Date:
20060503
Dockets: A-352-05
A-353-05
Citation: 2006 FCA 161
CORAM: DÉCARY
J.A.
LÉTOURNEAU
J.A.
PELLETIER J.A.
BETWEEN:
NATIONAL BANK LIFE INSURANCE,
LIFE INSURANCE COMPANY
Appellant
and
HER MAJESTY THE QUEEN
Respondent
REASONS FOR JUDGMENT
LÉTOURNEAU J.A.
[1]
These two
appeals were joined for procedural purposes and for hearing. They were filed
from a decision of the Tax Court of Canada regarding the interpretation of
provisions relating to the goods and services tax. In particular, the
provisions at issue are sections 1 and 2 of Part IX of Schedule VI of the Excise
Tax Act, R.S.C. 1985, c. E-15 (the Act). I also set out section 3 of the
schedule, since it helps in understanding the issue. The provisions read as
follows:
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PART IX
FINANCIAL SERVICES
1. A supply of a financial service
(other than a supply that is included in section 2) made by a financial
institution to a non-resident person, except where the service relates
to
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PARTIE IX
SERVICES FINANCIERS
1. La fourniture d’un service
financier, à l’exception d’une fourniture figurant à l’article 2,
effectuée par une institution financière au profit d’une personne non
résidante, sauf s’il est lié à ce qui suit :
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(a)
a debt that arises from
(i) the
deposit of funds in Canada, where the instrument issued as evidence of the
deposit is a negotiable instrument, or
(ii) the
lending of money that is primarily for use in Canada;
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a) une dette qui découle :
(i) soit
du dépôt de fonds au Canada, si l’effet faisant foi du dépôt est négociable,
(ii) soit
du prêt d’argent à utiliser principalement au Canada;
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(b)
a debt for all or part of the consideration for a supply of real property
that is situated in Canada;
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b) une dette pour tout ou partie de la
contrepartie de la fourniture d’un immeuble situé au Canada;
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(c)
a debt for all or part of the consideration for a supply of personal property
that is for use primarily in Canada;
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c) une dette pour tout ou partie de la
contrepartie de la fourniture d’un bien meuble à utiliser principalement au
Canada;
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(d)
a debt for all or part of the consideration for a supply of a service that is
to be performed primarily in Canada; or
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d) une dette pour tout ou partie de la
contrepartie de la fourniture d’un service à exécuter principalement au
Canada;
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(e)
a financial instrument (other than an insurance policy or a precious
metal) acquired, otherwise than directly from a non-resident issuer, by
the financial institution acting as a principal.
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e)
un effet financier, sauf
une police d’assurance ou un métal précieux, acquis, autrement que directement d’un émetteur
non-résident, par l’institution financière agissant à titre de mandant.
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2. A supply made by a financial
institution of a financial service that relates to an insurance policy issued
by the institution (other than a service that relates to investments made
by the institution), to the extent that
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2. La fourniture par une institution
financière d’un service financier lié à une police d’assurance établie par
l’institution, à l’exception d’un service lié aux placements de
l’institution, dans la mesure où :
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(a)
where the policy is a life or accident and sickness insurance policy (other
than a group policy), it is issued in respect of an individual who at the
time the policy becomes effective, is a non-resident individual;
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a) s’agissant d’une police
d’assurance-vie, d’assurance-accident ou d’assurance-maladie (sauf une police
collective), la police est établie au titre d’un particulier qui, au moment
de l’entrée en vigueur de la police, est un particulier non résidant;
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(b)
where the policy is a group life or accident and sickness insurance policy,
it relates to non-resident individuals who are insured under the policy;
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b) s’agissant d’une police collective
d’assurance-vie, d’assurance-accident ou d’assurance-maladie, la police
concerne des particuliers non résidants qui sont assurés aux termes de la
police;
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(c)
where the policy is a policy in respect of real property, it relates to
property situated outside Canada; and
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c) s’agissant d’une police visant un
immeuble, la police concerne un immeuble situé à l’étranger;
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(d)
where the policy is a policy of any other kind, it relates to risks that are
ordinarily situated outside Canada.
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d) s’agissant d’un autre type de police,
la police concerne des risques qui sont habituellement situés à l’étranger.
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3. A supply of a
financial service that is the supply of precious metals where the
supply is made by the refiner thereof or by the person on whose behalf the
precious metals were refined.
[Emphasis added.]
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3. La fourniture d’un service financier
qui consiste en la fourniture de métaux précieux par le raffineur ou
par la personne pour le compte de laquelle les métaux ont été raffinés.
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[2]
The Court
has to determine here whether the financial services supplied by the appellant
to Natcan Insurance Company Inc. (Natcan) constitute an exempted supply of
services or a zero-rated supply of services. I should note that Natcan is a
company not resident in Canada which operates in the reinsurance field and for
which the appellant provides reinsurance for part of the risks it assumes in
respect of customers obtaining mortgage loans. The services in question are
administrative services which the appellant provides to Natcan and for which it
claims input tax credits (ITC).
[3]
It was
admitted by both parties that the services provided are financial services
within the meaning of the Act, the appellant is a financial institution and the
services are for the benefit of a non-resident person. Accordingly, the
appellant submitted that it met the criteria of section 1 of Part IX of
Schedule VI, and therefore the services supplied were zero-rated services
which entitled it to the ITC.
