Geophysical Engineering Limited v. Minister of National Revenue, [1974] CTC 867, 74 DTC 6650

Thurlow, J (concurred in by MacKay, DJ) (judgment delivered from the Bench):—The issue in this appeal is whether Keevil Consultants Limited, one of three companies later amalgamated to form the appellant, was entitled to exemption under section 83 of the Income Tax Act in respect of profit realized in 1963 and 1965 upon the sale of certain shares of Silverfields Mining Corporation Limited which, as one of the members of a syndicate, it had acquired in 1962 in the course of the events described in the reasons of the learned trial judge. Both he and the learned member of the Tax Appeal Board who dealt with the earlier appeal to that Board held that the taxpayer was not entitled to the exemption claimed.

For the purposes of section 83 the term “prospector” was defined by paragraph 83(1)(c) as meaning:

an individual who prospects or explores for minerals or develops a property for minerals on behalf of himself, on behalf of himself and others or as an employee.

The exemption is claimed under subsection 83(3) which read as follows:

83. (3) An amount that would ‘otherwise be included in computing. the income for a taxation year of a person who has, either under an arrangement with the prospector made before the prospecting, exploration or development work or as employer of the prospector, advanced money for, or paid part or all of, the expenses of prospecting or exploring for minerals or of developing a property for minerals, shall not be included in computing his income for the year if it is the consideration for

(a) an interest in a mining property acquired under the arrangement under which he made the advance or paid the expenses, or, if the prospector was his. employee, acquired by him through the employee’s efforts, or

(b) shares of the capital stock of, a corporation received by him in consideration for property described in paragraph (a) that he has disposed of to the corporation,

unless it is an amount received by him in the year as or on account of a rent, royalty or similar payment.

Assuming that the part played by Mr Frantz in examining maps and reports and going over the Fabre Township property is to be regarded as prospecting within the meaning of this subsection, and there is no dispute on this point, in my opinion, Frantz was not, at any material time, a person who. prospected or explored for minerals “on behalf of himself” within the meaning of the definition of prospector, either in the sense that what he did was done for the purpose of acquiring an interest for himself in minerals or in the somewhat wider sense in which that part of the definition was interpreted in David J Foster v MNR, [1971] CTC 335; 71 DTC. 5207. In that case, Jackett, P (as he then was) considered the expression broad enough to include someone who was in the business of prospecting for a fee or remuneration.

Frantz was not such a person. He was not engaged in any such business. He made no contract with the syndicate to carry out prospecting services. He engaged in no venture of his own and was entitled to nothing but his regular salary for what he did. What he did was done as an employee rather than as a contractor.

Was he then at the material times an employee of the syndicate or, conversely, as the question is posed by subsection 83(3), was the syndicate at the material times his employer?

I think not. Keevil Mining Group Limited (hereafter KMG) was his regular employer throughout the period. That company paid him his salary. It charged Geophysical Engineering and Surveys Limited, and through it the syndicate, for the time Frantz spent on the project. The syndicate paid him nothing. The prospecting that was carried out was done because his employer, KMG, through Dr Keevil, had bidden him to do it. No witness testified that there had been any express agreement to transfer Frantz’s employment to the syndicate for the particular project and in my opinion the evidence does not warrant the implication of such an agreement.

The appeal therefore fails and I would dismiss it with costs.

Urie, J (concurred in by MacKay, DJ) (judgment delivered from the Bench):—I agree with the conclusions and reasons therefor of my brother Mr Justice Thurlow, and wish only to add a few observations of my own. He has stated the issues with precision so that I need not restate them. Moreover, the learned trial judge thoroughly reviewed the evidence in his reasons for judgment so that it will be unnecessary for me to deal therewith any further except to the extent necessary to show the factual basis for my conclusions.

To establish its entitlement to the exemption provided by subsection 83(3) of the Income Tax Act as it read in the year 1965, the appellant must first show that the prospector with whom it was associated falls within the definition of that word contained in: paragraph 83(1)(c) which then read as follows:

83. (1) In this section,

(c) “prospector” means an individual who prospects or explores for minerals or develops a property for minerals on behalf of himself, on behalf of himself and others or as an employee.

