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Citation: 2004TCC373
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Date: 20040531
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Docket: 2002-2695(IT)G
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BETWEEN:
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INCO LIMITED,
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Appellant,
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and
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HER MAJESTY THE QUEEN,
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Respondent.
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REASONS FOR ORDER
Sarchuk J.
[1] Before
the Court is an application for the determination of a question of law pursuant
to Rule 58 of the Tax Court of Canada Rules (General Procedure). The
question in issue is:
…whether the Minister determined
the losses of 321821 B.C. Ltd. ("321821") referred to in the July 4,
1997 letter, such that the non-capital losses realized by 321821 in its 1996
taxation year are available to be applied by the Appellant in its 2000 taxation
year by virtue of paragraphs 88(1.1)(c) and 111(1)(a) of the Income
Tax Act.
[2] The
following allegations of fact are not disputed:
(a) On
August 21, 1996, the Appellant acquired all the issued and outstanding shares
of 321821 B.C. Ltd. ("321821", formerly Diamond Field Resources Inc.)
a British Columbia corporation.
(b) Immediately
following its acquisition of the 321821 shares the Appellant resolved, by
resolution dated August 21, 1996, to wind-up 321821 and commenced the
winding-up of 321821 into the Appellant. The winding-up was completed by
dissolution of 321821 on December 11, 2001.
(c) By
virtue of the winding-up of 321821, any non-capital losses of 321821 for its
taxation years ending June 30, 1996 and August 21, 1996 would be deemed by
paragraph 88(1.1)(c) of the Act to be the non-capital losses of
the Appellant for its taxation year ending December 31, 1996. Accordingly, any
such non-capital losses would be available to the Appellant to deduct in
computing its taxable income for taxation years ending after December 31, 1996.
(d) By
two separate letters dated May 23, 1997 to the Vancouver Tax Services Office,
321821 requested that the Minister of National Revenue (the
"Minister") determine its non-capital losses for its taxation years
ending June 30, 1996 and August 21, 1996, respectively.
(e) The
Surrey Taxation Centre responded to 321821 by letter dated July 4, 1997, the
reference line of which stated "Re: Your request dated May 23, 1997"
(the "Letter") and the body of which stated:
"We
are replying to your letter requesting the non-capital losses available to the
corporation for application against taxable income in future years. We are pleased
to offer the following information for your records:
Origin Year
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Amount Available
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Balance Forward
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1993
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$144,137.00
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$144,137.00
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1994
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2,450,430.00
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2,594,567.00
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1996 (30/06)
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65,684,989.00
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68,279,556.00
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1996 (21/08)
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131,933,429.00
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200,212,985.00
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We
trust this information will help you."
[3] The
amount of losses stated to be available in the Letter is identical to the
losses reported in the tax returns of 321821 for its taxation years ending June
30, 1996 and August 21, 1996.
Statutory Provisions:
[4] The
following is the relevant legislation in the Income Tax Act:
152(1.1) Where the Minister
ascertains the amount of a taxpayer's non-capital loss, net capital loss,
restricted farm loss, farm loss or limited partnership loss for a taxation year
and the taxpayer has not reported that amount as such a loss in the taxpayer's
return of income for that year, the Minister shall, at the request of the
taxpayer, determine, with all due dispatch, the amount of the loss and shall
send a notice of determination to the person by whom the return was filed.
152(1.2) Paragraphs 56(1)(l)
and 60(o), this Division and Division J, as they relate to an assessment
or a reassessment and to assessing or reassessing tax, apply, with such
modifications as the circumstances require, to a determination or
redetermination of an amount under this Division or an amount deemed under
subsection 122.61 or 126.1 to be an overpayment on account of a taxpayer's
liability under this Part, except that subsection (1) and (2) do not apply to
determinations made under subsection (1.1) and (1.11) and, for greater
certainty, an original determination of a taxpayer's non-capital loss, net
capital loss, restricted farm loss or limited partnership loss for a taxation
year may be made by the Minister only at the request of the taxpayer.
152(1.3) For greater
certainty, where the Minister makes a determination of the amount of a
taxpayer's non-capital loss, net capital loss, restricted farm loss, farm loss
or limited partnership loss for a taxation year or makes a determination under
subsection (1.11) with respect to a taxpayer, the determination is (subject to
the taxpayer's rights of objection and appeal in respect of the determination
and to any redetermination by the Minister) binding on both the Minister and
the taxpayer for the purpose of calculating the income, taxable income or
taxable income earned in Canada of, tax or other amount payable by, or amount
refundable to, the taxpayer, as the case may be, for any taxation year.
