This case involved a snow crab and groundfish fisher who entered into an agreement with the Government of Canada in 2001 under the Fisheries Access Program ("FAP") to surrender his fishing licences and related gear for $3,050,000 dollars. The purpose of the FAP was to allow aboriginal groups to take part in the commercial fishery. At the time that the licences were offered to the Government in February of 2002, the ground fish licence had not been fished during the previous 10 years because the fishery had been closed and had not been issued with licence conditions, which effectively "deprived the licence of any validity" (para 4). With respect to the Snow Crab licence, in 2000 it was not issued to to to the fisher until after fishing had ended in that year. In February of 2001 he filled out an application under the FAP to sell both licences and his fishing gear for $3,209,518.20, with $2,109,518 allocated to the licences. Subsequently, he entered into the agreement referred to above. After being assessed tax on the amount of $2,583,465 deemed received from the sale of the licences, the fisher appealed his assessment to the Tax Court of Canada.
Initially, the Government took the position that the funds received from the sale of the licences should be treated as a eligible capital property under ss. 9 & 14 of the Income Tax Act ("ITA"). However at the appeal hearing it abandoned this approach and took the position that it should be treated as the disposition of capital property under ss. 38, 39 and 40 of the ITA. In doing so, the Government argued that for the purposes of the ITA, the disposition for the fishing licences was a disposition of "property".
In rejecting this argument, the Hearings Court declined to follow the prior case of Winsor v. Canada 2007 TCC 692 (digested here) because that case relied upon a lower level decision in the case of Saulnier v. RBC that was overturned by the Supreme Court of Canada on appeal. The Court noted that in Saulnier, the Supreme Court of Canada stated that "in general, a fishing licence cannot be considered property at common law" (para. 18). Although Saulnier held that a fishing licence "bears some analogy to a common law profit a prendre, which constitutes a property right . . . such a right exists only during the validity of a the licence. In addition the Hearings Court noted that in Saulnier, the licences was only considered a property right for the purpose of the Business and Insolvency Act that had an extended definition of property that included "profit, present or future . . . in . . . property". Since the year 2000 snow crab licence had not yet been renewed at the time of the application in 2001 and the groundfish licence had no conditions, this case was distinguished from the Saulnier case where apparently the licence holder held a validly issued licence at the time he made the assignment of his property. The Court compared the "voluntary payment" from the Government to be analogous to a company shareholder receiving payment under a non competition clause. Since such a payment was not considered disposition of property, a voluntary payment for a licence relinquishment was also not considered a disposition of property.
Upon appeal, the Federal Court of Appeal overturned the decision of the Hearings Court. In doing so, it took a "commecial reality" approach to the decision of whether a licence should be treated as property for the purpose of the Income Tax Act. Given the commercial value of the licences and the expectation of renewal, the licences were treated as property.