This
appeal
concerns
the
application
of
legislative
provisions
for
filing
and
for
late
filing
of
forms
relating
to
S.R.T.C.s,
in
particular
subsection
194(7)
of
the
Act.
In
the
general
context
of
tax
appeals
the
case
is
unusual
in
that
the
plaintiff
did
all
that
was
required
of
it
under
the
Act
but
its
claimed
deductions
in
relation
to
an
S.R.T.C.
were
disallowed
because
the
corporation
creating
the
S.R.T.C.,
in
exchange
for
funds
advanced
to
it
by
the
plaintiff
for
research,
failed
to
file
information
and
designation
forms
concerning
the
S.R.T.C.
at
the
times
required
and
was
held
not
capable
of
late
filing
under
subsection
194(7).
The
essential
facts
are
not
in
dispute.
On
May
31,
1984,
Acadia
Saw
Mills
Ltd.
(the
company),
in
consideration
of
the
payment
of
$200,000
by
United
Equities,
issued
a
debenture
in
the
amount
of
$114,000
to
the
plaintiff
in
accord
with
an
agreement
dated
May
28,
1984.
Under
the
agreement
between
the
company
and
the
plaintiff,
the
company
was
to
designate
the
purchase
price,
$200,000,
for
the
purposes
of
a
scientific
research
and
experimental
development
tax
credit
(S.R.T.C.)
pursuant
to
section
127.3
and
Part
VIII
of
the
Act.
By
the
terms
of
the
agreement
the
company
undertook
to
comply
with
all
requirements
of
the
Act
necessary
in
order
to
enable
the
plaintiff
to
be
entitled
to
claim
an
S.R.T.C.
in
respect
of
the
full
purchase
price
paid
for
the
debenture,
including
the
obligation
to
complete
and
file
with
the
Minister
of
National
Revenue,
within
the
time
prescribed
for
filing,
the
form
prescribed
for
designating
the
S.R.T.C.
By
inadvertence,
the
solicitor
of
the
company,
who
had
completed
the
documents
required
to
be
filed
to
permit
the
designation
of
the
S.R.T.C.,
did
not
file
those
documents
within
the
prescribed
times.
Under
subsection
194(4)
of
the
Act
the
company
was
required
to
file
a
prescribed
form
12113
on
or
before
the
last
day
of
the
month
following
the
month
it
issued
a
debt
obligation
under
a
scientific
research
financing
contract,
that
is
in
this
case
by
June
30,
1984,
in
order
to
designate
the
amount
of
an
S.R.T.C..
Other
prescribed
forms,
12114
Summary
and
12114
Supplementary,
both
being
information
returns,
were
also
not
filed
within
the
prescribed
time,
which
was
accepted
by
the
parties
as
on
or
before
February
28,
1985,
pursuant
to
the
Income
Tax
Regulations,
subsections
205(1)
and
226(2).
I
note
that
the
plaintiff,
which
had
received
copy
2
of
the
T2114
Supplementary
form
from
the
company,
the
only
evidence
for
tax
purposes
of
the
S.R.T.C.
provided
to
it
at
the
time
of
the
transaction,
properly
filed
that
form
with
its
income
tax
return
for
the
year
ended
May
31,
1984.
That
return
was
forwarded
to
Revenue
Canada,
Taxation
under
covering
letter
of
July
24,
1984.
The
letter
drew
attention
to
the
enclosure
with
the
return
of
form
T2117,
relating
to
the
allocation
of
unused
scientific
research
tax
credit
to
claim
the
carryback
of
a
deduction
to
the
plaintiff's
1983
taxation
year,
which
related
at
least
in
part
to
the
S.R.T.C.
acquired
from
the
company.
By
notice
of
assessment
dated
September
27,
1984,
the
plaintiff's
income
tax
return
appears
to
have
been
accepted
in
the
first
instance,
but
reassessments
by
notice
dated
August
4,
1987,
concerning
each
of
the
1984
and
1983
taxation
years
advised
that
the
S.R.T.C.
claimed
in
the
amount
of
$100,000
in
respect
of
Acadia
Saw
Mills’
debenture
was
disallowed.
The
reassessment
for
1984
advised
that
the
S.R.T.C.
designation
was
not
filed
within
the
time
limit
provided
by
subsection
194(4)
and
it
did
not
meet
requirements
for
late
filing
under
subsection
194(7).
Following
the
transaction
of
May
28
and
31
the
company
had
redeemed
its
debenture
on
June
1,
1984
and
copy
2
of
the
T2114
Supplementary
was
apparently
issued
to
the
plaintiff
by
the
company
at
that
time.
The
solicitor
for
the
company,
who
had
neglected
to
file
the
designation
form
and
the
information
forms,
first
realized
his
mistake
when,
following
an
enquiry
from
a
local
officer
of
Revenue
Canada
on
October
17,
1985,
he
discovered
the
original
forms
still
in
his
file.
After
finding
the
original
forms
the
solicitor
wrote
that
same
day
to
Revenue
Canada
at
its
Halifax
office
forwarding
the
original
forms
T2113,
12114
Summary
and
form
12114
Supplementary,
noting
that'"Due
to
an
oversight
on
my
part,
these
documents
were
not
forwarded
to
Revenue
Canada
as
required”.
Then
on
December
23,
1985
the
solicitor
received
from
the
company
a
letter
dated
November
18,
1985
addressed
to
Acadia
Saw
Mills
from
Revenue
Canada,
Taxation
in
Ottawa,
signed
on
behalf
of
D.
Dexter
of
the
Part
VII,
VIII
Tax
Group.
By
that
letter,
form
T2113,
the
S.R.T.C.
designation
form,
was
returned
to
the
company
with
the
statement
that
it
should
have
been
filed
under
subsection
194(4)
of
the
Act
not
later
than
June
30,
1984.
That
letter
also
noted
that
subsection
194(7)
provided
for
late
filing
of
the
designation
if
the
prescribed
information
return
12114
Summary
is
filed
by
the
end
of
February
in
the
year
following
the
issue
of
the
debt
obligation
and
the
penalty
provided
in
subsection
194(8)
is
both
calculated
and
remitted.
The
letter
also
noted
that
no
remittance
of
the
penalty
"appears
to
have
been
made"
with
the
designation
forwarded
on
October
17
and
“consequently,
the
designation
in
question
cannot
be
considered
to
be
filed
as
a
valid
designation
in
accordance
with
subsection
194(7)
as
the
applicable
penalty
of
$8,000
has
not
been
remitted”.