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 …
Appellant's position
[5] In
brief, the Appellant contends that the Respondent's position is based upon two
erroneous premises:
(a) that the losses
may be determined by the Minister only under subsection 152(1.1) of the Act;
and
(b) that since
subsection 152(1.1) operates only where the Minister has ascertained a
taxpayer's losses in amounts different than the amounts reported by the
taxpayer, no purported determination issued by the Minister can technically be
a "determination" at law unless the Minister has ascertained the
taxpayer's losses to be different than those reported by the taxpayer.
The Appellant further says the basis for the Respondent's position is
wrong and that:
(a) the losses also
may be determined by the Minister under subsections 152(1.2) and (4) of the Act,
provided the taxpayer has requested that its losses be determined; and
(b) subsections
152(1.2) and (4) provide for determinations of loss where the Minister has not
ascertained the taxpayer's losses and amounts different than the amounts
reported by the taxpayer, if the taxpayer has requested the determination of
loss. There is no dispute that the Appellant had requested that its losses be
determined by the Minister.
[6] The
Appellant submits that there are two branches to the scheme created by the Act
governing determinations of loss by the Minister. Subsection 152(1.1) is
the first branch. Determinations of loss under this branch are
"mandatory" because subsection 152(1.1) requires the Minister, at the
request of the taxpayer, to determine the taxpayer's loss where, inter alia,
he ascertains the quantum of that loss to be different from the quantum
reported by the taxpayer in its return. However, according to the Appellant,
subsections 152(1.2) and (4) form a second branch, referred to by counsel as
"authorized determinations" which unambiguously permits but does not
require the Minister to issue a determination regardless of whether the amount
reported by the taxpayer is different than the amount ascertained by the Minister.
This is so, the Appellant says, because the words "this Division" in
subsection 152(1.2) refer to Division 1 of the Act, "Returns,
Assessments, Payment and Appeals". As subsection 152(4) is also in
Division 1, the effect of subsection 152(1.2) is to make subsection 152(4) also
apply to determinations and redeterminations of loss. Thus, as subsection 152(4) gives the
Minister discretionary power to make assessments, it similarly gives the
Minister, subject to modifications, the discretionary power to make a loss determination
subject only to the proviso in subsection 152(1.2) that an original
determination of loss may be made only at the taxpayer's request.
[7] In
response to the Respondent's submission that all determinations of loss must be
made under the authority of subsection 152(1.1), counsel argued that if
original determinations can only be made under the authority of that
subsection, the stipulation in paragraph 152(1.2) that original determinations
of a taxpayer's loss may only be made at the taxpayer's request would be
redundant. This redundancy would offend the principle that all words in a
statute must be given meaning.
More specifically, the redundancy arises because the text of
subsection 152(1.1) already provides that a determination of loss under that
subsection will only be made "at the request of the taxpayer".
Accordingly, if that subsection were the only authority pursuant to which
original determinations could be made, as argued by the Respondent, there would
be no need to add an additional stipulation in subsection 152(1.2) that
original determinations can only be made at the request of the taxpayer.
Counsel further argued that the redundancy was made even more clear by the
reorganization of subsection 152(1.2) of the Act in 1998. Prior to the reorganization,
the stipulation that an original determination could be made only at the
request of the taxpayer appeared in the body of the text of subsection
152(1.2). The 1998 version sets out that an original determination can only be
made at the request of the taxpayer into an individual subparagraph. Therefore,
counsel argued, paragraph 152(1.2)(b) (the 1998 version) serves no
purpose other than providing a specific rule that an "original
determination" may be made only at the taxpayer's request. Furthermore,
since subsection 152(1.1) already stipulates that a determination will not be
issued without a taxpayer's request, the whole of paragraph 152(1.2)(b)
would be unnecessary and redundant if an "original determination"
could only be made under subsection 152(1.1).
[8] Counsel
argued that a conclusion that subsections 152(1.2) and (4) do not authorize
determinations of loss at the request of the taxpayer, would lead to the
following inappropriate results:
(a) no determination
of loss could ever be made where the Minister concluded that losses were equal
to the amount the taxpayer reported even if both parties wished to have the
losses determined; and
(b) the time period
for redetermination would never be commenced and certainty of the amount of
losses would never be achieved. Furthermore, although the parties might have
agreed regarding the amount of losses originally, either party could take the
position at some future time that the losses were other than originally agreed;
and contends that it should not be assumed that Parliament would have
intended an absurd result which would frustrate the object of promoting
certainty that was at the root of the introduction of the loss determination
rules.
