2006 FCA 129
CORAM: DÉCARY J.A.
MAJESTY THE QUEEN
REASONS FOR JUDGMENT
 La Survivance (the appellant)
appeals from a decision rendered by Mr. Justice Dussault of the Tax Court of
Canada (2005 DTC 689) confirming the validity of an assessment made in regard
to its 1998 taxation year. This assessment disallowed the carryover of a
non-capital loss allegedly resulting from a business investment loss (BIL)
suffered in 1994. The assessment recognized this loss as being a simple capital
 The appellant is a public
corporation within the meaning of the Income Tax Act, R.S.C. 1985 (5th
Supp.), c. 1 (the Act). In 1994, it sold all of the shares held in a subsidiary
to a private corporation in an arm’s length transaction. This disposition
resulted in a loss, the carryover of which was disallowed in 1998.
 The transaction in question is
described in the context of an agreed statement of facts filed by the parties
in the Tax Court of Canada. It states that the appellant operates a life
insurance undertaking while its subsidiary, Les Clairvoyants, Compagnie
d’Assurance Générale Inc. (Les Clairvoyants) and the purchaser, Société
Nationale d’Assurance Inc. (Société Nationale) both operate a property
 On May 3, 1994, an agreement was
reached between the appellant and Société Nationale (the Agreement) by which
Société Nationale offered to purchase and the appellant agreed to sell at $0.15
per share the shares it held in Les Clairvoyants in a public share offering (PSO)
covering all of the common shares issued and outstanding of the latter company.
 Under the Agreement, on June 8,
1994, Société Nationale issued a PSO for cash subject to the provisions of the
Quebec Securities Act, R.S.Q., c. V-1.1 (SA). On June 16, 1994, the
appellant deposited irrevocably all of the shares it held in the capital stock
of Les Clairvoyants pursuant to the terms of the PSO and clause 6 of the
 The PSO provided, in paragraph 4,
that [translation] “if on June 30, 1994, all of the conditions of this offer
are fulfilled, [Société Nationale] will take up and pay for all of the shares
deposited under [the PSO...] no later than July 11, 1994” (Appeal Book, tab
 All of the
conditions were in fact met and on July 5, 1994, during business hours, Société
Nationale took delivery upon payment of all the shares deposited by the
appellant pursuant to the PSO. The register of shareholders of Les Clairvoyants
was amended that same day to enter Société Nationale and delete the appellant.
 The sale
resulted in a loss of about $2,654,372 and the issue in this appeal is raised
by the fact that a BIL is deductible against any income, while a simple capital
loss is deductible only against taxable capital gains, if any.
 Under the Act,
this loss is a simple capital loss if, at the time of disposition, Les
Clairvoyants remained under the control of a public corporation (i.e., the
appellant’s). However, if the control was held by Société Nationale (a private
corporation), the loss qualifies as a BIL.
 Such control
would undoubtedly be in the appellant’s hands were it not for the fact that
subsection 256(9) of the Act creates a legal fiction concerning the specific
time when the control of a corporation is acquired, by decreeing that, for the
purposes of the Act, “where control of a corporation is acquired by a person or
group of persons at a particular time on a day, control of the corporation
shall be deemed to have been acquired by the person or group of persons, as the
case may be, at the commencement of that day....”
 Relying on this
presumption, the appellant argues that, at the time of disposition of the
shares it held in its subsidiary, during business hours on July 5, 1994, the
subsidiary was no longer under its control but rather under the control of
Société Nationale, which means it is entitled to the loss that is claimed.
 By notice of
assessment issued July 20, 2000, the Minister disallowed the loss. This
assessment was subsequently ratified and the appeal to the Tax Court of Canada
 On April 26,
2005, the Tax Court of Canada dismissed the appeal and upheld the assessment.
 The appellant is a private
corporation but it is considered a public corporation for the purposes of the
Act because it is carrying on a life insurance business and it is resident in
248. (1) In this Act,
248. (1) Les définitions qui suivent s’appliquent
à la présente loi.
corporation" means a corporation that carries on a life insurance
d’assurance-vie » Société qui exploite une entreprise
141.(2) Notwithstanding any other provision of this Act, a
life insurance corporation that is resident in Canada is deemed to be a public
141.(2) Malgré les autres dispositions de la
présente loi, la compagnie d’assurance-vie qui réside au Canada est
réputée être une société publique.
