Citation: 2010TCC325
Date: 20100615
Docket: 2007-4122(IT)G
BETWEEN:
CHI-LUEN HO,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Webb, J.
[1]
The Appellant brought a
Motion pursuant to Rule 58 of the Tax Court of Canada Rules (General
Procedure). This Rule provides as follows:
58. (1) A party may apply to the Court,
(a) for the determination, before hearing, of a question of law, a
question of fact or a question of mixed law and fact raised by a pleading in a
proceeding where the determination of the question may dispose of all or part
of the proceeding, substantially shorten the hearing or result in a substantial
saving of costs, or
(b) to
strike out a pleading because it discloses no reasonable grounds for appeal or
for opposing the appeal,
and the Court may grant judgment accordingly.
[2]
The initial question
posed by the Appellant was:
Whether
the provisions of paragraphs 152(3.1)(b) and 152(4)(b)(iii) [of the Income
Tax Act] apply to permit the Minister to reassess outside the normal three
year period in respect of Notices of Reassessment dated January 31, 2006 with
respect to the Appellant’s 1999 and 2000 taxation years.
[3]
This question was
subsequently narrowed by the parties to the following question:
Whether the
imputation of foreign accrual property income ("FAPI") to the CL
Trust in respect of income earned by a non-resident corporation (Nathan
Enterprises Ltd.) which the Minister seeks, by operation of law, to further
impute to the Appellant pursuant to subsection 75(2) of the Income Tax Act (the
"Act") consequent to the Ho Trust becoming a beneficiary of the CL
Trust constitutes a "transaction" involving Nathan and the Appellant
for the purposes of subparagraph 152(4)(b)(iii) of the Act.
[4]
The parties submitted
an agreed statement of facts and the facts as agreed upon by the parties are
set out in Schedule “A” attached hereto. The only issue to be decided in this
Motion is the narrow question of whether the imputation of income as described
above is a transaction for the purposes of subparagraph
152(4)(b)(iii) of the Income Tax Act (the “Act”). There are two
levels of imputed income. First the FAPI earned by Nathan Enterprises Ltd. (“Nathan”)
is deemed to be income of the Chi-Luen Trust (the “CL Trust”) and then the
Minister of National Revenue is seeking to have this deemed income of the CL
Trust included in the Appellant’s income pursuant to the provisions of
subsection 75(2) of the Act. The question of whether this is a
transaction arises because the limitation period within which the Appellant may
be reassessed as provided in subparagraph 152(4)(b)(iii) of the Act is
based on whether a transaction has occurred. This subparagraph of the Act
provides, in part, as follows:
152(4) The
Minister may at any time make an assessment, reassessment or additional
assessment of tax for a taxation year, interest or penalties, if any, payable
under this Part by a taxpayer or notify in writing any person by whom a return
of income for a taxation year has been filed that no tax is payable for the
year, except that an assessment, reassessment or additional assessment may be
made after the taxpayer's normal reassessment period in respect of the year
only if
…
(b) the
assessment, reassessment or additional assessment is made before the day that
is 3 years after the end of the normal reassessment period for the taxpayer in
respect of the year and
…
(iii) is made
as a consequence of a transaction involving the taxpayer and a non-resident
person with whom the taxpayer was not dealing at arm's length,
[5]
If there is no
transaction then the Respondent cannot rely on the provisions of subparagraph
152(4)(b)(iii) of the Act to reassess the Appellant within three years after
the end of the normal reassessment period for the Appellant.
[6]
The alleged transaction
relates to the imputation of income pursuant to subsection 91(1) of the Act
(which is imputed to the CL Trust) and, assuming that the provisions of
subsection 75(2) of the Act apply, the further imputation of the imputed
FAPI to the Appellant. Subsections 91(1) and 75(2), in part, of the Act provide
as follows:
91. (1) In
computing the income for a taxation year of a taxpayer resident in Canada,
there shall be included, in respect of each share owned by the taxpayer of the
capital stock of a controlled foreign affiliate of the taxpayer, as income from
the share, the percentage of the foreign accrual property income of any
controlled foreign affiliate of the taxpayer, for each taxation year of the
affiliate ending in the taxation year of the taxpayer, equal to that share's
participating percentage in respect of the affiliate, determined at the end of
each such taxation year of the affiliate.
