Heald, J:
1 This action is an appeal from income tax assessments for the taxation years 1967 and 1968 of Opemiska Copper Mines (Quebec) Limited (hereinafter referred to as Opemiska). The plaintiff is a company continuing from the amalgamation under the Quebec Companies Act on December 16, 1971 of Opemiska, Lake Dufault Mines Limited and Falconbridge Mines Quebec Limited and having its head office at Montreal.
2 During the 1967 and 1968 taxation years Opemiska derived from mineral operations (copper) referred to by the plaintiff as “the Perry Mine” and by the defendant as the “Perry workings”, income in the amount of $5,837,145 and $6,632,886 respectively. Opemiska claimed exemption in respect of the said amounts and did not include them in computing its income for the said taxation years. The Minister of National Revenue disallowed Opemiska's claim for exemption in respect of the said amounts and treated them as being taxable income. Opemiska objected to the said amounts being treated as taxable income and thus the propriety of the Minister's action forms the subject matter of this appeal.
3 The above stated amounts are admitted by both parties as being correct and are not in issue. Opemiska claimed exemption for the 36-month period commencing on January 1, 1966 pursuant to the provisions of subsections 83(5) and (6) of the Income Tax Act, RSC 1952, c 148 as amended. Said provisions read as follows:
83. (5) Subject to prescribed conditions, there shall not be included in computing the income of a corporation income derived from the operation of a mine during the period of 36 months commencing with the day on which the mine came into production.
(6) In subsection (5),(a) “mine” does not include an oil well, gas well, brine well, sand pit, gravel pit, clay pit, shale pit or stone quarry (other than a deposit of oil shale or bituminous sand), but does include a well for the extraction of material from a sylvite deposit and all such wells, the material produced from which is sent to a single plant for processing, shall be deemed to be one mine; and
(b) “production” means production in reasonable commercial quantities.
4 The basis of the defendant's refusal to grant said exemption was that, in the view of the defendant, the Perry property could not be regarded as a new mine, separate from defendant's Springer mine (which had been granted a subsection 83(5) exemption from April 1, 1954), since, in defendant's opinion, the Perry property was merely an extension or part of the Springer mine. Thus, the sole issue in this appeal is whether the Perry “workings” is a new mine, ie, a mine separate and apart from plaintiff's Springer mine, so as to be entitled to claim the exemption contemplated under the provisions of subsections 83(5) and (6) of the Income Tax Act (supra), or whether they are merely an extension of plaintiff's Springer mine and, as such, not entitled to a separate exemption under said sections.
5 At trial, counsel for both parties agreed that plaintiff's appeal for the taxation year 1966 will be governed by the results of these appeals for 1967 and 1968 since the issues involved in all three appeals are identical.
6 The evidence at trial established that the Springer claims were staked by the prospector in 1929 and acquired by Opemiska's corporate predecessor (a federally incorporated company) in 1930. Minimal work was performed until 1935. Said claims are located some 300 miles due north of Montreal and some 200 miles north-east of Val-d'Or, Quebec. During the course of the exploratory work on the Springer showings in 1935, the Perry showing was discovered, approximately one-half mile to the east of the Springer showing but no work was performed thereon at that time. In 1937 Opemiska suspended work in the area due to low copper prices. In the winter of 1951–52 diamond drilling was begun on the Springer showings, construction of the mine commenced and production began in the Springer mine in late December of 1953. Opemiska applied for and obtained a subsection 83(5) exemption for the Springer mine effective April 1, 1954. A mill was also installed at the mine site, having an initial capacity of 300–400 tons per day which was increased in 1955 to 850 tons per day, and, in October of 1956, to 2,000 tons per day.