 A company cannot be qualified as a
“Canadian-controlled private corporation” (CCPC) as long as it remains under
the control of a public corporation:
125. (1) There may be deducted from the tax otherwise
payable under this Part for a taxation year by a corporation that was,
throughout the year, a Canadian-controlled private corporation, an
amount equal to 16% …
125. (1) La société qui est tout au long d’une
année d’imposition une société privée sous contrôle canadien peut
déduire de son impôt payable par ailleurs pour l’année en vertu de la
présente partie 16 % […] :
(i) the total of all amounts each of which is the
income of the corporation for the year from an active business carried on in
(i) […] le revenu de la société pour
l’année tiré d’une entreprise exploitée activement au Canada […]
(7) In this section,
(7) Les définitions qui suivent s’appliquent
au présent article.
private corporation" means a private corporation that is a Canadian
corporation other than
privée sous contrôle canadien » Société privée qui est une société
canadienne, à l’exception des sociétés suivantes :
(a) a corporation
controlled, directly or indirectly in any manner whatever, … by one or
more public corporations
la société contrôlée, directement ou indirectement, de quelque manière
que ce soit, […] par une ou plusieurs sociétés publiques […]
 Paragraphs 39(1)(b) and (c) of the
Act define what is meant by a capital loss and a business investment loss,
respectively. In the case of a BIL, the legislation specifies the nature of the
property that can produce this type of loss, in this case the capital stock of
a “small business corporation” (SBC):
39. (1) For the purposes of this Act,
39. (1) Pour l’application de la présente
(b) a taxpayer's capital loss … from the disposition of
any property is the taxpayer's loss … determined under this subdivision …
from the disposition of any property of the taxpayer …
b) une perte en capital subie par un contribuable […]
du fait de la disposition d’un bien quelconque est la perte qu’il a subie […]
déterminée conformément à la présente sous-section […] du fait de la
disposition d’un bien quelconque […]
(c) a taxpayer's business investment loss … is …
the taxpayer's capital loss … from a disposition …
c) une perte au titre d’un placement d’entreprise
subie par un contribuable, […] s’entend […] de la perte en capital que le
contribuable a subie […] résultant d’une disposition […] :
of any property that is
d’un bien qui
(iii) a share of the capital stock of a small business
(iii) […] une action du capital-actions
d’une société exploitant une petite entreprise,
 As long as it remained under the
control of the appellant, Les Clairvoyants did not meet the definition of a
CCPC and thus was not an SBC under the Act:
248. (1) In this Act,
248. (1) Les définitions qui suivent s’appliquent
à la présente loi.
private corporation … has
the meaning assigned by subsection 125(7);
exploitant une petite entreprise […] société privée sous contrôle canadien et dont la
totalité, ou presque, de la juste valeur marchande des éléments d’actif est
attribuable, à un moment donné, à des éléments qui sont :
corporation" … Canadian-controlled private corporation
all or substantially all of the fair market value of the assets of which at
that time is attributable to assets that are
used principally in an active business carried on primarily in Canada by the
a) soit utilisés principalement dans une entreprise
que la société ou une société qui lui est liée exploite activement
principalement au Canada;
privée sous contrôle canadien » […] S’entend au sens du paragraphe 125(7).
 However, Société Nationale was at
all relevant times a “private corporation”, so that after it acquired control
of Les Clairvoyants the latter became a CCPC and an SBC:
248. (1) In this Act,
248. (1) Les définitions qui suivent s’appliquent
à la présente loi.
corporation" has the meaning assigned by subsection 89(1);
privée » S’entend au sens du paragraphe 89(1).
89. (1) In this subdivision,
89. (1) Les définitions qui suivent s’appliquent
à la présente sous-section.
corporation" … a corporation that, … is resident in Canada, is not a
public corporation and is not controlled by one or more public
privée » […] société qui, […] réside au Canada, [et qui] n’est pas une
société publique et n’est pas contrôlée par une ou plusieurs sociétés
 Finally, before quoting subsection
256(9), which is at the heart of this litigation, I think it is useful to quote
subsection 249(4), which suggests its rationale:
249(4) Where at any time control of a corporation ...
is acquired by a person or group of persons, for the purposes of this
249(4) En cas d’acquisition du contrôle
d’une société à un moment donné […] par une personne ou un groupe de
personnes, les règles suivantes s’appliquent dans le cadre de la présente
(a) subject to paragraph 249(4)(c), the taxation
year of the corporation that would, but for this paragraph, have included
that time shall be deemed to have ended immediately before that time;
a) sous réserve de l’alinéa c), l’année
d’imposition de la société qui, sans le présent alinéa, comprendrait ce
moment est réputée se terminer immédiatement avant ce moment;
(b) a new taxation year of the corporation shall be
deemed to have commenced at that time;
b) une nouvelle année d’imposition de la société est
réputée commencer à ce moment;
 Subsection 256(9) reads as follows:
256(9) For the purposes of this Act, where control of a
corporation is acquired by a person or group of persons at a
particular time on a day, control of the corporation shall be deemed to have
been acquired by the person or group of persons, as the case may be, at
the commencement of that day and not at the particular time unless the
corporation elects in its return of income under Part I filed for its
taxation year ending immediately before the acquisition of control not to
have this subsection apply.
