Lamarre
Proulx
J.T.C.C.:-This
appeal
was
heard
on
common
evidence
with
the
following
appeals:
Wing
Hon
Ng,
89-1970;
Jean
Lambert,
89-2932;
Marcelle
Thériault,
89-2933;
André
Gagnon,
89-2934;
André
Godin,
89-2936;
René
Brochu,
89-2938;
Raymond
Laflamme,
89-2941;
Laurien
Gagnon,
89-2942;
Louis
E.
Beaudet,
89-2943;
Roger
Simard,
89-2944;
Jean-Guy
Emond,
89-2946;
Gilles
Falardeau,
89-2947;
Alain
Rousseau,
89-2948;
Donald
Béliveau,
89-2950;
Jean-Louis
Malouin,
89-2951;
Lindsay
Lemoine,
89-295;
Jean-Marie
Grenier,
90-414;
André
Imbeau,
90-415;
Serge
Godin,
90-1002;
René
Drouin,
90-1338;
Jean-Pierre
Delwasse,
90-1833.
This
appeal
relates
to
the
1984
taxation
year.
The
issue
concerns
the
application
of
subparagraph
194(4.2)(b)(ii),
section
127.3
and,
more
specifically,
paragraph
127.3(2)(a)
of
the
Income
Tax
Act,
R.S.C.
1952,
c.
148
(am.
S.C.
1970-71-72,
c.
63)
(the
"Act”).
Essentially,
the
issue
is
whether
a
designation
of
an
amount
made
under
subsection
194(4)
of
the
Act
is
valid,
and
thus
whether
the
appellants
are
entitled
to
a
scientific
research
tax
credit
under
section
127.3
of
the
Act.
Subsection
127.3(1)
of
the
Act
read
as
follows
in
1984:
127.3(1)
There
may
be
deducted
from
the
tax
otherwise
payable
under
this
Part
by
a
taxpayer
for
a
taxation
year
an
amount
not
exceeding
the
aggregate
of
(a)
his
scientific
research
tax
credit
for
the
year;
and
(b)
his
unused
scientific
research
tax
credit
for
the
taxation
year
immediately
following
the
year.
The
relevant
portion
of
paragraph
127.3(2)(a)
read
as
follows
in
1984
3127.3(2)(a)
"scientific
research
tax
credit"
of
a
taxpayer
for
a
taxation
year
means
the
aggregate
of
all
amounts
each
of
which
is
an
amount
equal
to:
(i)
where
the
taxpayer
is
a
corporation,
50%,
or
(ii)
where
the
taxpayer
is
an
individual
other
than
a
trust,
34%
of
an
amount
designated
by
a
corporation
under
subsection
194(4)
in
respect
of
(iv)
a
bond,
debenture,
bill,
note,
mortgage,
hypothec
or
similar
obligation
(in
this
section
and
in
Part
VIII
referred
to
as
a
"debt
obligation")
acquired
by
the
taxpayer
in
the
year
where
the
taxpayer
is
the
first
person,
other
than
a
broker
or
dealer
in
securities,
to
be
a
registered
holder
thereof,
or
The
relevant
portion
of
subsection
194(4.2)
reads
as
follows:
194(4.2)
Where
amount
may
not
be
designated.-Notwithstanding
subsection
(4),
no
amount
may
be
designated
by
a
corporation
in
respect
of
(b)
a
share
or
debt
obligation
issued
or
a
right
granted
by
the
corporation
after
October
10,
1984,
other
than
a
share
or
debt
obligation
issued
or
a
right
granted
before
1986
(i)
…
(ii)
where
arrangements,
evidenced
in
writing,
for
the
issue
of
the
share
or
debt
obligation
or
the
granting
of
the
right
were
substantially
advanced
before
October
10,
1984;
or
[Emphasis
added.]
Retrospective
operation
of
subsection
194(4.2)
of
the
Act
It
will
be
noted
that
subsection
194(4.2)
of
the
Act
was
added
by
chapter
6
of
the
Statutes
of
Canada
1986,
section
103,
and
applies
as
of
the
date
it
was
assented
to,
that
is,
February
13,
1986,
since
no
commencement
date
was
specifically
provided.
It
seems
strange
that
Parliament
did
not
state
a
specific
retroactive
commencement
date
in
1984,
while
on
the
other
hand,
in
the
same
chapter,
it
stated
specific
commencement
dates
for
several
provisions,
including
those
referred
to
in
footnotes,
supra.