7 Mr Millenbach, the president and general manager of Opemiska at all relevant times, testified that the mill capacity was increased because of the very encouraging results being obtained from the Springer mine. The first Springer shaft being sunk (Springer No 1) was a 3-compartment shaft. It was decided to sink another 3-compartment shaft (Springer No 2) located near Springer No 1, said shaft to be used for the hoisting of the ore and waste material and for servicing the mine. Work on the Springer No 2 shaft began in the spring of 1957, it was collared in May of 1957, and was completed in July of 1958. Springer No 1 shaft was sunk to slightly below the 2,000 foot level while Springer No 2 shaft was sunk to the 2,400 foot level. In 1959 a coarse crusher for the primary crushing of ore was installed below the 2,000 foot level in Springer No 2. After the ore had been processed through said underground coarse crusher, it was transported via Springer No 2 shaft to the surface where it was processed through a second crusher, situated in the crusher house located near Springer No 2 shaft. From the crusher house the crushed ore was transported via a conveyor belt to the concentrator where it was dumped into a large bin and fed from said bin to four large ball mills where the flotation process also took place, the minerals being “floated off” and then loaded into railroad cars for transportation to the smelter at Noranda, Quebec where further treatment took place. The tailings were also stored for backfilling required in the mine.
8 Meanwhile, no work was performed on the Perry showings until the summer of 1955 when surface diamond drilling produced interesting results leading to Opemiska's decision in November of 1955 to sink a shaft at the site of the Perry showings to determine the shape, size and depth of the ore body. Mr Millenbach said that the nearby existence of the Springer showings were not a determining factor in the location of the Perry shaft. Construction of the Perry shaft began in the spring of 1956 and the shaft was collared by summer of 1956 and a surface mine plant had been constructed by that time. In October of 1956 the sinking of the shaft below the collar was commenced, and continued throughout 1957. By year end in 1957, the shaft had been sunk to a depth of approximately 1,900 feet. The Perry shaft was completed in February of 1958 to a depth of 2,000 feet. The shaft was comprised of 4 compartments: two production compartments for the hoisting of ore and waste, one compartment to house the cage used for transporting men and machinery, and the fourth compartment to provide a counter-balance for the cage and to house the airlines (a ventilation pipe 20″ in diameter for blowing in fresh air, and a compressed air line) and an electric power line.
9 Mr Millenbach said that the plan for the Perry shaft was to have 13 levels, using the same levels as existed in both Springer shafts (both of which were also to have 13 levels). He also said the original intention was to connect the Perry shaft with the Springer No 1 shaft at the 975 foot level for use as an escapeway and that the original intention was to hoist all ore and waste produced from the Perry showings up the Perry shaft. In June of 1958 the connection between the Perry shaft and the Springer No 1 shaft was completed at the 975 foot level.
10 Mr Millenbach also said that originally it was intended to transport the ore from the Perry shaft to the primary crusher on surface at the Springer mine. However, once it was decided to install an underground primary crusher in the Springer No 2 shaft just below the 2,000 foot level, the company decided to connect the Perry shaft with the Springer No 2 shaft at the 2,000 foot level so that the Perry ore could be transported to the Springer underground primary crusher. Thus, the 2,000 foot level connection was begun in February of 1958, from both the Springer No 2 end and the Perry end and was completed in December of 1958.
11 During the period from 1959 to 1965 work continued in the Perry ore zones from the Perry shaft. Lateral development of three upper levels took place with the objective of outlining and delineating the Perry ore zones. During this period it was established that the axis of the Perry ore body ran in a north-south direction dipping steeply to the east. The Springer ore zones ran nearly east-west with a dip to the north. The company concluded that it would not be practical to work the Perry ore zone from either of the Springer shafts since Springer No 1 was approximately 2,400 feet from the Perry shaft and Springer No 2 was approximately 2,000 feet from the Perry shaft. Furthermore, the Perry zones approached the surface and the early development work was performed from shallow depths and accordingly it was not practical to drive such long distances to explore shallow depths. Furthermore, as indicated above, at greater depths, the Perry ore body dipped sharply eastwards resulting in greater distances from the Springer shafts. During the development period of the Perry showings, the ore and waste materials were hoisted to the surface via the Perry shaft. During this development period, three small compressors for the production of compressed air for use underground were installed on the surface at the Perry shaft. However, in about 1961, a large compressor was installed at Springer No 2 and a surface line connected Springer No 2 with Perry. The witness, Mr Bryce, the assistant mines manager at all relevant times, estimated that during the period 1956 to December 1965 Perry supplied 75% of the compressed air used in the Perry shaft with the balance coming from the Springer compressor and that during the 1966 to 1968 period, the percentage would be changed to a 50-50 basis.
