
shall
be
included
in
the
amount
referred
to
in
clause
66.2(5)(b)(v)(A)
to
the
extent
that
the
proceeds
become
receivable;
and
(b)
where
the
taxpayer
and
the
person
who
acquired
the
property
were
not
dealing
with
each
other
at
arm's
length,
for
the
purposes
of
this
section
and
sections
66
and
66.2
(i)
the
cost
to
that
person
of
the
property
shall
be
deemed
to
be
the
amount
included
in
the
amount
referred
to
in
paragraph
(a)
in
respect
of
the
disposition
by
the
taxpayer
of
the
property,
and
(ii)
when
that
person
subsequently
disposes
of
the
property
or
any
right
or
interest
therein,
that
person
shall
be
deemed
to
have
owned
the
property
on
December
31,
1971
and
thereafter
without
interruption
until
the
disposition
thereof.
The
counsel
comments
on
this
above
provision
as
follows:
Note
that
this
section
does
not
state
what
is
a
Canadian
resource
property
that
is
described
in
Section
66(15)(c).
It
says
that,
".
.
.
it
is
referred
to
.
.
.
".
That's
a
very
important
distinction.
And
in
the
respondent's
submission
it
is
the
absence
of
the
words
Canadian
resource
property,
which
catches
this
particular
property.
If
one
then
turns
to
Section
66(15)(c),
.
.
.
from
the
1984
Act.
Canadian
resource
property
is
only
used
in
the
preamble.
It
is
not
used
in
any
of
i
through
vii.
One
has
to
look
at
both
of
these
sections.
A
Canadian
resource
property
is
defined
as
one
acquired
after
1971,
and
then
goes
on.
Section
59(3.1)
does
not
refer
to
the
preamble.
It
simply
refers
to
property
described
after
the
preamble.
(T.S.,
p.
83-84)
One
must
state
that
section
59(3.1)
was
repealed
in
1985
by
the
same
Act
(chapter
45)
which
amended
the
preamble
of
paragraph
66(15)(c)
by
deleting
the
words
any
property
acquired
by
him
after
1971”.
It
must
have
been
the
intent
of
the
legislator
to
assume
that
section
59(3.1)
was
no
longer
necessary.
However
the
existence
of
section
59(3.1)
in
1984
proves
the
intention
of
the
legislator
to
tax
a
property
described
in
paragraph
66(15)(c)
and
owned
by
a
taxpayer
on
December
31,
1971.
4.03.3(2)
Counsel
for
the
respondent
argues
that
in
1984
the
appellants
property
falls
within
subparagraphs
66(15)(c)(iv)
or
(vii).
They
read
as
follows:
(iv)
any
rental
or
royalty
computed
by
reference
to
the
amount
or
value
of
production
from
an
oil
or
gas
well
in
Canada,
(vii)
any
right
to
or
interest
in
any
property
(other
than
property
of
a
trust)
described
in
any
of
subparagraphs
(i)
to
(vi)
(including
a
right
to
receive
proceeds
of
disposition
in
respect
of
a
disposition
thereof);
Counsel
for
the
respondent
stressed
what
follows:
The
next
major
issue
addressed
by
the
appellant
was
whether
or
not
the
taxpayer
owned
the
mineral
rights
after,
I
believe
the
years
1950,
the
first
assignment
of
the
lease.
First
of
all,
I
would
point
out
that
neither
subsection
(4)
nor
subsection
(7)
of
66(15)(d)
require
an
ownership
interest.
MS.
GOLDSTEIN:
They
do
not
speak
of
ownership.
Although,
in
fairness,
Section
59(3.1)
does
contemplate
an
ownership
interest.
So,
it
becomes
necessary
to
determine
whether
or
not
the
appellanthad
an
ownership
interest
with,
which
he
could
dispose
of
in
1984.
(T.S.
p.
85).
4.03.3(3)
The
respondent
relies
primarily
on
the
Supreme
Court
of
Canada
decision
in
Berkheiser
v.
Berkheiser
and
Gleister,
supra.
This
decision
was
rendered
by
the
Supreme
Court
of
Canada
in
1957.
It
was
an
appeal
from
the
Court
of
Appeal
of
Saskatchewan.
The
issue
was
whether
or
not
a
lease
divested
the
mineral
holder
of
the
rights
to
the
minerals.
The
main
facts
are
summarized
by
Rand,
J.
at
page
388
S.C.R.
(D.L.R.
722)
as
follows:
The
facts
in
this
appeal
are
these.
