Citation: 2011 TCC 47
HER MAJESTY THE QUEEN,
REASONS FOR JUDGMENT
This appeal is from a
reassessment made under the Income Tax Act (ITA) for the appellant's
2005 taxation year.
The appellant collected
insects for several years. In 2005, the appellant donated part of that
collection to the faculty of forestry, geography and geomatics of Université
The respondent does not
deny that the appellant made a charitable donation valued at $25,419.75. The
respondent's position is that the appellant had disposed of “personal-use
property” (PUP) as defined in the ITA and thus realized a capital gain of
$24,419. For the purposes of calculating that gain, the Minister of National
Revenue (the Minister) determined that the adjusted cost base of the donated
property was $1,000.
The appellant testified
that she and her spouse were amateur entomologists. They collected specimens
all over the world. For the last several years, the appellant has been
regularly donating scientific material in the form of collections of dead
insects to various non‑profit organizations such as the Montréal
Insectarium and the faculty of forestry, geography and geomatics of Université
Laval. The donated insects are used for research or to renew university or
Gagnon, the Canada Revenue Agency (CRA) auditor who had prepared the
assessment, testified that he had concluded that the insect collection was PUP
because collecting insects was a leisure activity that gave the appellant a lot
of pleasure. However, in cross-examination, Mr. Gagnon admitted that he
did not know what the appellant used her insect collection for. For her part,
the appellant testified that she kept the insects in closed boxes in her
spouse's storage shed until she donated them to a charity. Questioned by the
Court, the appellant described the insects that she had donated as follows:
Q. But could you have used those insects to make a display
for yourself or at exhibitions or such things? Because insects are
interchangeable property, I would imagine we don't know. . . If we don’t
identify them: this is the mother, this is the father and this is the cousin –
they all look pretty much the same.
A. Absolutely. Well, the insects that we donate are not very
nice-looking insects; they are not insects that would be useful for if, say,
someone wanted to sell them or make ornaments out of them or something. They
are . . . a budworm is not very aesthetically pleasing. And we have donated
large quantities of budworms to Université Laval.
So these insects are not for admiring, one could say. They could
possibly be made into collections to be donated to, oh I don't know, schools to
teach them what are the different varieties of insects but they are not
necessarily nice-looking insects. Some of them are exotic because they may
come from abroad.
For example, in the case of some pest beetles from Asia, I think
that Université Laval did a study at one point, so either my husband or I (I
can't remember) donated some of those beetles to them. But those beetles are
not necessarily pretty to look at. They are beautiful to an entomologist who is
passionate about this, but even us, we don't have any insects displayed in the
house. Because we are always there, because I have no need to see any on my
walls, because. . .
Position of the parties
position is that the insects are not PUP and that she derived no enjoyment from
them. She enjoys the activity of collecting them, but does not make use of the
insects, which she keeps in boxes.
The CRA's position is
that the insects are PUP and that donating them creates a capital gain under
subsection 46(1) and section 54 of the ITA.
The relevant sections
of the ITA read as follows:
46. (1) Where a taxpayer has disposed of a personal-use property
(other than an excluded property disposed of in circumstances to which
subsection 110.1(1), or the definition “total charitable gifts”, “total
cultural gifts” or “total ecological gifts” in subsection 118.1(1), applies) of
the taxpayer, for the purposes of this subdivision
(a) the adjusted cost base to the taxpayer of the property
immediately before the disposition shall be deemed to be the greater of $1,000
and the amount otherwise determined to be its adjusted cost base to the
taxpayer at that time; and
(b) the taxpayer’s proceeds of disposition of the property
shall be deemed to be the greater of $1,000 and the taxpayer’s proceeds of
disposition of the property otherwise determined.
. . .
54. In this subdivision,
. . .
“personal-use property” of a taxpayer includes
(a) property owned by the taxpayer that is used primarily for
the personal use or enjoyment of the taxpayer or for the personal use or
enjoyment of one or more individuals each of whom is
(i) the taxpayer,
(ii) a person related to the taxpayer, or
(iii) where the taxpayer is a trust, a beneficiary under the trust
or any person related to the beneficiary,
(b) any debt owing to the taxpayer in respect of the
disposition of property that was the taxpayer’s personal-use property, and
(c) any property of the taxpayer that is an option to acquire
property that would, if the taxpayer acquired it, be personal-use property of
and “personal-use property” of a partnership includes any partnership
property that is used primarily for the personal use or enjoyment of any member
of the partnership or for the personal use or enjoyment of one or more
individuals each of whom is a member of the partnership or a person related to
such a member;.
. . .
248(1) In this Act,
. . .
“property” means property of any kind whatever whether real or
personal or corporeal or incorporeal and, without restricting the generality of
the foregoing, includes
(a) a right of any kind whatever, a share or a chose in
(b) unless a contrary intention is evident, money,
(c) a timber resource property, and
(d) the work in progress of a business that is a profession;.
“personal-use property” has the meaning assigned by section 54;.
The respondent stated
that the Court must follow the decision of Associate Chief Justice Bowman, as
he then was, in Klotz v. The Queen.
