Docket: A-102-15
Citation: 2016 FCA 64
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CORAM:
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NOËL C.J.
SCOTT J.A.
DE MONTIGNY J.A.
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BETWEEN:
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GLEN FRENCH
And the other
appellants listed in the “Revised Schedule A”
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Appellants
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and
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HER MAJESTY THE
QUEEN
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Respondent
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REASONS FOR
JUDGMENT
NOËL C.J.
[1]
These appeals brought by Glen French (Mr. French
or the appellant) and 41 other appellants listed in Revised Schedule A are from
an interlocutory order issued by the Tax Court of Canada (2015 TCC 35) wherein
C. Miller J. (the Tax Court judge) allowed a motion by Her Majesty the Queen
(the respondent) to strike a plea in the appellants’ respective Amended Notices
of Appeal. The plea in question invokes sections 8.1 and 8.2 of the Interpretation
Act, R.S.C. 1985, c. I-21 (the Interpretation Act) and alleges that
in assessing the legal validity of a gift under the Income Tax Act,
R.S.C. 1985, c. 1 (5th Supp.) (the ITA), Parliament intended that a
uniform concept of gift in line with the civil law of the Province of Québec be
applied across Canada.
[2]
The 42 appeals were consolidated by order of
this Court issued on April 22, 2015, Mr. French being designated as the lead
appellant. In conformity with this order, the reasons which follow will be
filed in docket A-102-15 and copy thereof will be filed as reasons for judgment
in each of the consolidated appeals.
[3]
The legislative provisions which are relevant to
the analysis are set out in Annex I to these reasons.
I.
BACKGROUND
[4]
The assessments in issue disallow in whole the
appellant’s claimed tax credits with respect to alleged gifts made to Ideas
Canada Foundation, a registered charity, pursuant to section 118.1 of the ITA.
Mr. French contends that he made such gifts during the 2000, 2001 and 2002
taxation years. A portion of Mr. French’s gifts was made from his personal
funds while the remainder was funded by loans tied to the gifts.
[5]
Mr. French’s primary position is that he is
entitled to the full amount of the claimed tax credits. He further maintains in
the alternative that he is entitled to the tax credits claimed in respect of
the portion of the gifts that exceeded the value of any consideration he would
have received in the process. In making the latter argument Mr. French invokes
the civil law of the Province of Quebec even though none of the purported
donations were made in that province. The plea in question reads:
PART
III – STATUTORY PROVISIONS AND REASONS
18. The Appellant relies, inter alia, on … article 1810
of the Civil Code of Québec (“CCQ”) and sections 8.1 and 8.2 of
the Interpretation Act, R.S.C. 1985, c. I-21 (“Interpretation Act”).
…
Partial Deduction
23. In the alternative, the Appellant should be entitled to a
deduction for that portion of each of the Donations that exceeded the value of
any benefit or remuneration obtained from each of the Donations (excluding the
value of any tax advantage).
24. Under the civil law, Article 1810 of the CCQ
expressly provides that “a remunerative gift … constitutes a gift … for the
value in excess of that of the remuneration”. Consequently, to the extent that
the Loans or some aspect thereof may have constituted remuneration to the Appellant,
the Donations less the remuneration constituted a “gift” in Québec through
operation of sections 8.1 and 8.2 of the Interpretation Act.
25. Had the Appellant been resident of Québec during the
Taxation Years, he would unquestionably be entitled under section 118.1 of the
Act to a deduction of the portion of the Donations in excess of the
remuneration.
26. Parliament did not intend for section 118.1 of the Act to
produce radically different results for taxpayers in Québec that would not
apply to taxpayers in the rest of Canada.
…
PART
IV – RELIEF SOUGHT
28. For these reasons, the Appellant
asks this Court to:
...
