Minister of National Revenue (Appellant)
v.
Bethlehem Copper Corporation Ltd. (Respond-
ent)
Court of Appeal, Jackett C.J., Sheppard and
Bastin D.JJ.—Vancouver, B.C., May 8 and 9,
1973.
Income tax—Exemption of income from operation of
mine—"Operation of mine", meaning—Two ore bodies
exploited in succession—Whether one mine operation—
Income Tax Act, s. 83(5).
A mining company discovered two ore bodies in the
Highland Valley of British Columbia. By December 1, 1962,
it was producing ore in commercial quantities from one of
these. This operation was terminated by a rock slide in
February 1965 and the company then commenced produc
ing ore from the second ore body, using the same mill for
concentrating the ore.
Held, the mining company was entitled under section
83(5) of the Income Tax Act to three years' tax exemption
of income from the operation of the second ore body. The
words "operation of a mine" in section 83(5) refer only to
the extraction of ore from an ore body and do not include
processing of the ore after it has been extracted. The
Minister's contention therefore that the operation of a mine
consisted of the whole of the extraction and processing
activities carried on by the company must be rejected.
North Bay Mica Co. v. M.N.R. [1958] S.C.R. 597;
M.N.R. v. MacLean Mining Co. [1970] S.C.R. 877,
referred to.
INCOME tax appeal.
COUNSEL:
J. A. Scollin, Q.C., and M. Bonner for
appellant.
B. W. F. McLoughlin, Q.C., for respondent.
SOLICITORS:
Deputy Attorney General of Canada for
appellant.
Lawrence and Shaw, Vancouver, for
respondent.
JACKETT C.J. (orally)—This is an appeal from
a decision of the Trial Division holding that the
respondent was entitled, in respect of its 1967
taxation year, to the exemption provided for by
section 83(5) of the Income Tax Act, which, in
so far as relevant and as applicable to that
taxation year, read as follows:
(5) ... there shall not be included in computing the
income of a corporation income derived from the operation
of a mine during the period of 36 months commencing with
the day on which the mine came into production.
The respondent, following its incorporation in
1955, engaged in mining exploration activities
on its extensive holdings of mineral properties
in the Highland Valley of British Columbia. As
a result of such activities, at least two ore
bodies were discovered.
Plans were developed for the necessary oper
ations whereby the respondent would remove
the ore from such ore bodies, convert the ore
into concentrates and sell the concentrates.
In carrying out these plans, one of the ore
bodies, which is known as "East Jersey", was
prepared for the extraction of ore by the open
pit method and a mill was erected for conver
sion of the ore into concentrates so that, on
December 1, 1962, ore was being produced in
commercial quantities and was being fed into
the mill for conversion into concentrates.
At that time, the appellant recognized that the
respondent had a "mine" that came into produc
tion on December 1, 1962, and was, therefore,
entitled to the benefit of section 83(5).
In February, 1965, a rock slide terminated the
operation on the East Jersey ore body, a month
or so before the respondent would have, in
accordance with its plans, stopped taking ore
from that ore body.
In the meantime, however, the other ore body
that had been discovered by the respondent's
exploration activities, which is called "Jersey",
had been prepared for the extraction of ore by
the open pit method and the respondent was
able to start extracting ore from it a month
earlier than had been planned. During that time,
also, arrangements had been made for expan
sion of the mill to handle the larger production
of ore to be expected from the Jersey ore body.
The issue between the parties in this appeal is
whether a "mine came into production" within
the meaning of section 83(5) when the respond-
ent started to produce ore from the Jersey ore
body.
Certain things are, I think, not in dispute, viz:
1. While East Jersey and Jersey are close
together, they are not physically connected
and the operation of extracting ore from one
was physically quite independent of the oper
ation of extracting ore from the other.
2. The operation of extracting ore from either
East Jersey or Jersey would, if it had been the
sole business of the respondent, have been
"the operation of a mine" within the meaning
of those words in section 83(5).
As I understand the argument put forward by
the appellant, its contention is that a mine did
not "come into production" when the respond
ent started to extract ore from the Jersey ore
body because the extraction of ore from that
ore body was merely a part of "the operation of
a mine" that started when the respondent start
ed to extract ore from the East Jersey ore body.
I believe the appellant's argument is best sum
marized by that part of paragraph 33 of its
Memorandum of Fact and Law filed in this
Court that reads as follows:
33. The Appellant submits that in determining whether the
Jersey pit was or was not by itself a mine separate and apart
from the East Jersey pit the Trial Judge ought to have
regarded as a mine that which the Respondent ... obviously
regarded as a mine, that is to say, the Respondent's High
land Valley profit making enterprise comprising the
Respondent's property, the ore bodies and workings therein,
the Respondent's mill and the organization, equipment and
labour force used from 1962 to 1967 and thereafter to
extract ore and produce copper concentrate therefrom in a
continuous unified and integrated operation.
