The taxpayer (PCS), which produced and sold potash from mines in Saskatchewan, was subject to both a profit tax and to the making of “base payments” under the Mineral Taxation Act, 1983 (Saskatchewan), which was computed by applying a tax rate of tax determined in accordance with the PPTS multiplied by the number of tonnes of potash sold or otherwise disposed of, minus certain permitted deductions. Since the base payment was calculated based on the quantity of potash that was sold, it was only incurred by PCS as a result of sales of potash by it.
After noting (at para. 34) that, in light of Novopharm, “income” in s. 18(1)(a) “means an amount that would be included in computing income for the purposes of the Act” rather than “profit,” Webb JA found that the relevant test in Roenisch, [1931] Ex. C.R. 1, should accordingly read:
… if there is an expenditure which would be made in any case, from which [income] may accrue, the expenditure may be deducted; but an expenditure which will not be incurred unless there is [income] is not an expenditure in order to earn [income].
Applying this test (at para. 35), Webb JA concluded:
For PCS, the base payment was an expenditure that would not have been incurred unless it sold potash, which produced income. The base payment was therefore not an expenditure in order to earn income.
Accordingly, s. 18(1)(a) prohibited the deduction of the base payments.