REFER the matter back to the CRA for
reconsideration and reassessment … on the basis that the Appellant was entitled
to deduct the portion of the Tax Credits attributable to the portion of the
Donations in excess of any benefit or remuneration received by the Appellant
for the Donations;
[6]
The Tax Court judge struck the above plea
pursuant to rule 53(1)(d) of the Tax Court of Canada Rules (General
Procedure), SOR 90/688a (TCC Rules), on the basis that it was doomed
to fail. For the reasons which follow, I have come to the view that it is not
plain and obvious that the impugned plea cannot succeed and that the appeal
should accordingly be allowed.
II.
DECISION OF THE TAX COURT JUDGE
[7]
The Tax Court judge first emphasized the high
threshold that must be met before a plea can be struck under rule 53(1) of the TCC
Rules, i.e.: it must be plain and obvious that it has no chance of success.
He then went on to examine whether this was the case.
[8]
He rejected the proposition that one may resort
to the civil law of Quebec to determine when a gift arises for purposes of
applying the ITA outside of the Province of Quebec. Sections 8.1 and 8.2
of the Interpretation Act ensure that civil law is not applied in the
rest of Canada and that common law is not applied in Quebec when private law
concepts of the two legal systems are called into play, which, the Tax Court
judge held, “is the very situation before me” (Reasons
at para. 13). He added that nothing in the preamble to the Federal Law–Civil
Law Harmonization Act, No. 1, S.C. 2001, c. 4, which amended the Interpretation
Act by introducing sections 8.1 and 8.2, “invites
one, as an interpreter of federal legislation, to ignore common law in favour
of civil law or vice versa: indeed, quite the opposite” (Reasons
at para. 16).
[9]
In any event, he took the view that there was no
need to resort to the civil law, for the common law meaning of “gift” has been
clearly established in the case law. In particular, he pointed to the
definition set out in Friedberg v. R., [1992] 1 C.T.C. 1 (Fed. A.D.) at
para. 4 [Friedberg] and taken up in Maréchaux v. Canada, 2010 FCA
287 at para. 3 [Maréchaux FCA]:
… a gift is a voluntary transfer of property
owned by a donor to a donee, in return for which no benefit or consideration
flows to the donor.
[My
emphasis]
[10]
Accordingly, the Tax Court judge discarded the
appellant’s contention that where the requisite intent is present, the common
law arguably recognizes as a gift a transfer of property for partial
consideration (herein a split or remunerative gift), holding that such a
proposition cannot be sustained given the decisions of this Court in Maréchaux
FCA, Kossow v. Canada, 2013 FCA 283 [Kossow FCA], and Canada
v. Berg, 2014 FCA 25 [Berg FCA] (Reasons at para. 19):
The Appellants suggest that common law has
acknowledged the concept of split receipting for a long time (see for example Woolner
v Canada, [1997] T.C.J. No. 1395). I presume this is raised to convince me
that the common law concept of gift is murky. Reliance on Woolner does
not justify looking to Québec law, but goes more to the Appellants’ view of the
correctness of the Maréchaux [FCA], Kossow [FCA]
and … Berg [FCA] … decisions. Again, it certainly does not sway
me that there is any confusion with respect to the common law meaning of
“gift”.
[11]
The Tax Court judge dismissed the idea that
bijuralism could entail the principle of uniformity, noting that it is neither
its objective nor where it is heading as a legal doctrine (Reasons at para.
14):
The Appellants’ contention that Parliament did
not intend section 118.1 of the Act to produce radically different results
simply has no foundation in the law, notwithstanding it may be supportable by
common sense. It is not an argument.
[12]
He found support in the December 2002 amendments
to the ITA “allowing a tax credit for certain
‘gifts’ that would be invalid under private law solely because the taxpayer has
received a benefit in return for making the gift” (Reasons at para. 23).
These amendments were enacted in 2013 with an effective date of December 21,
2002 (the 2002 amendments). The Tax Court judge explained that by providing a
result more clearly reflecting the civil law concept of remunerative gift, the
2002 amendments “legislatively dissociates the common
law meaning of gift from the federal legislation” (Reasons at para. 23).
