Brule,
T.C.J.:
—This
is
an
appeal
from
an
income
tax
reassessment
by
the
Minister
of
the
appellant's
1981
taxation
year.
The
parties
proceeded
by
way
of
an
agreed
statement
of
facts
which
is
herewith
reproduced,
other
than
references
to
certain
documents.
Agreed
Statement
of
Facts
1.
The
Appellant
resides
in
the
City
of
Etobicoke
in
"the
Municipality
of
Metropolitan
Toronto,
Province
of
Ontario.
2.
The
Appellant
was
at
all
material
times
the
president,
director,
manager
and
a
salesman
of
Alexander
Orr
Limited
(the
"Corporation")
and,
subject
to
the
transactions
outlined
below,
the
sole
shareholder.
In
the
Appellant's
1981
taxation
year
he
was
paid
approximately
$55,000
of
remuneration
for
his
services
to
the
Corporation.
3.
The
Corporation
carried
on
and
has
continued
to
carry
on
business
under
the
name
“Air
Thermal
Systems"
as
a
distributor
and
installer
of
air
conditioning,
refrigeration,
heating
and
ventilation
equipment.
At
all
material
times
the
Corporation
was
a
"small
business
corporation"
as
that
term
is
used
for
the
purposes
of
subsection
73(5)
of
the
Income
Tax
Act
(Canada)
(the
"Act").
4.
The
taxpayer
has
two
sons,
Lance
Orr
("Lance")
and
Kevin
Orr
("Kevin").
Both
of
these
sons
were
at
all
material
times
and
continue
to
be
residents
of
Canada,
within
the
meaning
of
the
Act.
5.
Lance
joined
the
Corporation
as
a
full-time
employee
upon
completing
high
school
sometime
in
1977
and
during
the
1981
taxation
year
he
was
employed
as
a
junior
salesman
and
received
a
salary
of
approximately
$20,000.
Lance
has
continuously
worked
for
the
Corporation
or
a
related
family
corporation.
6.
Kevin
also
joined
the
Corporation
as
full-time
employee
upon
completing
of
high
school
sometime
in
1979
as
an
apprentice
mechanic.
His
salary
in
the
1981
taxation
year
was
approximately
$15,000.
Kevin
has
also
continuously
worked
for
the
Corporation
or
a
related
family
corporation.
7.
On
or
about
December
14,
1981
the
accountant
of
the
Appellant
and
the
Corporation
advised
the
Appellant
that
the
Act
permitted
an
owner
of
a
Canadian
small
business
corporation
to
sell
or
gift
shares
in
such
company
during
his
lifetime
to
his
children
on
a
tax-deferred
basis,
utilizing
the
provisions
of
the
Act.
The
Appellant
was
further
advised
by
the
accountant
that
if
such
a
sale
of
gift
were
made
by
him
of
shares
of
the
Corporation
to
Kevin
and
Lance
upon
the
Corporation
purchasing
the
shares
that
had
been
gifted
to
Lance
and
Kevin,
the
proceeds
received
would
be
taxable
to
Lance
and
Kevin
as
a
dividend
and
not
to
the
Appellant
and
that
these
funds
could
be
loaned
back
to
the
Corporation
by
Lance
and
Kevin.
The
Appellant
was
further
advised
that
the
payment
of
the
"deemed
dividend”
to
Lance
and
Kevin
on
the
purchase
of
the
shares
would
effect
a
partial
rejuvenation
of
the
“cumulative
deduction
account”
of
the
Corporation.
A
summary
of
the
aforesaid
advice
was
contained
in
a
letter
from
the
accountant
dated
December
14,
1981
(see
copy
of
letter
following
this
statement).
8.
Based
upon
the
advice
of
the
accountant,
as
aforesaid,
the
Appellant
decided
to
gift
shares
having
a
value
of
$50,000
to
each
of
Kevin
and
Lance
and
thereafter
to
complete
the
other
suggestions
made
by
the
accountant,
as
aforesaid.
9.
Prior
to
December
21,1981
there
was
only
one
common
share
in
the
capital
of
the
Corporation
outstanding
which
was
issued
to
the
Appellant.
In
order
to
split
the
shares
into
100
common
shares,
the
Appellant
subscribed
for
an
additional
99
common
shares
in
the
capital
of
the
Corporation.
10.
By
resolution
of
the
directors
of
the
Corporation
dated
December
21,
1981
an
additional
99
common
shares
were
issued
to
the
Appellant.
11.
The
Corporation
issued
share
certificate
No.
2
to
the
Appellant
for
99
common
shares
in
the
capital
of
the
Corporation.
12.
By
Deed
of
Gift
dated
December
21,
1981
between
the
Appellant,
as
donor
and
Lance
and
Kevin,
as
donees,
the
Appellant
transferred
to
each
of
Lance
and
Kevin
10
common
shares
in
the
capital
of
the
Corporation.
13.
By
resolution
of
the
directors
of
the
Corporation
dated
December
22,
1981
the
directors
approved
the
transfer
of
10
common
shares
in
the
capital
of
the
Corporation
from
the
Appellant
to
each
of
Lance
and
Kevin.
14.
By
a
document
dated
December
22,
1981
the
Appellant
advised
the
Corporation
and
the
directors
thereof
of
his
assignment
and
transfer
of
10
common
shares
in
the
capital
of
the
Corporation
to
each
of
Lance
and
Kevin.
15.
The
Corporation
issued
share
certificate
No.
3
to
Lance
for
10
common
shares
and
share
certificate
No.
4
to
Kevin
for
10
common
shares.
16.
The
Corporation
cancelled
share
certificate
No.
2
issued
to
the
Appellant
for
99
common
shares
and
replaced
it
with
share
certificate
No.
5
in
the
amount
of
79
common
shares.
17.
By
resolution
of
the
directors
dated
December
23,
1981
it
was
resolved
that
the
Corporation
make
a
request
to
all
common
shareholders
to
tender
their
common
shares
in
the
capital
of
the
Corporation
for
purchase
by
the
Corporation
pursuant
to
the
provisions
of
subsection
38(2)
of
the
Business
Corporations
Act,
R.S.O.
1980.
18.
The
wife
of
the
Appellant,
who
was
and
continues
to
be
a
director
and
secretary
of
the
Corporation,
executed
requests
for
tender
of
common
shares
to
each
of
the
Appellant,
Lance
and
Kevin.
19.
By
notice
dated
December
23,
1981
Lance
advised
the
Corporation
that
he
was
tendering
for
purchase
by
the
Corporation
his
10
common
shares
at
a
price
of
$5,000
per
share.
20.
By
notice
dated
December
23,1981
Kevin
advised
the
Corporation
that
he
was
tendering
for
purchase
by
the
Corporation
his
10
common
shares
at
a
price
of
$5,000
per
share.