…
75. (2) Where, by a
trust created in any manner whatever since 1934, property is held on condition
(a) that it or
property substituted therefor may
(i) revert to the
person from whom the property or property for which it was substituted was directly
or indirectly received (in this subsection referred to as “the person”), or
…
any income or
loss from the property or from property substituted for the property, and any
taxable capital gain or allowable capital loss from the disposition of the property
or of property substituted for the property, shall, during the existence of the
person while the person is resident in Canada, be deemed to be income or a
loss, as the case may be, or a taxable capital gain or allowable capital loss,
as the case may be, of the person.
[7]
The meaning of the word
“transaction” has been the subject of other decisions of this Court and of the
Court of Appeal. In Minister of National Revenue v. Granite Bay
Timber Company Limited, [1958] C.T.C. 117, 58 DTC 1066, Justice Thurlow
of the Exchequer Court of Canada dealt
with the meaning of the word “transaction” in the following context:
1 …The
matter in issue in the appeal relates to the basis for determining the capital
cost to the respondent of certain property in respect of which it claimed a
deduction for capital cost allowance pursuant to s. 11(1)(a) of The Income Tax
Act (S. of C. 1948, c. 52, as amended by S. of C. 1949, 2nd Sess., c. 25, s.
4). This section provides that, in computing his income, a taxpayer may deduct such
part of the capital cost of the property, if any, as is allowed by regulation.
The respondent based its claim for such a deduction on the price at which it purchased
the property from Samuel Heller, Paul Heller and John H. Maier in 1947. The
Minister, however, in making the assessment, proceeded upon the assumption that
the property in question was acquired by the respondent in a transaction
between parties not dealing at arms length and disallowed a portion of the
allowance claimed by the respondent. In so doing, he applied the special
provision of s. 8(3) of S. of C. 1949, 2nd Sess., c. 25, which was as follows:
(3) Where property did belong to one person (hereinafter referred to as
the original owner) and has by one or more transactions prior to 1949 between
persons not dealing at arms length become vested in a taxpayer who had it at
the commencement of the 1949 taxation year (or who acquired it during his 1949
taxation year from a person whose 1948 taxation year had not expired at the
time of the acquisition), the capital cost of the property to the taxpayer
shall, for the purpose of subparagraph (i) of paragraph (a) of subsection one,
be deemed to be the lesser of the actual capital cost of the property to the
taxpayer or the amount by which
…
[8]
Justice Thurlow described the
argument, related to whether there was one or more transactions, as follows:
11 Counsel
for the respondent, however, approached the matter in another way. He asserted
in argument that the Minister's computation is based on the cost of the
property to Granite Bay Logging Co. Ltd. and that, in the Minister's
computation, that company is regarded as the "original owner"
referred to in s. 8(3). He then submitted that the property which originally
belonged to Granite Bay Logging Co. Ltd. did not become vested in the
respondent by "one or more transactions between persons not dealing at
arms length" because the events or process by which the property of
Granite Bay Logging Co., Ltd. became vested in its shareholders did not amount
to a transaction within the meaning of that word in s. 8(3), and that,
accordingly, there was no uninterrupted series of transactions between parties
not dealing at arms length by which the property of Granite Bay Logging Co.
Ltd. became vested in the respondent so as to invoke s. 8(3) and thus require
that the capital cost allowance should be based on the capital cost of the
property to Granite Bay Logging Co. Ltd. More particularly, he contended that,
upon the passing of the resolution to wind up Granite Bay Logging Co. Ltd., the
property of that company devolved on its shareholders by operation of law, and
that neither this devolution nor the resolution itself nor the action of the
three shareholders in voting for it was a transaction within the meaning of s.
8(3).
