Implication Of Daishowa To Purchasers

Since the decision of the Supreme Court of Canada in Daishowa Marubeni International Ltd. v. Canada, 2013 SCC 29 [Daishowa], clarity exists for how a vendor treats abandonment obligations on the sale of resource properties—namely, the amount of the abandonment obligations do not form additional consideration but are simply factored into the purchase price for such properties. Daishowa did not address how the purchaser should characterize the costs incurred in meeting these assumed abandonment obligations.

In a recent article available to subscribers at Thomson Reuters, The Cost of Acquiring an Asset With Environmental Liabilities Post - Daishowa, we address this issue. The Canadian Revenue Agency (CRA) had historically taken the view that a purchaser should include the amounts paid for abandonment obligations as an additional cost of the property which would typically be additional COGPE (or Canadian oil and gas property expense). The CRA refused to update this