By
will
dated
May
2,
1947,
a
testatrix
devised
to
the
appellant
a
quarter-section
of
land
in
Saskatchewan;
under
date
of
December
18,
1951,
with
an
incorporated
company,
she
entered
into
what
is
called
a
"lease"
of
all
petroleum
and
natural
gas
“within,
upon
or
under”
the
quartersection
for
a
term
of
10
years
"and
so
long
thereafter
as
the
leased
substances
or
any
of
them
are
produced"
from
the
land;
on
July
9,
1953,
she
died.
The
lease
called
for
a
down
payment
of
$320;
it
provided,
in
the
event
of
deferred
operations,
for
an
annual
acreage
rental
of
$160,
for
certain
royalties
related
to
the
oil
and
gas
as
they
were
produced,
and
for
other
matters
mentioned
later.
Following
the
death
of
the
lessor
a
payment
of
the
rental
was
made
to
the
executors
which
deferred
drilling
to
December
18,
1954.
Under
a
clause
headed
"Surrender",
the
lease
was
terminated
by
notice
given
after
the
death
but
before
April
15,
1955,
when
these
proceedings
were
launched.
The
respondents
are
the
residuary
beneficiaries
under
the
will,
and
the
substantial
question
raised
is
whether
the
interest
of
oil
and
gas
is
now
vested
in
them
or
in
the
appellant.
The
Court
allowed
the
appeal
and
the
summary
of
the
ratio
decidendi
from
the
Supreme
Court
Report
reads
as
follows:
Mines
and
minerals-Petroleum
and
natural
gas
"lease"-Terms
and
effect
of
document-Ademption
of
legacy.
A
document
whereby
the
owner
of
land
"doth
grant
and
lease
.
.
.
all
the
petroleum
and
natural
gas
.
.
.
within,
upon
or
under
the
lands
.
.
.
together
with
the
exclusive
right
and
privilege
to
explore,
drill
for,
win,
dig,
remove,
store
and
dispose
of,
the
leased
substances”,
with
special
terms
as
to
duration,
operations
and
payments,
is
not
an
out-and-out
conveyance
of
the
mineral
in
situ,
and
does
not
have
the
effect
of
adeeming
pro
tanto
a
devise
of
the
land.
McColl-Frontenac
Oil
Company
Ltd.
v.
Hamilton
et
al.,
[1953]
1
S.C.R.
127,
distinguished.
Per
Rand
and
Cartwright
JJ.:
The
document
under
consideration
in
this
case
had
the
effect
that
the
title
to
the
oil
and
gas
remained
in
the
owner
subject
to
the
incorporeal
right
of
the
"lessee",
which
right
was
extinguished
on
the
termination
of
the
lease.
The
rents
and
royalties
were
obviously
profits
and,
like
rent
from
a
leasehold,
were
embraced
in
the
devise.
The
instrument
created
either
a
profit
a
prendre
or
an
irrevocable
licence
to
search
for
and
to
win
the
substances
named.
It
was
unnecessary
in
this
case
to
decide
whether
petroleum
and
natural
gas
in
situ
were
to
be
classed
as
corporeal
hereditaments
and
sold
as
land.
Per
Kellock,
Locke
and
Nolan
JJ.:
While
it
was
quite
competent
for
an
owner
of
land
so
to
convey
minerals
lying
in
or
under
it
that
thereafter
there
were
two
separate
estates
in
fee,
that
was
not
the
result
of
the
instrument
here
in
question.
Reading
all
the
terms
of
the
“lease”,
they
were
quite
inconsistent
with
any
conception
of
a
grant
in
fee,
whether
ofthe
minerals
in
situ
or
of
a
profit
à
prendre.
The
instrument
was
to
be
construed
as
a
grant
of
a
profit
à
prendre
for
an
uncertain
term
which
might
be
brought
to
an
end
upon
the
happening
of
any
of
the
various
contingencies
for
which
the
"lease"
provided.
Rand
J.
says
at
page
389
(D.L.R.
723):
The
operative
words
in
the
premises
are:
THE
LESSOR
.
.
.
DOTH
HEREBY
GRANT
AND
LEASE
.
.
.
all
the
petroleum
and
natural
gas
.
.
.
within,
upon
or
under
the
lands.
.
.
.
together
with
the
exclusive
right
and
privilege
to
explore,
drill
for,
win,
take,
remove,
store
and
dispose
of,
the
leased
substances
and
.
.
.
to
drill
wells,
lay
pipe
lines,
and
build
and
install
such
tanks,
stations,
structures
and
roadways
as
may
be
necessary
.
.
.
This
paragraph
is
quite
similar
to
the
preamble
of
the
indenture
signed
on
April
26,
1949
between
Baumchen
and
Imperial
Oil
Ltd.
