Rio Algom Mines Limited v. Minister of National Revenue, [1970] SCR 511

Supreme Court of Canada

Rio Algom Mines Limited v. Minister of National Revenue, [1970] S.C.R. 511

Date: 1970-01-27

Rio Algom Mines Limited Appellant;

and

The Minister of National Revenue Respondent.

1969: October 16, 17; 1970: January 27.

Present: Cartwright C.J. and Fauteux, Abbott, Martland, Judson, Ritchie, Hall, Spence and Pigeon JJ.

ON APPEAL FROM THE EXCHEQUER COURT OF CANADA

Taxation—Income tax—Deductions—Provincial mining taxes—Prescribed formula—Method of computing deduction—Income Tax Act, R.S.C. 1952, c. 148, s. 11(1)(p)—Income Tax Regulations, s. 701.

[Page 512]

The appellant, a mining company, sought to deduct under s. 11(1) (p) of the Income Tax Act, R.S.C. 1952, c. 148, and Regulation 701(1) (b), the amount of mining taxes it had paid to the province of Ontario under the Mining Tax Act of that province. The Minister construed the formula in the Regulation as prescribing that the numerator of the fraction of the provincial mining taxes that is permitted to be deducted was “federally computed mining income” and that the denominator was “provincially computed mining income”. The appellant contended that both the numerator and the denominator of the fraction were the same and referred to “federally computed mining income”. The Exchequer Court accepted the Minister’s formula, and the company appealed to this Court.

Held (Hall, Spence and Pigeon JJ. dissenting): The appeal should be dismissed.

Per Cartwright C.J.: The word “income” used in setting forth the denominator is not defined and should be given its ordinary meaning having regard to the context in which it is used. It would require compelling reasons to enable the Court to hold that income “in respect of which certain taxes were paid” was income other than that defined by the authority which imposed the taxes and made by that authority the basis with regard to which the taxes were calculated, that is, in the case at bar, the income of the taxpayer computed under the Ontario Mining Tax Act. No adequate reason could be found for departing from what appeared to be the plain and natural meaning of the concluding words of clause (b) of s. 701(1).

Per Fauteux, Abbott, Martland, Judson and Ritchie JJ.: The Minister’s formula is the correct one. The words in Regulation 701(1)(b) “income in respect of which the taxes were so paid”, being the words forming the denominator of the fraction, must and could only refer to income as computed under the provincial Mining Tax Act since it is only in respect of provincially computed income that taxes are paid to the province. Any other construction produces this anomaly—that the taxpayer may deduct in full the provincial taxes notwithstanding the fact that the Regulation says that the deduction is the lesser of two sums, the first of which is the taxes actually paid, and the second, a proportion only of these taxes. Deduction in full according to the appellant’s formula is contrary to the meaning and intent of the Regulation.

[Page 513]

Per Hall, Spence and Pigeon JJ., dissenting: It is clear that the numerator of the fraction is to be determined and computed in accordance with the federal definition of “income” for taxation purposes. The same word “income” when used to specify the denominator is to be similarly construed. When using the word “income” in describing both the numerator and the denominator of the fraction, the author of the Regulations meant “income” within the meaning of the Income Tax Act. The literal construction yields a result that is not only logical but also consistent and gives effect to every word used. It also avoids any conflict with the 1957 Tax Sharing Agreement between Canada and Ontario.

APPEAL from a judgment of Cattanach J. of the Exchequer Court of Canada[1], in an income tax matter. Appeal dismissel, Hall, Spence and Pigeon JJ. dissenting.

W.B. Williston, Q.C., and J.W. Swackhamer, Q.C., for the appellant.

J.D. Arnup, Q.C., and G.W. Ainslie, Q.C., for the respondent.

THE CHIEF JUSTICE—The relevant provisions of the regulations made pursuant to the Income Tax Act, R.S.C. 1952, c. 148, as amended to 1960, are set out in the reasons of my brothers Judson and Pigeon which I have had the advantage of reading. What we have to decide is the construction of s. 701 of those regulations and the question has been narrowed down to the meaning of clause (b) of s. 701(1) which reads:

(b) that proportion of such taxes that his income derived from mining operations in the province for the year is of his income in respect of which the taxes were so paid.

