Experimental feature warning
The hosting of judicial decisions on Tax Interpretations is in Beta. We do not guarantee the accuracy of this text.
The text-formatting is also in development. The final version will be more polished than what you see here.
Neutral citation: 2001 FCA 224
CORAM: RICHARD C.J.
IRON ORE COMPANY OF CANADA
HER MAJESTY THE QUEEN
Heard at Montreal (Quebec), Monday, June 18, 2001
Judgment delivered at Ottawa (Ontario), Wednesday, July 4, 2001
REASONS FOR JUDGMENT BY: LÉTOURNEAU J.A.
CONCURRED IN BY: RICHARD C.J.
Neutral citation: 2001 FCA 224
CORAM: RICHARD C.J.
IRON ORE COMPANY OF CANADA
HER MAJESTY THE QUEEN
REASONS FOR JUDGMENT
This appeal raises the issue of whether Judge Lamarre-Proulx of the Tax Court of Canada erred in her interpretation of subparagraph 12(1)(x)(iv) of the Income Tax Act (Act) when she concluded that the refund received by the appellant for sales tax paid in error was a refund within the meaning of that subparagraph. The provision reads:
12. (1) There shall be included in computing the income of a taxpayer for a taxation year as income from a business or property such of the following amounts as are applicable:
(x) any particular amount (other than a prescribed amount) received by the taxpayer in the year, in the course of earning income from a business or property, from
(ii) a government, municipality or other public authority
where the particular amount can reasonably be considered to have been received
(iii) as an inducement, whether as a grant, subsidy, forgivable loan, deduction from tax, allowance or any other form of
(iv) as a refund, reimbursement, contribution or allowance or as assistance, whether as a grant, subsidy, forgivable loan, deduction from tax, allowance or any other form of assistance, in respect of
(A) an amount included in, or deducted as, the cost of property, or
(B) an outlay or expense,
| || |
12. (1) Sont à inclure dans le calcul du revenu tiré par un contribuable d'une entreprise ou d'un bien, au cours d'une année d'imposition, celles des sommes suivantes qui sont applicables:
x) un montant (à l'exclusion d'un montant prescrit) reçu par le contribuable au cours de l'année pendant qu'il tirait un revenu d'une entreprise ou d'un bien:
(ii) soit d'un gouvernement, d'une municipalité ou d'une autre administration,
s'il est raisonnable de considérer le montant comme reçu:
(iii) soit à titre de paiement incitatif, sous forme de prime, de subvention, de prêt à remboursement conditionnel, de déduction de l'impôt ou d'indemnité, ou sous toute autre forme,
(iv) soit à titre de remboursement, de contribution ou d'indemnité ou à titre d'aide, sous forme de prime, de subvention, de prêt à remboursement conditionnel, de déduction de l'impôt ou d'indemnité, ou sous toute autre forme, à l'égard, selon le cas:
(A) d'une somme incluse dans le coût d'un bien ou déduite au titre de ce coût,
(B) d'une dépense engagée ou effectuée,
| || || |
If this Court comes to the conclusion that the appellant's refund falls within the ambit of subparagraph 10(1)(x)(iv), it follows that the sum of $950,000.00 thus received by the appellant in 1994 from the government must be included in its income for that taxation year. This is what paragraph (x) requires when it refers to "any particular amount received by the taxpayer in the year".
On the other hand, should this Court conclude that the said refund is not covered by the terms of subparagraph 10(1)(x)(iv), it remains to be determined whether the refund has then to be included in the appellant's income for the 1994 taxation year pursuant to section 9 of the Act.
A short summary of the facts is in order for a better understanding of the legal issues raised by this appeal.
Facts and Procedure
The case proceeded before the Tax Court of Canada upon an agreed statement of facts. It is fair to say that there was a bitter and long dispute between the appellant and Revenue Quebec which ended on October 19, 1993 by an out-of-court settlement, ratified on October 25, 1993 by the Quebec Court of Appeal. It is at this point that parts of the agreed facts become relevant for the present appeal. I am content to reproduce paragraphs 14 to 19 of the agreed statement of facts which read as follows:
14. Pursuant to the terms and conditions of the Settlement, Appellant received during the 1994 calendar year five (5) monthly payments totalling $4,416,666.66 from Revenue Quebec.
15. This amount consisted of the following:
a) refunded provincial sales tax paid in error by Appellant during the period extending from 1 April 1978 to 31 May 1985 in the amount of $950,000.00; and
b) accrued interest in the amount of $3,466,666.66.
16. For its 31 December 1994 taxation year, Appellant included the accrued interest in the amount of $3, 466,666.66 in computing its income.
17. By way of reassessment dated 20 August 1996, the Minister reassessed Appellant's 1994 taxation year by, inter alia, adding to Appellant's income the refunded provincial sales tax in the amount of $950,000.00 and in so doing, assessed Appellant for arrears interest and « refund interest » previously paid, the whole as more fully appears from copy of the reassessment dated 20 August 1996 attached hereto under tab 7.
