Citation: 2013 TCC 409
Date: 20131220
Docket: 2009-3024(IT)G
BETWEEN:
ROGER DUBOIS INC.,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
[OFFICIAL ENGLISH
TRANSLATION]
REASONS FOR JUDGMENT
Jorré J.
Introduction
[1]
This appeal regards:
(a) a violin made by Joseph
Guarnerius in 1705,
(b) a bow made by François
Xavier Tourte in 1820,
(c) a violin made by Jean-Baptiste
Vuillaume in 1840,
(d) a violin made by Giovanni
Francesco Pressenda in 1844, and
(e) a Sartory bow the date
of fabrication of which is unknown.
[2]
The appellant purchased
these musical instruments for a total of more than $1,900,000.
[3]
The issue is whether
the appellant can claim the capital cost allowance for income tax purposes
despite paragraph 1102(1)(e) of the Income Tax Regulations (Regulations),
under which certain property is not depreciable. This paragraph provides, in part:
(e) that was...
(iv)
antique furniture, or any other antique object, produced more than 100 years
before the date it was acquired, the cost of which to the taxpayer was not less
that $1,000,
...
[4]
All the evidence was filed
by consent with no witnesses being heard.
The facts
[5]
The parties submitted
the following statement of admitted facts:
[translation]
1. In a reassessment dated November 5, 2003, for the 2002
taxation year, the Minister disallowed the capital cost allowance (CCA) of $198,774
for musical instruments that the appellant had included in class 8.
2. In reassessments made July 6, 2007, the Minister disallowed
the CCA for musical instruments that the appellant had included in class 8, specifically:
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2002
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$55,120
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2003
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$48,511
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2004
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$53,085
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3. The Company was incorporated in accordance with Part 1A of
the Quebec Companies Act.
4. The Company operates in the real estate field; in particular,
it manages buildings in order to lease them to its subsidiaries.
5. The Company also owns very valuable musical instruments,
namely violins and bows. The violins have the Canimex logo.
6. The violins and bows owned by the Company are made available
to talented musicians though its subsidiary Canimex.
7. During the years in question, the two musicians who used the
instruments, Marc-André Gauthier and Alexandre Da Costa, worked in Europe and
North America.
8. During the years in question,
the Company and Canimex entered into a contract under which the subsidiary
agreed to pay the appellant around $65,000 for the right to use the musical instruments
for promotional purposes.
9. During the years in question, neither of the musicians
signed a contract with the Company or its subsidiary, nor did they make any
payment for the loan or rental of the musical instruments.
10. Canimex does business in Europe.
11. The Company holds all the capital stock of Canimex Inc.
12. Canimex imports from Europe and Asia and sells mechanical and
hydraulic parts and makes hardware parts for garage doors.
The
property acquired
The
Guarnérius and the Tourte bow (in 2000)
13. On June 26, 2000, the Company acquired a violin made by Joseph
Guarnerius in 1705 for $1,039,600.
14. The Company also purchased a bow made by François Xavier
Tourte in 1820 for $178,200.
The
Vuillaume (in 2000)
15. On December 1, 2000, the Company acquired a second violin
made by Jean‑Baptiste Vuillaume in 1840 for $151,948.
The
Pressenda and a Sartory bow (in 2002)
16. On May 3, 2002, the Company acquired a third violin made by Giovanni
Francesco Pressenda in 1844 and a Sartory bow, the fabrication date of which is
unknown for $551,196.
[6]
The parties have also
agreed on the following:
[translation]
With
no admission by the appellant regarding relevance, the parties admit that the
musical instruments described in document A-1 normally appreciate in value with
the mere passing of time insomuch as they were acquired in good condition and
at a reasonable price given the market. Moreover, if the musical instruments
are used, transported, maintained or repaired poorly, they may lose value, which
is not the case until now.
The Sartory bow purchased
in 2002
[7]
Considering that the
respondent assumed that the fabrication date was unknown and did
not assume that the bow was made more than 100 years before it was
purchased, the burden is on the Minister to show that the musical instrument is
more than 100 years old.
