National Bank of Canada v. The Queen in Right of British Columbia, [1991] 2 CTC 189

Boyd, J.:—This is an appeal of a decision of the Minister of Finance and Corporate Relations, disallowing the petitioner's appeal of an assessment made under the Corporation Capital Tax Act (“the Act”). The appeal is brought by way of petition pursuant to section 34 of the Act.

Effective November 1, 1985, the Mercantile Bank of Canada and the then National Bank of Canada were amalgamated and continued as one bank pursuant to letters patent issued under the Bank Act, R.S.C. 1985, c. B-1. Each of those two banks paid in excess of $25,000 in corporation capital tax in respect of their fiscal years ended October 31, 1984 and October 31, 1985. The petitioner has not made any instalment payments in respect of its corporation capital tax liability relating to its fiscal years ended October 31, 1986 and October 31, 1987. The issue is whether the petitioner was liable to make those instalment payments.

Relevant Legislation

Corporation Capital Tax Act, R.S.B.C. 1979, c. 69:

21.1(1) Notwithstanding section 21, commencing with the taxation year that begins after October 31, 1980, every corporation whose tax payable for the taxation year immediately preceding its last taxation year exceeded $25,000, shall, on account of the tax payable for the current taxation year, make instalment payments in accordance with subsection (2).

(2) By the 15th day of the 4th, 7th, 10th and 13th month after the beginning of its fiscal year, a corporation shall pay, at its choice,

(a) 25% of its tax payable for the taxation year immediately preceding its last taxation year, or

(b) 25% of its estimated tax payable for the current taxation year. 1. . .

“corporation” means a corporation however or wherever incorporated. . .

"tax payable” by a corporation under this Act means the tax payable by the corporation or fixed by assessment subject to verification on appeal in accordance with this Act.

“taxation year" means that fiscal year in relation to which the amount of a tax under this Act is being calculated when the expression is used to distinguish it from another fiscal year;

"fiscal year" means the period for which the accounts of the business of a corporation are ordinarily made up and accepted for the purposes of taxation under this Act and, in the absence of an established practice, the fiscal year is that adopted by a corporation, but no fiscal year may exceed 53 weeks and any change in a usual and accepted fiscal year shall be made for the purposes of this Act only with the concurrence of or in accordance with the direction of the Minister.

Bank Act:

255. . .

(2) On the joint application of

(a) two or more banks. . .

the Minister may, with the approval of the Governor in Council, but otherwise at his sole discretion, issue letters patent amalgamating and continuing as one corporation and bank, the banks or the bank or banks and the financial institution or financial institutions.

256.(1) Subject to subsections (2) and (4), where letters patent are issued pursuant to section 255 converting a body corporate or amalgamating and continuing bodies corporate as one corporation, the conversion or amalgamation shall for all purposes be deemed to have occurred and to be effective on such date as is specified, such date being not subsequent to or more than one year prior to the date of issue of the letters patent.

(2) Where the date referred to in subsection (1) that is specified in letters patent is prior to the date of issue of the letters patent, the bank created by the Fetters patent is not

(a) liable for an offence that would not have been committed but for this section, or

(b) relieved of liability for an offence that would have been committed but for this section,

with regard to anything done or not done prior to the date of issue of the letters patent.

(3) Where letters patent are issued pursuant to section 255 creating a bank by conversion or amalgamation,

(a) the bank thereby created is vested with the powers, privileges and immunities conferred on, and has the like capacity of, a bank created by letters patent issued pursuant to subsection 7(2); and

(b) the bank, its directors, officers and employees are subject to all the limitations, liabilities and requirements set out in this Act.

257. . .

(2) Notwithstanding any other provision of this Act, where the Minister issues letters patent pursuant to subsection 255(2) amalgamating and continuing as one corporation and a bank (in this subsection referred to as the "amalgamated bank”), banks, bank, or banks and a financial institution or financial institutions (in this subsection, each of which is referred to as an "amalgamating corporation").

(a) for the purposes of subsection 22(2), the amalgamated bank shall be deemed to have commenced business on the earliest day that an amalgamating corporation commenced business;

(b) if one or more of the amalgamating corporations was a bank, for the purposes of paragraph 123(3)(a), the amalgamated bank shall be deemed to ave commenced business on the earlier day that an amalgamating corporation that was a bank received approval to commence or to commence and carry on the business of banking;

(c) if one or more of the amalgamating corporations was a bank, for the purposes of subsection 174(7), the day on which the amalgamated bank receives approval to commence and carry on business shall be deemed to be the earliest day that an amalgamating corporation that was a bank received approval to commence and carry on the business of banking;

(e) for the purposes of subsection 132(1), the first and second financial year of the amalgamated bank shall be deemed to be the first and second financial years of the amalgamating corporation that first commenced business.

