Date: 20000105
Docket: 98-1517-IT-G
BETWEEN:
IRON ORE COMPANY OF CANADA,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasons for Judgment
Lamarre Proulx, J.T.C.C.
[1] This is an appeal concerning the Appellant's 1994
taxation year. The question at issue is whether a refund of sales
tax should be included in the calculation of the Appellant's
income in the year of the refund or in the years where the taxes
were erroneously paid. The provision of the Income Tax Act
(the "Act") that is particularly of
application is subparagraph 12(1)(x)(iv).
[2] The facts and the parties' submissions are described
in the Agreed Statement of Facts that was produced before the
hearing. It reads as follows:
1. The parties agree that the issue to be decided is whether
the Minister of National Revenue (hereinafter the
"Minister") erred in including the refunded provincial
sales tax in the amount of $950,000.00 in the computation of
Appellant's income for its 1994 taxation year.
2. Appellant is a corporation formed and existing under the
laws of the United States of America. At all relevant times,
Appellant's business was the mining of iron ore in
Canada.
3. On 31 March 1982, the Deputy Minister of Revenue of Quebec
(hereinafter "Revenue Quebec") issued two (2) notices
of assessment which determined the taxes allegedly payable by the
Appellant pursuant to the Retail Sales Tax Act, R.S.Q.
1977 and c. I-1 (hereinafter "R.S.T.A.") for
the period extending from 1 April 1978 to 30 September
1981.
4. On 19 April 1984, Appellant filed a Motion for Appeal in
the Quebec Provincial Court alleging, inter alia, the
ultra vires nature of the Regulation, the whole as more
fully appears from copy of the Motion for Appeal dated 19 April
1984 attached hereto under tab 1.
5. On 10 October 1986, Appellant filed a Motion for Appeal in
the Quebec Provincial Court contesting a reassessment issued by
Revenue Quebec pursuant to the R.S.T.A. for the period extending
from 1 October 1981 to 31 May 1985 on the same grounds as those
alleged in the Motion for Appeal attached under tab 1, the
whole as more fully appears from copy of the Motion for Appeal
dated 10 October 1986 attached hereto under tab 2.
6. The parties agreed to stay the appeal referred to in
paragraph 5, supra, until the resolution of the
appeal referred to in paragraph 4, supra.
7. The trial Judge of the Provincial Court delivered a
judgment on 21 August 1987 on the appeal referred to in
paragraph 4, supra, whereby he held,
inter alia, that the exclusion of all "rolling
stock" as defined in the Regulation from the expression
"production equipment" was not authorised by the power
to "define" that expression, and therefore the
Regulation was, ultra vires, of the power of the
Government by section 31 of the R.S.T.A., the whole as more
fully appears from the decision of the Provincial Court attached
hereto under tab 3.
8. On 4 September 1987, Revenue Quebec appealed the judgment
of the Provincial Court to the Quebec Court of Appeal.
9. On 19 May 1988, 22 May 1988 and 21 March 1989, Revenue
Quebec, the Attorney General of Quebec and Appellant respectively
filed their factums before the Quebec Court of Appeal.
10. On 6 April 1989, the Government of Quebec enacted An
Act to amend the Taxation Act and other legislation and to make
certain provisions respecting Retail Sales Tax, L.Q.
1989, chap. 5 (hereinafter "Bill 60"), to,
inter alia, retroactively impose Quebec retail sales tax
on rolling stock and the said legislation was stated to apply to
cases pending before the Courts, as more fully appears from copy
of sections 9 to 18 of Bill 60 attached hereto under
tab 4.
11. Bill 60 also stated that the Courts could not grant costs
to any party which would contest the retroactive application of
Bill 60, as more fully appears from copy of sections 266 to 272
of Bill 60 attached hereto under tab 5.
12. As the parties had filed their factums before the Quebec
Court of Appeal before Bill 60 was enacted, the parties filed
additional factums relating to the application of the retroactive
legislation to the pending appeal and the Appellants alleged in
their additional factum, inter alia, that Bill 60 was
unconstitutional.
13. On 19 October 1993, the parties executed a Declaration of
settlement out of court (hereinafter the "Settlement"),
which was ratified by the Quebec Court of Appeal on 25 October
1993, the whole as more fully appears from the Settlement and the
judgment of the Quebec Court of Appeal attached en liasse hereto
under tab 6.
