Embedded Liabilities: The Effect Of Daishowa On The Oil And Gas Sector

Overview

The Supreme Court of Canada (the SCC) recently released its decision and reasons in Daishowa-Marubeni International Ltd. v. Canada (Daishowa). The SCC's decision was favourable to the taxpayer. Although the facts of this case were restricted to the treatment of reforestation obligations, the decision will have a significant impact across various industry sectors, in particular the oil and gas industry with respect to environmental and reclamation obligations.

Summary of Facts

Daishowa-Marubeni International Ltd. (DMI) operated two timber divisions in Alberta, which were engaged in the business of harvesting logs and manufacturing finished timber. Each division held a forest tenure under which it was licensed to cut and remove timber from provincial Crown lands. Under the Alberta statutory regime, the forest tenures also imposed certain reforestation obligations to reforest the areas from which it had harvested timber. DMI was statutorily obligated to