It is common ground that the words “such taxes” mean the taxes described in s. 701(1) (a) and there is no question as to their amount; the dispute is as to how the proportion thereof referred to in clause (b) is to be ascertained.

[Page 514]

The formula contended for by the respondent and accepted by Cattanach J. is:

Taxes paid to the Province in respect of the appellant’s income derived from mining operations in the Province	X	Income derived from mining operations in the Province as computed under s. 701(2) of the Regulation, (i.e. federally computed mining Income)
		Provincially computed mining Income.

In the formula contended for by the appellant the multiplicand is the same and so is the numerator of the fraction by which it is to be multiplied. To avoid any misunderstanding of the appellant’s position, I will set out the words of the written memorandum filed by its counsel during the argument stating how he contends that the denominator should be described:

Income in respect of which the taxes were so paid (i.e.—the total of the income derived from mining operations and income from processing and income from other sources which is taxed)

or more precisely

Income derived from mining operations in the Province of Ontario as defined under Regulation 701(2)(a) + any other income excluded by Regulations 701 (2) (a) (ii) (A) and (B) which is taxed.

I agree with the view of my brother Pigeon that under the appellant’s formula the fraction will not necessarily in the case of every Province be always one over one; but in spite of this the concluding words of Clause (b) “his income in respect of which the taxes were so paid” appear to me to have the meaning ascribed to them by the learned trial Judge and by my brother Judson.

The phrase “income derived from mining operations” used in clause (b) in setting forth the numerator is defined in s. 701 (2) (a) but the word “income” used in setting forth the denomi-

[Page 515]

nator is not defined and should be given its ordinary meaning having regard to the context in which it is used. The terms “on” and “in respect of” applied to income which is taxed are not terms of art and, in my opinion, it would require compelling reasons to enable the Court to hold that income “in respect of which certain taxes were paid” was income other than that defined by the authority which imposed the taxes and made by that authority the basis with regard to which the taxes were calculated, that is, in the case at bar, the income of the taxpayer computed under the Ontario Mining Tax Act. I can find no adequate reason for departing from what appears to me to be the plain and natural meaning of the concluding words of clause (b).

I am fortified in this conclusion by the view expressed by Kellock J. with the concurrence of Taschereau J. and by Rand J. in M.N.R. v. Spruce Falls Power & Paper Co. Ltd.[2], as to the meaning of a phrase used in a similar legislative scheme. In that case the fraction to be employed was described as follows:

1. Subject to these regulations the amount that a person may deduct from income under paragraph (w) of subsection one of section five, is an amount not exceeding the proportion of the total taxes therein mentioned paid by him to

(a) the Government of a Province, or

(b) a municipality in lieu of taxes on property or any interest in property other than his residential property or any interest therein

that the part of his income that is equal to the amount of

(c) income derived by him from mining operations as defined herein, or

(d) income derived by him from logging operations as defined herein

is of the total income in respect of which the taxes therein mentioned were so paid.

It will be observed that the numerator of the fraction with which the Court was there concerned was federally computed income from logging operations, which corresponds to the

[Page 516]

numerator in the case at bar, while the denominator was to be “the total income in respect of which the taxes therein mentioned (i.e. the taxes paid to the Province or municipality) were so paid”. It will be observed how closely these words correspond to those with which we are dealing “income in respect of which the taxes were so paid”.

In dealing with clause (d) and the words which follow it Kellock J. said at pp. 417 and 418:

… As amended, the deduction authorized was the fraction of the provincial or municipal tax represented by the taxpayer’s income from logging operations as defined by the regulations, divided by the taxpayer’s total income in respect of which the taxes mentioned in s. 5(1) (w) were paid, i.e., the total income from logging as defined by the provincial legislation.

and at p. 420, dealing with the same words, Rand J. said:

The important words are ‘income … from logging operations as defined herein’ that is, the basis set up in the regulations. In other words, if that basis should produce only one‑half of the amount of income taxed by the province, then only one-half of the taxes paid could be deducted under (w). The Dominion did not intend to allow deduction on the basis of larger income than that produced by the application of its own formula. What is clear is that the denominator of that fraction is a figure determined not by the Minister or any court but by the province.