21.
By
acknowledgement
dated
December
23,
1981
each
of
the
shareholders
being
the
Appellant,
Kevin
and
Lance
acknowledged
receipt
of
the
tender
by
the
Corporation.
22.
By
agreement
dated
the
23rd
day
of
December,
1981
amongst
the
Corporation,
Lance,
Kevin
and
the
Appellant,
the
Corporation
agreed
to
purchase,
pursuant
to
the
aforesaid
tenders,
10
common
shares
from
each
of
Lance
and
Kevin
for
a
price
of
$5,000
per
share
payable
by
cheque.
23.
By
resolution
of
the
directors
dated
December
23,
1981
the
purchase
by
the
Corporation
of
the
shares
of
Kevin
and
Lance
in
accordance
with
the
terms
of
the
aforesaid
agreement
was
approved.
24.
The
Corporation
delivered
its
cheque
in
the
amount
of
$50,000
to
each
of
Kevin
and
Lance
and
Kevin
and
Lance
returned
their
share
certificates
to
the
Corporation.
25.
Kevin
and
Lance
each
loaned
to
the
Corporation
the
amount
of
$50,000
and
the
Corporation
issued
promissory
notes
to
each
of
Kevin
and
Lance
in
order
to
evidence
such
loan.
26.
The
Appellant
understood
and
intended
at
the
time
that
the
aforesaid
transactions
were
entered
into
that
upon
completion
of
and
through
the
transactions
he
was
transferring
a
financial
interest
in
the
Corporation
to
each
of
Lance
and
Kevin,
in
that
they
would
each
be
owed
$50,000
by
the
Corporation
pursuant
to
the
aforementioned
promissory
notes.
27.
At
all
times
following
the
issuance
of
the
promissory
notes
by
the
Corporation
to
Lance
and
Kevin,
Lance
and
Kevin
remained
the
holders
of
the
promissory
notes
and
did
not
transfer,
assign
or
agree
to
transfer
or
assign
the
promissory
notes
or
any
funds
received
pursuant
thereto
to
the
Appellant
or
any
other
person.
28.
The
Corporation
repaid
the
promissory
notes
in
full
to
Kevin
and
Lance
on
February
1,
1988.
No
amounts
out
of
the
proceeds
of
the
repayment
have
ever
been
paid
to
or
applied
for
the
benefit
of
the
Appellant
or
anyone
other
than
Lance
and
Kevin.
Kevin
utilized
a
portion
of
the
proceeds
to
acquire
a
motor
home
for
his
own
use
and
enjoyment
and
the
balance
of
the
funds
continues
to
be
held
by
Kevin
in
investments.
With
a
portion
of
his
funds,
Lance
purchased
land
in
the
Muskoka
District
of
Ontario
for
future
recreational
use
by
him
and
the
balance
continues
to
be
held
by
Lance
in
investments.
[All
steps
referred
to
in
this
statement
were
substantiated
by
copies
of
relevant
documents
submitted
to
the
Court]
The
letter
referred
to
in
paragraph
7
of
the
agreed
statement
setting
out
the
necessary
steps
for
the
Appellant
to
follow
reads
as
follows:
NEWMAN,
SHARPLEY
and
COMPANY
December
14,
1981
Mr.
Alex
Orr,
Alexander
Orr
Limited,
7171
Torbram
Road,
Unit
50,
Mississauga,
Ontario
L4T
3W4
Dear
Alex:
Further
to
our
discussion
of
December
14th
and
as
a
result
of
the
proposals
contained
in
the
recent
Federal
Budget
with
respect
to
the
Small
Business
Deduction
and
the
cumulative
deduction
account,
we
set
out
below
a
proposal
for
corporate
and
estate
planning
with
particular
reference
to
Alexander
Orr
Limited.
The
plan
does
not
involve
any
estate
freezing
nor
the
loss
of
eventual
control
of
the
corporation.
The
plan
is
based
on
the
following
facts
and
assumptions:
1.
You
currently
own
the
1
issued
and
outstanding
share
of
Alexander
Orr
Limited
("Limited").
2.
The
current
fair
market
value
of
the
common
share
of
“Limited”
is
assumed
to
be
$500,000.
It
was
issued
for
$1.
3.
"Limited"
carries
on
the
business
of
refrigeration
contractors
and
qualifies
for
the
small
business
tax
deduction.
Its
cumulative
deduction
account
("CDA")
was
approximately
$500,000
as
at
March
31st,
1981.
It
is
estimated
that
“Limited”
generates
annual
profits
of
approximately
$225,000.
Before
the
November
12th
Budget,
it
would
have
been
possible
to
protect
the
small
business
deduction
and
to
keep
the
"CDA"
alive
by
carrying
out
a
bonus
and
dividend
policy,
however,
because
of
the
various
changes
proposed
in
the
Budget,
this
will
no
longer
be
possible.
4.
You
have
two
adult
children
who
you
wish
to
participate
in
this
plan.
Their
approximate
incomes,
before
giving
effect
to
this
plan,
are
as
follows:
|
Lance
|
Kevin
|
|
1981
|
$20,000
|
$14,500
|
|
1980
|
15,000
|
14,500
|
|
1979
|
7,200
|
5,200
|
|
1978
|
Nil
|
Nil
|
|
1977
|
Nil
|
Nil
|
5.
You
are
willing
to
gift
approximately
$100,000
worth
of
shares
(after
a
proposed
split
—
see
below)
in
the
company
to
Lance
and
Kevin
in
order
to
obtain
maximum
tax
benefits
on
a
total
family
unit
basis.
Further,
you
are
willing
to
use
this
gift
as
a
part
of
the
election
available
to
you.
This
roll-over
election
permits
you
to
gift
shares
worth
up
to
a
total
of
$200,000
to
any
or
all
of
your
children.
In
brief
the
plan
involves
four
steps:
1.
Stock
split.
2.
Share
valuation
of
the
current
common
shares
of
"Limited".
3.
Gift
of
$50,000
worth
of
shares,
based
on
the
above
valuation,
of
"Limited"
to
each
of
Lance
and
Kevin.
4.
Prior
to
December
31st,
1981
“Limited”
will
make
a
tender
offer
to
repurchase,
say,
20
common
shares
(worth
approximately
$100,000).
This
tender
will
be
filled
on
a
pro
rata
basis
if
subscribed
for
in
excess
of
20
common
shares.
These
steps
are
considered
in
detail
below:
Stock
Split
Since
there
is
only
one
common
share
outstanding
at
this
time,
it
would
facilitate
the
execution
of
this
plan
with
greater
ease
if
there
were
more
than
one
share
issued
and
this
can
be
achieved
by
sub-dividing
the
current
common
share
into
say,
100
new
common
shares.