[8]
Paragraph 16 of the statement
of facts indicates that the date of fabrication of the Startory bow is unknown.
[9]
Considering paragraph
16 of the statement of facts, I do not see how I can conclude that the Minister
has shown that the bow was made 100 years before it was purchased.
[10]
As a result, the
Sartory bow is depreciable regardless of the outcome for the four other musical
instruments.
Analysis
[11]
The issue is whether
the appellant may claim the capital cost allowance for income tax purposes. The
answer depends on the effect of paragraph 1102(1)(e) of the Regulations.
Below is a reproduction of the relevant parts of the English and French texts
of this provision:
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Property Not Included
1102(1) The classes of property described in this Part and in
Schedule II shall be deemed not to include property.
. . .
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Biens non compris
1102(1) Les catégories de biens décrits dans la
présente partie et dans l’annexe II sont censées ne pas comprendre les biens.
[…]
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(e) that was acquired by the taxpayer after November 12,
1981, other than property acquired from a person with whom the taxpayer was
not dealing at arm’s length (otherwise than by virtue of a right referred to
in paragraph 251(5)(b) of the Act) at the time the property was
acquired if the property was acquired in the circumstances where subsection
(14) applies, and is
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e) qui sont acquis par le contribuable
après le 12 novembre 1981, autre qu’un bien acquis d’une personne avec
laquelle le contribuable avait un lien de dépendance (autrement qu’en vertu
d’un droit visé à l’alinéa 251(5)b) de la Loi) au moment de
l’acquisition du bien si le bien était acquis dans des circonstances visées
au paragraphe (14), et qui sont :
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(i) a print, etching, drawing, painting, sculpture,
or other similar work of art, the cost of which to the taxpayer was not less
than $200,
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(i) une estampe, une gravure, un dessin, un tableau,
une sculpture ou une autre oeuvre d’art de nature semblable, dont le coût,
pour le contribuable, n’est pas inférieur à 200 $,
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(ii) a hand-woven tapestry or carpet or a handmade appliqué, the
cost of which to the taxpayer was not less than $215 per square metre,
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(ii) une tapisserie ou un tapis tissé à la main ou une application
faite à la main dont le coût, pour le contribuable, n’est pas inférieur à
215 $ le mètre carré,
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(iii) an engraving, etching, lithograph, woodcut, map or chart,
made before 1900, or
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(iii) une gravure, une lithographie, une gravure sur bois ou une
carte, faite avant 1900, ou
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(iv) antique furniture, or any other antique object, produced more
than 100 years before the date it was acquired, the cost of which to the
taxpayer was not less than $1,000,
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(iv) un meuble d’époque ou tout autre objet d’époque, fabriqué il
y a plus de 100 ans avant la date de son acquisition, dont le coût, pour le
contribuable, n’est pas inférieur à 1 000 $,
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other than any property described in subparagraph (i) or (ii)
where the individual who created the property was a Canadian . . .;
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à l’exception des biens visés aux sous-alinéas (i) ou (ii) lorsque
le particulier qui a créé le bien était un Canadien […];
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[12]
If paragraph 1102(1)(e)
applies, the appellant cannot claim the capital cost allowance for the musical
instruments in question. However, if paragraph 1102(1)(e) does not
apply, the appellant can claim the capital cost allowance.
[13]
The appropriate approach
in relation to legislative interpretation was summarized by the Supreme Court
of Canada in Canada Trustco Mortgage Co. v. Canada:
10 It has been long established as a matter of statutory interpretation
that “the words of an Act are to be read in their entire context and in their
grammatical and ordinary sense harmoniously with the scheme of the Act, the
object of the Act, and the intention of Parliament”: see 65302
British Columbia Ltd. v. Canada, [1999] 3 S.C.R. 804, at para. 50.
The interpretation of a statutory provision must be made according to a
textual, contextual and purposive analysis to find a meaning that is harmonious
with the Act as a whole. When the words of a provision are precise and
unequivocal, the ordinary meaning of the words plays a dominant role in the
interpretive process. On the other hand, where the words can support more
than one reasonable meaning, the ordinary meaning of the words plays a lesser
role. The relative effects of ordinary meaning, context and purpose on the
interpretive process may vary, but in all cases the court must seek to read the
provisions of an Act as a harmonious whole.
