McArthur
J.T.C.C.:—This
is
an
appeal
from
assessments
made
by
the
Minister
of
National
Revenue
(the
"Minister")
for
the
appellant’s
1984,
1985
and
1986
taxation
years.
The
Minister
assessed
on
the
basis
that
the
appellant
failed
to
deduct
and
remit
tax
on
amounts,
deemed
to
have
been
paid
as
dividend,
to
Interco
Inc.
("Interco")
a
non-resident
of
Canada
within
the
meaning
of
the
Income
Tax
Act,
R.S.C.
1952,
c.
148
(am.
S.C.
1970-71-72,
c.
63)
(the
"Act").
The
Minister
claims
tax
in
the
amount
of
$27,530,
$78,620
and
$67,407
respectively
for
the
three
years
in
dispute.
Preliminary
matters
1.
The
style
of
cause
was
amended
to
reflect
the
change
of
name
of
the
appellant
from
Inflocon
Canada
Ltd.
to
Florsheim
Inc.
The
appellant
was
originally
Florsheim
Inc.,
changed
its
name
to
Inflocon
Canada
Ltd.
and
recently
changed
name
back
to
Florsheim
Inc.
2.
In
its
notice
of
appeal,
the
appellant
stated
it
was
not
prepared
to
admit
that
the
deemed
payments
made
to
the
non-resident
corporation
were
in
fact
a
shareholder
benefit
and
the
appellant
alleged
that
the
assessments
were
not
made
with
all
due
dispatch.
The
appellant's
counsel
advised
that
these
two
matters
were
not
being
contested.
3.
Matters
were
expedited
by
the
filing
of
an
agreed
statement
of
facts
and
documents
that
reads
in
part
as
follows:
The
parties
hereto,
by
their
solictors,
admit
the
following
facts
and
documents,
provided
that
the
parties
may
adduce
further
and
other
evidence
relevant
to
the
issues
and
not
inconstistent
[sic]
with
this
agreed
statement
of
facts
and
documents.
1.
The
appellant
is
a
corporation
incorporated
pursuant
to
the
laws
of
the
Province
of
Ontario.
The
appellant
is
the
successor
corporation
to
Florsheim
Inc.
(“Florsheim”).
The
appellant's
fiscal
period
and
taxation
year
ends
on
the
last
day
in
February
of
each
year.
The
appellant's
principal
place
of
business
in
Ontario
is
located
at
90
Matheson
Blvd.
West,
#109,
Mississauga,
Ontario
LSR
3R3.
2.
The
appellant
is
resident
in
and
carries
on
business
in
Canada
for
purposes
of
the
Act
and
is
a
direct
wholly-owned
subsidiary
of
Interco
Inc.
("Interco").
At
all
relevant
times
the
appellant’s
predecessor,
Florsheim,
was
resident
in
and
carried
on
business
in
Canada
and
was
a
direct
wholly-owned
subsidiary
of
Interco.
On
August
22,
1989,
Florsheim
was
amalgamated
with
Converse
Canada
Ltd.
to
form
the
appellant.
For
the
purposes
of
this
agreed
statement
of
facts
and
documents
any
reference
to
the
appellant
herein
will
include
a
reference
to
its
predecessor,
Florsheim.
3.
Interco
is
a
United
States
corporation
which
is
and
was
at
all
relevant
times
resident
in
the
United
States
and
not
resident
inCanada.
4.
The
appellant
made
non-interest
bearing
loans
(the
"loans")
to
Interco,
qua
shareholder,
in
the
amounts
and
on
the
dates
indicated
below
and
each
loan
was
repaid
by
Interco
on
the
dates
indicated
below.
|
Date
|
Advanced
|
Repaid
|
|
August
22,
1984
|
US$4,734,361.05
|
|
|
February
25,
1985
|
|
US$4,734,361.05
|
|
May
31,
1985
|
US$9,415,559.89
|
|
|
October
31,
1985
|
|
US$9,415,559.89
|
|
November
15,
1985
|
US$7,000,00.00
|
|
|
February
28,
1986
|
|
US$7,000,000.00
|
|
May
28,
1986
|
US$6,148,710.56
|
|
|
September
23,
1986
|
US$1,353,858.05
|
|
|
February
27,
1987
|
|
US$5,002,568.61
|
5.
