T-2933-85
Echo Bay Mines Ltd. (Plaintiff)
v.
Her Majesty the Queen (Defendant)
INDEXED AS: ECHO BAY MINES LTD. V. CANADA (TD.)
Trial Division, MacKay J.—Vancouver, June 13,
1991; Ottawa, August 13, 1992.
Income tax — Income calculation — Deductions — Tax
payer, silver producer, realizing gain on settlement of forward
sales contracts — Whether "resource profits" within Income
Tax Regulations, s. 1204(1) — "Resource profits" base for cal
culating deduction under Act, s. 20(1)(v.1) (oil or gas wells in
Canada or mineral resources in Canada) — Expert evidence of
industry practice, generally accepted accounting principles
admissible to assess commercial reality of taxpayer's actions
— Hedging common practice in precious metal industry —
Profit on closing out short sales is profit from trade — Exact
matching unnecessary for hedging — Transactions by parent
company those of taxpayer — Regulation not to be narrowly
construed — Transactions sufficiently integrated with silver
production business — No income from production without
sales — Taxpayer not speculating in futures for investment pur
poses.
Taxpayer entered into forward sales contracts for silver from
its mine. No silver was delivered, the contracts being closed
out when due or rolled over for contracts to be closed out later.
It realized a gain of $29,359,967 on the settlement of these
contracts and taxpayer took the position that this amount was
"resource profits"—income from the production of minerals in
Canada—under subsection 1204(1) of the Income Tax Regula
tions. The M.N.R. reassessed on the basis that taxpayer had
received payment from the purchaser of the silver apart from
the forward sales contracts which were separate transactions.
Taxpayer appealed this reassessment to the Federal Court.
Held, the appeal should be allowed.
The "resource profits" calculation is important for its use as
a base in calculating the deduction available under Income Tax
Act, paragraph 20(1)(v.1) in respect of "oil or gas wells in
Canada or mineral resources in Canada". Subsection 1210(1)
of the Regulations provides that the amount of the deduction
equals 25 per cent of resource profits for the year.
The evidence of expert witnesses as to industry practice and
generally accepted accounting principles was relevant and
admissible to assist the Court in assessing the economic and
commercial reality of taxpayer's actions. There was evidence
that hedging is common among precious metal producers, the
purpose being to fix, in advance, a price accepted as satisfac
tory. The decision of the Supreme Court of Canada in Atlantic
Sugar Refineries v. Minister of National Revenue, [1949]
S.C.R. 706, was not distinguishable upon its facts from the
case at bar. In that case, Locke J. said that in "trades where
natural products are purchased in large quantities, hedging is a
common, and in some cases, a necessary practice, and the cost
of such operations in trades of this nature is properly allowable
as an operating expense of the business. Where, as in the pre
sent case, the trader elects to close out his short sales and take
a profit, this is, in my opinion, properly classified as profit
from carrying on the trade". The Crown's argument, that there
was insufficient matching, in respect of production and time of
delivery and closing out of the forward sales contracts,
between the two parallel sets of transactions, could not prevail.
Atlantic Sugar Refineries is authority for the proposition that
exact matching is neither feasible from a practical point of
view nor necessary to constitute hedging. Although the futures
market transactions were conducted by officials of taxpayer's
parent company, they were carried out for taxpayer, recorded
only in its ledgers and had to be considered as carried out by it.
These forward sales contracts having been found to consti
tute hedging, it remained to determine whether there was suffi
cient integration with the silver production business that a gain
from hedging could be considered income from that business.
The words "income ... from ... the production in Canada
of... metals or minerals" in Regulation 1204(1) should not
be construed narrowly. Production yields no income without
sales. Activities reasonably interconnected with marketing the
product form an integral part of production which is to yield
income, and resource profits, within the Regulation. Taxpayer
was not involved in futures speculation for investment pur
poses. There was rather a clear business purpose in its sales
and settlement of futures contracts and that purpose was inte
grated with its sales of product to yield income.
STATUTES AND REGULATIONS JUDICIALLY
CONSIDERED
Income Tax Act, R.S.C. 1952, c. 148, s. 83(5) (as am. by
S.C. 1955, c. 54, s. 21).
Income Tax Act, S.C. 1970-71-72, c. 63, ss. 20(1)(v.1) (as
am. by S.C. 1974-75-76, c. 71, s. 1), 65(1) (as am. by
S.C. 1973-74, c. 30, s. 6), 124.1, 124.2, 129(4) (as am.
by S.C. 1974-75-76, c. 26, s. 86(2)).
Income Tax Regulations, C.R.C., c. 945, ss. 1200, 1201,
1204(1) (as am. by SOR/79-245, s. 3), (3), 1210(1).
CASES JUDICIALLY CONSIDERED
FOLLOWED:
Atlantic Sugar Refineries v. Minister of National Revenue,
[1949] S.C.R. 706; [1949] 3 D.L.R. 641; [1949] CTC 196.
APPLIED:
McClurg v. Canada, [1990] 3 S.C.R. 1020; (1990), 76
D.L.R. (4th) 217; [1991] 2 W.W.R. 244; [1991] 1 C.T.C.
169; 91 DTC 5001; 119 N.R. 101.
DISTINGUISHED:
R. v. Marsh & McLennan, Limited, [1984] 1 F.C. 609;
[1983] CTC 231; (1983), 83 DTC 5180; 48 N.R. 103
(C.A.); revg [1982] 2 F.C. 131; [1981] CTC 410; (1981),
81 DTC 5307 (T.D.); Ensite Ltd. v. R., [1986] 2 S.C.R.
509; (1986), 33 D.L.R. (4th) 491; [1986] 2 C.T.C. 459; 86
DTC 6521; 70 N.R. 189; Imperial Tobacco Co. (of Great
Britain and Ireland), Ltd. v. Kelly. Imperial Tobacco Co.
(of Great Britain and Ireland), Ltd. v. Inland Revenue
Commrs., [1943] 2 All E.R. 119 (C.A.); affg [1943] 1 All
E.R. 431 (K.B.D.).