[14]
The words "any
other object" and "tout autre objet d'époque" are very broad.
Whether in English or French, the scope of the word "object" is very
broad.
[15]
For example, Le
Nouveau Petit Robert 2006
gives, among others, the following definition that is most relevant in this
context:
"[c]hose solide ayant unité et indépendance et répondant à une certaine
destination".
[16]
The Canadian Oxford
Dictionary, second edition 2004, gives, among others, the following
definition that is the most relevant:
"a material thing that can be seen or touched."
[17]
As for the word "époque",
Le Nouveau Petit Robert 2006 gives, among others, the following
definitions that are the most relevant: "2. ...MOD. Période
historique déterminée par des événements importants, caractérisée par un
certain état de choses... 3. Période caractérisée par un style
artistique".
[18]
The Canadian Oxford
Dictionary gives, among others, the following definition of the adjective
"antique" that is the most relevant: "1. of or existing from an
early date."
[19]
The words "époque"
in French and "antique" in English have the common factor of referring
to the past but a non-recent past. For there to be a clear delimitation, under
the Regulations, objects must have been made at least 100 years prior to being
purchased.
[20]
At first sight,
paragraph 1102(1)(e) does seem to apply. The musical instruments are
certainly objects, and they are antiques.
[21]
The appellant submits
that such an interpretation is eroneous for a number of reasons.
[22]
Before examining these submissions,
I will reproduce part of the 1981 Budget Papers announcing this provision. It
is stated:
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Other Corporate Tax Measures
Works of Art and Antiques
The budget disallows depreciation write-offs for works of art and
antiques purchased by businesses and professionals after November 12,
1981. At present, art work and antiques bought by business and professional
firms can be written off at 20 per cent a year, the same depreciation rate as
office furniture. However, such purchases typically appreciate in value and often
are in fact personal investments rather than serving the normal operations of
the firm. There is thus no reason to allow their cost to be deducted against
the firm’s income. This measure will not apply to the first purchaser of art
produced by living Canadian artists.
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Autres mesures fiscales intéressant les sociétés
Oeuvres d’art et antiquités
Le budget interdira de réclamer une déduction pour amortissement à
l’égard des œuvres d’art et des antiquités achetées par des entreprises et
des professionnels après le 12 novembre 1981. À l’heure actuelle, les
œuvres d’art et les antiquités acquises par des entreprises et des cabinets
professionnels peuvent être amorties au taux de 20 pour cent par an, comme le
mobilier de bureau. Cependant, ces articles prennent généralement de la
valeur avec le temps et constituent souvent des investissements personnels au
lieu de servir aux opérations normales de l’entreprise. Il n’y a donc aucune
raison de permettre la déduction de leur coût du revenu de l’entreprise.
Cette mesure ne s’appliquera pas au premier acheteur d’œuvres d’art produites
par un artiste canadien vivant.
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[23]
It is worth noting that,
in view of the above budget passage, it is clear that one of the underlying
motivations of the provisions in question is that generally, the property
referred to does not lose value.
[24]
There is a difference
between an underlying motivation,and a requirement, of a statute. I agree with
the appellant that neither the Income Tax Act (Act) nor the Regulations provide
that a depreciable property must lose its value over time. As a
result, I agree with the appellant that the fact that [translation] "usually [the musical instruments in question]
appreciate in value with the mere passing of time" is not relevant.
[25]
According to the
appellant, the Regulations refer to decorative objects and not objects that are
used, as is the case with the musical instruments in question.
[26]
The appellant suggests
that the provision would not apply to other antique objects that are used, for
example, an industrial boiler or an antique watch. However, it would apply to
mirrors, clocks or silverware, for example.
[27]
There are two problems
with this approach. The first is that the words "tout autre
objet d’époque" and "any other antique object"
(emphasis added) have a very broad scope, and do not suggest any limits.
