Date: 20010424
Docket: 98-1052-IT-G
BETWEEN:
AINSWORTH LUMBER CO. LTD.,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasons for Judgment
Bell, J.T.C.C.
[1]
This appeal is in respect of the Appellant's 1993 taxation
year.
ISSUES:
[2]
1.
Was the Appellant required to deduct investment tax credits
("ITC's")[1] it may have had arising out of expenditures incurred
in its 1993 taxation year ("1993 ITC's") from tax
otherwise payable before deducting ITC's arising in a
subsequent taxation year?[2]
2.
Were the expenditures of $123,937,347, or any part thereof, by
the Appellant in its 1995 taxation year, in respect of a wood
processing plant,[3] expenditures for "certified property"[4] thereby giving
rise to ITC's ("1995 ITC's")?
[3]
The Respondent says, with respect to the first issue that the
Appellant:
(a)
has 1993 ITC's; and
(b)
is required to deduct them for its 1993 taxation year before
deducting any carried back 1995 ITC's.
[4]
The Respondent says further that this Court is, therefore, not
entitled to make a determination of the second issue because:
(a)
1993 ITC's, which exceed the amount of tax otherwise payable
for the 1993 taxation year, must be deducted before deducting the
carried back 1995 ITC's, and
(b)
the 1995 taxation year, not having been appealed, the second
issue is not before the Court.
[5]
The Appellant says, with respect to the first issue, that it is
not required to "order" the deduction of its 1993
ITC's, if any, from tax otherwise payable for its 1993
taxation year before deducting 1995 ITC's. It also says that
the amount deducted for the 1993 taxation year cannot be
categorized as 1993 ITC's unless so elected by the
Appellant.
[6]
The Appellant says further that this Court is entitled to
determine the second issue because:
(a) the Appellant can specify which ITC's it is deducting,
and
(b) the Court must, therefore, determine the amount of 1995
ITC's.
[7]
In order to resolve the first issue respecting the ordering of
ITC deductions, subsection 127(5) must be interpreted. If
ordering is required then the Court must decide whether the
Appellant has any 1993 ITC's. That subsection reads, in part,
as follows:
127(5) There may be deducted from the
tax otherwise payable by a taxpayer under this Part for a
taxation year an amount not exceeding the least of
(a)
the taxpayer's annual investment tax credit limit for
the year,
(b)
the total of
(i)
the
taxpayer's investment tax credit at the end of the
year in respect of property acquired, or an expenditure made,
before the end of the year, and
(ii)
the lesser of
(A) the
taxpayer's investment tax credit at the end of the
year in respect of property acquired, or an expenditure made, in
a subsequent taxation year, to the extent that the investment tax
credit was not deductible under this subsection or subsection
180.1(1.2) for the taxation year in which the property was
acquired, or the expenditure was made, as the case may be,
and
the amount, if any, by which the taxpayer's tax otherwise
payable by the taxpayer under this Part for the year exceeds the
amount, if any, determined under subparagraph (i), and
...
(emphasis added)
[8]
"annual investment tax credit limit" is defined
in subsection 127(9), the pertinent portion being:
"annual investment tax credit limit" of a taxpayer
for a taxation year means
(a)
in the case of a corporation, the aggregate of
(i) ¾ of the corporation's tax otherwise payable under
this Part for the year, and
...
[9]
"investment tax credit" is defined in subsection
127(9), the pertinent portion being:
"investment tax credit" of a taxpayer at the end of
a taxation year means the amount, if any, by which the aggregate
of
(a)
the aggregate of all amounts each of which is the specified
percentage of
(i)
the capital cost to him of a qualified property, qualified
transportation equipment, qualified construction equipment,
approved project property or certified property acquired
by him in the year,
(ii)
a qualified expenditure made by him in the year,
...
(c)
the aggregate of all amounts each of which is
...
(ii)
an amount determined under paragraph (a) ... in respect of the
taxpayer for any of the 10 taxation years immediately preceding
or the 3 taxation years immediately following the year, where the
property was acquired, or the qualified expenditure was made,
after April 19, 1983 or the qualified Canadian exploration
expenditure was for a taxation year ending after November 30,
1985,
...
exceeds the aggregate of
(f)
the aggregate of all amounts each of which is an amount deducted
under subsection (5) from the tax otherwise payable under this
Part by the taxpayer for a preceding taxation year in respect
of
...
(ii)
property acquired, or an expenditure made, in the year or in any
of the 10 taxation years immediately preceding or the 2 taxation
years immediately following the year, where the property was
acquired, or the expenditure was made, after April 19, 1983,
(emphasis added)
[10]
"certified property" is defined in subsection
127(9), the pertinent portion being:
"certified property" of a taxpayer means any
property (other than an approved project property) described in
paragraph (a) or (b) of the definition "qualified
property" in this subsection
(a)
that was acquired by the taxpayer
...
(iv)
after 1994 and before 1996 where
(A) the
property is acquired by the taxpayer for use in a project that
was substantially advanced by or on behalf of the taxpayer, as
evidenced in writing, before February 22, 1994, and
(B)
construction of the project by or on behalf of the taxpayer
begins before 1995, or
(v)
after 1994 where the property
(A) is
acquired by the taxpayer under a written agreement of purchase
and sale entered into by the taxpayer before February 22,
1994,
(B)
was under construction by or on behalf of the taxpayer on
February 22, 1994, or
(C) is
machinery or equipment that will be a fixed and integral part of
property under construction by or on behalf of the taxpayer on
February 22, 1994,
and that has not been used, or acquired for use or lease, for
any purpose whatever before it was acquired by the taxpayer,
...
[11]
"qualified property" is defined in subsection
127(9) the pertinent portion of which reads:
"qualified property" of a taxpayer means property
(other than an approved project property or a certified property)
that is
(a) a
prescribed building to the extent that it is acquired by the
taxpayer after June 23, 1975, or
(b)
prescribed machinery and equipment acquired by the taxpayer after
June 23, 1975,
that has not been used, or acquired for use or lease, for any
purpose whatever before it was acquired by the taxpayer and that
is
(c)
to be used by him in Canada primarily for the purpose of
(i)
manufacturing or processing goods for sale or lease,
...
[12]
“qualified expenditure” is defined in
subsection 127(9) the pertinent portion of which reads:
“qualified expenditure” means an expenditure in
respect of scientific research and experimental development
incurred by a taxpayer that is an expenditure in respect of first
term shared-use-equipment or second term shared-use-equipment or
an expenditure described in paragraph 37(1)(a) or
subparagraph 37(1)(b)(i) and includes an amount that is a
prescribed proxy amount of a taxpayer, but does not include
...
FACTS:
[13] Allen
Ainsworth ("Ainsworth"), a principal and officer of the
Appellant, gave evidence on behalf of it. The Appellant was
formed by his parents in the 1950’s and Ainsworth has been
with the company for 39 years. The Appellant's business has
always consisted of activities in the lumber industry.
