British Columbia Forest Products Ltd. v. The Queen, 84 DTC 6391, [1984] CTC 409 (FCTD), rev'd 85 DTC 5577, [1986] 1 CTC 1 (FCA)

Collier, J:—This is an appeal by the plaintiff against an income tax assessment for its 1975 taxation year.

The plaintiff, in 1975, purchased certain fixed assets. They constituted “qualified property” within subsection 127(10) of the Income Tax Act (SC 1970-71-72 c 63 as amended to and including 1975). They gave rise to an investment tax credit of $179,807 (see subsection 127(9)). That credit was deducted by the plaintiff from its tax otherwise payable for 1975 (see subsection 127(5)).

The issue is whether the amount of the tax credit should be brought into the calculation of the capital cost of the property, for the purpose of the amount of capital cost allowance claimable.

The plaintiff, in its tax return, did not take the investment tax credit into account. The Minister of National Revenue did.

The relevant section of the Income Tax Act is subsection 13(7.1), as it read in 1975:

(7.1) For the purposes of this Act, where a taxpayer has received or is entitled to receive assistance from a government, municipality or other public authority in respect of, or for the acquisition of, depreciable property, whether as a grant, subsidy, forgive- able loan, deduction from tax, investment allowance or as any other form of assistance other than

(a) an amount authorized to be paid under an Appropriation Act and on terms and conditions approved by the Treasury Board in respect of scientific research expenditures incurred for the purpose of advancing or sustaining the technological capability of Canadian manufacturing or other industry, or

(b) an amount deducted as an allowance under section 65,

the capital cost of the property to the taxpayer shall be deemed to be the amount by which the aggregate of

(c) the capital cost thereof to the taxpayer, otherwise determined, and

(d) such part, if any, of the assistance as has been repaid by the taxpayer pursuant to an obligation to repay all or any part of that assistance,

exceeds

(e) the amount of the assistance.

The plaintiff, in paragraph 10 of its statement of claim, puts its position this Way:

10. The Plaintiff submits that a deduction taken pursuant to subsection 127(5) of the Act is not the receipt of assistance requiring the reduction of capital cost of depreciable assets pursuant to subsection 13(7.1) of the Act as it read for the 1975 taxation year.

The defendant, in paragraphs 6 and 7 of the amended defence, sets out the position of Revenue:

6. He submits that the Plaintiff was properly assessed in accordance with the terms of the Income Tax Act which provide that assistance from a government in respect of or for the acquisition of depreciable property shall be deducted from the capital cost of the property.

7. He further submits that the Investment Tax Credit is assistance from a government in the form of a deduction from tax pursuant to Section 13(7.1), and therefore capital cost allowance of the depreciable property must be reduced by the amount of the investment tax credit in the year.

The same point, among others, came before my colleague, Cattanach, J, in AEL Microtel Limited v The Queen, ([1984] CTC 387; 84 DTC 6374). The issue before him was stated as follows (pp 391 [6377]):

(2) Whether subsection 13(7.1) of the Income Tax Act requires investment tax credits related to capital goods to be deducted in calculating the capital cost of assets acquired in each of the years 1975, 1976 and 1977 and, if so:

Cattanach, J held in favour of the taxpayer. He said at 406 [6389]:

. . . I have concluded that the taxpayer does not fall within the ambit of subsection 13(7.1) with respect to investment tax credits as the subsection then read.

Substantially the same submissions, put to me by the protagonists in this case, were put to Cattanach, J in the case before him. I agree with my colleague in his conclusion. I gratefully adopt the following portions of his reasons at 403 [6387] to 406 [6389] (with some omissions):

Subsection 13(7.1) as applicable to the 1975, 1976 and 1977 taxation years, which are the years for which the assessments are under appeal, I again reproduce at this point for the purpose of convenience:

13.(7.1) For the purposes of the Act, where a taxpayer has received or is entitled to receive assistance from a government, municipality or other public authority in respect of, or for the acquisition of, depreciable property, whether as a grant, subsidy, forgiveable loan, deduction from tax, investment allowance or as any other form of assistance other than

(a) an amount authorized to be paid under an Appropriation Act and on terms and conditions approved by the Treasury Board in respect of scientific research expenditures incurred for the purpose of advancing or sustaining the technological capability of Canadian manufacturing or other industry, or

(b) an amount deducted as an allowance under section 65,

the capital cost of the property to the taxpayer shall be deemed to be the amount by which the aggregate of

(c) the capital cost thereof to the taxpayer, otherwise determined, and

(d) such part, if any, of the assistance as has been repaid by the taxpayer pursuant to an obligation to repay all or any part of that assistance,

exceeds

(e) the amount of the assistance.

