Attorney-General for Manitoba v. San Antonio Gold Mines Limited, [1951] CTC 81

MCPHERSON, C.J.M.: This is an appeal from the judgment of Williams, C.J.K.B., on October 10, 1950, in favour of the respondent, which had sued for a declaration that certain moneys paid to it by the government of Canada, under The Emergency Gold Mining Assistance Act, 1948, ch. 15 (Dom.), should be declared non-taxable as income derived from the operation of its mine under The Mining Royalty and Tax Act, 1948, ch. 52 (Man.). The learned chief justice held that such payments were not part of the taxable income of the respondent company.

The action was tried on a stated case. There is no dispute between the parties as to the facts and the sole question to be decided is whether the sums received by the respondent are taxable as income under the provincial statute.

The learned trial judge in his considered judgment refers to the sections of the Manitoba Act applicable to the action, and it is unnecessary for me to repeat these in detail. I agree with his findings but am of the opinion there are still further reasons why the moneys referred to should not be taxable.

It is necessary to consider why The Emergency Gold Mining Assistance Act was passed. Counsel for the appellant argues that these payments are revenue—income derived from the operation of the gold mine—and bases his argument on the manner in which the amounts are computed. Prior to and at the time of the passing of the Dominion Act, all gold mined in Canada had to be sold to the government at a fixed price. The reason for this was to stabilize the world market for gold. The Act does not provide for a bonus or subsidy of all gold produced in Canada. By sec. 2, subsec. (2) (a), ‘‘a mine shall not be deemed to be a gold mine during any designated year in which the gold produced from the mine is less than seventy per centum of the value of the output of the mine.’’ The effect of this exemption was that base metal mines operating in Canada, which also produced gold but not to the extent of 70 per cent of their total output, were not entitled to receive assistance under the Act, as they had, in addition to the gold produced—no matter how low the percentage—means of obtaining an income out of base metal production and therefore did not require financial assistance to continue in production. On the other hand, the government recognized that, due to the freezing of the price of gold and to existing conditions (including increased cost of wages and supplies), mines depending on the production of gold alone required additional assistance in order to remain in operation.

The point raised is an entirely new one and the cases cited, while not entirely relied upon by the appellant, were submitted in support of his contention that the payments made were income. I do not think the cases referred to are of much

assistance. St. John Dry Dock and Shipbuilding Co. v. Minister of National Revenue, [1944] Ex. C.R. 186, [1944] C.T.C. 106.. was a case where expenditures of large sums of capital by the company were repaid by the government in accordance with an agreement entered into, and these were held not to be trade, business receipts, or revenue. In Wilson v. Minister of National Revenue, [1938] Ex. C.R. 246, [1938-39] C.T.C. 161, one of the points involved was the question of whether the premium paid in American funds on dividends should be included for taxation purposes, and it was held that they should be so included. In Lincolnshire Sugar Co. Ltd. v. Smart, [1937] A.C. 697, 106 L.J.K.B. 185 (H.L.) the payments made were held to be trading receipts and liable to income tax. But it must be pointed out that under the British Sugar Industry (Assistance) Act, 1931, ch. 35, the assistance offered was available to all manufacturers of sugar from home-grown beets and no discrimination was made between manufacturers so long as their product was obtained from beets grown in the British Isles.

In all the foregoing cases the statutes and the conditions were different; but I am of the opinion that Seaham Harbour Dock Co. v. Crook (1930), 16 Tax Cas. 333, 47 T.L.R. 23, is almost on all fours with the present action. In that case the company was contemplating an extension of its docks and, in order to encourage the work and to that extent to lessen unemployment, it received grants from the unemployment grants cOmmittee on the basis of a percentage of its expenditures. These payments when made were assessed for income tax as being part of the company’s annual profits and gains. The company appealed the decision of the taxation commissioner to the Court of King’s Bench, where the decision was affirmed by Rowlatt, J. It was then carried to the Court of Appeal (Lord Hanworth, M.R., Slesser and Romer, L.JJ.) which delivered a unanimous judgment reversing the decision of the court below. The crown then appealed the decision of the appellate court and the case came before the House of Lords, where the decision of the appellate court was unanimously upheld. The remarks of some of the members of the Court of Appeal and of the House of Lords clearly set forth the reasons for arriving at their decisions. Lord Buckmaster, in reply to the question, ‘Was this a trade receipt,’’ said, at p. 353:

u No. It appears to me that it was nothing whatever of the kind. It was a grant which was made by a government department with the idea that by its use men might be kept in employment, and it was paid to and received by the Dock Company without any special allocation to any particular part of their property, either capital or revenue, and was simply to enable them to carry out the work upon which they were engaged, with the idea that by so doing people might be employed. I find myself quite unable to see that it was a trade receipt, or that it bore any resemblance to a trade receipt. It appears to me to have been simply a grant made by the Government for the purposes which I have mentioned, and in those circumstances cannot be included in revenue for the purposes of tax.’’