I do not cite these passages as binding upon us; I am prepared to assume that they were spoken obiter; their importance lies in the fact that the learned Judges regarded as clear the meaning of the words describing the denominator.

That the question we are called upon to decide is not free from difficulty is evidenced by the difference of opinion in this Court, but having considered all the arguments advanced in support of the appeal I find myself in agreement with the conclusion arrived at by the learned trial judge and would dispose of the appeal as proposed by my brother Judson.

[Page 517]

The judgment of Fauteux, Abbott, Martland, Judson and Ritchie JJ. was delivered by

JUDSON J.—We are concerned in this appeal from a judgment of the Exchequer Court of Canada[3] with the extent of the permissible deductions under the Income Tax Act for mining taxes paid to a province. These are provided for under s. 11(1) (p) of the Income Tax Act, As the legislation read at the relevant period, the permissible amount was “such amount as may be allowed by regulation in respect of taxes on income for the year from mining or logging operations.” The regulation is No. 701, subs. (1) of which I now set out in full:

701. (1) In computing his income for a taxation year, a taxpayer may deduct, under paragraph (p) of subsection (1) of section 11 of the Act, an amount equal to the lesser of

(a) the aggregate of the taxes paid, in respect of his income derived from mining operations in the province for the year,

(i) to the province, and

(ii) to a municipality in the province in lieu of taxes on property or any interest in property (other than his residential property or any interest therein), or

(b) that proportion of such taxes that his income derived from mining operations in the province for the year is of his income in respect of which the taxes were so paid.

(2) In this section,

(a) “income derived from mining operations” in a province for a taxation year by a taxpayer means,

(i) if the taxpayer has no source of income other than mining operations, the amount that would otherwise be his income for the year if no amount had been deducted in computing his income under paragraph (b) of subsection (1) of section 11 of the Act or paragraph (g) of subsection (1) of section 1100 of these Regulations, or

(ii) in any other case, the amount that would otherwise be his income for the year if no amount had been deducted in computing his

[Page 518]

income under paragraph (b) of subsection (1) of section 11 of the Act or paragraph (g) of subsection (1) of section 1100 of these Regulations, minus the aggregate of

(A) his income for the year from all sources other than mining, processing and sale of mineral ores, minerals and products produced therefrom, and

(B) an amount equal to 8 per cent of the original cost to him of properties described in Schedule B to these Regulations used by him in the year in the processing of mineral ores, minerals or products derived therefrom, or, if the amount so determined is greater than 65 per cent of the income remaining after deducting the amount determined under clause (A), 65 per cent of the income so remaining, or, if the amount so determined is less than 15 per cent of the income so remaining, 15 per cent of the income so remaining;

* * *

(e) “mining operations” means the extraction or production of mineral ore from ore in any mine or its transportation to, or over any part of the distance to, the point of egress from the mine, including processing thereof prior to or in the course of such transportation but not including any processing thereof after removal from the mine.

The significant point to note in the definition of “mining operations” is that it restricts the meaning to extraction and excludes processing after removal from the mine. Ontario taxes only profit (income) from extraction. Quebec taxes both extraction and processing.

In the definition of “Income derived from mining operations” there is an exclusion of capital cost allowance except to the extent permitted by regulation 701(2) (ii)(B) on properties used in processing.

The submission made by the appellant in the Exchequer Court and in this Court was that under this regulation it was entitled to deduct mining taxes paid to the Province of Ontario in full and in every case, and this notwithstanding the clear statement in the regulation that it was the lesser of two amounts that was to be deducted. The

[Page 519]

effect of this submission, at least in the Province of Ontario, may be summarized as follows:

Taxes paid to the province	X	Federally computed Mining Income
		Federally computed Mining Income

The Minister’s formula for computation of allowance is:

Taxes paid to the province	X	Federally computed Mining Income
		Provincially computed Mining Income

The Exchequer Court has accepted the Minister’s formula, as did the Tax Appeal Board when it had the same problem. In my opinion, these decisions are right.

