Grant v. Canada, 2007 FCA 174

Date: 20070430

Docket: A-328-06

Citation: 2007 FCA 174

CORAM:       LÉTOURNEAU J.A.

                        EVANS J.A.

                        SHARLOW J.A.

BETWEEN:

DAVID and CATHERINE GRANT

Appellants

and

HER MAJESTY THE QUEEN

Respondent

Heard at Vancouver, British Columbia, on April 30, 2007.

Judgment delivered from the Bench at Vancouver, British Columbia, on April 30, 2007.

REASONS FOR JUDGMENT OF THE COURT BY:                                             SHARLOW J.A.

Date: 20070430

Docket: A-328-06

Citation: 2007 FCA 174

CORAM:       LÉTOURNEAU J.A.

                        EVANS J.A.

                        SHARLOW J.A.

BETWEEN:

DAVID and CATHERINE GRANT

Appellants

and

HER MAJESTY THE QUEEN

Respondent

REASONS FOR JUDGMENT OF THE COURT

(Delivered from the Bench at Vancouver, British Columbia, on April 30, 2007)

SHARLOW J.A.

[1]               This is an appeal of a judgment of the Tax Court of Canada (2006 TCC 373) dismissing the appellants’ income tax appeals for the 1997 and 1998 taxation years.

[2]               The issue is the deductibility of interest accrued on a $1 billion loan made by the Canadian Imperial Bank of Commerce (CIBC) to Mr. and Mrs. Grant on December 24, 1998, while they were still residents of Canada. The proceeds of the loan were used immediately to make an income earning investment with a subsidiary of the CIBC. The loan and the investment matured on January 4, 1999, after Mr. and Mrs. Grant had ceased to be residents of Canada, which occurred on December 30, 1998.

[3]               Mr. and Mrs. Grant claim to be entitled to a deduction in 1998 of $1.7 million, which is the amount of interest paid on the loan on December 31, 1998 that had accrued as of December 30, 1998.

[4]               None of the income on the investments was taxable in Canada because Mr. and Mrs. Grant received it after they had ceased to be residents of Canada. It is admitted that these transactions were entered into to create a deduction for interest expenses that would shelter taxable capital gains of approximately $1.5 million that Mr. and Mrs. Grant realized in 1998.

[5]               It is undisputed that the determination of the taxable income of Mr. and Mrs. Grant for 1998 must be based on section 114 of the Income Tax Act, R.S.C. 1985, c. 1 (5^th supp.), which deals with persons who are resident in Canada for only part of a taxation year. The analysis of the Tax Court Judge of section 114 is thorough and detailed. We need not repeat it.  It is enough to say that, despite the written and oral submissions of counsel for Mr. and Mrs. Grant, we agree with the conclusion reached by the Tax Court Judge, and with her reasons.

[6]               Counsel for Mr. and Mrs. Grant argues that the Tax Court Judge erred in law in failing to refer to the statutory definition of “taxable income” in subsection 248(1). We do not agree. The question before the Tax Court judge was the meaning of the phrase “other deductions permitted for the purpose of computing taxable income” in paragraph 114(c). It is arguable that the quoted phrase, read in isolation, is capable of referring to any deduction of any kind. However, in the context of section 114, and considering the structure of the provisions of the Income Tax Act that deal with deductions permitted in computing income (Division B) and deductions in computing taxable income (Division C), the quoted phrase is also capable of bearing a narrower meaning. That is the meaning the Tax Court Judge correctly adopted.

[7]               Specifically, we agree with her that a textual, contextual and purposive interpretation of the relevant provisions compels the conclusion that the deductions referred to in paragraph 114(c) are those permitted by Division C only.

[8]               This appeal will be dismissed with costs.

“K. Sharlow”

FEDERAL COURT OF APPEAL

SOLICITORS OF RECORD

DOCKET:                                                                              A-328-06

STYLE OF CAUSE:                                                              DAVID GRANT et al. v. HMQ

PLACE OF HEARING:                                                        Vancouver, British Columbia

DATE OF HEARING:                                                          April 30, 2007

REASONS FOR JUDGMENT BY:                                     LÉTOURNEAU J.A.

                                                                                                EVANS J.A.

                                                                                                SHARLOW J.A.

DELIVERED FROM THE BENCH BY:                            SHARLOW J.A.

DATED:                                                                                 April 30, 2007

APPEARANCES:

Joel Nitikman                                                                           FOR THE APPELLANTS

Robert Carvalho                                                                       FOR THE RESPONDENT

SOLICITORS OF RECORD: