Strayer
J.A.:
Introduction
I.
This
is
an
appeal
from
a
decision
of
a
Tax
Court
judge
dated
July
16,
1997
allowing
the
respondent’s
appeal
from
an
assessment
by
the
Minister
of
National
Revenue
of
the
respondent’s
taxation
year
ending
December
31,
1987.
The
issue
is
whether
the
respondent
was
entitled
to
claim
a
capital
loss
on
the
currency
fluctuation
loss
it
sustained
when
it
redeemed
in
U.S.
dollars
preferred
shares
which
it
had
issued
in
U.S.
dollars
in
1977,
1982,
and
1983.
Facts
II.
The
respondent
is
incorporated
in
British
Columbia
and
carries
on
an
integrated
forest
products
business
in
Canada
and
elsewhere.
In
1977,
it
issued
3,400,000
Series
A
preferred
shares
for
U.S.
$85,000.00
and
in
1982
and
1983,
it
issued
250,000
Class
B,
Series
4
preferred
shares
for
U.S.
$18,000,000.
Both
classes
of
shares
were
redeemable
at
the
option
of
either
the
respondent
or
the
holders
for
an
amount
equal
to
their
issue
price
in
U.S.
dollars.
However,
the
respondent,
for
the
purposes
of
the
Income
Tax
Act
(the
“Act”),
was
required
to
keep
its
financial
records
in
Canadian
dollars.
The
Canadian
dollar
amount
of
the
proceeds
from
the
issue
of
the
Series
A
shares
was
$87,954,250
and
$23,660,080
for
the
issue
of
the
Class
B,
Series
4
shares.
In
1987,
the
respondent
redeemed
all
of
the
Series
A
shares
and
9,287
of
the
Class
B,
Series
4
shares,
paying
to
the
shareholders
the
U.S.
dollar
amount
due
on
redemption.
Because
of
an
increase
in
the
value
of
the
U.S.
dollar
in
relation
to
the
Canadian
dollar
between
the
dates
the
shares
were
issued
and
the
date
they
were
redeemed,
the
respondent
was
required
to
pay
$24,965,399
(Cdn)
more
on
the
redemption
of
the
shares
than
it
had
received
on
their
issuance.
For
tax
purposes,
the
respondent
treated
this
difference
in
price
as
a
foreign
exchange
loss
deemed
to
be
a
capital
loss
by
subsection
39(2)
of
the
Act.
The
Minister
reassessed
the
respondent
and
disallowed
the
claim
for
a
capital
loss
under
subsection
39(2)
of
the
Act.
III.
Both
before
the
Tax
Court
and
before
this
Court,
the
Minister
took
the
position
that
the
difference
between
the
prices
paid
on
issue
and
on
redemption
constituted
a
deemed
dividend
pursuant
to
subsection
84(3)
of
the
Act,
and
could
not
also
qualify
for
treatment
as
a
capital
loss
pursuant
to
subsection
39(2).
The
Tax
Court
Judge
rejected
the
argument
that
the
pay-
ment
constituted
a
deemed
dividend
on
the
ground
that
subsection
84(3)
is
intended
to
prevent
a
corporation
from
conferring
a
disguised
benefit
in
the
form
of
capital
on
shareholders;
therefore,
it
deems
any
amount
paid
to
shareholders
in
excess
of
the
purchase
price
of
the
shares
to
be
a
dividend.
The
Tax
Court
Judge
was
of
the
view
that
in
the
current
case,
the
shareholders
did
not
receive
a
benefit
since
they
both
paid
and
received
the
same
amount
of
U.S.
dollars.
As
a
result,
it
could
not
be
said
that
a
dividend
was
paid
to
them.
The
Tax
Court
Judge
noted
that,
on
the
other
hand,
subsection
39(2)
was
enacted
to
deal
specifically
with
gains
and
losses
on
currency
fluctuations
and
there
was
no
reason
that
it
should
not
be
applicable
to
the
loss
suffered
by
the
respondent
on
redemption.
IV.
Notwithstanding
the
findings
of
the
Tax
Court
judge,
on
appeal
the
respondent
conceded,
and
we
concurred,
that
the
redemption
payment
was
a
deemed
dividend
by
virtue
of
subsection
84(3).
