Date: 20000925
Docket: 2000-1953-GST-I
BETWEEN:
EDWINA ARSENAULT,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasons for Judgment
Bell, J.T.C.C.
GENERAL:
[1] This appeal was instituted under Part IX of the Excise
Tax Act ("Act") respecting tax on goods and
services ("GST").
ISSUE:
[2] The issue is whether, in the determination of an exception
to "exempt supply" of real property under the
Act[1] the
Minister was correct in interpreting the words
the parcel was subdivided or severed into two parts[2]
to take into account parts of a parcel of land
("Woodlot") subdivided between 1966 and 1978.[3]
FACTS:
[3] John Angus Chisholm ("Chisholm") acquired
Woodlot in 1966. Over the ensuing 12 years he sold lots from that
land, the last lot having been subdivided in 1978.
[4] Chisholm died intestate on July 4, 1994 leaving 17 people
with an interest in his estate. The court found that Woodlot was
not capable of equitable division and ordered it to be sold. The
Appellant purchased it for $60,000. The Administrator of
Chisholm's estate, one Mrs. Asselstine, collected $9,000
(Harmonized Sales Tax ("HST"))[4] and remitted it to the Receiver
General for Canada.
[5] The Appellant requested a ruling from Revenue Canada
respecting that transaction. In the ruling, made on December 17,
1997, the Minister of National Revenue ("Minister")
took the position that the sale fell within a 1997 amendment of
section 9(2)(c) of Part I of Schedule V to the Act.
That provision excluded from exemption of non-commercial sales of
vacant real property, land that had previously been subdivided or
severed once. In reaching that conclusion, the Minister took into
account the subdivision of lands between 1966 and 1978.
APPELLANT'S SUBMISSIONS:
[6] Appellant's counsel submitted that the Minister's
interpretation resulted in inappropriate retroactive taxation.
Counsel also argued that Woodlot had devolved directly to the
heirs and, therefore, was beyond the ambit of the amendment.[5] He submitted that
the amendment to the Excise Tax Act in 1990 did not
require the collection of GST by someone not engaged in the
business of dealing in land. He said that the 1997 amendment
dealing with the subdivision exception to the exemption from GST
constituted, as applied by the Minister, a retroactive
application of law that could only be sustained if Parliament had
directed it to be so in clear and unambiguous language.
[7] He referred to Gustavson Drilling (1964) Limited v.
Minister of National Revenue [1977] 1 S.C.R. 271 in which, at
279, Mr. Justice Dickson stated:
... The general rule is that statutes are not to be construed
as having retrospective operation unless such a construction is
expressly or by necessary implication required by the language of
the Act. An amending enactment may provide that it is to be
operative with respect to transactions occurring before its
enactment. In those instances the statute operates
retrospectively. ...
[8] Counsel also referred to Driedger on the Construction
of Statutes, page 513, describing retroactivity as
follows:
A retroactive statute or provision is one that applies to
facts that were already in the past when the legislation came
into force. It changes the law applicable to past conduct or
events; in effect, it deems the law to have been different from
what it actually was.
[9] He then referred to Cote in his text, The
Interpretation of Legislation in Canada where at pages
117-118 he said:
A statute has retroactive effect when it is deemed to operate
in the past (retro agere). Roubier says that such statutes
"purport to apply to events which have already taken place,
and he defines retroactivity as "the process of antedating
the operation of a statute to a time prior to its commencement,
or the fictitious pre-existence of a statute"".
Canadian courts sometimes describe such retroactive statutes as
ex post facto. Cases defining the concept of retroactivity are
scarce.
A retroactive effect can be defined as follows: there is
retroactive effect when a new statute applies in such a way as to
prescribe the legal regime of facts entirely accomplished prior
to its commencement.
[10] Counsel then said that Cote distinguishes among three
type of legal facts that can be affected by legislation:
"momentary" or "ephemeral" facts",
that take place and are complete at a discrete and identifiable
time in the past, the legal consequences of which are fixed as of
that moment; and "continuing" or "successive"
legal facts, that are not completed in the past, but are still in
the process of occurring when a statute is passed or amended. It
is when such a law purports to affect the first category of
"momentary" facts, by attaching new legal consequences,
that it can be said to have retroactive effect.
