Paris J. found that "logging operations" refers to "ongoing activities that are carried on by a taxpayer" (para. 50), and therefore the taxpayer could not claim federal logging tax credits in respect of any kind of capital disposition, pursuant to Regulation 700(1)(d)(i) (in this case, principally two BC saw mills.)
As an intervenor, British Columbia argued that the legislative history of Regulation 700 shows that extending the logging tax credits to capital gains would be more consistent with Parliament's intentions. The wording of s. 700(1)(d)(i) was not materially changed since its enactment in September 26, 1963, which predates the introduction of the capital gains tax in 1972. Parliament's apparent intention was to provide relief to forestry businesses from provincial forestry taxes, and taxpayers such as the appellant were made to pay taxes on their capital gains under the BC Logging Tax Act. Therefore, the intervenor argued, when Canada's income tax base was expanded to include a portion of capital gains, it must also have been Parliament's intention to expand its relief of taxes derived from that tax base, such as the logging tax.
Paris J. disagreed. Regulation 700(1) sets out a detailed definition of "income from logging operations," which shows a clear intention to limit the meaning of the term, not to allow it to expand. Moreover, as Paris J. had already concluded, logging operations could not reasonably encompass capital gains - he stated (at para. 91) that "it cannot be said that with the advent of capital gains tax Parliament was taxing a 'new area of logging income.'" Finally, the fact that capital gains were not taxed until long after the enactment of Regulation 700 meant that Parliament could not possible have intended at the time to provide relief for tax on capital gains, except insofar as they could reasonably be characterized as income from logging operations (i.e. not at all).