The
remaining
issue
for
the
Court,
then,
was
whether
subsections
84(3)
and
39(2)
could
operate
concurrently.
Counsel
for
the
Minister
argued
that
the
finding
of
a
deemed
dividend
precludes
the
recognition
of
a
capital
loss
pursuant
to
subsection
39(2).
He
submitted
that
the
deeming
provision
applies
for
all
the
purposes
of
the
Act
and
that
once
the
payment
is
considered
a
dividend,
the
taxpayer
cannot
also
be
said
to
have
“sustained
a
loss”
within
the
opening
words
of
subsection
39(2).
Analysis
V.
I
have
concluded
that
the
respondent
is
entitled
to
claim
a
capital
loss
on
the
share
redemption
transaction.
The
relevant
provisions
of
the
Income
Tax
Act
read
as
follows:
39.(2)
Capital
gains
and
losses
in
respect
of
foreign
currencies
—
Notwithstanding
subsection
(1),
where,
by
virtue
of
any
fluctuation
after
1971
in
the
value
of
the
currency
or
currencies
of
one
or
more
countries
other
than
Canada
relative
to
Canadian
currency,
a
taxpayer
has
made
a
gain
or
sustained
a
loss
in
a
taxation
year,
the
following
rules
apply:
(a)
the
amount,
if
any,
by
which
(i)
the
total
of
all
such
gains
made
by
the
taxpayer
in
the
year
(to
the
extent
of
the
amounts
thereof
that
would
not,
if
section
3
were
read
in
the
manner
described
in
paragraph
(l)(a)
of
this
section,
be
included
in
computing
the
taxpayer’s
income
for
the
year
or
any
other
taxation
year)
exceeds
(ii)
the
total
of
all
such
losses
sustained
by
the
taxpayer
in
the
year
(to
the
extent
of
the
amounts
thereof
that
would
not,
if
section
3
were
read
in
the
manner
described
in
paragraph
(l)(a)
of
this
section,
be
deductible
in
computing
the
taxpayer’s
income
for
the
year
or
any
other
taxation
year)
and
(iii)
if
the
taxpayer
is
an
individual,
$200,
shall
be
deemed
to
be
a
capital
gain
of
the
taxpayer
for
the
year
from
the
disposition
of
currency
of
a
country
other
than
Canada,
the
amount
of
which
capital
gain
is
the
amount
determined
under
this
paragraph;
and
(b)
the
amount,
if
any,
by
which
(i)
the
total
determined
under
subparagraph
(a)(ii),
exceeds
(ii)
the
total
determined
under
subparagraph
(a)(i),
and
(iii)
if
the
taxpayer
is
an
individual,
$200
shall
be
deemed
to
be
a
capital
loss
of
the
taxpayer
for
the
year
from
the
disposition
of
currency
of
a
country
other
than
Canada,
the
amount
of
which
capital
loss
is
the
amount
determined
under
this
paragraph.
84(3)
Redemption,
etc.
—
Where
at
any
time
after
December
31,
1977
a
corporation
resident
in
Canada
has
redeemed,
acquired
or
cancelled
in
any
manner
whatever
(otherwise
than
by
way
of
a
transaction
described
in
subsection
(2)
any
of
the
shares
of
any
class
of
its
capital
stock,
(a)
the
corporation
shall
be
deemed
to
have
paid
at
that
time
a
dividend
on
a
separate
class
of
shares
comprising
the
shares
so
redeemed,
acquired
or
cancelled
equal
to
the
amount,
if
any,
by
which
the
amount
paid
by
the
corporation
on
the
redemption,
acquisition
or
cancellation,
as
the
case
may
be,
of
those
shares
exceeds
the
paid-up
capital
in
respect
of
those
shares
immediately
before
that
time;
and
(b)
a
dividend
shall
be
deemed
to
have
been
received
at
that
time
by
each
person
who
held
any
of
the
shares
of
that
separate
class
at
that
time
equal
to
that
portion
of
the
amount
of
the
excess
determined
under
paragraph
(a)
that
the
number
of
those
shares
held
by
the
person
immediately
before
that
time
is
of
the
total
number
of
shares
of
that
separate
class
that
the
corporation
has
redeemed,
acquired
or
cancelled,
at
that
time.
