Date: 20010924
Docket: A-16-98
Neutral citation: 2001 FCA 280
CORAM: LINDEN J.A.
SHARLOW J.A.
MALONE J.A.
BETWEEN:
CANADIAN SOLIFUELS INC.
Appellant
- and -
HER MAJESTY THE QUEEN
Respondent
Heard at Toronto, Ontario, on Thursday, September 20, 2001
Judgment delivered at Ottawa, Ontario, on Monday, September 24, 2001
REASONS FOR JUDGMENT DELIVERED BY: MALONE J.A.
CONCURRED IN BY: LINDEN J.A.
SHARLOW J.A.
[1] This is an appeal from a decision of the Tax Court of Canada reported as Canadian Solifuels Inc. v. Her Majesty the Queen, [1998] 1 C.T.C. 3080, 98 D.T.C. 1311. The issue is whether the enhanced investment tax credit under subsection 127(10.1) of the Income Tax Act, R.S.C. 1985 (5th supp), c.1 ("the Act") is available to the appellant, a Canadian-controlled private corporation, for expenditures made by a partnership of which the appellant was a member.
[2] At all relevant times the appellant had a 15.23% interest in the partnership. The expenditures in question totalled approximately $11,700,000 and were made by the partnership in its fiscal year ending December 31, 1987. The appellant claimed, in its fiscal year ending December 31, 1988, an enhanced investment tax credit associated with its share of the partnership expenditures, that share being $1,781,822. It is undisputed that, except for the issue that arises in this appeal, the appellant would have been entitled to the enhanced investment tax credit for these expenditures if they had been made by the appellant or on its behalf alone. It is also undisputed that the provisions of the Act that apply in this case are the "grandfathered" versions of section 37, section 96 and section 127 which remained in force after the enactment of S.C. 1988, c. 55.
[3] The investment tax credit of a taxpayer at the end of a taxation year is the amount determined by an arithmetic formula set out in the definition of "investment tax credit" in subsection 127(9) of the Act. Subsection 127(10.1), read together with paragraph (e) of the definition of "investment tax credit," is the statutory basis for the appellant's claim. Paragraph (e) of the definition describes one of the components of the formula and reads as follows:
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"investment tax credit" of a taxpayer at the end of a taxation year means the amount, if any, by which the total of
...
(e) the total of all amounts each of which is an amount required by subsection (10.1) to be added in computing the taxpayer's investment tax credit at the end of the year or at the end of any of the 10 taxation years immediately preceding or the 3 taxation years immediately following the year,and ...
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« _crédit d'impôt à l'investissement_ » Le crédit d'impôt à l'investissement d'un contribuable à la fin d'une année d'imposition correspond à l'excédent éventuel du total des montants suivants_:
...
e) l'ensemble des montants dont chacun représente un montant à ajouter, en vertu du paragraphe(10.1), dans le calcul de son crédit d'impôt à l'investissement à la fin de l'année ou d'une des 10 années d'imposition précédentes ou des 3 années d'imposition suivantes;ä ...
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[4] Subsection 127(10.1) reads as follows:
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127(10.1) Additions to investment tax credit -- For the purpose of paragraph (e) of the definition "investment tax credit" in subsection (9), where a corporation was throughout a taxation year a Canadian-controlled private corporation, there shall be added in computing the corporation's investment tax credit at the end of the year the amount that is 15% of the least of
(a) such amount as the corporation claims;
(b) the amount by which the corporation's SR & ED qualified expenditure pool at the end of the year exceeds the total of all amounts each of which is the super-allowance benefit amount for the year in respect of the corporation in respect of a province; and
(c) the corporation's expenditure limit for the year.
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127(10.1) Crédit d'impôt à l'investissement majoré --Pour l'application de l'alinéa e) de la définition de « _crédit d'impôt à l'investissement_ » au paragraphe (9), le montant correspondant à 15_% du moins élevé des montants suivants est à ajouter dans le calcul du crédit d'impôt à l'investissement d'une société à la fin de l'année d'imposition tout au long de laquelle elle a été une société privée sous contrôle canadien_:
a) le montant qu'elle demande;
b) l'excédent de son compte de dépenses admissibles de recherche et de développement à la fin de l'année sur le total des montants représentant chacun l'avantage relatif à la superdéduction pour l'année relativement à la société et à une province;
c) sa limite de dépenses pour l'année.
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[5] The Crown denied the claim based on subsection 127(8). For the period relevant to this appeal, subsection 127(8) read as follows:
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127(8) Investment tax credit of partnership -- Where, in a particular taxation year of a taxpayer who is a member of a partnership, an amount would, if the partnership were a person and its fiscal period were its taxation year, be determined in respect of the partnership under paragraph (a), (b) or (e.1) of the definition "investment tax credit" in subsection (9), if paragraph (a) of that definition were read without reference to subparagraph (iii) thereof, for its taxation year ending in that particular taxation year, the portion of that amount that may be reasonably be considered to be the taxpayer's share thereof shall be added in computing the investment tax credit of the taxpayer at the end of that particular taxation year.
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127(8) Crédit d'impôt à l'investissement d'une société de personnes -- Lorsque, dans une année d'imposition donnée d'un contribuable associé d'une société, un montant serait déterminé à l'égard de la socité, si celle-ci était une personne et si son exercice financier correspondait à son année d'imposition, en vertu de l'alinéa a) -- abstraction faite du sous-alinéa a)(iii) -- ou de alinéa b) ou e.1) de la définition de « credit d'impot à l'investissement » au paragraphe (9), pour son année d'imposition se terminant dans l'année donnée, la partie de ce montant qu'il est raisonnable de considérer comme la part du contribuable doit etre ajoutée dans le calcul du credit d'impot à l'investissement du contribuable à la fin de l'année donnée.