As
a
result
of
the
loans
referred
to
in
paragraph
4
of
this
agreed
statement
of
facts
and
documents,
the
following
intercompany-receivable
balances
(in
Canadian
dollars)
were
outstanding
as
of
the
end
of
the
following
calendar
months:
♦excludes
the
date
of
advance
and
includes
the
date
of
repayment
|
#
of
Days
O/S
Where
|
|
Balance
Outstanding
|
Less
than
Full
Month*
|
|
1984
|
|
|
August
|
$
6,155,716
|
9/31
|
|
September
|
6,155,716
|
|
|
October
|
6,155,716
|
|
|
November
|
6,155,716
|
|
|
December
|
6,155,716
|
|
|
1985
|
|
|
January
|
$
6,155,716
|
|
|
February
|
6,155,716
|
25/28
|
|
March
|
0
|
|
|
April
|
0
|
|
|
May
|
0
|
|
|
June
|
12,924,585
|
|
|
July
|
12,924,585
|
|
|
August
|
12,924,585
|
|
|
September
|
12,924,585
|
|
|
October
|
12,924,585
|
|
|
November
|
9,637,891
|
15/30
|
|
December
|
9,637,891
|
|
|
1986
|
|
|
January
|
$
9,637,891
|
|
|
February
|
9,637,891
|
|
|
March
|
0
|
|
|
April
|
0
|
|
|
May
|
8,462,305
|
3/31
|
|
June
|
8,462,305
|
|
|
July
|
8,462,305
|
|
|
August
|
8,462,305
|
|
|
September
(1-23)
|
8,462,305
|
23/30
|
|
September
(24-30)
|
10,343,220
|
7/30
|
|
October
|
10,343,220
|
|
|
November
|
10,343,220
|
|
|
December
|
10,343,220
|
|
6.
The
following
are
the
prescribed
rates
of
interest
that
were
in
effect
during
the
months
that
the
loans
were
outstanding:
|
Year
|
Jan
1
-
Mar
31
|
Apr
1
-
Jun
30
|
Jul
1
-
Sept
30
|
Oct
1
-
Dec
31
|
|
1984
|
|
11%
|
13%
|
|
1985
|
12%
|
10%
|
10%
|
10%
|
|
1986
|
9%
|
11%
|
10%
|
9%
|
7.
By
way
of
notices
of
assessment
dated
February
23,
1989,
the
Minister
of
National
Revenue
(the
"Minister")
assessed
Interco,
pursuant
to
subsection
80.4(2)
of
the
Act,
in
respect
of
alleged
benefits
deemed
to
have
been
received
by
Interco
during
1984,
1985
and
1986
as
a
result
of
the
loans
referred
to
in
paragraph
4
of
this
agreed
statement
of
facts
and
documents.
8.
On
January
3,
1990,
Interco
filed
notices
of
objection
to
the
assessments
pursuant
to
an
order
received
from
the
Tax
Court
of
Canada
extending
the
time
within
which
it
was
permitted
to
serve
its
notices
of
objection.
On
October
26,
1990,
the
Minister
issued
a
notice
of
confirmation
in
respect
of
its
assessment.
On
January
22,1991,
Interco
filed
an
appeal
to
the
assessments.
These
assessments
were
withdrawn
and
a
notice
of
discontinuance
was
filed
on
June
23,
1992.
9.
On
January
24,
1991,
Interco
filed
under
chapter
11
of
the
United
States
federal
Bankruptcy
Code
and
emerged
from
said
Bankruptcy
Code
proceedings
on
August
3,
1992.
10.
On
March
12,
1992,
the
Minister
issued
a
non-resident
tax
notice
of
assessment
No.
A190162
on
the
basis
that
the
appellant
allegedly
failed
to
deduct
and
remit
tax
in
the
amount
of
$27,530
in
respect
of
$275,297
that
the
appellant
was
allegedly
deemed
to
have
paid
or
credited
to
a
non-resident
of
Canada
for
purposes
of
the
Income
Tax
Act,
Chapter
63,
S.C.
1970-71-72,
as
amended
(the"Act").
This
notice
of
assessment
No.
A190162
is
Exhibit
1
of
the
agreed
documents.
11.
On
March
12,
1992,
the
Minister
issued
a
non-resident
tax
notice
of
assessment
No.
A190163
on
the
basis
that
the
appellant
allegedly
failed
to
deduct
and
remit
tax
in
the
amount
of
$78,620
in
respect
of
$786,196
that
the
appellant
was
allegedly
deemed
to
have
paid
or
credited
to
a
non-resident
of
Canada
for
purposes
of
the
Act.
This’notice
of
assessment
No.
A190163
is
Exhibit
2
of
the
agreed
documents.
12.
On
March
12,
1992,
the
Minister
issued
a
non-resident
tax
notice
of
assessment
No.
A190164
on
the
basis
that
the
appellant
allegedly
failed
to
deduct
and
remit
tax
in
the
amount
of
$67,407
in
respect
of
$674,071
that
the
appellant
was
allegedly
deemed
to
have
paid
or
credited
to
a
non-resident
of
Canada
for
purposes
of
the
Act.
This
notice
of
assessment
No.
A190164
is
Exhibit
3
of
the
agreed
documents.
13.
By
notices
of
objection
dated
June
10,
1992,
the
appellant
objected
to
the
assessments.
The
notices
of
objection
are
exhibit
4
of
the
agreed
documents.
14.
