Docket: A-334-13
Citation:
2014 FCA 210
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CORAM:
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SHARLOW J.A.
PELLETIER J.A.
STRATAS
J.A.
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BETWEEN:
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WINSTON BLACKMORE
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Appellant
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and
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HER MAJESTY THE QUEEN
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Respondent
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REASONS
FOR JUDGMENT
SHARLOW J.A.
[1]
The issue in this appeal is whether section 143
of the Income Tax Act, R.S.C. 1985, c. 1 (5th Supp.), applies to the
community known as Bountiful, led by the appellant Mr. Winston Blackmore.
Section 143 is entitled “Communal Organizations”.
It applies to a “congregation”, defined in
subsection 143(4) as follows:
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143. (4) For the purposes of this section,
…
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143. (4) Les définitions qui suivent s’appliquent au présent article.
[…]
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“congregation”
means a community, society or body of individuals, whether or not
incorporated,
(a) the
members of which live and work together,
(b) that
adheres to the practices and beliefs of, and operates according to the
principles of, the religious organization of which it is a constituent part,
(c) that
does not permit any of its members to own any property in their own right,
and
(d) that
requires its members to devote their working lives to the activities of the
congregation.
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«
congrégation » Communauté, association ou assemblée de particuliers,
constituée ou non en société, qui répond aux conditions suivantes :
a) ses membres vivent et travaillent ensemble;
b) elle adhère aux pratiques et croyances de l’organisme religieux
dont elle fait partie et agit en conformité avec les principes de cet
organisme;
c) elle ne permet pas à ses membres d’être propriétaires de biens
de leur propre chef;
d) elle exige de ses membres qu’ils consacrent leur vie
professionnelle aux activités de la congrégation.
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[2]
Subsection 143(4) also includes a definition of “religious organization”, which reads as follows:
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143. (4) For the purposes of this section,
…
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143.
(4) Les définitions qui suivent s’appliquent au présent article.
[…]
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“religious organization” means an
organization, other than a registered charity, of which a congregation is a
constituent part, that adheres to beliefs, evidenced by the religious and
philosophical tenets of the organization, that include a belief in the
existence of a supreme being.
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« organisme religieux »
Organisme, autre qu’un organisme de bienfaisance enregistré, dont une
congrégation est une partie constituante, qui adhère à des croyances qui
comprennent la croyance en un être suprême et qui se manifestent dans les
principes religieux et philosophique de l’organisme.
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[3]
Section 143 is a relieving provision. It is an
exception to the general principle that tax is imposed separately on the income
of each taxpayer, whether an individual, corporation or trust. Broadly speaking,
section 143 abrogates that principle by deeming the income earning property of
a congregation, or a congregation-owned corporation, to be the property of an inter
vivos trust. The deemed trust is then taxed on any income derived from the
property. The applicable rate of tax is the highest marginal rate applicable to
individuals. In determining the income of the deemed trust, no deductions are
permitted for salaries, wages or other benefits paid to community members.
However, if a special election is made, the income may be attributed to the
members of the congregation. Such an election generally would result in a lower
overall tax burden for the community, assuming the members are subject to
marginal tax rates that are lower than the maximum.
[4]
An advantage that may result from the operation
of section 143 is that it eliminates the risk that a member of the congregation
will be taxed on a benefit received or derived from a congregation-owned
corporation in circumstances where the corporation would be entitled to no tax
relief. This is illustrated most clearly by considering the effect of
subsection 15(1) of the Income Tax Act (taxable shareholder benefits).
Generally, if a corporation confers or is deemed to confer on a shareholder a
benefit to which subsection 15(1) applies, the amount of the benefit is taxed
in the hands of the shareholder but there is no corresponding tax relief for
the corporation, potentially resulting in a form of economic double taxation.
If a congregation to which section 143 applies owns a corporation that carries
on a business, the property of the corporation is deemed to be property of the
deemed inter vivos trust and subsection 15(1) cannot apply.