12 Additionally, upon completion of the connection at the 2,000 foot level, the air lines for ventilation between the Springer shafts and the Perry shaft were connected. During the sinking of the Perry shaft, air was forced down the shaft by the use of fans. However, after connection with the Springer mine, the Perry shaft shared its ventilation with all areas of the Springer mine. Exhibit 6 shows that all three shafts were serviced by one ventilation plant located in the vicinity of Springer No 1 and Springer No 2. The witness, Mr Bryce, agreed that at the 975 foot and 2,000 foot levels, additional air flowed from the Springer shafts into the Perry shaft because the Springer fan was a much more powerful fan than the Perry fan, producing in the order of 100,000 cubic feet per minute whereas the Perry fan produced only 50,000 cubic feet per minute.
13 Excess water such as seepage, occurring in the Perry shaft, was pumped from the 1,125 foot level to the surface through a discharge pipe in the Perry shaft. However, excess water below the 1,125 foot level would drain to the 2,000 foot level where it would flow alongside the track grade to Springer No 1 shaft from whence it would be pumped to the surface (since said grade sloped downward from the Perry shaft to Springer No 1). Thus, a substantial portion of the necessary water drainage from the Perry workings was accomplished via the Springer No 1 shaft.
14 After the 2,000 foot level connection was achieved, the Perry ore was transported by self-dumping cars pulled by a trolley to the crusher at Springer No 2 where it was crushed, dumped into loading buckets and hoisted up Springer No 2 shaft. The waste material from Perry was similarly hoisted up Springer No 2 shaft. Said haulage facilities were used for both Springer and Perry ore and waste. The evidence also establishes that an ore and waste pass system was completed at the Perry shaft in 1964.
15 The third connection between the Perry shaft and the Springer shafts was at the 275 foot level. The Perry workings required backfill for the stopes at the 275 foot level and normally used gravel or tailings from the mill for this purpose. The tailings, in the form of liquid slurry were moved under pressure of gravity to different places in the Perry workings through a hose or pipe from the Springer mill. This particular line did not serve any of the Springer workings although Mr Bryce conceded that a connection to the Springer workings could easily have been made and might have been necessary if the Perry backfill line had ever broken.
16 The witness, Mr Bryce, also described a warning system which is a standard stench gas warning by which, in the event of an emergency, such as a fire, for example, it was possible to inject Ethyl Mercaptan into the compressed air lines which would spread throughout all three shafts since the compressed air lines were interconnected. Because such an injection resulted in an unpleasant odour or “stench” underground, it served as a warning to all those working underground to proceed to the nearest station for evacuation. Mr Bryce said that the only point he could recall at which this substance could be introduced was at the Springer No 2 compressor station.
17 Mr Bryce also said that the work crews were to some extent interchangeable as between the Springer and Perry areas. He said that there were cases where crews were taken from one area to another area for specific purposes.
18 On the basis of the oral and documentary evidence adduced (which included the company's annual reports for the years 1935 to 1968 inclusive) I make the following findings of fact which are, in my view, germane to a determination of the issues in these proceedings:
19 1. The management of Opemiska clearly contemplated, at an early date, the possibility of developing the Springer area and the Perry area concurrently and were quite conscious of the potential of the Perry area.
20 2. The two areas were, generally speaking, developed at the same time. The Springer No 1 mine came into production in 1954. The decision to construct the Perry shaft was taken in 1955. The decision to sink the Springer No 2 shaft was taken in October of 1956. In 1957, all three shafts were being constructed simultaneously. About the end of 1957 the decision to connect the Perry shaft with Springer No 2 shaft at the 2,000 foot level was taken. In June of 1958 the 975 foot level connection was completed.
21 3. The Perry ore body was a separate ore body in relation to the Springer ore body but had similar characteristics. The geological structures of the ore veins in the two areas were quite similar. The same mill was used to process the ore from both areas with no adjustments being necessary. Ore came to the mill from both areas at the same time.
22 4. There were three important connections made between the Perry shaft and the Springer shafts:(a) The connection at the 975 foot level. As referred to earlier, the expressed intention and purpose of this connection was to provide an escapeway. However, it is clear from the evidence that after its completion in June of 1958, this connection served a number of other purposes: the use of compressed air; the use of air for ventilation; the use of the stench gas warning system.