When
counsel
for
the
appellants
and
for
the
respondents
were
asked
to
comment
on
the
absence
of
any
indication
that
subsection
194(4.2)
came
into
force
retroactively,
they
were
of
the
same
opinion
and
did
not
suggest
that
subsection
194(4.2)
of
the
Act
was
not
retroactive
to
the
1984
taxation
year.
They
referred
to
the
comments
of
Joyal
J.
in
First
Fund
Genesis
Corp.
v.
The
Queen,
[1991]
2
C.T.C.
14,
91
D.T.C.
5361,
at
22
(D.T.C.
5367):
However,
upon
a
thorough
reading
of
all
of
the
relevant
sections
of
Part
VIII
of
the
Act,
I
find
that
I
am
in
substantial
agreement
with
Crown
counsel
that
subsection
194(4.2)
must
also
by
necessary
implication
apply
retroactively.
[Emphasis
added.]
This
concept
of
the
retroactive
effect
of
a
statutory
provision
by
necessary
implication
was
expressed
by
Dickson
J.
in
Gustavson
Drilling
(1964)
Ltd.
v.
M.N.R.,
[1977]
1
S.C.R.
271,
[1976]
C.T.C.
1,
75
D.T.C.
5451,
at
page
279
(C.T.C.
6-7;
D.T.C.
5454):
First,
retrospectivity.
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
shall
be
deemed
to
have
come
into
force
on
a
date
prior
to
its
enactment
or
it
may
provide
that
it
is
to
be
operative
with
respect
to
transactions
occurring
prior
to
its
enactment.
In
those
instances
the
statute
operates
retrospectively.
Also,
at
page
281
(C.T.C.
7-8,
D.T.C.
5455),
he
stated:
The
Income
Tax
Act
contains
a
series
of
very
complicated
rules
which
change
frequently,
for
the
annual
computation
of
world
income.
The
statute
in
force
in
the
particular
taxation
year
must
be
applied
to
determine
the
taxpayer’s
taxable
income
for
that
year.
Normally,
Parliament
expresses
its
intention
with
respect
to
the
date
when
a
taxing
provision
comes
into
force
specifically
and
not
by
necessary
implication.
However,
given
that,
after
a
detailed
analysis
of
the
provision,
Joyal
J.
came
down
in
favour
of
subsection
194(4.2)
of
the
Act
having
retrospective
operation,
and
given
also
that
this
point
was
not
disputed
by
counsel
for
the
appellants,
I
accept
this
subsection
as
having
been
in
force
beginning
in
1984.
Historical
context
In
Schedule
A
of
the
document
entitled
’’Research
and
Development
Tax
Policies",
published
by
the
Minister
of
Finance
in
April
1983,
we
find
an
explanation
of
the
financing
modalities
of
the
financing
mechanism
set
out
in
the
sections
at
issue
in
this
case:
Appendix
A
Details
of
Tax-Assisted
Financing
Mechanism
The
purpose
of
the
financing
mechanism
proposed
in
the
paper
for
consultation
is
to
allow
a
company
(the
researcher)
which
is
undertaking
a
program
of
R&D
to
renounce
some
or
all
of
the
tax
benefits
associated
with
its
R&D
expenditures
and
allow
a
special
tax
credit
to
another
taxpayer
(the
investor)
who
invests
in
the
researcher.
The
mechanism
allows
the
investor
to
claim
a
tax
credit
of
one-half
of
the
amount
provided
to
the
researcher.
The
researcher,
in
turn,
will
renounce
its
rights
to
the
tax
deductions
and
credits
ordinarily
arising
from
the
expenditures.
The
investor
may
enter
into
contractual
arrangements
with
the
researcher
under
which
funds
will
be
advanced
to
the
researcher.
The
investor
will
receive
a
security
instrument
from
the
researcher
together
with
the
right
to
claim
an
R&D
financing
tax
credit.
The
type
of
security
which
may
be
issued
by
the
researcher
will
be
defined
broadly
and
unrestricted
and,
for
example,
could
consist
of
a
debt
instrument,
a
common
share,
a
preferred
share
or
a
royalty
interest
or
a
package
containing
a
combination
of
various
securities.
The
cost
base
of
the
security
for
tax
purposes
will
be
reduced
by
an
amount
equal
to
the
R&D
tax
credit.
The
R&D
tax
credit
will
be
equal
to
50
per
cent
of
the
value
of
the
consideration
for
which
the
security
was
issued.
The
consideration
must
be
paid
by
the
investor
within
60
days
from
the
date
of
the
contract.
The
financing
tax
credit
may
be
claimed
by
the
investor
against
his
tax
otherwise
payable
for
the
year
in
which
the
security
is
issued.