[14] This case
relates to the construction of an OSB plant in Grande Prairie,
Alberta. The Appellant had previously opened a plant for this
purpose in 100 Mile House, British Columbia. Ainsworth said that
it has been a very successful operation.
[15] The
proposed plant would, as was the case in 100 Mile House, use
hardwood only. Ainsworth was aware that the Province of Alberta
("Alberta") wanted its lumber industry expanded and was
particularly interested in a plant of the type the Appellant had
opened at 100 Mile House.
[16] The
Appellant referred to a document dated July 18, 1988 entitled
FINAL REPORT dealing with mixed species of timber presented
to the Alberta Research Council. Its expressed objective was to
investigate processes and to develop procedures for the use of
black poplar along with aspen in the manufacture of structural
panel products. This was updated by another voluminous document
dealing with the same material and dated July 31, 1989. The
report concluded that work done by the Alberta Forest Products
Laboratory suggested that laboratory manufacture of OSB from most
Alberta species including aspen, black poplar, mixtures of
aspen/black poplar, lodge-pole pine and spruce was technically
feasible. It stated further that work remained to be done with
respect to the commercial and economic feasibility in the
production environment. Ainsworth said that the Appellant relied
on this conclusion. Two other reports prepared for Forestry Lands
& Wildlife on April 29, 1991 and October 27, 1992 concluded
with very encouraging results respecting the use of black
poplar.
[17] The
Appellant then produced a presentation document for financing
purposes dated January 11, 1993 respecting OSB and the financial
aspects associated with it. He said that OSB was "being made
all around us", in Alberta, Ontario, Quebec and the eastern
seaboard. He also said that this presentation had been made to 25
different companies. He produced other documents respecting
financing and attempts to raise money for the 100 Mile House
project.
[18] Ainsworth
testified that Alberta was proposing the development of
uncommitted parts of its forests in three different areas,
including High Prairie and Grande Prairie. He stated that the
province wished to develop timber harvest, to have a facility
built and to employ people. A document dated May 10, 1993 with
regard to High Prairie set forth the terms of reference for a
review committee respecting OSB development of hardwood at the
High Prairie timber development area ("TDA"). The
Appellant also presented copies of vouchers and tickets
respecting trips to Alberta for a number of purposes including a
visit with the cabinet minister dealing with environmental
protection. Also presented to the Court was the Alberta Request
for Proposals ("RFP") respecting the High Prairie
timber supply and dated August 17, 1993.
[19] The next
document presented was a memorandum from the director of
financial and economic analysis in the Alberta Economic
Development & Tourism Branch to Dave Walker
("Walker"), Executive Director, Forestry Industry
Division, dated September 16, 1993. This memorandum dealt
exclusively with the Grande Prairie TDA and expressed the view
that the approach taken would be similar to the High Prairie TDA.
The memorandum reveals that two other substantial lumber
companies, Weyerhaeuser & Louisiana-Pacific of Canada Ltd.
had indicated a desire to build an OSB mill which would utilize
approximately 552,000 cubic metres of uncommitted wood supply in
the Grande Prairie TDA. Ainsworth stated that he was aware of the
contents of that document at that date.
[20] A number
of ensuing documents presented to the Court related to various
financing proposals.
[21] Ainsworth
said that he had attended a meeting on
September 29, 1993 with Craig Quintilio from the
Ministry of Finance and with Walker. He said that the Alberta
officials were telling them what they would have to include in
their bid respecting High Prairie. He said that Grande Prairie
was also discussed at this meeting.
[22] Also
entered in evidence was the log book of a personal aircraft, the
Appellant testifying that they flew over forest lands to cruise
the timber stands. He described this as common practice. He said
that they were experienced and could tell the quality and volumes
by such low level flights. Ainsworth also testified that the
Appellant had hired one David Wright, a very experienced man, as
project manager.
[23] Another
document establishes that Ainsworth's son, Michael, who was
also with the Appellant, sought information from an environmental
consulting firm as to what was "involved in permitting OSB
in Alberta". A bill from that environmental consultant for
services respecting Grande Prairie prior to January 21, 1994 was
introduced in evidence. The Appellant also sought information on
the timing to obtain a permit and whether it had to go through
the Natural Resources Conservation Board. That report, dated
October 15, 1993, was produced to the Court outlining a summary
including, inter alia, the permitting process and
requirements for an OSB plant in Alberta.
[24] An
information document prepared by a competitor, Weyerhaeuser of
Canada as an employee update, dated November 2, 1993, announced
the location for its proposed $125 million dollar OSB plant at
Grande Prairie.
[25] An
internal memorandum from Jack Muir ("Muir") of Nova
Bancorp Group stated that in November, 1993 the chairman of that
group and others including Ainsworth, Dave Walker and other
economic development officials, met. At that meeting they
discussed forthcoming RFP’s for High Prairie and Grande
Prairie.
[26] Ainsworth
testified that on November 23, 1993 Nova Bancorp made a proposal
respecting the High Prairie plant on behalf of the Appellant. He
stated that the Appellant did not want to be named because it was
concluding its financing arrangements with respect to 100 Mile
House. That proposal was withdrawn on December 1, 1993 because
the Appellant would have been obliged to disclose its name were
it to proceed.
[27] The
Appellant also produced a substantial document dated
January 5, 1994, being draft number 6 of Request for
Proposals Grande Prairie Timber Supply. It stated that the
remaining deciduous (hardwood) volume available for development
was 414,000 cubic metres. This report was available to the
public.
[28] Ainsworth
said that the Appellant had weekly meetings between
November, 1993 and January 5, 1994 respecting details of the
areas and volumes, harvesting, environmental permits, et cetera.
He also said that he had discussions with Alberta officials
respecting the minimum bid price of $2 per cubic metre for Grande
Prairie, which he thought was too low. He said that he suggested
to those officials that it be raised because the Alberta public
would think the government was giving it away. He also expressed
concern that the Americans might consider the low price as a
government subsidy accepted by industry. Also produced was a
Daily Herald Tribune (Grande Prairie) newspaper article of
January 5, 1994 with the headline "GP forest bidding may
start soon". The opening sentence read:
The Grande Prairie forest will likely be up for bid by the end
of the month, says a government spokesman.
[29] Another
intra-Alberta Economic Development & Tourism memorandum from
Walker to the Deputy Premier, dated January 7, 1994 stated that
the Grande Prairie RFP was delayed because the government and a
company known as Grande Alberta Paper Ltd. could not resolve the
specifics of a deciduous timber allocation required by that
company for its light weight coated paper projects.
[30] A January
10, 1993 memorandum written by Walker read, in part:
RFP for Grande Prairie will be forthcoming January 15-January
30.