After
the
sub-division
(sometimes
referred
to
as
a
stock
split)
you
will
own
100
common
shares
of
"Limited"
and
these
100
common
shares
will,
of
course
be
worth
the
same
as
the
original
one
share.
Share
Valuation
of
"Limited"
You
have
stated
that
based
on
the
company’s
net
assets
and
the
nature
of
the
company’s
business
etc.,
you
estimate
that
the
current
value
of
the
company's
shares
would
be
approximately
$500,000.
We
feel,
however,
that
it
is
advisable
that
a
price
adjustment
clause
be
inserted
in
the
offering
document
for
the
corporate
repurchase
of
common
shares,
in
order
to
protect
the
Position
of
"Limited"
and
Lance
and
Kevin,
should
Revenue
Canada
challenge
the
valuation
at
some
future
time.
Based
upon
the
above
suggested
stock
split,
one
share
would
be
worth
approximately
$5,000.
Gift
to
Lance
and
Kevin
Based
upon
the
above
valuation,
10
shares
worth
approximately
$50,000
will
be
gifted
to
each
of
Lance
and
Kevin
utilizing
the
provisions
of
sub-section
73(5)
to
roll
these
over
on
a
tax-free
basis
to
him.
It
should
be
recognized
that
this
is
an
outright
gift
and
these
shares
will
become
the
property
of
Lance
and
Kevin.
Shares
Repurchased
for
Cancellation
Prior
to
December
31st,
1981
the
company
will
offer
to
purchase
say
20
shares.
There
will
be
a
condition
to
this
offer
that
should
more
than
20
shares
be
tendered,
then
the
company
will
repurchase
on
a
pro-rata
basis.
It
is
expected
that
you
will,
of
course,
not
tender
your
remaining
80
common
shares
under
the
offer,
however,
Lance
and
Kevin
will
tender
all
their
shares.
In
this
way
all
their
shares
can
be
repurchased
by
the
company
for
$100,000.
The
effect
of
this
transaction
is
to
gift
securities
worth
$100,000
to
Kevin
and
Lance
and
then
convert
them
to
their
cash
value
and
have
each
of
the
two
children
bear
the
tax
effects
of
the
redemption
of
these
shares.
It
may
be
necessary
to
amend
"Limited"'s
Articles
to
enable
it
to
repurchase
its
common
shares,
if
it
does
not
have
the
power
to
do
so
currently.
Tax
Effects
1.
The
sub-division
of
the
common
share
will
not
result
in
any
tax
consequences
to
you
in
that
they
will
be
worth
in
total
the
same
as
the
original
one
share
and
their
adjusted
cost
base
for
tax
purposes
will
be
equal
to,
in
total,
the
one
original
common
share.
2.
The
redemption
of
the
shares
will
result
in
a
total
"deemed"
dividend
of
approximately
$100,000.
This
in
turn
will
enable
the
company
to
"rejuvenate"
the
“CDA”
by
$150,000,
which
results
in
a
tax
saving
of
approximately
$37,500
plus
an
interest
factor
as
a
result
of
tax
deferrals.
3.
Since
the
dividend
will
be
paid
between
November
12th,
1981
and
December
31st,
1981,
there
will
be
a
corporate
tax
rate
of
$12,500
payable
by
April
30th,
1982.
4.
The
receipt
of
the
deemed
dividend
in
the
hands
of
Lance
and
Kevin
will
result
in
them
receiving
a
cash
dividend
of
$100,000,
grossed
up
to
a
$150,000
taxable
dividend
along
with
the
attaching
dividend
tax
credits
of
$37,500.
The
recent
Budget
proposes
to
eliminate
the
general
averaging
provisions
in
the
income
tax
act
effective
for
1982
and
onwards.
Therefore,
1981
is
the
last
year
for
general
averaging.
If
a
person
has
had
no
or
nominal
income
in
the
four
years
prior
to
1981,
then
that
person
can
receive
a
cash
dividend
of
up
to
approximately
$150,000
and
the
combined
effect
of
general
averaging
and
the
dividend
tax
credit
will
result
in
that
person
having
no
or
nominal
personal
taxes
to
pay
for
1981.
Based
upon
Lance's
and
Kevin's
incomes
in
1977
to
1981,
and
with
their
share
of
$75,000
of
taxable
deemed
dividends,
in
1981,
and
with
their
share
of
$75,000
of
taxable
deemed
dividends,
in
1981
[sic]
they
should
have
approximately
$1,400
for
Lance
and
$500
for
Kevin
of
additional
taxes
to
pay
as
a
result
of
the
deemed
dividends.
There
is
therefore
an
additional
personal
total
tax
cost
of
approximately
$2,000.
If
this
dividend
were
taken
out
by
you
personally
then
you
would
have
personal
taxes
of
approximately
$25,000
payable
and,
of
course,
the
corporation
would
still
have
to
pay
the
$12,500
tax
at
the
time
of
filing
its
corporate
tax
return.
5.
There
is
therefore
a
combined
tax
and
interest
saving
amounting
to
approximately
$75,000
in
carrying
out
the
proposals
outlined
herein.
Subsequent
Position
After
all
the
transactions
mentioned
above
have
been
carried
out,
Lance
and
Kevin
will
have
approximately
$100,000
cash
which
because
of
the
gifting
of
the
shares
is
their
property.
They
can
then,
loan
these
monies
back
to
the
company
with
or
without
interest
thereby
avoiding
any
cash
flow
from
the
company.
If
it
is
desired
to
create
income
in
Lance's
and
Kevin's
hands
in
succeeding
years,
to
obtain
further
income
splitting
advantages,
then
the
interest
charged
on
this
loan
should
be
higher
than
a
normal
rate.
The
interest
will,
of
course,
be
a
deductible
expense
in
the
company.
However,
since
both
of
them
work
in
"Limited"
and
additional
remuneration
may
be
given
to
them
by
way
of
bonuses,
it
may
not
be
necessary
to
have
a
high
interest
rate
on
this
loan.
However,
the
terms
of
the
loans
should
be
broad
and
flexible
such
as
it
should
have
a
fixed
term
for
repayment.
However,
the
repayment
of
principal
should
be
either
in
full
or
in
part
at
the
company's
discretion
and
from
time
to
time.
Further,
the
loan
documents
can
be
drawn
up
in
such
a
way
that
it
carries
minimum
rates
of
interest
and
should
it
be
desired
at
some
future
time
to
increase
the
rate
of
interest
then
this
can
be
achieved.
You
do
not
lose
control
of
the
company,
nor
do
Lance
and
Kevin
have
any
voting
or
non-voting
shares
in
the
company.