Cattanach, J then went on, at 403 [6387], to set out amendments to subsection 13(7.1) as enacted by SC 1977-1978, c 4, s 2. The amendments were not applicable to the 1975 taxation year, or to 1976 or 1977. He set them out, at that stage of his reasons, because it appeared the Minister, in a confirmation of his reassessment, had (at 403 [6387]):

. . . paraphrased subsection 13(7.1) with the omission of irrelevant passages as it was amended by section 2, Chap 4, SC 1977-78 applicable to the 1979 taxation year and following years.

Cattanach, J continued at 404 [6388]:

Despite the minister’s corruption of the applicable language of subsection 13(7.1) it is expedient to consider the contention on behalf of the appellant that the subsection as it was applicable does not require investment tax credits to be deducted in calculating the capital cost of the assets acquired and those of counsel for Her Majesty to the contrary.

In GTE Sylvania Canada Limited v The Queen (1974 FC 726) I had for consideration paragraph 20(6)(h) of the Income Tax Act then in force, which paragraph was the forerunner of subsection 13(7.1) applicable to the taxation years here under review.

That paragraph was to the effect that where a taxpayer has received or is entitled to receive from a government, municipality or other public authority in respect of or for the acquisition of property ‘‘a grant, subsidy or other assistance” for the purpose of advancing Canadian industry the capital cost of the property shall be deemed to be the cost to the taxpayer less the amount of the grant, subsidy or other assistance.

It was held that a tax concession ensuing to the plaintiff company, which allowed a deduction for amounts invested in new capital and deducted the capital cost in full in computing the capital cost, was not ‘‘a grant, subsidy or other assistance” within the meaning of those words included in full in calculating the capital cost of the equipment.

This was predicated upon the ejusdem generis rule of construction whereby the specific words “grant” and “subsidy” do not introduce changes of a different character in the general words, “or other assistance”.

What seems to be overlooked is that there was another ground upon which the decision was based.

What the province did was to forebear exacting from companies which met prescribed conditions a greater tax under provincial legislation than it might other have done. That differed from a grant, subsidy and was not “other assistance” within the meaning of those words in paragraph 20(6)(h). What was meant by those words was active payment rather than passive forebearance in exacting the maximum tax otherwise exigible.

The possibility of entrapment by the ejusdem generis rule was later overcome in the amendment effected in subsection 13(7.1). In addition to the words, “grant” and “subsidy” the following “forgiveable loan, deduction from tax, investment allowance” were introduced after “grant, subsidy” and before general words reading “or as any form of assistance”.

The decision of the Trial Division was appealed. In The Queen v GTE Sylvania Canada Limited ([1974] 2 FC 212) Jackett, CJ delivered a terse judgment from the Bench, in a footnote reserving the accuracy of the ground for allowing the appeal from the assessment on the application of the ejusdem generis rule but dismissed the appeal on the ground that the taxpayer, by taking advantage of a provision which permitted it to pay less tax, had not “received” anything within the meaning of paragraph 20(6)(h).

Jackett, CJ said:

In so far as the reduction in tax is concerned the respondent literally received nothing.

It is clear that the Chief Justice considered it inappropriate to extend the meaning of the word “received” to include the advantage provided in the provincial legislation:

He continued to say:

If a meaning were given to the expression “received . . . other assistance” broad enough to include such a reduction in tax, the ambit of the rule in section 20(6)(h) would be such as to include a reduction effected by various allowances in the Income Tax Act itself that could not, in my view, be taken or have been intended without more explicit language.

The words used in subsection 127(5) and other subsections of section 127 are “investment tax credit”.

It is a rule of construction that, where in the same Act, and in relation to the same subject matter, different words are used such choice of different words must be considered intentional and indicative of a change in meaning or a different meaning.

The only words in subsection 13(7.1) which might approximate the meaning of “investment tax credit” are “investment allowance”, which is clearly different, and “deduction from tax” which is also different in connotation and is susceptible of many meanings when contrasted with a “tax credit” which are not synonymous with that expression. An investment tax credit is an incentive and as such would be a forebear- ance to exact an amount of tax otherwise exigible or put another way, a forgiveness. In subsequent legislation a tax credit is susceptible of being a rebate or a refund but not in the legislation as was applicable in the taxation years here under review.

The kind of assistance provided under the legislation under review in The Queen v GTE Sylvania Canada Limited (supra) was not a “deduction from tax” but rather an exemption permitted in computing taxable revenue which resulted in a lesser tax being exigible.

If the kind of assistance contemplated by an “investment tax credit” is covered by the amended provision (ie, 13(7.1) as applicable to the taxation year here under review) then it must be regarded as falling under the words “any form of assistance”. If that be the case it follows that the interpretation of the word “received” would be that found by Jackett, CJ in the GTE Sylvania case (supra) that nothing tangible moved to the taxpayer.