[11] He then referred to section 9(2)(c) of Schedule V,
Part I to the Act which reads, in part, as follows:
(2) a supply of real property made by way of sale by an
individual or a personal trust, other than
...
(c) a supply of a part of a parcel of land, which parcel the
individual, trust or settlor of the trust subdivided or severed
into parts, except where
(i) the parcel was subdivided or severed into two parts and
the individual, trust or settlor did not subdivide or sever that
parcel from another parcel of land ...
[12] Counsel submitted that Chisholm, in 1970, subdivided
Woodlot for the second time. He stated that the process of
conveying the lot was discrete and final, in no way being a
continuing fact. He said that fact then had no tax consequences
and that Chisholm was free to subdivide and convey land without
any legal obligation to collect tax from the purchaser. He added
that Chisholm made six further conveyances from Woodlot in the
ensuing years, each distinct and final, or in Cote's term,
"ephemeral", each with no sales tax consequences. He
then referred to Parliament changing the law some twenty years
later which had the effect, according to the Respondent, of going
back and changing the legal significance of that second
subdivision, by causing it to be the event which removed the
availability of HST exemption.
[13] He referred again to Gustavson in which Justice
Dickson in describing what constitutes retroactive effect,
described it at page 279 as one that:
...alters rights as of a past time ... [that] and reaches into
the past and declare[s] that the law or the rights of parties as
of an earlier date shall be taken to be something other than they
were as of that earlier date.
[14] He then said that the Minister's interpretation,
reaching into the past, deemed a subdivision that occurred before
the arrival of GST to have the effect of putting a supply that
occurred in 1997 beyond the scope of the Schedule V
exemption.
[15] Again, referring to Gustavson in which a
Parliamentary act prospectively changed the future tax
consequences of certain actions in the past, he submitted that
Gustavson had not made certain drilling and exploration
deductions and thereby took the risk that the law would change,
which it did.
[16] Counsel then said a similar effect arose in Venne v.
Quebec [1989] 1 S.C.R. 880 and A.G. Quebec v.
Expropriation Tribunal [1986] 1 S.C.R. 271. He said that in
Venne, the Appellant had entered into what amounted to an
agreement of sale of land, a contract pursuant to which it would
only obtain title upon completion of a schedule of payments.
Before it completed those payments, the province enacted
legislation for the purpose of protecting agricultural land,
thereby affecting the Appellant's plans. In A.G.
Quebec an amendment to expropriation legislation imposed new
requirements on discontinuance of proceedings and the province
sought to avoid those requirements in respect of an expropriation
begun before the amendment. Counsel submitted that in both cases
the Court decided that the impugned legislation was not
retroactive. In the expropriation case the amendment was merely
having an immediate effect on continuing proceedings and the fact
that the initiation of those proceedings pre-dated the amendment
was not relevant. In Venne, the Court also decided that
the new legislation could legitimately have immediate effect on
an ongoing situation, as opposed to an accomplished fact.
[17] He concluded his analysis of those cases by stating that
in each such case the legislation affected fact situations that
were pending and that it did not have the status of accomplished
and completed fact. He submitted that, as a result, they did not
fall within the category of laws that in Justice Dickson's
words "alter rights as of a past time" or "reach
into the past".
[18] Counsel then made submissions respecting the necessity of
legislation being expressly retroactive. He referred to
MacKenzie v. B.C., 1992 D.L.R. (4th) 532 in
which Wood, J.A. at 537 said:
... in the absence of express words to the contrary, or a
necessary and distinct implication arising from the construction
of the statute as a whole, an amendment is presumed not to have
retroactive effect. That is a presumption of law, and the onus is
on the appellant [in this case the appellant propounded the
retroactivity of the legislation in question] to demonstrate the
probability that the amendment in question was intended by the
legislature to have such an effect.