[31] Further,
a document respecting Grande Prairie, including an Income
Statement, Balance Sheet, Capital Cost Summary, Material Flow
Balance, Plant Production Costs, Depreciation and Profitability,
all respecting OSB, was presented to the Court. These were
prepared on January 14, 1994 and were projections for six years
which showed that the numbers used were based upon a log input to
the mill of 647,000 cubic metres. Ainsworth stated that the
Appellant expected about 500,000 cubic metres from the Province
of Alberta and that the extra 147,000 cubic metres would be
purchased privately.
[32] Another
newspaper article mentioned the names of two companies that were
interested in an OSB plant and suggested that bids would "be
called on the forest" before February 1 and March 15.
Ainsworth said that Grande Prairie was impatient to have the
plant constructed, that there was no political opposition to it,
that there was "lots of public support" and that in
January, 1994 he had no doubt that Grande Prairie would be
proceeding with its allocation.
[33] Ainsworth
said that he attended a meeting at Walker's office on
February 10, 1994 where the Appellant announced its intention to
bid on Grande Prairie. He said that Walker told him that he
wanted the best bid and that "he encouraged us and
emphasized that he wanted us to deal with Alberta suppliers and
engineers." Walker did not deem the environmental issues to
be an impediment. He said that not only was there no public
resistance but that there was overwhelming support for the
project which would lead to employment and other benefits.
Ainsworth also said that he expressed the Appellant's
intention to proceed and that he wanted "an RFP to come
out".
[34] There
followed a number of documents relating to financing
negotiations. Also enclosed were vouchers for travel to Alberta
which Ainsworth said related to the Grande Prairie project.
[35] The
Appellant then produced a copy of the news release and attached
"Request for Proposals Grande Prairie Timber Supply"
dated March 25, 1994. Ainsworth stated that there were no
substantial changes in the terms known to him prior to February
22, 1994. He said that the volume of deciduous timber allocation
was 432,900 cubic metres. The RFP reported that the mixed wood
stands were a source of deciduous timber and that this was
estimated to be 150,900 cubic metres, the total being 583,800
cubic metres. The RFP stated that the minimum price that would be
considered was $4 per cubic metre. Ainsworth said that they had
decided to make a bid of $10 and that that should be
successful.
[36] The
Appellant's proposal, submitted on May 31, 1994, the last day
for submissions, consisted of several hundred pages. It was
substantially in the same form, respecting timber volumes and
cost and financial arrangements, as the pre-February 22,
1994 calculations.
[37] The
Appellant also produced a letter dated July 20, 1994 to Alberta
thanking it for the conditional selection of the Appellant as the
successful bidder for the Grande Prairie Deciduous Timber
Allocation.
[38] The
second witness for the Appellant was Walker, now a management
consultant. He is the man who was the Executive Director, Policy
& Planning Department of Economic Development. He said that
in May, 1993 he was asked to "head" the Forest Industry
Division and that he reported to the Assistant Deputy Minister,
Technology and the Deputy Minister. He said that his mission was
to implement the mandate to the forest industry, the Province of
Alberta wanting to develop forestry as well as oil and gas. He
stated that this was a priority.
[39] He
testified that there was to be "no more government
money" and that the timber development had to be competitive
and open and transparent. He said that Alberta had a large volume
of timber, that the OSB in North America was growing rapidly and
that OSB was cost competitive with plywood for construction. He
also said that there were two large wood areas in Alberta, namely
High Prairie and Grande Prairie, the latter being the larger. He
said that volumes of 500,000 to 600,000 cubic metres would
support a world size plant.
[40] Walker
said that in May, 1993 Alberta decided on RFP's for both High
Prairie and Grande Prairie, that there was political pressure to
do that, that potential developing companies were enquiring and
that the wood was available. He added that it was well known in
the industry that both High Prairie and Grande Prairie were
available.
[41] He said
that in October, 1993 a preliminary draft of the Grande Prairie
RFP had been prepared and that a list of potential bidders had
been made for the government to contact. He stated that in the
first part of November, 1993 he had discussed the Grande Prairie
project with Ainsworth. He said that Ainsworth had advised him
that the price per cubic metre of timber stands should be more
than $2. He said that he had discussed the cubic metre
availability with Ainsworth in early February.
[42] In other
respects, he confirmed the testimony of Ainsworth.
[43] David
Erwin Schalm ("Schalm") testified for the Respondent.
He is an income tax auditor with Canada Customs & Revenue
Agency ("Agency"). He audited the Appellant. He
referred to the Appellant's 1993 income tax return in which
the Appellant claimed an investment tax credit ("ITC")
of $10,014. He said that it had been disallowed because Revenue
Canada had not received sufficient support documentation. He then
referred to a Notice of Reassessment of the Appellant's 1993
taxation year, part of which read:
As the information necessary to determine the eligibility of
your projects was not submitted, your claim of SR & ED
Investment Tax Credit has been disallowed. Upon submission of the
required information, it will be reviewed by the Department.
[44] Schalm
then referred to an amended return for 1993 in which, he said,
the Appellant had amended its claim for SR & ED[5] increasing the claim over its
initial filing. It showed that the previous claim of Investment
or Expenditure of $50,070 (giving rise to a "Current Year
Credit" of $10,014) was increased by an additional amount of
$401,332 with a new "Current Year Credit" of $90,280.
He then said that because it was an SR & ED claim it would go
to the science advisors who review technical data to see whether
the projects were eligible as research or experimental
development. He said that he asked the Appellant for further
documentation on the projects. Schalm then said that during the
audits he became aware that the Appellant sought to carry back
losses of $18,604,226 from 1995 to 1993. He said that this loss
carry-back was allowed and assessed. That loss carry-back was
subsequently adjusted slightly because of some "T-5"
that had not been reported for the 1995 taxation year. He said
that an amended 1995 return by the Appellant was assessed
allowing a changed loss in the sum of $18,383,055. He also said
that the amended 1995 return calculated an ITC in the amount of
$37,181,804. Schalm then referred to the amended return showing
that the Appellant had requested a carry-back of the credit the
corporation earned in 1995 to be applied as follows:
2nd preceding taxation year 1993
...............
$
308,012
1st preceding taxation year 1994
...............
$
3,460,086
Total
$
3,768,098
[45] He stated
that they would not allow those ITC’s without further
information. He said that he advised the Appellant that Revenue
Canada's position was that the ITC's claimed were not
allowable. He then said that because the Appellant was expecting
a substantial refund of logging taxes from British Columbia, the
1993 amended return was processed without allowing the ITC
carry-back of $308,012. The Notice of Reassessment of that return
includes the following:
We have adjusted the non-capital loss carried back from 1995
to $18,383,055.00 to agree with the amended return for 1995.
Please note that the ITC was not included as discussed with the
auditor.