The
Minister
confirmed
the
assessments
by
notification
of
confirmation
dated
June
26,1992
on
the
basis
that
the
appellant
was
required
to
deduct
and
pay
tax
under
Part
XIII
of
the
Act,
in
accordance
with
subsection
215(1),
of
$27,530,
$78,620
and
$67,407
and
failed
to
do
so
and
therefore
the
appellant
is
liable
to
pay
these
amounts
as
tax
in
accordance
with
subsection
215(6)
of
the
Act.
The
notification
of
confirmation
is
Exhibit
5
of
the
agreed
documents.
This
appeal
concerns
the
interlocking
of
several
sections
of
the
Act
which,
in
logical
progression,
are
as
follows:
80.4(2)
Where
a
person
(other
than
a
corporation
resident
in
Canada)
or
a
partnership
(other
than
a
partnership
each
member
of
which
is
a
corporation
resident
in
Canada)
was
(a)
a
shareholder
of
a
corporation,
(b)
connected
with
a
shareholder
of
a
corporation,
or
(c)
a
member
of
a
partnership,
or
a
beneficiary
of
a
trust,
that
was
a
shareholder
of
a
corporation,
and
by
virtue
of
such
shareholding
that
person
.
.
.
received
a
loan
from,
or
otherwise
incurred
a
debt
to,
that
corporation,
.
.
.
the
person
.
.
.
shall
be
deemed
to
have
received
a
benefit
in
a
taxation
year
equal
to
the
amount,
if
any,
by
which
(d)
all
interest
on
all
such
loans
and
debts
computed
at
the
prescribed
rate
on
each
such
loan
and
debt
for
the
period
in
the
year
during
which
it
was
outstanding
exceeds
(e)
the
amount
of
interest
for
the
year
paid
on
all
such
loans
and
debts
not
later
than
30
days
after
the
later
of
the
end
of
the
year
and
December
31,
1982.
15(9)
When
an
amount
in
respect
of
a
loan
or
debt
is
deemed
by
section
80.4
to
be
a
benefit
received
by
a
person
or
partnership
in
a
taxation
year,
the
amount
thereof
(other
than
any
amount
to
which
subsection
6(9)
or
paragraph
12(l)(w)
applies)
shall
be
deemed
for
the
purposes
of
subsection
(1)
to
be
a
benefit
conferred
in
the
year
on
a
shareholder.
15(1)
Where
in
a
taxation
year
(a)
a
payment
has
been
made
by
a
corporation
to
a
shareholder
otherwise
than
pursuant
to
a
bona
fide
business
transaction,
(b)
funds
or
property
of
a
corporation
have
been
appropriated
in
any
manner
whatever
to,
or
for
the
benefit
of,
a
shareholder,
or
(c)
a
benefit
or
advantage
has
been
conferred
on
a
shareholder
by
a
corporation,
otherwise
than
(d)
on
the
reduction
of
capital,
the
redemption,
cancellation
or
acquisition
by
the
corporation
of
shares
of
its
capital
stock
or
the
winding-up,
discontinuance
or
reorganization
of
its
business,
or
otherwise
by
way
of
a
transaction
to
which
section
88
applies,
(e)
by
the
payment
of
a
dividend
or
a
stock
dividend,
(f)
by
conferring
on
all
holders
of
common
shares
of
the
capital
stock
of
the
corporation
a
right
to
buy
additional
common
shares
thereof,
or
(g)
by
an
action
described
in
paragraph
84(1)(c.1)
or
(c.2),
the
amount
or
value
thereof
shall,
except
to
the
extent
that
it
is
deemed
to
be
a
dividend
by
section
84,
be
included
in
computing
the
income
of
the
shareholder
for
the
year.
212(2)
Every
non-resident
person
shall
pay
an
income
tax
of
25
per
cent
on
every
amount
that
a
corporate
resident
in
Canada
pays
or
credits,
or
is
deemed
by
Part
I
or
Part
XIV
to
pay
or
credit,
to
him
as,
on
account
or
in
lieu
of
payment
of,
or
in
satisfaction
of,
(a)
a
taxable
dividend
(other
than
a
capital
gains
dividend
within
the
meaning
assigned
by
subsection
130.1(4),
131(1),
or
133(7.1)),
or
(b)
a
capital
dividend.
214(3)
For
the
purposes
of
this
Part,
(a)
where
section
15
or
subsection
56(2)
would,
if
Part
I
were
applicable,
require
an
amount
to
be
included
in
computing
a
taxpayer's
income,
that
amount
shall
be
deemed
to
have
been
paid
to
the
taxpayer
as
a
dividend
from
a
corporation
resident
in
Canada;
215(1)
When
a
person
pays
or
credits
or
is
deemed
to
have
paid
or
credited
an
amount
on
which
an
income
tax
is
payable
under
this
Part,
he
shall,
notwithstanding
any
agreement
or
any
law
to
the
contrary,
deduct
or
withhold
therefrom
the
amount
of
the
tax
and
forthwith
remit
that
amount
to
the
Receiver
General
on
behalf
of
the
nonresident
person
on
account
of
the
tax
and
shall
submit
therewith
a
statement
in
prescribed
form.
