Civil Service Co-operative Credit v. The Queen, docket 1999-640-IT-G

Date: 20010803

Docket: 1999-640-IT-G

BETWEEN:

THE CIVIL SERVICE CO-OPERATIVE

CREDIT SOCIETY, LIMITED,

Appellant,

and

HER MAJESTY THE QUEEN,

Respondent.

Reasons for Judgment

Lamarre, J.T.C.C.

[1]            This is an appeal from an assessment made by the Minister of National Revenue ("Minister") for the appellant's 1995 taxation year pursuant to section 137.1 of the Income Tax Act ("Act").

[2]            In its income tax return for the 1995 taxation year, the appellant reported as a taxable capital gain of $2,488,082 an amount of $3,789,206 that it had received from the Deposit Insurance Corporation of Ontario. In assessing the appellant, the Minister relied on subsection 137.1(10) of the Act and included the full amount of $3,789,206 as income of the appellant and deleted the reported taxable capital gain. The appellant is now challenging that assessment.

[3]            No evidence was presented at trial, the parties having agreed upon the facts, which are summarized as follows in the Agreed Statement of Facts:

1.              The Appellant is a credit union that was established on December 14, 1928 and has its head office in Ottawa, Ontario.

2.              Ontario Share and Deposit [Insurance] Corporation ("OSDIC") was established on March 24, 1977 pursuant to the provisions of the Credit Unions and Caisses Populaires Act, S.O. 1976, c. 62 (the "1976 Credit Unions Act"). At all times it was a deposit insurance corporation.

3.              As provided by the 1976 Credit Unions Act all credit unions in Ontario were members of OSDIC. OSDIC was created for a number of purposes including to monitor the operation of credit unions within Ontario, to provide financial assistance to member credit unions in need and to insure deposits with credit unions in Ontario.

4.              Pursuant to section 111 of the 1976 Credit Unions Act, OSDIC was authorized in its first year of operation, to collect from each of its member credit unions an amount equal to 1% of each particular credit union's share capital and deposits (the "Amounts" or "Amount" as the case may be).

5.              Section 111 of the 1976 Credit Unions Act further provided that in each year following, OSDIC was to collect from, or refund to, each credit union an amount so as to maintain the 1% ratio of each credit union's share capital and deposits.

6.              OSDIC was not authorized to use the Amounts for its own purposes, it was authorized to use the income earned thereon to pay the expenses it incurred in carrying out its business.

7.              In the exercise of powers granted to it for those purposes, pursuant to section 111(5) of the 1976 Credit Unions Act, OSDIC set up four different funds described as follows:

                (a)            Fund A for members of the league of credit unions incorporated as Ontario Credit Union League ("OCUL") and known as Credit Union Central of Ontario ("CUCO");

                (b)            Fund B for members of La Federation des Caisses Populaires de l'Ontario;

                (c)            Fund C for credit unions and caisses populaires which were not members of any league or federation, and which were therefore referred to as "unaffiliated"; and

                (d)            Fund D for members of l'Alliance des Caisses Populaires de l'Ontario Limitee.

8.              At the time OSDIC began its operation, the CS CO-OP was unaffiliated. Accordingly the Amounts it paid to OSDIC formed part of the Fund C. Subsequently, the CS CO-OP joined CUCO and its Amounts were transferred to Fund A. Eventually the Amounts totalled $3,789,206.05.

9.              On November 6, 1981, CS CO-OP withdrew from CUCO with notice to OSDIC. CS CO-OP did not join any other league and its Amount was therefore to be transferred to Fund C, the unaffiliated credit unions' fund, in accordance with the provisions of the 1976 Credit Unions Act (section 113(3)).

10.            From 1977 to 1982 OSDIC collected from, or refunded to, its member credit unions amounts so as to maintain the 1% ratio of each credit union's share capital and deposits.

11.            In the event that OSDIC required additional funds, it was also authorized under the 1976 Credit Unions Act (section 111(4)), by way of extraordinary assessments, to collect amounts from its member credit unions (based on the total amount of each credit union's share capital and deposits) to replace advances or payments made by OSDIC in exercising its powers.

12.            Pursuant to section 111 of the 1976 Credit Unions Act, OSDIC collected from the Appellant the following amounts and the Appellant claimed the following deductions:

                                Year                                                                         Deduction

                                1977                                                                         $1,434,179

                                1978                                                                         $ 650,978

                                1979                                                                         $ 594,204

                                1980                                                                         $ 557,012

                                1981                                                                         $ 202,480

                                1983                                                                         $ 471,763

                                Total                                                                        $3,910,618

13.            In the 1982 taxation year OSDIC returned $121,412 to the Appellant which was included in the Appellant's 1982 taxable income.

14.            By the end of 1983, OSDIC held from the Appellant $3,789,206 which the Appellant had claimed as a tax deduction in the year it was paid (the "Returned Amount").

15.            In 1983 the Credit Unions and Caisses Populaires Amendment Act, 1983, S.O. 1983, c. 46, s. 14, (the "1983 Credit Unions Act") was proclaimed. Among other things, the 1983 Credit Unions Act repealed section 111 of the 1976 Credit Unions Act and replaced it with a new provision which provided, inter alia, that upon the establishment of an insurance reserve fund and an annual insurance premium the balance of the Amounts held under section 111 of the 1976 Credit Unions Act which belonged to the various credit unions and caisse populaires were to be repaid by OSDIC to the credit unions in the manner in which the assessments were collected.

16.            Notwithstanding that OSDIC was required by statute to return the Amounts it held to each of its member credit unions (i.e. 1% of each credit union's share capital and deposits) OSDIC refused to do so with respect to Fund C. Instead, OSDIC used such amounts to make a forgivable loan to Caisse Populaire Ste. Anne Laurier, a newly amalgamated caisse populaire that required financial assistance from OSDIC.

17.            On February 20, 1984, the Appellant and certain other member credit unions commenced actions against OSDIC in the Ontario Court (General Division) to reclaim the unreturned Amounts pursuant to section 111 of the 1983 Credit Unions Act.

18.            In a decision dated June 26, 1992, Mr. Justice Rosenberg of the Ontario Court (General Division) concluded that the Appellant and the other member credit unions continued to own the Amounts that were held by OSDIC and the 1983 Credit Unions Act did not authorize OSDIC to use such Amounts to carry out its mandate from and after August 3, 1983.

19.            The Ontario Court (General Division) decision ordered OSDIC to return the Amounts to each credit union with interest from August 3, 1983.

20.            OSDIC appealed the decision of the Ontario Court (General Division). In October 1995, the actions were settled on the basis that (i) the amounts held by OSDIC representing 1% of each credit union's share capital and deposits would be repaid to the member credit unions, (ii) no payment would be made by OSDIC to the credit unions for interest or costs, and (iii) OSDIC's appeal of the Ontario Court (General Division) decision would be abandoned.