[46] He stated
that the above words referred to 1995.
[47] After
referring to various documents and memoranda, Schalm said that
with respect to the 1993 SR & ED claim first requested by the
company in June, 1995
... so we finally resolved them and are going to allow them in
the most part.
[48] On
cross-examination, Schalm said that the Notice of Reassessment
dated July 17, 1997 did not allow any investment tax credit in
1993 "per the taxpayer's instructions". He also
said:
... I would note a difference between allowing the investment
tax credits and applying them. The final Notice of Assessment
indicates that per the T2038 there are investment tax credits in
the pool related to '93 available to be taken. However, in
1993 none were taken or applied per the instructions. So they
were allowed in the sense that they are there and can be drawn
down if they are in a position to do it. It's just that we
didn't apply any in 1993.
[49] In
addition to the foregoing, the Court was advised that there were
at least six Notices of Assessment issued by Revenue Canada in
respect of the 1993 taxation year. Respondent's counsel
advised that the Respondent did not have information about all
reassessments and that there may have been more. In fact, the
documents available indicate that there were more than the six
assessments described on a chart presented to the Court. The
fifth such assessment was that in respect of which the Appellant
filed a Notice of Objection. The chart shows only a loss carry
back figure from 1995 in the sum of $18,383,055 and Part I tax
before ITC of $308,271. By virtue of the sixth assessment
increasing the accumulated non-capital loss, the carry back of
$20,013,458 to 1993 resulted in tax payable of $123. The
Appellant seeks to apply its 1995 ITC’s to the extent of
its annual investment tax credit limit, namely $92, to the tax
otherwise payable.
ANALYSIS AND CONCLUSIONS:
First Issue:
[50] The
Respondent says that subsection 127(5), permitting the deduction
of ITC's, requires the deduction of the 1993 ITC’s
before the deduction of the 1995 ITC's. I do not agree. That
subsection simply provides a formula for determining the amount
of ITC’s that may be deducted from the tax otherwise
payable for a taxation year. It includes neither direction nor
prohibition respecting the order of ITC deduction. If Parliament
had intended an "ordering" of deductions it would have
so legislated as it did in subsection 80(3).[6] That section provided that a
formula determined amount be applied
to reduce, in the following order the
taxpayer's
(i)
non-capital losses
(i.1) farm
losses,
(ii)
net capital losses
(iii)
restricted farm losses
for preceding years ...
(emphasis added)
[51]
"Investment tax credit ... at the end of a taxation
year" means, generally, the "specified percentage"
of certain expenditures for that year and for the 10 immediately
preceding and 3 immediately following taxation years minus the
total amount of ITC's claimed. Therefore, a taxpayer may
deduct the ITC's arising in respect of any year from the tax
payable in the 3 preceding and the 10 following years. It is
normal to expect a taxpayer to claim ITC's in chronological
order to maximize their usage. It is also normal for the Minister
of National Revenue ("Minister") to assume that a
taxpayer would follow this pattern. However, it was, and is, open
for the Appellant to specify which ITC's it is deducting.
That is precisely what the Appellant did when it specified the
deduction of its 1995 ITC's that could be carried back to
1993.
[52] The
Appellant's deduction of 1993 ITC's was disallowed by the
Minister. Indeed, the Minister disputed the eligibility of
certain expenditures as SR & ED expenditures. They would be the
base upon which ITC's would be computed.[7] The Appellant did not appeal
this disallowance. At the hearing, Respondent's counsel
assumed the onus of establishing that the Appellant had 1993
ITC's. She presented Schalm to give evidence directed toward
so establishing them. In distillation, although he stated that
the Minister had finally decided to allow the 1993 SR & ED
expenditures, there was no evidence supporting their
qualification for ITC's. The definition of "investment
tax credit" includes a specified percentage of a
"qualified expenditure". The definition of
"qualified expenditure" refers to expenditures for
SR & ED described in paragraph 37(1)(a) or
subparagraph 37(1)(b)(i). Subsection 37(1) describes
some SR & ED expenditures, none of which is a "qualified
expenditure". The Respondent failed to meet the onus by not
demonstrating that the Appellant's 1993 SR & ED
expenditures gave rise to 1993 ITC's.
Conclusion respecting "ordering":
[53]
Accordingly, subsection 127(5) does not require
"ordering" of ITC's and, in any event, it was not
established that any 1993 ITC's exist.
Second Issue:
[54] Having
decided that the Appellant was not required to deduct 1993
ITC's before the 1995 ITC's, I turn to the second issue,
namely whether the expenditures totalling $123,937,347 were for
"certified property", thereby giving rise to
ITC's.
[55]
Appellant's counsel based his submission that the
expenditures did so qualify, upon subparagraph
127(9)(a)(iv)[8] of the definition of certified property. A repetition
of a portion of those words, set forth earlier in these Reasons
follows:
"certified property" ... means any property ...
described in paragraphs (a) or (b) of the definition
"qualified property" ...
(a)
that was acquired by the taxpayer ...
(iv)
after 1994 and before 1996 where
(A) the
property is acquired by the taxpayer for use in a project that
was substantially advanced by or on behalf of the taxpayer, as
evidenced in writing, before February 22, 1994, and
(B)
construction of the project by or on behalf of the taxpayer
begins before 1995, ...
[56] The
question of whether the property was described in paragraph (a)
or (b) of the definition of "qualified property" is not
in dispute. Although some cross-examination seemed to be directed
toward whether all expenditures claimed were so qualified, the
amounts queried were in respect of minor items with minimal
expenditures. Respondent's counsel made no submission
challenging the aforesaid amount as having been expended on
"qualified property".
[57]
Therefore, the questions remaining to be answered are:
(a)
was the Appellant's undertaking a project?and, if
so,
(b)
was it substantially advanced by or on behalf of the
taxpayer, as evidenced in writing, before February 22,
1994?
Project:
[58] The word
"project" is not defined in the Act. The
Concise Oxford Dictionary, 8th Edition, defines
project, in part as:
1
a plan; a scheme
2
a planned undertaking
[59] The
Oxford English Dictionary, 2nd Edition, defines
project in part as:
1.
A plan, draft, scheme, or table of something; a tabulated
statement; a design or pattern according to which something is
made. 5.(a) something projected or proposed for execution; a
plan, scheme, purpose; a proposal.
[60] Counsel
submitted that the project was a plan to utilize a defined timber
resource to produce OSB at Grande Prairie.
[61]
Respondent's counsel submitted that the word
"project" was the actual construction of the OSB plant.
She said that the project had to "be related to the building
of the building and the physical plant" and was "not
about the acquisition of timber ... to produce oriented strand
board". She said that the project starts:
... with what steps you take to get the allocation of the
timber. And the problem, the big problem, we submit, that the
Appellant has is that the availability of that timber didn't
happen until March 25 of 1994.