CONSIDERED:
Gunnar Mining Limited v. Minister of National Revenue,
[1968] S.C.R. 226; (1968), 67 D.L.R. (2d) 153; [1968]
C.T.C. 22; 68 DTC 5035; Cominco Ltd v The Queen,
[1984] CTC 548; (1984), 84 DTC 6535 (F.C.T.D.); affd
A-1324-84, Heald J.A., judgment dated 2/12/85, F.C.A.,
not reported; leave to appeal to S.C.C. refused [1986] 1
S.C.R. vii; (1986), 66 N.R. 77; Westar Mining Ltd. v. The
Queen, [1988] 2 C.T.C. 349; (1988), 88 DTC 6505; 23
F.T.R. 71 (F.C.T.D.); revd by [1992] 3 F.C. 110; Gulf
Canada Ltd. v. Canada, [1991] 1 C.T.C. 99; (1990), 90
DTC 6622; 38 F.T.R. 81 (F.C.T.D.); affd (1992), 92 DTC
6123 (F.C.A.); Texaco Exploration Co. v. The Queen,
[1976] 1 F.C. 323; [1975] CTC 404; (1975), 75 DTC
5288 (T.D.).
REFERRED TO:
March Shipping Ltd v MNR, [1977] CTC 2527; (1977), 77
DTC 371 (T.R.B.); R. v. International Nickel Co. of
Canada, Ltd., [1976] 2 S.C.R. 675; (1975), 62 D.L.R.
(3d) 573; [1975] CTC 620; 75 DTC 5460; 7 N.R. 351;
Minister of National Revenue v. Imperial Oil Co., [1960]
S.C.R. 735; (1960), 25 D.L.R. (2d) 321; [1960] C.T.C.
275; 60 DTC 1219; Tip Top Tailors Limited v. The Minis-
ter of National Revenue, [1957] S.C.R. 703; (1957), 11
D.L.R. (2d) 289; [1957] C.T.C. 309; 57 DTC 1232.
APPEAL from an income tax reassessment by the
Minister of National Revenue of the plaintiff's
income tax return for its 1980 taxation year. Appeal
allowed.
COUNSEL:
W. J. A. Mitchell, Q.C., Judith B. Taylor and
J. H. G. Roche for plaintiff.
J. S. Gill, Q.C. and Marie-Thérèse Boris for
defendant.
SOLICITORS:
Thorsteinssons, Vancouver, for plaintiff.
Deputy Attorney General of Canada for defen
dant.
The following are the reasons for judgment ren
dered in English by
MACKAY J.: This action is an appeal from an
income tax reassessment by the Minister of National
Revenue of the plaintiff's return of income for its
1980 taxation year. A statement of claim was filed
December 30, 1985 (and subsequently amended
December 12, 1986), following an objection to reas
sessment and confirmation of reassessment, dated
October 7, 1985, in respect of the matter at issue.
Originally there were two grounds of objection and
appeal by the plaintiff but one was abandoned before
trial.
The issue left in dispute is whether income from
the settlement of forward sales contracts for the
delivery of silver in the 1980 taxation year is properly
included as "resource profits" within the meaning of
Regulation 1204(1) [Income Tax Regulations, C.R.C.,
c. 945 (as am. by SOR/79-245, s. 3)] as it read at the
relevant time.
At the hearing of this action, counsel filed the fol
lowing agreed statement of facts.
1. The Plaintiff is engaged in the mining and processing of and
exploration for precious metals in the Arctic region of Canada.
2. In the years 1976 to 1982, the Plaintiff operated a silver
mine located near Port Radium in the Northwest Territories.
All production of silver concentrate from the mine was sold to
an unrelated party under long-term sales agreements. The
purchase price for the silver concentrate was based on the mar
ket value of silver at a date two months from the receipt of the
concentrate by the purchaser.
3. For the years 1978 to 1980 inclusive, the Plaintiff entered
into forward sales contracts for silver. No amounts of silver
were delivered under the forward sales contracts. Instead, the
forward sales contracts were closed out as they became due, or
rolled over for other contracts to be closed out at a future date.
4. The Plaintiff was, at the time in question, a wholly-owned
subsidiary of I.U. International, a U.S. company. I.U. Interna
tional entered into and closed out the forward sales contracts
on behalf of the Plaintiff.
5. An example of how a hedging transaction operates is as fol
lows:
(a) Assume the market price of a commodity on January 1st is
$200 — a price which the producer wishes to "lock in".
(b) Assume in Case 1 that on July 1st the price is $350, and in
Case 2 the price on July 1st is $100.
(c) Assume that on January 1st the producer buys a forward
sales contract at $200.
Case #1 Case #2
Gain (loss)
on closing
out contract $(150) $100
Sale of
commodity 350 100
Price realized $ 200 $200
Thus, through a combination of the sale of the commodity
and the gain or loss on the future sales contract, a producer has
"locked in" or "hedged" today's price.
6. In the 1980 taxation year the Plaintiff realized a gain of
$29,359,967 on the settlement of forward sales contracts for
delivery of silver in that year, which amount was included in
the Plaintiff's income for tax purposes.
7. It is agreed that the $29,359,967 is properly included in the
income of the Plaintiff. The sole issue for determination is
whether the said amount is properly included as "resource
profits" within the meaning of Regulation 1204(1)(b)(ii)(B) as
it read in 1980.
The plaintiff submits that income from the settle
ment of forward sales contracts should be included as
"resource profits" under the Regulations, as the
amount falls within the meaning of income from the
production of minerals in Canada. The defendant
submits that it should not be included because the
plaintiff received payment from the purchaser of the
silver separate and apart from the forward sales con
tracts entered into by the plaintiff, which contracts in
the defendant's view were transactions distinct from
the sales of silver by the plaintiff.
For the 1980 taxation year Regulation 1204(1) pro
vided in part:
1204.(1) For the purposes of this Part, "resource profits" of a
taxpayer for a taxation year means the amount, if any, by
which the aggregate of
(b) the amount, if any, of the aggregate of his incomes for
the year from
(i) the production of petroleum, natural gas or related
hydrocarbons from oil or gas wells in Canada operated by
him,
(ii) the production in Canada of
(A) petroleum, natural gas or related hydrocarbons, or
(B) metals or minerals to any stage that is not beyond
the prime metal stage or its equivalent,
from mineral resources in Canada operated by him,
exceeds
(c) the aggregate of his losses for the year from the sources
described in paragraph (b),
computed in accordance with the Act, on the assumption that
he had during the year no incomes or losses except from those
sources and was allowed no deductions in computing his
income for the year other than
(f) such other deductions for the year as may reasonably be
regarded as applicable to the sources of income described in
paragraph (b), other than a deduction under section 1201 or
subsection 1202(2) or (3), 1207(1) or 1212(1).