21.            In October 1995 the Deposit Insurance Corporation of Ontario (formerly known as OSDIC) returned $3,789,206 to the Appellant, which amount represented 1% of the Appellant's share capital and deposits at the end of its 1982 taxation year.

22.            At all material times, as provided by section 111(7) of the 1976 Credit Unions Act, the Appellant reported the Amount as an asset on its financial statements which were filed with its income tax returns. In the same period OSDIC reported the Amounts as liabilities on its financial statements.

23.            In its income tax return for the 1995 taxation year, the Appellant reported the Returned Amount received from the Deposit Insurance Corporation of Ontario as a taxable capital gain of $2,488,082. The Appellant relied on the advice received from Ian Sherman of Ernst & Young to report the Returned Amount as [a] capital gain.

24.            The legal fees and disbursements incurred by the Appellant with respect to the litigation with OSDIC were in the amount of at least $154,353.98. They were deducted by the Appellant in the taxation year in which they were incurred.

25.            By a Notice of Assessment from the Minister of National Revenue (the "Minister") dated May 16, 1997 in respect of the Appellant's 1995 taxation year, the Minister, inter alia, included the entire Returned Amount in the Appellant's income.

26.            By a Notice of Objection dated August 14, 1997, the Appellant, inter alia, objected to the inclusion of the Returned Amount in its income for its taxation year.

27.            The assessment of the Appellant's 1995 taxation year was confirmed by the Minister by a Notice of Confirmation dated September 25, 1998.

28.            There is no issue in this Appeal of fraud or misrepresentation attributable to neglect, carelessness or wilful default on the part of the Appellant.

[4]            Section 137.1 of the Act, which is the governing section in the present appeal, was enacted in March 1975 (An Act to amend the statute law relating to income tax, S.C. 1974-75-76, c. 26). The relevant subsections read as follows:

Credit Unions, Savings and Credit Unions and

Deposit Insurance Corporations

Section 137.1: Amounts included in income of deposit insurance corporation.

                (1) For the purpose of computing the income for a taxation year of a taxpayer that is a deposit insurance corporation, the following rules apply:

                (a)            the corporation's income shall, except as otherwise provided in this section, be computed in accordance with the rules applicable in computing income for the purposes of this Part; and

. . .

4137.1(2)3

                (2) Amounts not included in income. The amount of any premiums or assessments received or receivable by a taxpayer that is a deposit insurance corporation from its member institutions in a taxation year shall not be included in computing its income.

4137.1(3)3

                (3) Amounts deductible in computing income of deposit insurance corporation. There may be deducted in computing the income for a taxation year of a taxpayer that is a deposit insurance corporation such of the following amounts as are applicable:

. . .

4137.1(4)3

                (4) Limitation on deduction. No deduction shall be made in computing the income for a taxation year of a taxpayer that is a deposit insurance corporation in respect of

. . .

                (c)            any amounts paid to its member institutions as allocations in proportion to any amounts described in subsection (2); or

. . .

4137.1(5)3

                (5) Definitions. In this section,

"deposit insurance corporation" - "deposit insurance corporation" means

                (a) a corporation that was incorporated by or under a law of Canada or a province respecting the establishment of a stabilization fund or board if

                (i) it was incorporated primarily

                                (A) to provide or administer a stabilization, liquidity or mutual aid fund for credit unions, and

                                (B) to assist in the payment of any losses suffered by members of credit unions in liquidation, and

                (ii) throughout any taxation year in respect of which the expression is being applied,

                                (A) it was a Canadian corporation, and

                                (B) the cost amount to the corporation of its investment property was at least 50% of the cost amount to it of all its property (other than a debt obligation of, or a share of the capital stock of, a member institution issued by the member institution at a time when it was in financial difficulty, or

                (b) a corporation incorporated by the Canada Deposit Insurance Corporation Act;

. . .

"member institution" - "member institution", in relation to a particular deposit     insurance corporation, means

                (a) a corporation whose liabilities in respect of deposits are insured by, or

                (b) a credit union that is qualified for assistance from

                that deposit insurance corporation.

. . .

4137.1(10)3

                (10) Amounts paid by a deposit insurance corporation. Where in a taxation year a taxpayer is a member institution, there shall be included in computing its income for the year the total of all amounts each of which is

                (a) an amount received by the taxpayer in the year from a deposit insurance corporation that is an amount described in any of paragraphs (4)(a) to (c), to the extent that the taxpayer has not repaid the amount to the deposit insurance corporation in the year,

. . .

4137.1(11)3

                (11) Deduction by member institutions. There may be deducted in computing the income for a taxation year of a taxpayer that is a member institution such of the following amounts as are applicable:

                (a) any amount paid or payable by the taxpayer in the year that is described in subsection (2) to the extent that it was not deducted in computing the taxpayer's income for a preceding taxation year; and

                (b) any amount repaid by the taxpayer in the year to a deposit insurance corporation on account of an amount described in paragraph (10)(a) or (b) that was received in a preceding taxation year to the extent that it was not, by reason of subsection (12), excluded from the taxpayer's income for the preceding year.

[5]            As stated in the Agreed Statement of Facts, in October 1995, the Deposit Insurance Corporation of Ontario (successor to the Ontario Share and Deposit Insurance Corporation, both hereinafter referred to as "OSDIC") returned $3,789,206 to the appellant, which amount represented one per cent of the appellant's share capital and deposits at the end of its 1982 taxation year. This amount was returned to the appellant as a result of the enactment of the Credit Unions and Caisses Populaires Amendment Act, 1983, S.O. 1983, c. 46, s. 14 (the "1983 Credit Unions Act"), which, among other things, repealed section 111 of The Credit Unions and Caisses Populaires Act, 1976, S.O. 1976, c. 62 (the "1976 Credit Unions Act"). It should be pointed out here that pursuant to section 111 of the 1976 Credit Unions Act, OSDIC was authorized to collect from each of its member credit unions (including the appellant) an amount equal to one per cent of each particular credit union's share capital and deposits. Section 111 of the 1983 Credit Unions Act provided, inter alia, that, upon the establishment of an insurance reserve fund and an annual insurance premium, the balance of the amounts held under section 111 of the 1976 Credit Unions Act was to be repaid by OSDIC to the credit unions in the manner in which the assessments were collected.

[6]            For a better understanding of the rules governing the deposit insurance corporation and its member credit unions in Ontario, I will reproduce the relevant sections of the 1976 Credit Unions Act and the 1983 Credit Unions Act:

The 1976 Credit Unions Act

ONTARIO SHARE AND DEPOSIT INSURANCE CORPORATION

                                95. In sections 96 to 118, "Corporation" means the Ontario Share and Deposit Insurance Corporation.

. . .