[9]
In paragraph 13 Justice Thurlow
noted that “the word ‘transaction’ is one of wide scope, and it is used in a
variety of senses”. He then reviewed the definitions of transaction as found in
Webster's New International Dictionary, Second Edition and the Shorter
Oxford Dictionary and as determined in certain cases. He concluded as follows:
20 In
my view, while the authorities above mentioned, as well as the other cases
cited by counsel, illustrate the scope and versatility of the word
"transaction", none of them affords a sure guide to its meaning in s.
8(3). I do not think that the votes of the shareholders in this case can be
regarded as transactions of the kind contemplated by s. 8(3), but that is far
from saying that the resolution itself which resulted from such voting and
became an act of the company was not such a transaction or part of such a
transaction. In my opinion, the "transactions" referred to in s. 8(3)
are not limited to contracts. True, the subject matter with which s. 8 deals is
that of capital "cost", which suggests that "transactions"
in s. 8(3) refers to transactions in the nature of contracts of sale in which
the taxpayer incurs cost in purchasing property. No doubt, in the great
majority of cases the transaction will be of that kind. But in using
"transactions" in s. 8(3) Parliament selected a word of far wider
meaning than "sales" or "contracts" and, except in so far
as its wide meaning is necessarily limited by the context in which it is used,
there is, in my opinion, no valid reason why the word should not have its full
scope and meaning. Of the various meanings of the word, that stated in the
fourth definition given in the Oxford dictionary, viz. "the action of
passing or making over a thing from one person, thing or state to
another," seems to me to represent most nearly the meaning of the word in
s. 8(3). While it is limited in its context to transactions by which property
can become transferred from one person and vested in another and by the words
between parties, I do not think it is limited to sales of property nor to
contractual transactions between parties. In adopting this view, I do not
overlook the word dealing, but I regard it as applicable to and descriptive of
the parties rather than as qualifying the word transactions. In my opinion, the
expression "one or more transactions" in s. 8(3) is wide enough to
embrace all types of voluntary processes or acts by which property of one person
may become vested in another without regard for the reason or occasion for such
processes or acts and regardless also of whether the process is undertaken or
the act is done for consideration in whole or in part or for no consideration
at all. It may not be wide enough to embrace a transmission or devolution upon
death but, as used in s. 8(3) I think it is wide enough to include any
voluntary transfer of property between existing persons falling within the
class referred to as "persons not dealing at arms length."
(emphasis
added)
[10]
A transmission or
devolution upon death is a transfer of property that arises by operation of law
once an event (the death of the owner) has occurred. Property becomes property
of the new owner by operation of law. It seems to me that this is analogous to
the imputation of income. The imputation of income arises by operation of law
once the requirements of the Act have been satisfied. Income becomes
income of another person as a result of the deeming provisions of the Act.
If a transmission or devolution upon death is not a transaction, then the
imputation of income should not be a transaction.
[11]
In this case the issue
is the meaning of the word “transaction” as it is used in subparagraph 152(4)(b)(iii) of the Act, which
is a different provision than was considered by Justice Thurlow. Justice Hogan
in Heron Bay Investments Ltd. v. The Queen, 2009 TCC 337, 2009
DTC 1288 dealt with the question of whether a word should have the same meaning
when it is used in different sections of the same statute. He stated that:
60 Some of
the judicial statements referred to above related to provisions of the ITA
that are inapplicable in the instant appeal or to provisions of other statutes.
This does not necessarily render inapplicable the judicial treatment of those
provisions. Legislative drafters are understood to abide by the principle of
uniformity of expression, so that each term has one and only one meaning.22
Therefore, the same words appearing in a statute are to be given the same
meaning.
[I]t is a basic principle of statutory interpretation that where
the same words are used in a statute, they are to be given the same meaning.
In Ainsworth Lumber Co. Ltd. v. The Queen,23
the court considered the issue of how to interpret the words used in the Act
and adopted the following commentary:
[T]he third edition of Driedger on the Construction of
Statutes at page 163 ... says:
It is presumed that the legislature uses language carefully and
consistently so that within a statute or other legislative instrument the same
words have the same meaning.