That case deals with the appeal of a taxpayer who bought prints to donate to
various universities. The appellant testified that the prints were PUP and
admitted that his goal was to take advantage of paragraph 46(1)(a)
of the ITA. That provision states that the adjusted cost base of a PUP is equal
to the greater of $1,000 or the property's actual cost. The appellant had paid
less than $1,000 for each print, which explains his interest in taking
advantage of the deemed adjusted cost base of $1,000 provided for in paragraph
46(1)(a) of the ITA.
According to the
appellant in Klotz, PUP includes all property except any property used
or held for an income-earning purpose, whether it be from property, business or
employment (income property). In the absence of evidence that the prints were
being held by the appellant in order to earn income, the appellant invited the
Court to find that the prints were PUP.
The respondent claimed
that there were three categories of property, namely, property used or held
primarily for the personal use and enjoyment of the taxpayer, income property
and all other property. According to the respondent in Klotz, only the
property in the first category is PUP. In Klotz, Associate Chief Justice
Bowman stated that the term PUP is not exhaustively defined in the ITA.
According to him, the definition of PUP suggests a broadened meaning because of
the use of the word "includes". In addition, according to him, PUP is
based entirely on what is personal and what is related to a business or
commercial activity. Accordingly, any property should be PUP unless the
evidence shows that it is income property.
At the 2005 convention
of the Association de planification fiscale et financière, CRA was asked
whether it had reviewed its position on the meaning of PUP in light of Klotz. The CRA was
still of the opinion that the way the property is used should be examined
before making a determination. The document indicates that the CRA’s position
remained unchanged, but that it was waiting for the Federal Court of Appeal
decision in Canada v. Nash.
Since the Federal Court of Appeal did not discuss the definition of PUP, we can
assume that the CRA’s position has not changed.
I am of the opinion
that there are several words that are significant to determining the scope of
the definition of PUP. The first word of interest is "includes". As
the Associate Chief Justice Bowman said in Klotz, this word is not
exhaustive. It is true that in some cases it makes it possible to broaden the
definition. However, as stated by Justice Lamarre in Fortino v. Canada, a legislative
provision should be given a strict or liberal interpretation depending on the
purpose underlying it, and that purpose must be identified in light of the
context of the statute, its objective and the legislative intent. Based on the
principles established by the Supreme Court of Canada in Québec (Communauté
urbaine) v. Corp. Notre‑Dame de Bon-Secours, the word
"includes" must be interpreted based on context. Despite my opinion
on the contrary position, I do not believe that all other words in the
definition can be disregarded in the analysis of the word "includes".
Continuing with the
analysis of the definition of PUP, the words to be dissected are “primarily” [principalement], “for. . .use” [à usage]
and “enjoyment” [agrément]. These words are found in paragraph (a)
of the definition of PUP in section 54. That rule was introduced to make it possible
to classify property that fits into two categories at once.
Let us start with
“principalement”, which is at the heart of the rule classifying properties that
fit into two categories. In Le Nouveau Petit Robert, 2008,
“principalement” is defined as follows: “avant les autres choses, par-dessus tout”. The definition of “principal” is
similar: “qui est le plus
important, le premier parmi plusieurs” [Emphasis added]. In English, the ITA uses the word
“primarily”. The Oxford English Dictionary, third edition, defines
“primarily” as follows: “to a great or the greatest degree; for the most part,
mainly”. Thus, the property must unequivocally be for the use and enjoyment of
the taxpayer. If Parliament had wanted there to be only two types of property, it
could have defined PUP as all property that is not income property, as stated
by Associate Chief Justice Bowman in Klotz. However, that was not what
Parliament did. It chose to use the adverb “primarily” (“principalement” in
French). Parliament thus chose to make it possible to examine the use of
property before it is determined whether it is PUP.
Secondly, the presence
of the words “à usage”, found at the beginning of the definition
as well as in paragraph (a) helps us determine the category of property described
in the definition, which reads as follows: “. . . affectés principalement à l’usage ou à l’agrément
personnels du . . .” [. . . used primarily for the personal use or
enjoyment of . . .]. Le
Nouveau Petit Robert, 2008, defines this word as follows: “destiné à être utilisé (de telle ou telle
façon)”. From this we can
deduce that it is similar to “utiliser” [to use]. In English, Parliament used
the word “use”. The decision of Judge Bowman, as he then was, in Glaxo
Wellcome Inc. v. Canada
dealt with the meaning of the word “use” in the definition of “former business
property”. That decision provides an overview of how to interpret tax-related
statutory provisions. Judge Bowman states the following relative to the use of
the word “use”:
entitlement of the appellant to the deferral contemplated by section 44
depends on the meaning to be ascribed to one word - used - (utilisé).
15 Why is
this so difficult a question? The word "use" is one of the commonest
and most frequently used in the English language, as is "utiliser" in
French. Indeed, the definition of the verb "use" in the New
Shorter Oxford Dictionary of the English Language is "make use of (a
thing) esp. for a particular end or purpose; utilize, turn to account...; work,
till, occupy, (land, ground etc)". The noun "use" is defined as
"act of using, fact of being used". After this exercise in
circularity we are no wiser than before (or, for that matter, any better
informed). Similarly, "utiliser" is defined in Le Petit Robert 1
dictionnaire de la langue française as "rendre utile, faire servir à une
fin précise... employer". I should not have thought that the resolution of
this apparently (but deceptively) simple question would force me to bring to
bear the vast array of principles of statutory interpretation that are
regularly enunciated by our courts.