Respondent's Position
[9] Counsel
for the Respondent asserts that the issue before the Court can only be answered
negatively in that neither subsection 152(1.2) nor subsection 152(4) of the Act
empowered the Minister to issue a notice of loss determination as this term
is understood in section 152 of the Act. More specifically,
subsection 152(1.1) is the only provision empowering the Minister to issue
a determination of loss. This subsection contemplates a procedure involving
sequential steps that must be taken in order for there to be a valid loss determination.
These steps are:
(a) the Minister
ascertains the amount of a taxpayer's non-capital loss for a taxation year in
an amount that differs from the one reported in the taxpayer's income tax
return;
(b) the taxpayer
requests that the Minister determine the amount of the loss; and
(c) the Minister
thereupon determines the amount of the loss and sends a Notice of Loss
Determination to the taxpayer. This determination is binding on the taxpayer
and the Minister.
According to the Respondent, the Appellant's position that subsections
152(1.2) and (4) empower the Minister to issue a binding notice of loss
determination is untenable. Counsel argued that:
… On their plain reading, neither
of these subsections empower the Minister to make a loss determination, that is
to say, to effect a fixation of losses which is binding on both the Minister
and the taxpayer. Furthermore, subsection 152(1.2) clearly provides that a
determination or redetermination of an amount, such as a non‑capital
loss, must precede the application of the provisions of "this
Division" i.e. Division I, of which subsections 152(1.3) and 152(4) are
part, because those provisions are to be applied to a loss
determination. Therefore, because subsection 152(1.3) makes a loss
determination binding on the Minister and a taxpayer, the limitations of
subsection 152(4) pertaining to the making of reassessments are made applicable
to loss determinations already made. In other words, subsection 152(4) imposes
procedural constraints on the Minister; it does not empower the Minister to
make a loss determination of a binding nature. The power to do so resides
solely in subsection 152(1.1).
In other words, subsections
152(1.2) and (1.3) are rules which apply where the Minister has made a
determination of a taxpayer's non-capital loss pursuant to subsection 152(1.1).
[10] Counsel acknowledged that the plain meaning rule of statutory
interpretation applies only where the words employed in a statute are clear and
that if they permit two interpretations, a purposive analysis of them is
required. He contends that if there is any debate on the "plain
meaning" of the subsections in issue, the Respondent's position is
affirmed by examining the legislative history of these sections. A detailed
review of the amendments to subsections 152(1.1) and (1.2) was conducted to demonstrate
that it was never Parliament's intent that there be any provision in the Act
other than subsection 152(1.1) granting the Minister the authority to make
a determination of loss. Furthermore, it was argued, all the amendments to
subsections 152(1.2) and (1.3) indicate that these subsections were meant to be
companion pieces to the legislation applicable to loss determinations under
subsection 152(1.1). They are procedural in nature and were not meant to confer
"new determination powers on the Minister". Based on this analysis,
it was submitted that the only logical conclusion was that subsection 152(1.2)
was not enacted because of an intent to create an independent or secondary
Ministerial power to make loss determinations.
Conclusion
[11] The primary basis for the Appellant's position is that the Act contemplates
two separate and fundamentally different methods by virtue of which the
Minister may determine a taxpayer's loss in a binding fashion. The first method
compels the Minister to make what the Appellant described as "mandatory
determinations" pursuant to subsection 152(1.1) while the second
authorized the Minister to make the determinations without being compelled to
do so. These the Appellant described as "authorized determinations"
which may be made pursuant to the provisions of subsections 152(1.2) and (4).
These two subsections, it was argued, establish the circumstances where the
Minister is not required to determine a taxpayer's losses but may do so,
subject only to the taxpayer having requested a determination.