Finally,
the
letter
stated:
The
enclosed
12113
will
be
accepted
as
filed
on
the
original
filing
date
if
it
is
resubmitted
with
the
applicable
penalty
payment
within
30
days
of
the
mailing
of
this
letter.
Failure
to
submit
the
requested
penalty
payment
with
the
enclosed
T2113
will
result
in
an
invalid
designation
and
the
disallowance
of
the
tax
credits
claimed
by
investors.
When
this
letter
was
brought
to
his
attention,
the
company's
solicitor
noted
that
it
was
already
too
late
to
comply
with
the
thirty-day
period
set
out
in
the
letter
for
re-submitting
the
designation
form
with
payment
of
a
penalty.
He
concluded,
on
examination
of
the
Act
and
in
particular
subsection
194(7)
to
which
the
letter
referred,
that
Revenue
Canada
was
treating
the
matter
under
that
provision
which
provided
a
90-day
period
from
mailing
of
a
Minister's
notice
for
late
filing
a
designation
form
with
payment
of
a
penalty.
Following
discussion
by
telephone
with
Mr.
Dexter
concerning
the
letter
of
November
18,
which
was
signed
on
Dexter's
behalf,
the
solicitor
wrote
on
January
15,
1986,
noting
that
the
designation
form
had
not
been
filed
earlier
because
of
his
own
oversight
and
asking
that
consideration
be
given
to
not
requiring
payment
of
a
penalty
in
the
circumstances.
By
telephone
on
January
27,
Mr.
Dexter
advised
that
his
"head
office"
had
responded
to
that
request
by
referring
to
the
statutory
provision
requiring
payment
of
the
penalty.
That
same
day
the
solicitor
wrote
re-submitting
the
original
form
12113
and
enclosing
a
cheque
in
the
amount
of
the
penalty
earlier
said
to
be
applicable,
$8,000,
while
noting
that
the
cheque
was
forwarded
under
protest
and
that
the
company
would
pursue
appeal
or
other
procedures
to
recover
the
payment.
The
cheque
was
cashed
b
Revenue
Canada
February
5,
1986
and
receipt
of
the
form
12113
was
acknowledged
by
letter
dated
February
10,
again
signed
on
behalf
of
D.
Dexter,
which
noted
that
the
letter
and
an
enclosed
stamped
copy
of
the
form
were
an
acknowledgement
of
receipt
of
the
designation
form
and
should
not
be
regarded
as
confirmation
that
the
designation
was
valid.
By
letter
of
June
6,
1986
from
W.
Tallack,
section
head
of
Part
VII,
Part
VIII
Tax
Group
of
Revenue
Canada,
Taxation,
the
solicitor
for
the
company
was
advised
that
the
prescribed
forms
T2113
and
T2114
required
to
be
filed
for
an
S.R.T.C.
designation
under
section
194
of
the
Act,
each
filed
on
October
17,
1985,
"were
not
filed
according
to
the
provisions
of
Part
VIII
of
the
Income
Tax
Act
and
consequently,
the
designation
is
not
valid
under
the
provisions
of
section
194”.
The
letter
advised
that
action
in
regard
to
tax
credits
claimed
by
the
investor,
i.e.,
the
plaintiff
in
this
case,
would
be
held
in
abeyance
for
thirty
days
to
allow
time
for
the
company
to
provide
any
submission
it
might
wish
in
relation
to
the
matter.
On
June
25,
the
company's
solicitor
responded
by
letter,
reviewing
previous
discussions
and
correspondence
with
officials
of
Revenue
Canada,
Taxation
about
the
matter,
the
background
circumstances
and
his
own
neglect
to
file
the
forms
in
a
timely
fashion
and
submitting
that
it
would
be
inappropriate
to
consider
the
designation
invalid
since
in
his
view
it
was
"not
the
intention
of
this
legislation
to
penalize
investors
in
a
case
of
simple
inadvertence”.
That
letter
was
acknowledged
by
letter
of
July
4,
1986,
advising
that
the
correspondence
had
been
referred
to
"our
Head
Office”
for
consideration,
assuring
that
the
matter
would
receive
prompt
attention
and
that
"a
reply
will
be
forthcoming
as
expeditiously
as
possible
from
our
Head
Office”.
Revenue
Canada,
Taxation
did
not
thereafter
advise
the
company
or
its
solicitor
of
its
final
decision
in
this
matter.
Throughout
the
period
the
solicitor
for
the
company
was
seeking
to
file
late
the
required
forms
it
appears
from
the
testimony
of
officers
of
Revenue
Canada
at
trial
that
the
Department
was
evolving
administrative
policies
for
dealin
with
S.R.T.C.s.
Though
created
by
legislation
in
1984,
not
all
of
the
difficulties
encountered
in
administering
the
program
appear
to
have
been
anticipated.
Thus,
in
1984
no
procedure
had
been
devised
to
tie
in
a
claimed
S.R.T.C.,
even
where
a
T2114
Supplementary
had
been
filed
by
the
claimant
taxpayer,
with
the
tax
liability
created
under
section
194
for
the
corporation
which
designated
the
tax
credit,
at
least
where
that
corporation
failed
to
file
prescribed
information
returns.
Revenue
Canada,
Taxation
appears
to
have
relied
on
the
designating
corporation,
here
Acadia
Saw
Mills,
meeting
its
obligations
under
the
Act
by
filing
the
required
forms
and
paying
the
refundable
tax.
Only
in
1985
was
a
process
put
in
place
to
tie
in
the
claimed
S.R.T.C.
with
the
tax
liability
of
the
designating
corporation,
so
that
those
in
the
Part
VIII
tax
group
would
know
of
a
claimed
S.R.T.C.
where
no
information
was
on
file
from
the
designating
corporation.
In
1984,
other
difficulties
led
to
modification
of
the
S.R.T.C.
program,
including
the
announcement
on
October
10
that
a
moratorium
was
being
placed
on
the
issuing
of
so-called
“quick
flip”
S.R.T.C.
investments.
The
transaction
between
the
company
and
the
plaintiff
in
this
case
fell
within
the
"quick
flip"
class,
since
Acadia
Saw
Mills
redeemed
its
debenture
on
June
1,
1984,
paying
$114,000
to
the
plaintiff,
yet
at
the
time
that
transaction
was
concluded
it
was
perfectly
valid
and
would
have
been
recognized
as
creating
the
S.R.T.C.
claimed
had
the
appropriate
forms
been
filed.
