Date:
20080618
Docket: A-188-07
Citation: 2008 FCA 218
CORAM: LINDEN J.A.
SHARLOW J.A.
TRUDEL J.A.
BETWEEN:
HER
MAJESTY THE QUEEN
Appellant
and
PERFECT
FRY COMPANY LTD.
Respondent
Heard at Vancouver,
British Columbia, on June 18,
2008.
Judgment delivered from the Bench at Vancouver, British Columbia, on June 18, 2008.
REASONS FOR JUDGMENT OF THE COURT BY:
SHARLOW J.A.
Date:
20080618
Docket:
A-188-07
Citation:
2008 FCA 218
CORAM: LINDEN J.A.
SHARLOW
J.A.
TRUDEL
J.A.
BETWEEN:
HER MAJESTY
THE QUEEN
Appellant
and
PERFECT FRY
COMPANY LTD.
Respondent
REASONS FOR JUDGMENT OF THE
COURT
(Delivered
from the Bench at Vancouver, British Columbia, on June 18,
2008)
SHARLOW J.A.
[1]
This
is an appeal by the Crown from a judgment of Justice Paris of the Tax Court of
Canada (2007 TCC 133) allowing the income tax appeal of Perfect Fry Company
Ltd. for the taxation years 1993 to 1998. The issue in the Tax Court was
whether, in each of those years, Perfect Fry met the statutory definition of
“Canadian-controlled private corporation” in subsection 125(7) of the Income
Tax Act, R.S.C. 1985, c. F-7. Meeting that definition would entitle Perfect
Fry to tax relief in the form of refundable investment tax credits for 1993 to
1995, the small business deduction for 1995, and additional and refundable
investment tax credits for 1996 to 1998. Justice Paris concluded that Perfect
Fry met the statutory definition in all of those years.
[2]
The
Crown is appealing the Tax Court judgment only in relation to 1996, 1997 and 1998.
The Crown’s position is that Justice Paris incorrectly interpreted paragraph
(b) of the definition of “Canadian-controlled private corporation” in
subsection 125(7) as in force for 1996 and subsequent taxation years.
[3]
The
relevant facts are not in dispute. Throughout 1996, 1997 and1998, Perfect Fry
was a corporation resident in Canada, all of the shares of which were owned by
Perfect Fry Corporation, a Canadian public corporation. More than 50% of the
shares of Perfect Fry Corporation were owned by a group of Canadian resident
individuals who acted in concert.
[4]
It
is common ground that, given these facts and the decision of this Court in Parthenon
Investments Ltd. v. Canada (1997) 214 N.R. 396, 97 D.T.C. 5343, [1997] 3
C.T.C. 152 (F.C.A.), Perfect Fry was controlled de jure by a group of
Canadian resident individuals who acted in concert, and not by Perfect Fry
Corporation. It follows that, for 1995 and prior years, Perfect Fry met the definition
of “Canadian-controlled private corporation” that was in force in those years.
That definition reads as follows:
|
"Canadian-controlled
private corporation" means a private corporation that is a Canadian
corporation other than a corporation controlled, directly or indirectly in
any manner whatever, by one or more non-resident persons, by one or more
public corporations (other than a prescribed venture capital corporation), or
by any combination thereof.
|
«société privée
sous contrôle canadien » Société privée qui est une société canadienne autre
qu’une société contrôlée, directement ou indirectement, de quelque manière
que ce soit, par une ou plusieurs personnes non-résidentes, par une ou
plusieurs sociétés publiques (autre qu’ une société à capital de risque visée
par règlement), ou par une combinaison de celles-ci.
|
[5]
For
1996 and subsequent years, the definition was amended to read as follows:
|
"Canadian-controlled
private corporation" means a private corporation
that is a Canadian corporation other than a corporation
|
«société privée
sous contrôle canadien » Société privée qui est une société canadienne, à
l’exception des sociétés suivantes :
|
|
(a)
controlled, directly or indirectly in any manner whatever, by one or more
non-resident persons, by one or more public corporations (other than a
prescribed venture capital corporation), or by any combination thereof,
|
a) la société
contrôlée, directement ou indirectement, de quelque manière que ce soit, par
une ou plusieurs personnes non-résidentes, ou par une ou plusieurs sociétés
publiques, sauf une société à capital de risque visée par règlement, ou par
une combinaison de celles-ci;
|
|
(b)
that would, if each share of the capital stock of a corporation that is owned
by a non-resident person, or a public corporation (other than a prescribed
venture capital corporation) were owned by a particular person, be controlled
by the particular person, or
|
b) si chaque
action du capital-actions d’une société appartenant à une personne
non-résidente, ou à une société publique, sauf une société à capital de
risque visée par règlement, appartenait à une personne donnée, la société qui
serait contrôlée par cette dernière;
|
|
(c) a class of the shares of the capital stock of which
is listed on a prescribed stock exchange.
|
c) la société dont une catégorie d’actions du capital-actions est
cotée à une bourse de valeurs visée par règlement.
|
[6]
The
Crown argued in the Tax Court that Perfect Fry falls outside the definition for
1996, 1997 and 1998 because of paragraph (b) of the definition. Justice Paris
rejected that argument for reasons that are explained in paragraphs 74 to 94 of
his reasons for judgment. The Crown argues that his conclusion is wrong in law.
[7]
Despite
the able submissions of Crown counsel, we agree with the conclusion reached by
Justice Paris, substantially for the reasons he gave. In particular, we agree
that paragraph (b) of the definition of “Canadian-controlled private
corporation” in subsection 125(7), as it read for 1996, 1997 and 1998, applies
only in situations where a majority of the voting shares of a corporation are
held by non-residents or public corporations but no person or group of persons
has de jure control.
[8]
The
appeal will be dismissed with costs.
"K.
Sharlow"
FEDERAL COURT OF APPEAL
NAMES OF COUNSEL AND SOLICITORS OF RECORD
DOCKET: A-188-07
STYLE OF CAUSE: HER
MAJESTY THE QUEEN v.
PERFECT FRY COMPANY LTD.
PLACE OF HEARING: Vancouver,
British Columbia
DATE OF HEARING: June 18, 2008
REASONS FOR JUDGMENT OF THE COURT BY: LINDEN
J.A.
SHARLOW J.A.
TRUDEL
J.A.
DELIVERED FROM THE BENCH BY: SHARLOW J.A.
APPEARANCES:
|
Susan Wong
Gavin Laird
|
FOR THE APPELLANT
|
|
Edwin G. Kroft
|
FOR THE RESPONDENT
|
SOLICITORS OF RECORD:
|
John H. Sims Q.C.
Deputy Attorney General of Canada
|
FOR THE
APPELLANT
|
|
McCarthy Tétrault
LLP
Barristers & Solicitors
Vancouver, B.C.
|
FOR THE RESPONDENT
|
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