[62]
Appellant's counsel, in reply, submitted that if
"project" refers to the construction of the plant
itself, then there would be absolutely no need for the rule in
(a)(iv)(A) in the definition of "certified
property" because construction cannot be substantially
advanced unless it is started. He followed this by suggesting
that Respondent's counsel was inviting the Court to accept a
test that required construction to have been started on or before
February 22, 1994. He continued with his submission by saying
that if construction had started by February 22, it would be
"grandfathered" under (a)(v)(B) which speaks of
property that "was under construction ... on February
22, 1994, and that the physical plant cannot, therefore, be the
"project".
[63] Counsel
also stated that such interpretation of the word
"project" is inconsistent with the words in
(a)(iv)(B) that "construction of the project by or on
behalf of the taxpayer begins before 1995". He added that
there would be no purpose to (a)(iv)(B) if construction
had commenced on or before February 22, 1994 as
required in (a)(v)(B). He then said that the test in
(a)(iv)(B) is that construction does not need to start
until immediately before 1995 and that the Respondent's
submission that the project was the plant could not be
correct.
[64] Referring
to a definition of "project" which included "a
planned undertaking", Appellant's counsel submitted that
the project began when the planning began. He argued that a
project may include ultimate construction of a building that
results from the plan but that the project, within the plain
meaning of that word, does not begin at the time of construction.
He said:
That's one of the latter steps in the total package that
comprises projects. We submit that the project begins when the
planning process begins and then you must determine how far that
progress was advanced. That process was advanced by February 22,
1994. ...
In a nutshell, our submissions are the project, within the
meaning of this definition, commences when you identify your
objective, you set out and formulate a process for achieving it
and you start marching down the path towards that objective. And
we say the Appellant was a long way down that road. There was
very little of substance that it had to do ultimately to succeed
in achieving its objective.
[65] Counsel
also submitted that subparagraph (a)(iv) itself
distinguishes between the property which gives rise to an
investment tax credit and the project to which it relates. The
relevant words in that provision are:
... the property is acquired by the taxpayer for
use in a project that was substantially advanced
...
(emphasis added)
[66] He
simplified his point by saying that because property must be
acquired for use in a project, the project cannot mean
"property".
Conclusion respecting "project":
[67] I agree
with the Appellant's submissions. In addition, general usage
of the word "project" can contemplate something more
than buildings and equipment. Accordingly, I conclude that the
project was, as described by Appellant's counsel, a plan to
utilize a defined timber resource to produce OSB at Grande
Prairie.
SUBSTANTIALLY ADVANCED:
[68] I now
turn to the question of whether the project was substantially
advanced by or on behalf of the taxpayer before February 22,
1994. The phrase "substantially advanced" has been
judicially considered in three cases referred to the Court by
Appellant's counsel.
First Fund Genesis Corp. v. Her Majesty the
Queen, 91 DTC 5361 (F.C.T.D)("First
Fund");
Mort v. Her Majesty the Queen, 93 DTC 5058
(F.C.T.D.)("Mort"); and
Arkelian v. Daley, Black & Moriera, 1992
B.C.S.C. in Vancouver Registry No. 900462, [1992] B.C.J. No.
733 ("Arkelian").
[69] Each of
these cases interpreted the phrase "substantially
advanced" in the context of the transitional relief provided
under subparagraph 194(4.2)(b)(ii) in respect of the
termination of a scientific research and experimental development
tax credit ("SRTC"). This was a tax credit intended to
promote investment in scientific research in Canada. It was
widely abused and was eliminated on October 10, 1984 subject to
transitional relief.
[70] In
First Fund, the issue was whether debentures issued to the
taxpayer in April 1985 met the requirements of the relevant
legislation which read as follows:
Notwithstanding subsection (4) no amount may be designated by
a corporation in respect of ...
a share or debt obligation issued or a right granted by the
corporation after October 10, 1984, other than a share or debt
obligation issued or a right granted before 1986.
under the terms of an agreement in writing entered into by the
corporation before October 11, 1984 other than pursuant to an
option to acquire the share, debt obligation or right if the
option was not exercised before October 11, 1984, or
where arrangements, evidence in writing, for
the issue of the share or debt obligation or the granting
of the right where substantially advanced before October 10,
1984;
(emphasis added)
[71] Joyal J.
at 5369 referred to the decision of Mr. Justice Deane of the
Federal Court of Australia in Tillmanns Butcheries Pty.
Ltd. v. Australasian Meat Industry Employees’
Union (1979), 42 F.L.R. 331:
The word "substantial" is not only susceptible of
ambiguity: it is a word calculated to conceal a lack of
precision. In the phrase "substantial loss or damage",
it can, in an appropriate context, mean real or of substance as
distinct from ephemeral or nominal. It can also mean large,
weighty or big. It can be used in a relative sense or can
indicate an absolute significance, quantity or size. The
difficulties and uncertainties which the use of the word is
liable to cause are well illustrated by the guidance given by
Viscount Simon in Palser v. Grinling (21)[9] where, after holding
that, in the context there under consideration, the meaning of
the word was equivalent to "considerable, solid or
big", he said: "Applying the word in this sense, it
must be left to the discretion of the judge of fact to decide as
best he can according to the circumstances of each case . . .
"
[72] Joyal J.
said, at 5369:
To my mind, the issue of whether arrangements were
“substantially advanced” calls for a determination by
this Court of whether the arrangements had been advanced or had
progressed to a sufficiently measurable degree. In other words,
there must have been more than just nominal or insignificant
progress made by the parties towards securing an S.R.T.C.
transaction.
[73] At page
5370, he said:
When the totality of the written and oral evidence put before
this Court is considered, it indicates that arrangements for the
issue of the debentures in question were "substantially
advanced" before October 10, 1984.
[74] He then
outlined the facts upon which he based his conclusion. The
corporation which issued the debenture had prepared an
"Executive Summary" in order to find potential
investors. It contained a budget for scientific research and SRTC
funding. The fact that the amount of the debenture actually
issued in 1985 was different in that it was for the sum of
$7,500,000 and the SRTC funding was only $2,091,932, was found
not to be a material discrepancy. The debenture issuer had
identified the type of security and in fact that type of
debenture actually was issued in 1985. The fact that no purchaser
of the debenture had been identified by October 10, 1984 was not
fatal. The fact that no closing date for the issue had been
determined by October 10, 1984 was not fatal. The learned Justice
said:
All that remained to work out were the finer details of
exactly how much money would go where, who the SRTC investor
would actually be and which aspects of its research program would
be emphasized.