256(9) Pour l’application de la présente loi, le
contrôle d’une société qui est acquis à un moment donné est réputé l’être au
début du jour où tombe ce moment ou, si la société en fait le choix, au
moment de ce jour où le contrôle est effectivement acquis. Le choix se fait dans la déclaration de revenu de la
société produite en vertu de la partie I pour l’année d’imposition se
terminant immédiatement avant l’acquisition du contrôle.
add, the election mentioned in subsection 256(9) was not exercised.
Decision under appeal
 Dussault J.
summarized the appellant’s argument as follows:
 ... given the deeming provision, the
irrefutable presumption contained in subsection 256(9) of the Act, control that
is acquired at a given moment is deemed to be acquired at the commencement of
the day in which this moment occurs or, in the instant case, at the
commencement of the day of July 5, 1994. Thus, according to Counsel for the
Appellant, at the moment where the shares in Les Clairvoyants were disposed of
and acquired, Les Clairvoyants was no longer controlled by La Survivance, a
public corporation, but by Société Nationale, a private corporation. Les
Clairvoyants was accordingly a CCPC from the start of the day on July 5, 1994.
discussing this question, Dussault J. considered the issue relating to the date
of disposition of the shares. In doing so, he answered the preliminary argument
by the Minister to the effect that the disposition of the shares and the
acquisition of control had occurred on June 30 and July 5, 1994, respectively,
so subsection 256(9) cannot have the meaning attributed to it by the appellant,
irrespective of how it is construed.
 Dussault J.
first noted that, under the Act, there is a disposition when the vendor is
entitled to the sale price of the assets sold (section 54 of the Act). After
explaining that the appellant could not have this right before there was a
sale, under the governing private law (Hewlett Packard (Canada) Ltd. v.
Canada,  F.C.J. No. 1084 (QL)) (reasons, para. 22), he held that the
disposition occurred on July 5, 1994. As he put it (reasons, para. 23):
Everything that occurred before July 5, 1994
constituted a promise of sale and no effect of the sale itself can have been
created, since the promise of sale was not accompanied by delivery and
possession (1710 C.C.Q.).
 In drawing this conclusion, Dussault
J. relied essentially on the intention of the parties as established by their
conduct and the circumstances surrounding the PSO. He referred to a legal
opinion by the law firm of Ogilvy Renault that was communicated to the
shareholders of Les Clairvoyants in a memorandum accompanying the PSO, an
opinion that is expressed in the following terms (Appeal Book, tab 6, p. 10):
The shareholder will not be considered to have disposed of his shares at the
time of deposit of the shares in response to the offer, but he will instead be
considered to have disposed of his shares at the time when the shares are
delivered in return for payment.
 After noting that this opinion was
not determinative of the precise question he had to decide, Dussault J.
nevertheless considered it when he sought the intention of the parties. He
stresses that it is a clear opinion that was conveyed on behalf of Société
Nationale to all the shareholders at the same time as the offer (reasons, para.
23). There is no indication that the shareholders held a different view of the
effects of the transaction.
 Dussault J. also quotes the decision
of the Quebec Court of Appeal in Raschella v. 3633713 Canada Inc.,
 J.Q. No. 23 (QL), where Rochon J.A. explains (reasons, para. 23):
The agreement between the parties
constitutes a synallagmatic promise which is not equivalent to a sale since the
parties have agreed to postpone the conclusion of the contract of sale and the
transfer of ownership (1396 C.C.Q.). Recently, in Amiska
Corporation Immobilière Inc. v. Alain Bellerive, [ R.J.Q. 1495
(C.A.)], Forget J. writes:
On this point
also, I am of the opinion that the trial judge did not err in concluding that
the promise of sale of December 16, 1994 did not constitute a sale.
It is true
that, under the old Act, there was some controversy over whether a
synallagmatic promise of sale was the equivalent to a sale. The case law
nonetheless resolved that such a promise could not be the equivalent to a sale
when the transfer of the property was delayed to the moment of the contract of
sale, which is the case here.
would be the same even if one were to apply, as the trial judge did, the new
law which was in effect at the time the promise of sale was signed. It would
also be necessary to conclude that there was no sale (1396 C.C.Q.) [id..
