AMENDED REASONS FOR JUDGMENT
Bocock J.
I. Introduction
[1]
The principle of integration in tax law refers
to the desired balance and parity optimally achieved under the Income Tax
Act (“Act”) as among or between certain
distinct entities: usually individuals and corporations. Entire sections and parts
of the Act are dedicated towards achieving this goal. Part IV of the Act
seeks to achieve integration as between corporations and individual
shareholders on the issue of corporate dividends. Corporations initially pay
tax upon declaring dividends, but once individual shareholders include the
dividends in income and pay tax on same, the corporation, subject to certain
conditions, is entitled to a “dividend refund” as defined in subsection 129(1).
The interpretation of one of those conditions is the essence of this appeal.
[2]
Specifically, the dividend refund is due to the
corporation provided it has indeed paid the dividend and is a “private corporation”. The
dividend refund is paid “by the Minister” to the corporation where the corporation’s income tax return is made within
3 years after the initial dividend is paid to the shareholder.
[3]
In the present appeal, the Minister submits that
a failure to file such tax returns within the described 3 year period after the
year the dividend has been paid is fatal to an entitlement to receive the dividend
refund. The Appellant appeals the Minister’s refusal to refund such dividend
tax.
II. Facts
[4]
There are no facts in dispute and counsel are to
be commended for their submitted agreed statement of facts. For 8 taxation
years from 1997 to 2004 inclusive, the Appellant declared and paid dividends to
its shareholders totalling $4,676,600. Through a mistake of law (the
Appellant’s director and officer was simply unaware of this specific and
distinct legal obligation of a personal holding company), the Appellant failed
to file any relevant corporate tax returns until 2008. There is no dispute
that the filing of the returns in 2008 is beyond the 3 year period described in
subsection 129(1). Upon receipt of the returns, the Minister assessed Part IV
dividend tax, interest and penalties now in excess of $2,000,780, but at the
same time denied the dividend refund. The amount of the dividend refund for taxation
year 2003 is conceded by Respondent’s counsel to be $1,452,893,
the sum of $46,740 less than that originally assessed. Otherwise there is no
dispute as to the quantum of the reassessment, but only the entitlement to the
dividend refund.
[5]
Therefore, although the original dividend income
paid by the Appellant to various shareholders originated from a connected
corporation, the parties agree upon the sole issue for this Court to determine:
whether the failure to file corporate tax returns within the 3 years described
in subsection 129(1) (the “filing deadline”) is fatal to the Appellant’s present claim for repayment
of the corporate dividend tax?
III. Summary
of Appellant’s Submissions and Issues
[6]
In summary, within subsection 129(1), the
Appellant submits that:
a) the wording surrounding the filing deadline, as a condition
precedent to payment of the dividend tax refund, is ambiguous (or at least “not
unambiguous”) for several reasons: its unique use of the word “where” in the preamble, the absence of any enumerated
penalty for missing the filing deadline and the filing deadline’s fundamentally
different meaning and context from other conditions precedent in the subsection;
b) a proper textual, contextual and purposive analysis, not previously
undertaken in other cases which have considered the subsection, would lay bare
the ambiguities within the text resulting in a conclusion that the purpose of
integration, to which the dividend tax refund is essential, is disharmoniously
defeated by such a literal requirement by the Minister for compliance with the
filing deadline; and,
c) apart from the approach to be taken above, the filing deadline, as a
time limit, is directory and not mandatory and non-compliance is not fatal to
entitlement to the dividend refund.
[7]
Generally therefore, the issues before the Court
surrounding subsection 129(1) may be distilled as follows:
a) Does a textual reading of the text embodying the filing deadline
give rise to ambiguity?
b) Does a further textual, contextual and purposive analysis reveal
latent ambiguities which afford payment of the dividend refund where the filing
deadline is missed?
c) In the alternative, is the filing deadline mandatory, thereby
rendering missing it fatal or, is it merely directory, thereby allowing the
dividend tax to be refunded?