39.(2)
Gains
et
pertes
en
capital
relatifs
aux
monnaies
étrangères
—
Malgré
le
paragraphe
(1),
lorsque,
par
suite
de
toute
fluctuation,
postérieure
à
1971,
de
la
valeur
de
la
monnaie
ou
des
monnaies
d’un
ou
de
plusieurs
pays
étrangers
par
rapport
à
la
monnaie
canadienne,
un
contribuable
a
réalisé
un
gain
ou
subi
une
perte
au
cours
d’une
année
d’imposition,
les
règles
suivantes
s’appliquent;
a)
est
réputé
être
un
gain
en
capital
du
contribuable
pour
l’année,
tiré
de
la
disposition
de
la
monnaie
d’un
pays
étranger,
gain
en
capital
qui
est
le
montant
déterminé
en
vertu
du
présent
alinéa,
l’excédent
éventuel:
(i)
du
total
de
ces
gains
réalisés
par
le
contribuable
au
cours
de
l’année
(jusqu’à
concurrence
des
montants
de
ceux-ci
qui,
si
l’article
3
était
lu
de
la
manière
indiquée
à
l’alinéa
(l)a)
du
présent
article,
ne
seraient
pas
inclus
dans
le
calcul
de
son
revenu
pour
l’année
ou
pour
toute
autre
année
d’imposition),
sur:
(ii)
le
total
des
pertes
subies
par
le
contribuable
au
cours
de
l’année
(jusqu’à
concurrence
des
montants
de
celles-ci
qui,
si
l’article
3
était
lu
de
la
manière
indiquée
à
l’alinéa
(1
)a)
du
présent
article,
ne
seraient
pas
déductibles
dans
le
calcul
de
son
revenu
pour
l’année
ou
pour
toute
autre
année
d’imposition)
(iii)
si
le
contribuable
est
un
particulier,
200
$;
(b)
est
réputé
être
une
perte
en
capital
du
contribuable
pour
l’année,
résultant
de
la
disposition
de
la
monnaie
d’un
pays
étranger,
perte
en
capital
qui
est
le
montant
déterminé
en
vertu
du
présent
alinéa,
l’excédent
éventuel:
(i)
du
total
déterminé
en
vertu
du
sous-alinéa
a)(ii),
sur:
(ii)
le
total
déterminé
en
vertu
du
sous-alinéa
a)(ii),
(iii)
si
le
contribuable
est
un
particulier,
200
$.
84(3)
Rachat,
etc.
—
Lorsque,
à
un
moment
donné
après
le
31
décembre
1977,
une
société
résidant
au
Canada
a
racheté,
acquis
ou
annulé
de
quelque
façon
que
ce
soit
(autrement
que
par
une
opération
visée
au
paragraphe
(2))
toute
action
d’une
catégorie
quelconque
de
son
capital-actions:
a)
la
société
est
réputée
avoir
versé
au
moment
donné
un
dividende
sur
une
catégorie
distincte
d’actions
constituée
des
actions
ainsi
rachetées,
acquises
ou
annulées,
égal
à
l’excédent
éventuel
de
la
somme
payée
par
la
société
lors
du
rachat,
de
l’acquisition
ou
de
l’annulation,
selon
le
cas,
de
ces
actions
sur
le
capital
versé
relatif
à
ces
actions,
existant
immédiatement
avant
ce
moment;
b)
chacune
des
personnes
qui
détenaient
au
moment
donné
une
ou
plusieurs
actions
de
cette
catégorie
distincte
est
réputée
avoir
reçu
à
ce
moment
un
dividende
égal
à
la
fraction
de
l’excédent
déterminé
en
vertu
de
l’alinéa
a)
représentée
par
le
rapport
existant
entre
le
nombre
de
ces
actions
que
détenait
cette
personne
immédiatement
avant
ce
moment
et
le
nombre
total
des
actions
de
cette
catégorie
distincte
que
la
société
a
rachetées,
acquises
ou
annulées,
à
ce
moment.
VI.
Turning
first
to
subsection
84(3),
it
prescribes
that
where
a
corporation
redeems
shares
at
an
amount
in
excess
of
the
paid-up
capital
in
respect
of
those
shares,
the
corporation
is
deemed
to
have
paid
a
dividend
in
the
amount
of
that
excess
and
the
shareholder
is
deemed
to
have
received
a
dividend
in
that
amount.