In
June,
1985
an
internal
memorandum
of
Revenue
Canada
indicates
revisions
to
procedures
for
dealing
with
problem
cases
under
Part
VIII
of
the
Act,
in
particular
in
relation
to
late
filing
of
designation
form
T2113.
In
cases
where
the
late
filing
penalty
was
not
paid
on
filing,
where
the
designation
form
was
incomplete
or
not
filed,
the
designating
corporation
would
be
advised
by
letter
of
the
filing
requirements
and
consequences
of
non
compliance,
and
they
would
be
allowed
30
days
to
comply.
The
letter
of
November
18,
1985
to
the
company
follows
verbatim
one
of
the
form
draft
letters
prepared
within
the
Department
to
deal
with
circumstances
like
those
apparent
from
the
company's
attempted
filing
of
all
required
forms
on
October
17,
1985
without
payment
of
the
late
filing
penalty.
The
revised
procedures
also
provided
that
if
no
reply
were
received
in
30
days,
a
second
letter,
the
Minister’s
notice
under
subsection
194(7),
would
be
sent.
By
July
29,
under
a
covering
intra-departmental
memorandum,
drafts
of
the
"Minister's
Notice”
letter
for
this
purpose
were
circulated
with
instructions
for
their
preparation
for
signature
by
the
Assistant
Deputy
Minister
and
for
mailing
by
double
registered
mail.
Those
drafts
were
each
designed
to
relate
to
particular
circumstances.
Included
among
them
was
a
draft
letter
directing
the
late
filing
of
information
returns
that
were
outstanding,
to
be
sent
to
corporations
that
had
failed
to
file
these.
No
letter
modelled
on
these
drafts,
and
no
letter
signed
by
an
Assistant
Deputy
Minister,
was
sent
to
the
company
in
this
case.
There
was
evidence
at
trial
from
a
Revenue
Canada
officer
in
Halifax
that
early
in
January,
1986,
in
conversation
with
a
member
of
the
Part
VII,
VIII
Tax
Group
in
Ottawa,
he
was
told
that
a
Minister's
notice
under
subsection
194(7)
would
soon
be
sent
to
the
company.
The
revised
procedures
outlined
on
June
28,
1985
also
provided
that
in
the
case
of
late
filed
designations,
where
the
information
return
was
also
late
filed,
these
would
not
be
assessed
until
approved
by
audit
(I
presume
the
Audit
Branch
of
Revenue
Canada),
and
that
referral
procedures
to
audit
were
being
developed.
All
affected
designations
were
to
be
stockpiled
until
further
notice.
Apparently,
in
this
case
after
designation
form
12113
was
re-submitted
with
payment
of
the
penalty
in
January,
1986,
Revenue
Canada
held
that
application,
along
with
other
problem
cases,
in
accord
with
the
policy
developed
in
late
June,
1985.
By
1985,
processes
were
developed
for
the
Audit
Branch
of
Revenue
Canada,
Taxation
to
conduct
an
audit
of
the
corporations
designating
S.R.T.C.s.
In
this
case
the
company,
Acadia
Saw
Mills,
was
audited
on
July
3,
1986.
The
auditor
reported
that
the
research
funds
derived
from
the
investment
to
which
the
company's
designation
related
had
been
disbursed,
for
redemption
of
the
debenture,
for
commission
and
fees
relating
to
the
transaction,
for
salary
to
the
president
of
the
company
and
for
advances
to
another
corporation
controlled
by
the
president
of
the
company.
No
progress
had
been
made
in
research
on
the
project
for
which
the
S.R.T.C.
financing
had
been
arranged,
the
development
of
a
mobile
sawmill.
That
project
was
still
in
the
design
stage,
and
quotes
for
equipment
costs
were
still
being
obtained.
Secondary
financing
for
the
research
to
be
undertaken
had
been
anticipated
from
the
other
corporation
controlled
by
the
president
of
the
company
but
the
prospects
for
such
financing
in
light
of
that
corporation's
own
financial
difficulties
and
its
limited
sales
were
virtually
nil.
Other
prospects
for
secondary
financing
were
listed
but
there
was
no
indication
whether
such
financing
was
likely.
In
testimony
at
trial
the
auditor
concerned
stated
that
his
conclusion
was
that
Acadia
Saw
Mills
had
not
expended
any
funds
on
research
and,
two
years
after
the
transaction
with
the
plaintiff,
its
financial
situation
would
not
permit
such
expenditures
even
though
the
president
of
the
company
still
professed
the
intention
to
proceed
with
the
project
of
developing
a
mobile
sawmill.
As
it
later
turned
out
any
plans
that
Acadia
Saw
Mills
had
went
unrealized
when
the
president
and
controlling
officer
of
the
company
died
in
the
summer
of
1986
in
a
boating
accident.
Finally,
by
an
intra-departmental
memorandum
of
February
23,
1987,
those
concerned
within
the
Department
were
advised
of
criteria
by
which
"technically
invalid
designations"
could
be
accepted
in
order
to
clear
affected
investors'
returns.
In
relation
to
S.R.T.C.s
the
memorandum
noted
that
approximately
700
unassessed
1985
T-1
returns
were
being
held
pending
decisions
on
the
validity
of
the
designations.
That
memorandum,
following
a
meeting
presided
over
by
an
Assistant
Deputy
Minister,
advised
in
part
in
relation
to
Part
VIII
S.R.T.C.s:
As
a
result
of
the
extensive
audit
work
done
on
the
issuers
the
following
rules
were
agreed
to
apply:
1.
For
those
situations
where
the
T2113
designation
and
T2114
information
return
are
both
late,
if
eligible
R
&
D
expenditures
were
carried
out
to
offset
the
Part
VIII
tax
liability,
we
will:
a.
accept
the
late-filed
designation;
b.
apply
the
LFP
on
the
designation;
payment
will
be
Collections
responsibility
and
not
a
determining
factor
in
our
acceptance
of
the
designation;
and
c.
allow
the
investors'
S.R.T.C.s
as
claimed.
2.
If
the
R
&
D
expenditures
were
not
attempted,
not
eligible,
or
partially
eligible:
a.
the
designation
will
not
be
accepted;
b.
the
LFP
on
the
designation
will
be
refunded,
if
paid;
and
c.
the
investor's
S.R.T.C.s
will
be
disallowed.