[8]
For the reasons which follow the appeal is
dismissed.
IV. Analysis
of Subsection 129(1):
(a) The text of subsection 129(1):
The relevant excerpt from subsection 129(1) in
English and French provides as follows (emphasis added):
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Dividend refund to private corporation
129. (1) Where a return of a
corporation’s income under this Part for a taxation year is made
within 3 years after the end of the year, the Minister
(a) may, on sending the notice of
assessment for the year, refund without application an amount
(in this Act referred to as its “dividend refund” for the year) equal to
the lesser of
[…]
(ii) its refundable dividend tax on
hand at the end of the year; and
(b) shall, with all due dispatch, make
the dividend refund after sending the notice of assessment if an application
for it has been made in writing by the corporation within the period
within which the Minister would be allowed under subsection 152(4) to assess
tax payable under this Part by the corporation for the year if that
subsection were read without reference to paragraph 152(4)(a).
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Remboursement au titre de dividendes à
une société privée
129. (1) Lorsque la déclaration de
revenu d’une société en vertu de la présente partie pour une année
d’imposition est faite dans les trois ans suivant la fin de
l’année, le ministre :
a) peut, lors de l’envoi de l’avis
de cotisation pour l’année, rembourser, sans que demande en soit
faite, une somme (appelée « remboursement au titre de dividendes » dans la
présente loi) égale à la moins élevée des sommes suivantes :
[…]
(ii) son impôt en main remboursable au
titre de dividendes, à la fin de l’année;
b) doit effectuer le
remboursement au titre de dividendes avec diligence après avoir envoyé
l’avis de cotisation, si la société en fait la demande par écrit au cours
de la période pendant laquelle le ministre pourrait établir, aux termes du
paragraphe 152(4), une cotisation concernant l’impôt payable en vertu de la
présente partie par la société pour l’année si ce paragraphe s’appliquait
compte non tenu de son alinéa a).
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[9]
In respect of the wording or text of the
subsection per se, the Appellant submits that the failure of the
subsection to prescribe a penalty for missing the filing deadline distinguishes
it from other sections under the Act, namely, in contrast to the combined
effect of paragraph 150(1)(a) and section 162. The omission of a penalty
in subsection 129(1) renders it ambiguous or at least “not unambiguous”.
Appellant’s counsel further submits that by conducting a primarily textual
analysis or, at least, a cursory and insufficient contextual and purposive
analysis, the Court in Tawa Developments Inc v R, 2011 TCC 440, erred by
failing to conduct a full textual, contextual and purposive analysis and relied
solely, narrowly and literally upon a textual analysis. Appellant’s counsel
referenced the Court’s statement in its concluding analytical paragraph:
[51] A textual analysis leads to the
following conclusions. Because subsection 129(1) contains an unambiguous
condition that a tax return be filed within a prescribed time, where that
condition is not met subsection 129(1) does not come into play and the dividend
refund cannot be determined. The condition contained in the preamble to
subsection 129(1) is no different than the remaining conditions contained in
that subsection, such as the condition that the corporation be a private
corporation and that it has paid a dividend in the taxation year. If those
conditions are not met, subsection 129(1) does not come into play either and
the “dividend refund” is likewise indeterminable. The ordinary definitions of
the word “refund” imply a repayment.
[10]
The appeal in Tawa considered two issues:
the first related to subsection 129(1) and the second related to an alternative
issue concerned with the reduction of the refundable dividend tax on hand
(“RDTOH”). In respect of the first ground appealed before this Court, the
Appellant in Tawa raised the following specific arguments:
ii)
the automatic generation of a dividend refund
upon late filing;
iii)
the late filing when accepted by the Minister cured
the filing deadline;
iiii)
the late filing is analogous to a late election
or designation;
iiv)
the absence of a mandatory denial provision;
iv)
the preamble is a rebuttable presumption; and,
ivi)
denial of the dividend refund offends the policy
of integration.