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 DTC 6125.
[3] Paragraph 12(1)(x) of the Act reads as
follows:
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
(i) a person (in this paragraph referred to as “the
payer”) who pays the particular amount in the course of
earning income from a business or property or in order to achieve
a benefit or advantage for the payer or for persons with whom the
payer does not deal at arm's length, or
(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 inducement, or
(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,
to the extent that the amount
(v) was not otherwise included in computing the taxpayer's
income, or deducted in computing, for the purposes of this Act,
any balance of undeducted outlays, expenses or other amounts, for
the year or a preceding taxation year,
(vi) except as provided by subsection 127(11.1), does not
reduce, for the purposes of this Act, the cost or capital cost of
the property or the amount of the outlay or expense, as the case
may be,
(vii) does not reduce, under subsection (2.2) or 13(7.4) or
paragraph 53(2)(s), the cost or capital cost of the property or
the amount of the outlay or expense, as the case may be, and
(viii) may not reasonably be considered to be a payment made
in respect of the acquisition by the payer or the public
authority of an interest in the taxpayer, his business or his
property;
(Emphasis added)
[4] Counsel for the Appellant had argued the case of Bois
Aisé de Roberval Inc. c. La Reine,
99 DTC 380, where this Court decided that the amount of
export taxes which had been refunded to the taxpayer in 1993
should have been included in the year of refund and not in the
years where the taxes were erroneously paid, pursuant to
subparagraph 12(1)(x)(iv) of the Act. That
decision was not appealed.
[5] In paragraphs 29, 30 and 31 of this decision, McArthur J.
stated as follows:
Moreover, the language used in paragraph 12(1)(x) of
the Act provides for two types of payments: inducements
and refunds. Subparagraph 12(1)(x)(iii) of the Act
provides for inducements. This is where there is a positive
element. In subparagraph 12(1)(x)(iv) of the Act,
Parliament lists amounts that relate to refunds. The nature of
this provision is thus neutral. For convenience I reproduce the
relevant provision:
(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,
This provision refers to precisely the situation in which
there was an outlay or expense and a refund was subsequently
made. The effect is neutral, as it merely restores the party to
the situation it was in prior to any amount having been paid. As
well, we see from the expression "or any other form of
assistance" that Parliament did not intend to create an
exhaustive list.
Lastly, Professor Côté noted the danger in the
noscitur a sociis rule. At page 242 of his text, he
wrote:
Concerning the rule noscitur a sociis,
Mr. Justice Anglin [referring to A.G. for B.C. v.
The King] wrote [at page 638]:
"Without belittling the rule of construction invoked on
behalf of the respondent - noscitur a sociis - care must
always be taken that its application does not defeat the true
intention of the legislature."
(Emphasis added)
[6] Counsel for the Appellant submitted that the
Bois-Aisé decision was the first one of this
Court to conclude that the rule noscitur a sociis did not
apply to the terms used in subparagraph 12(1)(x)iv) of the
Act. In other decisions of this Court, it had been found
that the term "reimbursement" was to be interpreted in
the context of this provision, a provision concerning amounts
received and qualified as any other form of assistance.
The other decisions to which counsel for the Appellant referred
are Canada Safeway Limited v. The Queen, 97 DTC 187,
confirmed by the Federal Court of Appeal: 98 DTC 6060, and
Hill v. The Queen, 94 DTC 1078. Counsel for the
Appellant submitted that I could follow these other decisions
rather than the one of this Court in Bois Aisé.
[7] Counsel for the Respondent submitted that the words
"as a refund, reimbursement, contribution, or allowance or
as assistance" found in
subparagraph 12(1)(x)(iv) of the Act were to
be taken distinctively and each be given their entire meaning
without being associated and narrowed to the meaning of payments
of assistance.