The
tax
credit,
therefore,
will
be
available
to
the
investor
whether
or
not
the
researcher
spends
the
funds
received
for
research
and
development
in
that
year.
If
the
investor
is
a
trust
or
partnership,
the
tax
credit
can
be
passed
through
to
the
beneficiaries
of
the
trust
or
to
the
partners.
Where
the
investor
is
a
corporation,
the
R&D
tax
credit
may
be
used
either
to
reduce
its
tax
otherwise
payable
or
to
claim
a
refund
of
the
refundable
tax
described
below.
The
mechanism
will
ensure
that
persons
who
purchase
newly-issued
securities
through
underwriters
will
be
able
to
claim
the
R&D
financing
credit
even
though
the
underwriter
may
have
first
owned
the
security,
as
underwriter.
The
researcher
will
become
liable
to
pay
a
refundable
tax
within
30
days
after
the
month
in
which
the
security
has
been
issued.
As
explained
below,
the
liability
for
payment
of
this
tax
may
be
reduced
or
eliminated.
The
refundable
tax
will
be
equal
to
the
R&D
financing
tax
credits
arising
from
the
issue
of
the
security.
The
liability
for
the
refundable
tax
will
be
reduced
by
one-half
of
the
qualified
R&D
expenditures
incurred
in
the
year
by
the
researcher,
but
for
which
the
researcher
renounces
the
right
to
claim
R&D
tax
deductions
or
credits.
The
refundable
tax
also
may
be
reduced
by
any
R&D
financing
tax
credits
earned
by
the
researcher
for
investments
made
in
qualifying
securities
of
other
companies.
To
the
extent
that
the
researcher
has
not
eliminated
its
liability
for
payment
of
the
refundable
tax
by
the
end
of
the
year,
interest
will
be
charged
on
the
balance
owing
from
the
month
that
the
liability
first
arose.
The
precise
means
for
determining
the
required
interest
payment
will
parallel
closely
that
used
in
the
share-purchase
tax
credit
mechanism
proposal
in
the
budget
of
April
19,
1983.
Any
refundable
tax
which
is
not
eliminated
in
the
year
may
be
refunded
in
a
subsequent
year
if
the
researcher
renounces
tax
incentives
as
described
above.
Having
read
the
document
referred
to,
supra,
I
see
that
the
government
wanted
to
have
investors
participate
in
the
research
efforts
of
businesses,
but
I
have
found
nothing
specific
to
protect
the
right
of
an
investor
who
has
acted
diligently
and
in
good
faith
to
claim
the
tax
credit.
At
page
17
of
the
’’Budget
Papers"
tabled
in
the
House
of
Commons
by
the
Minister
of
Finance
on
May
23,
1985,
we
read
that
the
effectiveness
of
this
program
was
doubtful
and
that
a
moratorium
had
been
imposed
on
October
10,
1984
in
a
press
release:
Scientific
Research
Tax
Credit
An
examination
of
this
incentive,
following
the
moratorium
announced
on
October
10,
1984
on
certain
"quick
flip"
SRTC
investments,
has
revealed
problems
in
ensuring
the
effectiveness
of
the
program.
The
facts
On
December
28,
1984,
the
appellant
acquired
a
debenture
in
the
amount
of
$250,000,
which
was
issued
under
a
scientific
research
and
experimental
development
financing
contract
by
Agri-Can
Research
Corp.
("Agri-Can").
The
agreement
was
produced
as
Exhibit
A-1.
The
first
"whereas"
reads
as
follows:
WHEREAS
the
company
proposes
to
issue
and
sell
1984
scientific
research
tax
credit
debentures
("SRTC
debentures")
as
set
out
in
the
summary
term
sheet
attached
hereto
(as
Schedule
"B")
Schedule
B
is
short,
and
I
believe
that
it
is
of
interest
to
quote
it
in
full:
SCHEDULE
B
SUMMARY
TERM
SHEET
1.
Gross
Debenture
Issue:
$2,000,000
2.
Redemption
to
Purchasers:
$1,140,000
3.
Retention
by
Company:
$860,000
Total
Research
and
Development
Expenditures
$2,000,000
To
be
completed
by
December
27,
1985
The
second
"whereas"
reads
as
follows:
AND
WHEREAS
each
purchaser
wishes
to
buy
one
SRTC
debenture
in
the
principal
amount
and
having
a
redemption
price
as
set
forth
opposite
the
name
of
each
purchaser
listed
in
Schedule
"A"
hereto;
Schedule
A
sets
out
the
list
of
investors,
the
purchase
price
and
the
redemption
price.
