James Foster Irwin v. Minister of National Revenue, [1972] CTC 2239, 72 DTC 1201

J O Weldon:—This appeal of the appellant James Foster Irwin (“Irwin”) initiated by Notice of Appeal dated June 9, 1970 with respect to his 1965 and 1966 taxation years and those of the appellants James F McDonald (“McDonald”) and John P Vincent (“Vincent”) initiated by their Notices of Appeal dated March 4, 1971 and December 11, 1970 respectively, with respect to their 1966 taxation years were heard together at Edmonton, Alberta on October 21, 1971 under the Tax Appeal Board as it was then constituted.

In the Irwin appeal, the Minister has filed a consent to judgment with the Board allowing the appeal with respect to the appellant’s 1965 taxation year and also with respect to two of the three issues raised in his 1966 taxation year, the remaining issue still to be disposed of being the one involving the taxability of Irwin’s 1/3 share of the profit of $24,398 allegedly made by him and the said McDonald and Vincent equally in connection with the sale on September 28, 1966 of their joint interest in Claim Block CBS 355 consisting of 7,200 acres, more or less, situated in the Athabasca Mining Division in the Province of Saskatchewan, which is shown on Claim Map 74-10-SW in their respective 1966 taxation years, the division of the said profit of $24,398 being as follows:

The parties were represented by counsel as follows: F D Jones, Esq for the three appellants mentioned above and T E Jackson, Esq for the Minister.

All three appeals involve the applicability of section 83 of the Income Tax Act, RSC 1952, c 148 as amended. Subsection (2) thereof makes special provision for an individual who prospects or explores for minerals on behalf of himself and others or as an employee, and subsection (3) thereof makes special provision for a person who has acted, in effect, as a “grubstaker” or as an employer of a prospector.

At the commencement of the hearing of the appeal, it was agreed by counsel as aforesaid: that, since all three appeals arose out of the same set of facts, they should be tried together; that the evidence adduced and the arguments submitted by counsel for the parties should be generally applicable to all three matters (in that regard, all three appellants testified at the hearing, also K J Rootes, Director of the Alberta Securities Commission), and that the Board should issue a separate judgment in each appeal.

McDonald (born 1911) operated a pool-room and restaurant in his own building in Yellowknife, Northwest Territories from 1944 to 1952 and also actively prospected in that area on a part-time basis. Previously, he had prospected on a full-time basis in the area of Great Bear Lake, Northwest Territories, commencing in 1932. In 1952, McDonald moved to Uranium City, Saskatchewan which is about 300 miles south of Yellowknife where he has since been operating a garage and has also been actively prospecting on a part-time basis as he did before in Yellowknife. Vincent (born 1918) moved to Yellowknife in 1945 to become the Imperial Oil agent there and started to prospect in that area on a part-time basis in 1946. In 1952 Vincent also moved to Uranium City where he continued to work for Imperial Oil and also continued his prospecting activities in that area on a part-time basis. McDonald and Vincent knew each other in both Yellowknife and Uranium City. According to Vincent, they prospected together on quite a few occasions. Irwin (born 1920) is a professional mining engineer who has had a great deal of experience in mining especially for uranium in the area of Uranium City which is the hub for that type of ore. He was a direct employee of Eldorado Mining and Refining Company in an engineering capacity during the period from 1946 to 1949. Thereafter, Irwin prospected on his own account until the middle of 1952. In 1952 he returned to Uranium City (all three taxpayers seemed to converge on Uranium City in 1952) where he was employed by Nesbitt LaBine Uranium Mines Lid for the ensuing five years. During that period, he did extensive prospecting in the Uranium City area and became familiar with the Orbit Lake area where Claim Block CBS 355 under scrutiny herein is located. Irwin was responsible for the staking of the Gunnar Mines property near Uranium City and became its resident manager in 1958. Since 1963 he has been practising in Edmonton, Alberta as a consulting mining engineer.

From the evidence given by McDonald, Vincent and Irwin the situation in this appeal can be summed up as follows:

1. Every red-blooded resident of a mining centre like Uranium City takes, as a matter of course, a keen interest in all of the mining activities and happenings in such an area and seizes and makes opportunities to try his hand at prospecting on his own account whenever possible. After a group of mining claims have been recorded, it is customary, apparently, for the prospector involved to spread the news of his find because his next step is to find some person who is able and willing to develop the property in question. So, the recording of claims and, in due course, even the lapsing of claims is often a matter of general public knowledge in a place like Uranium City especially amongst the mining fraternity.