In
the
above
discussion,
estimated
figures
have
been
used
and,
of
course,
precise
figures
at
the
time
of
carrying
out
this
proposal
should
be
used.
These
figures
will
mainly
depend
on
the
exact
valuation
of
the
current
common
shares
of
"Limited"
and
therefore
at
the
time
of
the
valuation
we
will
have
to
take
into
account
any
material
changes
in
the
company's
affairs
since
its
last
balance
sheet
and
we
will
work
closely
with
the
company's
lawyer
to
ensure
that
the
appropriate
documentation
is
prepared.
It
is
imperative
that
the
above
transactions
are
all
carried
out
prior
to
December
31
st,
1981
and
properly
documented
if
the
tax
benefits
emanating
therefrom
are
to
be
obtained.
We
feel
that
the
full
ramifications
of
our
proposals
should
be
discussed
with
your
lawyer
and
if
necessary
we
should
have
a
meeting
with
him.
If
you
have
any
questions
regarding
any
of
the
above
please
do
not
hesitate
to
contact
us.
Yours
truly,
NEWMAN,
SHARPLEY
AND
COMPANY
Per:
Dennis
Shukla
DS/lc
Minister's
Position
Counsel
for
the
Minister
relied
in
his
argument
principally
on
subsections
73(5),
55(1)
and
56(2)
of
the
Income
Tax
Act
as
they
existed
in
1981.
For
purposes
of
reference
these
are
as
follows:
Sec.
73
(5)
For
the
purposes
of
this
Part,
where
at
any
particular
time
a
taxpayer
has
transferred
property
to
his
child
who
was
resident
in
Canada
immediately
before
the
transfer
and
the
property
was,
immediately
before
the
transfer,
a
share
of
the
capital
stock
of
a
small
business
corporation,
except
where
the
rules
in
subsection
74(2)
require
any
taxable
capital
gain
from
the
disposition
by
the
taxpayer
of
that
property
to
be
included
in
the
income
of
a
person
other
than
the
taxpayer,
the
following
rules
apply:
(a)
the
taxpayer
shall
be
deemed
to
have
disposed
of
the
share
at
the
time
of
the
transfer
and
to
have
received
proceeds
of
disposition
therefor
equal
to
the
amount,
if
any,
by
which
(i)
the
fair
market
value
of
the
share
at
that
time
exceeds
the
lesser
of
(ii)
the
taxpayer's
capital
gain
otherwise
determined
from
the
disposition
of
the
share,
and
(iii)
the
amount
of
the
taxpayer's
cumulative
small
business
gains
account
immediately
before
the
transfer
or
such
lesser
amount
as
the
taxpayer
specifies
in
respect
of
the
transfer
of
the
share;
(b)
the
child
shall
be
deemed
to
have
acquired
the
share
at
a
cost
equal
to
the
proceeds
of
disposition
deemed
to
have
been
received
by
the
taxpayer
under
paragraph
(a);
and
(c)
where
two
or
more
shares
have
been
disposed
of
at
the
same
time,
this
subsection
applies
as
if
each
share
had
been
separately
disposed
of
in
the
order
designated
by
the
taxpayer
or
if
the
taxpayer
does
not
so
designate,
in
the
order
designated
by
the
Minister.
Sec.
55
(1)
For
the
purposes
of
this
subdivision,
where
the
result
of
one
or
more
sales,
exchanges,
declarations
of
trust,
or
other
transactions
of
any
kind
whatever
is
that
a
taxpayer
has
disposed
of
property
under
circumstances
such
that
he
may
reasonably
be
considered
to
have
artificially
or
unduly
(a)
reduced
the
amount
of
his
gain
from
the
disposition,
(b)
created
a
loss
from
the
disposition,
or
(c)
increased
the
amount
of
his
loss
from
the
disposition,
the
taxpayer's
gain
or
loss,
as
the
case
may
be,
from
the
disposition
of
the
property
shall
be
computed
as
if
such
reduction,
creation
or
increase,
as
the
case
may
be,
had
not
occurred.
Sec.
56
(2)
A
payment
or
transfer
of
property
made
pursuant
to
the
direction
of,
or
with
the
concurrence
of,
a
taxpayer
to
some
other
person
for
the
benefit
of
the
taxpayer
or
as
a
benefit
that
the
taxpayer
desired
to
have
conferred
on
the
other
person
shall
be
included
in
computing
the
taxpayer's
income
to
the
extent
that
it
would
be
if
the
payment
or
transfer
had
been
made
to
him.
It
was
suggested
to
the
Court
that
the
appellant
had
no
intent
to
pass
on
shares
of
the
Company
to
his
sons,
and
this
was
evidenced
in
the
accountant's
letter,
supra.
The
purpose
of
subsection
73(5)
was
to
assist
in
passing
a
family
business
to
the
next
generation.
The
actions
of
the
appellant
were
an
abuse
of
this
parliamentary
intention.
In
order
to
ascertain
parliamentary
intent
the
Court
was
directed
to
three
decisions.
In
ECG
Canada
Inc.
v.
The
Queen,
[1987]
1
C.T.C.
205;
87
D.T.C.
5133
Rouleau
J.
said
at
page
209
(D.T.C.
5136):
There
is
no
question
that
the
literal
approach
is
a
well
established
one
in
statutory
interpretation.
Nevertheless,
it
is
always
open
to
the
Court
to
look
to
the
object
or
purpose
of
a
statute,
not
for
the
purpose
of
changing
what
was
said
by
Parliament,
but
in
order
to
understand
and
determine
what
was
said.
The
object
of
a
statute
and
its
factual
setting
are
always
relevant
considerations
and
are
not
to
be
taken
into
account
only
in
cases
of
doubt.
The
following
was
set
out
in
the
case
of
Harvey
C.
Smith
Drugs
Ltd.
v.
MNR.,
[1986]
1
C.T.C.
2339;
86
D.T.C.
1243
at
page
2346
(D.T.C.1248):
The
true
intention
of
Parliament
is
the
overriding
consideration
in
this
case.
The
Court
must
determine
whether
or
not
it
was
intended
for
the
manufacturing
and
processing
credit
to
afford
the
various
drugstores
in
this
country
a
substantial
tax
advantage
for
the
activity
of
dispensing
capsules
and
tablets
by
prescription
from
bulk
containers
in
smaller
quantities
to
the
retail
customer.
In
order
to
answer
that
question,
it
is
important
to
examine
the
object
or
social
purpose
of
the
manufacturing
and
processing
credit.
To
use
the
words
of
Lord
Edmund-Davies:
A
statute
does
not
exist
in
limbo.
It
has
a
background,
it
rests
on
an
assumption
that
it
will
operate
only
in
a
certain
climate
and
that
circumstances
of
a
certain
sort
will
prevail.
Morris
v.