(3) Income or loss from a source described in paragraph
(1)(b) does not include income or loss derived from transport
ing, transmitting or processing petroleum, natural gas or
related hydrocarbons.
The importance of the "resource profits" calcula
tion was, and remains, its use as a base in calculating
the deduction available to taxpayers under paragraph
20(1)(v.1) of the Income Tax Act [S.C. 1970-71-72, c.
63 (as am. by S.C. 1974-75-76, c. 71, s. 1)], which
permits a deduction in respect of "oil or gas wells in
Canada or mineral resources in Canada." 1 Regulation
1210 2 provided that the amount of the deduction for
the purposes of paragraph 20(1)(v.1) was an amount
equal to 25 per cent of resource profits for the year
within the meaning of Regulation 1204(1). A reduc
tion in the "resource profits" amount for the year, as
in this case was the result of the reassessment of the
plaintiff s income, meant a reduced amount available
for deduction under paragraph 20(1)(v.1). "Resource
profits" also served as a base for calculating the
plaintiff s earned depletion allowance as authorized
by Part XII of the Regulations and subsection 65(1)
[as am. by S.C. 1973-74, c. 30, s. 6] of the Act as
they applied to the taxation year. Consequential
adjustments in amounts deductible pursuant to both
paragraph 20(1)(v.1) and subsection 65(1) of the Act
had been made by the Minister of National Revenue
following upon reassessment of the plaintiff's
"resource profits".
In relation to its submission that the forward sales
contracts entered into by the plaintiff in respect of its
anticipated production of silver were simply a hedge
designed to reduce the risk of wide price fluctuations,
1 S. 20(1)(v.1) of the Act provided:
20.(1) Notwithstanding paragraphs 18(1)(a), (b) and (h),
in computing a taxpayer's income for a taxation year from a
business or property, there may be deducted such of the fol
lowing amounts as are wholly applicable to that source or
such part of the following amounts as may reasonably be
regarded as applicable thereto:
(v.1) such amount as is allowed to the taxpayer for the
year by regulation in respect of oil or gas wells in Canada
or mineral resources in Canada.
2 Regulation 1210(1) provided:
1210.(1) For the purposes of paragraph 20(1)(v.1) of the
Act, there may be deducted in computing the income of a
taxpayer for a taxation year an amount equal to 25 per cent
of his resource profits for the year within the meaning of
subsection 1204(1) if that subsection were read without
reference to paragraph (a) or subparagraph (b)(iv) thereof,
computed as if no amounts were deducted in computing
those resource profits under paragraph 20(1)(c), (d) or (v.1)
of the Act or paragraph 1204(1)(d) or (e).
the plaintiff produced two expert witnesses, both
chartered accountants, John H. Bowles and Robert B.
Parsons.
Counsel for the defendant objected to the testi
mony of the first expert, Mr. Bowles, on the basis
that it had no relevance to the issue to be decided.
Counsel submitted that the issue was a purely legal
issue, to which the consideration of evidence of the
marketing practices of companies engaged in pre
cious metals production and of generally accepted
accounting principles was not relevant. In the view of
counsel, the issue was whether income or loss real
ized from settlement of forward sales contracts is to
be considered in calculation of resource profits, even
if the plaintiff were found to have engaged in such
contracts and settlement as a "hedging" activity. I
permitted the evidence to be entered, since I was not
persuaded that evidence as to practice in the industry
and generally accepted accounting principles relating
to that practice was irrelevant to the issue here to be
determined.
I now confirm that such evidence is, in my view,
admissible evidence. It is true that industry practice
and generally accepted accounting principles, if
inconsistent with provisions of the Income Tax Act,
cannot override the expressed intention of Parlia
ment. Moreover, as counsel for the plaintiff admitted,
industry practice and generally accepted accounting
principles do not govern the interpretation of
"resource profits" under the Act. Inasmuch as the
definition of "resource profits" includes such basic
terms as "income" and "production" and is related to
a specific industry or to specific industries, however,
the type of evidence tendered by Mr. Bowles, relating
to industry practice and accounting practice followed
in that industry, is relevant. In my view, such an
approach accords with the interpretive approach set
out in McClurg v. Canada, [1990] 3 S.C.R. 1020, at
page 1050, per Dickson C.J.C., namely that a court
should be desirous of assessing "the economic and
commercial reality of the taxpayer's actions". Evi
dence of the sort given by the experts testifying for
the plaintiff in this case, is relevant to "the economic
and commercial reality" of the taxpayer's operations
and those operations are the basis for the report by
the taxpayer of income to which the Income Tax Act
and Regulations are applied.
Mr. Bowles, who produced an expert's report, tes
tified that hedging the price to be received under con
tracts of sale is a common practice in the mining
industry, particularly for producers of precious met
als. The means by which hedging is accomplished is
through entering into forward sales contracts, in
which a producer promises to sell a certain amount of
product at some date in the future. Normally the price
is the spot market price of the product at the date of
execution of the contract. The obligations of the pro
ducer are fulfilled usually through the closing out of
the contract by the purchase of an equal amount of
product on the commodities futures market, and not
by actual delivery of the product promised.
By entering into these future sales contracts, the
price to the producer is assured to the extent that
anticipated future production proves accurate in the
result. While the producer is paid by the purchaser of
the actual production at a spot market price prevail
ing at an agreed time, if the price paid is below the
price fixed under the future sales contract, the gain on
the settlement of the future sales contract will offset
the reduction in the price paid for the product at the
market price as agreed upon. Conversely, if the price
paid for delivery of production is higher than the
price fixed under the future sales contract, the loss on
the settlement of the future sales contract will offset
the increase in price paid for the product as delivered.
The arrangement operates as is set out in the exam
ples in paragraph 5 of the agreed statement of facts.
The examples assume reasonable matching of actual
production with the nominal delivery under the future
sales contract, a pattern that may be difficult to estab
lish in practice. In the net result, whether market
prices to be paid for future delivery increase or
decrease, the producer is assured that he will receive
for his product the market price prevailing at the time
he concludes the forward sales contract.
Mr. Bowles testified that under generally accepted
accounting principles, a producer's gain or loss from
its execution of forward sales contracts may be con
sidered a "hedge" and therefore matched against the
production of the goods produced, if four conditions
are met. These were set out in his report, to which
there was no dispute (save for the objection respect
ing relevancy), as follows:
1. The item to be hedged exposes the enterprise to price (or
interest rate) risk.
2. The futures contract reduces that exposure and is designated
as a hedge.