More telling, in my view, are the remarks of the Chief Justice quoted above that if a meaning were given to the expression “received . . . other assistance” broad enough to include such a reduction in tax the ambit of the rule would also be such as to include a reduction effected by various allowances in the Income Tax Act itself that could not have been intended “without more explicit language”. An investment tax credit is such an allowance.

No such more explicit language as stated by Jackett, CJ to be necessary has been introduced into the subsection 13(7.1) as applicable to the appellant’s 1975, 1976 and 1977 taxation years.

As I understand the principle of fiscal legislation it is this: if a person sought to be taxed comes within the letter of the law he must be taxed. On the other hand, if the Crown seeking to recover the tax cannot bring the taxpayer within the letter of the law, the taxpayer is free, however, apparently within the spirit of the law the case might otherwise appear to be.

For the reasons I have expressed I have concluded that the taxpayer does not fall within the ambit of subsection 13(7.1) with respect to investment tax credit as the subsection then read.

I am quite prepared to rest my decision in this case solely on the reasons quoted. The essence of my colleague’s decision is that when the words of subsection 13(7.1) are read in their context, and with the scheme of the statute in mind, those words, in their ordinary meaning, do not cast “investment tax credits” into the “assistance” which must be deducted.

Cattanach, J went on to find confirmation in his conclusion by considering the 1978 amendments made to subsection 13(7.1). He had highlighted the differences at 403 [6387], as follows:

Subsection 13(7.1) as it so read was amended by section 2, Chap. 4 SC 1977-78 in this manner:

2.(1) All of that portion of subsection 13(7.1) of the said Act preceding paragraph (a) thereof is repealed and the following substituted therefor:

“(7.1) For the purposes of this Act, where a taxpayer has deducted an amount under subsection 127(5) in respect of depreciable property or has received or is entitled to receive assistance from a government, municipality or other public authority in respect of, of for the acquisition of, depreciable property, whether as a grant, subsidy, forgiveable loan, deduction from tax, investment allowance or as any other form of assistance other than’’.

In subsection 13(7.1) as it read applicable to the taxable years in question the language preceding paragraph (a) does not include the words:

where a taxpayer has deducted an amount under subsection 127(5) in respect of depreciable property or

Neither is there a paragraph (e) reading:

(e) All amounts deducted under subsection 127(5) in respect of that property and

Cattanach, J continued at 406 [6389]:

I am confirmed in that conclusion by the amendments effected to subsection 13(7.1) as it read before by applying the reasons for the amendments by an invocation of the rule in Hey don* s case ([1584] 3 Co Rep 7a) to the amending legislation and to repeat what Lindley MR said in Re Mayfair Property ([1898] 2 Ch. 28) at 35:

In order to properly interpret any statute it is as necessary now as it was when Lord Coke reported Heydon’s case to consider how the law stood when the statute to be construed was passed, what the mischief was for which the old law did not provide, and the remedy provided by the statute to cure that mischief.

Subsection 13(7.1) made no specific provision for deducting the amount of an investment tax credit from the capital cost of goods acquired in calculating capital cost allowance.

As stated by Jackett, CJ in the GTE Sylvania case the ambit of a section of the Income Tax Act to be broad enough to include a reduction effected by an allowance in the Income Tax Act itself must be with sufficiently explicit language to accomplish that purpose.

The mischief sought to be cured by the legislative branch of government by an appropriate amendment to subsection 13(7.1) was to provide that investment tax credits under subsection 127(5) shall be deducted in computing the capital cost of depreciable property which, without the amendment must have been otherwise.

The remedy provided by the amendment to subsection 13(7.1) was to enact, in explicit language, that investment tax credits received by a taxpayer are to be so deducted from capital cost to the taxpayer.

Obviously since no such provision was in the prior legislation the intention of Parliament was not that such investment tax credits should reduce the capital cost of depreciable property to the taxpayer.

The amendment demonstrates a different intention clearly expressed but applicable only to the 1978 and subsequent taxation years.

By reducing the size of the mesh in the taxation net by explicit language the tax incentive credit which is a reduction effected by the Income Tax Act itself is now ensnared by the amendment to subsection 13(7.1) to so ensure.

I do not find it necessary to rely on the above portion of the decision in the AEL Microtel case. At the same time, I think it to be, in the particular circum- stances, a desirable application of the rule in Heydon’s case. In that sense, there is no transgression of subsections 37(2) or (3) of the Interpretation Act (RSC 1970 c I-23).

The appeal, in this case, therefore, succeeds.

The reassessment, dated August 7, 1979 is referred back to the Minister, for further reassessment, with the direction that the investment tax credit of $179,807 is not to be deducted from the plaintiffs undepreciated capital cost of qualified property in 1975.

The plaintiff is entitled to its costs of this action.