[13]
As to the appellant’s argument that the 2002
amendments were meant to clarify the law rather than change it, the Tax Court judge
relied on the October 2012 Department of Finance’s Explanatory Notes
introducing these amendments which recognize that a sale at less than fair
market value could be treated in part as a gift pursuant to the civil law, but
not the common law. By identifying situations in which the charitable donation
tax credit will be available, notwithstanding benefits received by the donor
taxpayer, Parliament has clearly changed the law (Reasons at para. 24).
[14]
Unable to perceive “a
glimmer of a legal basis” upon which the appellant could build an
argument based on sections 8.1 and 8.2 of the Interpretation Act, the
Tax Court judge concluded that allowing the appellant to pursue such an
argument would be a waste of time for all the stakeholders involved (Reasons at
para. 26).
III.
THE POSITION OF THE APPELLANT
[15]
The appellant argues that the Tax Court judge’s
decision is based on a misunderstanding of the purpose and scope of sections
8.1 and 8.2 of the Interpretation Act. He asserts that this Court has
repeatedly favoured an interpretation of federal legislation that accords with
both common law and civil law traditions while still reaching a reasonably
uniform result across Canada, citing, inter alia, Grimard v. Canada,
2009 FCA 47 [Grimard] and Canada v. 9101-2310 Québec inc., 2013
FCA 241 [9101-2310 Québec inc.].
[16]
Relying on, inter alia, The Queen v.
Zandstra, [1974] C.T.C. 503 (Fed. T.D.) [Zandstra] and Woolner v.
R., [1999] 4 C.T.C. 2512 (T.C.C.) [Woolner], aff’d [2000] 1 C.T.C.
35 (Fed. A.D.) [Woolner FCA], the appellant submits that the case law is
not as clear as the Tax Court judge found. Consistent with this position, he
argues that the purpose of the 2002 amendments was to clarify the state of the
law rather than change it.
[17]
To the extent that prior decisions of this Court
preclude split gifting in the common law provinces, the appellant asks that
they be reconsidered as they give rise to a result that is contrary to what
Parliament intended. Specifically, these prior decisions did not consider
sections 8.1 and 8.2 of the Interpretation Act and the impact of the
civil law on the construction of the word “gift” as it is used in subsection
118.1(3) of the Act.
[18]
The appellant also provides two alternative
grounds on which this Court should allow the appeal, at least with respect to
the prayer for relief set out in paragraph 28 of Mr. French’s Amended Notice of
Appeal. First, in the event that the general anti-avoidance rule applies, the
resulting tax consequences pursuant to subsection 245(2) of the ITA
would require recognition of the split gift and the tax credits which
correspond to the cash portion of the gift. Second, should the Court determine
that the loans constituted a benefit, the appellant submits that the cash
portion of the transfer should be treated separately as a gift, on the basis of
the rule set out in Barclays Bank Ltd. v. Quistclose Investments Ltd.,
[1968] 3 All. E.R. 651 (H.L.), thereby allowing the appellant to claim the
corresponding tax credits.
IV.
THE POSITION OF THE RESPONDENT
[19]
The respondent submits that the Tax Court
judge’s decision to strike portions of the appellant’s pleadings is
discretionary, involves a question of mixed fact and law, and should not
therefore be interfered with absent a palpable and overriding error, unless it
contains an extricable error of law.
[20]
The respondent contends that the Tax Court judge
applied the correct test and arrived at the right conclusion. Specifically, he
was correct in holding that sections 8.1 and 8.2 of the Interpretation Act,
in this case, called for the applicable private law concept of “gift”, which
for the appellant means the common law concept of “gift”. Indeed, section 118.1
of the ITA does not direct the use of civil law in the common law
provinces for the purpose of the definition of “gift”.