The
details
concerning
the
appellant
are
as
follows:
SCHEDULE
"A"
PURCHASE
PRICE
REDEMPTION
AMOUNT
Donat
Flamand
Inc.
$250,000
$142,500
90,
Industriel
St-Apolinaire
GOS
2E0
Clause
2.02
of
the
agreement
explains
the
effect
of
the
redemption
of
a
debenture:
2.02
The
company
shall
pay
to
each
purchaser
an
amount
equal
to
the
full
redemption
price
of
the
debenture,
on
demand,
in
accordance
with
the
terms
and
provisions
of
such
debenture,
against
the
surrender
of
each
debenture
for
cancellation,
without
any
notice
or
other
action
on
the
part
of
the
purchaser.
The
following
undertaking
was
made
by
the
issuer
of
the
debentures,
as
it
is
described
in
clauses
2.03
and
2.04(b)
of
the
agreement:
2.03
The
company
shall
designate
for
the
benefit
of
each
purchaser
an
amount
in
respect
of
each
debenture
equal
to
the
full
amount
of
the
purchase
price
under
subsection
194(4)
of
the
Income
Tax
Act,
and
for
the
purposes
of
Part
I
and
Part
VIII
of
the
ITA,
in
order
to
ensure
that
each
purchaser
will
obtain
a
scientific
research
tax
credit
of
50
per
cent
of
such
purchase
price
for
corporate
purchasers
and
53.4
per
cent
for
individual
purchasers.
In
this
connection,
the
company
shall
table
at
the
closing
the
form
prescribed
under
said
subsection
194(4),
being
Form
T2113,
and
an
information
return,
being
Form
T2114
and
all
corresponding
Province
of
Quebec,
Department
of
Revenue
Forms,
all
duly
completed
for
filing
with
the
Minister
of
National
Revenue
and
shall
immediately
forward
such
forms
to
such
Minister
by
registered
mail,
return
receipt
requested.
The
company
shall
not
make
any
other
designation
pursuant
to
subsection
194(4)
or
any
other
provisions
of
the
ITA
in
respect
of
each
debenture
or
file
any
other
form
in
respect
thereof
other
than
the
forms
referred
to
in
this
agreement.
2.04(b)
The
company
will
satisfy
its
liability
under
Part
VIII
of
the
ITA
in
respect
of
the
issue
of
the
debentures
by:
(i)
making
expenditures
of
at
least
$2,000,000
on
scientific
research
qualifying
under
the
ITA
on
or
before
the
last
day
of
the
company’s
current
fiscal
year,
(ii)
making
payments
pursuant
to
Part
VIII
of
the
ITA
to
the
Receiver
General
for
Canada
of
$1,000,000
56
days
following
the
end
of
the
company’s
current
fiscal
year,
altogether
with
prescribed
interest
thereon
or
(iii)
any
combination
of
the
above.
There
was
also
an
investor’s
indemnification
clause
in
this
agreement,
clause
2.06:
2.06
The
company
shall
indemnify
and
save
harmless
each
purchaser
from
and
against
any
Canadian
federal
taxes,
interest
and/or
penalties
levied
or
required
to
be
paid
under
the
ITA
("amount
assessed")
which
such
purchaser
is
required
to
pay
(i)
as
a
result
of
the
failure
of
the
company
to
comply
with
its
obligations
to
make
the
designation
pursuant
to
section
2.03
hereof
or
to
file
the
prescribed
forms
referred
to
in
this
agreement,
or
(ii)
as
a
result
of
any
representation
or
warranty
of
the
company
being
untrue
or
incorrect
or
any
breach
of
any
other
covenant
of
the
company
contained
in
this
agreement,
or
(iii)
as
a
result
of
the
company
not
being
permitted
under
the
ITA
to
designate
for
the
benefit
of
each
purchaser
the
full
amount
of
the
purchase
price
as
an
amount
in
respect
of
each
debenture
under
subsection
194(4)
of
the
ITA
and
for
the
purpose
of
Part
I
and
Part
VIII
of
the
ITA.
Clause
2.07
even
added:
2.07
In
the
event
of
a
claim
by
a
purchaser
under
the
indemnity
provided
for
in
section
2.06
hereof,
the
company
shall
pay
an
amount
equal
to
the
amount
assessed
to
such
purchaser
within
30
days
after
notification
by
such
purchaser
of
such
claim.
If
a
purchaser
pays
the
amount
assessed
to
the
Receiver
General
of
Canada
prior
to
receipt
of
payment
from
the
company,
the
company
shall
pay
interest
on
such
amount
at
a
rate
per
annum
which
is
equal
to
the
rate
charged
by
the
Toronto-Dominion
Bank
at
its
main
branch,
Toronto,
to
its
preferred
customers
plus
I
per
cent.