215(6)
Where
a
person
has
failed
to
deduct
or
withhold
any
amount
as
required
by
this
section
from
an
amount
paid
or
credited
or
deemed
to
have
been
paid
or
credited
to
a
non-resident
person,
that
person
is
liable
to
pay
as
tax
under
this
Part
on
behalf
of
the
non-resident
person
the
whole
of
the
amount
that
should
have
been
deducted
or
withheld,
and
is
entitled
to
deduct
or
withhold
from
any
amount
paid
or
credited
by
him
to
the
non-resident
person
or
otherwise
recover
from
the
non-resident
person
any
amount
paid
by
him
as
tax
under
this
Part
on
behalf
thereof.
227(10.1)
The
Minister
may
assess
(a)
any
person
for
any
amount
payable
by
that
person
under
subsection
(9),
and
(b)
any
non-resident
person
for
any
amount
payable
by
that
person
under
Part
XIII,
and,
where
he
sends
a
notice
of
assessment
to
that
person,
sections
150
to
167
(except
subsections
164(1.1)
to
(1.3))
and
Division
J
of
Part
I
are
applicable
with
such
modifications
as
the
circumstances
require.
Subsection
80.4(2)
is
a
deeming
provision.
It
deems
a
shareholder
to
have
received
a
benefit
equal
to
the
interest
it
should
have
paid
at
a
prescribed
rate
on
a
loan
from
the
corporation.
This
deemed
amount
is
to
be
included
in
the
shareholder's
income.
Subsection
15(9)
states
that
the
interest
free
loan
is
deemed
to
be
a
benefit
conferred
by
the
corporation
on
the
shareholder.
The
combination
of
this
subsection
with
subsection
15(1)
ensures
that
the
benefit
received
by
the
non-resident
corporation
will
be
included
in
income.
Revenue
Canada
calculated
the
amount
of
interest
at
the
prescribed
rate
and
include
it
in
the
income
of
the
shareholder
(non-resident
corporation).
Sections
15
and
80.4
are
in
Part
I
of
the
Act
and
do
not
apply
to
non-residents.
Subsection
214(3)
is
contained
in
Part
XIII
of
the
Act
and
incorporates
section
15
by
reference.
This
Bart
requires
Canadian
residents
who
are
conferring
the
benefit,
to
withhold
and
remit
the
tax
on
behalf
of
the
non-resident.
Simply
stated
the
Act
sets
out,
in
general,
that
when
a
corporation
makes
an
interest
free
loan
to
a
shareholder,
the
shareholder
is
deemed
to
have
received
a
benefit
equal
to
the
value
of
the
interest
on
the
loan
which
is
precisely
calculated
at
the
end
of
each
calendar
year.
The
parties
referred
to
a
treaty
Canada-United
States
Income
Tax
Convention
(1980).
Paragraphs
2
and
3
of
Article
X
of
that
treaty
read
as
follows:
2.
However,
such
dividends
may
also
be
taxed
in
the
contracting
state
of
which
the
company
paying
the
dividends
is
a
resident
and
according
to
the
laws
of
that
state;
but
if
a
resident
of
the
other
contracting
state
is
the
beneficial
owner
of
such
dividends,
the
tax
so
charged
shall
not
exceed:
(a)
ten
per
cent
of
the
gross
amount
of
the
dividends
if
the
beneficial
owner
is
a
company
which
owns
at
least
ten
per
cent
of
the
voting
stock
of
the
company
paying
the
dividends;
(b)
15
per
cent
of
the
gross
amount
of
the
dividends
in
all
other
cases
This
paragraph
shall
not
affect
the
taxation
of
the
company
in
respect
of
the
profits
out
of
which
the
dividends
are
paid.
3.
The
term
“dividends”
as
used
in
this
Article
means
income
from
shares
or
other
rights,
not
being
debt-claims,
participating
in
profits,
as
well
as
income
subjected
to
the
same
taxation
treatment
as
income
from
shares
by
the
taxation
laws
of
the
state
of
which
the
company
making
the
distribution
is
a
resident.
Subsection
212(2)
provides
that
a
non-resident
pay
25
per
cent,
varied
by
the
treaty
to
ten
per
cent,
on
the
deemed
benefit
dividend.
It
would
appear
from
Article
X,
paragraph
3
of
the
treaty
that
deemed
dividends
are
treated
as
dividends.
The
Minister
applied
a
prescribed
rate
of
interest
to
the
amounts
advanced
to
Interco.
The
Minister
then
regarded
the
interest
amount
as
a
dividend.
A
benefit
was
granted
by
the
appellant
to
the
non-resident.
The
Minister
assessed
tax
on
the
benefit.
The
Minister
calculated
the
benefit
as
follows:
1988-
$275,297
1989
—
$786,196
1990
—
$674,071
The
issue
is
whether
the
appellant
had
to
deduct
or
withhold
tax
on
behalf
of
the
parent
Company
Interco
with
respect
to
benefits
Interco
received
from
non
interest
bearing
loans
and,
if
so,
is
the
appellant
liable
to
pay
the
unremitted
tax.