Beardmore
[1981]
T.C.
446
at
459.
To
further
determine
parliamentary
intent
the
Court
was
directed
to
a
passage
in
the
case
of
Syrico
Corporation
v.
MNR,
[1988]
1
C.T.C.
2026;
88
D.T.C.
1001
wherein
it
was
said
at
page
2041
(D.T.C.1010):
Perhaps
a
safe
test
for
a
trial
Judge
is
that
referred
to
in
R.
v.
Stevenson
and
McLean,
57
C.C.C.
(2d)
526,
19
C.R.
(3d)
74,
released
December
30,
1980,
where
the
Court
of
Appeal
(at
pp.
530-1),
observing
the
dicta
of
Lord
Reid
in
Warner
v.
Metropolitan
Police
Com'r,
[1969]
2
A.C.
256
at
p.
279,
suggested
that
parliamentary
proceedings
might
be
examined
where
the
examination
"would
almost
certainly
settle
the
matter
immediately
one
way
or
the
other".
To
determine
whether
the
test
was
met
one
would,
of
necessity,
have
to
look
at
the
proceedings.
Counsel
said
that
if
one
looks
at
the
Income
Tax
Act
as
a
whole
for
the
purposes
of
assessing
capital
gains
then
the
enactment
of
subsection
73(5)
was
specifically
to
avoid
capital
gains
where
it
was
intended
to
pass
a
family
business
to
the
next
generation,
but
only
in
these
circumstances.
If
the
appellant
had
other
purposes
in
mind
then
he
should
not
be
entitled
to
use
this
subsection
to
carry
out
the
plan
delineated
above
and
should
suffer
the
consequences
of
capital
gains
legislation.
The
Minister
took
the
position
that
even
if
subsection
73(5)
does
not
apply
certainly
subsection
55(1)
does.
The
issue
involves
capital
gains
in
this
case
and
subsection
55(1)
should
not
technically
be
eliminated
but
rather
can
be
implemented
as
a
tax
avoidance
section
to
substantiate
the
Minister’s
claim
for
tax.
The
respondent's
position
with
reference
to
subsection
56(2)
is
that
this
provision
would
attribute
the
moneys
received
by
the
children
back
to
the
appellant
as
a
result
of
the
share
repurchase
because
such
payments
were
made
according
to
or
with
the
direction
of
the
shareholder
(appellant)
and
primarily
for
his
benefit.
While
the
leading
case
involving
this
subsection
56(2)
(The
Queen
v.
Jim
A.
McClurg,
[1988]
1
C.T.C.
75;
88
D.T.C.
6047)
is
currently
under
appeal
to
the
Supreme
Court
of
Canada,
counsel
for
the
Minister
said
that
the
facts
in
the
present
case
are
quite
different
and
McClurg
should
have
no
influence
in
arriving
at
a
decision.
In
this
case
it
was
as
a
result
of
actions
by
the
taxpayer
and
the
subsection
should
apply
to
tax
the
deemed
dividend
in
the
hands
of
the
appellant.
Appellant's
Position
It
was
put
forth
that
the
appellant
in
the
series
of
transactions
set
out
above
had
not
violated
any
provision
of
the
Income
Tax
Act.
Of
importance
to
the
plan
was
the
provisions
of
subsection
73(5).
The
three
requisites
contained
in
that
subsection
had
all
been
met.
More
specifically
[1]
the
taxpayer
had
transferred
property,
[2]
to
children
who
were
resident
in
Canada
immediately
before
the
transfer,
and
[3]
the
property
was,
immediately
before
the
transfer,
shares
of
the
capital
stock
of
a
small
business
corporation.
Having
complied
with
these
prerequisites
the
benefit
to
the
children
was
without
tax
consequences
in
terms
of
subsection
73(5).
The
subsection
does
not
require
that
the
shares
be
held
for
any
period
after
the
transfer
such
as
is
required
in
subsection
7(1.1)
which
applies
to
employee
stock
options.
Also
in
paragraph
80.4(2)(a)
there
is
a
requirement
that
shares
purchased
by
way
of
a
loan
to
an
officer
or
employee
of
a
corporation
are
"to
be
held
by
him
for
his
own
benefit”.
This
provision
of
the
Income
Tax
Act
was
discussed
in
the
case
of
Peter
E.
Roode
v.
M.N.R.,
[1987]
1
C.T.C.
2418;
87
D.T.C.
321.
In
further
interpreting
this
subsection
73(5)
the
Court
was
referred
to
various
passages
of
the
judgment
in
Stubart
Investments
Limited
v.
the
Queen,
[1984]
1
S.C.R.
536;
[1984]
C.T.C.
294;
84
D.T.C.
6305,
which
will
be
discussed
below
along
with
other
Court
decisions.
As
to
the
applicability
of
subsection
55(1)
in
the
event
that
the
Court
does
not
hold
subsection
73(5)
to
be
destructive
to
the
appellant’s
appeal
as
alleged
by
the
Minister,
counsel
for
the
respondent
had
a
simple
response.
Subsection
55(1)
commences
with
the
words
“For
the
purposes
of
this
subdivision”
and
subsection
73(5)
is
not
in
the
same
subdivision
of
the
Income
Tax
Act
and
cannot
override
the
compliance
of
the
provisions
of
subsection
73(5)
followed
by
the
appellant.
The
application
of
subsection
56(2)
was
said
by
the
Minister
to
be
another
provision
of
the
Income
Tax
Act
which
would
result
in
the
payments
made
by
the
Company
to
the
appellant’s
sons
being
included
in
the
appellant's
income.
Not
so
according
to
the
appellant
who
cited
several
cases
in
support
of
the
fact
that
this
subsection
had
no
application
to
the
present
case.
These
were
George
Murphy
v.
The
Queen,
[1980]
C.T.C.
386;
80
D.T.C.
6314,
Charles
Perrault
v.
The
Queen,
[1978]
C.T.C.
395;
78
D.T.C.
6272,
Leo
Cliche
v.
M.N.R.,
[1986]
2
C.T.C.
2114;
86
D.T.C.
1571,
Warren
Champ
v.
The
Queen,
[1983]
C.T.C.
1;
83
D.T.C.
5029,
The
Queen
v.
Jim
A.
McClurg
[1988]
1
C.T.C.
75;
88
D.T.C.
6047
(currently
under
appeal
to
S.C.C.).
Analysis
The
principal
result
of
the
transactions
in
this
case
was
a
reduction
of
tax
payable
both
by
the
appellant
and
his
corporation.
In
addition
the
two
sons
received
a
distribution
of
moneys
in
the
form
of
dividends
which
attracted
very
low
rates
of
tax.
Had
the
appellant
received
these
dividends
the
rate
of
tax
would
have
been
much
higher.