[21]
Relying on Maréchaux FCA, Kossow FCA,
Berg FCA, and McNamee v. McNamee, 2011 ONCA 533, the respondent
argues that, contrary to the civil law concept of remunerative gift permitting
a transaction to be split into a gift component and a non-gift component, “in the common law, generally speaking any material benefit
received by the donor in return for a gift will vitiate the gift”
(respondent’s memorandum of fact and law at para. 33).
[22]
The respondent rejects the appellant’s
proposition that uniformity is a principle codified in the Interpretation
Act. On the contrary, sections 8.1 and 8.2 of the Interpretation Act
acknowledge that the recognition of bijuralism and complementary can lead to
different results in applying federal legislation. Indeed, these sections
ensure the integrity not only of the civil law tradition, but also of the
common law tradition.
[23]
The respondent disagrees with the contention
that Courts have taken an interpretative approach melding common law and civil
law concepts so as to achieve uniform results across Canada. In so arguing, the
respondent cites, inter alia, Caisse populaire Desjardins de l’Est de
Drummond v. Canada, 2009 SCC 29, Grimard, and 9101-2310 Québec
inc., arguing that these decisions actually undermine the appellant’s
submissions.
[24]
While Parliament can derogate from the private
law of the provinces, by way of dissociation, it has not done so with respect
to the meaning of “gift” in section 118.1 of the ITA. This changed as a
result of the 2002 amendments. Reiterating the Tax Court judge’s reasons, the
respondent argues that the Department of Finance, in the Explanatory Notes
relating to these amendments, recognized that prior to the effective date of
the amendments, any consideration would have vitiated a gift at common law. As
the 2002 amendments were not in effect when Mr. French’s purported gifts were
made, it follows that the appeal must be dismissed.
V.
ANALYSIS
[25]
On a motion to strike pursuant to rule 53(1)(d)
of the TCC Rules, the question which arises is whether it is plain an
obvious that the argument has no reasonable prospect of success (R. v.
Imperial Tobacco Canada Ltd., 2011 SCC 42 at para. 17).
[26]
The Tax Court judge’s decision allowing the
motion to strike is discretionary in nature. Absent a legal error or an error
in legal principle, the appellant must show a readily apparent error that could
change the result of the case (Turmel v. Canada, 2016 FCA 9; Imperial
Manufacturing Group Inc. v. Decor Grates Incorporated, 2015 FCA 100,
applying Housen v. Nikolaisen, 2002 SCC 33). In my view, such a readily
apparent and determinative error has been demonstrated.
[27]
The issue in the present appeal is whether it is
arguable when regard is had to sections 8.1 and 8.2 of the Interpretation
Act that Parliament intended the word “gift” as it is used in subsection
118.1(3), to encompass split gifts, in line with the notion recognized by the
civil law. The task in ascertaining Parliament’s intent is always the same. One
must read the provision in context and give the words a meaning that is
harmonious with the scheme of the act, its object and the intention of
Parliament (Rizzo & Rizzo Shoes Ltd. (Re), [1998] 1 S.C.R. 27).
[28]
The Tax Court judge correctly postulated that
the starting point of the analysis pursuant to sections 8.1 and 8.2 of
the Interpretation Act is that effect be given to the private law
governing a transaction “unless otherwise
provided by law”. He went on to discard as “hopeless” the contention
that prior to the 2002 amendments Parliament could have intended to exclude the
common law meaning of “gift” in favour of the civil law definition (Reasons at
para. 22). Only as a result of these amendments can it be said that Parliament
provided otherwise by recognizing split gifts, wherever made (Reasons,
para. 24).
[29]
In so holding, the Tax Court judge reasoned that
if the purpose and effect of the 2002 amendments was to change the law in order
to allow for split gifts, it necessarily followed that no such gift could be
recognized prior to the coming into force of these amendments. Hence the
conviction with which he found that the appellant’s plea had no chance of
success (Reasons, paras. 25 and 26).