It
is
obvious
that
the
tax
consequence
of
this
is
that
in
the
hands
of
the
shareholder
the
dividend
is
income.
There
is
no
necessary
tax
consequence
for
the
corporation
as
the
payment
of
a
dividend
by
a
corporation
does
not
per
se
amount
to
either
a
capital
loss
or
an
expenditure
deductible
from
income.
Nor
does
the
subsection
contain
any
language
such
as
“for
all
purposes
of
this
Act”.
Therefore
in
my
view
subsection
84(3)
is
neutral
in
respect
of
the
corporation
with
respect
to
the
characterization
of
its
deemed
payment
of
a
dividend
as
being
either
of
a
capital
or
of
an
income
nature.
VII.
Turning
then
to
subsection
39(2)
it
is
clear
from
the
language
of
subparagraphs
39(2)(a)(i)
and
(ii)
that
a
gain
or
loss
caused
by
currency
fluctuation
gives
rise
to
a
capital
gain
or
loss
provided
that
the
amount
in
question
would
not
otherwise
be
considered
in
computing
the
taxpayer’s
income.
For
the
reasons
which
I
have
just
stated,
subsection
84(3),
while
making
the
payment
for
redemption
of
shares
to
be
a
deemed
dividend,
and
hence
of
an
income
nature
in
the
hands
of
the
shareholder,
does
not
by
deeming
the
corporation
to
have
paid
a
dividend,
make
the
corporation’s
expenditure
to
be
of
either
an
income
or
capital
nature.
Therefore
the
amounts
paid
by
the
corporation,
not
otherwise
being
considered
an
expenditure
deductible
from
income,
are
eligible
for
the
application
of
subsection
39(2).
VIII.
According
to
the
plain
wording
of
subsection
39(2)
the
taxpayer
is
only
required
to
have
sustained
a
loss
by
virtue
of
a
currency
fluctuation
in
order
to
claim
a
capital
loss,
if
the
amount
is
not
otherwise
included
in
computing
income.
In
this
case,
there
is
no
dispute
with
respect
to
the
effect
of
the
currency
fluctuation;
the
only
question
is
whether
the
share
redemption
payment
here
falls
within
the
meaning
of
“loss”.
According
to
the
common
understanding
of
“loss”,
the
respondent’s
payment
to
the
shareholders
clearly
qualifies.
That
is,
in
Canadian
dollar
terms
the
respondent
paid
more
to
redeem
the
shares
than
it
had
initially
received.
The
circumstances
here
are
not
unlike
those
in
Tahsis
Co.
v.
R.,!
wherein
the
Federal
Court
Trial
Division
interpreted
subsection
39(2)as
providing
relief
to
a
debtor
with
respect
to
payments
owed
on
a
loan.
There,
currency
fluctuations
forced
the
taxpayer
to
pay
more
Canadian
dollars
in
order
to
meet
his
U.S.
dollar
loan
payments.
Both
that
taxpayer
and
the
respondent
here
sustained
what
would
ordinarily
be
understood
to
be
a
loss.
There
is
nothing
in
subsection
39(2)
to
limit
the
meaning
of
“loss”
such
that
it
would
not
cover
this
otherwise
straightforward
result.
IX.
Each
of
subsections
39(2)
and
84(3)
is
a
specific
provision,
independent
of
the
other,
which
deals
with
a
particular
type
of
situation.
Neither
is
specifically
made
to
apply
notwithstanding
other
provisions
of
the
Act.
While
subsection
84(3)
deals
with
the
payment
of
dividends
on
a
share
redemption,
subsection
39(2)
does
not
address
deemed
dividends
at
all,
but
is
rather
confined
to
a
consideration
of
transactions
which
result
in
losses
or
gains
due
to
currency
fluctuations.
In
the
end,
the
operation
of
subsection
84(3)
does
not
limit
the
meaning
of
“loss”
in
subsection
39(2).
Rather,
the
two
provisions
deal
with
different
sets
of
circumstances,
both
of
which
apply
to
the
transaction
currently
under
review.
Disposition
X.
The
appeal
should
therefore
be
dismissed
with
costs.
Appeal
dismissed.
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