[19] Counsel then referred to Kent v. The King [1924]
S.C.R. 388 in which the Supreme Court of Canada expressed the
principle of restrictive interpretation of retroactive
legislation in this fashion at 397 per Duff, J.:
... where an enactment, admittedly retroactive, is expressed
in language which leaves the scope of it open to doubt, and
according to one construction it imposes retrospectively a new
liability, while upon another at least, equally admissible, it
imposes no such burden, the latter construction is that which
ought to be preferred.
[20] He then submitted that nothing in the section under
examination made reference to the operative time of subdivision.
He said that it used the verb "was" but this was
undoubtedly used because the introductory language of paragraph
(c) in describing the exemption, refers to a supplier
having "subdivided or severed" land into parts and, in
any event, is consistent with a reading that takes into account
only subdivisions that have taken place since 1990. He said that
had Parliament intended that subdivisions predating GST be taken
into account, it would have so stipulated.
[21] He then said that the amending Act expressly made
retroactive changes to the section but only to a limited extent.
Section 90(1) of that Act made the amendment effective as
of December 17, 1990, except that
(b) section 9(2)(c) of Part I of Schedule V to the Act
does not apply to supplies of real property made on or before
April 23, 1996.
[22] He said that accordingly, property transactions between
the date on which GST came into effect and the date Parliament
was made aware of the Government's intentions in this regard
were not to be subject to the new regime in regard to
subdivision. He submitted further, that in light of the fact that
Parliament went so far as to stipulate retroactive effect in this
regard, the failure to go further and mandate retroactive effect
in regard to pre-1990 subdivisions was significant.
[23] Counsel then referred to the ruling made by the Technical
Interpretation Services Branch of Revenue Canada in response to
the Appellant's request for same which read, in part, as
follows:
The amendments to section 9, Part I of Schedule V of the Act
apply to supplies made after April 23, 1996. There is no
provision in the Act that restricts the application of
this section dependent on when the subdivision or severance
occurred. It is the Department's position that the
exclusion to the exemption found in paragraph (c) will
apply regardless of when the subdivision or severance
occurred. [emphasis added by Appellant's counsel]
[24] Counsel submitted that implicit in this approach is the
assumption that, in order to limit the retroactive effect of the
amendment, Parliament should have expressly done so. He then
stated that this was wholly incorrect and that if legislation is
intended to have a retroactive effect, it must expressly do
so.
[25] Counsel then referred to Bill C-70, substantially devoted
to establishing the new blended sales tax ("HST") in
the Atlantic provinces. He stated that in Committee, there was a
brief but revealing statement by the Parliamentary Secretary to
the Minister. He said that at a meeting of the Finance Committee
of the House of Commons on January 21, 1997 Barry Campbell, M.P.
made a statement reviewing the contents of the Bill. In regard to
the amendment in issue, he said:
This legislation will also resolve several issues relating to
the sales tax treatment of real property. For example, the
exemption for inherited real property will be broadened. The Bill
also proposes new rules for the self-assessment of tax on the
construction of subsidized housing. Competitive equity in the
real property sector would be enhanced by limiting the scope of
the GST exemption for subdivided land. [emphasis added]
[26] He then submitted that the statement evidently had
reference to the fact that, since the introduction of GST,
persons who sold property and who fell outside the exemption
because they were, for example, in the business of selling land,
were at a disadvantage compared to persons who were not engaged
in such business. They could subdivide and sell real property
without having to collect tax. That competitive advantage, he
said, would be eliminated by the amendment which would limit such
persons to one subdivision (other than to family members for
personal use) after which further sales would attract tax.
[27] Counsel then said in order to accomplish the desired
"enhancement of competitive equity" it was unnecessary
to include pre-1990 subdivisions in the 1997 amendment. That
would be effected by counting subdivisions that occurred after
the institution of GST. He then said that including pre-1990
subdivisions had the effect of shifting the competitive inequity
to the "non-commercial" vendor by removing the one
subdivision to which he would otherwise be entitled as a
consequence of an action taken before there was any tax.