Such
interest
shall
accrue
from
and
including
the
later
of
the
day
of
payment
of
the
amount
assessed
by
such
purchaser
or
the
30th
day
following
the
date
that
such
purchaser
notifies
the
company
of
its
claim
against
the
company
under
the
said
indemnity
and
shall
be
payable
together
with
the
amount
paid
to
such
purchaser
under
the
said
indemnity.
Clause
6
of
the
agreement
stated:
Intervention
Steve
Parent
and
Ron
Fletcher
hereby
intervene
to
the
present
agreement
to
be
jointly
and
severally
bound
with
the
company
to
all
its
obligations
and
covenants
contained
in
the
present
agreement,
the
trust
agreement
and
the
debentures.
Furthermore,
Steve
Parent
and
Ron
Fletcher,
hereby
certify
that
all
representations
and
warranties
contained
in
section
2
of
this
agreement
are
true,
complete
and
correct.
On
December
28,
1984,
a
trust
fund
was
established
by
Agri-Can
in
the
amount
of
$1,000,000
to
secure
payment
of
taxes
to
be
assessed
under
Part
VIII
of
the
Act.
The
trustee
was
a
lawyer.
The
trustee
was
authorized
to
remit
monies
to
Agri-Can
upon
the
certificate
of
Agri-Can
that
equivalent
amounts
had
been
expended
for
research
purposes.
An
opinion
from
an
accounting
firm
had
to
accompany
the
certificate.
Everything
had
to
be
spent
before
the
end
of
Agri-Can’s
financial
year
ending
on
December
27,
1985.
As
we
saw,
the
agreement
signed
by
Agri-Can
and
the
appellants
(Exhibit
A-l)
contained
the
best
indemnification
clauses,
except
that,
according
to
what
was
stated
in
evidence,
Agri-Can
was
dissolved
on
March
3,
1989
(Exhibit
A-7).
One
of
the
two
directors
no
longer
resides
in
Canada
and
the
other
has
declared
bankruptcy.
Agri-Can
designated
the
total
amount
of
the
contract,
$2,000,000,
for
the
purposes
of
Parts
I
and
VIII
of
the
Act,
as
required
by
subsection
194(4)
of
the
Act.
The
Minister
of
National
Revenue
(the
"Minister”)
assessed
Agri-Can
on
February
28,
1985
for
$1,000,000
under
the
provi-
sions
of
Part
VIII
of
the
Act
(Exhibit
I-1,
tab
20).
On
May
16,
1988,
by
notice
of
reassessment
(Exhibit
1-2),
the
Minister
vacated
the
assessment
of
February
1985
and
entered
the
amount
of
tax
owing
under
Part
VIII
as
’’nil".
The
reason
stated
in
the
notice
of
assessment
was
as
follows:
Your
designation
as
assessed
under
notice
of
assessment
number
591748
dated
February
28,
1985
has
been
invalidated
as
the
designation
does
not
meet
the
provisions
of
subsection
194(4.2)
of
the
Income
Tax
Act.
This
reassessment
was
the
result
of
an
investigation
which
had
determined
that
no
written
arrangements
were
substantially
advanced
before
October
10,
1984,
and
that
the
alleged
written
arrangements
had
been
backdated.
The
amounts
designated
under
these
arrangements
could
therefore
not
be
designated.
Accordingly,
Agri-Can
had
no
tax
payable
under
Part
VIII.
As
a
result
of
this
reassessment,
the
purchasers
of
the
debentures
issued
by
Agri-Can
were
reassessed.
The
tax
credit
granted
in
the
first
assessment
under
section
127.3
of
the
Act
was
vacated
and
the
appellants
were
allowed
a
business
loss,
except
those
who
had
made
an
election
under
subsection
39(4)
of
the
Act.
In
the
latter
cases,
the
Minister
allowed
a
deduction
for
a
business
investment
loss.
The
facts
set
out
in
the
reply
to
the
notice
of
appeal
(the
"reply")
are
always
important,
but
in
this
case
they
are
particularly
so,
since
they
indicate
precisely
what
evidence
the
appellants
had
to
provide
to
counter
the
Minister’s
allegations.
What
the
Minister
was
clearly
alleging
was
that
the
documents
had
been
backdated.
He
stated
these
facts,
and
also
the
facts
recounted
by
certain
persons
whom
he
named:
(a)
on
October
10,
1984,
Mr.
James
Beadles,
a
Vancouver
lawyer,
incorporated
283571
B.C.