Certain
exceptions
to
those
rules
were
also
outlined.
Testimony
at
trial
from
Revenue
Canada
officers
indicated
that
had
auditors
found
in
this
case
that
eligible
research
and
development
expenditures
were
carried
out
to
offset
the
Part
VIII
tax
liability
of
Acadia
Saw
Mills
then
the
late
filed
designation
would
have
been
filed
as
valid
and
the
S.R.T.C.
claimed
would
have
been
allowed,
in
accordance
with
the
administrative
policies
developed
in
the
Department.
It
is
not
clear
from
the
decision
of
Kempo,
T.C.C.J.
whether
evidence
of
the
evolution
of
administrative
processes
within
Revenue
Canada,
Taxation
was
adduced
in
the
Tax
Court
or
whether
argument
was
there
based
primarily
upon
the
agreed
facts
set
out
in
the
decision.
The
learned
judge
set
out
the
issues
as
identified
by
the
parties,
including:
1.
Does
subsection
194(7)
provide
that,
where
the
Minister
has
mailed
a
notice
to
a
corporation
that
a
designation
has
not
been
made
as
required
by
subsection
194(4),
such
designation
will
be
deemed
to
have
been
dully
filed
if
the
form
12113
is
filed,
together
with
the
penalty
prescribed
by
subsection
194(8),
on
or
before
the
date
that
is
90
days
after
the
date
of
such
notice,
notwithstanding
the
fact
that
the
corporation
has
failed
to
file
the
Information
Returns
on
or
before
the
date
prescribed
for
the
filing
of
such
forms.
[Emphasis
added
by
Kempo,
T.C.C.J.]
After
outlining
the
positions
of
the
parties
the
decision
of
the
judge
was
the
following:
There
is
no
need
to
set
out
the
submissions
of
the
parties
with
respect
to
issues
#2
and
#3
until
the
first
one
has
been
determined.
In
my
view
respondent
counsel's
interpretative
approach
and
analysis
on
the
first
issue
were
persuasive
and
well
founded.
They
are
the
ones
to
be
adopted
here
along
with
the
resultant
conclusions.
To
have
accepted
the
appellant
counsel's
analysis
would
have
called
for
the
putting
of
words
into
the
"except"
proviso
of
subsection
194(7)
that
were
not
there.
Parliament
had
not
provided
any
provision
or
mechanism
for
a
late
filing
of
the
Information
Returns
in
conjunction
with
a
late-filed
designation.
Rather
it
had
mandated
the
timely
filing
of
the
former
as
a
condition
precedent
to
the
latter.
A
timely
filing
of
the
prescribed
Information
Returns
was
the
only
mechanism
provided
to
put
the
Minister
of
National
Revenue
on
statutory
notice
that
a
designation
had
been
made
which,
once
done,
effectually
preserved
the
designator's
late-filing
rights
with
respect
to
the
designation,
and
ultimately
the
purchaser's
entitlement
to
the
S.R.T.C.
itself.
Judge
Kempo
added
that
the
words
used
in
subsection
194(7)
were
sufficiently
explicit
in
expressing
the
intent
of
Parliament
and
there
was
no
reasonable
uncertainty
or
factual
ambiguity
resulting
from
lack
of
explicitness
which
should
be
resolved
in
favour
of
the
taxpayer.
Finding
the
answer
to
the
first
issue
posed
was
"No",
there
was
no
need
to
deal
with
other
issues
raised.
Relevant
portions
of
the
applicable
provisions
of
the
Act
as
they
were
in
1984
were
as
follows:
127.3.
(1)
There
may
be
deducted
from
the
tax
otherwise
payable
under
this
Part
by
a
taxpayer
for
a
taxation
year
an
amount
not
exceeding
the
aggregate
of
(a)
his
scientific
research
tax
credit
for
the
year;
and
(b)
his
unused
scientific
research
tax
credit
for
the
taxation
year
immediately
following
the
year.
(2)
For
the
purposes
of
the
Act,
(a)
scientific
research
tax
credit"
of
a
taxpayer
for
a
taxation
year
means
the
aggregate
of
all
amounts
each
of
which
is
an
amount
equal
to
(i)
where
the
taxpayer
is
a
corporation,
50%
of
an
amount
designated
by
a
corporation
under
subsection
194(4).
194.
(1)
Every
corporation
shall
pay
a
tax
under
this
Part
for
a
taxation
year
equal
to
50%
of
the
aggregate
of
all
amounts
each
of
which
is
an
amount
designated
under
subsection
(4)
in
respect
of
a
share
or
debt
obligation
issued
by
it
in
the
year
or
a
right
granted
by
it
in
the
year.
(4)
Every
taxable
Canadian
corporation
may,
by
filing
a
prescribed
form
with
the
Minister
at
any
time
on
or
before
the
last
day
of
the
month
immediately
following
a
month
in
which
it
issued
a
share
or
debt
obligation
or
granted
a
right
under
a
scientific
research
financing
contract.
.
.
designate,
for
the
purposes
of
this
Part
and
Part
I,
an
amount
in
respect
of
that
share,
debt
obligation
or
right
not
exceeding
the
amount
by
which
(a)
the
amount
of
the
consideration
for
which
it
was
issued
or
granted,
as
the
case
may
be,
exceeds
(b)
in
the
case
of
a
share,
the
amount
of
any
assistance
(other
than
an
amount
included
in
computing
the
scientific
research
tax
credit
of
a
taxpayer
in
respect
of
that
share)
provided,
or
to
be
provided
by
a
government,
municipality
or
any
other
public
authority
in
respect
of,
or
for
the
acquisition
of,
that
share.
