Date: 20000119
Docket: A-606-98
CORAM: MARCEAU J.A.
DESJARDINS J.A.
DÉCARY J.A.
BETWEEN:
AUTOBUS THOMAS INC.
Appellant
- and -
HER MAJESTY THE QUEEN
Respondent
REASONS FOR JUDGMENT OF THE COURT
(Delivered from the bench at Québec, Quebec,
on Wednesday, January 19, 2000)
MARCEAU J.A.
[1] This is an appeal from a Tax Court of Canada judgment upholding the Minister of National Revenue"s reassessments of the appellant, a school bus dealer, for four taxation years1. The reassessments were the result of a determination by the Minister that the appellant"s debts to the bank it had used to finance the purchase of new vehicles were part of its "capital" under subsection 181.2(3) of the Income Tax Act , which reads as follows:
| 181.2 (3) The capital of a corporation (other than a financial institution) for a taxation year is the amount, if any, by which the total of
(a) the amount of its capital stock (or, in the case of a corporation incorporated without share capital, the amount of its members" contributions), retained earnings, contributed surplus and any other surpluses at the end of the year,
(b) the amount of its reserves for the year, except to the extent that they were deducted in computing its income for the year under Part I,
(b.1) the amount of its deferred unrealized foreign exchange gains at the end of the year,
(c) the amount of all loans and advances to the corporation at the end of the year,
(d) the amount of all indebtedness of the corporation at the end of the year represented by bonds, debentures, notes, mortgages, bankers" acceptances or similar obligations,
(e) the amount of any dividends declared but not paid by the corporation before the end of the year,
(f) the amount of all other indebtedness (other than any indebtedness in respect of a lease) of the corporation at the end of the year that has been outstanding for more than 365 days before the end of the year, and
(g) where the corporation was a member of a partnership at the end of the year, that proportion of the amount, if any, by which
(i) the total of all amounts (other than amounts owing to the member or to other corporations that are members of the partnership) that would be determined under this paragraph and paragraphs (b) to (d) and (f) in respect of the partnership at the end of its last fiscal period that ends at or before the end of the year (if paragraphs (b) to (d) and (f) applied to partnerships in the same way that they apply to corporations)
exceeds
(ii) the amount of the partnership"s deferred unrealized foreign exchange losses at the end of that period
that the member"s share of the partnership"s income or loss for that period is of the partnership"s income or loss for that period
exceeds the total of
(h) the amount of its deferred tax debit balance at the end of the year,
(i) the amount of any deficit deducted in computing its shareholders" equity at the end of the year,
(j) any amount deducted under subsection 135(1) in computing its income under Part I for the year, to the extent that the amount can reasonably be regarded as being included in the amount determined under any of paragraphs (a) to (g) in respect of the corporation for the year, and
(k) the amount of its deferred unrealized foreign exchange losses at the end of the year.
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| 181.2 (3) Le capital d"une société, sauf une institution financière, pour une année d"imposition correspond à l"excédent éventuel du total des éléments suivants:
a) le capital-actions de la société (ou, si elle est constituée sans capital-actions, l"apport de ses membres), ses bénéfices non répartis, son surplus d"apport et tout autre surplus à la fin de l"année;
b) ses réserves pour l"année, sauf dans la mesure où elles sont déduites dans le calcul de son revenu pour l"année en vertu de la partie I;
b.1) ses gains sur change non réalisés reportés à la fin de l"année;
c) les prêts et les avances qui lui ont été consentis à la fin de l"année;
d) ses dettes à la fin de l"année sous forme d"obligations, d"hypothèques, d"effets, d"acceptations bancaires ou de titres semblables;
e) les dividendes qu"elle a déclarés mais n"a pas versés avant la fin de l"année;
f) toutes ses autres dettes, sauf celles afférentes à un bail, à la fin de l"année qui sont impayées depuis plus de 365 jours avant la fin de l"année;
g) dans le cas où elle est un associé d"une société de personnes à la fin de l"année, le produit de la multiplication de l"excédent du total visé au sous-alinéa (i) sur le montant visé au sous-alinéa (ii) par le rapport entre la part qui lui revient du revenu ou de la perte de la société de personnes pour le dernier exercice de celle-ci se terminant à la fin de l"année ou antérieurement et le revenu ou la perte de la société de personnes pour cet exercice:
(i) le total des montants, sauf ceux dus à l"associé ou à d"autres sociétés qui sont des associés de la société de personnes, qui seraient déterminés selon le présent alinéa et les alinéas b ) à d) et f) relativement à la société de personnes à la fin de l"exercice si les alinéas b ) à d) et f) s"appliquaient aux sociétés de personnes de la même manière qu"ils s"appliquent aux sociétés,
(ii) les pertes sur change non réalisées reportées de la société de personnes à la fin de l"exercice,
sur le total des montants suivants:
h) le solde de son report débiteur d"impôt à la fin de l"année;
i) tout déficit déduit dans le calcul de l"avoir des actionnaires à la fin de l"année;
j) tout montant déduit en application du paragraphe 135(1) dans le calcul de son revenu pour l"année en vertu de la partie I, dans la mesure où il est raisonnable de considérer les déductions comme incluses dans l"un des montants calculés en application des alinéas a ) à g) relativement à la société pour l"année;
k) ses pertes sur change non réalisées reportées à la fin de l"année.