In a nutshell, as I understand this submission, it
is that the word "mine", applied to the circum
stances of this case, means a "profit making
enterprise ... used ... to extract ore and pro
duce copper concentrate" and includes not only
the ore bodies and workings therein but also the
mill used to convert the ore into concentrates. If
that submission is correct, in my opinion, the
appeal should succeed. If, on the other hand,
that submission is not correct, we are left with
no alternative basis in support of the appellant's
position.
The position that the appellant takes, as I
understood counsel, is that "mine" in section
83(5) means an enterprise used to extract ore
"and produce copper concentrate". This is, in
effect, an integration of two business opera
tions, namely, (a) extraction of ore, and (b)
milling of concentrates. In my view, the authori
ties do not support such a wide ambit for the
exemption in section 83(5). In 1958, Cartwright
J., as he then was, discussing the predecessor of
section 83(5), 1 said, in effect, that he inclined to
the view that the word "mine" meant "a mining
concern taken as a whole, comprising mineral
deposits, workings, equipment and machinery,
capable of producing ore", and the passage in
which he did so was quoted with approval by
the Supreme Court of Canada, in a judgment
delivered by Pigeon J. in M.N.R. v. MacLean
Mining Co. [1970] S.C.R. 877 at pages 882-83.
Moreover, in the latter case, Pigeon J. said at
page 882: "Mining itself is complete by the
production and hoisting of the ore ..." In my
view, "operation of a mine" in section 83(5)
refers only to the extraction of ore from an ore
body and does not include processing of the ore
after it has been produced. 2
My conclusion is, therefore, that the appel
lant's submission that the extraction of ore from
the Jersey ore body is only part of the operation
of a mine consisting of the whole of the extrac
tion and processing activities carried on by the
respondent must be rejected.
I am further of opinion that, having regard to
the fact that the trial was conducted on the basis
that what was in issue was whether that which
was superficially a separate mining operation
was not an operation of a mine within section
83(5) because "mine" in this context means an
enterprise for extracting ore and producing con
centrates therefrom, the question does not arise
on this appeal as to whether, within the ordinary
meaning of words, and having due regard to the
definition quoted by Cartwright J., the operation
of these two open pits was really the operation
of only a single "mining concern" and was not,
therefore, the operation of two separate
"mines". I can conceive of very difficult ques
tions of fact in applying these concepts, particu
larly where there are varying degrees of physi
cal separation of properties or of separation in
the time and mode of operation. In respect of
such questions, both parties should be on
notice, before trial, of the nature of the issue
that has been raised so that they may have an
opportunity to prepare their respective cases on
the evidence. The trial of this matter was not
conducted on any such issue and, in my view,
the matter cannot justly be considered from that
point of view on this appeal.
I am, therefore, in agreement with the view of
the matter adopted by the learned trial judge. I
am, however, with respect, of the view that
there is a technical deficiency in the actual
judgment of the Trial Division, which simply
refers the assessment back to the appellant. In
my view, the judgment should be revised to
provide that the assessment appealed from is
referred back to the Minister of National Reve
nue for re-assessment on the basis that, by
virtue of section 83(5), there is not to be includ
ed, in computing the respondent's income, that
part of the respondent's income that was
derived from the extraction of ore from the
Jersey ore body during the period of 36 months
commencing with the day on which it came into
production. As, however, the appeal failed on
the substantive question involved, I am of the
view that the appellant should pay the respond
ent's costs of the appeal.
SHEPPARD and BASTIN D.JJ. concurred.
' North Bay Mica Co. Ltd. v. M.N.R. [1958] S.C.R. 597
at page 601.
2 In either case, of course, what is contemplated is not the
mere physical act of extraction of ore or of extraction of ore
and processing of the ore. What is contemplated is a profit-
making process consisting of such physical acts and the
disposition of the products for a consideration by sale or
otherwise. Compare M.N.R. v. Imperial Oil [1960] S.C.R.
735, per Judson J. at page 749. Where two processes such
as extraction and milling are integrated and there is an
exemption related to only one of them, problems of attribu
tion have to be dealt with. Compare the problem that arose
in International Harvester Co. of Canada v. Provincial Tax
Commission [1949] A.C. 36.
You are being directed to the most recent version of the statute which may not be the version considered at the time of the judgment.