[5]
The question of the application of section 143
to the Bountiful community arose from a tax audit. After
the audit, the Minister of National Revenue concluded that Mr. Blackmore and
certain members of the Bountiful community underreported the income they
derived from certain corporations controlled by Mr. Blackmore and others. Notices
of reassessment reflecting the Minister’s determination of the underreported
income were issued, including shareholder benefits to which subsection 15(1)
was applied. Objections to those reassessments were made, and appeals were
filed in the Tax Court of Canada. Mr. Blackmore’s appeal proceeded first as a
test case on the issue of the application of section 143.
[6]
Justice Campbell heard the appeal. After a
lengthy hearing, and based on extensive oral testimony (including factual
evidence and the evidence of experts), a voluminous documentary record, and a
legal analysis that included consideration of the language, context and
legislative history of section 143, Justice Campbell concluded that section 143
does not apply to the Bountiful community because it is not a “congregation” within the definition quoted above. That conclusion must stand
unless it is based on an error of law or a palpable and overriding error of
fact (Housen v. Nikolaisen, 2002 SCC 33, [2002] 2
S.C.R. 235).
[7]
I summarize as follows the key conclusions in
Justice Campbell’s analysis (2013 TCC 264):
a)
To correctly interpret the word “congregation” as defined for the purpose of section 143, it is necessary to
consider not only the words used, but also the statutory context and the
purpose of section 143, informed by its legislative history.
b)
The definition of “congregation” in subsection 143(4) is exhaustive because the operative word is “means”
rather than “includes”. The four conditions stated in paragraphs (a) through (d)
of the definition are conjunctive, because the paragraphs are joined by “and” rather
than “or”. Therefore, a community meets the definition of “congregation” for the purposes of section 143 only if it meets each of the four
statutory conditions.
c)
Whether a particular statutory condition is met
is a question of mixed fact and law. The Bountiful community meets none of the
four statutory conditions for the following reasons:
(i)
Paragraph (a) of the definition – “the members of which live and work together”. This
condition requires that the members of the community actually live and work in
the same geographic location most of the time.
The evidence is that while many members of the Bountiful community
live and work in the community’s principal location in British Columbia, some
of them do not. In fact, the members’ residences and workplaces include
locations in British Columbia, Alberta and in one instance the United States.
Some members work for employers located outside the Bountiful community and
unconnected with it. Such outside employment is permitted and encouraged.
(ii) Paragraph (b) of the definition – “that adheres to the practices and
beliefs of, and operates according to the principles of, the religious
organization of which it is a constituent part”. This condition requires that the community be a constituent part of
an organization that meets the statutory definition of “religious organization” in subsection 143(4). That necessarily excludes a stand-alone or
independent community that is not part of a larger religious group. It also
excludes a single community that has broken away from a religious organization
of which it was once a constituent part.
Based on the preponderance of the evidence, including the expert
evidence, the Bountiful community is a group of independent Mormon fundamentalists
and not a constituent part of any religious organization. The Bountiful
community adheres to its own particular understanding of the Mormon faith and
does not accept the authority of any larger Mormon group or organization.
The argument of Mr. Blackmore that the community is a constituent
part of a religious organization known as Mormonism, or alternatively the
Church of Jesus Christ of Latter-day Saints (the “LDS”), or alternatively the
Fundamentalist Church of Jesus Christ of Latter-day Saints (the “FLDS”) is
rejected for the following reasons:
1)
“Mormonism” is a religious tradition, not a religious organization.
2)
The LDS is a religious organization but the
Bountiful community is not a constituent part of the LDS because it does not
adhere to the principles of the LDS (in particular the principle that polygamy
is prohibited).
3)
The FLDS is not a religious organization, but a
loose association of divergent groups whose leaders are not within the line of
priesthood recognized by the LDS. Although Mr. Blackmore considers the
Bountiful community to be a fundamentalist Mormon group, the Bountiful
community operates independently of the FLDS, and it has never become or agreed
to become a constituent part of any organization that shares the practices, beliefs
and principles that are common to those claiming to follow the FLDS.
iii)
Paragraph (c) of the definition – “that does not permit any of its members
to own any property in their own right”. This condition is met only by a community that does not permit its
members to own their own property, whether the prohibition against private
ownership is found in articles of incorporation or in the religious doctrine or
practices of the community.