[11]
Justice Hogan’s analysis in Tawa spanned
5 pages on the first issue and covered each argument outlined above. In
referencing each argument, automatic refund was considered by the Court at
paragraphs 15 and 16, waiver by the Minister’s acceptance of a late return at
paragraph 26, analogy to late election at paragraphs 23 and 24, absence of
specific denial provision at paragraph 19, rebuttable presumption at paragraph
20. More importantly, the argument that the section was contrary to the purposes
of integration was countenanced by the Court at paragraphs 17, 19, 22, 38 and
49 (admittedly in the last two paragraphs the topic was commingled with
discussion regarding the context and purpose of the second issue: the RDTOH
balance reduction).
[12]
In a subsequent informal procedure case before
the Court, Webb J., as he then was, gave short shrift to the suggestion that
subsection 129(1) was anything but entirely clear when he said at paragraph 4
of Ottawa Ritz Hotel Co. v Canada, 2012 TCC 166:
In Tawa Developments Inc. v. The Queen,
2011 TCC 440, 2011 DTC 1324, Justice Hogan confirmed that the failure to file
the tax return within the three year period referred to subsection 129(1) of
the Act, “made the dividend refund provision in subsection 129(1) inoperative …
and the refund unobtainable”. Since the Appellant did not file its tax return
for its 2007 taxation year within three years from the end of this taxation
year, the provisions of paragraphs (a) and (b) of subsection 129(1) are not
applicable and the Minister is not obligated to pay the dividend refund amount
to the Appellant.
[13]
Similarly, Lamarre J. of this Court stated in
the case of Ottawa Air Cargo Centre Ltd v R., 2007 TCC 193 at paragraphs
36, 37 and 38 (subsequently affirmed by the Federal Court of Appeal at 2008 FCA
54):
[36] With respect to the relief sought
by the appellant, namely, that it be entitled to refunds of any and all amounts
of Part IV tax payable with respect to its 1995 through 1998 taxation years,
pursuant to paragraph 129(1)(b) of the Act, and that the amounts of Part IV tax
payable by the appellant be offset in their entirety by the amounts of the
refunds of such tax, I agree with the respondent that this request cannot be
granted at this stage.
[37] The appellant did not make an
application in writing for such a refund within the period within which the
Minister would be allowed under subsection 152(4) to assess tax payable under
Part I, as required by paragraph 129(1)(b). Indeed, when the Minister assessed
the appellant for Part IV tax with respect to deemed dividends, the appellant
chose to reduce the resulting liability to a nominal amount through the
application of losses thereto. No refund of Part IV tax was sought pursuant to
subsection 129(1) of the Act and indeed no refund was given to the appellant.
It is now too late to seek one.
[38] Subsection 165(5) referred to by
the appellant only applies to a reassessment made pursuant to subsection 165(3)
(i.e., the limitations imposed under subsection 152(4) do not apply to a
reassessment in response to a notice of objection). It does not apply to the
time limit under paragraph 129(1)(b) for making an application for a refund.
[14]
While the Court will proceed to conduct a full
textual, contextual and purposive analysis in order to ensure that no latent ambiguities
are revealed (Canada Trustco Mortgage Co. v R., 2005 SCR 54 at paragraph
47), given the findings above (including the upholding of the decision of Ottawa
Air Cargo Centre Ltd v R. on appeal) and the immediate following reasons
below, there are no patent textual ambiguities present in this ostensibly clear
and unambiguous provision.
[15]
That clarity is provided through the use of a
preamble which establishes a condition precedent: “Where a return …is made
within 3 years…, the Minister (a) may...and (b) shall … make a dividend refund”.
Although perhaps too simplistic, both statutorily and algebraically subsection
129(1) may be expressed as:
Where X does y within t, M may (under certain circumstances) or
shall (under others) refund a.