[30]
The Tax Court judge found support in his
assessment of the purpose of the 2002 amendments in the Explanatory Notes which
accompanied the 2002 amendments. In his view, these notes make it clear that
the purpose was to recognize a form of gift which had no validity under the
prior law. His exact words are as follows (Reasons at para. 24):
Even in the
Department of Finance’s own Explanatory Notes introducing the [2002] amendments
it is recognized that a sale at less than fair market value could be treated in
part as a gift in civil law, but not in common law. The [2002] amendments have
clearly changed the law by identifying situations in which the charitable donation
tax credit will be available, notwithstanding benefits received by the donor
taxpayer.
[31]
Consistent with this reading of the Explanatory
Notes and his assessment of the purpose of the 2002 amendments, the Tax Court
judge rejected any suggestion that the prior jurisprudence could be read as
recognizing the validity of split gifts or was in any way “murky” in this
regard (Reasons at para. 19).
[32]
I will first address the Tax Court judge’s
reading of the Explanatory Notes. These notes, after recognizing that “[a]t common law the presence of a consideration of any value
whatsoever makes a gift impossible” and that “[a]s
such, at common law a contract to dispose of a property to a charity at a price
below fair market value would not generally be considered to include a
gift”, go on to state that “[n]evertheless,
there have been certain decisions made under the common law where it has been
found that a transfer of property to a charity was made partly in consideration
for services and partly as a gift”. That is the context in which it
is later stated that “[s]ubsections 248(30), (31) and
(32) are added to that Act to clarify the circumstances under which
taxpayers and donees may be eligible for tax benefits available under the Act
in respect of the impoverishment of a taxpayer in favour of a donee” [my
emphasis].
[33]
On a plain reading, the Explanatory Notes
suggest that the state of the jurisprudence in the common law provinces was not
as certain as the Tax Court judge held and that there was a need for
clarification. An examination of the case law supports that view.
[34]
I begin by noting that the often-cited
definition of “gift” set out in Friedberg does not exclude the
possibility that Parliament intended the meaning of “gift” to extend to split
gifts. While the Court did state that “a gift is a
voluntary transfer of property owned by a donor to a donee, in return for which
no benefit or consideration flows to the donor” (at para. 4), Friedberg
was not a split gifting case. At no point did the Court address the question
whether, in the presence of the requisite donative intent, partial
consideration necessarily vitiates a gift.
[35]
In fact, neither Zandstra nor The
Queen v. McBurney, [1985] 2 C.T.C. 214 (Fed. A.D.) [McBurney], which
are both referred to in Friedberg (at para. 4), stand for the
proposition that consideration received by a donor vitiates the whole gift. On
the contrary, the Court in McBurney acknowledged the existence of a
split gift (McBurney at para. 19) and the Court in Zandstra
indicates, without expressing any form of disagreement, that the underlying
assessments recognize the validity of a split gift (Zandstra at paras. 9
and 10).
[36]
It is noteworthy that the ratio decidendi
of Zandstra and McBurney was more recently adopted by this Court
in Woolner FCA. In that case, the Tax Court concluded that donations
made over and beyond the secular tuition fees were “gifts” within the meaning
of subsection 118.1(3) of the ITA, thereby recognizing what was in
effect a split gift. While the issue on appeal turned on whether the disallowed
portion for secular tuition fees should be treated as a gift, at no point did
this Court question the Tax Court’s recognition of the gift component (Woolner
FCA at paras. 2, 6 and 14).
[37]
The Tax Court judge viewed the appellant’s
reliance on Woolner as an attempt to question “the
correctness of the Maréchaux [FCA], Kossow [FCA]
and … Berg [FCA] … decisions” (Reasons at para. 19).
According to him, these three cases which postdate Woolner did away with
any possibility that a split gift be recognized in applying the ITA in
the common law provinces (Reasons at paras. 19, 23 and 24). Again, this
requires that we take a closer look at these decisions.