 Applying the same reasoning,
Dussault J. concluded that the effects of the sale were deferred to July 5,
1994. It was not until that date that the ownership of the shares changed hands
and the right of the appellant to be registered as shareholder was acquired
(reasons, para. 24).
 Dussault J. then turned to the issue
relating to the effect of subsection 256(9). After a lengthy analysis, he held
that the presumption established in subsection 256(9) does not have the effect
suggested by the appellant. In his view, the purpose of the presumption is to
ensure that the new taxation year triggered by a change in control is
retroactive to the commencement of the day in the course of which control is
acquired. Subsection 256(9) does not otherwise change the actual situation that
 The presumption only has a
retroactive effect as to the time when Société Nationale is deemed to have
acquired control of Les Clairvoyants, nothing more. It does not entail that the
person who held control simultaneously ceased to exercise it. It is similar to
the presumption in paragraph 69(1)(a) of the Act in that it is effective only
in regard to the purchaser.
 Dussault J. adds that there is no
prohibition on the contemporaneous coexistence of actual control (as exercised
by the appellant) and deemed control (as exercised by Société Nationale) of the
same corporation. In this regard, he draws on the decision of Jackett P. of the
Exchequer Court in Viking Food Products Ltd. v. M.N.R., 67 DTC 5067 (Viking
 Dussault J. concludes that,
notwithstanding subsection 256(9), the appellant still had control of Les
Clairvoyants at the moment of the disposition of the shares in the course of
the day of July 5, 1994, and accordingly it is not entitled to the loss that is
 In this Court, the parties
essentially reiterated the arguments they had made before the Tax Court of
 The Minister argues that the
acquisition of control occurred on July 5, 1994, but that the sale of the
shares occurred on June 30, 1994. In his opinion, the PSO constitutes a true
offer to contract within the meaning of article 1388 of the Civil Code of
Québec (C.C.Q.), which was accepted on June 16, 1994, when the appellant
irrevocably deposited all of its shares with the designated depositary. This acceptance
was conditional on the realization of certain events provided for in the PSO,
all of which were realized as of June 30, 1994. Therefore, Société Nationale
acquired ownership of the shares at that date.
 The period given to Société
Nationale under the PSO in which to take up the shares and pay the price
thereof constitutes a term under article 1508 C.C.Q., which in no way affects
the enforceability of the sale as of June 30.
 Since the acquisition of control
occurred only five days later, when Société Nationale was entered in the
register of shareholders of Les Clairvoyants (Duha Printers (Western) Ltd.
v. Canada,  1 S.C.R. 795, at pp. 815 and 817), subsection 256(9)
cannot have the effect read into it by the appellant.
 Assuming that the sale occurred on
July 5, the Minister submits that the trial judge rightly held that the
presumption in subsection 256(9) is not effective in regard to the appellant.
The clear language of the Act shows unequivocally that a public corporation cannot
benefit from a BIL. It would be extraordinary if a legislative intention so
clearly expressed could be defeated by a mere legal fiction.
 The appellant, for its part, argues
that the sale did indeed occur on July 5. It stresses the distinction between a
contract of sale (Art. 1708 C.C.Q.) and the bilateral or synallagmatic promise
to sell by which a party undertakes to sell a property and the contracting
party undertakes to purchase it:
Concerning, first, the bilateral promise, the new version of article 1396,
para. 2 of the Civil Code of Québec seems clear: it does not constitute a sale,
but a pre-contract by which the parties mutually undertake to execute the sale
at some later point.... In principle, the promise itself does not give rise to
any of the effects of the sale; for example, it does not transfer the ownership
of the property or confer on the promisor-purchaser any right in rem
that would warrant registration. (Pierre-Gabriel Jobin, La Vente, 2nd
ed., (Cowansville, Que.: Éditions Yvon Blais, 2001), at para. 44).
 To determine
whether an agreement is a contract of sale or a bilateral promise, it is
necessary to look for the common intention of the parties (Art. 1425 C.C.Q.)
taking into the account the nature of the contract, the circumstances in which
it was formed, the conduct of the parties and usage (Art. 1426 C.C.Q.).
 Referring to the
commercial usage relating to the PSO and its implementation, the appellant
argues that the parties by common intention deferred the effects of the sale to
July 5, 1994, that is, until Société Nationale took up the shares and paid the
 Since the
disposition of the shares and the change in control occurred in the course of
the same day, the appellant submits that the specific and unavoidable effect of
the legal fiction created by subsection 256(9) was to postpone to the first
moment of the day of July 5, 1994 the acquisition of control by Société
Nationale. Thus, the trial judge was wrong to find that Société Nationale did
not control Les Clairvoyants when the appellant disposed of the shares later in
the course of the same day.