Ltd.;
to
all
appearances,
this
was
a
charter
obtained
for
future
use
in
the
event
that
a
client
so
requested;
(b)
presumably,
it
was
not
until
after
October
10,
1984
that
Mr.
Steve
Parent
of
Multitech
Industries
Inc.
(hereinafter
referred
to
as
"Multitech")
approached
Mr.
Beadles
to
obtain
a
charter
for
"Agri-Can";
(c)
on
October
23,
1984,
283571
B.C.
Ltd.
filled
out
an
application
and/or
a
certificate
for
the
purpose
of
obtaining
a
change
of
name
to
"Agri-Can"
retroactively
to
October
10,
1984;
in
fact,
notwithstanding
the
application
and/or
certificate
referring
to
a
resolution
of
October
10,
1984
for
the
change
of
name,
it
was
not
until
after
October
10,
1984
that
the
decision
was
made
to
change
the
name
of
283571
B.C.
Ltd.
to
Agri-Can;
(d)
51
per
cent
of
the
shares
of
Agri-Can
are
held
by
Multitech
Industries
Inc.
and
49
per
cent
are
held
by
R.
Fletcher
and
Associates
(1982)
Limited;
(e)
on
October
23,
1984,
Mr.
Derek
Darling
(of
the
firm
Healy
&
Darling),
an
accountant
acting
for
Agri-Can
at
the
request
of
Mr.
Steve
Parent
of
Multitech,
submitted
an
application
to
the
Minister
of
National
Revenue
asking
whether
the
debt
obligations
that
Agri-
Can
wished
to
issue
qualified
for
the
application
of
subsection
194(4.2)
of
the
Income
Tax
Act;
(f)
in
support
of
that
application,
Mr.
Darling
submitted
four
documents,
among
others,
these
being:
(i)
a
letter
allegedly
dated
September
4,
1984,
signed
by
Mr.
Gregory
M.
Pek,
accountant
(acting
on
behalf
of
R.
Fletcher),
addressed
to
a
Mr.
Grant
McDonald
of
Multitech;
(ii)
another
letter
allegedly
dated
September
12,
1984
from
Mr.
Pek,
accountant,
to
Mr.
Steve
Parent
of
Multitech;
(iii)
a
letter
allegedly
dated
September
13,
1984
from
Mr.
Darling
to
Mr.
Parent
of
Multitech,
supposedly
to
confirm
that
he
had
been
hired
as
an
accountant;
(iv)
a
letter
allegedly
dated
September
24,
1984
from
Mr.
Darling
to
Mr.
Parent,
supposedly
to
confirm
in
writing
the
proposal
of
a
scientific
research
project
to
be
financed
in
the
manner
described
in
that
opinion;
(g)
after
discussions
and
various
correspondence
between
Mr.
Darling
and
officials
of
the
Minister
of
National
Revenue,
the
Minister
provided
a
favourable
response
to
the
request
of
October
23,
1984,
not
suspecting
the
false
representations
made
by
Mr.
Darling
on
behalf
of
Agri-Can;
(h)
with
respect
to
the
two
documents
from
Mr.
Gregory
M.
Pek
referred
to
in
subparagraphs
(f)(i)
and
(f)(ii)
of
this
reply,
the
officials
of
the
Minister
of
National
Revenue
were
never
able
to
obtain
corroboration
as
to
the
truth
of
the
content
of
or
the
dates
appearing
on
those
documents;
(i)
with
respect
to
the
two
documents
from
Mr.
Darling,
referred
in
to
subparagraphs
(f)(iii)
and
(f)(iv)
of
this
reply,
these
two
documents
are
backdated:
the
dates
appearing
on
the
said
documents,
September
13
and
14,
1984,
respectively,
are
false,
the
documents
not
having
been
prepared
before
October
22,
1984;
(j)
In
fact,
the
secretary
who
typed
these
documents
from
Mr.
Darling,
Mrs.
Denni
Cheng,
did
not
work
for
the
firm
Healy
&
Darling
before
October
22,
1984;
[Translation.]
Evidence
The
appellant’s
evidence
consisted
of
showing
that
all
care
had
been
taken
by
the
appellants
to
ensure
that
the
designation
was
valid,
to
produce
the
documents
relating
to
the
designation
and
to
indicate
that
the
dates
appearing
therein
were
prior
to
October
10,
1984.
Counsel
for
the
appellants
also
produced
the
investigation
reports
of
the
Minister’s
officials
for
the
purpose
of
proving
that
the
main
actors
in
relation
to
the
designation
of
the
amount
had
no
interest
in
asserting
the
validity
of
that
designation
since
they
have
been
informed
that
the
tax
assessment
would
be
reduced
to
nil.