[38]
The decision of this Court in Maréchaux FCA
involved a leveraged charitable donation scheme whereby Mr. Maréchaux
transferred $100,000 to a registered charity and received the corresponding
charitable donation tax receipt. Out of the $100,000 transferred, $20,000 came
from his own money while the remaining $80,000 came from an interest-free loan.
In upholding the Tax Court’s decision, denying the tax credit claimed, this
Court endorsed paragraph 49 of Woods J.’s reasons holding that the $20,000
portion of the transfer lacked the requisite donative intent (Maréchaux FCA at
para. 12):
There is just one interconnected transaction
here, and no part of it can be considered a gift that the appellant gave in
expectation of no return.
[My
emphasis]
[39]
Therefore, it is not clear that the decision of
the Tax Court in Maréchaux v. R., 2009 TCC 587 [Maréchaux TCC], as
confirmed by this Court, rejected split gifting. On the contrary, Woods J.’s
statement, which this Court did not comment on one way or the other, appeared
to leave the question open in stressing that “[i]n some
circumstances, it may be appropriate to separate a transaction into two parts,
such that there is in part a gift, and in part something else” (Maréchaux
TCC at para. 48).
[40]
Maréchaux FCA was
later discussed in Kossow v. Canada, 2012 TCC 325 [Kossow TCC]
where a similar leveraged charitable donation scheme was before the Court. The
issue was whether Maréchaux FCA was dispositive of the appeal. Like Mr.
Maréchaux, Ms. Kossow argued, among other things, that a gift should be
recognized for the $10,000 cash portion of her transfer to the registered
charity. At the Tax Court, V. Miller J. dismissed this argument concluding
that, as in Maréchaux FCA, “[n]o part of the
Donation was given as a gift without expectation of a return” [my
emphasis] (Kossow TCC at para. 75). This Court upheld that decision on
the same basis. Again, the Court made no firm pronouncement on the question
whether a split gift could validly be made.
[41]
Lastly, in Berg FCA, the issue of split
gifting was not raised. The Court simply found that Mr. Berg had received
consideration for his alleged gift (Berg FCA at para. 28) and that he
did not have the required donative intent (ibidem at para. 29).
[42]
In short, it cannot be said with certainty that
the meaning of “gift” prior to the 2002 amendments excluded the notion of split
gift in the common law provinces and that the effect of these amendments was to
change that state of affairs. Indeed, it is equally plausible that these
amendments clarified an area of the law that was uncertain.
[43]
Finally, the Tax Court judge found that a quest
for uniformity in the application of federal legislation is not, in and of
itself, a sufficient reason for disregarding the applicable private law. I
agree. The objective of sections 8.1 and 8.2 of the Interpretation Act
is to recognize the role of the civil law and the common law in the application
of federal legislation which necessarily entails the possibility of diverging
results.
[44]
However, the appellant does not invoke
uniformity for the sake of uniformity. The appellant’s plea is based on the
broader proposition that Parliament intended to recognize split gifts, wherever
made, in line with the civil law. Given that it would have been open to
Parliament to attribute to the word “gift” a meaning which coincides with the
civil law and that it is arguable that this is what Parliament intended, there is
no basis for striking the appellant’s plea at this stage of the proceedings.
[45]
Having reached the conclusion that the Tax Court
judge could not strike the impugned plea, it is not necessary to address the
alternative grounds advanced by the appellant in support of maintaining the
relief sought in paragraph 28 of the Amended Notice of Appeal.
[46]
For these reasons, I would allow the appeals with
one set of costs in the lead appeal, and giving the order which the Tax Court
judge ought to have given, I would dismiss the respondent’s motion to strike,
with one set of costs.
“Marc
Noël”
“I agree
A. F.
Scott J.A.”
“I agree
Yves de Montigny J.A.”
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