[75]
Arkelian was a negligence action in which the defendant
solicitors were alleged to have given an incorrect opinion that
arrangements for the issue of an SRTC instrument were
"grandfathered" under the transitional rule in section
194(4.2)(b)(ii). Mr. Justice Catliff adopted Mr. Justice
Joyal's interpretation of the phrase "substantially
advanced" in First Fund and, at page 13, said:
In that case it was submitted that the phrase
"substantially advanced" could mean "some
measurable progress" on the one hand or "arrangements
considerably or largely advanced" on the other.
[76] He then
said, at page 14:
I agree with these comments.
and found that the transaction was within the exception in the
transitional legislation.
[77] In
Mort, Mr. Justice Noël (as he then was) adopted the
same interpretation of "substantially advanced".
[78] The
wording in subparagraph 127(9)(a)(iv)(A) is identical to
the wording in the SRTC transitional rule so far as the terms
"substantially advanced" and "evidenced in
writing" by a certain date are concerned. Appellant's
counsel also referred the Court to the third edition of
Driedger on the Construction of Statutes at page 163 which
says:
It is presumed that the legislature uses language carefully
and consistently so that within a statute or other legislative
instrument the same words have the same meaning ...
[79] In
R. v. Zeolkowski (1989), 61 D.L.R. (4th) 725 at 732
(S.C.C.), Sopinka J. wrote:
Giving the same words the same meaning throughout a statute is
a basic principle of statutory interpretation.
[80]
Dreidger at page 475 reads:
In preparing an enactment, the legislature is presumed to be
aware of existing case law and to take that case law into account
in drafting its provisions. Where words have been given a
particular meaning in a case or series of cases, and those words
are then used in legislation, the obvious inference is that the
legislature intended to give the words the same established
meaning.
[81] With
reference to the interpretation of transitional provisions,
Respondent's counsel referred the Court to The Queen
v. Trade Investments Shopping Centre Limited, 93 DTC
5486 (F.C.T.D.)(Trade Investments). She submitted that the
interpretation of transitional provisions dealing with different
subject matters are not binding on the Court. She said that:
... they may be useful but they are not binding. It
really calls for focusing on the language in the provision
itself, of the transitional provision itself, and on the context
of the overall substantive law relating to that transitional
provision.
[82] She then
said that the comments of the Federal Court Trial Division in
that case on the interpretation of transitional provisions are
the correct principles because they were adopted by the Federal
Court of Appeal in that case. She referred to the Federal Court
of Appeal decision reported, at 96 DTC 6570, where the Court
said:
At the trial, Noël J. rejected the appellant’s
arguments. In our view, he was correct to do so and his analysis
of the rules applicable to the interpretation of transitional tax
provisions in general and the disputed provision in particular is
unimpeachable.
[83] She
quoted Noël J. at pages 5488, 5489 and 5491, in part, as
follows:
It is worth noting, to begin with, that transitional
legislation is remedial in nature. In tax matters, its purpose is
generally to protect taxpayers who have made certain dispositions
in good faith in accordance with the law applicable at the time,
by allowing them to be covered by the former law despite the
coming into force of the new law.
...
The scope of these transitional provisions will be more or
less restrictive depending on the precise situation contemplated
by the legislature in mitigating the effect of the new Act.
Sometimes, Parliament will limit the protection of a transitional
provision to taxpayers who have entered into firm and binding
contracts based on the old law. At other times, Parliament will
extend this protection to taxpayers who can show that they had in
view a transaction which was substantially advanced at the
relevant time, though it had not yet been concluded.
...
Transitional provisions do not lend themselves to the scrutiny
of an overly strict interpretation. It should be borne in mind
that transitional provisions are secondary and incidental to the
provisions of substantive law which they accompany. Unlike taxing
provisions, they are not adopted as part of a coherent
legislative plan in which the provisions must interrelate with
one another in a logical scheme. They are ad hoc
provisions the sole purpose of which is to ensure that the
particular provision of substantive law which they accompany is
introduced in an equitable manner. By their very nature,
therefore, they are likely to create discrepancies, and a review
of the wording of these provisions in recent years indicates that
each budget produces transitional provisions peculiar to it and
designed without reference, or at least with little reference, to
preceding in pari materia provisions. While a
comparative analysis of such provisions remains useful, I do not
think it can be conclusive in the case at bar.
In my view, when a question of interpretation arises as to the
scope of a transitional provision, it must be answered by
reference to the provision of substantive law it accompanies and
the specific situation which Parliament sought to alleviate by
introducing it.
[84] The
learned Justice made these comments in the context of a case
where the transitional provision was entirely different from
those in First Fund and Mort. Trade
Investments dealt with the matter of a taxpayer allocating
proceeds of disposition of property entirely to land and claiming
a terminal loss in respect of the building. The transitional
provision read as follows:
Subsection (3) is applicable with respect to dispositions
occurring after May 9, 1985 other than dispositions occurring
pursuant to the terms of an agreement in writing entered
into on or before that date.
(emphasis added)
[85] However,
as set out above, the terms “substantially advanced”
and "evidenced in writing" are used in the transitional
provisions in the instant case and in the First Fund,
Mort and Arkelian cases. The fact that the learned
Justice, in Trade Investments, was dealing with an
entirely different and more restrictive provision than he had
analyzed in Mort may well account for his refinement of
the principles enunciated in First Fund.
[86]
Respondent counsel's submissions have not persuaded me that,
in the circumstances, I should not be guided by the decisions in
First Fund and Arkelian and by the material quoted
from Driedger.
[87] I turn
now to a review of the factors to be considered in determining
whether the project was substantially advanced.
[88]
Appellant’s counsel submitted that there were three
components of the project, namely:
To identify and evaluate the timber resource and determine its
suitability for use in OSB manufacturing.
To determine the technical, procedural and financial viability
of the manufacturing process.
To commit to proceed in a manner which was likely to be
successful.
[89] He
submitted that all of these steps in the project were completed
on or before February 22 and that, therefore, the project itself
was substantially advanced. These steps are described in the
foregoing paragraphs.
[90] The
timber resource to be exploited was the deciduous standing timber
located within the Forest Management Units as shown on a coloured
map of a portion of Alberta.[10] The evidence of Ainsworth and Walker and the
various documents identified by them established that the
location of the timber resource to be allocated at Grande Prairie
had been determined no later than September, 1993. That was
discussed by Ainsworth and Walker at their meeting of
September 29, 1993. A newspaper article filed with the
Court confirmed that by September 24, 1993, the Grande
Prairie timber allocation was public knowledge. The Weyerhaeuser
employee update confirmed that the proposed Grande Prairie
allocation was well known by November 2, 1993. The same Forest
Management Units were identified in every draft of the Grande
Prairie RFP, including the second draft which was produced in
October, 1993. Precisely the same timber was ultimately allocated
to the Appellant. Ainsworth testified that he had become aware of
that proposed allocation as early as 1992 and that the specific
Forest Management Units to be exploited were known to him. Prior
to February 22, 1994, the Appellant had completed all
work necessary to assess the quantity and quality of the timber
resource available within those units and had confirmed its
suitability for use in an OSB plant. An Alberta inventory of the
available volume of each species of timber was described by
Walker and is evidenced in each of the draft RFP’s for
Grande Prairie, as well as in the final version of the RFP. The
contents of that inventory were available to the public. That
inventory was reviewed by Ainsworth.