(7)
Where
a
taxable
Canadian
corporation
that
issued
a
share
or
debt
obligation
or
granted
a
right
under
a
scientific
research
financing
contract
does
not
designate
an
amount
under
subsection
(4)
in
respect
of
the
share,
debt
obligation
or
right
on
or
before
the
day
on
which
such
designation
was
required
by
that
subsection,
the
corporation
shall
be
deemed
to
have
made
the
designation
on
that
day
if
(a)
the
corporation
has
filed
with
the
Minister
a
prescribed
information
return
relating
to
the
scientific
research
tax
credit
in
respect
of
the
share,
debt
obligation
or
right
within
the
time
that
it
would
have
been
so
required
to
file
the
return
had
the
designation
been
filed
on
that
day,
and
(b)
within
3
years
after
that
day,
the
corporation
has
(i)
designated
an
amount
in
respect
of
the
share,
debt
obligation
or
right
by
filing
a
prescribed
form
with
the
Minister,
and
(ii)
paid
to
the
Receiver
General
an
amount
that
is
a
reasonable
estimate
of
the
amount
of
the
penalty
payable
by
the
corporation
for
the
late
designation
in
respect
of
the
share,
debt
obligation
or
right;
except
that,
where
the
Minister
has
mailed
a
notice
to
the
corporation
that
a
designation
has
not
been
made
in
respect
of
the
share,
debt
obligation
or
right
under
subsection
(4),
the
designation
and
payment
described
in
paragraph
(b)
must
be
made
by
the
corporation
on
or
before
the
day
that
is
90
days
after
the
day
of
such
mailing.
(8)
Where,
pursuant
to
subsection
(7),
a
corporation
made
a
late
designation
in
respect
of
a
share
or
debt
obligation
issued,
or
a
right
granted,
in
a
month,
the
corporation
shall
pay,
for
each
month
or
part
of
a
month
that
elapsed
during
the
period
commencing
on
the
last
day
on
or
before
which
an
amount
could
have
been
designated
by
the
corporation
under
subsection
(4)
in
respect
of
the
share,
debt
obligation
or
right
and
ending
on
the
day
that
the
late
designation
is
made,
a
penalty
for
the
late
designation
in
respect
of
the
share,
debt
obligation
or
right
in
an
amount
equal
to
1%
of
the
amount
designated
in
respect
of
the
share,
debt
obligation
or
right,
except
that
the
maximum
penalty
payable
under
this
subsection
by
the
corporation
for
a
month
shall
not
exceed
$500.
While
the
parties
state
the
issue
in
this
case
in
different
terms,
those
terms
relate
to
their
differing
perceptions
of
the
construction
or
interpretation
of
subsection
194(7)
in
this
case.
For
the
plaintiff
it
is
argued
that
timely
filing
of
information
returns
is
not
a
condition
precedent
to
late
filing
of
a
designation
where
the
Minister
has
given
notice
that
a
designation
has
not
been
made
under
subsection
194(4)
and
the
designation
and
payment
of
the
penalty
prescribed
is
made
on
or
before
90
days
after
mailing
of
the
notice.
Further,
the
letter
of
November
18,
1985
constitutes
notice
and
the
company
having
filed
the
designation
and
paid
the
penalty
within
90
days
of
the
date
of
that
letter
has
met
the
requirements
of
the
exception
clause
in
subsection
194(7).
For
the
defendant
it
is
argued
that
timely
filing
of
information
returns
is
a
condition
precedent
to
any
late
filing
of
the
designation,
but
if
the
Court
concludes
otherwise,
the
letter
of
November
18
does
not
constitute
a
notice
by
the
Minister
within
subsection
194(7).
In
considering
subsection
194(7)
I
proposed
to
look
at
its
form
and
structure,
its
purpose,
and
its
application
by
the
defendant.
As
I
read
that
provision
I
come
to
a
conclusion
different
from
that
reached
by
Her
Honour
Judge
Kempo
of
the
Tax
Court,
and
I
am
persuaded
that
the
construction
urged
By
the
plaintiff
is
appropriate
in
relation
to
the
question
of
whether
timely
filing
of
information
returns
is
a
condition
precedent
for
all
cases
of
late
filing
of
the
designation.
My
conclusion
rests
upon
four
considerations.
First,
the
structure
of
subsection
194(7)
sets
out
an
introductory
clause
relating
to
late
filing
of
a
designation
and
following
the
word
"if"
at
the
end
of
that
clause
it
sets
out
two
conditions
in
paragraphs
(a)
and
(b),
the
latter
of
which
concludes
with
a
semicolon,
the
first
and
only
semicolon
used
in
the
provision.
(For
the
record
I
note
that
the
semicolon
appears
in
the
English
text
of
the
Act
but
not
in
the
French
text
where
a
comma
is
used.)
This
much
of
subsection
194(7),
in
my
view,
clearly
ives
a
right
to
a
corporation
filing
late
to
have
its
designation
filed
and
deemed
to
have
been
made
at
the
proper
time
if
it
meets
conditions
in
paragraphs
(a)
and
(b).
The
balance
of
the
subsection,
from
the
word
"except"
to
the
end,
continues
not
as
a
visible
part
of
paragraph
(b)
but
rather
as
a
part
of
the
main
subsection,
for
it
does
not
continue
after
the
semicolon
(or
comma
in
the
French
text)
at
the
end
of
paragraph
(b),
but
it
continues
on
a
new
line
at
the
left
margin
of
the
introductory
clause,
not
the
margin
of
paragraphs
(a)
and
(b).
In
my
view
the
exception
clause
relates
to
the
whole
of
the
first
part
of
the
subsection,
not
merely
to
paragraph
(b),
and
it
provides
an
alternative
to
the
designating
company's
right
to
file
late,
where
the
Minister
has
mailed
a
notice
that
a
designation
has
not
been
made
under
subsection
194(4).
True,
the
exception
clause
refers
to
paragraph
(b)
and
not
to
(a)
of
the
subsection,
but
the
whole
of
the
subsection
is
concerned
with
late
filing
of
the
designation,
not
with
late
filing
of
information
forms.
Thus,
it
is
not
surprising
that
the
exception
clause
makes
no
reference
to
paragraph
(a);
there
was
no
need
to
do
so.
Moreover,
the
only
reference
to
filing
of
information
forms
in
the
whole
of
section
194
appears
in
subsection
(7);
no
provision
of
the
Act
specifies
the
need
or
the
time
for
the
filing
of
information
forms,
a
matter
dealt
with
by
regulation.
Not
in
Part
VIII
but
elsewhere
the
Act
provides
separate
penalties
for
failure
to
file
on
time
various
information
forms
(see
subsection
162(7)
and
section
238)
required
under
the
Act
or
regulations.
Those
general
provisions
permit
the
Minister
to
act
in
relation
to
information
returns
that
are
not
properly
filed
and
there
is
no
need
for
repetition
of
that
authority
in
section
194.
Dealing
with
the
designation
form
in
that
section
is
on
a
different
footing;
it
was
the
key
to
establishing
the
designating
company's
tax
liability
and
an
investor's
claim
to
an
S.R.T.C.