Second, in the context of section 1102 of the Regulations, or more generally in
the Act and the Regulations, nothing suggests that a distinction must be made
between old furniture that is simply displayed and old furniture that is used
every day by its owner, for example, a beautiful antique desk used by its
owner.
Similarly, there is nothing to suggest that a distinction must be made between
an antique car that is simply displayed and an antique car that is used in
movie productions.
[28]
It is useful to recall
that the entire depreciation mechanism in the Act contains a number of somewhat
arbitrary rules that are to simplify the capital cost allowance, for example, for
various classes of properties with a set depreciation rate. Having to
distinguish between an old desk that is being used and an old desk that is
displayed seems to defeat this simplification effort.
[29]
The appellant cites the
associated words rule, noscitur a sociis, in support of his submissions.
[30]
Citing the Supreme
Court of Canada decision, McDiarmid Lumber Ltd. v. God’s Lake First Nation, the
appellant submits that the meaning of the words "any other antique
object" must be different from the words "antique furniture" but
that the object must still have qualities that are similar to furniture.
According to the appellant, the common element is that the object is decorative
and also serves to fill a space.
[31]
In his treatise, The
Interpretation of Legislation in Canada, professor Pierre‑André Côté notes
that the associated words rule must be used with care:
1179
… Although a good servant, the noscitur a sociis principle may prove to
be a poor master. It can be misleading and should be handled with care.
[32]
In McDiarmid Lumber,
the issue related to paragraph 90(1)(b) of the Indian Act and, among
other things, the meaning to give "agreement" in the following provision:
90(1)
...personal property that was
...
(b) ...given to Indians or to a band
under a treaty or agreement between a band and Her Majesty,
The decision of the majority is based not only on the
associated words rule, but also on an analysis of the context and background of
that provision.
[33]
Here, the Regulations
do not mention "other similar object" or "decorative
object". The context of the provision does not suggest a limitation other
than objects that are more than 100 years old. Such a limitation seems
completely contradictory to the use of "any" and "tout".
[34]
The appellant also cites
the mischief rule.
I agree with the appellant that the above-noted budget papers show that the
purpose was to prevent businesses and professionals from claiming depreciation
for certain things that are generally investments.
[35]
However, upon reading
the above-mentioned budget paper, one can note that it is recognized that there
are, occasionally, situations where depreciation for things that were used for
operations would be denied. This is clear in the following passage from the
budget papers, which implies that sometimes the property will be used for operations:
...However,
such purchases typically appreciate in value and often are in fact
personal investments rather than serving the normal operations of the firm...
[Emphasis added]
[36]
The appellant submits
that subsection 1102(1) of the Regulations is a deeming provision that
creates a legal fiction and must therefore be interpreted restrictively.
However, the word "deemed"
can be used with four different purposes. In the present case, it is not a legal
fiction but rather the statement of a rule that certain things are excluded
from the term "depreciable property". A legal fiction principle
cannot apply to a provision that is a rule.
[37]
I also note that, in
the Regulations, the words "antique object" is found rather than
"antique", the word used in the budget papers; also, in French, the
Regulations use the words "objet d'époque" rather than "antiquité".
[38]
As I have already
stated, in this provision or the context of the Regulations in question, or
more generally in the provisions of the Regulations or the Act regarding
depreciation, I do not see any reason to conclude that the words "any
other antique object" or "tout autre objet d'époque" should be
given any meaning other than their ordinary and very broad meaning.
[39]
I therefore conclude
that the other musical instruments in question, aside from the Sartory bow, are
subject to paragraph 1102(1)(e) of the Regulations and cannot be
considered depreciable property.
Conclusion
[40]
As a result, the appeal
is allowed, with costs to the respondent, and the matter is referred back to
the Minister for reconsideration and reassessment on the basis that the Sartory
bow is depreciable property.
Signed at Ottawa, Ontario, this 20th day of
December 2013.
"Gaston Jorré"
Translation certified true
On this 18th day of March 2014
François Brunet,
Revisor
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