RESPONDENT'S SUBMISSIONS:
[28] Respondent's counsel, referring to section
9(2)(c) focused on a sale being made by an individual or a
personal trust. She said that "personal trust" defined
in section 123(1) of the Act means, inter alia, a
testamentary trust. The definition of that term, according to
section 123(1) is as defined in section 248(1) of the Income
Tax Act ("ITA") which refers to the definition in
section 108(1) of the ITA. This section defines a testamentary
trust to mean a trust or estate that arose on and as a
consequence of the death of an individual. She then said that,
therefore, a "personal trust" referred to in section
9(2) includes the estate that arose as a consequence of the death
of Chisholm. She submitted that if Woodlot was sold by the estate
of the deceased, it was part of a larger parcel of land the
deceased had subdivided into more than two parts. She referred to
section 267 of the Act which states that:
... where an individual dies, this Part applies as though the
estate of the individual were the individual and the individual
had not died ...
excepting reporting period requirements. Her point was that if
the estate had sold Woodlot to the Appellant the effect is that
the deceased had sold Woodlot, placing the estate in the same
position as the deceased would have been in had he sold Woodlot
while alive.
[29] She then stated that section 108(1) of the ITA in
providing a definition of "testamentary trust" must be
read in conjunction with section 104 of the ITA. It states that
the reference to a trust or estate in the ITA shall be read as
referring to the trustee or executor, administrator, heir or
other legal representative having ownership or control of the
trust property. She added that as the meaning of "personal
trust" includes a "testamentary trust" the
"personal trust" referred to in section 9(2)(c)
referred to the administrator or heirs. She then submitted that
as the deceased had subdivided Woodlot into more than two parts
during his lifetime, the sale of Woodlot was subject to HST.
[30] Respondent's counsel then made reference to
Gustavson Drilling, submitting that the final fact in the
series of relevant facts which triggered the application of
section 9(2) was the supply by way of sale of Woodlot.
ANALYSIS AND CONCLUSION:
[31] Appellant's counsel did not agree with
Respondent's submission that section 104 of the ITA must be
read together with the definition of "testamentary
trust" in section 108. Section 104(1) reads as follows:
In this Act, a reference to a trust or estate (in this
subdivision referred to as a "trust") shall be read as
a reference to the trustee or the executor, administrator, heir
or other legal representative having ownership or control of the
trust property.
That is clearly expressed to have application to the Income
Tax Act and not to a separate piece of legislation, the
Excise Tax Act.
[32] I adopt the submissions of Appellant's counsel[6]. Had it been
intended to include land subdivisions or severances before the
institution of GST the legislation would clearly have to say so.
It is wholly illogical, apart from any statutory sanction of such
proposition, that transactions pre-dating GST should be taken
into consideration in determining the exception to exempt supply.
It is absolutely bizarre to contemplate the extension of such
proposition in the following fashion. Assume that Sir John A.
MacDonald subdivided or severed land in 1864. Assume further that
his estate is not yet completed. The spectre of a final
disposition of land in that estate attracting GST magnifies the
error, if not absurdity, of including pre-GST transactions for
the purposes of section 9(2)(c).
[33] The appeal is allowed.
[34] The Appellant elected in the Notice of Appeal to have the
informal procedure provided by sections 18.1 to 18.28 of the
Tax Court of Canada Act apply. That relates to matters
under the Income Tax Act. However, the intention to have
the informal procedure was clear. Accordingly, the Appellant will
be regarded as having elected under section 18.3001 of that Act.
Rule 9 of the Tax Court of Canada Rules, which does not
yet reflect Section 18.3009 of the Tax Court of Canada Act
in amended form, provides for the awarding of costs. Although the
matter of costs was not addressed, I assume from the information
available to me that the amount of GST in dispute was less than
$7,000 and that the aggregate of supplies for the prior fiscal
year was less than $1,000,000. Accordingly, costs are awarded and
any filing fee paid under section 18.15(3)(b) of the
Tax Court of Canada Act shall be reimbursed.
Signed at Ottawa, Canada this 25th day of September, 2000.
"R.D. Bell"
J.T.C.C.
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