                                101. The objects of the Corporation are,

                                                (a) to accumulate, manage, invest, disburse and pay out a separate fund for each league and a further fund for all independent members, such funds to be accounted for separately and each fund receiving the revenues or assets and bearing all direct charges and an appropriate portion of such other charges as may be applicable to it;

                                                (b) to provide, in its discretion, financial assistance, having regard to the liabilities and assets of each fund, for the purpose of assisting any credit union in the appropriate category in its continued operation or in the orderly liquidation of its operations;

                                                (c) to provide, for the benefit of persons having shares or deposits with credit unions in Ontario deposit insurance against loss of part or all of such shares or deposits, by making payments to such persons to the extent and in the manner authorized by this Act.

                                102. The Corporation may do all things necessary or incidental to its objects and in particular, but without limiting the generality of the foregoing, the Corporation may, in furtherance of its objects,

                                                (a) acquire assets from credit unions, make loans or advances to credit unions and take security therefor and guarantee loans to or deposits with credit unions;

                                                (b) require the payment of levies by credit unions for the purpose of establishing and maintaining the assets of the corporation;

                                                (c) assume the costs of winding up of credit unions;

                                                (d) acquire assets of credit unions from a liquidator or receiver thereof;

                                                (e) make an advance or grant for the purpose of paying lawful claims against credit unions in respect of any claims of their members for withdrawal of deposits or share capital and become subrogated as an unsecured creditor for the amount of such advance;

                                                (f) borrow money on the credit of the Corporation or on bills of exchange or promissory notes drawn, made, accepted or endorsed by or on behalf of the Corporation and may pledge as security all or any part of the assets of the funds;

                                                (g) make or cause to be made such inspections or examinations of credit unions as may be authorized under this Act;

                                                (h) declare and pay dividends to its members; and

                                                (i) do all such other things, not contrary to this Act, as may be necessary for the exercising of any of the powers of the Corporation.

. . .

                                111. - (1) The Corporation shall assess and collect during its first year of operation from each league an amount equal to 1 per cent of the aggregate total share capital and deposits of each credit union that is a member of the league at the end of the fiscal year of the league immediately preceding the assessment and the league is entitled to recover an appropriate amount from each of its members.

                                (2) The Corporation shall assess and collect during its first year of operation from every credit union that is not a member of a league an amount equal to 1 per cent of the total share capital and deposits of the credit union at the end of the fiscal year of the credit union immediately preceding the assessment.

                                (3) The Corporation shall in each year thereafter assess and collect from, or refund to, each league and every credit union that is not a member of a league, in each year an amount equal to 1 per cent of the increase or decrease in the total share capital and deposits of the credit union.

                                (4) In addition to amounts collected under subsection 3, the Corporation may assess and collect from every credit union, directly or through a league, such further amount, based on the total amount of the shares and deposits of the credit union as at the end of the fiscal year immediately preceding the assessment, as the Corporation considers necessary to replace any advances or payments made by the Corporation in the exercise of its powers under this Act.

                                (5) For the purposes of the assessment referred to in subsection 4, the Corporation shall maintain separate funds for each league and a further fund to encompass the activities of all credit unions that do not belong to a league and each such assessment shall be fixed by the Corporation having regard to the financial position of each fund.

                                (6) All amounts assessed by the Corporation against a credit union or league for the purposes of this Act shall be deemed to be a debt owing to the Corporation and the amount thereof, together with any interest levied by the Corporation as an overdue charge is recoverable by action in any court of competent jurisdiction.

                                (7) A credit union shall charge any assessment levied under subsection 4 as an expense, but, notwithstanding subsection 6, a credit union may treat any other assessment levied under this section as an asset, the value whereof shall be adjusted from time to time in accordance with the financial position of the appropriate fund accumulated by the Corporation.

                                (8) Where in any year its earnings have exceeded its expenses, the Corporation may in its discretion declare a dividend to all credit unions participating in that fund of an amount not more than such excess.

                                (9) On the dissolution of a credit union, the Corporation shall repay to it an amount equal to its assessments paid under subsection 1, 2 or 3, adjusted in accordance with the financial position of the appropriate fund, and for this purpose the Corporation's evaluation of the financial position of the fund shall be conclusive.

. . .

The 1983 Credit Unions Act

                                10. Section 101 of the said [1976] Act, as amended by the Statutes of Ontario, 1981, chapter 62, section 5, is repealed and the following substituted therefor:

                                101. - (1) The objects of the Corporation are,

                                                (a) to provide, for the benefit of persons having shares or deposits with credit unions in Ontario, deposit insurance against loss of part or all of such shares or deposits, by making payment to the persons to the extent and in the manner authorized by this Act;

                                                (b) to act as the administrator of any credit union in respect of which reserves fall below a level designated by the Director and, where necessary, to act as the liquidator of a credit union;

                                                (c) to provide, in its discretion, financial assistance for the purpose of assisting a league or credit union in its continued operation or in the orderly liquidation of its operations;

                                                (d) to collect and accumulate statistics related to credit unions and leagues as may be necessary for insurance, leagues, credit unions, and Ministry purposes, and to publish system statistics as may be appropriate.

. . .

                                14. Section 111 of the said [1976] Act is repealed and the following substituted therefor:

                                111. - (1) Upon the establishment of an insurance reserve fund and an annual insurance premium by the Corporation, the balance of assessments held under the predecessor to this section shall be repaid to the credit unions in the manner in which the assessments were collected.

                                (2) For the purpose of a stabilization fund established or maintained under section 101a, the Corporation may assess a credit union an amount equal to 1 per cent of its aggregate total shares and deposits at the end of each fiscal year or such other amount established by the regulations for the funding of a stabilization fund for the benefit of credit unions.

                                (3) Assessments made under this section or a predecessor of this section may be treated as an expense and written off by credit unions under terms prescribed in the regulations.

                                (4) The Corporation shall within ninety days after the start of each calendar year establish an annual premium for each credit union, under terms prescribed by the regulations, to meet its administrative costs and insurance funding and the Corporation has the power to assess, accumulate, manage, invest, disburse and pay out of a fund created for the purpose any moneys needed to meet claims of credit unions that have received and maintained insurance standing.

Issue

[7]            The issue is whether the amounts totalling $3,789,206 returned by OSDIC to the appellant in the 1995 taxation year can be characterized as allocations in proportion to premiums or assessments previously paid by the appellant to OSDIC, within the meaning of subsections 137.1(2) and 137.1(4) of the Act. If the answer is in the affirmative, the full amount of $3,789,206 received by the appellant in its 1995 taxation year is to be included in the appellant's income for that year pursuant to subsection 137.1(10) of the Act and the assessment under appeal will be confirmed. If the answer is in the negative, the assessment will be vacated.

Appellant's Argument

[8]            According to the appellant's counsel, the original payments made by the appellant to OSDIC (and referred to in paragraph 12 of the Agreed Statement of Facts) did not have the characteristics of a "premium" or of an "assessment" within the meaning of the Act, although they were treated as such by the appellant itself at the time those payments were made. Indeed, the appellant deducted those amounts in computing its income in the years they were paid, in accordance with subsection 137.1(11) of the Act. Counsel now submits that one must look at the true nature of the amount rather than at how it was treated by the taxpayer.