2. All three of the said taxpayers have known each other very well indeed, at least, since 1952, have each had extensive general prospecting experience, and all of them have specifically prospected the Orbit Lake area where the above-mentioned Claim Block CBS 355 is located at various times during the period from 1952 to 1966 prior to the staking of that property, it should be carefully noted: that Vincent testified at the hearing of the appeal that ‘at the time of staking (Claim Block CBS 355) or shortly thereafter or before” he did not know of the existence of Alwin Mining Company Ltd, the purchaser of the Claim Block in September 1966; that McDonald testified that he was only introduced to the “Alwin people” by a friend when he was having breakfast in his hotel in Edmonton in September 1966; that McDonald left the clear impression with me that he had not had any previous dealings with them, and that, while Irwin did know the Alwin people and was a consultant for Alwin Mining Company Ltd, his evidence was quite clear that he did not mention Claim Block CBS 355 to the Alwin people until several months had elapsed after the staking of the property.

3. McDonald and Vincent have been resourceful and have acquired their aptitude for prospecting from the experienced prospectors with whom they have worked and from professional mining men such as their associate Irwin. In their prospecting trips, all three taxpayers have been accustomed to using electronic equipment, such as a. geiger counter or a field scintillometer. After listening to their several explanations as to how one goes about prospecting, there is no doubt in my mind that they have each earned the right to be characterized as a “prospector”.

4. Following from and as a direct consequence of the prospecting activities of the three taxpayers herein, McDonald staked Claim Block CBS 355 during the period from May 21 to May 24, 1966 on behalf of himself, Vincent and Irwin. Vincent would have taken an active part in the staking if he had not been engaged elsewhere at the time. Evidently, all three taxpayers had had a number of discussions between them over a period of time as to the advisability of staking the above Claim Block, and there is no question that they did not have an arrangement or understanding between them prior to the staking of the said property. It should be carefully noted that a prospector who has made a find should not always rush to stake and record a mining claim in respect thereof without considering its economic prospects, and also where he is going to raise the money to keep the claim in good standing under the appropriate mining legislation until he can turn it over on a profitable basis. The evidence was clear herein that each of the three taxpayers shared equally the staking and recording expenses with respect to the said Block Claim amounting to about $1,600.

5. Without ruling out the possibility that McDonald, Vincent and Irwin were, in effect, partners in their joint project, I have come to the conclusion that McDonald and Vincent should be treated as the prospectors in this matter and, therefore, as qualifying under subsection 83(2) of the Act, and that Irwin should be treated as a person who had an arrangement with McDonald and Vincent prior to their prospecting, staking and recording of Claim Block CBS 355 under which he paid part of the expenses therefor and, therefore, as qualifying under subsection 83(3) of the Act. The above conclusion appears to be borne out by the six operation reports of Associated Helicopters Ltd filed herein covering six flights taken by McDonald and his assistant to the Orbit Lake area during the period from May 21 to 24, 1966 when he was staking Claim Block CBS 355. Each of the six operation reports states that the customer is J Foster Irwin and identifies the purpose of the flight in question as the “McDonald & Vincent Job”.

On the basis of the Minister’s consent to judgment in this appeal of James Foster Irwin referred to earlier herein which deletes the net addition of $893.28 from his income in the 1965 taxation year “respecting Riverhills Trust Syndicate profit” thereby allowing the appeal with respect to the 1965 taxation year in full, and also deletes the profit of $20,201.65 from his income in the 1966 taxation year “from Riverhills Trust Syndicate and Foothills Investment Club” thereby allowing the appeal with respect to the 1966 taxation year in part and, since it has now been decided that Irwin’s 1/3 share of the profit from the sale of Claim Block CBS 355 amounting to the sum of $8,132.66 should be deleted from his income in the 1966 taxation year, the appeal of James Foster Irwin with respect to his 1965 and 1966 taxation years should be allowed in full and the relevant assessments vacated.

Appeal allowed.