The result of the application of the first formula would give the taxpayer 100 per cent deduction in every case. It is simply multiplying taxes paid to the province by one. There can be no lesser of two sums if such a formula is spelled out from the regulation. My opinion is that deduction in full according to the first formula is contrary to the meaning and intent of the regulation.

I now turn to an examination of Regulation 701(1)(a), which provides the first alternative: “taxes paid in respect of his income derived from mining operations in the province for the year to the province” can only have one meaning—that is the income referred to must be computed under the provincial Mining Tax Act. The elaborate definition of “income derived from mining operations” contained in reg. 701 (2) (a) cannot be applied to reg. 701(1) (a) without rendering the paragraph meaningless, since no mining taxes are paid to the province in respect of income computed under the Income Tax Act (Canada) and Regulation 701 (2)(a).

[Page 520]

The alternative deduction is provided by reg. 701(1)(b):

that proportion of such taxes that his income derived from mining operations in the province for the year is of his income in respect of which the taxes were so paid.

This gives us a formula:

Such taxes as in reg. 701(1) (a), i.e., taxes paid to the province	X	A Income derived from mining operations in the province
		B Income in respect of which the taxes were so paid.

It is common ground that the elaborate definition of reg. 701 (2) (a) applies to the numerator of the fraction (A) and that it is federally computed income under the Income Tax Act (Canada) and Regulation 701(2) (a). What is to be done about the denominator (B), “Income in respect of which the taxes were so paid?” The taxes “so paid” were paid in respect of income derived from mining operations in the province as referred to in the first alternative, (701(1) (a)), and must and can only refer to income as computed under the provincial Mining Tax Act since it is only in respect of provincially computed income that taxes are paid to the province. These words relate to actual facts and events and can only be ascertained by reference to the provincial tax return which discloses an actual income and an actual tax based upon a provincial assessment according to provincial law. Federally computed income can have nothing to do with the determination of this denominator.

I am therefore of the opinion that the Minister’s formula as set out above is the correct one:

Taxes paid to the province	X	Federally computed mining income
		Provincially computed mining income

[Page 521]

The practical application of the formula is illustrated by the assessment for the period May 1, 1959, to December 31, 1959.

For its 1959 taxation year the company paid taxes in the amount of $358,290.85 to the Province of Ontario under the Mining Tax Act, R.S.O. 1950, c. 237. In computing its income for the eight-month period commencing on May 1, 1959, it allocated, in its income tax return filed under the Income Tax Act, the sum of $231,198.98 of the amount of $358,290.85 to that period and sought to deduct that amount under s. 11(1) (p) and regulation 701 in computing its income or loss for 1959. The Minister allocated $232,917.55 and the parties have agreed to accept the Minister’s figure. The figure of $232,917.55 may, therefore, for the purposes of this appeal, be treated as having been paid in respect of the eight-month period commencing on May 1, 1959.

The appellant’s profit, as computed under the Mining Tax Act, R.S.O. 1950, c. 237, was, for the appellant’s 1959 taxation year, $3,717,189.55, and the Minister, on assessing, assumed that of that amount $2,416,474.24 was attributable to the eight-month period following April 30, 1959.

The Minister, for the purposes of the computation of the amount deductible under s. 11(1) (p) and reg. 701(1) (b), calculated the appellant’s income derived from mining operations in the Province of Ontario in accordance with the Income Tax Act (Canada) to be $2,137,973.46 less a “milling allowance” (Reg. 701 (2) (b) (ii)) of $340,837.61, or $1,797,135.85. Thus, the basis of the Minister’s computation of the amount deductible by the appellant under s. 11(1)(p) was:

taxes paid to the Province of Ontario in respect of its income derived from mining operations in the Province of Ontario	X	income derived from mining operations in the Province of Ontario as computed under section 701(2) of the Regulations and the Income Tax Act, R.S.C. 1952, c. 148
		income in respect of which the taxes were so paid to the Province of Ontario, computed under the Ontario Mining Tax Act

[Page 522]

that is to say:

Accordingly, the Minister allowed as a deduction for 1959 the sum of $173,221.16 rather than $231,198.98 claimed by the appellant. This assessment is right and the appeal from it fails.