Discussion

The petitioner submits there are no corporation capital tax instalment payments exigible pursuant to section 21.1 of the Corporation Capital Tax Act, since the National Bank of Canada is a "corporation" incorporated by way of letters patent effective November 1, 1985. As a result, the petitioner submits that there is no tax payable, since the tax payable by way of instalment under the Act is simply a percentage of the tax payable by that bank for the taxation year immediately preceding the last taxation year of the bank. Since the newly amalgamated bank has no prior fiscal year and no previous taxation year, the petitioner submits that there can be no liability for instalment payments of corporation capital tax for the fiscal periods in question on this appeal. In effect, the petitioner says that there is no instalment base upon which to calculate tax during the initial two years following the amalgamation by way of letters patent.

In support of this submission, the petitioner stresses the language used throughout the relevant sections of the Bank Act. Subsection 256(2) of the Bank Act speaks of the bank which is “created” by letters patent, thus inferring that the new bank is something other than a mere joinder of the two amalgamating banks. The Shorter Oxford English Dictionary defines “create” as “to make, form, constitute, or bring into legal existence". As to the effect of the amalgamation, subsection 264(2) states that the newly amalgamated bank "is subject to all the duties, liabilities and obligations" of each of the two amalgamating banks, thus inferring that it is the newly amalgamated bank and not either of the original amalgamating banks which is liable for any tax payable, including the corporation capital tax. This inference is bolstered, in the petitioner's submission, by paragraph 256(3)(b) which provides that the newly amalgamated bank, its directors, officers and employees are subject to all the limitations, liabilities and requirements set out in the Bank Act.

Had Parliament intended that the newly amalgamated bank be deemed to have carried on business earlier than the date of the issue of the letters patent for the purpose of providing an instalment base for the calculation of corporation capital tax, the petitioner says that provision could have been made in the Bank Act. For example, paragraphs (a), (c) and (e) of subsection 257(2) all deem the newly amalgamated bank to have carried on business at some earlier point in time for certain limited purposes.

The respondent submits that the effect of the amalgamation is not to destroy the amalgamating companies or to relieve them from their obligations. Rather, the Minister's counsel submits that the amalgamating banks continue to exist in the newly amalgamated bank and the newly amalgamated bank is not free from each of the amalgamating bank's responsibilities.

The Minister relies on the decision of the Supreme Court of Canada in R. v. Black & Decker Mfg. Co. (1974), 13 C.P.R. (2d) 97; 15 C.C.C. (2d) 193; 43 D.L.R.

(3d) 393; 1 N.R. 299, in which an amalgamated company was held criminally liable for the acts of one of the amalgamating companies. There Black & Decker had amalgamated with two other companies pursuant to the provisions of the Canada Corporations Act. Following the amalgamation, the newly amalgamated company was charged with various offences under the Combines Investigation Act. The newly amalgamated company submitted that no criminal liability could be transferred to it.

There, section 137 of the Canada Corporations Act provided:

(1) Any two or more companies to which this Part applies may amalgamate and continue as one company.

(13) Upon the issue of letters patent pursuant to subsection (11), the amalgamation agreement has full force and effect and

(a) the amalgamating companies are amalgamated and are continued as one company (in this section called the “amalgamated company") under the name and having the authorized capital and objects specified in the amalgamation agreement; and

(b) the amalgamated company possesses all the property, rights, assets, privileges and franchises, and is subject to all the contracts, liabilities, debts and obligations of each of the amalgamating companies.

[Emphasis added.]

The court rejected the argument that the effect of the amalgamation was to extinguish the amalgamating companies. Dickson, J., speaking for the Court, stated at pages 399-401:

The juridical nature of an amalgamation need not be determined by juridical criteria alone, to the exclusion of consideration of the purposes of amalgamation. Provision is made under the Canada Corporations Act and under the Acts of the various Provinces whereby two or more companies incorporated under the governing Act may amalgamate and form one corporation. The purpose is economic: to build, to consolidate, perhaps to diversify, existing businesses; so that through union there will be enhanced strength. It is a joining of forces and resources in order to perform better in the economic field. If that be so, it would surely be paradoxical if that process were to involve death by suicide or the mysterious disappearance of those who sought security, strength and, above all, survival in that union. Also, one must recall that the amalgamating companies physically continue to exist in the sense that offices, warehouses, factories, corporate records and correspondence and documents are still there, and business goes on. . .

