Section 211.91

Subsection 211.91(1)


Tusk Exploration Ltd. v. Canada, 2018 FCA 121

Part XII.6 tax was payable on CEE purportedly renounced on a look-back basis to NAL shareholders

For its 2002 to 2006 years, the taxpayer (“Tusk Exploration” - a Canadian exploration company) renounced Canadian exploration expenses (“CEE”) under s. 66(12.6) using the Look back” rule under s. 66(12.66). However, approximately 97% of these renunciations were made to shareholders with whom Tusk did not deal at arm’s length, so that the look back rule was unavailable. Furthermore, there was a deficiency in the amount of CEE incurred by Tusk in the applicable subsequent years as compared to the CEE renounced for the look-back years. The shareholders with whom Tusk Exploration was not dealing at arm’s length were reassessed to deny the claims for CEE that had been renounced under s. 66(12.6) because of the application of s. 66(12.66) and were assessed interest on the resulting increase in tax liability - but were allowed to claim CEE for the year in which the CEE was actually incurred.

Tusk Exploration argued that it was not subject to Part XII.6 tax on the CEE expenses because the reference in Part XII.6 to CEE that it “purported” to renounce under the rule referred only to expenses which had been validly rather than invalidly renounced under the look-back rule: the reference to “purports to renounce” in s. 66(12.73) (which informed the meaning of the same phrase appearing in s. 211.91(1)) was only to allow the Minister to reduce the amounts that shareholders may claim for a previous year if there was a shortfall in the actual amount of CEE incurred, and did not apply to CEE renounced to a non-arm’s length person.

In rejecting this submission and confirming the Minister’s assessment of Tusk Exploration under Part XII.6, Webb JA stated (at paras 28-29):

… [T]he reference to “purports to renounce” in subsection 66(12.73) … is a reference to an amount that the corporation stated in the forms that it filed that it was renouncing and hence an amount that it claimed that it was renouncing. This would include amounts that were validly renounced and amounts that it could not renounce because any of the conditions of subsection 66(12.66) …were not satisfied. Furthermore, since subsection 66(12.73) … refers to both an amount that a corporation “purports to renounce” and to an amount that a corporation “can renounce”, amounts that a corporation “purports to renounce” cannot be restricted to only amounts that it “can renounce”. Because Parliament has chosen to use two different expressions, it must mean that Parliament did not intend for the two expressions to be synonymous.

… [P]aragraph 66(12.73)(d) … provides that any reduction in the amounts renounced does not affect the calculation of the amount payable under Part XII.6… . Therefore, Part XII.6 tax is not affected by any change in the amounts renounced as reflected in the statement filed with the Minister under subsection 66(12.73)… .

Furthermore, the additional requirement in (b)(v) of the s. 248(1) definition of “specified future tax consequence” that a purported renunciation be made to an arm’s length taxpayer implied that a renunciation could be purported to be made to a non-arm’s length shareholder (para. 39).

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 248 - Subsection 248(28) potential for double taxation under the ITA of NAL transactions 295
Tax Topics - Income Tax Act - Section 69 - Subsection 69(1) - Paragraph 69(1)(a) double taxation can result from non-arm’s length transactions such as under s. 69(1) 287
Tax Topics - Income Tax Act - Section 66 - Subsection 66(12.6) only a PBC can renounce 53

See Also

Tusk Exploration Ltd. v. The Queen, 2016 TCC 238

Part XII.6 tax applies to CEE which is invalidly (as well as validly) renounced on a look-back basis

The taxpayer, which was assessed under Part XII.6 for applying the look-back rule in s. 66(12.66) to Canadian exploration expenses (CEE) which were ineligible for treatment under the rule because they were renounced to a non-arm’s length shareholders, argued, referring to a statement in Joseph v Joseph, [1963] 3 All ER 486 at 490 that

The word “purports” … does not mean “professes”. It means “has the effect of”.

The taxpayer then argued that as the phrase “purported to renounce” in s. 211.91 meant “had the effect of renouncing,” A in the formula would only apply where the renunciation was effectively made in the year under s. 66(12.6) or 66(12.601) because of the application of s. 66(12.66).

In rejecting this submission (so that the taxpayer was liable for the Part XII.6 on all its look-back renunciations), V. Miller J stated (at paras. 42-43, 47):

…It is clear that “an amount purported to be renounced in respect of expenses incurred or to be incurred” must refer to an amount “claimed” to be renounced or “intended” to be renounced whether the claim is true or not. …

… If the legislators intended that section 211.91 only applied where the corporation effectively renounced an amount, they could have achieved this goal by simply omitting the word purport. …

Subsection 66(12.66) allows a corporation to renounce CEE that it has not yet incurred. In effect, it permits a corporation to back-date the expenses so that the shareholder can deduct amounts with respect to the CEE in the year prior to their being incurred. These are CEE that the corporation anticipates it will incur and “purports to renounce”. Clearly, this is a claim the corporation is making which may or may not be true.

Words and Phrases