[16]
Additionally and although raised tangentially in
argument, this Court is required to take notice of both the English and French
versions of the Act. Both are to be assigned equal weighting and their
shared meaning is to be ascertained: subsection 18(1) of the Constitution
Act, 1982. While not in conflict in this instance, the Court observes that
the word “lorsque” in French embodies a different meaning than the word “where”
in English. The
French word “lorsque” is definitionally closer to the meaning
of “when” in English. Le dictionnaire de reférénce Robert-Collins, 9
edition, 2010 translates “lorsque” from French to English as follows:
Lorsque - when – lorsqu’il entra/entrera when ou
as he came/comes in
Notwithstanding
that the English version’s use of “when” is not textually ambiguous when used
in conjunction with the filing deadline, the meaning in French approximates
even more closely the concept of “in the event that” (also generally present in
the English version). Such emphasis enhances the clarity of the words and the
temporal importance of the filing deadline. In short, the French version states
“when a return of a corporation’s income is made within 3 yeas following
… the Minister may, or shall, …refund.” The crispness also echoes a true
condition precedent in its common meaning with the English version. Although
textual ambiguity is not present in the English version, the French version
further dispels any latent textual doubt.
[17]
Patently, there is “no slippage betwixt hand and
mouth.” Parliament requires various entities to do various things in certain
time-frames. The corporation must file its returns, exclusively within its
power, control and knowledge whereupon the Minister makes the dividend refund.
Textually, it is strikingly lucid and abundantly clear. On a pure textual
basis, to suggest otherwise ignores the plain and obvious meaning of the words
and requires, the very thing proposed by the Appellant, a virtual re-writing of
the provision by the deletion of the time deadline: Ludmer v. MNR [2002]
1 CTC 95 (SCC) at paragraph 109.
(b) Textual, contextual and
purposive analysis
[18]
Beyond a detailed textual examination, the
context of subsection 129(1) is that it appears within Part I of the Act,
division F which contains special rules, in this case, dealing with private corporations.
It is referable to Part IV, tax on taxable dividends received by and from private
corporations. Combined, they provide a logical regime, time-frame and methodology
for implementing the principles of integration described in the first paragraphs
of these reasons. Similarly, refunds otherwise payable under the Act are
envisaged in subsection 164(1) which provides:
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164. (1) If the return of a taxpayer’s
income for a taxation year has been made within 3 years from the end of the
year, the Minister
a) may,
[…]
(b) shall, with all due dispatch, make
the refund referred to in subparagraph (a)(iii) after sending the notice of
assessment if application for it is made in writing by the taxpayer […]
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164. (1) Si la
déclaration de revenu d’un contribuable pour une année d’imposition est
produite dans les trois ans suivant la fin de l’année, le ministre :
a) peut faire ce
qui suit :
[…]
b) doit effectuer
le remboursement visé au sous-alinéa a)(iii) avec diligence après avoir
envoyé l’avis de cotisation, si le contribuable en fait la demande par écrit
[...].
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[19]
As noted above, Appellant’s counsel notes the use
of the words “where” or “lorsque” as the first word in subsection 129(1) as
opposed to “if” and “si” in subsection 164(1). Additionally, it is contended that
the absence of a penalty or consequences for not filing the return within the
allotted time provides ambiguity on a comparative basis with other sections of
the Act.
[20]
At a certain level, the overarching purpose of
the combination of the various sections is to effect the principle of
integration. It seeks to place an individual who holds such shares through a
private holding company in the same position as one who holds such shares
directly. It prevents individuals from holding dividend-yielding shares in
order to defer, perhaps permanently, paying tax on such dividends. It is widely
received as such and was referenced as such by both counsel.