The effect of the statute, on a proper construction, is to have the amalgamating companies continue without subtraction in the amalgamated company, with all their strengths and their weaknesses, their perfections and imperfections, and their sins, if sinners they be. Letters patent of amalgamation do not give absolution.

The respondent, the Minister, submits that although the Black & Decker case dealt with an amalgamation under the Canada Corporations Act, the reasoning there applies equally to an amalgamation under the Bank Act. The Canada Corporations Act provided that the companies "may amalgamate and continue as one company" (subsection 137(1)), whereas the Bank Act in subsection 255(2) provides that “the Minister may. . .issue letters patent amalgamating and continuing as one corporation and bank, the banks. . ." In addition, both the Canada Corporations Act (paragraph 137(13)(b)) and the Bank Act (subsection 264(2)) provide that the amalgamated entity "is subject to all the . . . duties, liabilities and obligations of each" of the amalgamating entities.

I agree with the petitioner's counsel that the reasoning in Black & Decker, supra, cannot be applied here since the specific language of the Canada Corporations Act, which is distinguishable from that in the Bank Act, dictated the result there. In Black & Decker the court placed great weight upon the use of the word “continue” in section 137. Dickson, J. commented at page 397:

Whether an amalgamation creates or extinguishes a corporate entity will, of course, depend upon the terms of the applicable statute, but as I read the Act, in particular s. 137, and consider the purposes which an amalgamation is intended to serve, it would appear to me that upon an amalgamation under the Canada Corporations Act no "new" company is created and no "old" company is extinguished. The Canada Corporations Act does not in terms so state and the following considerations in my view serve to negate any such inference: (i) palpably the controlling word in s. 137 is “continue”. That word means “to remain in existence or in its present condition"-Shorter Oxford English Dictionary. The companies "are amalgamated and are continued as one company” which is the very antithesis of the. notion that the amalgamating companies are extinguished or that they continue in a truncated state . . .

[Emphasis added.]

In the earlier decision of the Ontario Court of Appeal in Stanward Corp. v. Denison Mines Ltd., [1966] 2 O.R. 585; 57 D.L.R. (2d) 674 (C.A.), the Court held, on an analysis of section 96 of the Ontario statute, that the two amalgamating companies “continued as one company" and that accordingly no royalties were payable by the defendant company in respect of ore mined from claims owned by the second amalgamating company with which the defendant company had amalgamated. Kelly, J.A., compared the then current Ontario statute with the earlier version of that statute which had referred to the "new corporation" formed by the amalgamation and made no reference to any continuation of the two companies. He noted that the language of section 96 was clear and unambiguous in providing that the two amalgamating companies shall continue as one company.

In Black & Decker, Dickson, J. adopted Kelly, J.A.'s analysis of the legislation in Stanward, stating at page 399:

The earlier legislation referred to the amalgamated corporation as the “new corporation" and spoke of “the corporation so incorporated”. The language expressed a clear intention to substitute a new corporation in the place and stead of the amalgamating corporations. By the time the Stanward case fell to be decided, however, the Legislature had re-enacted the section in words which, in the opinion of Kelly, J.A., with which I agree, indicated an intention to change the effect of amalgamation. With respect, I am of the view that the observations of Kelly, J.A., in the Stanward case although perhaps obiter, are sound in law and correctly reflect the consequences of an amalgamation pursuant to the language found in s. 96 of 1953 (Ont.), c. 19, or pursuant to the substantially similar language found in s. 137 of the Canada Corporations Act.

In the case at bar, in contrast to the language considered by the court in Black & Decker and Stanward, the legislation specifically provides that a newly amalgamated bank is "created" by the letters patent (subsection 256(2)) and that the bank "created" by the letters patent is subject to all the liabilities set out in the Act (subsection 256(3)). I reject the Minister's counsel's submission that the word “create” is used, not in the sense that a new bank is created which replaces that original bank, but rather that the newly created bank allows the original amalgamating banks to carry on. If that was the case, the word “created” would be superfluous. In my view, while the language of the statute does not contemplate the extinguishment of the two amalgamating banks, but rather “the continuing as one corporation and bank”, the statute clearly does contemplate the emergence or creation of a new entity" Deltona Corp. v. M.N.R., [1971] C.T.C. 297; 71 D.T.C. 5186; affd [1973] C.T.C. 215; 73 D.T.C. 5180 (S.C.C.); Allendale Mut. Ins. Co. v. R., [1973] C.T.C. 494; 73 D.T.C. 5382 (Fed. Ct.).

The narrow issue here is whether or not the newly amalgamated bank has a taxation year upon which an instalment corporation capital tax base can be created. In my view, the answer is "no" and, accordingly, the appeal is allowed.

Appeal allowed.