[9]            Counsel for the appellant defines a "premium" as a payment for insurance coverage while an "assessment", in the insurance field, is usually a payment made where there are insufficient funds available to cover losses. In both cases, he emphasizes the necessity of payment and of transfer of ownership.

[10]          According to counsel, the amounts at issue that were paid in accordance with subsections 111(1), (2) and (3) of the 1976 Credit Unions Act could not be characterized as premiums or assessments because those amounts were never transferred to OSDIC; they always belonged to the appellant. They were put on deposit by the appellant with OSDIC. OSDIC funded its operations with the interest income earned from those deposits, which income fluctuated annually according to the value of the existing capital and the new deposits. It was not however legally entitled to encroach on the deposits as such in order to finance its operations (see Reasons for Judgment of Rosenberg J. dated June 26, 1992 in CS Co-op et al. v. Ontario Share and Deposit Insurance Corporation, Exhibit A-1, Tab 39, at pages 19-21).

[11]          It was within OSDIC's power, however, to assess the credit unions under subsection 111(4) of the 1976 Credit Unions Act a further amount (called an "extraordinary assessment" in the Agreed Statement of Facts) to replace any advances or payments made by OSDIC. Such extraordinary assessment represented the credit union's share of losses sustained by OSDIC, and OSDIC had full discretion as to the use of extraordinary assessment amounts.

[12]          Pursuant to subsection 111(7) of the 1976 Credit Unions Act, a credit union had to charge an extraordinary assessment levied under subsection 111(4) as an expense for accounting purposes but could treat any other assessment levied under section 111 as an asset, which is how the amounts at issue were shown in the appellant's financial statements.

[13]          The Accounting and Auditing Guidelines for Ontario Credit Unions and Caisses Populaires prepared in June 1979 by the Special Committee on Credit Unions, Institute of Chartered Accountants of Ontario (filed as Exhibit A-1, Tab 7) addressed the method of financing the deposit insurance program under the 1976 Credit Unions Act in the following terms at pages 25-26:

Deposit with and other payments to OSDIC

A unique aspect of the credit union and caisses populaires system in Ontario is the method of financing the deposit insurance programme. This is done through the Ontario Share and Deposit Insurance Corporation (hereinafter referred to as OSDIC), a corporation without share capital whose affairs are administered by a board of directors appointed by the Lieutenant Governor in Council. The corporation's authority for assessing credit unions for the cost of the insurance programme is set out in The Credit Unions and Caisses Populaires Act, 1976.

Instead of paying a premium actuarially determined on the basis of expected claims, each credit union lodges an amount with OSDIC calculated as 1% of the credit union's aggregate members' deposits and share capital, on essentially an interest-free basis, for the duration of the credit union's existence. Thus the cost to the credit union for deposit insurance is the interest income it forgoes on the amount placed with the insurance corporation. (For example, assuming that the credit union could earn interest at 10% per annum on the funds, the arrangement translates to an annual insurance cost equal to one-tenth of 1% of deposit and share accounts). In addition to this opportunity cost, the credit union may be called upon from time to time to pay to OSDIC an extra amount to defray losses sustained by OSDIC.

More specifically, pursuant to section 111 of the Act, each credit union was required in 1977 to pay to OSDIC an "initial assessment," calculated as 1% of the credit union's aggregate members' deposits and share capital. Annually, on the basis of its aggregate deposit and share capital balances, each credit union is required to update its accumulated payment to the 1% level by paying an "annual assessment," or it receives a refund in the event of a decrease in its total members' savings. Except for refunds occasioned by a reduction in its members' deposit and share capital balances, a credit union can obtain refund of its accumulated payment only upon its dissolution.

The accumulation of these initial and annual assessments from credit unions provides OSDIC with a capital base which is subdivided into three separate funds maintained for three groups of credit unions (affiliates of Ontario Credit Union League Limited, affiliates of La Fédération des Caisses Populaires de l'Ontario Limitée, and non-affiliates). The total capital funds of OSDIC are put to income producing use in either loans or securities and the annual net income, after deduction of operating expenses, financial assistance to credit unions and losses incurred on dissolution of credit unions, is allocated as retained earnings for each of the three funds. Although OSDIC is not obligated to pay any interest or dividends on the capital funds lodged by credit unions, it is conceivable that if earnings accumulate for any particular fund, OSDIC may make a distribution to the credit unions which have financed that fund.

Section 111 of the Act also covers the situation where OSDIC incurs losses which wipe out previously accumulated net earnings of a particular fund. In these circumstances it is expected that OSDIC would levy an "extraordinary assessment," from the credit unions responsible for financing that fund so as to eliminate the impairment of capital.

In considering the proper methods that should be followed by credit unions in accounting for the payments to and refunds from OSDIC, the special committee found it helpful to distinguish between (a) the initial and annual assessments and (b) the extraordinary assessments.

Dealing first with the initial and annual assessments, which constitute the credit union's investment in the capital funds of OSDIC, the special committee considered the alternatives of reflecting the payments as expenses, or treating the payments as an asset.

The special committee has concluded that the accumulation of initial and annual assessments should be treated as an asset. The accumulated payments represent funds channelled to another business entity which are available when retiring the credit union's obligations on liquidation. Furthermore the accumulated payments earn a benefit by providing deposit insurance to members of credit unions.

. . .

Dealing secondly with the extraordinary assessments, the special committee sees no alternative to recording the payment as an expense in the accounting period when it becomes payable. The extraordinary assessment is seen by the special committee as the credit union's share of losses sustained by the insurance corporation which, if not levied from the credit unions, would otherwise result in an impairment of the deposits with OSDIC.

[14]          According to counsel, OSDIC had no right to appropriate or divide, hence no right to allocate, the capital of the funds accumulated through the initial and annual payments, because it did not own those capital funds.

[15]          The appellant submits that the new legislation, the 1983 Credit Unions Act, effected a change in that it set up a true stabilization fund with credit unions now being charged true premiums that became the property of OSDIC. According to counsel, this new Ontario legislation is much more consistent with the way the Income Tax Act is set up. It was under this new provincial legislation that OSDIC was ordered by the Ontario Court (General Division) to return the amounts in question to the appellant. In his decision, Rosenberg J. stated that "the monies in the assessment deposits belong[ed] to the various Credit Unions . . . who had made the deposits" under the 1976 Credit Unions Act (page 21 of the Ontario Court (General Division) decision, Exhibit A-1 Tab 39).