[4]
It was an
understatement on the part of the Tax Court of Canada when it said in
paragraph 33 of its decision that the wording of the legislation in
question was not crystal clear. Section 1 of Part IX of Schedule VI describes
the financial service to which the provision applies, but at the outset
provides for the first exception to the provision, namely services included in
section 2. It then provides for a further series of exceptions, in which
paragraph 1(e) itself contains an exception to the paragraph 1(e)
exception. Where and how is one to find the guiding light that will enable to
find an exit to what, in interpretive terms, is a real labyrinth?
[5]
The
appellant submitted that section 1 lays down as a principle that all financial
services supplied by a financial institution to a non-resident person are
zero-rated supplies, except for those mentioned in section 2 and those
expressly listed in paragraphs (a) to (e) of section 1.
Accordingly, in the appellant’s submission, the supply of financial services
associated with an insurance policy, except for those covered by section 2
which are also related to an insurance policy, is a zero-rated supply.
[6]
The
difficulty presented by the position taken by the appellant is twofold. First,
the appellant admitted that, according to the interpretation which it gives to
section 1, the financial services listed in section 2 are services already
covered by section 1, and therefore are the supply of zero-rated services under
section 1. Then why would Parliament exclude such supply from section 1
and make it a zero-rated supply of services under section 2, if it is already a
zero-rated supply of services under section 1?
[7]
Second,
the effect of the appellant’s position is to make section 2 pointless and
entirely devoid of content. In enacting it, Parliament, which is never deemed
to have spoken in vain, would in fact have spoken in vain since the supply of
services in section 2 would already have been covered by section 1.
[8]
The only
way of understanding section 1 and giving it a coherent meaning consistent with
the principles of taxation, zero-rating and exempt supplies contained in the
Act is to see and recognize in section 1, in the exception of a supply of
services contained in section 2, an intention on the part of Parliament to deal
in section 2 specifically and exhaustively with the financial services relating
to an insurance policy. In other words, section 2 is a special and specific
provision applicable to financial services relating to an insurance policy. In
section 2, Parliament has defined the conditions under which the supply of such
services will be zero-rated and only the supply of services which meet those
conditions shall be so rated. Other supplies of financial services related to
insurance policies are, pursuant to Part VII of Schedule V, entitled “Financial
Services”, exempt supplies.
[9]
One of the
fundamental principles of legislative construction is that a statute or
provision of a statute which deals specifically with a subject-matter must take
priority over, and override, any general legislation or provision dealing with
the same subject-matter. The rule is derived from the Latin maxim generalia
specialibus non derogant. In her work entitled Sullivan and Driedger on
the Construction of Statutes, 4th ed., Toronto, Butterworths,
2002, at p. 273, Prof. Sullivan states the following regarding this rule of
construction:
When two provisions are in conflict and
one of them deals specifically with the matter in question while the other is
of more general application, the conflict may be avoided by applying the
specific provision to the exclusion of the more general one. The specific
prevails over the general; it does not matter which was enacted first.
[10]
In Vidéotron
Ltée v. Industries Microlec, [1992] 2 S.C.R. 1065, at page 1080, Gonthier
J. observed that “[i]t is well settled that specific rules prevail over general
rules”. In the case at bar, section 2 prevails over section 1 and the tax
treatment of financial services relating to an insurance policy is governed by
section 2.
[11]
This
interpretation of section 2 is also supported by section 3 of Part IX of
Schedule VI, which deals with the supply of financial services involving the
supply of precious metal. Here again, Parliament has adopted a specific
provision on the question and only supplies which meet the requirements of that
provision are zero-rated supplies.
[12]
Finally,
in my humble opinion, paragraph 1(e) of section 1 reinforces the
interpretation I have arrived at regarding section 2.
[13]
It will be
recalled that paragraph 1(e) excludes a financial instrument from the
supply of a section 1 financial service, except for an insurance policy or
precious metal. The term “financial instrument” is broadly defined in section
123 of the Act as meaning, inter alia, a debt security, an equity
security, an interest in a partnership or trust, an insurance policy, a precious
metal and so on (emphasis added). Accordingly, therefore, an insurance
policy and a precious metal have to be excluded from the definition of a
financial instrument in paragraph 1(e), since Parliament has dealt
specifically with them in sections 2 and 3. Otherwise, in view of the
definition of a “financial instrument”, paragraph 1(e) would mean that a
financial service relating to an insurance policy or precious metal could not
be a zero-rated supply, which would be in conflict with sections 2 and 3, which
expressly and specifically provide those that may be zero-rated and the
conditions for such zero rating to apply.
[14]
I note in
passing that the English wording of sections 1 and 2 uses the phrase “other
than” to exclude certain financial services from their scope. It seems to me
that this phrase better achieves the result sought than the use, correct in
French, of the words “à l’exception de”, used here in the sense of “à
l’exclusion de”.
[15]
The Tax
Court of Canada correctly ruled that the supply of financial services in
question was an exempt supply within the meaning of the Act creating no right
to ITCs.
[16]
For these
reasons, I would dismiss the appeal with only one set of costs, but with
entitlement to disbursements in each case.
“Gilles
Létourneau”
I
concur.
Robert Décary J.A.
I
concur.
J.D. Denis Pelletier J.A.
François
Brunet, LLB, BCL
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