The taxpayer, which was resident in the United States, entered into a contract to provide two "snubbing" units to Mobil Oil Canada Ltd. for use in connection with an underground blowout in an exploratory gas well off the coast of Nova Scotia, at a rate of U.S. $15,000 per day. In computing its Canadian profits for Canadian income tax purposes, the taxpayer deducted an amount for notional rent. The finding of the Tax Court Judge that, in the circumstances, it was more reasonable to assume that the Canadian branch would have purchased the snubbing unit (claiming capital cost allowance, rather than a rent deduction) was affirmed. MacDonald JA stated (at para. 29):
The 1942 Convention requires that one consider what an "independent enterprise engaged in the same or similar conditions would do." Given the unique nature of the business conducted by the appellant's head office (i.e. it owned the only 600 unit in the world), it is highly unlikely that an independent enterprise would have rented the 600 unit from the head office, particularly in light of the high rental costs, and then have used it to provide snubbing services to another company, in this case Mobil. Instead, given the nature of the business and the type of equipment at issue, the head office would have been contracted directly to take on the project in question. It is not reasonable to believe that an independent third party would have contemplated entering into this type of contract given it did not have the required equipment and would have incurred exorbitant expense if it chose to rent the equipment.