Resource Taxation and the Supreme Court of Canada: The Cigol Case

Abstract

Since 1973, the prices for all forms of energy including oil and gas have increased substantially in Canada, and public debate on the causes and consequences of these price adjustments has become increasingly spirited. Of the many issues that have arisen in this debate two are particularly pressing. First, how should the increased revenues from oil and gas production be shared between the public sector and the producing companies? Second, how should the revenues accruing to the public sector be shared between levels of government?1 Recently, the Supreme Court of Canada became involved in the adjudication of these issues. In November 1977, the Court ruled on appeal from a lower court decision that certain oil tax legislation enacted by the provincial legislature of Saskatchewan was ultra vires the Saskatchewan legislature.2 Further, the Court held that the tax monies collected since 1973 must be returned with accrued interest to the private producing companies. Understandably, the western petroleum-producing provinces did not welcome the decision which was held by some government spokesmen to be reflective of the anti-provincial bias of the Court and which would weaken the provincial claim to control natural resources. The province of Saskatchewan has responded to the Cigol decision by calling for a reform of the Supreme Court and for a new federal-provincial agreement on resource management and control. The government is also preparing new oil tax legislation with retroactive powers to protect its tax revenues of approximately $500 million collected since 1973. The purpose of this study is to look at some of the issues involved in the distribution of resource revenues in Canada and to evaluate the Court's use of economic analysis in adjudicating the dispute between Cigol and Saskatchewan. While the specific issue before the Court in the Cigol Case was the constitutionality of a provincial tax, the outcome of the case may well affect the future division of resource revenues in Canada. The legal test of constitutionality