[16]          In counsel's view, the non-transfer of ownership is inconsistent with the nature of a premium or of an assessment. Relying on definitions in the field of insurance provided by dictionaries and authors, counsel argued that the notion of "premium" or "assessment" implies that there is a payment for something, the transfer of money for coverage of a risk or to cover losses. For example, counsel referred to Couch on Insurance (3rd edition) (Clark Boardman Callaghan Pub, 1996) chap. 70:1, in which the following definition of "assessment" is found at page 70-5:

                                An assessment is a sum specifically levied, usually by a mutual company or fraternal benefit society, to pay losses or losses and administrative expenses incurred. Assessments are equivalent to premiums in that they provide the funds for the satisfaction of claims, and both must be timely paid in order to keep the insurance in effect. However, a distinction exists between assessments and premiums in that assessments are designed to pay losses and expenses as they may arise, while premiums are usually calculated without reference to specific losses and expenses.

The term "assessment" is also defined in Lewis E. Davids, Dictionary of Insurance (7th revised edition) (Maryland: Rowman & Littlefield Publishers Inc., 1990):

Assessment The requirement of a mutual insurance company or a reciprocal exchange that an insured pay an additional amount to meet losses greater than those anticipated. Amounts levied on insured by insurers collecting a definite advance premium where the insurer's funds prove insufficient to meet its obligation. Amounts levied on insurers for the maintenance of organizations or public services.

The term "premium" is defined as follows in the Insurance Act, R.S.O. 1990, c. I.8, s.1:

"premium" means the single or periodical payment under a contract for insurance, and includes dues, assessments, administration fees paid for the administration or servicing of such contract, and other considerations; ("prime")

[17]          It is defined thus in Black's Law Dictionary, 6th edition:

Premium. . . .

                                The sum paid or agreed to be paid by an insured to the underwriter (insurer) as the consideration for the insurance. The price for insurance protection for a specified period of exposure.

[18]          Counsel submits that in each definition of "premium" or "assessment", the common theme is the making of a payment and the amount so paid becoming the property of the payee. In his view, only the extraordinary assessment levied under the 1976 Credit Unions Act met that definition; the regular assessment deposits in question in the present appeal, which remained the property of the credit unions, did not.

[19]          Counsel also stressed the fact that there was no allocation by OSDIC of the assessment deposits as required under the Income Tax Act because OSDIC did not have the ownership of the deposits and hence did not possess the power to allocate. Again, counsel relies on dictionary definitions to make his point. More particularly, he refers to the following definitions in Black's Law Dictionary, 6th edition:

Allocation. Assignment or allotment. Jacobson v. Bowles, D.C.Tex., 53 F.Supp. 532, 534.

Assignment. The act of transferring to another all or part of one's property, interest, or rights. A transfer or making over to another of the whole of any property, real or personal, in possession or in action, or of any estate or right therein. It includes transfers of all kinds of property (Higgins v. Monckton, 28 Cal.App.2d 723, 83 P.2d 516, 519), including negotiable instruments. The transfer by a party of all of its rights to some kind of property, usually intangible property such as rights in a lease, mortgage, agreement of sale or a partnership. Tangible property is more often transferred by possession and by instruments conveying title such as a deed or a bill of sale. See also Collateral assignment.

Allotment. A share or portion; that which is allotted; apportionment; division; the distribution of shares in a public undertaking or corporation. Partition; the distribution of land under an inclosure act.

Distribute. To deal or divide out in proportion or in shares. See Distribution.

In Black's Law Dictionary, 7th edition, "allocation" is defined as follows:

Allocation, n. A designation or apportionment for a specific purpose; esp., the crediting of a receipt or the charging of a disbursement to an account.

[20]          In counsel's view, the word "allocation" implies a transfer of property, which did not occur here. Therefore, submits counsel, the deposit amounts returned to the appellant by OSDIC were not caught by section 137.1 of the Act.

[21]          In summary, counsel argues that before 1983 the way the deposit insurance corporation and its funding were set up under the 1976 Credit Unions Act was unusual, unique in Ontario at that time. Section 137.1 of the Act was not aimed at such a special case and there is no reason, in his view, to extend the meaning of "premiums" or "assessments" to catch that particular situation.

[22]          Counsel refers to the Supreme Court of Canada decision in Antosko et al. v. The Queen, 94 DTC 6314, as authority for the proposition that, in dealing with income tax legislation, words are to be given their clear and plain meaning. The plain meaning of the words "premiums" and "assessments" does not cover the deposits made by the appellant with OSDIC.

Respondent's Argument

[23]          At the outset, counsel for the respondent made it clear that he believed the amounts paid by the appellant to OSDIC and returned afterwards to the appellant did not constitute premiums but were rather assessments. In counsel's view, Rosenberg J. did not decide that the deposits were owned by the credit unions. In any event, counsel does not believe that the ownership of those deposits is a relevant factor in determining either what constitutes an assessment or whether there is a right to allocate a certain amount of money. Indeed, counsel submits that there is no requirement that there be a transfer of ownership of the funds for there to be an assessment by OSDIC or for OSDIC to exercise discretion with respect to, or to allocate, amounts in its possession.

[24]          Counsel relies rather on the scheme of the Income Tax Act. He does not dispute that the returned deposits are not to be included in income pursuant to subsection 9(1) of the Act.

[25]          Indeed, counsel does not challenge the fact that for accounting purposes those amounts may be treated as assets and not as expenses. However, he is of the view that section 137.1 of the Act is an express provision which dictates specific treatment for that particular type of expenditure. In so stating, counsel relies on the decision of the Supreme Court of Canada in Canderel Ltd. v. Canada, [1998] 1 S.C.R. 147, in which Iacobucci J. said at paragraph 32:

The great difficulty which seems to have plagued the courts in the assessment of profit for income tax purposes bespeaks the need for as much clarity as possible in formulating a legal test therefor. The starting proposition, of course, must be that the determination of profit under s.9(1) is a question of law, not of fact. Its legal determinants are two in number: first, any express provision of the Income Tax Act which dictates some specific treatment to be given to particular types of expenditures or receipts, including the general limitation expressed in s.18(1)(a), and second, established rules of law resulting from judicial interpretation over the years of these various provisions.

[26]          The financial statements are prepared for the members of the credit unions, but section 137.1 of the Act requires an adjustment for tax purposes. This is why, counsel submits, the amounts at issue here are shown as assets and not as income in the financial statements.

[27]          Counsel submits that the amounts that were paid to OSDIC by the appellant and later returned to the appellant were amounts of assessments within the legal meaning of section 137.1 of the Act. Indeed, the legal definition of the word "assessment" is found in the wording of section 111 of the 1976 Credit Unions Act itself, which section creates the obligation to pay and fixes the amount of the assessment. Section 137.1 uses the same term, "assessment", as the provincial Act providing that term's legal definition for the particular deposit insurance and credit union industry governed by that Act.

[28]          Counsel relies on a statement in another decision of the Supreme Court of Canada, Will-Kare Paving & Contracting Ltd. v. Canada, [2000] 1 S.C.R. 915, in which Major J. stated at paragraphs 32-33:

32 Referring to the broader context of private commercial law in ascertaining the meaning to be ascribed to language used in the Act is also consistent with the modern purposive principle of statutory interpretation. As cited in E.A. Driedger, Construction of Statutes (2nd ed. 1983), at p. 87:

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.

