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Mining in the Tax Court: Glencore’s Challenge to Exclude Fees from Taxable Income

Glencore Canada Corporation v. The Queen
By Peter Aprile
Mining in the Tax Court: Glencore’s Challenge to Exclude Fees from Taxable Income
Mining in the Tax Court: Glencore’s Challenge to Exclude Fees from Taxable Income
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Key Points in Glencore

  • The case involves an appeal against a reassessment under the Income Tax Act, where the Minister of National Revenue assessed as income certain fees Falconbridge received due to a failed merger.
  • The Tax Court of Canada ruled that these fees count as ancillary business income from Falconbridge’s mining activities. 

Background to the Income Tax Act Reassessment in Glencore

Glencore Canada’s predecessor, Falconbridge, developed a nickel deposit in Sudbury, Ontario, and a refinery in Kristiansand, Norway. In 1996, Falconbridge initiated a merger offer with Diamond Fields Resources Inc. for the Voisey’s Bay nickel mine. The agreement stipulated that Diamond Fields would pay Falconbridge a commitment fee and a non‑completion fee (collectively termed “the Fees”) under specific circumstances. 

Diamond Fields later accepted an acquisition offer from Inco Limited and rejected Falconbridge’s offer. Falconbridge received the Fees. 

The Canada Revenue Agency considered the Fees taxable income in Falconbridge’s 1996 tax return. Falconbridge objected to the assessment. The Agency’s internal review did not lead to a change in results. Falconbridge (now Glencore) appealed the Agency’s decision to the Tax Court.  

Glencore argued that the Fees should not be taxable as they represent an extraordinary receipt and do not fall under a prescribed source of income according to section 3 of the Income Tax Act.  

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The Tax Court’s Findings in Glencore 

The Tax Court, unsurprisingly, rejected Glencore’s argument. Justice Favreau relied on the Supreme Court’s decision in Ikea Limited v. Canada. He considered multiple factors including the commercial purpose of the payment and its relevance to Glencore’s ordinary business activities. Justice Favreau held that Glencore’s focus was exploring, developing, mining, processing, and marketing minerals, and Glencore aimed to acquire Diamond Fields primarily for their ore deposits. This pursuit aligned with Glencore’s profit-making goal.  

Justice Favreau held that Glencore received the Fees in the normal course of its mining business operations and considered the Fees business income. He dismissed Glencore’s appeal with costs. 

Update: A recent decision has overturned the ruling discussed above. For further analysis, see our follow-up article.

 

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