...
In R. v. Zeolkowski, (1989) 61 D.L.R. (4th) 725, at 732
(S.C.C.), Sopinka, J. wrote:
Giving the same words the same meaning throughout a statute is a
basic principle of statutory interpretation.
Driedger at page 475 reads:
In preparing an enactment, the legislature is presumed to be
aware of existing case law and to take that case law into account in drafting
its provisions. Where words have been given a particular meaning in a case or series
of cases, and those words are then used in legislation, the obvious inference
is that the legislature intended to give the words the same established
meaning.24
[12]
Justice Campbell made the
following comments in Tolhoek v. The Queen, 2006 TCC 681, 2007
DTC 247 in describing it as a presumption that the same word in a statute
should have the same meaning:
30 … Although
there is a presumption of consistent expression, which, as a basic principle of
statutory interpretation, requires giving the same words the same meaning
throughout a statute, the weight afforded to this presumption varies because
words in a statute may have different meanings depending on the context in
which they are used (Barrie Public Utilities v. Canada Cable Television Association,
[2001] 4 F.C. 237, 2001 FCA 236). The realities of legislative drafting can
affect this presumption.
[13]
It seems to me that in
this case it does not matter whether it is a rule or a presumption that the
same word is to be given the same meaning throughout a statute since it seems
to me that in comparing the meaning of the word “transaction” in subsection
8(3) of S. C. 1949, 2nd Sess., c. 25,
(which was a transitional provision related to depreciation and was a provision
that applied for the purposes of the Act) and subparagraph
152(4)(b)(iii) of the Act (which was added to the Act in 1988) the
word should be given the same meaning. Both provisions used the word to
describe something that would lead to consequences under the Act and therefore
it seems to me that the word “transaction” should have the same meaning for
each of these provisions. Justice Thurlow did not, in any event, provide an all-encompassing
definition of “transaction” as he simply concluded that it was “wide enough to
embrace all types of voluntary processes or acts by which property of one
person may become vested in another…”.
[14]
In The Minister of
National Revenue v. Dufresne, [1967]
C.T.C. 153, 67 DTC 5105, Justice Jackett of the Exchequer Court of Canada
stated that:
35 In
1960, the children acquired 75 shares in the company at a cost of $7,500 in
circumstances such that, as a result of the acquisition, they became, after the
acquisition, owners of 6/17 (90/255) of the stock in the company instead of the
1/12 (15/180) of the stock in the company that they held before such
acquisition. Certainly, this "result" flowed from at least one
transaction - that is the subscription contract - in the very special
circumstances in which it was made possible for each child to enter into his or
her subscription contract with the company. That being so, I do not have to
decide whether the other acts that took place as a necessary part of the action
required to create those [page138] special circumstances were
"transactions" (English version) or "opérations" (French version)
within the meaning of the statute. In my view they were, because, in my view, the
word "transaction" or "opération" is used in the widest
possible sense as meaning any act having operative effect in relation to a
business or property, Compare Minister of National Revenue v. Granite
Bay Timber Company Limited, [1958] Ex. C.R. 179, per Thurlow J. at pages
187 to 191, and the authorities reviewed by him.. However, I do not need to
reach a concluded opinion on that question to conclude, as I do, that the
"result" I have described was the result of a "transaction".
(emphasis
added)
[15]
It does not seem to me that
the imputation of income simply because certain conditions have been met, would
be an act having operative effect in relation to a business or property. An
“act” would require an action of some kind.