The Bountiful community does not in any way prohibit its members
from owning their own property. On the contrary, the evidence is that members
of the Bountiful community are permitted to own property and to exercise their
property rights, and that they do so. Members of the Bountiful community may
accept directives from Mr. Blackmore as to the disposition of some of their
property, and members are expected to tithe (donate 10% of their income to the
community). However, that is not inconsistent with the private ownership of
property by members. Indeed, the practice of tithing assumes that members own
their own property. A community does not need to ask or require its members to
tithe if the members do not own their own property, or if all property is owned
communally.
iv)
Paragraph (d) of the definition – “that requires its members to devote
their working lives to the activities of the congregation”. This condition is met only by a community that explicitly requires
its members to commit their working lives to the community on a regular,
consistent and customary basis.
The members of the Bountiful community are generally expected to
contribute work to the community and they do so, but there is no evidence that
the community explicitly or formally requires them to do so.
[8]
It is common ground that if the Bountiful
community fails to meet even one of the four conditions stated in the statutory
definition of “congregation”, it cannot meet that definition. Therefore, it is necessary to
focus on only one of the four conditions.
[9]
In my view, the analysis and conclusion of
Justice Campbell with respect to paragraph (c) of the definition – “that does not permit any of its member to
own any property in their own right” – is
particularly strong. I conclude that Justice Campbell interpreted paragraph (c)
of the definition correctly, and that she made no palpable and overriding
factual error in applying that provision to the evidence that was before her.
It follows this appeal cannot succeed.
[10]
Mr. Blackmore made a number of arguments
challenging Justice Campbell’s general approach to the issues of statutory
interpretation raised before her. I make the following comments on those
arguments.
[11]
Mr. Blackmore argues that Justice Campbell’s
interpretation fails to give effect to the purpose of section 143, which in Mr.
Blackmore’s view is to provide tax relief for a community that, for religious
reasons, has adopted the kind of shared or communal property regime that exists
in the Bountiful community which, according to Mr. Blackmore, espouses communal
property as an ideal although the ideal is not fully practiced. I do not accept
this argument. I see no basis for concluding that the purpose of section 143 is
as general or as generous as Mr. Blackmore contends, given the relatively
specific and narrow language chosen by Parliament. In my view, paragraph (c)
of the definition of “congregation”
cannot reasonably bear the broader
interpretation for which Mr. Blackmore contends.
[12]
That conclusion also disposes of an alternative
argument asserted by Mr. Blackmore for the first time in this Court. He argues
that the statutory definitions are so ambiguous as to engage the principle that
statutory provisions must be interpreted consistently with the values of the Canadian
Charter of Rights and Freedom (specifically, freedom of religion and
equality). The requisite ambiguity exists only if the provision in issue can
reasonably bear more than one interpretation (Bell
ExpressVu Limited Partnership v. Rex, 2002 SCC 20, [2002] 2 S.C.R. 559,
at paragraphs 28 and 29). In my view, that cannot be said of paragraph (c)
of the definition of “congregation”. (Mr. Blackmore did not challenge the constitutionality of section
143 in this Court or in the Tax Court.)
[13]
Mr. Blackmore argued that Justice Campbell erred
in adopting an interpretation of section 143 that fits only traditional
Hutterite communities. I see no merit to this argument. As I read the reasons
of Justice Campbell, she expressly and properly rejected the argument of the
Crown that the traditional Hutterite communities should be considered the “gold standard” for the application of section 143. She correctly noted that
section 143 was enacted in response to the decision of the Federal Court in Wipf v. Canada, [1973] F.C. 1382 (affirmed by this
Court, [1975] F.C. 162, and the Supreme Court of
Canada, (1976) 7 N.R. 549). In her discussion of
paragraph (c) of the definition of “congregation”, she compared certain
characteristics of the Bountiful community to the characteristics of
traditional Hutterite communities as described in those cases. However, she did
not say or imply that only a traditional Hutterite community could meet that
statutory condition.
[14]
For these reasons, I would dismiss the appeal
with costs.
“K. Sharlow”
“I agree
J.D. Denis Pelletier J.A.”
“I agree
David Stratas
J.A.”
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