It will be seen that an individual to qualify as a prospector must be one who prospects or explores for minerals “on behalf of himself, on behalf of himself and others or as an employee.” Assuming without deciding that what Joseph Frantz, the alleged prospector, did in this case was prospecting, a review of the record shows conclusively, in my view, that he did not do so either on his own behalf or on his own behalf and others. Any prospecting which he had previously done during the course of his employment with the appellant and its predecessor was on its behalf, as its employee, and never in any way on his own behalf. In that respect his situation differed from that of the prospector Tilsley in the case of David T Winchell v MNR, [1974] CTC 177; 74 DTC 6152, affirmed by this Court in an as yet unreported decision rendered in October of this year.* [1] In that case Mr Tilsley was found to be a prospector within the meaning of paragraph 83(1 )(c) since part of the conditions of his employment was that he could prospect on his own account and, in fact, had done so on several occasions. Notwithstanding this finding, he was found on the occasion in question not to be prospecting for the appellant Winchell. For this and other reasons the appeal was dismissed. No evidence of a similar nature was adduced in this case in respect of Mr Frantz’ right to prospect nor that in respect of any prospecting in the Township of Fabre in the Province of Quebec, he was prospecting on his own behalf or on his own behalf and for others. In fact all evidence was to the contrary in that it clearly showed that at no time had he any personal beneficial interest in any of the claims at issue. The learned trial judge was correct, therefore, in my view, in concluding that on the whole of the evidence it was apparent that Mr Frantz was not acting as an independent prospector, either for himself or for himself and others, in respect of the Fabre Township claim within the meaning of paragraph 83(1)(c) even on the somewhat extended interpretation given that paragraph by Jackett, P, as he then was, in the case of David J Foster v MNR, [1971] CTC 335; 71 DTC 5207. Chief Justice Jackett there was of the opinion that the definition could include a prospector whose sole occupation is prospecting for minerals as an independent prospector for others. Obviously Mr Frantz was not such an independent prospector since he was the full-time employee of Keevil Mining Group Limited (hereinafter called “KMG”) and there was no evidence that at any material time he was entitled to provide prospecting services for others in a capacity independent of his regular employment.

To succeed, therefore, the appellant had to establish that Mr Frantz was exploring and prospecting the mining claims at issue as an employee of the syndicate of which the appellant was a member and not during the course of his regular employment with KMG. He had also to show,-if he established such employment, that the syndicate advanced money for or paid part or all of the expenses of prospecting or exploring. It was to this issue that counsel for the appellant directed most of his argument and it is, I believe, the sole issue in this appeal.

In his submission appellant’s counsel sought to avoid any implication which might have arisen by reason of Mr Frantz’ continued employment by KMG by analogy to a line of cases in tort matters involving the transfer of an employee by his so-called general employer to a temporary employer for a limited purpose. In my opinion this argument fails to advance his case to any extent because, even if the validity of his contention is accepted, he must, by virtue of the requirements imposed by the Income Tax Act, show that Mr Frantz became an employee of the syndicate either permanently or temporarily and that the syndicate advanced money for prospecting expenses. In my opinion, he has failed to make out such a case.

The findings of the learned trial judge, which are amply supported by the evidence, and ought not to be disturbed by this Court, negate any possible conclusion that his employment was ever transferred to the syndicate by KMG, his regular employer. Evidence confirming that such a transfer occurred, if it did, could easily have been established by calling as a witness Dr Keevil Sr, the person from whom Mr Frantz normally took instructions during the course of his regular employment, but Dr Keevil did not testify. At page 16 [pp 525-6] of his reasons the learned trial judge makes these important findings:

On the contrary, it is abundantly clear that he was- at all times under the direction of Dr Keevil Senior and his business associates who had employed him for many years and this arrangement was by no means terminated or altered in connection with this specific project. He was not taken off the KMG pay roll but remained on it throughout the period. 1 cannot conclude, therefore, that he was an independent prospector, and, as I indicated previously, the fact that appellant paid its pro rata share to Geophysical of the cost of prospecting and staking the claims in question which cost included the salary of Mr Frantz during the period that he was prospecting does not make him an employee of appellant. He was and remained in the employ of KMG and the fact that appellant is one of a group of companies associated with KMG and for whom KMG renders accounting and other services does not make him an employee of appellant either.

From these findings it is quite apparent that the appellant’s contention fails. Its position is not assisted, in my view, by its counsel’s frequent reference during the course of argument to evidence that at all material times both the syndicate’s solicitor and Mr Frantz were aware of the requirements of section 83 and intended to comply with them. To have any cogency this intention had to be shown to have been translated into reality. The trial judge’s findings obviated that possibility. No master and servant relationship based on a contract of service was established nor, as I have found above, was an arrangement made with Mr Frantz at any time as an independent prospector under a contract to provide services. The test to be applied in any given set of circumstances to determine the nature of the employment, as derived from modern decisions, is succinctly set forth in Market Investigations Limited v Minister of Social Security, [1969] 2 QB 173 at 184.

Accordingly, in my view, the appeal should be dismissed with costs.