3. The significant characteristics and expected terms of the
anticipated transactions are identified.
4. It is probable that the anticipated transaction will occur.
In his view, the difference between hedging and spec
ulating is that in the former the company engaged in
hedging sells forward or commits a product it has the
capability of producing and that it intends to produce:
if it has neither the capability nor the intention of
meeting its commitments through production it is
speculating in engaging in forward sales contracts.
Whether a transaction is a hedge depends upon
assessment at the time forward sales contracts are
concluded of capacity and intention to produce prod
uct committed under those contracts. Where the
transaction is a hedge, profits realized on settlement
of the contracts are considered a component of the
price realized for the product when sold and under
accounting practice are included in income from
sales. Because of the difficulties of coordinating pro
duction and delivery dates with dates of settlement of
forward sales contracts, revenue from settlement of
the contracts is ordinarily accounted in sales revenues
periodically, perhaps on a quarterly basis or a longer
period.
Mr. Parsons, an author as well as an accountant,
who also produced an expert's report, has experience
specifically in tax accounting for companies in the
mining industry. He also testified that hedging was
very common among producers of precious metals.
Mr. Parsons testified that under generally accepted
accounting principles, the hedge transaction is con
sidered to be an integral part of the sales transaction
and that any gain or loss on the hedge will be recog-
nized at the same time as the production, that is the
subject matter of the hedged transaction, is sold. This
accounting treatment applies whether or not the for
ward sales contract, by which the "hedge" is accom
plished, is closed out before the product is actually
delivered by the producer. The rationale behind such
accounting treatment was said to be that by such
treatment the commercial realities of the production
of the goods are recognized, for the whole purpose of
the hedge is to fix the price, in advance, at a level that
the company accepts as a satisfactory price.
In cross-examination, both Mr. Bowles and Mr.
Parsons stated that the inclusion of gain or loss from
the settlement of forward sales contracts in produc
tion revenue could only be accorded if there was
some reasonable relationship of the amount of actual
future production and the projected sale under a for
ward sales contract, as well as of the time at which
the payment for production would be received by the
producer. In other words, there must be a legitimate
attempt to hedge against the risk arising from fluctua
tions in the price of the product that will be sold by
the producer.
In cross-examination Mr. Parsons admitted that
there was no generally accepted accounting standard
to determine at what point a deviation between the
amounts to be sold under the forward sales contracts
and the actual production delivered, and the times of
sale under the contract and actual delivery, would
render the forward sales contracts a speculative
endeavour as opposed to a hedge. He emphasized,
however, that the time at which a characterization of
the forward sales transaction was to be made was at
the time of entry into the forward sales contract. If it
turned out that the producer had overestimated the
amount of future production for purposes of the for
ward sales contract, it would still be possible to char
acterize the contract as a hedge. Subsequent account
ing treatment would then allocate the portion of the
gain or loss corresponding to actual production as
revenue from production, while the portion corre
sponding to any excess over the actual production
would be treated as income of a speculative nature.
Mr. Parsons also indicated that if the producer
should choose to close out the forward sales contract
earlier than it was required to do, by purchasing an
equivalent amount of product, this action did not alter
the characterization of the gain or loss on the forward
sales contract as a hedging transaction. The effect
would merely be that during the period from the date
of closing out the contract to the date of receipt for
production delivered, the producer would not be pro
tected from the risk that prices would fall.
The final witness was Ray Jenner, current vice-
president of the plaintiff. Mr. Jenner gave evidence
respecting the history of the silver mine operated by
the plaintiff at Port Radium, and of his understanding
of the means by which the hedging operations of the
plaintiff were conducted during the 1980 taxation
year and of the hedging operations generally carried
on since then by the plaintiff in relation to production
of precious metals from other mining operations.
It was Mr. Jenner' s evidence that the original esti
mate of silver production for 1980 was 1,702,000
ounces, later revised to 1,367,000. The amount of sil
ver actually produced in that year was 1,335,000
ounces and the amount of production hedged was
1,585,000 ounces. These amounts were queried by
counsel for the defendant on cross-examination, on
the basis that they did not appear to correspond with
evidence from the witness' examination for discov
ery. My understanding is that the latter evidence,
filed as Exhibit 3, of total silver sold forward in 1980
included amounts expected to be produced in that
year and subsequently. Ultimately there was no dis
pute with respect to the figures provided by Mr. Jen-
ner in his testimony at trial.
The hedging transactions were carried out by the
parent company of the plaintiff, I.U. International,
from its offices in Philadelphia. Mr. Jenner, whose
association with the plaintiff dates from 1983, could
not provide evidence of precise arrangements made
in 1980, but he was able to provide information
regarding the general manner by which future sales
contracts were dealt with, and the accounting treat
ment of these transactions, by the company.
In March of 1980 a decision was made to sell for
ward the anticipated remaining production of the
mine, whose reserves were nearing depletion, and
were expected to be depleted in 1981 or at the latest
in 1982. It was considered then that prices prevailing
in 1980 were favourable, and that risk of their decline
in future should be avoided. Amounts to be sold for
ward were based on estimated reserves remaining for
the entire period, and these estimates were revised
periodically. There was no evidence of the specific
consideration by the parent company of the estimated
production from the mine though those estimates
would have been known to the parent from regular
inter-company reports. Forward sales contracts were
arranged by I.U. International for the plaintiff, in the
active months for trading on the commodities market,
and were apparently settled without particular refer
ence to the time of delivery to or payment by the
refiner purchaser. Receipts from actual production
and settlement of forward sales contracts were kept in
separate ledger accounts by the plaintiff, not by the
parent company, and consolidated annually, in
accounting for gross revenue from production, for
financial statements and thus for income tax pur
poses. Mr. Jenner' s evidence was that the purpose of
the forward sales contracts, the hedging activity, was
to fix the price for silver expected to be produced in
the future at the price prevailing when the forward
sales contracts were made. In turn this provided
assurance of cash flow, assuming production suffi
cient to meet forward sales commitments, in order to
finance production and ongoing exploration activities
of the mine project.
No witnesses were called to testify by the defen
dant.
The positions of the parties
The basic positions of the parties differed in accord
with their differing views of the relationship between
the contracts, and their settlement, for forward sales
and the sales of actual production by the plaintiff.
In the plaintiff's submission the forward sales con
tracts were hedging arrangements, to assure fixed
prices for future silver production, and they were an
integral aspect of marketing that production. That
was their purpose and the results were properly
reflected in their inclusion of profits, and implicitly
losses if they had not been so successful, arising from
settlement of the forward sales contracts as an inte
gral portion of the revenue derived from production
of silver.