Thus
in
the
eyes
of
the
appellant
there
was
not
only
a
business
purpose
for
the
corporation
in
having
the
cumulative
deduction
account
adjusted
but
lower
income
taxes
were
paid.
The
matter
of
seeking
relief
from,
the
provisions
of
the
Income
Tax
Act
may
be
considered
in
three
areas:
tax
evasion,
tax
avoidance
and
tax
planning.
None
of
these
terms
are
defined
in
the
Income
Tax
Act
and
the
matter
of
tax
evasion,
which
is
not
in
issue
here
need
not
be
discussed.
Tax
avoidance
is
the
use
of
permissible
means
or
specific
incentives
to
eliminate
or
reduce
certain
tax
measures.
Although
methods
used
might
be
legal
in
form
frequently
the
Minister
regards
these
as
not
being
within
the
object
or
spirit
of
the
statute.
This
is
especially
so
if
the
transactions
entered
into
to
achieve
the
results
are
not
normal.
If
the
transactions
entered
into
are
not
repugnant
to
the
Minister
and
a
tax
saving
is
achieved
this
is
regarded
as
proper
tax
planning.
In
this
case
there
is
only
the
issue
of
tax
avoidance.
In
1924
the
Supreme
Court
of
Canada
per
Duff
J.
in
Versailles
Sweets
Limited,
[1924]
S.C.R.
466;
[1924]
3
D.L.
R.
884
said
at
page
468
quoting
the
English
House
of
Lords:
The
rule
for
the
construction
of
a
taxing
statute
is
most
satisfactorily
stated,
I
think
by
Lord
Cairns
in
Partington
v.
Attorney
General
[1892]
A.C.
154:
I
am
not
at
all
sure
that,
in
a
case
of
this
kind—a
fiscal
case—form
is
not
amply
sufficient;
because,
as
I
understand
the
principle
of
all
fiscal
legislation,
it
is
this:
if
the
person
sought
to
be
taxed
comes
within
the
letter
of
the
law
he
must
be
taxed,
however
great
the
hardship
may
appear
to
the
judicial
mind
to
be.
On
the
other
hand,
if
the
Crown,
seeking
to
recover
the
tax,
cannot
bring
the
subject
within
the
letter
of
the
law,
the
subject
is
free,
however
apparently
within
the
spirit
of
the
law
the
case
might
otherwise
appear
to
be.
In
other
words,
if
there
be
admissible,
in
any
statute,
what
is
called
an
equitable
construction,
certainly
such
a
construction
is
not
admissible
in
a
taxing
statute,
where
you
can
simply
adhere
to
the
words
of
the
statute.
Lord
Cairns,
of
course,
does
not
mean
to
say
that
in
ascertaining
"the
letter
of
the
law,”
you
can
ignore
the
context
in
which
the
words
to
be
construed
stand.
What
is
meant
is,
that
you
are
to
give
effect
to
the
meaning
of
the
language.
Commenting
on
estate
planning
and
tax
avoidance
transactions
Urie
J.
in
the
case
of
Atinco
Paper
Products
Ltd.
v.
The
Queen,
[1978]
C.T.C.
566;
78
D.T.C.
6387
said
at
pages
577-8
(D.T.C.
6395):
I
do
not
think
that
I
should
leave
this
appeal
without
expressing
my
views
on
the
general
question
of
transactions
undertaken
purportedly
for
the
purpose
of
estate
planning
and
tax
avoidance.
It
is
trite
law
to
say
that
every
taxpayer
is
entitled
to
so
arrange
his
affairs
as
to
minimize
his
tax
liability.
No
one
has
ever
suggested
that
this
is
contrary
to
public
policy.
It
is
equally
true
that
this
Court
is
not
the
watchdog
of
the
Minister
of
National
Revenue.
Nonetheless,
it
is
the
duty
of
the
Court
to
carefully
scrutinize
everything
that
a
taxpayer
has
done
to
ensure
that
everything
which
appears
to
have
been
done,
in
fact,
has
been
done
in
accordance
with
applicable
law.
It
is
not
sufficient
to
employ
devices
to
achieve
a
desired
result
without
ensuring
that
those
devices
are
not
simply
cosmetically
correct,
that
is,
correct
in
form,
but,
in
fact,
are
in
all
respects
legally
correct,
real
transactions.
If
this
Court,
or
any
other
court,
were
to
fail
to
carry
out
its
elementary
duty
to
examine
with
care
all
aspects
of
the
transactions
in
issue,
it
would
not
only
be
derelict
in
carrying
out
its
judicial
duties,
but
in
its
duty
to
the
public
at
large.
It
is
for
this
reason
that
I
cannot
accede
to
the
suggestion,
sometimes
expressed,
that
there
can
be
a
strict
or
liberal
view
taken
of
a
transaction,
or
series
of
transactions
which
it
is
hoped
by
the
taxpayer
will
result
in
a
minimization
of
tax.
The
only
course
for
the
Court
to
take
is
to
apply
the
law
as
the
Court
sees
it
to
the
facts
as
found
in
the
particular
transaction.
If
the
transaction
can
withstand
that
scrutiny,
then
it
will,
of
course,
be
supported.
If
it
cannot,
it
will
fall.
The
leading
case
in
Canada
dealing
with
this
issue
is
that
of
Stubart
Investments
Limited
v.
The
Queen,
supra.
There
the
Court
seemed
to
indicate
that
in
any
tax-motivated
transaction
judges
could
take
a
close
look
at
the
avoidance
procedure
and
not
rely
simply
on
the
strict
wording
of
the
statute.
Both
counsel
referred
to
Stubart
in
argument.
In
that
case
the
Court
reviewed
not
only
the
Canadian
jurisprudence
but
also
considered
cases
from
the
United
Kingdom,
the
United
States
and
Australia.
I
do
not
feel
it
is
necessary
however
to
cover
and
repeat
a
great
deal
of
what
Estey
J.
said
in
Stubart.
Briefly
with
respect
to
tax
avoidance
the
American
jurisprudence
has
adopted
a
substance
over
form
approach
treating
a
transaction
for
tax
purposes
according
to
its
substance
instead
of
its
form.
There
also
must
be
some
business
or
personal
motive.
In
Australia
the
Courts
have
taken
the
position
that
unless
the
taxing
statute
has
imposed
limitations
to
transactions
which
have
been
exceeded
then
the
taxpayer
will
succeed.
It
is
interesting
to
note
the
attitude
of
the
Courts
in
the
United
Kingdom.
In
Stubart,
supra,
Estey,
J.
mentioned
in
particular
three
English
cases:
W.T.
Ramsay
Ltd.
v.
1.R.C.
[1981]
2
W.L.R.
449;
1
411
E.R.
865
I.R.C.
v.