18. By notice of reassessment dated 23 May 1997, the Minister reassessed Appellant for its 1994 taxation year in order to make some adjustments not related to the question at issue and in so doing, maintained the taxation of the amount of $950,000.00, the whole as more fully appears from copy of the reassessment attached hereto under tab 8.
19. The Minister relies on subparagraph 12(1)(x)(iv) of the Income Tax Act, R.S.C. 1985, (5th supp.) C.1, as amended, to include the refunded provincial sales tax in the computation of Appellant's income for its 1994 taxation year, while Appellant maintains that such amount should not come within the meaning of the said paragraph and was taxable during the years when the respective deductions were claimed, in accordance with the decision of the Federal Court of Appeal in The Queen v. Johnson & Johnson Inc., 94 DCT 6125.
Basically, the argument of the appellant is that not every refund qualifies under subparagraph 12(1)(x)(iv) and, therefore, needs to be included in a taxpayer's income. The appellant avers that it has to be a refund which is in the nature or in the form of an assistance to the taxpayer. The appellant comes to this understanding of the scope and purpose of that subparagraph by way of a reading which calls into play the noscitur a sociis rule referred to in English as the "associated words rule". According to this rule, the word "refund", very much like the words "reimbursement", "contribution" and "allowance" in subparagraph 12(1)(x)(iv), would be qualified by a requirement of government assistance to the taxpayer because the appellant sees the notions of "assistance" and "any other form of assistance" appearing in the provision as a common feature applicable to all the terms appearing in the subparagraph. With respect, I think the appellant misreads subparagraph 12(1)(x)(iv) and that the noscitur a sociis rule has no application for the following reasons.
A proper reading of the impugned subparagraph, whether using the English or the French text, reveals that Parliament has identified three kinds of amounts under subparagraphs 12(1)(x)(iii) and (iv):
a) those that are received as an inducement;
b) those that are received as a refund, reimbursement, contribution or allowance, and
c) those that are received as assistance, whether as a grant, subsidy, forgivable loan, deduction from tax, allowance or any other form of assistance.
Both a textual and a contextual analysis leads to such a finding.
First, the use of the word "as" after the word "or" in the expression "or as assistance" found in the second and third lines of subparagraph (iv) brings to an end the preceding enumeration of words and, therefore, the association of words. It introduces another category of amounts of a nature different from those which precede. In French, there is no ambiguity either. The subparagraph refers to amounts received "à titre de remboursement" or "à titre d'aide". Then, with respect to this second category, the text goes on to identify the form that this assistance or "aide" can take. The French words "sous forme de prime, de subvention, de prêt à remboursement conditionnel, de déduction de l'impôt ou d'indemnité ou sous toute autre forme" qualifies only a payment made "à titre d'aide".
Second, the words "allowance" and "indemnité"appear twice in the subparagraph, the first time as an amount akin to a refund, a reimbursement or a contribution and the second time as a form of assistance. The application of the noscitur a sociis rule would render meaningless and redundant the first use of the words "allowance" and "indemnité" in the subparagraph since, under the rule, an allowance or "indemnité" would have to be in the form of an assistance and, yet, assistance in the form of an allowance or "indemnité" would already be covered by the second use of the word.
Third, the words "any other form of assistance' found in the subparagraph clearly refer to an amount received "as assistance" and broaden the form of assistance enumerated in the subparagraph. In French, the words "sous toute autre forme" parallel the English text. They refer to an amount received "à titre d'aide, sous forme de prime, de subvention, etc.". The French text is consistent with the English text and discards the application of the noscitur a sociis rule.
Fourth, this notion of assistance received from a government, whether as a grant, subsidy, forgivable loan, deduction from tax, allowance or any other form of assistance is a notion used in other provisions of the Act, independently of the concepts of refund or reimbursement. It is obviously a category of amounts existing on its own: see for example subsections 13(7.1), 13(7.2), paragraph 37(1)(d), subparagraphs 53(2)(k)(i), 66.1(6)(b)(ix), 66.2(5)(b)(xi), 66.4(5)(b)(viii) as well as the definition of "government assistance in subsection 127(9) of the Act.
To sum up, the appellant's refund falls, in my view, into the second category of amounts which have to be included in a taxpayer's income in the taxation year in which it is received. Therefore, the learned Tax Court Judge made no error when she concluded that subparagraph 12(1)(x)(iv) applied in the circumstances of the present case.
Having come to such a conclusion, there is no need to determine whether the refund payment would be captured by section 9 of the Act and would have to be included in the appellant's income pursuant to the principle of realization as defined in Canderel Ltd. v. Canada,  1 S.C.R. 147 and IKEA Ltd. v. Canada,  1 S.C.R. 196. Nor is there a need to consider the appellant's argument based on the decision of the Court in The Queen v. Johnson & Johnson Inc., 94 DTC 6125. As the Tax Court Judge pointed out, that decision was rendered in relation to refunds made in 1982 and 1983, prior to the enactment of subparagraph 12(1)(x)(iv) which indicates, as I have already mentioned, that the amount thus received must be included in the taxation year it is received.
For these reasons, I would dismiss the appeal with costs.
J. Richard C.J."
Robert Décary J.A."