[16]
The Federal Court of
Appeal dealt with subparagraph
152(4)(b)(iii) of the Act in SMX Shopping Centre Ltd. v. The
Queen, 2003 FCA 479,
2004 DTC 6013, [2004] 2 C.T.C. 48. Justice Sharlow writing on behalf of the
Federal Court of Appeal stated that:
24 There is no merit in the second
argument. In the context of subparagraph 152(4)(b)(iii) of the Income Tax Act,
the word “transaction” must be interpreted to include a transaction that the
taxpayer alleges forms the factual foundation for a deduction claimed in an
income tax return. Thus, for example, if a taxpayer claims to be entitled to a
deduction for a particular expense it has paid, and the payment of the expense
(assuming it occurred), would have involved the taxpayer and a non-resident
person with whom the taxpayer was not dealing at arm's length, the Minister has
the legal authority to reassess within the extended reassessment period to
disallow the deduction. That legal authority does not disappear if the taxpayer
later denies that the expense was paid, or fails to prove that it was paid.
25 In this case, SMX claimed a
deduction of $1,180,542, which it said represented expenditures made by SMX in
the failed joint venture with Golbanoo. SMX attempted to prove that Amir
Malekyazdi caused those expenditures to be made to Golbanoo on behalf of SMX,
and that Golbanoo spent and lost the money on the joint enterprise. Those
alleged expenditures were the transactions upon which SMX based its claim for a
deduction, and so they were also the transactions that permit the Minister to
rely on subparagraph 152(4)(b)(iii) to disallow the deduction by reassessing
within the extended reassessment period.
[17]
The alleged
expenditures in that case would clearly be transactions if they would have been
made as they would be acts that would have an operative effect in relation to
business or property. These alleged transactions were transactions for the
purposes of subparagraph 152(4)(b)(iii)
of the Act. However, it seems to me that this simply means that an
alleged transaction could be a transaction for the purposes of subparagraph
152(4)(b)(iii) of the Act but the alleged transaction, if it did occur,
would still have to be a transaction. This is relevant in this case since the
second level of imputed income, as a result of the application of subsection
75(2) of the Act, will only arise if this provision applies. The issue
before me is only related to the very specific question posed by the parties.
Whether subsection 75(2) of the Act applies in this case is not the
issue. However, the decision of the Federal Court of Appeal in SMX Shopping
Centre Limited would stand for the proposition that if the imputation of
income pursuant to subsection 75(2) of the Act is a transaction, then it
will be a transaction for the purposes of subparagraph 152(4)(b)(iii) of the Act
even though the question of whether subsection 75(2) of the Act applies
will not be decided until a hearing on this matter is held. Therefore the real
question is whether the imputation of income pursuant to subsection 75(2) of
the Act, assuming that this subsection applies, is a transaction.
[18]
In Blackburn Radio
Inc. v. The Queen, 2009 TCC 155, 2009 DTC 533, [2009] 4 C.T.C. 2213,
Justice V. Miller dealt with the question of the meaning of the word
transaction for the purposes of subparagraph 152(4)(b)(iii) of the Act.
34 Based on the above and using a
textual, contextual and purposive approach* to the interpretation of the word
“transaction” in subparagraph 152(4)(b)(iii), I conclude that it does not
include an arrangement. It is also my opinion that the word “transaction” in
subparagraph 152(4)(b)(iii) does not include a series of transactions. If the
Act had intended that a series of transactions would be included, it would have
specifically stated it as it did in other sections such as the Avoidance
Transaction section.*
35 There is no general definition of
the word “transaction” in section 248 of the Act but it is defined in the
Canadian Oxford Dictionary as follows:
1 a. a piece of esp. commercial business done; a deal (a
profitable transaction).
b. N Amer. = TRADE 4b.
c. the management of business etc.
2. (in pl.) published reports of discussions, papers read,
etc., at the meetings of learned society.
[19]
As noted by Justice V.
Miller, the definition of “transaction” was expanded to include “arrangement or
event” for the purposes only of section 247 of the Act and subsection
247(11) of the Act (which provides that section 152 (among others) applies
to Part XVI.1 of the Act) does not have the reverse effect of applying the
definition of transaction (as found in subsection 247(1) of the Act) to
the word “transaction” as used in subparagraph 152(4)(b)(iii) of the Act.
The definition of “transaction” is also expanded to include “arrangement or
event” by subsection 245(1) of the Act but this is only for the purposes
of section 245 of the Act.