(Exhibit
A-3)
quoted
above
in
paragraph
3.04.
At
page
392
(D.L.R.
725-26),
Rand
J.
comments
as
follows:
The
idea
suitable
to
the
partial
use
of
the
surface
of
lands
as
a
necessary
means
of
seeking
for
and
drawing
off
these
fluid
substances,
apart
from
the
influence
by
analogy
of
existing
concepts
related
to
different
substances,
is
that
of
operations
to
reduce
to
possession
something
by
its
nature
generally
ready
for
flight,
which,
as
embodying
a
property
interest,
is
adequately
symbolised
by
the
general
term
incorporeal
right.
The
word
“grant”
then,
not
being
significant
of
title
and
the
word
"lease"
not
carrying
with
it
the
possession
with
which
it
is
ordinarily
associated,
we
look
to
the
detailed
description
of
the
acts
authorized
for
the
true
intendment
of
the
instrument
and
doing
that
here
I
interpret
it
as
either
a
profit
à
prendre
or
an
irrevocable
licence
to
search
for
and
to
win
the
substances
named.
This
view
is
strengthened
by
the
provision
for
payment
of
taxes.
The
lessor
is
to
pay
“all
taxes,
rates
and
assessments"
levied
directly
or
indirectly
against
her
by
reason
of
her
interest
in
production
of
her
ownership
of
mineral
rights,
as
well
as
those
assessed
against
the
surface
of
the
land.
On
the
other
hand,
the
lessee
is
to
pay
all
taxes
levied
in
respect
of
the
undertaking
and
operations
and
of
the
lessee's
interest
in
production.
The
effect
of
this
is
not
modified
by
the
stipulation
that
the
lessee
shall
reimburse
the
lessor
for
seven-eighths
of
any
taxes
imposed
on
the
latter
by
reason
of
being
the
registered
owner
of
the
leased
substances.
This
treats
the
legal
title
to
the
substances
as
remaining
in
the
lessor
and
the
interest
of
the
lessee
as
analogous
to
that
of
an
ordinary
lessee
of
land,
that
is,
as
having
only
an
interest
in
relation
to
them.
Counsel
for
the
respondent
pointed
out
the
testimony
of
Mr.
Watson
concerning
the
taxes
to
be
paid
(para.
3.19)
pursuant
to
paragraphs
five
(5)
and
six
(6)
of
the
lease
contract
(Exhibit
A-3)
quoted
above
in
paragraph
3.04.
Kellock
J.
says
at
pages
388-99
(D.L.R.
732-33):
In
the
case
at
bar
it
is
necessary
to
decide
whether
the
interest
in
the
mineral
created
in
favour
of
the
rantee
was
of
such
a
nature
that
the
devise
to
the
appellant
was,
pro
tanto,
adeemed.
In
my
opinion,
this
is
not
so.
The
provisions
of
the
instrument
as
analyzed
above
are,
in
my
opinion,
quite
inconsistent
with
any
conception
of
a
grant
in
fee
whether
of
the
minerals
in
place
or
of
a
profit
a
prendre.
In
myopinion,
the
instrument
is
to
be
construed
as
a
grant
of
a
profit
à
prendre
for
an
uncertain
term
which
might
be
brought
to
an
end
upon
the
happening
of
any
of
the
various
contingencies
for
which
it
provides.
It
did
not
bring
about
that
separation
of
the
estate
in
the
minerals
from
the
estate
in
the
land
apart
from
the
minerals
which
is
the
necessary
basis
for
the
operation
of
the
doctrine
of
ademption.
In
Martyn
v.
Williams
(1),
a
profit
à
prendre
in
certain
minerals
had
been
granted
to
the
defendant
for
a
term
of
years
by
the
owner
in
fee,
who
subsequently
conveyed
all
his
estate
to
the
plaintiff.
Martin
B.,
delivering
the
judgment
of
the
Court,
said,
at
p.
829:
But
in
the
present
case
no
estate
in
fee
in
the
right
to
take
the
china
clay
has
been
created.
The
owners
of
the
fee
simple
merely
granted
the
right
for
a
term
of
years,
and
after
the
expiration
of
this
term,
the
plaintiff,
who
was
then
the
owner
of
the
land,
was
entitled
to
do
all
which
the
defendant
was
authorised
and
licensed
by
the
indenture
to
do,
not
by
virtue
of
tie
same
estate
which
the
defendant
had,
having
reverted
and
continuing
an
existing
estate,
but
by
virtue
of
his
ownership
of
and
dominion
over
his
own
land;
(for
the
owner
of
land
exercises
his
right
over
it,
not
by
virtue
of
any
licences
or
liberties
or
easements,
but
by
virtue
of
his
ownership
in
which
all
interests
of
this
kind
merge:
Greathead
v.