Analysis and Decision
date of disposition
 Under section 54
of the Act, the expression “disposition of property” includes “any transaction
or event entitling a taxpayer to proceeds of disposition of property”. In the
case of a sale, the expression “proceeds of disposition” is defined in the same
section as “the sale price of property that has been sold”.
 As Dussault J.
says, this Court recently had an opportunity to rule on the scope of these
definitions in the case of a sale (Hewlett Packard, supra). The
principle that was upheld is that there can be no disposition unless there is a
sale according to the governing private law, in this case according to the
C.C.Q. (Hewlett Packard, supra, at paras. 45 to 51).
 Applying this
principle, I am of the opinion, like Dussault J., that the disposition of the
shares of Les Clairvoyants occurred on July 5, 1994. That is the date on which
the parties agreed that the ownership of the shares would be transferred, and
 The Agreement of May 3, 1994 is a promise of sale
within the meaning of the Civil Code of Québec. A promise of sale is a
contract, in that it creates mutual obligations, but it is not tantamount to a
sale (Pierre-Gabriel Jobin, La Vente, 2nd ed. (Cowansville,
Que.: Éditions Yvon Blais, 2001), at para. 44, cited by the Superior Court in Fonds de placement immobilier Cominar (fiduciaire de) v.
Constructions Myo inc., 
J.Q. No. 2129, at paras. 42 and 47. See also, Jacques Deslauriers, Le droit commun de la vente, Collections de droit
2003-2005, volume 5, “Obligations et contrats”, at p. 161, cited by the
Superior Court in Larabie v. 3917592 Canada inc.,  J.Q. No. 11574,
at para. 152.)
 Under the
Agreement, Société Nationale offered to purchase and the appellant agreed to
sell the shares of Les Clairvoyants that it held [Translation] “in the context of a [PSO] in accordance with
the governing laws of Quebec and involving all of the common shares issued and
outstanding of the Company” (Appeal Book, tab 6B, clause 1 of the Agreement).
The fact that the sale was made in the context of a PSO subject to the SA is
one of the circumstances that must be considered in analyzing the intention of
 The SA provides
that a person contemplating to make a purchase of an interest of 20% or more of
a class of voting securities in a corporation shall proceed by way of a PSO
(SA, section 110). The PSO issued on June 8, 1994 under the Agreement targeted
all of the outstanding shares of Les Clairvoyants. It was therefore subject to
the provisions of the SA, including those concerning the duration of the offer,
the mode of acceptance, the right of withdrawal, the time when Société
Nationale could and should take up the shares that were deposited and pay the
price thereof, etc. (SA, sections 147.3 and 147.5 to 147.7). The appellant
eventually accepted the PSO in accordance with the terms and conditions therein
provided, by making an irrevocable deposit with the depositary, on June 16,
1994, of the shares that it held.
 Such deposit
agreements (“lock-up agreements”) are common practice when the targeted
corporation is held by one or more large shareholders:
Where a large block (10% or more) of the
outstanding shares of a targeted corporation is held by a large shareholder,
the potential offeror seeking to ensure the success of the public offer or
other type of change of control transaction he proposes will require that the
large shareholder undertake as follows:
(a) In the
context of a public offer, to deposit irrevocably the shares he holds in the
targeted company unless the board of directors withdraws, in accordance with
the terms of the support agreement, its support to the transaction proposed by
this initiator; ...
(Francis R. Legault, “Offres publique
d’achat et d’échange (fusions et acquisitions)”, in Développements récents
sur les valeurs mobilières, Formation permanente du Barreau du Québec, vol.
164 (Cowansville: Éditions Yvon Blais, 2002), pp. 113 to 137. See also, J.G.
MacIntosh and C.C. Nicholls, Securities Law, (Toronto: Irwin Law, 2002),
 The SA provides
that if the terms of the bid are met, the offeror is bound to take up and pay
for the securities within the time prescribed. In accordance with the SA, the
PSO provided that Société Nationale would take up and pay for all the shares
deposited, and not withdrawn, after June 30, 1994, but no later than July 11, 1994.
Any share deposited in acceptance of the offer could be withdrawn before 5:00
p.m. on June 30, 1994 and at any time after July 25, 1994, should Société
Nationale not have taken up the shares or paid for them (Appeal Book, tab 6D,
clause 5 of the PSO).
 The expression
“take up and pay for” (“prendre livraison et régler”) has a specific meaning in
the field of PSO takeovers:
“Taking up” is the process whereby the offeror accepts the
securities tendered pursuant to the TOB [Takeover Bid] (David Johnston and
Kathleen Doyle Rockwell, Canadian Securities Regulation, 2nd ed.
