Lornex Mining Corp. Ltd. v. Canada
T-1330-84
Cullen J.
15/10/96
16 pp.
Appeal from reassessment of plaintiff's 1978 taxation year-Whether reference to "exempt income" in Income Tax Act, s. 21(1) to (4) includes income excluded from computation of taxpayer's income by virtue of Income Tax Application Rules, 1971 (ITAR), s. 28-At relevant time, plaintiff operated open-pit mine near Kamloops, British Columbia-Mine producing principally copper, molybdenum-For income tax purposes, mine commenced commercial production on September 1, 1972-From 1969 to 1973, plaintiff borrowed significant amounts of money for use in mining business-By notice of reassessment dated June 3, 1982, defendant reassessed plaintiff in respect of 1978 taxation year in amount of $2,610,826.25 for federal tax and $2,888,179.35 for provincial tax-Plaintiff objecting to reassessment for 1978 federal tax in entirety-Whether plaintiff entitled to capitalize interest expenses and convert them to exploration, prospecting and development expenses-Interest incurred to acquire tax exempt income cannot be deducted under Act, s. 20(1)(c)(i)-Interest may be deducted in computation of income only if criteria in s. 20(1)(c) satisfied-No dispute between parties as to applicability of ITAR, former s. 28 to plaintiff from September 1, 1972 to December 31, 1973-Dispute centring on effect of s. 28 within Act-On basis of statutory interpretation, case law, common sense, expression "shall not be included in computing the income" in ITAR, s. 28 means same as "exempt income" within meaning given to it by Act-ITAR not part of Act, part of separate enactment of Parliament of Canada-Act, s. 81(1)(a) provision that authorizes exclusions from income specified in ITAR-ITAR, s. 28(1) statutory exemption under Act, s. 81(1)(a)-Amount excluded from income by ITAR, s. 28(1) definable as s. 248(1) exempt income by reason of provision in Part I of Act-Reference to "exempt income" in Act, s. 21(1) to (4) includes income that is tax exempt by virtue of ITAR, former s. 28-By exercising elections under s. 21, plaintiff tried to maximize income during exempt period from September 1, 1972 to December 31, 1973, and to minimize income for post exempt period by taking interest, exploration and development expenses incurred and deducted for financial statement purposes in relation to exempt period, and moving them into non-exempt period-Plaintiff's actions neither authorized by legislation nor condoned by case law-Appeal dismissed-Income Tax Act, S.C. 1970-71-72, c. 63, ss. 20, 21(1),(2),(3),(4), 81(1)(a), 248(1)-Income Tax Application Rules, 1971, S.C. 1970-71-72, c. 63, Part III, s. 28.