Second,
this
construction
of
subsection
194(7)
is
consistent
with
the
general
purposes
of
the
legislation
relating
to
S.R.T.C.s.
That
purpose
was
to
encour-
age
investment
by
private
investors
for
research
and
development
by
corporations
which
were
taxable
but
had
no,
or
limited,
tax
liability
and
thus
no
incentive,
or
recognition,
under
taxing
statutes
for
undertaking
expenses
for
research
and
development,
activities
which
in
terms
of
early
or
any
financial
return
are
generally
considered
risky.
The
private
investor
was
encouraged
to
invest
by
creation
of
the
S.R.T.C.
which
was
permitted
as
a
deduction
from
its
tax
otherwise
payable.
The
designating
company,
creating
the
S.R.T.C.,
incurred
liability
to
pay
tax
equivalent
to
the
amount
designated
as
an
S.R.T.C.
but
that
tax
was
refundable
with
eligible
research
expenditures
equal
to
twice
the
amount
of
the
designation.
Thus,
incentives
under
the
Act
were
created,
both
for
the
investor,
and
for
the
corporation
designating
the
amount
of
the
S.R.T.C.
If
the
designation
form
T2113
were
filed
on
time
in
accord
with
subsection
194(4)
the
investor's
position
was
protected,
regardless
of
whether
the
designating
corporation
met
its
tax
liability
by
paying
the
refundable
tax
within
the
prescribed
time
and
whether
or
not
it
did
any
research.
The
only
exception,
under
subsection
195(5),
is
where
the
investor
knew
or
ought
to
have
known
at
the
time
of
the
transaction,
that
the
designating
corporation
would
wilfully
evade
or
attempt
to
evade
the
tax,
in
which
event
the
S.R.T.C.
would
not
be
recognized.
Payment
of
the
tax
and
then
refunding
it
was
designed
to
protect
the
Crown's
position
in
relation
to
revenue
until
eligible
research
expenditures
were
made;
when
that
happened
the
purpose
of
the
legislative
program,
promoting
research
and
development
by
private
investment,
was
met.
Within
those
general
purposes
subsection
194(7)
provided
for
late
filing
of
the
designation
form.
It
was
intended
to
protect
the
position
of
the
investor,
here
the
plaintiff,
and
an
opportunity
to
establish
the
tax
liability
of
the
designating
company.
In
my
view,
it
was
not
intended
to
provide
an
opportunity
for
the
Minister
to
elect
to
deny
recognition
of
an
S.R.T.C.
and
to
ignore
the
tax
liability
of
the
designating
company
simply
because
that
liability
had
not
been
established
by
timely
filing
of
prescribed
forms.
Late
filing
of
the
designation
and
payment
of
the
penalty
were
intended
to
overcome
the
defect
of
failure
to
file
the
designation
on
time.
Otherwise
opportunity
for
late
filing
would
not
have
been
provided.
Third,
Revenue
Canada's
own
administrative
policies
ultimately
were
inconsistent
with
the
position
here
advanced
by
the
Crown,
that
timely
filing
of
information
returns
was
a
condition
precedent
to
any
late
filing.
The
policy,
enunciated
internally
in
February,
1987
following
field
audits
of
various
companies
which
had
filed
late
or
whose
designations
otherwise
presented
problems,
provided
in
a
case
where
both
designations
and
information
returns
were
filed
late
that
the
designation
would
be
accepted,
even
without
prior
payment
of
the
penalty
for
late
filing,
if
eligible
research
expenditures
had
been
undertaken
to
offset
the
tax
liability
of
the
designating
company.
But,
as
in
the
case
of
Acadia
Saw
Mills,
where
no
such
expenditures
were
made,
the
late
filed
designation
was
not
to
be
considered
as
valid.
The
policy
may
make
sense
to
the
administrator
who
recognizes
that
in
the
first
case
the
objectives
of
the
legislation,
to
foster
eligible
research,
had
been
met,
and
in
the
latter
case
they
had
not
been
met.
However
commendable
its
intentions,
Revenue
Canada
really
had
no
authority
to
treat
the
two
cases
differently
if
the
law
were,
as
it
is
now
urged
by
the
Crown,
that
filing
information
returns
in
a
timely
fashion
was
a
condition
precedent
to
any
late
filing
of
a
designation.
If
that
were
the
law,
Revenue
Canada's
treatment
of
those
cases
where
eligible
research
expenditures
were
made,
accepting
a
late
filed
designation
even
though
information
returns
had
not
been
filed
on
time,
would
constitute
a
dispensing,
or
suspending
of
the
law
in
those
cases,
an
authority
not
vested
in
the
Minister.
Indeed,
that
authority
is
not
here
claimed
though
it
arises
implicitly
from
the
Department's
practice,
if
the
interpretation
of
subsection
194(7)
urged
by
the
defendant
were
to
be
accepted.
In
my
view
the
Department's
practice
can
be
justified
only
on
the
construction
here
urged
by
the
plaintiff,
that
even
if
the
information
returns
were
late
filed
under
the
exception
clause
of
subsection
194(7)
the
Minister
may
give
notice,
with
90
days
for
compliance
by
filing
the
designation
and
payment
of
the
penalty.
If
there
is
compliance
the
designation
is
accepted
and
deemed
to
have
been
filed
on
time.
I
acknowledge
that
departmental
policy
established
to
administer
the
Act
is
not
determinative
of
the
legal
construction
to
be
given
to
the
words
of
the
Act
where
that
construction
is
in
issue.
Nonetheless,
where
that
practice
is
not
inconsistent
with
the
terms
of
the
Act
construed
in
light
of
its
purposes,
it
is,
in
my
view,
worth
noting
that,
and
also
that
another
construction,
here
urged
by
the
Crown,
is
inconsistent
with
the
Department's
own
practice.
I
do
not
agree
with
the
defendant's
submission
that
this
construction
requires
reading
words
into
subsection
194(7),
apparently
alluding
to
permitting
the
filing
late
of
information
returns
or
to
the
exclusion
from
the
exception
clause
of
the
necessity
for
timely
filing
of
information
returns.
In
my
view,
no
such
reading
in
is
necessary
in
this
provision,
the
purpose
of
which
is
to
provide
for
late
filing
of
the
designation
form.
