On May 23, 2013, the Supreme Court of Canada released its decision in Daishowa-Marubeni International Ltd. v. Canada. The decision considers whether the vendor of a forest tenure is required to include in its “proceeds of disposition” for the sale, as separate consideration, an estimate of the cost of the associated reforestation obligations assumed by the purchaser. In allowing the taxpayer’s appeal, the Court adopted a commercial approach and found that the reclamation obligations in issue were “embedded” in the property to which they related and thus affected the value of that property. The reclamation obligations did not constitute a separate liability of the vendor. As a result, the Court held that a purchaser’s assumption of such an embedded obligation does not constitute an assumption of a distinct existing liability of the vendor and, therefore, does not give rise to an amount that should be included in the vendor’s proceeds of disposition.
The history of this case has been followed with great interest by industries affected by legislated reclamation regimes, in particular the oil and gas sector. The taxpayer was unsuccessful at both the Tax Court and the Federal Court of Appeal, with both courts holding that an amount in respect of assumed reclamation obligations should be included in a vendor’s proceeds of disposition of property. The SCC granted the taxpayer leave to appeal and allowed written and oral arguments from interveners representing the forestry and oil and gas industries. The Canadian Association of Petroleum Producers participated as an intervener and was represented by Osler. In finding for the taxpayer and overturning the lower court decisions, the SCC expressly accepted, in its written reasons, the submissions of the industry interveners. Although the Daishowa decision was rendered in the context of a specific industry (forestry) and legislative scheme (Alberta forestry regulations), the Court opened the door to the application of similar reasoning to other industries governed by different legislative schemes.
A link to the decision can be found here.