After analyzing the
principles of interpretation, he adds his comments on the word “use” (utilisé):
20 . . . Unless
some principle of interpretation compels me to ascribe a broader meaning to the
word, “use” connotes actual utilization for some purpose, not holding
for future use. “Used primarily for the purpose of gaining or producing income
from a business” would, prima facie, imply that the land be put to some
productive use in the business.
The last word that
should be examined is “agrément”, which is found in paragraph (a) of the
definition. In the English version, Parliament used the word
"enjoyment". In Le Nouveau Petit Robert, 2008, the word
“agrément” is defined as “qualité
d’une chose, d’un être, qui les rend agréables” while in the Oxford English Dictionary,
second edition, the word “enjoyment” is defined as “the action or state of
deriving gratification from an object. Also, in weaker sense, the possession
and use of something which affords pleasure or advantage”. In my opinion, the
combination of the words “primarily” and “use” should tell us to interpret the
expression as denoting a primary use for a specific purpose. It must be a real
and dominant use.
In this case, the
appellant stated that she put the insects in bulk into storage boxes. She
prepared them only for donation. There was no real use. The respondent did not
contradict that evidence. Mr. Gagnon admitted that he did not know what
the appellant used the insects for. He seems to have confused the appellant's
activities with the use she could have made of the insects. Could it be said,
after the appellant’s and Mr. Gagnon’s testimony, that the appellant had
enjoyment of the insects? According to the English version, something must be
owned and used.
In any case, I do not
have to decide on that issue to determine whether the appeal should be allowed.
If I agree that the insects are PUP as alleged by the respondent, I would still
have to allow the appellant’s appeal. Under paragraph 46(1)(a) of
the ITA, if the adjusted cost base of PUP is less than $1,000, the adjusted
cost base is deemed to be $1,000. If the proceeds of disposition of PUP are
less than $1,000, they are deemed to be $1,000. Under those two rules, there
can be a capital gain only if the proceeds from the disposition are more than
$1,000 and the adjusted cost base of the property is limited to $1,000. How
should these provisions apply to the insect specimens donated by the appellant
to Université Laval? The answer can be found in subsection 46(3). That
provision applies when a number of PUP that would ordinarily be disposed of in
one disposition as a set were disposed of in more than one disposition to the
same person and had a total fair market value of more than $1,000. In that
case, the properties would be deemed to be a single PUP and the deemed cost of
$1,000 would be applicable to the set of properties and not each of its parts.
In French, the ITA states “biens
qui feraient normalement l’objet d’une seule disposition”. The English version of the provision
uses the word “set” instead of the expression "biens qui feraient
normalement l’objet d’une seule disposition". In the Dictionary of
Canadian Law, the word “set” is defined as follows: “A number of articles
of the same general character ordinarily on sale together or intended to be
used together. . .”. According to that definition, a pair of earrings or a
pair of shoes would be a single property. A set of dishes would be treated as a
The respondent claims
that the subject of the donations must be considered to be a single PUP because
the appellant and Université Laval chose to define the donations as a [Translation] “collection of insects”
on the charitable donation receipt issued to the appellant. The meaning of the
word “collection” should not be confused with that of the word “set”. The
editor of the Canada Tax Service
wrote the following note on this subject:
Properties Comprising a Set
. . .
Whether a number of personal-use properties would have ordinarily
been disposed of in one disposition as a set is a question of fact. A set is
generally composed of two or more articles having something in common and
having a value as a set which is greater than the sum total of the values of
the individual pieces making up the set. In some cases, the pieces making
up a set match or are identical, eg a set of vases or of dining-room chairs. In
other cases, the pieces making up a set are not identical, but are
complementary, eg a rare chess set. The words “set” and “collection” are
clearly not synonymous: accordingly, a collection of paintings or of stamps
would not normally constitute a set of paintings or of stamps.
In this case, the
evidence shows that the 2,158 insects donated to the faculty of forestry,
geography and geomatics of Université Laval were appraised individually. The
appraisal grid used by the appraiser took into account the preparation,
humidification, display, pinning and identification to attribute a value to
each specimen. The evidence also showed that the 2,158 insects donated came
from 46 different counties and at least 268 different species.
According to the appellant's testimony, the insects have at least six or
seven different uses. The donated insects are thus considered to be
distinct properties and are treated as such. They are not linked to one
another. They do not form an unbreakable set. The appraisal grid shows that
none of the insects had a value higher than $1,000. Consequently, the appellant
would not have realized a capital gain from the disposition of PUP if I accept
the interpretation supported by the respondent in this case.
For all of these
reasons, the appeal is dismissed and the reassessment is vacated.
Signed at Ottawa, Canada, this 26th day of
“Robert J. Hogan”
on this 23rd day
of March 2011