It was the defendant's view that the forward sales
contracts were separate transactions from the produc
tion and marketing of the silver product, so separate
that their negotiation and settlement could not be
considered hedging. Yet, even if the forward sales
contracts were considered hedging the transactions
were not sufficiently integrated with production and
delivery of the silver product that they could be con
sidered to constitute a single business activity. Thus
gains on settlement of the contracts were not an
aspect of "resource profits" within the meaning of
Regulation 1204(1).
For the plaintiff it was urged that marketing is an
aspect of production, within Regulation 1204(1)
which speaks of resource profits in terms of income
from production. That income was not intended to be
limited strictly to revenue derived directly upon
delivery of a product, it was urged by reference to the
Regulations. Thus, Regulation 1204(3) specifically
excludes from calculations of income or loss from a
source described under 1204(1)(b), in the case of pro
ducers of petroleum, natural gas or hydrocarbons, of
income or loss from transporting, transmitting or
processing the product. Implicitly, absent that provi
sion, income from these activities would be included.
Implicitly income from these activities is included in
calculations of income in the case of production of
metals or minerals to the prime metal stage, the other
activity included within Regulation 1204(1)(b), and
income from hedging, an activity said to be more
closely involved with production than any of those
expressly excluded, ought to be included within
income from production under 1204(1)(b). Reference
was also made to Regulation 1210(1), which counsel
submitted excluded interest costs as a deduction from
the source of income from production of minerals or
metals. Finally, paragraphs (c) and (f) of Regulation
1204(1) use the word "source" in reference to
1204(1)(b). The regulations, the plaintiff submitted,
implied the application of a "sourcing concept" to the
recognition of income from production and the infer
ence from this was that income from and expenses of
production should not be so narrowly construed as to
restrict revenues and expenses to actual sales pro
ceeds and direct lifting costs. Rather, income from
production of metals or minerals should include all
receipts reasonably related to the production activity.
In assessing the issue in this case it was submitted
that principles applicable under other provisions of
the Act should be applied by analogy. Thus, cases
dealing with sources of income, in another context,
were referred to. Counsel for the plaintiff referred in
particular to R. v. Marsh & McLennan, Limited,
[1984] 1 F.C. 609 (C.A.); Ensite Ltd. v. R., [1986] 2
S.C.R. 509; and Imperial Tobacco Co. (of Great Brit-
ain and Ireland), Ltd. v. Kelly. Imperial Tobacco Co.
(of Great Britain and Ireland), Ltd. v. Inland Revenue
Commrs., [1943] 2 All E.R. 119 (C.A.).
The issue in the two Canadian decisions was
whether certain receipts of the taxpayer could be con
sidered income from business or investment income
(or in the case of Ensite, "foreign investment
income"), in the context of determining the taxpay
er's refundable dividend tax on hand, in the applica
tion of subsection 129(4) [as am. by S.C. 1974-75-76,
c. 26, s. 86(2)] of the Act which required a distinction
to be made between income from property and
income from property used in the course of carrying
on a business.
Marsh & McLennan involved the determination of
whether interest received from short-term investment
of insurance premiums held by an insurance broker
before remittance to insurers was "Canadian invest
ment income", or whether the interest was income
from property used in the business. In the latter case,
it would be excluded from "Canadian investment
income" and from the refundable dividend tax on
hand account. The Federal Court of Appeal, by a
majority decision, allowed the Crown's appeal.
Clement D.J. held, at page 638, that " ... on the facts
of this case there was between the Broker's business
and the investments an interconnection, an interlac
ing, an interdependence, a unity embracing the
investments and the business", and therefore the
interest was income from property used or held in the
course of carrying on the business of insurance bro
kerage. Le Dain J.A. agreed, finding the test to be
whether the fund was employed and risked in the
business, which in this case it was since the interest
derived was required to meet the insurance broker's
obligations to insurers; it was only for a period of a
few months that the funds were available to the insur
ance broker.
In Ensite, the taxpayer operated an automobile
engine manufacturing business in the Philippines,
and was required by Philippine law to bring foreign
currency into the country to carry on that business. It
accomplished this by complicated banking arrange
ments, which resulted in the receipt of interest
income. Attempting to take advantage of the dividend
refund in section 129 of the Act, the taxpayer then
included this interest income in its "foreign invest
ment income", a component of the refundable divi
dend tax on hand account. The Minister of National
Revenue reassessed on the basis that it was income
from an active business or income from property
used in the course of carrying on an active business.
The Supreme Court of Canada dismissed the tax
payer's appeal from a Federal Court of Appeal deci
sion which relied heavily on Marsh & McLennan.
Wilson J., for the Court, commented on the tests set
out in Marsh & McLennan, and preferred the
"employed and risked" test set out by Le Dain J.A.
Wilson J. summarized her reasoning as follows, at
pages 520-521:
The test is not whether the taxpayer was forced to use a partic
ular property to do business; the test is whether the property
was used to fulfil a requirement which had to be met in order
to do business. Such property is then truly employed and
risked in the business. Here the property was used to fulfil a
mandatory condition precedent to trade; it is not collateral, but
is employed and risked in the business of the taxpayer in the
most intimate way. It is property used or held in the business.
In reaching that conclusion, she was able to distin
guish the situation of investment of trading profits
from investment to fulfil a mandatory condition pre
cedent to carrying out business operations on the
basis of remoteness of "risk" to which the property is
exposed. She stated, at page 520 that "[t]he threshold
of the test is met when the withdrawal of the property
would 'have a decidedly destabilizing effect on the
corporate operations themselves' ", quoting from
March Shipping Ltd y MNR, [1977] CTC 2527
(T.R.B.), at page 2531.
Both counsel referred to these decisions. In the
submission of counsel for the plaintiff, the cases
illustrate that if income from what might otherwise
be considered a separate source is so interwoven with
the business, then the distinction in sources is
eclipsed. In his view, the tests enunciated in these
cases, applied to the facts of this case, led to the con
clusion that the receipts on settlement of future sales
contracts were an integral aspect of the plaintiff's
income from production, of its resource profits.
Counsel for the defendant, on the other hand, argued
that if the tests set out by these cases are applied to
the facts here, the plaintiff fails to satisfy those tests,
because of the functional independence of the pro
duction contracts and the future sales contracts. The
defendant urged that absent the future contracts, the
plaintiff's production would not have been affected,
but that is not more than a speculative conclusion and
is not more helpful than noting that if the plaintiff
were not engaged in silver production, it would not
have undertaken forward sales contracts for silver.
