Canada: Case Law Summaries – Tax

Last Updated: April 1 2019
Article by Aidan L. Cameron, Vivian Ntiri, Alexis Hudon, Camille Marceau and Angela M. Juba

Most Read Contributor in Canada, March 2019


This case involved an appeal from a Superior Court decision on the interpretation of a provision of Québec's Taxation Act.

In October 2002, the Kiena mine ceased operations and was placed in care and maintenance, because its known extractable resources did not economically justify its operations. In 2003, the Respondent Wesdome purchased the Kiena mine. Wesdome invested in the modernisation of the mine's equipment and exploration works in order to use the mine's well to explore some adjacent properties it owned. The investment paid off: through the work undertaken via the Kiena mine, Wesdome identified gold deposits that could justify extraction.

Section 395(c) of the Taxation Act provides a tax credit for Canadian exploration expenses, but the tax credit does not apply to development expenses related to a mine that has come into production. The issue was whether Wesdome's investment in the Kiena mine qualified for the s. 395(c) tax credit. The Agence du revenu du Québec (ARQ) reassessed Wesdome in 2011 for exploration credits claimed in 2005 and 2006 relating to the Kiena exploration properties. The ARQ argued that Wesdome did not qualify for the tax credit because the expenditures at the Kiena mine formed part of a continuum of work previously carried out on site, and the mineral resource had reached the production stage. Wesdome argued that the investment did qualify for the tax credit, because the mine was not operational when it made the investment.

The Court of Appeal upheld the Superior Court's ruling that Wesdome was eligible for the tax credit. The Court of Appeal reasoned that s. 395(c) does not require that the exploration expenses be incurred at a new mine. Further, if a mine was in commercial production sometime in the past, but is not in operation when relevant expenses are incurred, the investment will be eligible. In analyzing s. 395(c), the Court of Appeal concluded that the legislator intended to encourage exploration that could lead to the discovery and production of new mineral resources. Because the Kiena mine was not in production when the investment was made, Wesdome's expenses were eligible for the tax credit. The ARQ has sought leave to appeal to the Supreme Court of Canada.


In this case, a B.C. mining company appealed the amount of resource tax on profits payable on assessment under the Mineral Tax Act.

The company, Huckleberry Mines Ltd., operates a copper/molybdenum mine near Houston, B.C. Its investors include three Japanese smelter companies and the Marubeni Corporation. The Mineral Tax Act (Act) requires Huckleberry to pay taxes on profits derived from its mine. Determination of this tax requires the calculation of gross revenue, which includes the "transaction value of the mineral product disposed of in the fiscal year of the mine." The transaction value, in turn, is the "price paid or payable for the mineral product." Huckleberry disputed tax assessments issued under the Act, and, after the B.C. Minister of Finance rejected its statutory appeal, Huckleberry appealed to the B.C. Supreme Court.

The central issue was determining the price payable for the copper produced by Huckleberry in 2006. Huckleberry had entered into a sales agreement with its Japanese investors to sell copper at a set price. Later, the parties entered a series of agreements that modified this arrangement. In essence, Huckleberry would sell the copper to Marubeni, which would then sell it to the Japanese companies at the same price as in the original agreement. It was also agreed that Marubeni would undertake certain hedging operations on the London Metal Exchange. In 2006, the price paid to Huckleberry was the sale price under the original agreement, less losses incurred by Marubeni in its hedging operations. Huckleberry argued it should be assessed on the basis of this revised price, rather than the set price in the original sales agreement. The province, in response, argued that the transaction value of the copper was the original price, and that the hedging losses were separate, and had no effect on the price paid to Huckleberry.

The Court preferred Huckleberry's calculation and analysis. The tax payable under the Act should have been calculated based on the amount that Huckleberry actually received, given the meaning of "transactional value of a mineral product" under s. 8. The Court concluded that Marubeni's hedging activities were relevant to determining the price, and that the tax payable by Huckleberry should be based on the lower price it was entitled to and actually received.

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