Position
of
the
appellant
All
the
facts
having
been
agreed
upon,
the
appellant
proceeded
directly
to
argument.
The
common
thread
woven,
through
counsel’s
arguments
was
the
position
that
where
the
Act
is
unclear
or
ambiguous,
any
lack
of
clarity
should
be
resolved
in
favour
of
the
appellant.
The
appellant
relied
upon,
inter
alia,
Johns-Manville
Canada
Inc.
v.
The
Queen,
[1985]
2
S.C.R.
46,
[1985]
2
C.T.C.
111,
85
D.T.C.
5373,
in
support
of
this
position.
In
this
case
Justice
Estey
made
the
following
comment
on
ambiguities
in
a
statute
at
C.T.C.
page
126
(D.T.C.
5384):
Such
a
determination
is,
furthermore,
consistent
with
another
basic
concept
in
tax
law
that
where
the
taxing
statute
is
not
explicit,
reasonable
uncertainty
or
factual
ambiguity
resulting
from
lack
of
explicitness
in
the
statute
should
be
resolved
in
favour
of
the
taxpayer.
1.
Requirement
that
a
payment
be
made
The
appellant
submitted
that
section
215
of
the
Act
provides
that
two
specific
conditions
be
met
in
order
for
the
appellant
to
be
liable
to
pay
tax
and
that
these
conditions
were
not
satisfied:
(a)
there
must
be
an
actual
payment
of
a
dividend;
and
(b)
the
non-resident
must
be
liable
to
pay
tax.
The
appellant's
counsel
referred
to
jurisprudence
in
support
of
the
argument
that
for
this
non-event
to
be
taxable
the
Act
would
have
to
be
specific
in
deeming
interest
paid,
by
whom,
to
whom,
and
at
what
specific
time.
In
order
for
the
nonpayment
of
interest
to
be
treated
as
an
actual
payment
by
the
appellant
to
Intercon,
it
must
be
clearly
and
unequivocably
stated
in
the
Act.
2.
Liability
requirement
The
appellant
stated
that
the
words
"as
if
Part
I
were
applicable”
found
in
subsection
214(3)
of
the
Act
should
not
be
interpreted
as
meaning
that
Part
I
is
deemed
to
apply
to
non-residents.
In
summary,
the
appellant
states
that
if
the
taxpayer
is
in
fact
a
non-resident
then
no
tax
is
payable
because
non-residents
are
not
subject
to
Part
I
tax.
If
the
subsection
serves
to
change
a
non-resident
into
a
resident,
then
subsection
80.4(2)
will
not
apply
and
therefore
no
tax
is
payable
because
subsection
80.4(2)
does
not
apply
to
Canadian
corporations.
Counsel
disagreed
with
the
decision
of
Judge
Dussault
of
this
Court
who
specifically
rejected
this
position
in
Industries
PWI
v.
M.N.R.,
[1993]
1
C.T.C.
2453,
93
D.T.C.
852.
3.
Uncertainty
The
appellant
further
argues
that
even
if
this
argument
is
not
accepted,
there
is
nevertheless
no
liability
on
the
part
of
the
appellant
because
it
is
unable
to
comply
with
the
unclear
and
ambiguous
sections
of
the
Act
in
issue.
The
focus
of
the
appellant's
argument
on
this
point
relates
to
timing.
The
appellant’s
argument
concerns
the
specific
calculations
involved
in
subsection
80.4(2).
The
appellant
claims
that
there
are
problems
involved
in
trying
to
ascertain
the
timing
of
the
calculation
as
to
when
the
benefit
is
conferred.
The
appellant's
argument
on
this
point
begins
with
section
215,
which
places
the
taxpayer
under
a
duty
to
withhold
and
remit
taxes
to
the
Receiver
General
forthwith.
The
appellant
then
cites
subsection
214(3.1)
which
reads
as
follows:
214(3.1)
Except
as
otherwise
expressly
provided,
each
amount
deemed
by
subsection
(3)
to
have
been
paid
shall
be
deemed
to
have
been
paid
at
the
time
of
the
event
or
transaction
as
a
consequence
of
which
the
amount
would,
if
Part
I
were
applicable,
be
required
to
be
included
in
computing
a
taxpayer's
income.
Therefore
the
section
provides
that
the
benefit
is
conferred
at
the
time
of
the
event
or
transaction.
This
will
mean
that
the
appellant
must
withhold
and
remit
at
this
time.
The
appellant
argues
that
subsection
80.4(2)
tax
arises
out
of
a
failure
to
charge
interest.
The
failure
to
charge
interest
however,
is
a
non-event.
The
result
therefore
is
that
there
is
no
concrete
time
as
to
when
the
dividend
can
be
said
to
arise.
The
appellant
therefore
has
no
idea
when
or
how
to
calculate
the
benefit
and
to
remit
the
tax.