There was an assessment for the period January 1, 1960, to June 30, 1960, made on the same basis. The appeal from this assessment fails.

There was also an appeal filed against an assessment for the period January 30, 1956, to April 30, 1956. During this period the taxpayer sustained a loss from its mining operations. The numerator in the fraction is zero. The result is that no amount is deductible under s. 11(1) (p) of the Income Tax Act for this period. No argument was submitted by the appellant against this.

The plain meaning of the regulation requires this construction and this computation. Any other construction produces this anomaly—that the taxpayer may deduct in full the provincial taxes notwithstanding the fact that the regulation says that the deduction is the lesser of two sums, the first of which is the taxes actually paid, and the second, a proportion only of these taxes. No rule of construction can be applicable to produce such a result and no rule of construction is required here. The words are plain and are referable only to provincially computed mining income and for a very good reason. The Canadian tax authori-

[Page 523]

ties recognized that the tax basis for mining companies might vary from province to province. If the tax basis of any province were precisely the same as the Canadian tax basis, then a 100 per cent deduction would be allowed. I know of no such uniformity. If the provincial tax basis differs from the Canadian tax basis, then regulation 701 does not permit a full deduction if the provincial tax has been calculated in a way more favourable to the provincial government than is regarded as normal by the federal Act and regulation.

The appeal should be dismissed with costs and the assessments affirmed.

The judgment of Hall, Spence and Pigeon JJ. was delivered by

PIGEON J. (dissenting)—The only question raised on this appeal is the construction of s. 701 of the Income Tax Regulations. Subsection (1) is as follows:

701. (1) In computing his income for a taxation year, a taxpayer may deduct, under paragraph (p) of subsection (1) of section 11 of the Act, an amount equal to the lesser of

(a) the aggregate of the taxes paid, in respect of his income derived from mining operations in a province for the year,

(i) to the province, and

(ii) to a municipality in the province in lieu of taxes on property or any interest in property (other than his residential property or any interest therein), or

(b) that proportion of such taxes that his income derived from mining operations in the province for the year is of his income in respect of which the taxes were so paid.

In subsection (2), the expression “mining operations” is defined so as to exclude any processing of mineral ore after removal from the mine; “income derived from mining operations”, if the taxpayer has a source of income other than mining operations (v.g. if he has income from processing), is defined so as to be in effect the income from mining, processing and sale of minerals and products without any allowance for depletion or in respect of capital cost but less 8 per cent of the original cost of the properties

[Page 524]

used in the processing, this allowance not to exceed 65 per cent of the income on which it is allowed nor to be less than 15 per cent thereof.

It is common ground that this definition being in the regulations under the Income Tax Act is to be construed by reference to that Act and accordingly the word “income” means income as defined therein. Therefore, it is clear that the numerator of the fraction of the provincial mining taxes that is permitted to be deducted by para. (b) of subs. (1) is to be determined and computed in accordance with the federal definition of “income” for taxation purposes. It is, however, contended by the Minister that the same word “income” when used to specify the denominator of the fraction is not to be similarly construed but must be taken to mean what the provincial Act levying mining taxes defines as the basis of such taxation, that is in effect what the Mining Tax Act of the Province of Ontario describes as the “profit” subject to such taxation.