[21]
Context and purpose, however, require the
interpretation of the Act as a harmonious whole. Therefore, quite apart from
the mandatory versus directory argument which will be subsequently analyzed
below, what is the function and purpose of the subsection 129(1) filing
deadline within the section, part and Act as a whole? The Appellant says
the use of the filing deadline as a prohibition to the dividend refund is so
antipodal to the principle of integration that it should be read out.
Consequentially, to do so would make the dividend refund provision perpetual.
“Where” or “lorsque” would become “after” or “après” and the words “within 3 years
after the end of the year” would be extinguished completely. In actuality, the
entire preamble with the exception of the words “the Minister” would be useless
since the section already implies that a return is to be otherwise filed which triggers:
(i) a notice of assessment (129(1)(a)) or, (ii) an application is made
(129(1)(b)) requiring the dividend refund to be paid. Could this have
possibly been the reconciled intention of Parliament within the context of the
subsection and part?
[22]
Not unlike many other provisions of the Act,
both the context and purpose of integration are served through an entire regime
which acknowledges the taxpayer’s obligation to file tax returns, provides some
closure for the Minister after a more than reasonable period of time (including
generous grace periods) and maintains language which efficaciously accomplishes
a voluntary filing, payment and assessment system. The appellant’s purposive
interpretation proposes reading out the achievable filing deadline of the overarching
statutorily mandated self-assessment and filing system. Moreover, from a policy
perspective, upholding the filing deadline provides a generous, administrable
and clear ability to claim a dividend refund for those taxpayers utilizing
private holding companies and who should otherwise be cognizant of the
additional requirements, complexities and formalities of those business
structures when utilizing such entities: R. v Neudorf, 75 DTC 5213 (FCTD
at paragraph 10).
[23]
On these bases, the dominant role of the clear,
unequivocal and unambiguous words have not had laid bare a latent ambiguity by
the textual, contextual and purposive analysis of the subsection as it appears
and is interpreted within the Act. Parliament’s intention to establish
the principle of integration was implemented within a section also embodying
consistent and generous, but time sensitive, filing deadline requirements to
file returns, a concept otherwise generally and repeatedly embedded elsewhere throughout
the Act. The presence of the filing deadline in this section and part as
a requirement, together with a generous time-frame for the filing of returns of
income culminating in a dividend refund, is not disharmonious with the regime
of the Act. While such an interpretation may be inconvenient and even harsh,
conjunctively this interpretation harmoniously effects the overriding and
overarching context and purpose of the subsection and the Act rather
than belies or defeats them. The upholding of the filing deadline creates no
absurdity or result contrary to the regarded intent of Parliament when the
statute is viewed as a harmonious whole: Canada Trustco at paragraph 10.
[24]
In concluding this analysis, the necessary
reading out of the filing deadline, as requested by the Appellant, would delete
words and their ordinary meaning which “are precise and unequivocal”. It also
prevents the Court from giving the text describing the filing deadline the
“dominant role in the interpretive process” it is due, having emerged, as it
has, from the textual, purposive and contextual analysis as being harmonious and
consistent with the purpose of the section, part and Act as a whole.
V.
Subsection 129 Mandatory or Directory
[25]
Appellant’s counsel also argues that the absence
of a consequence in subsection 129(1) for failing to comply renders the filing
deadline directory and not mandatory. Legally, where a statute declares that
something ought to be done, without signalling the result upon default or
omission, the Court must determine whether the provision is mandatory or merely
directory: BC (Attorney General) v Canada (Attorney General), [1994] 2
SCR 41 at paragraph 41.
[26]
The consequence of the failure of the taxpayer
to comply with the specific filing deadline, not only has a consequence, but such
consequence is the subject of this appeal. If the corporation does not file its
return of income within 3 years, the Minister is not required to pay the
dividend refund. The Court also notes that the normally required time deadline is
much less for the filing of corporate income tax returns and the levying of penalties
which arise from such failure.