See Rizzo & Rizzo Shoes Ltd. (Re), [1998] 1 S.C.R. 27, at para. 21. The modern approach to statutory interpretation has been applied by this Court to the interpretation of tax legislation. See 65302 British Columbia Ltd. v. Canada, [1999] 3 S.C.R. 804, at para. 5 per Bastarache J., and at para. 50 per Iacobucci J.; Stubart Investments Ltd. v. The Queen, [1984] 1 S.C.R. 536, at p. 578.

33 The technical nature of the Act does not lend itself to broadening the principle of plain meaning to embrace popular meaning. The word sale has an established and accepted legal meaning.

[29]          In the present case, the original payments to OSDIC were made in accordance with subsections 111(2) and (3) of the 1976 Credit Unions Act. The legal term used in section 111 is "assessment", which is the same term as that used in the Income Tax Act. Counsel notes that the term "assessment" is consistent with the terminology used in the deposit insurance industry. He referred to all the documents filed in the Common Book of Exhibits whose originators were people working in that field (including the appellant's president) and in which reference is made to the word "assessment" when dealing with amounts such as those at issue. In particular, OSDIC's Annual Report 1983 referred to "members' 'assessment' balances" (Exhibit A-1, Tab 27, page 4). Counsel also pointed to the statement of claim filed by the appellant in the Supreme Court of Ontario, wherein it claimed the "return of the assessments paid by the [appellant] to [OSDIC] pursuant to the [1976 Credit Unions] Act in the amount of $3,789,206.05" (see Exhibit A-1, Tab 38, page 7).

[30]          Counsel also made reference to a memorandum written by lawyers and accountants to the appellant's Board of Directors in which those specialists had determined that the return of the deposits would be considered as income under the Act and that 45 per cent of that income would be taxable (see Exhibit A-1, Tab 43). According to counsel for the respondent, that memorandum was not simply a document attempting to show the worst and the best scenarios to be considered by the appellant in considering an eventual settlement with OSDIC, as argued by counsel for the appellant. A careful reading of the memorandum indicates that the different scenarios envisaged contemplated the financial consequences of accepting a settlement with OSDIC. It did not envisage the possibility that the return of $3.8 million to the appellant could be treated otherwise than as income. Indeed, the amount of $3.8 million is made up of amounts that were always considered as payments of assessments within the meaning of the Act, as, for income tax purposes, a deduction had always been claimed by the appellant on that basis since 1976 under subsection 137.1(11). As a matter of fact, the final release given by OSDIC in the proceedings before the Ontario courts discharged the appellant from all debts arising out of unpaid assessments (Exhibit A-1, Tab 45). All this, counsel submits, shows that people in the deposit insurance industry always considered the amounts at issue as assessments.

[31]          In conclusion, counsel argues that the credit unions and deposit insurance corporations are part of a very specific industry, the taxation of which was specifically addressed by the enactment of section 137.1 of the Act. The Act uses the terms "assessments" and "premiums" in order to cover both the federal and provincial legislation dealing with that industry (indeed, in the Canada Deposit Insurance Corporation Act, which is the federal legislative counterpart of the provincial legislation, reference is made to the assessment of premiums). The word "assessment" is used in the Ontario legislation at issue in the present appeal, and there is no need to refer to other areas or to the insurance field in general so as to attribute to the word "assessment" a meaning other than that given in the 1976 Credit Unions Act.

Analysis

[32]          The issue before this court is whether section 137.1 of the Act is applicable in the present case. Each counsel resorts to principles of statutory interpretation in arguing his own position. Counsel for the appellant believes that this court should rely on a strict interpretation of the words used in section 137.1 and conclude that the deposit amounts returned by OSDIC do not meet the strict definition of "assessment" or "premium" applicable in the insurance field, the main reason for this being that those monies did not belong to OSDIC. Counsel also suggests that, for the same reason, no allocation of the deposits could be made by OSDIC. On the other hand, counsel for the respondent, if I understand him correctly, prefers to rely on the contextual approach, which requires the courts to interpret a word by having regard to the rest of the provision in which it is found or to the rest of the statute in which it is found. Under this approach, the objective legislative intent as manifested by the words used in the provision surrounding the word in question should be sought (see Joel Nitikman and Derek Alty, "Some Thoughts on Statutory Interpretation in Canadian Tax Law: A Reply to Brian Arnold", in Report of Proceedings of the Fifty-Second Tax Conference, 2000 Conference Report (Toronto: Canadian Tax Foundation, 2001), 9:1-3). Section 137.1 is part of Division F of Part I of the Act, which relates to the special rules applicable in certain circumstances. Division F deals with, among other things, credit unions and deposit insurance corporations. Accordingly, the words "allocation", "premium" and "assessment" must be interpreted in light of the meaning attributed to those words in the specific industry represented by those institutions. In the respondent's view, that specific meaning is found in the Ontario statutes governing credit unions. This legislation contains numerous references to the power of OSDIC to assess the credit unions for the purpose of maintaining a reserve fund in order to meet its obligations as set out in section 101 of both the 1976 Credit Unions Act and the 1983 Credit Unions Act.

[33]          Those statutory interpretation principles relied upon by counsel have been dealt with by the Supreme Court of Canada. In Antosko et al., supra, Iacobucci J., who delivered the unanimous judgment of the court, described the modern approach to statutory interpretation as follows at pages 6319-20:

                                The starting point for this inquiry is the judgment of this Court in Stubart Investments Ltd. v. The Queen, [[1984] 1 S.C.R. 536] . . . .

. . .

. . . After setting out the traditional approach of strict construction of taxing statutes, Estey, J. notes at p. 578 [in Stubart, supra]:

                Gradually, the role of the tax statute in the community changed, as we have seen, and the application of strict construction to it receded. Courts today apply to this statute the plain meaning rule, but in a substantive sense so that if a taxpayer is within the spirit of the charge, he may be held liable.

Estey, J. relied at p. 578 on the following passage from Dreidger, [sic] Construction of Statutes (2nd ed. 1983), at p. 87:

                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.

. . .

. . . While it is true that the courts must view discrete sections of the Income Tax Act in light of the other provisions of the Act and of the purpose of the legislation, and that they must analyze a given transaction in the context of economic and commercial reality, such techniques cannot alter the result where the words of the statute are clear and plain and where the legal and practical effect of the transaction is undisputed . . . .

[34]          In Construction Industry Commission v. M.U.C.T.C., [1986] 2 S.C.R. 327, the Supreme Court of Canada had, in previous years, reverted to the plain-meaning rule and held that courts must determine the legislature's intention from the language used. (See Nitikman and Alty, supra, page 9:18). Chouinard J., speaking for the court, approved the following passage written by Duff J. in The Canadian National Ry. Co. v. The Province of Nova Scotia et al., [1928] S.C.R. 106, at pages 120-21:

. . . The function of this court is to give effect to the intention of the legislature, as disclosed by the language selected for the expression of that intention. Whatever views may have inspired the policy of a statute, it is no part of the function of a court of law to enlarge, by reference to such views, even if they could be known with certainty, the scope of the operative parts of the enactment in which the legislature has set forth the particular means by which its policy is to be carried into effect.