(Toronto: Butterworths, 1998), at p. 160).
 In my view, all
of the steps provided in the Agreement, including those from the opening of the
PSO to the taking up and payment for the shares, had to be taken before there
was a transfer of ownership. It would clearly be contrary to the purpose of the
legislation governing PSOs, and contrary to the intention of the parties, if
the offeror was to be entitled to the fruits and income from the shares before
he paid the price thereof.
 This finding is
consistent with the summary of tax effects sent to the shareholders in
connection with the PSO (see para. 24, above). It is also consistent with what
the appellant represented as the generally accepted opinion in such matters,
without being challenged in any way by the Minister:
The date on which the acquirer “takes up and pays for”
deposited target shares is generally regarded as the date on which the vendor
disposes of his target shares (J. George Vesely and Robert A. Roberts,
“Takeover Bids: Selected Tax, Corporate, and Securities Law Considerations”, Report
of Proceedings of the Forty-Third Tax Conference, 1991 Conference Report
(Toronto: Canadian Tax Foundation, 1992), 11:1‑47, n. 42. See also, Dr. Arthur W. Nauss, et al. v. MNR, 78 DTC 1796.
 Considering that
the transaction pertains to the specific field of the sale of securities, and
considering the particular terms of this PSO, it is clear that the parties
agreed that the transfer of ownership should coincide with the taking of
possession of the shares in return for payment. Dussault J. concluded, rightly
in my view, that the sale of the shares occurred on July 5, 1994, and not
The effect of the subsection 256(9) fiction
 In The Queen
v. Verrette,  2 S.C.R. 838, at p. 845, Beetz J. explained as follows
the meaning of a deeming provision:
A deeming provision is a statutory fiction;
as a rule it implicitly admits that a thing is not what it is deemed to be but
decrees that for some particular purpose it shall be taken as if it were that
thing although it is not....
 More recently,
this Court, in Canada v. Loreto Scarola, 2003 FCA 157, quoted the
following passage from a French doctrinal work that clearly illustrates how a
statutory fiction is used (para. 19):
Fiction is a process that is part of the
pragmatics of law. It consists first in misrepresenting the facts, stating them
to be other than what they really are and extracting from that very adulteration
and that false supposition the legal consequences that would flow from the
dissembled truth, if that truth existed beyond the cloak of external
appearances. (Yan Thomas, “Fictio Legis. L’empire
de la fiction romaine et ses limites médiévales”, (1995) 21-22 Droits -
Revue française de théorie juridique)
 Insofar as
subsection 256(9) effectively alters reality, its meaning should be limited to
what is clearly expressed. A deeming provision cannot otherwise modify the actual
situation that obtains. Before considering the meaning of subsection 256(9), it
is necessary to investigate its rationale.
256(9) is one of several provisions (including subsections 111(4) and (5) and
249(4) of the Act) the purpose of which is to limit the inappropriate
distribution of losses that might result from takeovers of companies with
accumulated losses by well-endowed companies that are able to absorb those
losses (“stop loss rules”). In order to clearly delineate losses incurred prior
to a takeover, subsection 249(4) provides that the taxation year of the
targeted corporation is deemed to have ended immediately before the precise
moment in a given day when the takeover occurred.
 It is this
initial fiction that is altered by the fiction created by subsection 256(9).
Indeed, the essence of Mr. Justice Dussault’s reasoning in limiting the scope
of subsection 256(9) is based on what he perceives to be the limited purpose of
 The aim of subsection 256(9) is
to establish the acquisition of control of a corporation during a given day at
a moment which is the commencement of that day rather than at the actual moment
at which control is acquired (subject to the exercise of an option to the
contrary) such that the taxation year of that corporation ending immediately
prior to the acquisition of control may end at the close of the day preceding
the day in the course of which control is actually acquired, rather than a
given moment during the course of the day during which control is acquired, in
other words, at the moment during that day which immediately precedes the
actual moment at which control is acquired. For the corporation, this means
that a new taxation year then also begins at the commencement of the day in the
course of which control is acquired. This rule avoids a situation where one
taxation year ends and another begins in the middle of a day, with all the
complications that that might entail, specifically with respect to the
calculations required by the Act under such circumstances.
Dussault J. concludes, at
paragraphs 34 and 36:
 In my view,
subsection 256(9) does not otherwise change the actual situation that must
prevail. This subsection does not include a corollary for the other party to
the transaction, ...