Morley,
3
M.
&
G.
139);
and
the
question
is,
whether
the
conveyance
or
assignment
of
the
land
to
the
plaintiff,
during
the
existence
of
the
term
in
the
incorporeal
tenement,
was
an
assignment
of
the
reversion
within
the
statute
of
32
H.
8.
We
think
that
it
was.
There
is
in
reality
the
relation
of
reversioner
and
ownership
of
particular
estates
between
them;
there
is
exactly
the
same
privity
of
estate
as
exists
between
reversioner
and
tenant
properly
so
called,
and
upon
the
determination
of
the
term
the
entire
interest
in
the
land
reverted
to
the
plaintiff,
as
upon
the
expiration
of
an
ordinary
lease.
Accordingly,
upon
the
termination
of
the
interest
of
the
grantee
under
the
lease
here
in
question,
the
estate
of
the
appellant
in
the
lands
was
no
longer
subject
to
it.
The
doctrine
of
ademption
does
not
apply.
Equally
the
appellant
is
entitled
to
the
amount
paid
for
acreage
rental
by
the
lessee
following
the
death
of
the
testatrix.
4.04
Analysis
4.04.1
One
of
the
appellant's
argument
is
that
the
lease
contract
(Exhibit
A-3)
was
in
fact
a
transfer
to
the
lessee
Imperial
Oil
Ltd.
of
the
property
of
oil
and
gas
(para.
4.03.2(3)).
This
was
also
the
opinion
of
the
Court
of
Appeal
of
Saskatchewan
in
the
Berkheiser
case,
supra.
At
page
397
(D.L.R.
730-32),
Kellock,
J.
referred
to
the
following
extract
of
Martin,
J.:
In
the
case
at
bar
the
Courts
below
have
construed
the
instrument
as
a
conveyance
in
fee.
The
basis
of
this
view
is
sufficiently
indicated
in
the
following
extracts
from
the
judgment
of
Martin
C.J.S.,
speaking
for
the
Court
of
Appeal
(1):
Authorities
are
to
the
effect
that
petroleum
and
natural
gas
leases
in
the
form
of
the
one
under
review
are
sales
of
a
portion
of
the
land
with
liberty
to
enter
upon
the
land
for
the
purpose
of
searching
for
and
carrying
away
the
petroleum
and
natural
gas
within,
upon
or
under
the
land.
Applying
these
authorities
the
testatrix
disposed
of
an
interest
in
the
land
when
she
entered
into
the
petroleum
and
natural
gas
lease
and
thelease
was
in
effect
at
the
time
of
her
death
on
July
9,
1953,
but
came
to
an
end
on
December
18,
1954.
The
will
of
the
testatrix
spoke
from
her
death,
namely
July
9,
1953,
and
as
the
sale
of
the
petroleum
and
natural
gas
was
then
in
effect
just
as
she
had
made
it
on
December
18,
1951,
the
devise
of
the
interest
in
the
land
consisting
of
petroleum
and
natural
gas
was
adeemed.
Where
there
is
a
specific
legacy
and
the
subject-matter
does
not
remain
the
property
of
the
testator
at
his
death
the
legacy
is
said
to
be
adeemed
.
.
.I
cannot
agree
that
the
testatrix,
so
far
as
petroleum
and
natural
gas
are
concerned,
had
anything
left
at
the
time
of
her
death
which
she
could
dispose
of.
Section
19
of
The
Wills
Act,
R.S.S.
1953,
ch.
120,
cannot
be
applied
because
the
testatrix
had
no
estate
in
the
petroleum
and
natural
gas
which
she
had
"power
to
dispose
of
by
will
at
the
time
of
her
death."
.
.
.
I
am
unable
to
distinguish
the
sale
of
minerals—an
interest
in
land—from
the
case
where
a
testator
in
his
will
makes
a
specific
devise
of
land
but
subsequently
sells
the
land
under
agreement
for
sale.
While
what
is
referred
to
as
a
mining
lease"
commonly
amounts
to
a
"sale
of
land",
so
to
characterize
any
given
instrument
does
not
necessarily
equate
it
with
either
a
grant
in
fee
simple
of
the
mineral
in
place
or
of
a
profit
à
prendre.
For
example,
the
grant
in
question
in
Gowan
v.
Christie
et
al.
(1),
was
only
for
a
term
of
21
years.
Nevertheless,
the
off-quoted
citation
from
the
judgment
of
Lord
Cairns,
on
pp.