[91] The
Appellant’s investigations included numerous efforts to
acquire or to become a partner of an Alberta forest products
company, discussions with the Ministry of Economic Development
regarding the use of deciduous timber for pulp production,
reviewing the testing of these species in the manufacture of OSB
in 1988, and his aerial and field surveys of timber throughout
the region. About 1990, Ainsworth visited the wafer board plant
in Edson, Alberta to learn how problems dealing with standing
black poplar could be overcome by equipment choices and
periodically processing pine to clean the strander blades.
[92] By 1990
the Appellant had obtained a timber supply in British Columbia
for the purposes of supporting its planned OSB Mill at 100 Mile
House. The mix of timber supply there was similar to that in the
Grande Prairie timber supply and the Appellant had determined by
1990 that such supply would be suitable for manufacturing OSB.
Ainsworth also confirmed his reliance on the considerable
research undertaking by the Alberta Research Council regarding
the use of black poplar in the manufacture of OSB[11]. These reports were
available to and reviewed by the Appellant's staff prior to
1993. Ainsworth testified that the favourable recommendations
resulting from this research were confirmed by his independent
testing and observation of the stranding and processing
activities at Edson.
[93] By
September, 1993 the Alberta Government concluded that the Grande
Prairie timber supply was suitable for OSB manufacturing. A
September 16, 1993 memorandum shows that the Alberta Government
knew that the Grande Prairie fibre would be used for OSB and that
the available volume was approximately 552,000 cubic metres of
annual cut. A September 23, 1993 memorandum is consistent with
this conclusion and shows a revised volume estimate of 550,000
cubic metres. A fax cover sheet was identified as referring to a
meeting on September 29, 1993 between Ainsworth, Harry
Knutson, Walker and Alberta Government officials. At that
meeting, the location, volume and quality of the Grande Prairie
timber resource and the timing of its allocation was discussed.
Muir testified, as referred to in a written memorandum, that
Ainsworth and Knutson met with Walker in November, 1993 to
discuss OSB and the Grande Prairie timber resource in detail.
[94] By
November 23, 1993 the Appellant's conclusion that the
deciduous timber in northern Alberta was suitable for OSB was
demonstrated by its bid for the High Prairie timber supply. The
timber supplies at High Prairie and Grande Prairie were similar.
However, the Grande Prairie supply was considered superior as to
quality, volume and security of tenure.
[95] An
agreement of December 8, 1993 between the Alberta government and
W. R. Dempster and Associates Ltd. reflects a further
effort to publish Alberta's knowledge of the characteristics
of the timber available at Grande Prairie. Its purpose was to
assess the deciduous timber resource in the Grande Prairie area
through establishment and measurement of a network of temporary
sample lots in predefined strata.
[96] The final
RFP estimated 583,800 cubic metres per year of fibre volume
available. That amount is virtually the same as the estimates
made in September, 1993.
[97] The
Appellant's January 14, 1994 financial projections confirm
that by that date it had evaluated the Grande Prairie timber
supply as suitable and sufficient to support a viable OSB
operation.
[98] The
projections show that the Appellant had estimated the annual
allowable cut from the Grande Prairie allocation to be
approximately 500,000 cubic metres. The income statement line for
"DTA Commitment" at $3,000,000 per year was based on $6
per cubic metre for 500,000 cubic metres per year.
[99] On
January 19, 1994, Ainsworth again confirmed the suitability of
black poplar for OSB production by inspecting the stranding
operations of Zeidler Forest Products.
[100] A summary of
expenses establishes that expenses in excess of $150,000 had been
incurred by the appellant prior to February 22, 1994, largely in
the process of evaluating the timber supply.
[101] The evidence
established that prior to February 22, 1994, the Grande Prairie
timber resource was available and suitable, the technology
existed to exploit that resource, there would be no regulatory,
environmental or political impediment, the proposal was
financially viable, and the Appellant had the financial capacity
to undertake the project.
[102] The evidence
established that by February 22, 1994, the Appellant had
identified virtually all elements of the OSB plant design and had
evaluated its technological viability. The Appellant had acquired
the experience necessary to plan the design, construction and
equipping of an OSB plant through its work at 100 Mile House
construction of which plant commenced in April, 1993. The
Appellant gained experience relating to contracting with
equipment and construction suppliers for the construction of an
OSB mill from the spring of 1992 to February, 1993. A list of
contracts was introduced in evidence.
[103] The critical
suppliers to the Grande Prairie project were the same as those
used at 100 Mile House. This is corroborated by the
Appellant's bid for the Grande Prairie timber supply.
[104] The Appellant had
evaluated the stranding requirements for the Grande Prairie plant
by inspection of black poplar stranding at Edson and the testing
of black poplar OSB production at Dieffenbacher in 1993. A
facsimile transmission advised that a strander equipment display
would be attended on November 18, 1993 by staff members of the
Appellant. In January, 1994, the Appellant researched black
poplar peeling at Zeidler Forest Products.
[105] Ainsworth testified
that prior to January, 1994 the Appellant had formulated a
detailed plan for the particular types of equipment, construction
services, and capital costs required to complete construction of
an OSB mill at Grande Prairie.
[106] The financial
projections include a Capital Cost Summary as of
January 14, 1994, detailing all capital costs of the
plant totalling $110,000,000, virtually identical to the
estimates totalling $108,500,000 contained in the May 31, 1994
bid, the only difference being reduction of consulting fees and
financing costs.
[107] The decision to use
phenolic resin[12] in producing OSB, set forth in the bid, was made
prior to February 22, 1994, as stated by Ainsworth and as
indicated in the January 14, 1994 Material Flow Balance. Walker
emphasized the importance of this factor.
[108] By the end of
October, 1993, the Appellant had identified and evaluated all of
the Alberta government requirements for regulatory and
environmental approval for construction of an OSB plant, relying
on the expertise of its consultants, Norecol Dames &
Moore Inc. as evidenced by a number of different documents.
Ainsworth stated that based on this advice and his experience
with similar procedures in British Columbia, he believed that he
fully understood the scope of the requirements in Alberta by
November, 1993.
[109] By February 22,
1994, Alberta had supported the allocation of the timber supply.
Walker testified that his primary function as an employee of
Alberta since 1992 was to develop and implement a plan for
exploitation of this resource.
[110] Although the
granting of the allocation was delayed until after
February 22, 1994, the Province, without interruption,
continued its efforts to complete that allocation.