In the Exchequer Court, Cattanach J. said:

In considering the words, “income from mining operations” in the context in which they appear in Regulation 701(1)(a), it seems to me that the clear and unequivocal meaning of those words, considering only that paragraph, is the income in respect of which taxes were paid to the Province, which of necessity must be mining income calculated as required by the Provincial Statute. It follows, therefore, that there is a contrary intention as contemplated in section 34 of the Interpretation Act and accordingly the definition of the words in Regulation 701(2)(a) is not applicable to them as used in Regulation 701(1)(a),

With deference, I fail to see any necessity for so construing the regulation. In effect, the assertion that there is such a necessity really means nothing else than that such must be the meaning because it is assumed that this is how it must be. This is contrary to the cardinal rule of interpretation that one must seek the meaning in the literal sense of the words used and not in any

[Page 525]

supposed intention. This is also really to deprive of any effect the rule that the words used in a regulation are to be taken in the meaning that they have in the act under which it is made. Of course, as with other rules of construction, this is subject to the well known exception “unless the contrary intention appears”. But this exception requires the contrary intention to be manifest either by explicit words or by necessary implication. Explicit words, there are none; nor is there any implication to be found.

It was contended that because the taxes sought to be deducted are provincial taxes, the “income in respect of which the taxes were so paid” must be taken to refer to the amount of money that is the basis on which those taxes are levied. Against this contention, it is significant that

(1) the first word used to specify the denominator of the fraction, i.e. “income”, is the same as the first word used to specify the numerator; it is a primary rule of legal construction that the same word in the same enactment is presumed to mean the same thing;

(2) the word thus used is not that which is found in the provincial act “profit” but that which is used in the federal act “income”;

(3) in the act, where a reference is intended to a basis of taxation other than “income” as therein defined, such as in s. 41, the word “profit” is used;

(4) the word used in the regulation to describe the relation of the taxes to the amount of money so described is not the preposition “on” regularly used in referring to the basis of taxation but “in respect of”, a locution that connotes a more indefinite relation.

If, instead of presuming that the author of the regulations did not mean what he said when using the word “income” in describing both the numerator and the denominator of the fraction, it is presumed that he did mean what he said, namely “income” within the meaning of the Income Tax Act, on what basis can one find fault with the manner in which he expressed himself?

[Page 526]

As against this, it was contended that if para. (b) is so construed, the fraction will always be unity because the numerator and the denominator will always be the same. As to this, one must observe that appellant’s formula for the computation of the allowance is

Taxes paid to the province	X	Federally computed Mining Income
		Federally computed Income in respect of which taxes were paid.

The underlined words are an essential part of the formula, para. (b) clearly requires them and whenever mining taxes are paid in respect of anything else than federally computed mining income, they result in the fraction being less than unity. At the second hearing this was conceded by counsel for the Minister. The effect of the underlined words is that if a Province levies mining taxes on anything that is excluded by the definition of “income derived from mining operations”—the numerator of the fraction—this must be included in computing the “income in respect of which the taxes were paid” i.e. the denominator. More concretely if, in computing the numerator a processing allowance was deducted this will have to be added back in computing the denominator, if mining tax was levied on profits that include it.

One must not consider the effect of the Regulation only as it applies to Ontario mining taxes. In that province, mining taxes are not levied on anything but the profit from “mining operations” as those last words are defined in the Regulations, that is they are levied only on the profit derived from the extraction of the ore without further processing. Therefore, the income in respect of which those taxes are paid includes nothing but “income derived from mining operations” as defined in the Regulations.

However, it is not necessarily so in all cases. In fact, mining taxes in the Province of Quebec

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are levied on a “profit” that includes processing. It follows that for Quebec mining companies, their “income in respect of which” those taxes are paid includes, if they derive any profit from processing, something which the definition of “income derived from mining operations” excludes from consideration. Therefore, in their case, the fraction is less than unity.

This shows that the literal construction yields a result that is not only logical but also consistent and gives effect to every word used. I dare say that even if at the time the regulations were made no province had been levying mining taxes on profits including processing, para. (b) could not properly have been considered useless. The possibility would have remained of an extension by one or more provinces of their taxation of mining profits to processing profits. This possibility would have been sufficient reason for a cautious draftsman to provide for such an eventuality.

