Attorney General of Canada v. Roger M. Bourbonnais Professional Corporation, 96 DTC 6438, [1996] 3 CTC 5 (Alta CA)

Foisy J. — The Attorney General of Canada (the “Attorney General”) is the appellant in this action. Roger M. Bourbonnais and Roger

M. Bourbonnais Professional Corporation, a company in which Mr. Bourbonnais is the sole shareholder, director and officer, are the respondents.

Mr. Bourbonnais practised law through ‘his professional corporation from 1976 through 1981. In 1981 he sold his law practice and ceased to practise law in Alberta. In 1984 his professional corporation was struck from the Register of Companies for failing to file annual reports.

Federal income tax was assessed against the corporation for its 1982 taxation year; the tax owing was not paid. As such, the Attorney General commenced an action against both Mr. Bourbonnais and his professional corporation to recover the amount owing, being $46,573. In its claim the Attorney General relied on subsection 116(1) of the Legal Profession Act.

At trial, Andrekson J. interpreted subsection 116(1) so as to exclude individual liability for corporate tax. Thus, he found Mr. Bourbonnais not responsible for the income tax and accrued interest owing by his corporation. The Attorney General appeals from his decision, asking for a judgment against both Mr. Bourbonnais and his professional corporation in the amount of $46,573 plus interest and costs.

There are no provisions in the Income Tax Act under which Mr. Bourbonnais would be responsible for the income tax owed by his corporation. As such, the Attorney General looks to subsection 116(1) of the Legal Profession Act, R.S.A. 1980, c. L-9, subsection 116(1) (now Legal Profession Act, S.A. 1990, c. L-9, subsection 129(1)). That section reads:

Notwithstanding anything to the contrary in the Companies Act or the Business Corporations Act, every person who is shareholder of a corporation during the time that it is the holder of a permit or of a corporation during the time that it acts in contravention of subsection 93(1) is liable to the same extent and in the same manner as if the shareholders of the corporation were during that time carrying on the business of the corporation as a partnership or, if there is only one shareholder, as an individual practising as a barrister and solicitor.

[Emphasis added.]

The issue on this appeal therefore, is the interpretation of section 116(1). Should it be interpreted narrowly to only catch those obligations that arise directly out of the practice of law, such as liability arising from professional negligence, or should it be interpreted more broadly?

There is a dearth of authority on point. Bancorp Financial Ltd. v. Thomas N. Mather Professional Corp. (1985), 36 Alta. L.R. (2d) 92, 61 A.R. 208 (Q.B.) was cited by both parties as supporting their respective positions. In that case a dentist, through his professional corporation, obtained a mortgage to purchase property for a purpose unrelated to the practice of dentistry. The relevant legislation was very similar in wording to subsection 116(1). Stratton J. (as he then was) held that the individual was not responsible for the corporate debt. At page 93 (A.R. 209):

A rewriting of this section omitting those parts of it which are irrelevant for our present purposes states:

[A] person who is a shareholder of a corporation...is liable to the same extent and in the same manner as if the shareholders of the corporation were . carrying on the business of the corporation as a partnership or, if there is only one shareholder, as an individual practising dentistry or dental surgery.

There are two canons of statutory construction which I consider of major significance in this situation. The first is known as the golden rule: the words in a statute must be given their plain, ordinary meaning unless it is at variance with the legislature’s intention or leads to a manifest absurdity or repugnance: Maxwell on Interpretations of Statutes, 12th ed. (1969), page 43. The second rule is that every word in a statute is to be given a meaning: every word is presumed to have a purpose (page 36).

Applying these rules of interpretation I find that Mather is not personally liable for the mortgage debts of Mather P.C. The critical words are “as an individual practising dentistry or dental surgery”. Giving these words their plain, ordinary meaning I find his liability is limited to that arising from his practice of dentistry or dental surgery. To find otherwise would render the words “practising dentistry or dental surgery” meaningless. If the legislature intended the shareholder to be personally liable for all the corporation’s acts it would have drafted the section to read “liable as an individual”, so that the section would end with the words “as an individual”.

The plaintiff submits that “business” should have its plain, ordinary meaning and therefore should include all business adventures and not just those related to the dental practice. I disagree. I find the phrase “practising dentistry or dental surgery” also modifies business and restricts it to a narrower meaning, making him liable only for those matters related to practising dentistry or dental surgery.

The result of this interpretation is that the dentist in a professional corporation is liable only for those activities related to his dental practice such as a breach of his professional duties. The agreed statement of facts makes it clear that the indebtedness in issue is not related, directly or indirectly, to the practice of dentistry or dental surgery.

