Potash Corp. – Tax Court of Canada denies the deductibility of Saskatchewan potash tax “base payments” on the basis that they were not incurred to produce income

The taxpayer, which produced and sold potash from mines in Saskatchewan, was subject to both a profit tax and to the making of “base payments” under the Mineral Taxation Act, 1983 (Saskatchewan). In finding that the base payments made in its 1999 to 2002 taxation years did not satisfy the requirement under s. 18(1)(a) of having been incurred for the purpose of producing income from the taxpayer’s business, Owen J applied the principle that since an income tax is imposed on the profits generated by a business rather than being incurred to generate those profits, it cannot satisfy this purpose test. Although the base payments in fact were computed in substantial part based on potash sales made in the year, he indicated that such sales had been chosen “as a proxy for income to ensure that a minimum amount of tax would be collected in respect of such potash even if the producer did not have profits for the year.”

Owen J went on to find that deduction of the base payments was also denied for those taxation years by former s. 18(1)(m) – on the basis that this provision essentially denied deductibility of a tax that could "reasonably be regarded as being in relation to” mineral production, and on his view that the potash sales on which the base payment tax actually focused “related” to the antecedent production.

Neal Armstrong. Summaries of Potash Corporation of Saskatchewan Inc. v. The Queen, 2022 TCC 75 under s. 18(1)(a) – income-producing purpose and s. 18(1)(m).