It must now be considered that in para. (a) the expression used to described the taxes for which a deduction may be allowed is “taxes paid, in respect of his income derived from mining operations in the province”. Two things must be noted in that connection. First, that para, (b) contemplates a “proportion of such taxes”. Those last two words undoubtedly mean “the taxes described in para. (a)”. Therefore, para. (a) cannot be construed as applicable only to provincial taxes levied on the federal tax base. If so, there would be no deduction whatsoever: (b) is a fraction of (a). Secondly, the same locution “in respect” is used in both (a) and (b). In the former, it clearly cannot refer to the tax base because this would make the Regulation inapplicable to any existing taxes. It must therefore refer to the incidence of the tax, not to the tax base, and, as a matter of principle, it cannot have a different meaning in (b) than in (a).

It was argued by counsel for the Minister that the word “lesser” implies that either of the quantities to be compared may be the greater, but if

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paragraph (b) is read as appellant contends, the “proportion” therein described can never be greater than the “aggregate” mentioned in para. (a). Such an inference is entirely unwarranted; it is not at all unusual in enactments to specify the “lesser” of two amounts even when it is obvious that the second can never be larger than the first. For instance, the following is to be found in subs. 3(e) of s. 11 of the Income Tax Act:

… there may be deducted … an amount equal to the lesser of

(a) …

(b) the amount determined under paragraph (a) less the amount, if any …

It must now be observed that s. 702 (1) of the regulations in force at the material time defines to a certain extent the mining taxes that may be deducted in computing income. This provision is in the following terms:

702 (1). Nothing contained in this Part shall be construed as allowing a taxpayer to deduct an amount in respect of taxes imposed under a statute or by-law which is not restricted to the taxation of persons engaged in logging or mining operations.

It must be noted that this does not restrict the deduction to taxes imposed in respect of “logging or mining operations” as those words are defined, but to taxes imposed under “a statute or by-law restricted to the taxation of persons engaged in” such operations. The result is that as long as none but “persons engaged in logging or mining operations” are taxed, the right to the deduction arises even though the incidence of the tax may not be restricted to what is defined as “logging or mining operations”. It is obviously the difference between the description of the taxes that may be deducted and the definition of the “income” in respect of which the deduction may be allowed that gave rise to the necessity of providing for a proportion only to be allowed if the provincial statute levies the tax on a wider base. This in no way implies that the apportionment should be made by reference to the provincially computed base of taxation. The illogical result of this

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assumption is, in this case, to allow a part only of the mining taxes to be deducted when there is no reason for not allowing the whole.

It must now be pointed out that the literal construction of the regulation avoids any conflict with the Tax Sharing Agreement between the Government of Canada and the Government of the Province of Ontario dated April 16, 1957. This agreement includes an undertaking by the Government of Canada to allow as a deduction under the Income Tax Act provincial taxes on “income derived from mining operations”; this is defined substantially as in the regulation. Such an agreement is not a treaty executed under prerogative powers only. It is a legally binding arrangement authorized by federal and provincial legislation. Although the regulation is authorized by Income Tax Act provisions not specifically related to this tax sharing legislation, it is obvious that the regulation was passed in order to implement Canada’s undertaking under the agreement seeing that this undertaking expressly relates to the Income Tax Act. I do not doubt that it is in pari materia and should be considered, if necessary, in construing the regulations just as the Rome Convention was considered in construing the Copyright Amendment Act intended to implement it. (CAPAC v. CTV[4]). However, seeing that the same result is obtained without considering the agreement, it appears unnecessary to express a firm opinion on that point.

On the other hand, it appears essential to give consideration to the decision of this Court in Minister of National Revenue v. Spruce Falls Power & Paper Co. Ltd.[5] on which both parties

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have relied. In that case the problem was as stated by Kellock J. the following (at p. 413):

The question of construction which arises in each case is as to whether the words “in respect of taxes on income for the year from … logging operations” in s. 5(1) (w) are limited to a provincial tax imposed specifically on such income, or whether the paragraph contemplates as well, the deduction of a part of a general income tax, apportioned on the basis of the proportion which income from logging bears to total income.