 ... In the instant case,
Société Nationale acquired control of Les Clairvoyants during the day of
July 5, 1994. Subsection 256(9) establishes that such control is
deemed to have been acquired at the commencement of that day of July 5, 1994,
nothing more. It does not establish that the person who held legal or effective
control of Les Clairvoyants, namely La Survivance, simultaneously
ceased to possess such control. ...
 According to the
trial judge, while the corporation that acquires control is deemed to acquire
it at the commencement of the day when this takeover occurred, the corporation
that abandons control is not affected by the fiction and maintains its control
until the sale of the relevant controlling shares.
 It is clear that
Parliament, in creating the subsection 256(9) fiction, intended to ease the
difficulties in calculation engendered by taxation years that end through the
effect of subsection 249(4), at the precise moment at which an acquisition of
control occurs. However, before inferring from this that subsection 256(9) has
no effect on the appellant, it is necessary to take a closer look at its
256(9) carries back in time the triggering event of a taxation year (i.e. the
acquisition of control), “for the purposes of this Act”. This expression is
used throughout the Act. It appears more than 160 times. It is a formula that
is consistently used for the same purpose, that is, to identity a rule of
general application subject to any express provision to the contrary.
256(9) is consistent with this scheme. The rule enunciated therein purports to
be of general application but some express provisions serve to counteract it.
For example, paragraph 88(1)(c.6) provides that, for the purpose of paragraph
88(1)(c.3) “and notwithstanding subsection 256(9)”, the control of a
corporation, in the circumstances provided, is deemed to have been acquired at
the end of the day. Similarly, subsection 6204(4) of the Income Tax
Regulations, C.R.C. c. 945, provides that “For the purposes of subsection
(3), the Act shall be read without reference to subsection 256(9) of the Act.”
 It is not
necessary to say more about the effects of these exceptions. I mention them for
the sole purpose of demonstrating that subsection 256(9) states a rule of
general application as to the time at which control is acquired, and this rule
applies for the purposes of the Act unless it is expressly overridden. I have
found no provision that would shield the appellant from the application of this
 With respect, I
am of the opinion that subsection 256(9) applies to both the corporation
acquiring control and the corporation disposing of control.
 As persuasive
evidence of this, suffice it to note that, under this subsection, the initial
tax return of Les Clairvoyants under the control of Société Nationale must
cover the period commencing at the very beginning of the day of July 5, 1994,
just as the final return filed under the appellant’s control must cover the
period ending at that very moment (see, respectively, paragraphs 249(4)(a) and
(b)). None of the corporations involved in the acquisition of control avoids
being covered by the fiction.
256(9), notwithstanding its special features, must be construed in its entire
context, in accordance with the grammatical and ordinary sense of its words,
harmoniously with the scheme of the Act, the object of the Act, and the
intention of Parliament (see, for example, Ludco Enterprises Ltd. v. Her
Majesty the Queen,  2 S.C.R. 1082, at paras. 36-37).
 If this approach
is faithfully adhered to, it must be concluded that, for the purposes of the
Act, and subject to the exceptions provided, Société Nationale is deemed to have
acquired control of Les Clairvoyants and the appellant is deemed to have
surrendered it at the first moment of the day of July 5, 1994. That is what
flows from the ordinary sense of the words, read in their context, and from the
 The two
situations on which Dussault J. relied in limiting the effect of the
presumption to the purchaser are quite different. In regard to the first,
Dussault J. rightly noted that the presumption in paragraph 69(1)(a) of the Act
applies when determining the tax consequences for one of the parties to a
transaction (the purchaser), without altering the tax liability of the other
(the vendor). However, this asymmetry results from the clear language of
paragraph 69(1)(a), which reduces the sale price of the purchaser by deeming it
equal to the fair market value of the property sold, and clearly intentionally,
lets the vendor suffer the tax consequences resulting from the higher amount
actually received (see, for example, Colubriale v. The Queen, 2005 FCA 329,
at para. 28).
 As to the
decision of the Exchequer Court in Viking Food, supra, Dussault
J. notes, first, that the context of this case is different. However, he refers
to it in order to demonstrate that the coexistence of control (deemed and effective)
of the same corporation is not precluded. Once again, this decision is
explained by the particular provision that was at issue.
 In that case,
the Court had to interpret an anti-avoidance provision, one of the purposes of
which was to prevent the by-passing of certain restrictions on corporations
subject to the same control (the so-called “associated” corporations). To
extend the scope of these rules, the former paragraph 139(5d)(b) (now paragraph
251(5)(b)) provided that a person who had a right to acquire shares in a
corporation was deemed to have had “the same position in relation to the
control of the corporation as if he owned the shares”.