[27]
A review of the case law regarding directory
versus mandatory language reveals certain differences from the facts presently before
the Court. This is not the case where the Minister has failed to do a certain
act and thus has purportedly lost jurisdiction or authority: Wang v
Commissioner of Inland Revenue, [1995] 1 All E.R. 367. This is not the case
of a government employee failing to undertake a technical filing: Lewis v
Brady, 17 OR 377 (HCJ) and Trenton (Town) v Dyer, 1895 24 SCR
474. The obligation of a taxpayer to file a return of income is indisputably clear
under the Act.
[28]
There are many consequences that flow from a
failure to file tax returns. Examined logically in the present case, the clear consequence
occurs three years hence “where” the taxpayer has failed to cure the default
long after the primary statutory obligation to file its return has lapsed. The
deadline is not only mandatory, but it embodies and emblazons a paramount
requirement and purpose under the Act: the requirement of a
taxpayer, who best knows the subject matter of its affairs to file its return
of income. This is not the case of an ancillary procedural step or technical
form: Moriyama v R., TCC 311 (TCC) affirmed in part at 2005 FCA
207.
[29]
Appellant’s counsel suggests the harsh result of
the Minister’s assessment position is blatant and punitive double taxation yielding
a windfall to the federal treasury contrary to the overall statutory regime. If
subsection 129(1) is construed as directory only, the windfall is denied, but
no loss is suffered to the Minister. Again it is difficult to envisage a more
fundamental obligation on a taxpayer assigned under the Act than that of
filing its returns of income; the timely filing of returns is central “to the
object intended to be secured by the Act”: Howard v Boddington
(1877), 2 P.D. 203 at page 211; (FCTD) at page 10.
[30]
This timely and time sensitive requirement to
file is embedded throughout the Act. Parliament certainly intended that
much. Logically, failing to do so gives rise to various sanctions: penalties,
interest, alternative assessments, denial of tax refunds, and in this case,
dividend refund forfeitures. It may be unfair, unilateral and even draconian,
but its central and overarching context and purpose is the requirement to file
the prescribed “income tax return” for a prescribed “tax year” within a “filing
deadline” established under the “Income Tax Act”. Little, if anything, is
procedural, out of context or counter-purposive concerning that sine qua non
within the Act. Such a central obligation limits the interpretive
licence to allow an associated and fundamental time-frame from becoming merely directory.
No authorities cited by the Appellant suggest that a prescribed filing deadline
and the logical consequence for failure to file an income tax return are
directory or even close. By “attending to the whole scope of the statute to be
construed” one determines whether a time sensitive requirement is mandatory or
directive: Senger-Hammond v. R., [1997] 1 CTC 2728 (TCC) at paragraph 25). A time deadline related
to the filing of tax returns, as compared to other procedural and technical
provisions within the Act and certainly the requirement for written
receipts in Senger-Hammond, is considerably more important per se and also in general to
the object intended to be secured by the Act in toto. In contrast, to read the preamble as directory simply renders the inclusion
of the filing deadline related to such a fundamental obligation void,
meaningless and contrary to the “whole scope of the statute” as a functional
whole.
VI. Summary and
Costs:
[31]
On the basis of the foregoing reasons for judgment,
the Minister’s assessment for taxation years 1997 – 2004 remains, but for the assessment
of Part IV tax for 2003 which by admission of Respondent’s counsel should be
reduced to $1,442,760. To that extent, the matter is referred
back to the Minister of National Revenue for reconsideration and reassessment.
[32]
Party and party costs are awarded to the
Respondent, in accordance with the applicable tariff, however, either party may
make submissions otherwise for consideration by the Court within 30 days of
this Amended judgment.
These
Amended Reasons for Judgment are issued in substitution of the Reasons for
Judgment dated September 12, 2014 in order to correct the minor arithmetic
errors underscored in paragraphs 4 and 31 hereof.
Signed at Yellowknife, Northwest Territories, this 24th day
of September 2014.
“R.S. Bocock”
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