(b) The connection at the 2,000 foot level. This connection served a number of important purposes. In addition to each and every one of the purposes referred to in (a) above (the 975 foot level connection), this connection provided the underground haulageway by which the Perry ore and waste was transported to the primary crusher located at Springer No 2 shaft. Furthermore, this connection served as a drainage outlet for excess water occurring in the Perry workings below the 1,125 foot level. It also served as an additional escapeway. The witness, Mr Bryce, said that it was very useful, from a safety point of view, to have many escapeways in a mine.
(c) The connection at the 275 foot level. As above stated, the main purpose of this connection was to provide backfill necessary in the Perry workings from the Springer workings. This is, in my view, a most necessary and important purpose since it is essential that the Perry stopes be filled in to prevent slides from occurring.
23 5. The work crews employed in the two areas were to some extent interchangeable.
24 6. Some, if not all of the above mentioned three connections were achieved by working from both the Springer end and the Perry end.
25 The two leading Supreme Court decisions having application to the situation here present are the cases of MNR v MacLean Mining Co Ltd, [1970] S.C.R. 877, [1970] C.T.C. 264, 70 D.T.C. 6199, and MNR v Bethlehem Copper Corporation Ltd, [1974] C.T.C. 707, 74 D.T.C. 6520. In the MacLean case (supra), the Court decided in favour of the Minister's position that the two mineral workings in question were not separate “mines” within the meaning of subsection 83(5) of the Act. In the Bethlehem case (supra), the Court found in favour of the taxpayer's contention that there were two separate “mines” both being entitled to the subsection 83(5) exemption.
26 Not unexpectedly, the facts in the case at bar differ from both of the above cases, and, in my view, occupy a middle ground between the MacLean facts and the Bethlehem facts.
27 In the MacLean case, the new orebody (MacLean) was discovered more than 1,000 feet from the old ore body and shaft serving same (Rothermere). The Rothermere shaft was deepened by some 800 feet and an exploratory heading from that shaft was driven some 2,300 feet underground towards the MacLean ore body. A shaft was then sunk for mining the MacLean ore body and an underground haulageway was built to carry the ore to another shaft close to the mill. The MacLean miners used the Rothermere shaft to reach their working places. Compressed air, sand, as well as fresh air came that way also. Underground water was carried out the same way. In delivering the judgment of the Court, Mr Justice Pigeon said, commencing at page 880 [266, 6200]:
In my view, the decisive consideration in favour of the Minister's decision is that the MacLean orebody was not developed as a separate mine. An essential step in the process was the deepening by some 800 feet of the Rothermere shaft and the driving from that shaft of an exploratory heading some 2,300 feet underground towards the MacLean orebody. The substantial expenditure involved in deepening the Rothermere shaft and carrying an exploratory heading over a considerable distance shows that the use of the Rothermere workings was of very substantial importance in that development.
Such use was also going to be of substantial importance in the actual working of the MacLean orebody. It appears that the miners as a rule reach their working places and return to the “dry” that way. Compressed air for operating their drills as well as sand for filling the mined-out stopes also comes that way as well as the fresh air for ventilation, the exhaust only being by the MacLean shaft. Furthermore, all the water that seeps into the MacLean workings is carried out that same way, being pumped first from the bottom to the tunnel that was built as the exploratory heading, flowing by gravity to the Rothermere shaft due to a slight grade that was thoughtfully provided and being finally pumped up the Rothermere shaft.
It may be that the MacLean orebody, being completely distinct from the others and separated from the nearest other, the Rothermere, by a substantial distance of over 1,000 feet, could have been developed and operated as a distinct mine. In my view, it is clear that this is not what happened in fact. This orebody was developed as an integral part of a mining operation including the Rothermere. Not only did its development proceed as an expansion of that underground operation towards the other orebody but it was not designed to be operated otherwise than as a unit with the Rothermere. Some essential facilities without which the MacLean orebody cannot be worked at all are provided by the Rothermere workings, such as ventilation. On this account, with respect, Thurlow J was in error in saying: “all the elements necessary for a distinct mine appear to me to be present”.
There is also the fact that ore is not carried to the surface until it reaches the Lucky Strike shaft at the end of an underground haulage way and is then treated in a common mill after being mixed with the ore from the other pits. However, these factors may not be decisive. Mining itself is complete by the production and hoisting of the ore and one can well conceive of a single mill serving several mines. The building of an underground haulage way rather than a surface road or railway as a means of transporting the ore from a mine to a common mill may possibly make no difference. Those questions are therefore left open.
