D
E
Taylor:—This
is
an
appeal
heard
in
Toronto,
Ontario,
on
September
25,
1980,
against
an
income
tax
assessment
for
1969
in
which
the
Minister
of
National
Revenue
added
an
amount
of
$63,110.56
to
the
reported
income
of
the
appellant.
In
assessing
the
appellant,
the
respondent
relied,
inter
alia,
upon
sections
3,
4,
subsections
56(2)
and
83(5)
of
the
Income
Tax
Act,
RSC
1952,
c
148
as
amended.
Contentions
For
the
appellant:
(A)
Statement
of
Facts
1.
The
taxpayer
is
a
company
incorporated
under
the
laws
of
the
Province
of
Ontario
by
letters
patent
dated
January
31,
1966
and
at
all
relevant
time
was
engaged
in
the
business
of
mining.
2.
By
agreement
dated
July
4,1968
the
taxpayer
carried
out
a
mining
programme
on
Kidd
Cooper
Mines
Limited’s
mining
property
on
the
north
shore
of
Agnew
Lake
near
Sudbury
in
Ontario.
3.
The
Deputy
Minister
of
National
Revenue
has
issued
a
re-assessment
for
the
1969
taxation
year
assessing
the
taxpayer
for
fees
of
$63,110.56
received
from
Kidd
Copper
Mines
Limited.
(B)
Reasons
for
Objection
1.
In
the
agreement
between
Kidd
Copper
Mines
Limited
and
Barlock
Limited
it
was
expressly
understood
by
the
two
parties
to
the
agreement
that
unless
the
project
was
profitable
no
profit
was
to
be
made
by
either
party
to
the
agreement.
2.
In
the
alternative
if
it
is
held
that
the
taxpayer’s
claim
herein
is
invalid
then
the
income
of
$63,110.56
assessed
by
the
Deputy
Minister
of
National
Revenue
is
not
taxable
by
virtue
of
it
being
income
exempt
under
the
Provisions
of
subsection
83(5)
of
the
Income
Tax
Act.
3.
The
Minister
has
improperly
included
in
the
calculation
of
profit
the
gain
on
the
sale
of
securities
which
should
be
properly
classified
as
capital
gain
not
subject
to
tax
at
the
time
in
question.
4.
The
revised
profit
for
the
1969
taxation
year
is
therefore
$42,020.19
which
is
reduced
to
NIL
taxable
income
by
the
application
of
the
1967
and
1968
losses
brought
forward
of
$9,412.40
and
$38,221.23
respectively;
paragraph
27(1)(e)of
the
Income
Tax
Act
refers.
5.
It
has
no
taxable
income
in
1969
and
accordingly
subsection
56(2)
of
the
Income
Tax
Act
is
therefore
not
applicable.
6.
In
addition
if
it
is
found
that
the
taxpayer
has
a
taxable
income
for
the
year
in
question
additional
capital
cost
allowances
and
other
writeoffs
are
available
to
the
taxpayer
for
the
purposes
of
reducing
the
said
taxable
income.
7.
The
taxpayer
has
received
assessments
for
the
years
1968,1969,
and
1970
from
the
Workmen’s
Compensation
Board
which
have
not
been
included
in
calculation
of
tax
payable
in
1969.
For
the
respondent:
—The
appellant
realized
income
in
the
year
in
the
amount
of
$89,549.63
from
the
sale
of
securities;
—
By
a
memorandum
of
agreement
(Agreement)
dated
January
28,
1969,
the
appellant
agreed
with
Kidd
Copper
Mines
Limited
(Kidd)
and
Sand
Bay
Investments
Limited
(Sand
Bay)
to
carry
out
certain
operations
with
respect
to
a
project
known
as
the
Spanish
River
Mine
(Spanish
River);
—
Pursuant
to
the
agreement,
Kidd
agreed
to
pay
the
appellant
its
operating
costs
plus
equipment
rentals
plus
10%
for
overhead
profit;
—The
appellant
earned
an
overhead
profit
in
the
amount
of
$63,110.56
in
its
1969
taxation
year
pursuant
to
the
said
memorandum
of
agreement;
—The
said
profit
was
not
earned
by
the
appellant
in
connection
with
the
operation
of
a
mine;
—The
said
profit
was
not
earned
by
the
appellant
during
a
period
of
exemption
under
subsubsection
83(5)
of
the
pre-1972
Income
Tax
Act’,
—The
appellant
has
knowingly
or
under
circumstances
amounting
to
gross
negligence
made
an
omission
in
a
return
as
a
result
of
which
the
tax
that
would
have
been
payable
by
it
for
a
taxation
year,
if
the
tax
had
been
assessed
on
the
basis
of
the
information
provided
in
the
return,
is
less
than
the
tax
payable
by
it
for
the
year.
Evidence
Counsel
for
the
appellant
presented
no
evidence,
asked
virtually
no
questions
in
cross-examining
the
respondent’s
witnesses,
and
gave
no
argument.
Counsel
for
the
Minister
presented
three
witnesses
who
documented
the
relationship
as
they
understood
it
between
Kidd
and
the
appellant.
The
records
showed
that
both
were
controlled
during
the
relevant
years
by
a
Mr
Pat
Sheridan
of
Sheridan
Geophysics
Limited.
The
records
of
Kidd
showed
that
the
amount
in
question
($63,110.56)
had
been
charged
by
Kidd
as
an
expense
whereas
no
corresponding
income
entry
could
be
traced
in
the
records
of
the
appellant.
The
Minister’s
investigation
had
included
an
actual
visit
to
Spanish
Mine
by
one
of
the
Revenue
Canada
officers
in
order
to
check
the
relevant
invoices
on
the
spot.
Certain
documentation
was
filed
in
support
of
the
respondent’s
assertion
that
every
reasonable
effort
had
been
made
by
the
Minister
to
ascertain
the
validity
of
the
assertions
made
by
the
appellant
in
the
notice
of
appeal,
but
they
had
proved
unfounded.
Findings
The
Minister
has
discharged
any
reasonable
responsibility
to
place
the
facts
regarding
both
the
assessment
of
tax
itself
and
the
penalty
assessment
before
the
Board.
Everything
available
to
the
Board
confirms
the
Minister’s
position
and
nothing
has
been
provided
to
refute
it.
Decision
The
appeal
is
dismissed.
Appeal
dismissed.
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