[111] The draft RFP dated
January 5, 1994 is virtually identical to the RFP that was
ultimately published by the Province.
[112] A briefing note to
the Deputy Premier dated January 7, 1994, recommended publication
of the RFP no later than January 31, 1994.
[113] Walker testified
that by January, 1994, the Province had determined that it was
not necessary to have the Grande Prairie allocation reviewed by
an independent committee. The allocation had the support of the
local community and as noted in his memorandum of January 7,
1994, the MLAs of the constituencies affected had expressed
support for the project. A memorandum from Walter Paszkowski, MLA
for Grande Prairie Smoky confirmed that political support.
[114] Walker and Ainsworth
testified that they met on February 10, 1994, to discuss the
anticipated terms of the RFP and Ainsworth assured the government
that it would be making a bid in response to the RFP as soon as
it was available.
[115] The evidence also
shows that prior to February 22, 1994, Ainsworth had, satisfied
itself as to the financial viability of the project. The
Appellant had established that there was a viable market for the
OSB product. A 58-page 5-year business plan for the Pacific Rim
and Europe had been prepared exclusively for the Appellant by
Balfour Guthrie Forest Products Inc. in September, 1993. An
extensive OSB Expert Market Analysis was prepared for the
Appellant by Interex[13] in September, 1993 and updated in January, 1994.
Ainsworth concluded therefrom that the Grande Prairie operation
would enable the diversion of North American orders to Grande
Prairie from 100 Mile House and the diverting of more of the 100
Mile House production to Asia.
[116] Ainsworth also
testified as to how the Japanese market sought security of supply
and that the operation of two plants would do much to satisfy
that concern. A further market review completed for the Appellant
in October, 1993 describes North American competition and demand
and potential export demand.
[117] The January 14, 1994
projections contain a pro forma balance sheet showing the
Appellant's anticipated costs for land, plan and equipment
for the Grande Prairie OSB mill at $110,000,000 financed by
$75,000,000 of long term debt and capital equity of $35,000,000.
It attaches a detailed breakdown of the capital costs. The income
statement shows detailed projections for a 5-year period,
including revenues and production costs. These projections are
virtually identical to those used in the May 31, 1994 bid.
[118] The Appellant, prior
to February 22, 1994, was exploring financial alternatives and
possible distribution agreements with two Japanese companies,
Nittetsu Shoji Co. Ltd. and Kanematsu Corporation. Although the
efforts focused on the 100 Mile House OSB project initially, the
Appellant regarded them as a source of financing for Alberta.
[119] Prior to February
22, 1994, the Appellant established relationships with a number
of Alberta forestry companies which Ainsworth viewed as potential
partners for its Grande Prairie OSB project. Canfor, a forest
products company, which has saw mill operations in Grande
Prairie, ultimately provided $30,000,000 of the equity financing.
Ainsworth also succeeded in raising the debt financing described
in the January 14, 1994 projections.
[120] As reflected in the
January 14, 1994 projections, the Appellant had determined to
offer a bid price of $10.00 per cubic metre of Allowable Annual
Cut, precisely the same price that proved to be successful. Also
it had determined to pay a guaranteed minimum stumpage fee of
$3,000,000 per year, precisely the same amount as is provided in
the successful bid.
[121] The Grande Prairie
RFP was issued on March 25, 1994 and by May 31, 1994,
only 67 days later, the Appellant had prepared and filed an
extensive and extremely detailed bid and confidential information
package. Much of the detail contained in these documents had been
identified and determined by the Appellant prior to February 22,
1994, the financial terms of the ultimate bid being virtually
identical to those contained in the projections dated
January 14, 1994.
[122] Respondent's
counsel submitted that there were crucial matters which had not
been dealt with before February 22, 1994 and that were required
by the RFP. She was referring to two of the twelve components
described in the RFP, namely, Timber Resource and Environmental
Matters.
[123] Appellant's
counsel said that the Appellant could have used its own
evaluation but that an independent evaluation dressed up the RFP
to make it look
as impressive, as complete and as well thought out as
possible
[124] He made a similar
submission respecting the Environmental Matters component.
Conclusion respecting "substantially
advanced":
[125] It is, therefore,
clear that, prior to February 22, 1994, both Alberta and
Ainsworth had identified and evaluated the quality and quantity
of the Grande Prairie timber supply and determined it to be
suitable for OSB manufacturing. As of that date, the Appellant
clearly had the ability to exploit the timber resource through
the operation of an OSB plant having done so at 100 Mile House.
Its capability in securing the timber supply is evidenced by the
fact that it made the successful bid. In assessing the degree of
advancement of the Grande Prairie project, I have concluded that
the Appellant's expertise and experience in completing
similar projects was of great importance. The Appellant reduced
the time for bringing an OSB plant into production from a period
in excess of four years at 100 Mile House to only fifteen months
at Grande Prairie.
[126] The Appellant had
clearly made much more than "just nominal or insignificant
progress"[14] in the pursuit of its project. The word
"substantially" does not have to be quantified by a
percentage. The building of the plant itself had not been
commenced before February 22, 1994 because the RFP to which a bid
response would be made did not issue until March 25, 1994. The
fact that that portion of the project remained to be completed
does not, in my view, compromise substantial advancement of that
project. It was impossible to acquire rights to the timber until
an RFP was issued and a bid made and accepted. No one would build
a timber processing plant without having the timber available.
Before February 22, 1994 the Appellant had done an
immense amount of work, as outlined above, to put itself in a
highly informed and highly equipped position to prepare and
submit what proved to be a winning bid.
[127] I conclude that,
given my finding that the project was not the plant alone
but rather, the whole scheme or planned undertaking to utilize a
defined timber resource to produce OSB at Grande Prairie, that
project was substantially advanced before February 22, 1994.
EVIDENCED IN WRITING
[128] An examination of
the voluminous reports, timber availability and quality,
financial projections, market analyses, memoranda, newspaper
articles, travel vouchers, et cetera described above leaves me in
no doubt whatsoever about the substantial advance of the project
being evidenced in writing.
SUMMARY
[129] The Appellant was
not required to deduct ITC's it may have had arising out of
expenditures incurred in its 1993 taxation year from tax
otherwise payable before deducting 1995 ITC's. In any event,
the existence of 1993 ITC's was not established.
[130] The expenditures of
$123,937,347 made by the Appellant in its 1995 taxation year in
respect of the OSB plant in Grande Prairie were expenditures for
"certified property", thereby giving rise to 1995
ITC's.
[131] Accordingly, the
Appellant is entitled to specify and deduct 1995 ITC's from
its tax payable for its 1993 taxation year.
[132] The appeal is
allowed with costs.
Signed at Ottawa, Canada, this 24th day of April, 2001.
"R.D. Bell"
J.T.C.C.
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