Corkery v. Foster Wedekind (1987), 56 Alta. L.R. (2d) 268, 88 A.R. 232 (Q.B.), an appeal from the master, was also cited by both parties. There a lawyer was employed by a professional corporation which became indebted to her for unpaid employee benefits. Considering subsection 116(1) of the Legal Profession Act, Virtue J. held that cost associated with maintaining the operation of an office for the practice of law, including the wages and benefits of employees who are lawyers, are costs directly related to carrying on the business of the practice of law. As such, the liability of the corporation was that of the individual defendant.

Virtue J. considered the earlier decision of Bancorp and distinguished it on the basis that the indebtedness for wage benefits before him was directly connected with the practice of law whereas the mortgage liability in Bancorp was not. He said of subsection 116(1) that the section has application to “the directness of the connection to the practice of law in the broader business sense”: supra at 270.

The reasoning in Corkery was applied by Funduk M. In Edmonton Telephones Corp. v. Monette (1994), 160 A.R. 72 in which an individual accountant was sued for a debt incurred by her professional corporation; the debt related to telephone services. Having found, at page 75, that the plaintiffs telephone services were “directly connected to the carrying out of the professional duties” Funduk M. concluded that there was not merit to the argument that only the professional corporation was liable for the debt.

Alberta v. Fletcher Estate (1994), 27 Alta. L.R. (3d) 384, 167 A.R. 59 (Suit. Ct.) stands in contrast to Corkery and Edmonton Telephones. Fletcher Estate involved a professional corporation of which a chartered accountant was the sole shareholder. Upon the death of the individual, the provincial Crown claimed against the estate for taxes and accrued interest owning by the corporation. In issue was subsection 28(1) of the Chartered Accountants Act, S.A. 1987, c. C-5.1. Eliminating the words unnecessary to that action Lutz Surr. Ct. J., at page 392 (A.R. 65-6), held the subsection to read:

Notwithstanding anything to the contrary in...the Business Corporations Act...every person who is a shareholder of a corporation ... during the time that it is the holder of a permit...is liable to the same extent and in the same manner as if the shareholders of the corporation were, during that time, carrying on the business of the corporation...as an individual practising as a chartered accountant.

The question before Lutz J. was whether liability for provincial corporate income tax arose from the practice of chartered accountancy. He first noted that provincial tax was a consequence of a profitable accounting practice whether or not that practice was organized as a corporation. He then noted that because of the concept of integration the amount of tax payable would be approximately the same regardless of whether the individual practised as an individual or through a corporation. AT page 395 (A.R. 68) he stated:

The combined tax owed by the Professional Corporation and owed by Fletcher on the distribution received from the corporation is an amount similar to the amount that would have been owed by Fletcher had he conducted his business as a sole proprietorship and earned the money directly. Whether or not Fletcher had organized as a corporation he would have been subject to the same or similar tax liability.

Thus, as the Professional Corporation’s liability to pay provincial tax arose from the income generated by the practice of accounting and as the liability to pay provincial tax would arise no matter what form of business organization was selected by Fletcher, I conclude that the liability that arose from the practice of accounting and is one for which Fletcher’s estate is liable.

With respect, I disagree with the conclusion of the learned Surrogate Court judge. In my view the obligation of a professional corporation to pay income taxes does not arise from the practice of accountancy, or in the case before us, from the practice of law. Rather, the obligation flows from provisions of the Income Tax Act (Canada) which impose a tax on business income after it has been earned and without reference to the character of the business in which it was earned.

The discussion to this point has concentrated on the phrase 6 “practising as a barrister and solicitor...”; however, subsection 116(1) also contains the phrase “...is liable to the same extent and in the same manner...”. Mindful of the principle of statutory construction that every word in a statute is to be given a meaning, how are we to interpret these words? Is the situation before us one in which a corporation and an individual can be liable to the same extent and in the same manner? I think not.

The Income Tax Act provides a scheme under which corporations and individuals are treated as separate and distinct taxpayers, subject to different rules for the computation of income and different rates of tax. For instance, while both corporations and individuals are permitted deductions in computing taxable income, the specific deductions vary. Some are peculiar to corporations (including deductions for inter-corporate dividends and charitable donations) while some are unique to individuals (the $100,000 capital gain deduction, amounts contributed to registered retirement savings plans or registered pension plans, and so forth).

Further, while corporations enjoy a flat tax rate, individuals are subject to progressive tax rates. Finally, personal tax credits and charitable donations tax credits are available only to individuals, not to corporations.

It is apparent from the foregoing that individuals and corporations can never be taxed “to the same extent and in the same manner”. As such, subsection 116(1) of the Legal Profession Act cannot be used to transfer to Mr. Bourbonnais the obligations of his professional corporation for income tax.

On the basis of the foregoing I see no reason to disturb the finding of the court below. The appeal is dismissed.

Appeal was dismissed.