[12] Division I of Part I of the Act contains the primary statutory
scheme governing tax returns, assessments, payments and administrative appeals
under the Act. Rather than specifying a separate regime for
determinations of loss, the Act adopts the scheme established in
Division I in respect of assessments and reassessments and applies those rules
to determinations of loss, subject to modifications provided. Section 152
provides the basic procedures for assessments and reassessments as well as the
determination and redetermination of losses. Subsection 152(1) requires the
Minister to examine a return and assess tax for the taxation year, interest and
penalties, if any, payable. Subsection 152(1.1) for its part provides that
where the Minister ascertains the amount of the taxpayer's non-capital loss for
a taxation year and the taxpayer has not reported that amount as such a loss in
his return of income for that year, the Minister shall, at the request of the
taxpayer, determine the amount of the loss and shall send a notice of
determination to the person by whom the return was filed, while subsection
152(1.2) provides that subject to three exceptions, the provisions of Division I
(i.e. sections 152 to 168) regarding assessments and reassessments apply, with
such modification as the circumstances require, to determinations and
redeterminations. More specifically, by operation of
subsection 152(1.2), subsection 152(1) (the requirement that the Minister
examine the taxpayer's return and determine the amount of any refund or tax
owing) and 152(2) (the requirement that the Minister send a notice of
assessment) do not apply to determinations made under subsections 152(1.1)
(loss determination) and 152(1.11) (determinations pursuant to subsection
245(2)). As contrasted to an assessment, subsection 152(1.2) also confirms that
an original determination of a taxpayer's various stipulated losses may only be
made by the Minister upon a request for such a determination by the taxpayer.
[13] It is common ground that as a general rule it is necessary to
interpret clear and unequivocal words in a statute according to their ordinary,
everyday meaning, i.e. the plain meaning approach, unless the words are
specifically assigned different definitions. This does not necessarily mean,
however, that the language of the relevant sections must be interpreted
independently of the context, and legislative purpose is part of that context.
I am of the view that the language used by the legislators in subsections
152(1.1), (1.2), (1.3) and 152(4) of the Act does not lead to the
conclusion sought by the Appellant. The words and phrases used in these
subsections, interpreted in the context of the relevant statutory provisions
lead to no conclusion other than that neither subsection 152(1.2) nor
subsection 152(4) of the Act or any combination of the two empowers the
Minister to issue a notice of loss determination as this term is understood in
section 152 of the Act. On the other hand, subsection 152(1.1) of the Act
clearly contemplates and establishes a procedure involving sequential steps
or events that must take place in order for there to be a valid loss
determination. These steps are: (a) the Minister ascertains the amount of a
taxpayer's non-capital loss for a taxation year in an amount that differs from
the one reported in the taxpayer's income tax return; (b) the taxpayer requests
that the Minister determine the amount of the loss; (c) the Minister thereupon
determines the amount of the loss and issues a notice of loss determination to
the taxpayer. On the other hand, nothing in the language found in subsection
152(1.2) clearly contemplates a similar or parallel conclusion. It is also
reasonable to conclude that since subsections 152(1.1) and (1.2) were enacted
and amended together indicates a legislative intent that subsection 152(1.2) be
no more than a procedural companion piece to subsection 152(1.1) and that it
was not intended to create an independent or secondary Ministerial power to
make loss determinations.
[14] The Appellant's position is that if original determinations were only
authorized under subsection 152(1.1), subsection 152(1.2) would specifically
refer to subsection 152(1.1). Counsel further argued that if Parliament had in
fact intended that subsection 152(1.1) be the sole provision authorizing
original determinations of losses, that fact could readily have been dealt with
in subsection 152(1.2) by changing the words "an original determination (of
losses) may be made by the Minister only at the request of the taxpayer"
to "an original determination (of losses) may be made only under
subsection 152(1.1)". With respect to this submission, I am inclined to
accept the riposte of counsel for the Respondent to the effect that if the
Appellant's suggestion was correct, the question arises why Parliament saw fit
to enact subsection 152(1.1) (in which it subjected loss determinations to
stringent requirements) at all since subsection
152(1.2) would have itself sufficed.
[15] Counsel for the Appellant also argued that the Minister's position
would create a situation where the time period for redetermination would never
be commenced and certainty of the amount of losses would never be achieved.
Furthermore, even though the parties originally agreed regarding the amount of
losses, either party would be able to take the position at some time in the
future that the losses were other than as originally agreed. That may be so but
that situation must clearly have been contemplated and considered by the
legislators, otherwise there would have been no point in framing the provisions
in such a manner as to leave the decision to seek a determination and more
importantly, the timing of it in the hands of the taxpayer.
