http://decision.tcc-cci.gc.ca/tcc-cci/decisions/en/item/111537/index.do
Suncor Energy Inc. v. The Queen (August 24, 2015 – 2015 TCC 210, Rossiter C.J.).
Précis: Both the taxpayer and the Crown brought applications for determinations of points of law pursuant to Rule 58(1) of the Tax Court of Canada Rules (General Procedure). The Crown moved for a ruling on four points of which the Court struck three because they were not supported by the Crown’s pleadings. The Crown’s remaining point was, to all intents and purposes, the same point raised in the taxpayer’s application although the Court favoured the drafting used by the Crown. The Court allowed a Rule 58(1) application to proceed, using the Crown’s language. However the Court ordered the Crown to pay $5,000 in costs on the motion on the basis that most of the matters raised in the Crown’s motion were either redundant or immaterial.
Decision: The underlying case turned on a very fine point of law:
[5] Suncor Energy Inc. (the “Appellant”) is the successor by amalgamation to Petro-Canada. In 1981, Petro-Canada Explorations Inc., a predecessor to Petro-Canada, purchased a 50% undivided beneficial interest in land principally to make office space available for its own use and occupation. Petro-Canada entered into a co-tenancy agreement with ARCI to develop an office tower complex that ultimately became the Petro-Canada Centre (“PCC”).
[6] PCC’s total rentable area was about 1,730,000 square feet. PCC’s total rentable office space was about 1,707,000 square feet. The difference was retail space.
[7] The Respondent pleads that Petro Canada had an undivided interest in the entire property of the PCC so the rental property consists of the entire building. The total space occupied by Petro Canada in 1998 was approximately 750,000 square feet, which represents 43% of the building. Therefore, the building was a “rental property” because it was used principally by Petro Canada for the purpose of gaining or producing gross revenue that is rent.
[8] The Appellant argues that the Income Tax regulation 1100(14) focuses on what use was made of the property owned by the taxpayer, not on the entire property. Petro-Canada, as a tenant in common, owned a 50% interest in the PCC, separate and distinct from ARCI’s interest. 50% of PCC’s total rentable area is about 865,000 square feet, so Petro Canada used about 87% for the purpose of gaining or producing business income. Therefore, Petro Canada’s 50% interest was not a rental property because it was used principally by Petro Canada for the purpose of gaining or producing business income.
Both the taxpayer and the Crown sought determinations on points of law pursuant to Rule 81(1):
[9] The Appellant seeks determination of the following question:
Applying s. 1100(14) of the Income Tax Regulations to a set of four circumstances in quantitatively determining whether Petro-Canada’s use of its 50% interest in Petro-Canada Centre (“PCC”) was principally (i.e. more than 50%) for income or rent, should Petro-Canada’s business use be calculated based on 50% or 100% of the total rentable area of the PCC?
[10] The Respondent seeks determination of the following questions:
(1) Is the PCC a building owned by the Appellant, whether owned jointly with another person or otherwise (within the meaning of regulation 1100(14)(a)) of the Income Tax Regulations?
(2) Did Petro-Canada use the property entirely for rent because Petro-Canada leased all of the property?
(3) Is the “property” referred to in the “rental property” definition the entire PCC or only Petro-Canada’s undivided 50% interest in PCC?
(4) If the “property” is only Petro-Canada’s undivided 50% interest in PCC, in determining Petro-Canada’s use of that property,
i. should its business use of the PCC be divided in half?
ii. and, is total possible “use” of the property restricted to the total rentable space or does it include all quantifiable uses of the property?
The Court reviewed the case law under Rule 58(1) and concluded that this would be an appropriate case to permit such a determination. However the Court determined that of the questions raised by the Crown only point 3 was properly raised by its pleadings. Moreover the Crown’s point 3 was essentially the same point raised by the taxpayer but actually better drafted:
[45] It is my view that the Respondent’s third question is much simpler but less contextualized than the Appellant’s question. It asks whether the “property” is the PCC or Petro Canada’s 50% interest in the PCC. This is the same as the Appellant’s question, which asks whether the denominator ought to be 50% or 100% of the total rentable area.
[46] I would prefer the Respondent’s third question because of its simplicity and lack of dependence on assumptions. I believe that the proper question to be put before the Court is the Respondent’s third question.
Thus the application was permitted to proceed using the Crown’s language. However the Court ordered the Crown to pay $5,000 in costs on the motion on the basis that most of the matters raised in the Crown’s motion were either redundant or immaterial.