The
appellant
also
ties
in
the
argument
made
above
as
to
the
lack
of
specificity
as
to
who
made
the
payment.
The
Act
focuses
on
the
recipient
and
therefore
fails
to
provide
who
is
deemed
to
make
the
payment.
The
appellant
hypothesizes
that
in
some
situations,
such
as
where
there
are
a
number
or
subsidiaries,
the
potential
for
confusion
as
to
who
made
the
payments
may
arise.
Counsel
noted
for
example,
that
where
one
Canadian
subsidiary
makes
a
payment
to
another
Canadian
subsidiary,
who
then
finally
makes
a
payment
or
deemed
payment
to
a
nonresident,
there
could
be
confusion
as
to
which
of
the
subsidiaries
is
to
withhold
and
remit
tax.
The
final
component
of
the
appellant’s
uncertainty
argument
is
with
regard
to
the
assessments.
The
appellant
notes
that
the
respondent's
calculations
are
for
the
1984,
1985
and
1986
calender
years.
Unfortunately
the
assessments
as
issued
imply
that
the
calculation
is
based
upon
the
taxation
years
of
the
appellant.
The
appellant
argues
that
its
taxation
year
is
at
the
end
of
February
of
each
year.
This
would
mean
that
the
loan
in
August,
1984
would
not
have
been
made
prior
to
the
end
of
the
1984
taxation
year
of
the
appellant.
According
to
the
appellant
this
will
mean
that
no
tax
is
owing
for
that
year.
The
appellant
has
also
recalculated
the
lower
amounts
of
tax
that
would
have
been
owing
for
1985
and
1986
if
the
calculation
was
based
on
the
taxation
years,
rather
than
the
calendar
years.
It
argues
that
it
should
be
reassessed
only
on
that
basis.
4.
Invalidity
of
assessment
Finally
the
appellant
suggests
that
the
assessment
form
provides
for
the
taxation
year,
rather
than
the
calendar
year.
Because
calculations
were
based
on
the
calendar
year,
the
assessments
are
vague
and
should
be
set
aside.
Position
of
the
Minister
Counsel
for
the
Minister
submitted
that
a
broader
approach
be
adopted
when
interpreting
the
Act.
When
the
relevant
sections
are
viewed
collectively
with
the
entire
Act,
he
concludes,
it
is
clear
that
the
appellant
is
under
a
duty
to
remit.
This
approach
is
found
in
Stubart
v.
M.N.R.,
[1984]
1
S.C.R.
536,
[1984]
C.T.C.
294,
84
D.T.C.
6305,
and
relied
on
by
Judge
Dussault
in
Industries
P.W.I.
Inc.,
supra,
at
page
2457
(D.T.C.
855):
In
my
view,
One
must
follow
the
principle
or
approach
to
so-called
“modern”
interpretation
recommended
by
Driedger,
particularly
when
ascertaining
the
meaning
of
complex
provisions
in
the
context
of
a
statute
which
contains
a
number
of
parts
that
in
some
way
hinge
on
one
another.
I
take
the
liberty
here
of
simply
recalling
that
author's
remarks,
as
cited
in
the
Supreme
Court
judgment
in
Stubart,
supra,
referred
to
above
and
which
read
as
follows:
Today
there
is
only
one
principle
or
approach,
namely,
the
words
of
an
Act
are
to
be
read
in
their
entire
context
and
in
their
grammatical
and
ordinary
sense
harmoniously
with
the
scheme
of
the
Act,
the
object
of
the
Act,
and
the
intention
of
Parliament.
The
Minister
therefore
suggests
that
the
sections
must
simply
be
read
in
the
logical
progression
noted
above.
When
these
sections
are
viewed
in
the
context
of
the
entire
Act,
the
Minister
submits
that
it
is
clear
that
the
appellant
is
under
a
duty
to
remit.
The
Minister
further
contends
that
it
is
clear
that
Interco
is
deemed
to
have
received
the
benefit
from
the
appellant
and
Interco
is
liable
for
tax
on
this
benefit.
Given
that
the
appellant
is
deemed
to
have
made
a
payment,
it
is
liable
for
the
tax
owing.
Therefore
the
appellant
meets
the
"payment"
requirement
of
the
legislation.
The
Minister
has
cited
Placements
Serco
Ltée
v.
The
Queen,
[1988]
1
C.T.C.
213,
88
D.T.C.
6125
(F.C.A.),
in
support
of
his
argument
that
the
deeming
provision
of
the
Act
can
be
read
to
cover
not
only
the
recipient,
but
the
payor
of
the
dividend.
In
Placements
Serco,
the
taxpayer
was
a
Canadian
corporation
that
had
purchased
shares
of
two
other
Canadian
corporations
from
non-residents.
The
Minister
considered
the
payment
by
the
appellant
to
be
a
deemed
dividend
under
section
212
of
the
Act.
The
appellant
argued
that
it
should
not
be
under
an
obligation
to
withhold
tax
on
a
deemed
dividend
of
this
nature.