[8] At paragraph 4 of these Reasons, I quoted an excerpt
of the Bois-Aisé decision. The judgment was
rendered in French and the French version of
subparagraph 12(1)(x)(iv) differs slightly from the
English version cited at paragraph 3 of these Reasons. The
French version of 12(1)(x)(iv) of the Act reads as
follows:
(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,
(Emphasis added)
[9] The relevant extract from the Bois-Aisé
decision rendered in French is as follows:
Cette disposition prévoit précisément la
situation où une dépense a été
engagée ou effectuée et qu'un remboursement a
eu lieu subséquemment. L'effet est neutre
puisqu'il ne fait que remettre la partie dans
l'état où elle se trouvait avant le paiement de
quelque somme que ce soit. De même, par l'expression
“ou sous toute autre forme”, le
législateur n'a pas voulu créer une liste
exhaustive.
(Emphasis added)
[10] We see that the last part refers only to "sous toute
autre forme", which has a broader meaning than "on any
other form of assistance".
[11] As a few other judges who have interpreted this
provision, I would say that it is a provision that is not without
ambiguity. I would have been inclined to find that the meaning of
the terms "form of assistance" being a meaning common
to both versions was to be the applicable meaning in accordance
with the rule of interpretation of official bilingual statutes. I
would also have been inclined to interpret the terms of the said
provision in its context in using the rule noscitur a
sociis. However, a reading of the decision of the Federal
Court of Appeal in Canada Safeway (supra) brings me
to believe that it has been essentially decided on the
distinction to be brought in the English language between a
reimbursement and a refund and not on the noscitur a
sociis rule, although that rule was the basis of that
decision in our Court. I therefore find it indicative that in the
Federal Court of Appeal's view, that rule may not have been
of application.
[12] The decision of the Federal Court of Appeal in Canada
Safeway, which confirmed a distinction in the English legal
language between a reimbursement and a refund, was rendered on
November 26, 1997. Subparagraph 12(1)(x)(iv) of the
Act was amended in 1998 to include in the English version
the word refund to be applicable to amounts received after
1990. This amendment was an important element of the decision of
our Court in Bois-Aisé. Another one, as
previously mentioned, was that the noscitur a sociis rule
did not apply.
[13] For the above reasons, it is my view that the decision of
our Court in Bois-Aisé followed the decision
of the Federal Court of Appeal in Canada Safeway
and therefore should also be followed by me according to the rule
of the stare decisis.
[14] If I had found that the refund in question was not within
the meaning of subparagraph 12(1)(x)(iv) of the
Act, counsel for the Appellant had submitted that the
refund should have been included in the years when the payment of
taxes had been erroneously made according to the decision of the
Federal Court of Appeal in The Queen v. Johnson &
Johnson Inc., 94 DTC 6125.
[15] In Canada Safeway (supra) the Federal Court
of Appeal, having found that the receipt in question was not a
reimbursement but a refund, followed the Johnson &
Johnson decision. In that decision, the Federal Court of
Appeal had determined that refunds of Federal Sales Taxes were
receipts of an income nature. However, it also determined that
these receipts should be included in the calculation of income in
the years where the amounts were erroneously paid. I quote at
page 6130:
In short, it is my view that the refund of taxes, which have
been charged as expenses in the year of payment but which should
never have been paid at all, must be brought into the computation
of income for the years in which they were paid and charged.
[16] That case was not decided on
subparagraph 12(1)(x) of the Act since the
refunds were made in 1982 or 1983. Subparagraph 12(1)(x)
of the Act came into existence in 1986 and was applicable
to amounts received after May 22, 1985.
[17] Even if hypothetically, the refunds were not within the
meaning of subparagraph 12(1)(x)(iv) of the
Act, as submitted by counsel for the Appellant, I have the
greatest doubt that they should be included in the taxation years
where the payments were made erroneously. It seems to me that the
recent decisions of the Supreme Court of Canada in Ikea
Ltd. v. Canada [1998] 1 S.C.R. 196 and Canderel
[1998] 1 S.C.R. 147 have modified that part of the decision
having to do with the timing of the inclusion of refunds or
reimbursements in the calculation of income. The Ikea and
Canderel decisions are to the effect that the calculation
of income for a taxation year shall reflect the true picture of
the taxpayer's income for that taxation year. It would thus
appear that refunds or reimbursements would have in any event be
taken into account in the year in which this amount is
ascertained. Paragraph 12(1)(x) of the Act requires
these amounts to be included in the year where they are
received.
[18] The appeal is dismissed with costs.
Signed at Ottawa, Canada, this 5th day of January 2000.
"Louise Lamarre Proulx"
J.T.C.C.
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