None
of
the
participants
in
the
development
of
the
research
plan
and
the
establishment
of
its
budget
and
its
method
of
financing
was
called
to
testify.
Counsel
for
the
appellants
produced
a
letter
from
a
law
firm
in
Vancouver
dated
March
18,
1994
(Exhibit
A-7).
This
letter
was
produced
in
order
to
show
the
Court
that
the
main
actors
in
relation
to
the
designation
of
the
amount
could
not
be
reached.
It
seems,
simply
from
reading
this
letter,
that
the
person
who
allegedly
developed
the
research
plan,
Mr.
Fletcher,
is
still
present
in
Canada.
The
letter
makes
no
reference
to
Mr.
Pek,
whose
letters
are
mentioned
in
subparagraphs
(f)(ii)
and
(f)(iii)
of
the
reply
and
were
produced
as
Exhibit
I-1,
tabs
4
and
5.
According
to
counsel
for
the
appellants,
some
attempts
were
made
to
find
him,
but
they
were
fruitless.
Nor
did
the
appellants
call
Mrs.
Cheng
to
testify;
according
to
paragraph
(j)
of
the
reply,
she
stated
that
the
documents
signed
by
Mr.
Healey
were
backdated
and
that
she
had
not
started
to
work
for
the
accountant
before
October
22,
1984.
The
only
persons
who
testified
for
the
appellants
were
their
legal
and
financial
advisers.
Counsel
for
the
respondent
stated
that
the
Minister
was
not
doubting
the
investors’
good
faith
and
diligence,
but
contended
that
since
the
Minister
had
determined
that
the
designation
was
invalid,
he
was
entitled
to
reassess
the
investors
within
the
three-year
period
provided
in
paragraph
152(4)(c)
of
the
Act,
as
he
did.
Analysis
I
asked
myself
whether
the
Court
had
jurisdiction
to
decide
whether
the
designation
of
an
amount
was
valid
or
not,
given
that
the
designation
had
been
made
by
a
person
other
than
the
person
who
appealed.
I
have
discussed
a
subject
which
to
some
extent
was
similar
in
an
earlier
case,
Stewart,
S.
v.
M.N.R.,
[1990]
1
C.T.C.
2231,
90
D.T.C.
1110,
at
2233
(D.T.C.
1112).
Counsel
for
one
party
had
argued
that
the
Court
was
entitled
only
to
interpret
an
agreement
and
not
to
rule
as
to
the
validity
of
a
clause.
I
concluded
that
this
Court
had
the
requisite
jurisdiction
to
decide
questions
that
are
necessary
and
useful
in
making
its
decisions.
In
that
case,
however,
the
appellant
was
a
party
to
the
agreement
containing
the
disputed
clause.
In
the
case
at
bar,
the
designation
of
the
amount
at
issue
was
done
solely
by
third
parties.
Counsel
for
the
parties
referred
to
the
decisions
of
the
Federal
Court-Trial
Division
in
First
Fund
Genesis
Corp.
v.
Canada,
supra,
and
Mort,
C.L.
v.
The
Queen,
[1993]
1
C.T.C
99,
93
D.T.C.
5058
(F.C.T.D.).
They
pointed
out
that
in
those
cases
the
situation
was
the
same.
They
contended
that
it
was
possible
for
this
Court
to
decide,
as
did
the
Federal
Court-Trial
Division,
whether
the
designation
was
valid,
although
that
designation
was
made
by
another
taxpayer.
They
argued
that
this
Court
therefore
had
jurisdiction
to
determine
whether
the
designation
of
the
amount
by
Agri-Can
was
valid
and
that
the
Court
should
see
no
difference
in
the
situation
based
on
the
fact
that,
in
the
cases
heard
by
the
Federal
Court,
the
principal
shareholder
of
the
corporation
which
had
made
the
designation
had
testified.
Counsel
for
the
appellants
also
referred
to
the
decisions
in
Nova
Ban-Corp.
v.
Tottrup
et
al.,
[1989]
2
C.T.C.
304,
89
D.T.C.
5489
(F.C.T.D.)
and
Hart,
R.
et
al.
v.
M.N.R.,
[1986]
2
C.T.C.
63,
86
D.T.C.
6335
(F.C.T.D.).
Those
decisions
hold
that
only
the
assessed
taxpayer
may
appeal
his
or
her
assessment,
and
that
another
person
who
feels
aggrieved
by
the
amount
of
tax
owing
may
not
appeal
it
on
behalf
of
the
taxpayer.