Burmah
Oil
Co.
Ltd.
(1981),
42
T.R.
535
Furniss
(Inspector
of
Taxes)
v.
Dawson,
[1984]
1
All
E.R.
530
The
effect
of
these
decisions
was
that
the
House
of
Lords
agreed
that
where
a
scheme
is
pure
tax
avoidance
then,
although
each
step
is
genuine,
one
is
entitled
to
look
at
the
overall
effect
of
a
series
of
interdependent
transactions
and
not
to
put
one
step
in
isolation
which
would
give
rise
to
tax
consequences.
An
independent
commercial
purpose
was
essential.
This
has
been
criticized
as
being
judge-made
law,
not
statutory
compliance.
Since
these
English
decisions
another
development
in
tax
avoidance
matters
took
place
and
is
found
in
the
conjoined
appeals
of
Craven
v.
White,
I.R.C.
v.
Bowater,
Baylis
v.
Gregory,
[1988]
3
All
E.R.
495.
The
result
of
these
appeals
was
a
shift
in
direction
by
the
House
of
Lords
of
placing
interpretation
of
tax
avoidance
on
the
Court
as
suggested
in
the
Ramsay
and
other
cases
to
the
construction
and
application
of
the
statute
itself
based
on
a
particular
fact
situation.
In
the
White
case,
supra,
Lord
Keith
said
at
page
500:
The
principle
does
not
involve,
in
my
opinion,
that
it
is
part
of
the
judicial
function
to
treat
as
nugatory
any
step
whatever
which
a
taxpayer
may
take
with
a
view
to
the
avoidance
or
mitigation
of
tax.
It
remains
true
in
general
that
the
taxpayer,
where
he
is
in
a
position
to
carry
through
a
transaction
in
two
alternative
ways,
one
of
which
will
result
in
liability
to
tax
and
the
other
of
which
will
not,
is
at
liberty
to
choose
the
latter
and
to
do
so
effectively
in
the
absence
of
any
specific
tax
avoidance
provision.
From
the
cases
one
can
gather
that
quick-step
transactions
are
less
likely
to
fall
apart
than
slow
ones.
All
five
judges
in
the
House
of
Lords
spoke
of
the
judicial
interpretation
of
statutes
and
a
change
from
the
earlier
English
cases
of
accepting
the
relevant
statute
as
a
starting
point
to
placing
it
closer
to
the
decision
making
process
in
such
cases.
In
Stubart,
supra,
certain
passages
of
Estey,
J.
bear
repeating.
Dealing
with
the
necessity
of
having
a
business
purpose
in
the
transactions
he
says
at
page
315
(D.T.C.
6322)
of
the
report:
..
.by
imposing
a
positive
requirement
that
there
be
such
a
bona
fide
business
purpose,
a
taxpayer
might
be
barred
from
undertaking
the
very
activity
Parliament
wishes
to
encourage.
At
minimum,
a
business
purpose
requirement
might
inhibit
the
taxpayer
from
undertaking
the
specified
activity
which
Parliament
has
invited
in
order
to
attain
economic
and
perhaps
social
policy
goals.
Example
of
such
incentives
I
have
already
enumerated.
Indeed,
where
Parliament
is
successful
and
a
taxpayer
is
induced
to
act
in
a
certain
manner
by
virtue
of
incentives
prescribed
in
the
legislation,
it
is
at
least
arguable
that
the
taxpayer
was
attracted
to
these
incentives
for
the
valid
business
purpose
of
reducing
his
cash
outlay
for
taxes
to
conserve
his
resources
for
other
business
activities.
It
seems
more
appropriate
to
turn
to
an
interpretation
test
which
would
provide
a
means
of
applying
the
Act
so
as
to
affect
only
the
conduct
of
a
taxpayer
which
has
the
designed
effect
of
defeating
the
expressed
intention
of
Parliament.
In
short,
the
tax
statute,
by
this
interpretative
technique,
is
extended
to
reach
conduct
of
the
taxpayer
which
clearly
falls
within
"the
object
and
spirit"
of
the
taxing
provisions.
Such
an
approach
would
promote
rather
than
interfere
with
the
administration
of
the
Income
Tax
Act,
supra,
in
both
its
aspects
without
interference
with
the
granting
and
withdrawal,
according
to
the
economic
climate,
of
tax
incentives.
The
desired
objective
is
a
simple
rule
which
will
provide
uniformity
of
application
of
the
Act
across
the
community,
and
at
the
same
time,
reduce
the
attraction
of
elaborate
and
intricate
tax
avoidance
plans,
and
reduce
the
rewards
to
those
best
able
to
afford
the
services
of
the
tax
technicians.
The
learned
judge
recognized
that
the
Income
Tax
Act
has
many
incentives
for
taxpayers
to
proceed
with
their
affairs
in
certain
ways.
He
suggests
that
while
in
one
way
some
methods
of
procedure
may
be
regarded
as
tax
avoidance
they
appear
to
be
permitted
and
encouraged
by
Parliament.
Examples
of
such
are
found
on
page
6320
of
the
report.
It
is
the
absence
of
a
direct
prohibition
which
allows
the
taxpayer
to
arrange
his
affairs
to
suit
his
needs.
In
Stubart
the
Court
commencing
at
pages
316-7
(D.T.C.
6323-4),
set
out
some
interpretative
guidelines
which
give
help
to
a
Court
considering
the
issue
such
as
found
in
the
present
case.
These
are:
1.
Where
the
facts
reveal
no
bona
fide
business
purpose
for
the
transaction,
section
137
may
be
found
to
be
applicable
depending
upon
all
the
circumstances
of
the
case.
It
has
no
application
here.
2.
In
those
circumstances
where
section
137
does
not
apply,
the
older
rule
of
strict
construction
of
a
taxation
statute,
as
modified
by
the
courts
in
recent
years,
supra,
prevails
but
will
not
assist
the
taxpayer
where:
(a)
the
transaction
is
legally
ineffective
or
incomplete;
or
(b)
the
transaction
is
a
sham
within
the
classical
definition.
3.
Moreover,
the
formal
validity
of
the
transaction
may
also
be
insufficient
where:
(a)
the
setting
in
the
Act
of
the
allowance,
deduction
or
benefit
sought
to
be
gained
clearly
indicates
a
legislative
intent
to
restrict
such
benefits
to
rights
accrued
prior
to
the
establishment
of
the
arrangement
adopted
by
a
taxpayer
purely
for
tax
purposes;
(b)
the
provisions
of
the
Act
necessarily
relate
to
an
identified
business
function.
This
idea
has
been
expressed
in
articles
on
the
subject
in
the
United
States:
The
business
purpose
doctrine
is
an
appropriate
tool
for
testing
the
tax
effectiveness
of
a
transaction,
where
the
language,
nature
and
purposes
of
the
provision
of
the
tax
law
under
construction
indicate
a
function,
pattern
and
design
characteristic
solely
of
business
transactions.