The
Court
disagreed.
In
particular
Justice
Hugessen
adopted
the
following
expansive
approach
to
deemed
dividends
at
page
215
(D.T.C.
6126):
The
fact
that
the
definitions
of
“dividend”
in
subsection
248(1)
and
of
“taxable
dividend”
in
paragraph
89(1
)(j)
do
not
mention
a
"deemed"
dividend
is
of
no
assistance
to
the
appellant
since
the
deeming
provision
has
precisely
this
effect,
of
extending
the
meaning
of
the
word
“dividend”
to
payments
which
it
would
otherwise
not
cover.
Paragraph
212(2)(a)
applies
not
only
to
actual
payment
of
a
"deemed"
dividend,
as
in
the
case
at
bar,
but
also
to
situations
such
as
those
covered
in
subsections
84(1)
and
219(5.3),
in
which
it
is
the
payment
itself
which
is
deemed
to
have
been
made
though
there
is
no
payment
of
money.
This,
in
our
view,
is
the
explanation
for
the
phrase
"or
is
deemed
by
Part
I
or
Part
XIV
to
pay
or
credit,
to
him”;
in
the
circumstances
of
the
case
at
bar,
we
can
remove
these
words
and
read
the
provision
as
if
it
spoke
only
of
the
payment
of
a
dividend.
For
the
reasons
given
it
extends
to
payments
which
are
deemed
to
be
dividends.
The
Minister
argues
that
while
portions
of
this
excerpt
may
be
obiter,
it
nevertheless
reveals
an
appropriate
interpretive
approach
to
these
types
of
legislative
provisions.
The
legislature
has
deemed
certain
payments
to
be
dividends.
As
a
result
the
section
of
the
Act
must
be
read
with
this
fact
in
mind.
In
the
present
case
the
non-resident
parent
corporation
is
deemed
to
have
received
a
benefit
by
virtue
of
the
interest
free
loan.
By
logical
extension,
the
taxpayer
who
made
the
loan
must
have
paid
the
benefit.
The
benefit
is
deemed
to
be
a
dividend.
The
Minister
therefore
submits
that
the
appellant
is
under
a
duty
to
withhold
and
remit
tax
on
the
amount
of
the
deemed
dividend.
With
respect
to
the
liability
requirement,
the
Minister
responds
as
follows:
Firstly,
with
regard
to
the
"as
if
Part
I
tax
were
applicable”,
argument
the
Minister
suggests
that
the
section
simply
deems
the
non-resident
to
be
liable
for
Part
I
taxes,
relying
upon
the
decision
by
Judge
Dussault
in
Industries
P.W.I.
Inc.,
supra.
The
second
point
raised
by
the
appellant
concerns
the
uncertainty
of
the
timing
of
the
payment
and
by
whom
the
payment
is
made.
The
Minister
contends
that
it
is
clear
that
the
appellant
made
the
loan
to
Interco.
Counsel
also
suggests
that
the
Act
is
quite
clear
that
the
timing
of
the
calculation
of
the
benefit
is
to
occur
at
the
end
of
the
calendar
year.
Therefore
at
the
end
of
the
year
it
is
possible
to
determine
with
certainty
how
much
was
loaned
during
the
course
of
the
calendar
year
and
whether
interest
was
actually
paid
on
the
amounts
loaned.
The
amount
actually
paid
can
be
compared
with
the
amount
that
should
have
been
paid
according
to
the
prescribed
rate
for
the
calendar
year.
The
difference
between
these
two
amounts
will
constitute
the
deemed
benefit.
As
a
result,
the
timing
is
quite
exact
and
the
appellant
can
understand
and
comply
with
its
duty
to
remit.
The
Minister
has
also
briefly
addressed
the
appellant's
final
argument
concerning
the
validity
of
the
assessments.
Counsel
for
the
Minister
acknowledged
that
the
assessment
forms
unfortunately
do
refer
to
the
taxation
years,
rather
than
the
calendar
years.
He
noted
that
the
sections
governing
interest
benefits
and
withholding
taxes
are
clear
in
stipulating
that
the
taxation
is
to
be
based
upon
the
calendar
year,
rather
than
the
fiscal
period
of
a
taxpayer
and
that
calculations
in
the
assessment
were
correctly
made
in
accordance
with
the
calendar
years
in
question.
In
the
explanation
section
of
the
assessment,
it
is
clearly
stated
that
the
assessment
arose
out
of
the
failure
to
withhold
and
remit
tax
on
benefits
paid
to
a
non-resident.
Finally
the
Minister
also
notes
that
the
notice
of
confirmation
corrects
any
potential
ambiguity
by
explicitly
crossing
out
any
reference
to
taxation
years.
As
a
result,
the
material
forwarded
to
the
appellant
was
sufficiently
clear
that
the
calculation
was
made
on
the
basis
of
the
calendar
year
and
the
assessments
are
therefore
valid.
For
all
of
these
reasons,
the
Minister
concludes
that
the
payment
was
made
by
the
appellant
and
that
the
non-resident
was
liable
for
tax.