In my view, the tests set out by the Federal Court
of Appeal and the Supreme Court of Canada are not
directly applicable to the interpretation of the statu
tory provisions relevant in this matter. Those tests
relate to the rather specific language of subsection
129(4) of the Act. The tests were developed to
resolve disputes relating to the distinction between
investment income and active business income. They
were not developed in order to determine whether
income was or was not income from the production
of metals or minerals within Regulation 1204(1).
The Imperial Tobacco case, supra, a decision of
the English Court of Appeal, also cited by the plain
tiff, involved the characterization for tax purposes,
under then prevailing English legislation, of a gain
realized on disposition of a fund of foreign currency
held by the taxpayer for purposes of purchasing
tobacco leaf abroad. While that decision concerns
different legislation and circumstances than in the
case before me, and thus it may be distinguished, the
principle there relied upon is, it was urged, of persua
sive value. There the taxpayer argued the gain was
not profit from the company's trade but arose from
the temporary investment of capital, but it was held
and upheld on appeal that the gain was income from
the company's trade. At both trial and on appeal the
key factor relied upon by the courts in concluding the
profit arose in the course of the taxpayer's regular
business was the intention of the taxpayer at the time
of acquisition of the foreign currency.
For the defendant, counsel submitted that
the words "income ... from ... the production in
Canada of ... metals or minerals to any stage that is
not beyond the prime metal stage ... ", as used in
Regulation 1204(1)(b)(ii), have a narrower meaning
than that which might be based on the general con
cept of "sources" used elsewhere in the Act; they
incorporate a narrow meaning of the word "produc-
tion". As I understand the argument, income from
any activity not directly involved with extraction of
the metal or mineral to the prime metal stage is not to
be included within income from production.
In support of this argument the defendant cited
several cases, dealing in the main with statutory pro
visions other than Regulation 1204(1) but which, it
was urged, support a restricted meaning of "produc-
tion" in this case. Reference was made to R. v. Inter
national Nickel Co. of Canada, Ltd., [1976] 2 S.C.R.
675 where the Supreme Court of Canada held that the
taxpayer's costs of on-going scientific research were
not expenses to be deducted, under then applicable
Regulation 1201(4), in the calculation of "profits .. .
reasonably attributable to the production of .. .
industrial minerals" for purposes of depletion allow
ance. That same regulation was also dealt with by the
Supreme Court in Gunnar Mining Limited v. Minister
of National Revenue, [1968] S.C.R. 226 where it was
held that "profits ... reasonably attributable to pro
duction of ... prime metal or industrial minerals" did
not include earnings on investments of surplus held
by the taxpayer for future retirement of debentures.
Similarly, the Court held that the earnings from
investments were not income "derived from the oper
ation of a mine" within then subsection 83(5) [R.S.C.
1952, c. 148 (as am. by S.C. 1955, c. 54, s. 21)] of
the Act which provided a 36-month tax exemption
for income so derived. There the Court clearly based
its decision on the conclusion that the investment and
mineral production activities of the taxpayer were
quite separate business activities. In Cominco Ltd v
The Queen, [1984] CTC 548 (F.C.T.D.) affirmed,
unreported, Court file A-1324-84, December 2, 1985
(F.C.A.), leave to appeal refused [1986] 1 S.C.R. vii,
my colleague Madam Justice Reed concluded that
proceeds of business interruption insurance were not
included in the calculation of production profits
under Regulation 1201 (pre-May 6, 1974) or resource
profits under Regulation 1204 (post-May 6, 1974).
The insurance proceeds were not derived from the
production of minerals, at least in that case where
there was no production of minerals in the taxation
year.
Not referred to by counsel was Westar Mining Ltd.
v. The Queen, [1988] 2 C.T.C. 349 (F.C.T.D.) in
which this Court had followed the decision in
Cominco in a case concerning the proceeds of busi
ness interruption insurance under subsection 83(5) of
the Act and held the proceeds not to be income
"derived from the operation of a mine" within that
section as it applied to provide tax exemption. That
decision was recently reversed by the Court of
Appeal [1992] 3 F.C. 110 per Mahoney J.A. (Stone
J.A. concurring and Linden J.A. dissenting). That
Court declined to adopt the reasoning in Cominco
which dealt with other provisions of the tax regime.
The case is instructive in its emphasis on the neces-
sity to deal with provisions of the Act and Regula
tions in terms of their own wording.
In support of its submission that "production" as
used in Regulation 1204(1) be given a narrow mean
ing, the defendant also referred to Gulf Canada Ltd.
v. Canada, [1991] 1 C.T.C. 99 (F.C.T.D.) where
McNair J. held that scientific research expenditures
are not included in the taxable production profits
based on income and expenditures from "the produc
tion of petroleum, natural gas or related hydrocarbons
from oil or gas wells in Canada" under former sec
tion 124.2 of the Act. (Former section 124.1 provided
a parallel definition for "taxable production profits
from mineral resources in Canada") In that case,
McNair J. relied upon International Nickel and
Cominco, supra, and upon the definition of "produc-
tion" by Collier J. in Texaco Exploration Co. v. The
Queen, [1976] 1 F.C. 323 (T.D.), at pages 333-334,
and, with reference to the "sourcing concept"
advanced by the Crown in that case as a basis for
including research expenditures in calculation of pro
duction profits, McNair J. said (at page 112):
In light of these cases, I am unable to agree with the submis
sion of defendant's counsel that income under sections 124.1
and 124.2 of the Act must be computed in accordance with the
concept of the source principle. As I read these sections, con
trary to what defendant's counsel suggests, the calculation of
taxable production profits is independent of the calculation of
income for purposes of section 3 of the Act. In my opinion,
sections 124.1 and 124.2 set up their own separate scheme of
inclusions and exclusions from income for purposes of the spe
cial incentive programs.
Since the hearing of this matter the Court of Appeal
has upheld the decision in Gulf Canada ((1992), 92
DTC 6123, per Hugessen J.A. for the Court) and it
specifically reaffirmed McNair J.'s comment that
"sections 124.1 and 124.2 set up their own separate
scheme of inclusions and exclusions from income for
purposes of the special incentive programs". The
same comment was later affirmed again, with empha-
sis, by Mahoney J.A., for the majority of the Court in
Westar, supra, at page 4.
