On December 31, 1993, the taxpayer and other parties to a joint venture acquired (through the joint venture operator ("507") the rights to exploit a body of seismic data (which had been previously sold the same day for $805,000 in cash) in consideration for $975,000 cash and a $5,525,000 promissory note (payable only out of 50% of net licensing revenues and 20% of any production cash flow generated out of any petroleum rights acquired by the joint venture) - which the Minister conceded was not a contingent liability. After the receipt of licensing revenues (mostly in the first three years) which (as to 50% thereof) were cumulatively less than the note interest, in 2006 the data was sold for $560,000 resulting in the forgiveness of $7,080,471 of the note balance including accrued interest.
After quoting with approval (at para. 62) a statement in Petro-Canada that "I am unable to agree…that it necessarily follows that paying more than fair market value is unreasonable," Favreau J found that the Minister had not established that the $6,500,000 paid by the joint venture participants for the seismic data was unreasonable, and so could not limit the taxpayer's deduction under s. 67 (the limit the Minister sought was the cash component plus 50% of net licensing revenues received). Given that the transaction had been at arm's length, the onus was on the Minister to establish that the fair market value of the data was lower than the $6.5 million purchase price, which the Minister had not done (para. 64). Favreau J also stated (at para. 65):
The fact that the revenues from the licensing of the Seismic Data amounted to $1.8 million over a three-year period supports a value for the Technical Data at the time of their acquisition by the Joint Venture in excess of $975,000.