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1. The validity or invalidity of the assessments turned on the legal characterization of the contractual relationship between bank and appellant in connection with the new vehicle purchases: if it were a lender-borrower relationship, the debts stemmed from loans and were covered by subsection 181.2(3) of the Act; if instead it were a seller-purchaser relationship, on the basis that ownership"which the manufacturers reserved under their instalment sales contracts with the appellant"was transferred to the bank, then the debts consisted of purchase price balances and were not covered.
2. The judge"s findings supporting the validity of the assessments were based chiefly on the basic fact that for each vehicle, two different manufacturers were involved"one built the chassis, the other the body"and only the second one had entered into an instalment sales contract with the appellant, which it transferred to the bank. The judge held that the bank"s payment of the first manufacturer"s invoice on the appellant"s behalf could certainly not have given rise to a seller-purchaser relationship between bank and client; paragraph 181.2(3)(c ) obviously applied. Furthermore, the judge held that the second manufacturer"s transfer of the rights it had retained under the instalment sale, referring to both invoices, was merely a way of giving the bank real and complete security for satisfaction of its overall claim; there paragraph 181.2(3)(d ) came into play.
3. In our opinion, the trial judge rightly refused to view the contractual relationship between bank and appellant as a seller-purchaser relationship. At no time did the parties intend to interact in those capacities; not for a moment did they think their lender-borrower relationship would turn into a seller-purchaser relationship. What they meant to accomplish was and still is to create real security for the bank securing repayment of the money loaned. Our opinion, however, is based on a somewhat different analysis from the trial judge"s, one that is much more simple and straightforward.
4. In our view, the contractual relationship between bank and appellant is determined by the initial contract between them when the line of credit was established. At law, the establishment of a line of credit can only be construed as loan commitment, and the various steps detailing the use of that line of credit can only be interpreted as formal requirements for meeting the commitment. Those steps can be described separately"sending of invoices, payment on the purchaser"s behalf, drafting and signing of an instalment sales contract, assignment of that contract, entry in a special account, calculation of interest at the variable rate in effect, repayment by instalments, periodic cumulative reports"but cannot be considered in isolation or out of context.
5. By combining various contractual operations"loan commitments to be met on receipt of invoices, an invoice payment order, the signing and assignment of an ownership-retaining contract"the parties sought, for commercial purposes, to create more effective security than ordinary security. There is no reason to disregard their intent or not to give their transactions the meaning and effect they intended to give them and did give them in practice by recording them as such in their books of account.
6. According to counsel for the appellant, no money was handed over from one party to the other"a requirement for the formation of a loan contract under the Civil Code"so the overall transaction could not possibly be identified as a loan. However, the point is that money was indeed handed over within the meaning of the Civil Code; the bank used the loaned money to pay the invoices in performance of the order from its client. The absence of direct, physical handing over of money is now commonplace in the case of many commercial loans, as much at civil law as at common law.
7. Thus, in our view, paragraphs 181.2(3)(c) and (d) both support the Minister"s assessment. The money the appellant owes the bank under the line of credit it obtained from the bank to purchase new vehicles is first and foremost a loan but also a debt secured by real security stemming from the transfer of the rights set out in the conditional or instalment sales contracts.
8. The appeal will accordingly be dismissed with costs.
Louis Marceau
J.A.
Certified true translation
Peter Douglas
Date: 20000119
Docket: A-606-98
CORAM: MARCEAU J.A.
DESJARDINS J.A.
DÉCARY J.A.
BETWEEN:
AUTOBUS THOMAS INC.
Appellant
- and -
HER MAJESTY THE QUEEN
Respondent
Hearing held at Québec, Quebec, on Wednesday, January 19, 2000.
Judgment delivered from the bench on Wednesday, January 19, 2000.
REASONS FOR JUDGMENT OF THE COURT BY: MARCEAU J.A.
FEDERAL COURT OF CANADA
APPEAL DIVISION
NAMES OF COUNSEL AND SOLICITORS OF RECORD
COURT NO.: A-606-98
STYLE OF CAUSE: Autobus Thomas Inc. v. Her Majesty the Queen
PLACE OF HEARING: Montréal, Quebec
DATE OF HEARING: January 19, 2000
REASONS FOR JUDGMENT OF MARCEAU, DESJARDINS, DÉCARY JJ.A.
REASONS DELIVERED FROM THE BENCH ON JANUARY 19, 2000
APPEARANCES:
Daniel Bourgeois FOR THE APPELLANT
Marie-Andrée Legault FOR THE RESPONDENT
SOLICITORS OF RECORD:
Pothier Delisle FOR THE APPELLANT
Sainte-Foy, Quebec
Morris Rosenberg FOR THE RESPONDENT
Deputy Attorney General of Canada
__________________
1 Judgment reported at (1998), 99 D.T.C. 259; [1999] 2 C.T.C. 2001 (T.C.C.).
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