In Texaco Exploration, supra, my colleague Mr.
Justice Collier, dealing, in part, with the application
of then Regulations 1200 and 1201 concerning deple
tion allowance applicable to profits "reasonably
attributable to the production of oil or gas", defined
production in the following terms [at page 333]:
In my opinion, the "production of oil [or] gas", in this suit,
means the bringing forth, or into existence and human realiza
tion, from underground, a basic substance containing gas, and
at the same time other matter.
I note that in a footnote to his decision [footnote 16,
page 335], Collier J. added that he had not over
looked the words of Judson J. in Minister of National
Revenue v. Imperial Oil Co., [1960] S.C.R. 735, at
page 749, that "[n]o company makes an actual profit
merely by producing oil. There is no profit until the
oil is sold." That same recognition underlies the com
ment of Mahoney J.A. in the Court of Appeal in Wes-
tar, supra, (at page 11), in relation to the words "the
operation of a mine" as used in then subsection 83(5)
of the Act, that "It is the operation of a mine as an
economic activity, not the physical acts involved in
extracting and processing, that generates income".
The defendant submitted that in order for the gain
obtained from the settlement of the forward sales
contracts to be considered income from production of
metal or minerals in Canada, the settlement of these
contracts must be an integral part of the plaintiff's
business of producing silver.
In order to constitute an integral part of that busi
ness, it was submitted that there must be some rela
tionship between the production contracts and the
future sales contracts and their settlement. In the view
of counsel there was no evidence that this relation
ship existed, owing to the functional separation of the
two markets, the independence of the two markets
from each other, and the fact that there was no imme
diate correlation between the sale of the concentrate
and the settlement of forward sales contracts. Coun
sel referred specifically in relation to this last point to
the lack of evidence of any direct communication
between those responsible for carrying out the for
ward sales contracts operations (in Philadelphia) and
the production operations (in Port Radium and
Edmonton).
Counsel also submitted that the same activity can
not have two sources of income for tax purposes.
This was directed to the opinion of Mr. Parsons that
for accounting purposes the gain or loss from hedg
ing transactions to the extent of actual production
could be considered production revenue, while any
excess gain related to estimated production that did
not in fact occur must be considered investment
income. I find this argument not persuasive for the
issue here is what portion of total income is to be
included under Regulation 1204(1) in computing
resource profits for purposes of allowances or deduc
tions.
Finally, it was submitted that the plaintiffs activi
ties did not constitute hedging because of the failure
to match forward sales contracts to production con
tracts, but that even if the plaintiff s forward sales
activities did constitute hedging, these were not inte
gral to the plaintiffs business of mining silver. While
hedging may be an integral part of the plaintiff s
marketing procedures, this was not sufficient to
render income from hedging to be income from silver
production.
In support of this final argument counsel for the
defendant sought to distinguish Tip Top Tailors Lim
ited v. The Minister of National Revenue, [1957]
S.C.R. 703, where it was held that a gain on foreign
exchange, realized in settlement of a line of credit
that had been negotiated by the taxpayer in anticipa
tion of devaluation of sterling as a means of protect
ing its position in purchases abroad, constituted
income and not capital, for tax purposes. Rand J. con
sidered the loan produced working capital used in the
course of the company's business, while Locke J.
considered the activity to be "a scheme for profit-
making in one necessary part of the appellant's trad
ing operations, namely, the purchase of sterling funds
and part of an integrated commercial operation being
the purchase of the supplies and the payment for
them in that currency" (at page 706).
I have already noted the defendant's reference to
Marsh & McLennan Ltd. and Ensite, supra, and the
submission that the activities of the plaintiff did not
meet the tests of integration of activities there set out,
namely the "employed and risked test" enunciated by
Le Dain J.A. in the former, and the definition of
"risked" as meaning "when the withdrawal of the
property would 'have a decidedly destabilizing effect
on the corporate operations ... ' ", as stated by Wil-
son J. [at page 520] in Ensite.
Finally, reference was made by the defendant to
Atlantic Sugar Refineries v. Minister of National Rev
enue, [1949] S.C.R. 706, where the Court held that
gains on sale of future contracts to buy sugar, pur
chased as a one-time activity by the taxpayer to
ensure its future supply at then-prevailing prices in
the expectation of an escalation in the price of raw
sugar at the outbreak of the Second World War, con
stituted income subject to tax as income arising from
the regular business activities of the taxpayer. Kerwin
J. concluded that (at pages 709-710):
The Company finding itself in an abnormal situation
because of the various factors mentioned, ... decided to pro
tect the appellant's financial interests by the operations on the
Exchange. The Company was not investing idle capital funds
nor was it disposing of a capital asset. In no sense may it be
said that the operations were unconnected with the appellant's
business and it is at least an added circumstance that the specu
lation was made in raw sugar. Even if it were the only transac
tion of that character, it should be held, in the light of all the
evidence, that it was part of the appellant's business or calling
and therefore a profit from its business within section 3 of the
Act.
What is particularly interesting in the Atlantic
Sugar Refineries decision, is that the taxpayer, seek
ing to have the gain characterized as investment
income and not as a part of its business operations,
attempted to provide evidence that its activities on
the Exchange could not be characterized as hedging.
Locke J., Kellock J. concurring, addressed the evi
dence in his reasons for judgment, as follows, at
pages 711-712:
According to the witness, in the ordinary case of a hedge, the
selling for future delivery synchronizes with the purchase of
the commodity while, in the present case, the short sales were
made over the period of a month following the cash purchases.
I think that this circumstance does not affect the matter to be
determined. While not carried out contemporaneously with the
purchases, the short sales were in effect a hedge by the com
pany against a possible loss on the purchases made and it was
only the imposition of control on October 2nd [by government
under the War Measures Act] that rendered further hedging
operations inadvisable. In trades where natural products are
purchased in large quantities, hedging is a common, and in
some cases, a necessary practice, and the cost of such opera
tions in trades of this nature is properly allowable as an operat
ing expense of the business. Where, as in the present case, the
trader elects to close out his short sales and take a profit, this
is, in my opinion, properly classified as profit from carrying on
the trade.
Counsel for the defendant urged that the decision
in Atlantic Sugar Refineries was distinguishable from
the facts of the dispute before the Court in two
respects: first, it depended on the extraordinary cir
cumstances there applicable; and secondly, the issue
was whether the gain was income from business or a
capital gain, a broader distinction than the distinction
here in issue, i.e., whether the gain is to be consid
ered from a particular source, "production", within
business income.