[16] Counsel for both parties made reference, both oblique and direct, to
the legislative intent underlying the provisions in issue. The application of
the purposive approach in the face of clear and unambiguous legislative
language has been considered in a number of cases. In particular, McLachlin J.
stated in Shell Canada v. The Queen:
40 Second, it is well
established in this Court's tax jurisprudence that a searching inquiry for
either the "economic realities" of a particular transaction or the
general object and spirit of the provision at issue can never supplant a
court's duty to apply an unambiguous provision of the Act to a
taxpayer's transaction. Where the provision at issue is clear and unambiguous,
its terms must simply be applied: Continental Bank, supra, at para. 51,
per Bastarache, J.; Tennant, supra, at para. 16, per Iacobucci, J.; Canada
v. Antosko [94 DTC 6314], [1994] 2 S.C.R. 312, at pp. 326-27 and 330, per
Iacobucci, J.; Friesen v. Canada [95 DTC 5551], [1995] 3 S.C.R. 103, at
para. 11, per Major, J; Alberta (Treasury Branches) v. M.N.R., [1996] 1
S.C.R. 963, at para. 15, per Cory, J.
43 … The Act is a
complex statute through which Parliament seeks to balance a myriad of
principles. This Court has consistently held that courts must therefore be
cautious before finding within the clear provisions of the Act an
unexpressed legislative intention: Canderel Ltd. v. Canada, [1998] 1
S.C.R. 147, at para. 41, per Iacobucci, J.; Royal Bank of Canada v. Sparrow
Electric Corp., [1997] 1 S.C.R. 411, at para. 112, per Iacobucci, J.; Antosko,
supra, at p. 328, per Iacobucci, J. Finding unexpressed legislative
intentions under the guise of purposive interpretation runs the risk of
upsetting the balance Parliament has attempted to strike in the Act.
45 …The courts' role
is to interpret and apply the Act as it was adopted by Parliament. Obiter
statements in earlier cases that might be said to support a broader and less
certain interpretative principle have therefore been overtaken by our
developing tax jurisprudence. ..
It is common ground that the purpose rule is not a substitute for the
plain meaning rule but is generally only used for statutory language that is
ambiguous or obscure and a Court needs assistance in determining legislative
intention. It has also been observed that the plain meaning approach of itself
is not a total rejection of purposive interpretation but is simply a
recognition that object and purpose can play only a limited role in the
interpretation of a statute that is as precise and detailed as the Act.
[17] In my view, the language of the sections in issue is not ambiguous and
must be interpreted according to its plain meaning. Furthermore, this approach
does not produce absurd results as argued on behalf of the Appellant. In this context,
it is important to note the genesis of the sections of the Act in issue. There is no dispute that an assessment includes a
"nil" assessment and that a taxpayer has no right of appeal from such
an assessment since no tax is payable. This applies even in circumstances where
such an assessment does not change the substance of the assessment but rather
merely carried back and applied tax credits from subsequent years with the
result the taxes payable are reduced to nil. Since the Courts had ruled that there
was no right of appeal from a nil assessment, it became apparent that
substantial problems arose with respect to the Minister's calculation of the
losses of a taxpayer. If such a determination resulted in a nil assessment,
there was no basis upon which the taxpayer could appeal that decision. The
enactment of the statutory provisions in issue in this appeal was clearly
intended to deal with this scenario and provide a process which would enable
the taxpayer to appeal from a determination by the Minister of its losses
notwithstanding that such a determination resulted in a nil assessment. The
system is fairly straightforward. The Minister, at the request of the taxpayer,
is required to ascertain the taxpayer's losses to be different from those
reported in a taxpayer's income tax return at which time if the taxpayer
disagrees with the calculation of the losses reported, he has two alternatives.
The taxpayer may request that the Minister determine the amount of the loss
immediately, and the Minister is bound to do so, or the taxpayer may prefer to
raise the matter in another taxation year in which the losses are claimed. This
legislative scheme does not, as counsel for the Appellant argued, create a
situation where the time period for determination would never be commenced and
certainty of the amount would never be achieved.
[18] For the foregoing reasons, I have concluded that the Minister did not
determine the losses of 321821 B.C. Ltd. as referred to in the July 4, 1997
letter such that the non-capital losses realized by 321821 in its 1999 taxation
year are available to be applied by the Appellant in its 2000 taxation year by
virtue of paragraph 88(1.1)(c) and 111(1)(a) of the Income Tax
Act.
Signed at Ottawa, Canada, this 31st day of
May, 2004.
Sarchuk
J.
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