[20]
In Shaw-Almex
Industries Limited v. The Queen, 2009 TCC 538, 2009 DTC 2080,
Justice Lamarre referred to the definition of “transaction” as found in the Canadian
Oxford Dictionary as quoted by Justice V. Miller in Blackburn Radio Inc.
In that case Justice Lamarre stated that:
28 I am not exactly sure what the
appellant means when it asserts that honouring the guarantee was an event
rather than a transaction. In the present case, the payments were made by the
appellant to Wachovia Bank pursuant to the Forbearance Agreement, of which
Fusion Co was the signatory. It is true that the appellant's liability would
not have been incurred without the existence of the guarantee that it gave to Wachovia
Bank. However, the evidence focused in part on the fact that the appellant did
not want the Bank of Nova Scotia to be involved in the repayment of the loan to
Wachovia Bank because this could have impaired its future borrowing capacity at
that bank. The evidence also disclosed that the appellant and Fusion Co's
operations and businesses were closely interrelated.
29 As a consequence, I conclude that
the repayment of the loan to Wachovia Bank was the result of “a piece of ...
commercial business” or “the management of [a] business” in which both the
appellant and Fusion Co were involved. Therefore, the repayment of the loan was
a transaction involving the appellant, Fusion Co and Wachovia Bank. The
reassessment denying the loss arguably incurred on the repayment of the loan
was therefore made as a consequence of the transaction described above. Thus,
the Minister was not out of time for the purpose of reassessing pursuant to
subparagraph 152(4)(b)(iii) of the Act.
[21]
In addition to the
definition of transaction as found in the Canadian Oxford Dictionary
that was relied upon by both Justice V. Miller and Justice Lamarre, I would add
the following definition from Black’s Law Dictionary (8th
edition):
Transaction, n. 1. The act or an instance of conducting
business or other dealings; esp., the formation, performance, or discharge of a
contract. 2. Something performed or carried out; a business agreement or
exchange. 3. Any activity involving two or more persons.
[22]
The last proposed
definition in Black’s Law Dictionary “any activity involving two or more
persons” is too broad to be of much assistance in determining the meaning of
transaction for the purposes of subparagraph 152(4)(b)(iii) of the Act. The
word “transaction” is used in subparagraph 152(4)(b)(iii) of the Act in
relation to the application of the limitation period for a reassessment under
the Act. This subparagraph specifically provides that the assessment,
reassessment or additional assessment is made as a consequence of a transaction.
Therefore it seems to me that the word “transaction” was not used in
subparagraph 152(4)(b)(iii) of the Act to mean any activity involving
two or more persons but only such activities that could lead to an assessment,
a reassessment or an additional assessment. Therefore in the context of
subparagraph 152(4)(b)(iii) of the Act it seems to me that the first two
definitions as set out above are more applicable.
[23]
In seems to me that for
the purposes of subparagraph 152(4)(b)(iii) of the Act “transaction”
would not include the operation of certain provisions of the Act that deem
income of one person to be income of another person. The imputation of income
in this case arises as a consequence of statutory provisions that require FAPI
to be included in computing the income of the shareholder and that deem income
of certain trusts to be income of certain beneficiaries. There is no business
that is conducted as a result of the application of these provisions and no “act having operative effect in relation to a business
or property”. Income of one person
is simply deemed to be income of another person. In my opinion, this is not a
transaction.
[24]
As a result, in my
opinion, the imputation of FAPI to the CL
Trust in respect of income earned by a non-resident corporation (Nathan) which
the Minister of National Revenue seeks, by operation of law, to further impute
to the Appellant pursuant to subsection 75(2) of the Act consequent to
the Ho Family Trust becoming a beneficiary of the Chi-Luen Trust is not a
transaction involving Nathan and the Appellant for the purposes of subparagraph
152(4)(b)(iii) of the Act.
Signed at Ottawa, Canada, this 15th day of June, 2010.
“Wyman W. Webb”
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