283-4,
was
quite
properly
applicable
to
it.
Lord
Cairns
was
there
differentiating
a
mineral
from
an
agricultural
lease
in
that
the
agricultural
lessee,
while
entitled
to
either
a
corporeal
or
an
incorporeal
interest
in
the
lands.
The
words
of
Lord
Cairns
were
also
cited
in
Joggins
Coal
Company
Ltd.
v.
The
Minister
of
National
Revenue
(2),
but
the
decision
of
the
issue
there
arising
did
not
require
the
Court
to
determine
anything
more
with
respect
to
the
instrument
before
the
Court
than
that
the
appellant
had
such
an
interest
in
the
mineral
that
it
was
entitled
to
claim
a
share
in
depletion
allowance
as
a
"lessee"
within
the
meaning
of
the
Income
War
Tax
Act.
The
question
which
arose
in
McColl-Frontenac
Oil
Company
Ltd.
v.
Hamilton,
et
al.
(3),
was
whether
the
instrument
before
the
Court
was
"a
contract
for
the
sale
of
property
within
the
meaning
of
the
Alberta
Dower
Act.
Whether
the
agreement
was
one
for
the
sale
of
the
mineral
in
place
or
of
a
profit
à
prendre
was
immaterial.
In
either
case
the
Court
considered
the
language
of
the
statute
to
apply.
Following
this
comment
and
the
ratio
decidendi
quoted
above
by
counsel
for
the
respondent
(para.
4.03.3(2)),
I
arrive
at
the
conclusion
that
in
the
present
case,
the
lease
contract
did
not
transfer
to
Imperial
Oil
Ltd.
the
property
of
oil
and
gas.
In
as
much
as
the
oil
company
explores
and
drills
the
mineral
that
it
becomes
the
owner
and
pays
royalties.
If
the
oil
company
for
one
reason
or
another
decides
to
end
the
lease
contract
the
remaining
mineral
would
remain
in
the
hand
of
the
owner
of
the
land.
4.04.2
Another
of
the
appellants
arguments
is
that
in
the
total
context
of
the
resource
property
legislation,
the
legislator
of
the
income
tax
never
envisaged
to
tax
a
freeholder
(para.
4.03.2(4))
who
is
a
farmer
as
the
appellant
(4.03.2(2))
and
who
has
no
exploration
expense,
no
development
expense.
In
that
respect,
the
legislator
only
speaks
of
a
property
owned
on
December
31,
1971
by
a
taxpayer
and
disposed
of
after
the
said
propertybeing
“rental
or
royalty”
from
oil
and
gas
or
"any
right
to
or
interest
in
any
property
being
oil
and
gas
(59(3.1),
66(15)(c)(iv-vii)).
The
legislator
does
not
say
that
the
law
applies
only
to
the
oil
producers
as
oil
companies.
It
seems
to
the
Court
that
the
legislator
envisages
to
tax
any
owner
of
a
property
described
above.
4.04.3
Another
argument
of
the
appellant
is
that
there
would
be
double
taxation:
one
pursuant
to
paragraph
12(1)(g)
at
the
time
of
the
reception
of
the
royalties,
and
the
other
pursuant
to
subsection
59(3.1)
at
the
time
of
the
disposition
of
the
property
(4.03.2(5)).
In
fact,
they
are
two
different
things.
By
analogy
with
an
apartment
owner,
the
latter
is
taxed
when
he
receives
the
rents.
When
he
sells
the
building
he
is
likewise
taxed
on
the
sale
of
the
building.
The
tax
on
the
income
of
a
property
and
the
tax
on
the
disposition
of
the
property
are
two
different
taxes
not
calculated
in
the
same
manner.
4.04.4
The
appellant's
last
allegation
is
that
the
involuntary
unitization
gave
away
control
of
the
mineral
rights.
The
resource
property
became
simply
a
right
to
receive
money
(para.
4.03.2(6)).
In
my
view,
the
fact
that
the
moneys
are
received
through
the
unitization
or
through
the
pooling
does
not
change
the
nature
of
the
royalties
and
therefore,
cannot
change
the
taxation
of
the
capital
gain
resulting
from
the
disposition.
4.04.5
Fundamentally,
I
agree
with
the
respondent's
submission.
4.04.6
The
parties
did
not
adduce
evidence
concerning
the
fair
market
value
of
the
property
at
the
time
of
the
disposition.
Such
evidence
shall
be
heard
subsequently.
5.
Conclusion
For
the
above
reasons,
the
appeal
is
dismissed.
Appeal
dismissed.
Email this Content