[35]          Recently, the Supreme Court of Canada reiterated that when a provision of the Act is clear, one need not go beyond its clear and plain meaning (see Shell Canada Limited v. The Queen et al., 99 DTC 5669 at 5676 (S.C.C.)).

[36]          In the present case, section 137.1, which is the provision under scrutiny, refers specifically to the computation of income of credit unions and deposit insurance corporations.

[37]          Subsection 137.1(1) states that a deposit insurance corporation shall, "except as otherwise provided in this section," compute its income in accordance with the rules applicable in computing income for the purposes of Part I of the Act. The specific rules enunciated in section 137.1 for computing the income of both credit unions and deposit insurance corporations establish that the premiums or assessments received by a deposit insurance corporation from its member institutions shall not be included in the former's income (subsection 137.1(2)) but may be deducted by the member institution in computing its income for the year the premium or assessment was paid (subsection 137.1(11)). On the other hand, no deduction shall be made in computing a deposit insurance corporation's income in respect of amounts returned to its member institutions as allocations in proportion to premiums or assessments originally paid by the member institutions (subsection 137.1(4)). A member institution must however include in computing its income any amount so received from the deposit insurance corporation (subsection 137.1(10)).

[38]          It must be noted that in section 137.1, Parliament uses the same terms, "assessment" and "premium", as those found in the different federal and provincial legislation on credit unions. I infer from the language selected in section 137.1 that Parliament was deliberately aiming at amounts that were paid to deposit insurance corporations for the purpose of creating a reserve fund for the intended purpose set out in federal and provincial legislation on credit unions and deposit insurance corporations, regardless of the method of financing chosen by each legislative body.

[39]          A straightforward approach to statutory interpretation leads one to conclude that the intention in section 137.1 of the Act is to address specifically the computation of the income of credit unions and deposit insurance corporations. The question is not whether the amounts at issue are to be included in income solely on the basis of section 9 of the Act. Indeed, the respondent admits that those amounts would probably not constitute income for the appellant under the general and well-accepted principles of business practice encompassed by subsection 9(1) of the Act. However, what is intended in section 137.1, as disclosed by the language selected therein, is the adoption of specific rules for computing income in the case of credit unions and deposit insurance corporations. That intent would be substantially undermined if the appellant was allowed to escape the inclusion of such amounts in income. This is especially true considering the fact that the appellant itself took advantage of the specific rules laid down in section 137.1 by deducting amounts paid to OSDIC which probably would not have been deductible in computing the appellant's profit for those years under section 9 of the Act.

[40]          I would draw a parallel here with the language of section 63 of the Act, which is aimed at limiting child care expense deductions to lower-earning supporting persons. It was decided in a majority judgment of the Supreme Court of Canada in Symes v. Canada, [1993] 4 S.C.R. 695, that section 9 cannot be interpreted as constituting a basis for a child care business expense deduction in light of the language used in section 63. Writing for the majority, Iacobucci J. said the following at pages 744-45:

. . . Section 63 cannot be lightly disregarded (E. A. Driedger, Construction of Statutes (2nd ed. 1983), at p. 87):

. . . 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.

In fact, as I will now attempt to demonstrate, I do not believe that ss. 9, 18(1)(a) and 18(1)(h) can be interpreted to account for a child care business expense deduction, in light of the language used in s. 63.

. . .

                                The fact that this language accurately describes the situation at hand - i.e., a law partner paying child care in order to work - is itself persuasive reason to suppose that ss. 9, 18(1)(a) and 18(1)(h) cannot be interpreted to permit a child care business expense deduction. Décary J.A., in the Federal Court of Appeal below, considered this language to be "clear and not open to question", and suggested that s. 63 is "really a code in itself, complete and independent" (p. 525). . . .

. . .

                                Additionally, it is important to acknowledge the context of s. 63 within the Act as a whole.

[41]          Therefore, the question remains whether the amounts at issue are covered by section 137.1. It is not disputed that OSDIC is a deposit insurance corporation and that the appellant is a member institution within the meaning of section 137.1. It therefore now falls to be determined whether the amounts returned to the appellant qualify as allocations in proportion to any assessments previously paid by the appellant.

[42]          It is true that the words "premium" or "assessment" are not defined in the Act. However, in my view, the plain meaning of the word "assessment" encompasses the situation here in which the appellant was required under the 1976 Credit Unions Act to pay a certain amount according to an established rate and was bound to make that payment although it was not divested of the funds so paid. Indeed, in Black's Law Dictionary, 7th edition, "assessment" is defined as follows:

assessment, n. 1. Determination of the rate or amount of something, such as a tax or damages < assessment of the losses covered by insurance > . 2. Imposition of something, such as a tax or fine, according to an established rate; the tax or fine so imposed < assessment of a luxury tax > .

[43]          As a matter of fact, the 1976 Credit Unions Act itself refers to the power of OSDIC to assess and collect from a credit union, on an annual basis, an amount equal to one per cent of the total share capital and deposits of a credit union at the end of the fiscal year of that credit union immediately preceding the assessment (see subsections 111(1), (2) and (3) of the 1976 Credit Unions Act).

[44]          The fact that that reserve fund was financed through the collection by OSDIC of a percentage of the total share capital and deposits of the credit union, without the credit union being divested of the ownership of that percentage of its capital, does not in my view alter the real nature of the assessment. In fact, it is true that a credit union could treat an assessment so levied as an asset (pursuant to subsection 111(7)) on the basis that the accumulated assessment payments represented funds channelled to another business entity which were available for retiring the credit union's obligations. It remains nonetheless that all amounts assessed by OSDIC against a credit union for the purposes of the 1976 Credit Unions Act were deemed to be a debt owing to OSDIC and the amount thereof was recoverable by action in a court of competent jurisdiction (subsection 111(6)).

[45]          In that sense, even if the monies were only on deposit with OSDIC, the appellant had an obligation to pay such amounts, according to a rate fixed by law, in order to benefit from the deposit insurance scheme administered by OSDIC. Those capital funds deposited with OSDIC were put to income-producing use, and the annual net income was used by OSDIC to pay operating expenses, to provide financial assistance to credit unions and to cover losses incurred on dissolution of credit unions, those being the duties included in the legal objects of OSDIC as set out in the 1976 Credit Unions Act. There was therefore a cost to a credit union for deposit insurance, which cost was the interest income foregone on the amount deposited with OSDIC.