Lord Atkin also held that it was not taxable, and said (also at p. 353) :

"It appears to me that when these sums were granted and when they were received, they were received by the appropriate body not as part of their profits or gains or as a sum which went to make up the profits or gains of their trade. It is a receipt which is given for the express purpose which is named, and it has nothing to do with their trade in the sense in which you are considering the profits or gains of the trade. It appears to me, with respect, to be quite irrelevant whether the money, when received, is applied for capital purposes or is applied for revenue purposes; in neither case is the money properly said to be brought into a computation of the profits or gains of the trade.”

The other members of the court concurred in their decisions.

I am of the opinion that, as assistance was not given by way of subsidy for all or any gold produced in Canada, it was not additional revenue but a payment made entirely for the purpose of keeping certain mines in operation; that, in ascertaining the amount of financial assistance to which each mining company was entitled, the most equitable method was to base it upon the quantity of gold extracted and the cost of production, using a formula for arriving at the amount of assistance to be given in preference to paying a fixed sum.

Il would dismiss the appeal with costs.

SOYNE, J.A.: I concur.

There is a question of the Dominion-Provincial Agreement, which agreement, approved and confirmed by the provincial Act of 1947, ch. 56, permits the province a limited field of taxation. In my opinion examination of this as a means of testing the intention of the Act here in question supports the view taken by this court.

As this is not a tax on all residents of the province nor on all companies, and the Act now in question in this case is not a general income tax Act, in which case other factors enter, it may be that the province has not constitutional power to pass this Act so far as it affects the plaintiff in this case. But not having been argued before us, I do not pass an opinion now.

Dysart, J.A.: A specified part of the respondent’s ""income” is subject to taxation by Manitoba under The Mining Royalty and Tax Act, 1948, ch. 52 (Man.). The company receives financial "‘assistance’’ from the Dominion under The Emergency Gold Mining Assistance Act, 1948, ch. 15 (Dom.). The question for decision here is whether the " " assistance ‘ ‘ payments are included in the taxable ‘‘income.’’

It will be convenient to determine the nature and scope of the "‘assistance’’ moneys before we determine what part of the “income” is taxable. The Dominion Act is entitled ‘‘An Act respecting Emergency Payments to assist in meeting increased Cost of Production of Gold.’’ The amounts of such assistance payments are determined by a ‘‘rate of assistance’’ formula devised “with respect to gold that is produced” and is sold or, if not sold, is valuated (sees. 2 and 3). These provisions contemplate that the production of the gold shall precede the payment of the ‘‘assistance.’’ They aim to assist in meeting cost already incurred by the production—to aid in overcoming operational deficits. But, because the payments are certainly not made for application on the capital of the respondent, they must be applicable to income—they must be the one or the other ; and therefore so appellant argues, if they are income in the hands of the respondent, they are so connected with or ‘‘derived from the operation of’’ the mine that they are taxable income.

The provisions of the provincial Act may now be examined. And, because that Act is a taxing Act, the tax is not to be extended beyond the limits clearly and explicity declared.

In following through to their conclusion the various provisions touching the imposition of the tax, I italicize the key words for readier reference.

The tax is imposed ‘‘on the income derived from the operation of the mine’’ (sec. 7 [1] ) ; "‘income’’ means the ‘‘net profit derived * * * from mining operations * * * ”’ (sec. 2 [1] [f]); "‘net profit” means 1 ‘the profit earned in a calendar year * * * ” (sec. 2 [1] [q] ascertained by determining ‘‘the amount of the gross revenue from the output of the mine’’ from which is to be deducted ‘‘the expenses, payments, and allowances, essential to the production of the output of the mine * * * and no other deductions’’ (see. 3 [1]). ‘‘Output’’ means ‘‘the minerals taken or gained from a mine * * * and the mineral products derived from the processing of those minerals’’ (sec. 2 [1] [s]).

These provisions show that the taxable ‘‘income’’ described in sec. 7 (1) as “derived from the operation of the mine’’ narrows down in the end to mean the ‘‘income or net profits derived from the output of minerals,’’ 1.e., of gold. The broad general term gives way to the narrow specific term. There may be ‘‘derived from the operation of the mine’’ some income which is not derived from the production of gold, but such income is beyond the reach of the tax. Such untaxable income includes, I think, the receipt of " " assistance ‘ ‘ moneys.

That view is in harmony with the full title of the provincial Act: “An Act to Impose a Royalty Tax in respect of Minerals and Mineral Products and a Tax on Mining Claims.” The province, aS owner of minerals in its territory, has the right to impose terms and conditions on the removal of its minerals by mining. That does not necessarily mean that the tax may be imposed on all the income derived from all the operations or benefits of the company. The designation of the tax as a “royalty” indicates that it is based upon the value of the mineral output, and the taxing provisions limit it to gold.

Confining myself, as I do, to the interpretation of these statutes, I reach the conclusion that the ‘‘assistance’’ moneys are not within the reach of the tax. It is therefore unnecessary to discuss cases upon similar or somewhat similar statutes.

I agree with the Chief Justice and would dismiss the appeal.

Appeal dismissed.