Decision
It is my view that the transactions in respect of the
forward sales contracts entered into on behalf of the
plaintiff constitute "hedging" as that was defined by
the plaintiff's expert, Bowles, and accepted by the
Court and by counsel. I make this finding after full
consideration of the submissions advanced on behalf
of the defendant that the transactions should not be so
considered based on the fact that the transactions
were carried out by the plaintiff s parent company,
with no evidence before me of close consultation
with the plaintiffs officers or employees. Moreover,
it is urged that there was insufficient matching, in
respect of quantity of production and time of delivery
of product and closing out of the forward sales con
tracts, between the two parallel sets of transactions,
but I note that there is no evidence of correlation or
lack of it. Rather, the only evidence is that of Mr.
Jenner that the forward sales contracts were hedging,
undertaken to assure returns by fixing the price for
future production in a fluctuating market, that the
sales contracts did not exceed anticipated production,
and further the admission of counsel that a number of
the forward sales contracts were settled in advance of
their date for maturity. Mr. Jenner testified that the
estimates upon which the forward sales transactions
were based, in total, were close approximations of the
actual production carried out. Estimates were being
continually revised in order that quantities of silver to
be sold forward did not exceed actual production.
True, the futures market transactions were carried out
by officials of the parent company, through instruc
tions to American brokerage firms, but those transac
tions were carried out for the plaintiff and recorded
only in its ledgers, and, in my view, must be consid
ered to have been carried out by the plaintiff. Exact
matching was not feasible from a practical point of
view, nor is it required in order to constitute hedging.
In respect of this final conclusion, I rely on the rea
sons of Locke J. in Atlantic Sugar Refineries, quoted
supra.
I turn to the issue whether, if the activities of the
plaintiff constituted hedging, there is sufficient inter
connection or integration with the business of pro
duction of silver that a gain from hedging activities
can be considered to be income from that business.
I do not find persuasive the defendant's argument
to construe narrowly the words "incomes .. .
from ... the production in Canada of ... metals or
minerals" as used in Regulation 1204(1). The cases
cited for this interpretation deal with other legislative
provisions and, while they are interesting, they do not
resolve the matter. Moreover, this argument seems to
me somewhat circular for it presupposes that the for
ward sales contracts and their settlement, and the
payment by the refiner purchaser at prevailing market
prices 60 days after delivery of the product by the
plaintiff, were quite separate and unrelated activities
in the plaintiff's business. But whether that is the
case is the issue here.
If one turns to Regulation 1204(1), I note that a
fuller excerpt of the words used in defining "resource
profits" than that offered by the defendant more fully
represents the provision. Thus, these profits are
defined, in part in paragraph (b), as "the amount .. .
of the aggregate of ... incomes ... from the produc
tion in Canada of ... metals or minerals" [to the pri
mary metal stage]. The use of the words "aggregate"
and "incomes", and the implicit inclusion of
"income ... derived from transporting, transmitting
or processing" [to the primary metal stage] in the
case of metals or minerals under Regulation
1204(1)(b) which arises from Regulation 1204(3),
both signify that income from "production" may be
generated by various activities provided those are
found to be included in production activities. Produc
tion activities yield no income without sales. Activi
ties reasonably interconnected with marketing the
product, undertaken to assure its sale at a satisfactory
price, to yield income, and hopefully a profit, are, in
my view, activities that form an integral part of pro
duction which is to yield income, and resource prof
its, within Regulation 1204(1).
Counsel for the plaintiff submitted that if the con
tracts with the refiner purchaser had provided an
assured price for future deliveries of silver concen
trate, income derived from such sales would clearly
have been income from production. In the real world,
purchasers of precious metal concentrates, them-
selves facing a fluctuating market for their own prod
uct, do not contract to pay an assured price, for future
delivery, divorced from the market price prevailing at
the date of delivery. Here the plaintiff took the only
course open to it to assure the price for future deliv
eries, by selling and settling forward sales contracts
on the commodities market. That activity was hedg
ing, minimizing the risk of loss on future sales by
assuring a return at prices prevailing when the for
ward sales contracts were negotiated. That return was
realized from the proceeds of sales to the refiner pur
chaser together with the gain or loss on settlement of
future sales contracts.
I conclude that the price received by the plaintiff
for the silver it produced was the sum of receipts
from delivery of actual production and from settle
ment of forward sales contracts. The business of the
plaintiff was silver production. In these circum
stances where the plaintiff participated in forward
sales contracts and settlements, however, as a hedge
against price fluctuations in silver, and in which the
commodity traded was silver futures, I do not con
clude that the plaintiff was involved in futures specu
lation for investment purposes. There was a clear
business purpose in its sales and settlement of silver
futures contracts, a purpose integrated with its sales
of product to yield income; the plaintiff was trying to
obtain an assured price for the sale of the silver it
produced. That activity was similar to the attempt of
the taxpayer in Tip Top Tailors, supra, to obtain raw
materials necessary to its business at an assured price.
Here the forward sales transactions were in respect
of the same commodity as the plaintiffs production;
both were, in my view, integral aspects of the plain
tiff s business of producing silver, and returns from
these activities were income from production of met
als within Regulation 1204(1).
Finally, I find support for the conclusions
expressed herein from the decision in Atlantic Sugar
Refineries, a unanimous decision of the Supreme
Court. The fact that in this case, the transactions were
not isolated but a regular part of the plaintiff's prac
tices, renders, in my view, the reasoning in Atlantic
Sugar Refineries more, not less, persuasive in its
application to the case before me.
Furthermore, this result corresponds to business
practice and accounting principles, which, while not
determinative of the taxation treatment of the plain
tiff s income from production for the purposes of
Regulation 1204, nevertheless reflect the reality of
the taxpayer's actions. Wherever possible, the courts
should attempt to interpret the statutory provisions of
the Income Tax Act and Regulations in a manner tak
ing into account that reality: see McClurg v. Canada,
supra. Preventing a taxpayer from taking advantage
of various markets in the marketing of its goods,
unless required by the words of the legislation, would
be unduly formalistic.
Conclusion
The plaintiff s appeal is allowed, to the extent that
the gain from settlement of forward sales contracts
for silver corresponds to the plaintiffs actual silver
production for the 1980 taxation year.
The matter is referred back to the Minister of
National Revenue for reconsideration and reassess
ment in accord with these reasons.
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.