It was held, on a consideration of the wording of the act together with the regulations applicable to the 1947 taxation year and the Dominion-Provincial Tax Rental Agreements Act (1947), that what was contemplated was only (at p. 414) “a provincial tax specifically imposed on income from logging or mining”. The applicable regulations did not include a provision similar to regulation 702(1). Such a provision appeared for the first time in Regulation 700 passed on December 22, 1949, that is after the deduction had been claimed for the 1947 taxation year (James MacLaren Co. Ltd. v. Minister of National Revenue[6]).

In discussing the provision of the applicable regulations respecting the proportion of taxes deductible, which are not identical with those applicable to this case, it was said that the denominator of the fraction was a figure determined by the province. This was undoubtedly obiter dictum. The Court did not reach the question of apportionment in deciding the case because it was held that the provincial income tax under consideration was not the kind of tax contemplated and, therefore, no part of it was deductible. However, it is noteworthy that this conclusion was reached largely upon consideration of the language of the Tax Rental Agreement. It seems most unlikely that the same view would have been expressed as to the meaning of the apportionment formula if, as in this case, such a construction had run contrary to the clear intent of the federal-provincial arrangement.

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Counsel for the Minister at the second hearing of this case put the Agreement in simple terms, somewhat as this:

We will allow a deduction of mining taxes paid to the Provinces subject to one qualification: if a Province works out a method of computing income which is so broad that it enables the Province to collect more taxes than we are giving up, the deduction will not be of all the taxes paid to the Province but only of that portion equivalent to what we have given up.

In my view that is a fair statement of the intent of the Federal-Provincial Agreement with respect to mining taxes.

Let us now see if in collecting mining taxes the Province of Ontario stayed within the ambit of what the federal government had given up. This is not a specific percentage of income as in some arrangements concerning personal income tax. It is in effect priority for taxes at whatever rate the Province chooses to levy on “income derived from mining operations” (clause 3.2). Therefore, such taxes are allowed “as a deduction in computing income under the Income Tax Act” (clause 3.3). At that point in the Agreement, it is perfectly clear that “income derived from mining operations” has the same meaning as the same expression admittedly has in the regulation.

Then, if one turns to the final clause of the Agreement, it will be found that this same expression is the subject of an elaborate definition. Broadly speaking, this definition proceeds by excluding first profit from sources “other than mining operations and the processing and sale of mineral ore or products produced therefrom”. Then, because it is not intended to allow a deduction in respect of income from processing but such income is frequently not ascertainable separately, provision is made for an allowance of 8 per cent of the cost of properties used in the processing, subject to a maximum and a minimum.

Did the Province of Ontario levy mining taxes by a method enabling it to go beyond the scope

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of the definition “income derived from mining operations”? It is clear that it did not. No mining tax was levied on profits from sources other than mining or processing ore and, in order to avoid taxing income from processing, an allowance was made of 8 per cent of the assets used in the processing subject to the specified minimum and maximum. However, the dollar amount of the “profits” on which mining taxes are levied was greater than the amount of the “income derived from mining operations” because some deductions allowable in computing “income” are not allowable in computing “profits” for mining tax. Does this mean that Ontario thereby taxed profits other than those which are defined in the Agreement as “income derived from mining operations”? In my view it is clear that it did not, the taxation was not thereby made to fall upon income from other sources, it was calculated differently but it exclusively fell upon the income from mining. The mining taxes in question were therefore wholly paid in respect of “income derived from mining operations” and of no other income.

The appeal should be allowed with costs and the judgment of the Exchequer Court dated September 29, 1966, should be reversed. The appeal of the appellant to the Exchequer Court from an assessment for the taxation year 1960 of Pronto Uranium Mines Limited (a predecessor of the appellant) should be allowed with costs and this assessment should be referred back to the Minister for re-assessment in accordance with the above reasons.

Appeal dismissed with costs, Hall, Spence and Pigeon JJ. dissenting.

Solicitors for the appellant: Fasken & Calvin, Toronto.

Solicitor for the respondent: D.S. Maxwell, Ottawa.