I
also
do
not
agree
that
this
construction
leads
to
an
absurd
result,
i.e.,
that
information
returns
required
to
be
filed
may
simply
be
overlooked.
If
they
are
overlooked
that
would
result
from
failure
to
insist
they
be
filed,
not
from
acceptance
as
valid
of
a
late
filed
designation.
One
other
facet
of
the
Department's
practice
was
its
treatment
of
late
filing
of
the
information
returns
submitted
on
October
17,
1985.
No
reference
was
made
by
Revenue
Canada
at
that
time
to
those
particular
forms
and
unlike
the
designation
form
they
were
not
returned
to
the
company.
Though
the
letter
of
November
18,
1985
which
responded
to
that
submission
did
state
the
conditions
for
late
filing
under
subsection
194(7),
including
the
words
provided
the
prescribed
information
return
T2114
summary
is
filed
by
the
end
of
February
in
the
year
following”
the
transaction,
the
letter
went
on
to
deal
with
the
failure
to
submit
the
late
filing
penalty
and
to
hold
out
that
if
the
designation
form
T2113
were
re-submitted
and
the
penalty
paid
within
30
days
the
designation
“will
be
accepted
as
filed
on
the
original
filing
date".
Revenue
Canada
officials
did
not
at
any
time
advise
the
company's
solicitor
that
the
designation
could
not
be
filed
because
the
information
forms
were
filed
late.
When,
in
June,
1986,
the
company
was
advised
that
the
late
filed
designation
and
information
forms
were
not
filed
according
to
the
provisions
of
Part
VIII
of
the
Act
and
consequently
the
designation
was
not
valid
under
section
194,
the
Department
thereafter
undertook
to
consider
representations
submitted
by
the
company's
solicitor
why
that
would
be
inappropriate
in
the
circumstances.
Finally,
it
was
urged
on
behalf
of
the
plaintiff
that
where
the
words
of
the
taxing
statute
are
ambiguous
in
relation
to
their
application
to
the
facts,
that
ambiguity
should
be
resolved
by
the
construction
that
favours
the
taxpayer.
That
principle
is
referred
to
by
Mr.
Justice
Estey,
speaking
for
the
Supreme
Court
of
Canada
in
Johns
Manville
Canada
Inc.
v.
The
Queen,
[1985]
2
S.C.R.
46
at
72;
[1985]
2
C.T.C.
111
at
126,
85
D.T.C.
5373
at
5384
after
he
had
determined
that
certain
expenditures
were
operating
and
not
capital
expenditures.
In
support
of
that
conclusion
he
noted:
Such
a
determination
is,
furthermore,
consistent
with
another
basic
concept
in
tax
law
that
where
the
taxing
statute
is
not
explicit,
reasonable
uncertainty
or
factual
ambiguity
resulting
from
lack
of
explicitness
in
the
statute
should
be
resolved
in
favour
of
the
taxpayer.
.
.
.
Those
words
were
referred
to
by
Mr.
Justice
Urie
for
the
Court
of
Appeal
in
Canterra
Energy
Ltd.
v.
The
Queen,
[1987]
1
C.T.C.
89
at
95,
87
D.T.C.
5019
at
5023
(F.C.A.)
as
the
current
approach
in
the
interpretation
of
taxing
statutes,
even
where
the
interpretation
decided
upon
results
in
an
extraordinary
benefit
to
the
taxpayer.
That
extraordinary
benefit
had
been
stated
by
Madame
Justice
Reed
at
trial
to
be
a
basis
upon
which
it
would
be
appropriate
to
construe
an
ambiguity
in
favour
of
the
Minister.
(See
Canterra
Energy
Ltd.
v.
The
Queen,
[1985]
1
C.T.C.
329
at
334,
85
D.T.C.
5245
at
5249
(F.C.T.D.).)
I
have
noted
that
in
the
Tax
Court
decision
Her
Honour
Judge
Kempo
declined
to
apply
that
principle,
having
found
no
ambiguity
and
no
lack
of
explicitness
in
the
words
used
in
subsection
194(7).
I
reach
a
different
conclusion
based
on
my
construction
of
that
provision
in
light
of
the
general
purposes
of
the
legislation
in
relation
to
S.R.T.C.s
and
the
purpose,
as
I
see
it,
of
subsection
194(7)
itself.
As
in
the
case
of
the
parties'
positions,
this
illustrates
a
difference
in
the
interpretation
of
the
subsection
as
applied
to
the
facts
of
this
case,
the
different
interpretations
each
supported
by
reasons.
That
is
an
ambiguity
in
common
parlance,
and
clearly
indicates
that
the
words
used
lack
explicitness.
In
my
view,
the
principle
enunciated
in
Johns
Manville
supports
the
conclusion
I
have
reached.
Thus,
I
conclude
that
timely
filing
of
information
returns
is
not
a
condition
precedent
to
late
filing
of
a
designation
where
the
Minister,
in
accord
with
the
excepting
clause
at
the
conclusion
of
section
194(7)
has
mailed
a
notice
that
a
designation
has
not
been
made
.
.
.
under
subsection
(4)".
This
leads
to
the
second
issue
raised,
that
is
whether
the
letter
of
November
18,
1985
constitutes
a
notice
mailed
by
the
Minister
under
the
exception
clause
in
subsection
194(7).
My
conclusion
is
that
the
letter
is
notice
as
provided
by
the
statute.
For
convenience
I
repeat
the
words
of
the
exception
clause
concluding
subsection
194(7),
as
follows:
.
.
.
except
that,
where
the
Minister
has
mailed
a
notice
to
the
corporation
that
a
designation
has
not
been
made
in
respect
of
that
share,
debt
obligation
or
right
under
subsection
(4),
the
designation
and
payment
described
in
paragraph
(b)
must
be
made
by
the
corporation
on
or
before
the
day
that
is
90
days
after
the
day
of
such
mailing.
Those
words
do
not
establish
particulars
for
the
form
of
the
notice,
merely
that
notice
be
mailed
by
the
Minister
to
the
corporation
that
a
designation
has
not
been
made
under
subsection
(4).
In
this
case
the
letter
of
November
18,
on
letterhead
of
Revenue
Canada,
Taxation,
Taxation
Centre,
Ottawa,
was
as
follows:
Enclosed
is
form
T2113
filed
in
respect
of
a
designation
made
under
subsection
194(4)
of
the
Income
Tax
Act
in
respect
of
securities
issued
in
May,
1984.
