In Daishowa-Marubeni International Ltd. v. The Queen, 2013 SCC 29, the Supreme Court of Canada unanimously decided that reforestation obligations – assumed by a purchaser of a forest tenure in Alberta – represented a future expense embedded in the forest tenure itself; as such, the obligations merely depressed the value of the tenure and could not be added to vendor’s taxable proceeds (paragraph 3). The decision has important implications and comes as welcome relief to many taxpayers in Canada.

  • The Court found that under Alberta law the forest tenure could only be transferred with the Province’s consent. Such consent would not be forthcoming unless the purchaser assumed the obligations (paragraph 30). The effect was to “embed” the obligations into the tenure itself – they could not be severed from the property (paragraph 31). For the same reason, the obligations could not be considered a “distinct existing liability” of the vendor, but simply depressed the value of the property (paragraph 40).
  • The Court clearly left open the possibility that obligations “associated with a property right” could still be “embedded in that property right” even if there is no statute, regulation or government policy that expressly restricts a vendor from selling the property without also assigning the obligations to the purchaser (paragraph 36). The Court here may be referring to the principle of a “qualified right” (see Durham Condominium Corp. No 123 v. Amberwood Investments Ltd., [2002] O.J. No 1023 (Ont. C.A.) at paragraph 68), or perhaps to some broader principle. The Court mentioned this (extended) principle in reference to the Interveners’ submission that in other resource contexts certain obligations to reclaim land are so connected to the extraction process that they cannot be separated from the property right. The precise boundaries of this important principle will no doubt be tested in future cases, particularly in relation to other contingent obligations that cannot easily be separated from property rights in a business.
  • Finally, the Court helpfully discussed an analogy that arises in the context of the sale of a building in need of repair (paragraph 40). In that context, a purchaser’s assumption of a future cost of repairing the building is not added to the sale price of the building – regardless whether that future repair cost is an absolute or contingent obligation. The certainty or likelihood of such repairs simply impacts the amount a purchaser is willing to actually pay the vendor for the building (i.e., the negotiated sale price).