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[6] Paragraphs (a), (b) and (e.1) of the definition of investment tax credit in subsection 127(9), like paragraph (e), are components of the formula that are added in arriving at the amount of a taxpayer's investment tax credit. At the relevant time, paragraphs (a), (b), and (e.1) read as follows:
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"investment tax credit" of a taxpayer at the end of a taxation year means the amount, if any, by which the total of
(a) the total of all amounts each of which is the specified percentage of the capital cost to the taxpayer of certified property or qualified property acquired by the taxpayer in the year, ...
(b) the total of amounts required by subsection (7) or (8) to be added in computing the taxpayer's investment tax credit at the end of the year,...
(e.1) the total of all amounts each of which is the specified percentage of that part of a repayment made by the taxpayer in the year or in any of the 10 taxation years immediately preceding or the 3 taxation years immediately following the year that can reasonably be considered to be a repayment of government assistance, non-government assistance or a contract payment that reduced
(i) the capital cost to the taxpayer of a property under paragraph (11.1)(b),
(ii) the amount of a qualified expenditure incurred by the taxpayer under paragraph (11.1)(c) for taxation years that began before 1996,
(iii) the prescribed proxy amount of the taxpayer under paragraph (11.1)(f) for taxation years that began before 1996, or
(iv) a qualified expenditure incurred by the taxpayer under any of subsections (18) to (20), ...
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« _crédit d'impôt à l'investissement_ » Le crédit d'impôt à l'investissement d'un contribuable à la fin d'une année d'imposition correspond à l'excédent éventuel du total des montants suivants_:
a) l 'ensemble des montants représentant chacun le pourcentage déterminé du coût en capital, pour le contribuable, d'un bien admissible ou d'un bien certifié qu'il a acquis au cours de l'année;
b) l'ensemble des montants à ajouter, en vertu du paragraphe (7) ou (8), dans le calcul de son crédit d'impôt à l'investissement à la fin de l'année;
e.1) l'ensemble des montants représentant chacun le pourcentage déterminé de la partie d'un remboursement fait par le contribuable au cours de l'année ou d'une des 10 années d'imposition précédentes ou des 3 années d'imposition suivantes, qu'il est raisonnable de considérer comme le remboursement d'une aide gouvernementale, d'une aide non gouvernementale ou d'un paiement contractuel, qui a réduit, selon le cas_:
(i) le coût en capital d'un bien pour lui selon l'alinéa (11.1)b),
(ii) le montant d'une dépense admissible qu'il a engagée en vertu de l'alinéa (11.1)c) pour les années d'imposition qui ont commencé avant 1996,
(iii) le montant de remplacement visé par règlement qui lui est applicable selon l'alinéa (11.1)f) pour les années d'imposition qui ont commencé avant 1996,
(iv) une dépense admissible qu'il a engagée selon l'un des paragraphes (18) à (20); ...
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[7] In an earlier decision of this court involving similar facts, the issue raised in this case was decided against the taxpayer on the basis of subsection 127(8): Allcolour Chemicals Limited v. The Queen, [1997] 2 C.T.C. 356, 97 D.T.C. 5266 (FCA). The one difference between this case and the Allcolour decision is that the applicable provisions in Allcolour were those that came into force after 1988, rather than the "grandfathered" provisions which apply here.
[8] The appellant now argues that this case should be distinguished from the Allcolour decision for two reasons. First, the appellant argues that the learned Tax Court Judge erred in following the Allcolour decision since the legislative provisions relative to the partnership's income and losses in this case are materially different than those applicable in Allcolour. Secondly, the appellant submits that the Allcolour decision is incorrect on the basis that, for a Canadian-controlled private corporation, subsection 127(8) should be considered subordinate to the provision for the enhanced investment tax credit in subsection 127(10.1).
[9] In my analysis the appeal cannot succeed on either ground as subsection 127(8) is determinative of the issue. That subsection lists those components of the definition of investment tax credit which are available to members of partnerships. That list does not include paragraph (e) of that definition, which is the paragraph which incorporates subsection 127(10.1). In my view, if Parliament had intended the enhanced investment tax credit in subsection 127(10.1) to be available to members of partnerships, paragraph (e) of the definition of "investment tax credit" would have been included in the list found in subsection 127(8).
[10] In my view, the changes made to the Act in S.C. 1988, c. 55 do not alter this conclusion. Subsection 127(8) defines the full extent of the benefits available to a member of a partnership. Section 96, whether in its current or former language, sets out the rules for the calculation of income or losses of partnerships. It was not designed to deal specifically with investment tax credits, which is the sole purpose for subsection 127(8). That subsection lists the elements that Parliament intended to be available to partnerships, and those not included must be excluded by implication.
[11] I respectfully conclude that the Allcolour decision was correctly decided, and governs the result of this case.
[12] The appellant also argues that Allcolour should be reconsidered in light of the purpose and object behind the legislative scheme. It argues that Parliament must have intended all Canadian-controlled private corporations, regardless of their status as a partner, to be entitled to the enhanced investment tax credit. It further argues that there is no apparent reason for precluding partners from enjoying this benefit. In essence, the appellant submits that in the absence of any apparent legislative intent to exclude members of partnerships from the benefit of subsection 127(10.1), any interpretation which has this result must be avoided.
[13] In my analysis, this argument is untenable. By subsection 127(8), Parliament has decided the circumstances under which a partnership shall be entitled to an investment tax credit. It chose not to make the enhanced investment tax credit available to members of partnerships. There are no doubt good policy reasons behind Parliament's decision, and equally good reasons to criticize it. That is not a debate that ought to engage the Court in this case.
[14] In the result, the appeal will be dismissed with costs.
"B. Malone"
J.A.
I agree
"A.M. Linden"
I agree
"K. Sharlow"
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