Jerome
R.
Hellerstein,
“Judicial
Approaches
to
Tax
Avoidance”,
1964
Conference
Report,
p.
66.
(c)
"the
object
and
spirit”
of
the
allowance
or
benefit
provision
is
defeated
by
the
procedures
blatantly
adopted
by
the
taxpayer
to
synthesize
a
loss,
delay
or
other
tax
saving
device,
although
these
actions
may
not
attain
the
heights
of
“artificiality”
in
section
137.
This
may
be
illustrated
where
the
taxpayer,
in
order
to
qualify
for
an
“allowance”
or
a
benefit,
takes
steps
which
the
terms
of
the
allowance
provisions
of
the
Act
may,
when
taken
in
isolation
and
read
narrowly,
be
stretched
to
support.
However,
when
the
allowance
provision
is
read
in
the
context
of
the
whole
statute,
and
with
the
"object
and
spirit”
and
purpose
of
the
allowance
provision
in
mind,
the
accounting
result
produced
by
the
taxpayer's
actions
would
not,
by
itself,
avail
him
of
the
benefit
of
the
allowance.
[Section
137
referred
to
in
these
guidelines
is
now
Section
245]
In
the
present
case
the
transactions
produced
a
rejuvenation
in
the
cumulative
deduction
account
of
Alexander
Orr
Limited.
There
was
no
sham
in
the
transactions
and
they
were
both
legally
effective
and
complete.
There
was
no
restrictive
legislative
intent
in
subsection
73(5)
as
it
existed
at
the
time
of
these
transactions.
While
the
Minister's
counsel
stressed
that
the
"object
and
spirit”
of
what
took
place
was
not
in
accordance
with
the
intention
of
the
statute
I
see
nothing
in
Estey
J.'s
guidelines
in
relation
to
the
facts
in
this
case
which
would
support
this
position.
Of
course
the
business
purpose
test
does
not
apply
to
Alexander
Orr
Limited
in
any
event
as
that
company
was
neither
the
appellant
nor
the
taxpayer
involved.
Finally
with
reference
to
the
Stubart
decision
Wilson,
J.
while
concurring
with
Estey,
J.
added
at
page
6325
the
oft
repeated
dictum
of
Lord
Tomlin
found
at
page
19
of
the
case
of
/.R.C
v.
Duke
of
Westminster,
[1936]
A.C.
1,
wherein
he
said:
Every
man
is
entitled
if
be
can
to
order
his
affairs
so
that
the
tax
attaching
under
the
appropriate
Acts
is
less
than
it
would
otherwise
be.
.
.
Wilson
J.
then
adds
at
the
same
page
the
following:
I
think
Lord
Tomlin's
principle
is
far
too
deeply
entrenched
in
our
tax
law
for
the
courts
to
reject
it
in
the
absence
of
clear
statutory
authority.
In
the
present
case
there
is
no
clear
statutory
prohibition
to
what
the
appellant
did.
Parliament
intended
that
shares
be
transferred
to
the
family.
This
was
done.
Subsection
73(5)
does
not
specify
a
time
limit
in
which
shares
must
be
held
as
is
found,
for
example,
in
dealing
with
another
matter
in
subsection
7(1.1)
of
the
Income
Tax
Act.
There
could
have
been
a
time
period
placed
in
subsection
73(5)
during
which
the
shares
had
to
be
held
by
the
recipients.
I
do
not
think
it
is
necessary
to
deal
further
with
subsections
55(1)
and
56(2)
as
being
applicable
to
this
case.
They
are
not.
While
it
is
comparatively
simple
to
follow
the
development
of
the
law
in
this
area
it
is
more
difficult
to
interpret
and
apply
the
relevant
law.
There
has
been,
especially
in
the
foreign
cases,
an
onus
back
to
the
legislative.
Stubart
represents
a
degree
of
kindness
towards
the
taxpayer
in
the
case
of
taxing
statutes
and
other
Canadian
Court
decisions
since
that
case
have
not
deviated
to
any
great
extent
from
this
position.
In
Morguard
Properties
Ltd.
et
al.
v.
City
of
Winnipeg,
[1983]
2
S.C.R.
493;
6
Admin
L.R.
206
the
Court
set
out
at
page
509:
In
more
modern
terminology
the
Courts
require
that,
in
order
to
adversely
affect
a
citizen’s
right,
whether
as
a
taxpayer
or
otherwise,
the
Legislature
must
do
so
expressly.
Truncation
of
such
rights
may
be
legislatively
unintended
or
even
accidental,
but
the
courts
must
look
for
express
language
in
the
statute
before
concluding
that
these
rights
have
been
reduced.
This
principle
of
construction
becomes
even
more
important
and
more
generally
operative
in
modern
times
because
the
Legislature
is
guided
and
assisted
by
a
well-staffed
and
ordinarily
very
articulate
Executive.
The
resources
at
hand
in
the
preparation
and
enactment
of
legislation
are
such
that
a
court
must
be
slow
to
presume
oversight
or
inarticulate
intentions
when
the
rights
of
the
citizen
are
involved.
The
Legislature
has
complete
control
of
the
process
of
legislation,
and
when
it
has
not
for
any
reason
clearly
expressed
itself,
it
has
all
the
resources
available
to
correct
that
inadequacy
of
expression.
This
is
more
true
today
than
ever
before
in
our
history
of
parliamentary
rule.
It
is
difficult
to
establish
a
clear
distinction
between
tax
planning
and
tax
avoidance.
Tax
avoidance
may
best
be
considered
as
a
grey
area
between
tax
evasion
and
tax
planning.
Any
plan
should
envisage
finality
and
this
was
present
in
this
case.
At
best
one
might
say
that
what
took
place
was
a
mischief
not
anticipated
by
the
statute.
Where
the
statute
does
not
give
a
true
picture
and
proper
direction
then
the
case
law
is
looked
at
for
guidance.
Here
we
find
this
to
be
referring
to
Stubart,
supra.
Tax
imposition
is
an
administrative
matter
and
the
legislature
must
be
relied
upon
to
correct
any
defects
or
shortcomings.
In
the
absence
of
a
strict
prohibition
the
taxpayer
is
entitled
to
arrange
his
affairs
accordingly.
This
is
what
Mr.
Orr
did
on
the
advice
of
his
accountant.
Nothing
was
hidden
and
no
statutory
provision
was
violated.
As
a
result
the
appeal
is
hereby
allowed,
with
costs,
and
the
matter
is
referred
back
to
the
Minister
for
reconsideration
and
reassessment.
Appeal
allowed.
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