Here,
however,
as
counsel
for
the
appellants
pointed
out,
we
do
not
have
an
appeal
of
a
third
party’s
assessment,
but
a
request
for
a
decision
as
to
the
affairs
of
a
third
party
which
affect
the
assessment
of
another
person.
The
issue
is
not
the
determination
of
the
amount
of
an
assessment,
but
of
whether
or
not
a
designation
is
valid.
In
the
two
cases
cited,
supra,
First
Fund
Genesis
Corp,
and
Mort,
C.L.,
the
appellants
were
in
fact
the
investors
and
the
shareholders
of
the
corporations
participated
merely
as
witnesses.
Accordingly,
following
these
precedents
of
the
Federal
Court-Trial
Division,
and
also
because
this
point
was
not
contested
by
either
of
the
parties,
I
find
that
this
Court
has
jurisdiction
to
determine
the
validity
of
the
designation
of
the
amount
by
AgriCan
in
this
appeal.
The
only
effect
of
the
failure
of
the
principal
shareholders
to
participate
in
the
proceedings
will
be
in
terms
of
the
preponderance
of
evidence.
Was
the
designation
of
the
amount
valid?
On
the
evidence
adduced
by
the
appellants,
I
cannot
vary
the
Minister’s
decision
that
the
designation
was
not
valid.
There
was
no
evidence
to
counter
the
Minister’s
presumptions
of
fact,
to
the
effect
that
on
October
10,
1984
no
written
arrangements
were
substantially
advanced
with
respect
to
the
issuance
of
the
debt
obligations
acquired
by
the
appellants.
The
mere
presentation
of
documents
signed
on
a
date
prior
to
October
10,
1984
is
not
sufficient
to
reverse
the
Minister’s
presumptions
of
fact.
Those
presumptions
of
fact
were
made
following
a
long
investigation
by
the
Minister,
the
reports
of
which
were
produced
by
counsel
for
the
appellants.
In
addition,
the
failure
of
important
witnesses
to
attend
also
allows
me
to
draw
a
negative
inference
that
those
witnesses
would
not
have
been
able
to
prove
the
contrary.
The
argument
that
the
main
actors
in
relation
to
the
designation
had
no
interest
in
defending
themselves
to
the
Minister’s
investigators,
this
being
the
argument
in
support
of
which
the
reports
were
produced,
cannot
be
accepted.
At
the
outset,
I
cited
the
clauses
guaranteeing
liability
which
the
directors
signed.
In
addition,
the
amount
of
tax
supposedly
owing
under
Part
VIII
had
been
paid
into
a
trust
account
and
the
research
expenditures
had
supposedly
been
made.
Accordingly,
to
my
mind,
this
is
a
neutral
point.
Was
the
Minister
entitled
to
reassess
the
appellants
for
something
done
by
third
persons,
as
he
did,
despite
the
fact
that
they
exercised
due
diligence?
No
cases
were
cited
to
me
which
prevent
him
from
doing
so,
and
I
am
not
aware
of
any
such
cases.
The
first
assessment
was
based
on
something
done
by
third
persons.
This
leads
me
to
believe
that
the
second
may
also
be.
The
designation
was
void
ab
initio
because
it
violated
the
requirements
of
subparagraph
194(2)(b)
of
the
Act.
Accordingly,
the
first
assessment
was
not
correct.
The
second
is.
The
appellants
also
argued
that
the
Minister
had
not
acted
with
due
dispatch
as
required
by
the
Act
and
that
he
acted
without
making
them
aware
of
what
was
happening
in
the
investigation.
With
respect
to
the
investigation,
the
Minister
believed
that
he
was
obliged
to
maintain
confidentiality,
under
the
requirements
of
section
241
of
the
Act,
and
no
legal
argument
has
been
made
that
he
did
not
have
to
do
so.
When
the
investors
obtained
a
power
of
attorney
from
one
of
the
directors
of
Agri-Can
permitting
access
to
Agri-Can’s
records,
the
appellants
had
access
to
those
records.
The
requirement
to
act
with
due
dispatch
exists
only
in
relation
to
the
first
assessment,
since
there
is
no
other
limitation
under
the
Act.
In
the
case
of
a
reassessment,
when
there
is
no
fraud
or
misrepresentation
of
the
facts
that
is
attributable
to
neglect,
carelessness
or
willful
default
by
the
taxpayer,
the
limitation
is
three
years,
under
subsection
152(4)
of
the
Act.
Accordingly,
the
appeals
are
dismissed.
Appeals
dismissed.