[46]          It even seems to me that the situation in this case falls directly within the definitions of "assessment" in the insurance field provided by counsel for the appellant. According to Couch on Insurance, supra, "an assessment is a sum specifically levied . . . by a . . . mutual company . . . to pay losses or losses and administrative expenses incurred. Assessments . . . provide the funds for the satisfaction of claims, and . . . must be timely paid in order to keep the insurance in effect". Under that definition, I find no requirement that the capital must be vested in the insurance company as contended by counsel for the appellant. Clearly, the appellant was assessed under the 1976 Credit Unions Act and paid the amount assessed to OSDIC. I do not see anywhere in the definitions referred to by the appellant a prerequisite that the amounts assessed should become OSDIC's property.

[47]          Furthermore, I do not see why the term "assessment" should only include the extraordinary assessment that may be charged pursuant to subsection 111(4) of the 1976 Credit Unions Act to cover losses sustained by OSDIC, as submitted by the appellant. The Act refers to assessments in general. The 1976 Credit Unions Act uses the same language with respect to all payments by credit unions of initial and annual assessments, which provide OSDIC with a capital base, and of extraordinary assessments, which are charged to the credit union to avoid the impairment of capital. In all cases, the 1976 Credit Unions Act gives OSDIC the power to "assess" any of those amounts.

[48]          With the enactment of the 1983 Credit Unions Act, OSDIC was obligated to repay to the credit unions the balance of assessments held under the 1976 Credit Unions Act, in the manner in which the assessments were collected. The new legislation makes direct reference to assessments held by OSDIC under the previous legislation and to the return of those assessments to the credit unions.

[49]          It is precisely pursuant to that new legislation that the appellant was entitled to the return of the amounts previously paid to OSDIC, which are at issue here, that is, the return of the assessments in the amount of $3,789,206 (as claimed by the appellant before the Ontario Court (General Division)), paid by the appellant to OSDIC pursuant to the 1976 Credit Unions Act.

[50]          It is interesting to note what is said concerning the tax treatment of returned deposits in the Accounting and Auditing Guidelines for Ontario Credit Unions and Caisses Populaires, supra, at page 29:

Under prevailing tax legislation the regular assessments paid to the Ontario Share and Deposit Insurance Corporation (which are carried as an asset for accounting purposes) are treated as deductions for tax purposes. Conversely, any return of this deposit, such as would occur on wind-up of a credit union, would be included in income for tax purposes.

[51]          As a matter of fact, the appellant itself included an initial refund in the amount of $121,412 received from OSDIC in the 1982 taxation year in its income for that year. It was also the opinion of the appellant's tax specialists that the return of the $3.8 million in deposits should be considered as income (see Exhibit A-1, Tab 43). This interpretation, which shows the industry's thinking after the implementation of the credit unions regime, is, in my view, in line with a proper application of the Act.

[52]          In summary, I find that the plain meaning of the word "assessment" as it is used in section 137.1, when read in its entire context harmoniously with the scheme and object of the Act, expresses Parliament's intention to cover amounts assessed to credit unions under the different federal and provincial legislation respecting credit unions, including the Ontario 1976 Credit Unions Act. More particularly, I find nothing in the wording of that section that would exclude from its application the payments made by the appellant to OSDIC in the years 1977 through 1983.

[53]          In concluding, I shall briefly address the appellant's argument that the return of the amounts in question by OSDIC to the appellant was not an "allocation" in proportion to the assessments paid since OSDIC had no ownership of those amounts. I agree with counsel for the respondent that the word "allocation" as it is used in paragraph 137.1(4)(c), merely denotes the possibility that a member institution may not be repaid the entire amount that it initially paid as a premium or an assessment. The inclusion in income is premised on the fact that a deduction has already been taken for the amounts that are repaid. It is with respect to such circumstances as these, in my view, that Parliament has provided that a member institution may receive an allocation in proportion to the amount it initially paid.

[54]          This interpretation is supported by the language of section 111 of the 1983 Credit Unions Act, which states that the "balance of assessments held under the predecessor to this section shall be repaid" by OSDIC and that this is to be done "in the manner in which the assessments were collected". It is also supported by the wording of subsection 111(9) of the 1976 Credit Unions Act, which provided that on the dissolution of a credit union, OSDIC was required to "repay to it an amount equal to its assessments paid under subsection 1, 2, or 3, adjusted in accordance with the financial position of the appropriate fund". As a matter of fact, OSDIC had had to repay amounts to its members in some years (for example $121,412 to the appellant in 1982) on account of the requirement of maintaining the one per cent ratio of share and capital deposits.

[55]          There is no requirement that OSDIC must own the funds in order to be able to allocate them. The necessity of ownership is not even mentioned as a prerequisite in the definitions submitted by counsel for the appellant. Indeed, the word "allocation" is used repeatedly in the Act and the condition of any such allocation is that there be power to allocate, which is given to various parties who do not necessarily own the property or the amount allocated.

[56]          For these reasons, I do not believe that the appellant's arguments can stand. I therefore conclude that the amounts totalling $3,789,206 returned by OSDIC to the appellant in the 1995 taxation year were allocations in proportion to the assessments collected from the appellant by OSDIC during the 1977 through 1983 taxation years, within the meaning of subsections 137.1(2) and (4) of the Act. Consequently, those amounts had to be included in the appellant's income for its 1995 taxation year pursuant to subsection 137.1(10) of the Act.

[57]          The assessment under appeal is therefore confirmed and the appeal is dismissed, with costs.

Signed at Montréal, Québec, this 3rd day of August 2001.

" Lucie Lamarre "

J.C.C.I.

COURT FILE NO.:                                                 1999-640(IT)G

STYLE OF CAUSE:                                               The Civil Service Co-Operative

Credit Society, Limited v. The Queen

PLACE OF HEARING:                                         Ottawa, Ontario

DATE OF HEARING:                                           December 7, 2000

REASONS FOR JUDGMENT BY:      The Honourable Judge Lucie Lamarre

DATE OF JUDGMENT:                                       August 3, 2001

APPEARANCES:

Counsel for the Appellant: Michael L. Phelan

Counsel for the Respondent:              Richard Gobeil

COUNSEL OF RECORD:

For the Appellant:                

Name:                      Michael Phelan/Steven Kohn

                                Osler, Hoskin & Harcourt

Firm:                        Suite 1500 - 50 O'Connor Street

                                Ottawa, Ontario K1P 6L2

For the Respondent:                             Morris Rosenberg

                                                                Deputy Attorney General of Canada

                                                                Ottawa, Canada

1999-640(IT)G

BETWEEN:

THE CIVIL SERVICE CO-OPERATIVE

CREDIT SOCIETY, LIMITED,

Appellant,

and

HER MAJESTY THE QUEEN,

Respondent.

Appeal heard on December 7, 2000, at Ottawa, Ontario, by

the Honourable Judge Lucie Lamarre

Appearances

Counsel for the Appellant:                    Michael L. Phelan

Counsel for the Respondent:                Richard Gobeil

JUDGMENT

          The appeal from the assessment made under the Income Tax Act for the 1995 taxation year is dismissed, with costs.

Signed at Montréal, Québec, this 3rd day of August 2001.

J.C.C.I.