What I find decisive against the view that the MacLean workings are a separate mine is the fact that those workings were developed from the Rothermere workings which were substantially altered for the purpose of developing the MacLean orebody and of exploiting it for producing ore. Some 800 feet of the Rothermere shaft and the whole of the exploratory heading were dug for that sole purpose. Those parts of the Rothermere workings are really integral parts of the MacLean workings without which the latter could not be operated and would not be producing ore.
In order to reach a different conclusion, one would have to interpret the word “mine” in s 83(5) as meaning “a portion of the earth containing mineral deposits”. This is not the usual meaning, the usual expression in that sense being “orebody”. It is well known that mines often, if not generally, include several orebodies. Parliament cannot possibly have intended that a mining concern would get the benefit of the three-year exemption whenever a new orebody was being mined. This is an exception and it must be strictly construed. ...
28 In the case at bar, many of the determining factors mentioned by Pigeon, J in the MacLean judgment are also present. However, not all of the circumstances relied on in that decision are present in this case. Here we do not have the deepening of the existing shaft and the driving of an exploratory heading towards the new ore body from the existing shaft. There was evidence in the case at bar that because the Springer ore zones ran in an easterly direction towards the Perry shaft, the further exploration of the Springer ore body resulted in the Springer excavations being closer to the Perry shaft than to the Springer shafts. However, in this regard, I accept the evidence of Messrs Millenbach and Bryce to the effect that the Springer ore bodies were not explored from the Perry shaft nor were the Perry ore bodies explored from the Springer workings. However, notwithstanding this factual difference, I have concluded that the Perry ore body was developed as an integral part of the plaintiff's mining operation, including the Springer workings. The Perry workings “was not designed to be operated otherwise than as a unit” with Springer. As in the MacLean case, many essential facilities without which the Perry ore body could not be worked at all are provided by the Springer workings.
29 I have earlier referred in detail to these essential common facilities but I summarize them here again for emphasis:(a) escapeways,
(b) compressed air,
(c) air for ventilation,
(d) stench gas warning system,
(e) underground haulageways enabling the Perry ore and waste to to be hoisted to the surface via the Springer shaft,
(f) drainage outlet for excess water below 1,125 foot level,
(g) provision of backfill,
(h) interchangeability of work crews, and
(i) use of both the Perry shaft and the Springer shaft for making the connections between the two workings.
30 Similarly, the drainage outlet for excess water has to be considered as a necessary and integral part of any mining operation.
31 I turn now to a consideration of the Bethlehem case as it may apply to the facts in this case. As indicated earlier, the Bethlehem facts are quite different from the facts in the case at bar. In Bethlehem, while the ore bodies were close together, they were not physically connected as they are here by the connections between the shafts at three different levels. Again, in Bethlehem, the operation of extracting ore from one was physically quite independent of the extraction operation at the other. In the case at bar, the situation is quite different because various extraction facilities of Springer are used in the extraction operations of Perry as detailed supra.
32 In the Bethlehem decision, Mr Justice Martland provided a concise definition of “mine” within the meaning of subsection 83(5) at pages 714–15 [6525] of the judgment. That portion of his judgment reads as follows:
In my opinion there is “a mine” within the meaning of subsection 83(5) if there is a body of ore together with the workings, equipment and machinery capable of producing it. The Jersey was not a mine merely because of the existence of a body of ore separate from the East Jersey ore body. It would not have become a separate mine if the Jersey ore had been extracted as a result of the further development of the East Jersey mine. But it became a mine when its separate body of ore commenced to be extracted by means of its separate and distinct extraction facilities.
33 Applying that definition to the facts in this case, I have concluded that the Perry workings do not meet the tests therein set out in that the separate facilities of Perry were not capable of operating as a mine and Perry did not in fact commence to extract ore by means of its separate and distinct extraction facilities. It commenced to extract ore using some of its own extraction facilities together with a great many of Springer's extraction facilities.
34 For all of the foregoing reasons, I have concluded that the Minister was correct in disallowing Opemiska's claim for exemption under subsection 83(5) in respect of the Perry workings. The plaintiff's appeal is accordingly dismissed with costs.
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