As
specified
in
subsection
194(4)
of
the
Income
Tax
Act,
the
designation
on
prescribed
form
T2113
must
be
filed
on
or
before
the
later
of:
(a)
the
last
day
of
the
month
immediately
following
the
month
in
which
the
corporation
issued
the
security
and
(b)
April
18,
1984.
The
designation
for
the
securities
issued
in
May,
1984
should
have
been
filed
not
later
than
June
30,
1984.
Subsection
194(7)
of
the
Income
Tax
Act
provides
that
the
designation
may
be
filed
later
than
the
due
date,
provided
the
prescribed
information
return
12114
Summary
is
filed
by
the
end
of
February
in
the
year
following
the
year
of
issue
of
the
share,
debt
obligation
or
right
granted
and
an
estimate
of
the
penalty
amount
referred
to
in
subsection
194(8),
is
both
calculated
and
remitted.
The
envelope
containing
your
designation
was
postmarked
October
17,
1985
and
no
remittance
appears
to
have
been
made
in
respect
of
the
penalty.
Consequently,
the
designation
in
question
cannot
be
considered
to
be
filed
as
a
valid
designation
in
accordance
with
subsection
194(7)
as
the
applicable
penalty
of
$8,000
has
not
been
remitted.
The
enclosed
form
12113
will
be
accepted
as
filed
on
the
original
filing
date
if
it
is
re-submitted
with
the
applicable
penalty
payment
within
30
days
of
the
mailing
of
this
letter.
Failure
to
submit
the
requested
penalty
payment
with
the
enclosed
12113
will
result
in
an
invalid
designation
and
the
disallowance
of
tax
credits
claimed
by
investors.
When
making
the
required
remittance
and
for
any
future
enquiries,
please
use
the
reference
art
VIII
Identification
Number"
RT430189.
Evidence
at
trial
indicates
that
the
letter
of
November
18
was
not
considered
within
Revenue
Canada,
Taxation
as
a
Minister’s
notice
under
the
subsection.
Administrative
processes
were
in
place
to
ensure
that
a
notice
from
the
Minister
under
the
Act
generally,
and
in
this
case,
was
properly
prepared,
screened
through
perhaps
six
levels
of
administrators
before
signature
by
an
Assistant
Deputy
Minister
and
then
sent
by
double
registered
mail.
Moreover,
under
section
900
of
the
regulations
the
responsibilities
of
the
Minister
are
delegated
to
particular
officials
and
at
the
relevant
time
under
that
regulation
and
the
Act,
no
other
specific
delegation
having
been
made,
only
an
Assistant
Deputy
Minister,
or
the
Deputy,
acting
under
general
delegations,
were
authorized
to
act
for
the
Minister
under
subsection
194(7).
These
considerations,
in
the
submission
of
the
defendant,
and
the
fact
that
the
letter
referred
to
30
days,
not
to
90
days
as
the
statute
provided
for
compliance,
meant
that
the
letter
did
not
constitute
notice
within
subsection
194(7).
For
the
plaintiff
it
was
urged
that
internal
procedures
of
the
Department
did
not
define
what
constituted
notice
under
the
Act
which
did
not
require
any
particular
form
or
structure.
In
Stephens
v.
The
Queen,
[1987]
1
C.T.C.
88,
87
D.T.C.
5024
(F.C.A.),
the
Court
of
Appeal
held,
in
relation
to
notices
of
reassessment
required
by
the
Act
to
be
sent
by
the
Minister,
that
the
form
of
the
notice
does
not
matter
where
that
is
not
prescribed
in
the
Act,
and
signature
was
immaterial
where
that
was
not
prescribed,
provided
the
notice
is
expressed
in
terms
that
will
make
the
taxpayer
aware
of
the
assessment
made
by
the
Minister.
In
my
view
the
circumstances
here
are
analogous
to
those
in
Stephens
and
the
form
of
the
notice
is
irrelevant
provided
that
the
information
it
contains
makes
the
taxpayer
aware
"that
a
designation
has
not
been
made
in
respect
of
the
share,
debt
obligation
or
right
under
subsection
194(4)",
as
the
Act
provides.
The
plaintiff
did
not
argue
that
the
Minister
was
estopped
from
rejecting
the
late
filed
designation.
Rather,
it
was
argued
that
sending
of
the
letter
of
November
18
was
in
accord
with
a
process
developed
and
approved
in
the
department
on
behalf
of
the
Minister
as
an
informal
process
which,
if
non-
compliance
continued,
would
lead
to
a
more
formal
notice
on
behalf
of
the
Minister
prepared
in
accord
with
departmental
procedures.
It
was
urged
that
the
letter
of
November
18
contained
the
essential
information
to
meet
the
requirement
of
notice
within
the
excepting
clause
of
subsection
194(7)
and
the
taxpayer
ought
not
to
be
denied
the
opportunity
to
file
the
designation
late
with
the
required
penalty
within
the
time
limited
by
that
clause.
In
my
view,
the
letter
of
November
18,
in
its
second
paragraph,
clearly
conveys
to
the
reader
that
"a
designation
has
not
been
made
.
.
.
under
subsection
(4)"
which
provides
for
a
designation
of
an
amount
to
be
made
by
prescribed
form
within
a
defined
time.
Under
the
exception
clause
of
subsection
194(7),
by
filing
the
designation
on
the
prescribed
form
and
paying
the
late
filing
penalty
on
or
before
the
90th
day
of
the
mailing
of
notice
by
the
Minister,
the
taxpayer
corporation
shall
be
deemed
to
have
made
the
designation
on
the
appropriate
day.
Since,
following
notice
mailed
on
behalf
of
the
Minister,
the
company
filed
its
designation
and
paid
a
penalty,
previously
estimated
by
Revenue
Canada
in
the
letter
of
November
18
and
not
disputed
as
being
an
appropriate
penalty
at
trial,
all
before
90
days
from
November
18,
1985,
that
designation
qualifies
as
valid,
though
filed
late,
by
reason
of
subsection
194(7).
I
conclude
that
the
plaintiff's
action
is
allowed
and
the
relief
requested
is
directed
by
judgment
issued
this
day.
It
provides
that
the
reassessments
dated
August
4,
1987
with
respect
to
the
plaintiff's
1983
and
1984
taxation
years
are
vacated.
The
plaintiff
shall
have
costs
of
these
proceedings.
Appeal
allowed.
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