 In the Exchequer
Court, Viking Food cited this fiction to argue that it was no longer under the control
of the owners of its shares, but was under the control of their grandchildren,
to whom they had granted the right to acquire their shares. It is worth
explaining that, in contrast to the grandparents, the grandchildren did not
control any other company, so the argument, if adopted, would “dissociate”
Viking Food from the other companies controlled by the grandparents. The issue
was therefore whether the deemed control based on the presumption effectively
ousted the control exercised by the grandparents.
Jackett ruled that it did not. The fact that an individual is deemed to occupy
the same position in relation to the control of a corporation as if he owned
the shares did not give rise to the additional presumption that the owner of the
shares ceased to be the owner and to exercise the control based on that
ownership. In expanding the notion of control, Parliament clearly did not
intend to limit it by excluding the control exercised by the owner of the
shares (Viking Food, supra, at p. 5072 in fine).
 After the
judgment was rendered, counsel for Viking Food notified the Court that
according to this reasoning, neither the owners of the shares nor their
grandchildren controlled Viking Food, since both groups of individuals, by the
effect of the Act, held an equal position in regard to it. Counsel asked that
the judgment be corrected accordingly.
 In an addendum
to the judgment (Viking Food, supra, at p. 5072), Jackett P.
stated that counsel had misunderstood the provision at issue. Inasmuch as the
holders of the right to acquire the shares were in the same position as those
who were the owners of the shares in regard to the right to exercise the
control (i.e. as to de jure control), the Court had to determine which
of these two groups exercised this control de facto. In this instance,
the control was exercised by the owners of the shares and not by their
 The issue in the
case at bar is quite different. It is limited to determining whether the rule
laid down by subsection 256(9) is of general application or whether the party
who surrenders control falls outside its purview. The answer is in my opinion
inescapable. Control cannot be acquired without there being concomitantly an
abandonment of control.
 That in fact was
how the Minister read subsection 256(9) in a technical opinion issued in regard
to a transaction similar to this one (Minister of National Revenue, Technical
Interpretation 9525315, “Associated Corporations” (February 26, 1996), (eC:
Taxnetpro)). It is not necessary to quote, in detail, the request [which led to
the issuance] of the opinion. Suffice it to say for our purposes that the
company that made the request (A Inc.) intended to surrender control of its
subsidiary (Opco) to a third-party purchaser (B Inc.). It wanted to know
whether subsection 256(9) would apply to it. It feared that, if it did not, it
would continue to be associated with its subsidiary during the few hours
between the commencement of the day of the transaction and the particular time
when the transaction was to be consummated, with the negative consequences that
this would entail. (Under the Act, a corporation is associated to another for
the year if it is associated “at any time” during the year.)
 The Minister, in
an unambiguous answer, said that, in his opinion, the presumption applied in
regard to each of the parties to the transaction:
... the Department’s position is to consider that although the shares were in
fact disposed of as of 5:00 p.m. on July 1, A Inc. surrendered its control
of Opco immediately prior to the time when B Inc. is deemed to have acquired
control of Opco....
 At the end of
the day, the only reason why the Minister refuses to give effect to the fiction
in the present case is that he does not like the result to which it leads.
Dussault J. echoes this concern when he concludes (reasons, para. 40):
... [it would be] incongruous [if the
appellant] would be able to claim a BIL following the disposition of shares in
a corporation deemed to be a CCPC and COSB for the reason that Société
Nationale, which acquired control, was a private corporation, whereas it could
neither hold nor dispose of such shares since it was itself, at all relevant
times, a corporation deemed to be a public corporation which was controlling
 The result seems incongruous only if
we choose to ignore the fiction. It is not if we treat the fiction as truth. If
that is done, it is not the appellant but Société Nationale that controlled Les
Clairvoyants at the time when the appellant disposed of its shares, and there
is nothing incongruous in Les Clairvoyants being thereby treated as a CCPC and
a COSB since such was its status under the Act.
 There would be a risk of creating
intolerable uncertainty if the courts could override a deeming provision of
general application solely because the result it produces in a particular case
seemed undesirable to them. Parliament is well aware of the effect of the
presumptions it enacts, and it is up to Parliament to set limits on their
scope. In this case, it has made subsection 256(9) a rule of general
application and it is the role of the courts to enforce it.
 For these reasons, I would allow the
appeal, set aside the judgment of the Tax Court of Canada and refer the
assessment to the Minister for him to issue a new one on the basis that the
appellant was entitled to the deduction of the loss carried forward for its
1998 taxation year as claimed, with costs in this Court and in the Tax Court of
Robert Décary J.A.”
J.D.Denis Pelletier J.A.”
Certified true translation
François Brunet, LL.B., B.C.L.