Furthermore,
the
appellant
understood
its
obligation
to
remit
and
should
have
complied
with
this
duty.
The
thrust
of
the
appellant’s
presentation
is
focused
on
a
narrow
and
technical
interpretation
of
the
relevant
sections
of
the
Act.
When
the
Act
is
interpreted
as
a
whole
I
conclude
that
the
relevant
sections
permit
an
interpretation
which
specifically
provides
for
the:
(a)
quantum
of
the
benefit,
(b)
by
whom
it
is
to
be
paid;
and
(c)
a
liability
by
the
Canadian
company
to
pay
tax.
Counsel,
for
both
parties,
referred
to
Industries
P.W.I.
Inc.,
supra.
The
taxpayer
raised
a
similar
argument
to
that
presented
by
counsel
for
the
appellant
in
the
present
instance
which
argument
was
rejected.
Dussault
J.T.C.C.
concluded
at
pages
2458
(D.T.C.
855-56):
Knowing
then
that
Part
I
is
not
applicable
to
non-residents
in
respect
of
revenue
items
relating
to
the
provisions
mentioned
at
the
start
of
paragraph
214(3)(a),
including
section
15,
the
paragraph
continues
with
the
clause,
“if
Part
1
were
applicable”.
These
words
can
express
Only
one
thing;
an
assumption
or
a
supposition.
Their
meaning
is
thus
equivalent
to
“supposing
Part
I
were
applicable”
to
non-residents
in
respect
of
items
referred
to
in
section
15
or
subsection
56(2).
I
accept
Judge
Dussault’s
reasoning.
He
stated
that
a
"words
in
context
approach",
must
be
adopted
to
an
interpretation
of
the
Act
and
this
approach
is
particularly
necessary
where
a
number
of
sections
of
the
Act
are
interlocking.
The
Court
must
attempt
to
ascertain
the
meaning
of
these
technical
sections
in
the
context
of
the
general
scheme
and
intention
of
the
Act.
While
the
relevant
legislation
is
complex,
it
cannot
be
considered
meaningless.
A
certainty
and
meaning
of
the
provisions
in
question
can
be
discerned,
when
they
are
read
together
in
their
entirety.
The
dicta
referred
to
in
the
Johns-
Manville
case,
supra,
would
apply
only
where
ambiguities
and
uncertainties
exist
after
referring
to
the
entire
context
of
the
Act
as
it
applies
in
the
present
instance.
The
present
case
does
not
have
the
ambiguity
that
existed
in
the
Johns-Manville
case.
This
process
is
more
cumbersome
when
a
non-resident
is
the
recipient
of
the
interest
free
loan.
Interco
the
non-resident
corporation,
is
deemed
to
have
received
a
benefit
and
is
liable
to
pay
tax
based
on
this
benefit.
When
this
liability
for
tax
arose,
there
was
a
corresponding
liability
on
the
Canadian
resident
corporation,
the
appellant,
to
withhold
and
remit
tax.
The
deeming
provisions
referred
to,
when
applied
as
a
whole,
permit
the
respondent
to
identify,
clearly,
who
has
received
the
benefit
and
the
amount
of
this
benefit.
While
it
is
not
specifically
stated
in
the
section,
it
is
a
logical
interpretation
of
the
provision
that
the
corporation
(the
appellant)
that
made
the
loan
is
deemed
to
have
conferred
or
paid
the
benefit.
The
"payment"
requirement
of
the
appellant
is
therefore
met.
The
Act
further
provides
that
Interco
is
liable
to
pay
for
the
tax
as
calculated
at
the
end
of
the
calendar
year.
Following
the
interpretation
of
Judge
Dussault
in
Industries
P.W.I.
“as
if
Part
I
were
applicable”
leads
to
the
conclusion
that
the
liability
of
the
appellant
is
to
be
calculated
on
the
assumption
that
a
non-resident
is
subject
to
Part
I
of
the
Act.
I
accept
the
respondent's
submission
that
the
timing
of
the
deemed
benefit
isprecise
and
accurately
calculated.
The
appellant
should
have
been
able
to
understand
and
comply
with
this
condition.
I
conclude
that
the
appellant’s
second
and
third
arguments
or
conditions,
concerning
the
liability
and
certainty
requirements,
have
also
been
met.
While
the
use
of
the
phrase
“taxation
year”
in
an
assessment
relating
to
a
calendar
year
may
be
inappropriate,
it
does
not
nullify
the
assessment
as
presented
by
the
appellant.
The
appellant
is
being
assessed
due
to
its
failure
to
remit
taxes
owing
on
an
interest
benefit
conferred
on
Intercon,
non-resident.
The
Minister’s
calculation
is
on
that
basis
and
any
ambiguity
was
clarified
by
the
modifications
in
the
Notice
of
Confirmation.
For
these
reasons,
the
appeal
is
dismissed
with
costs.
Appeal
dismissed.
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