B B Fast & Sons Distributors LTD v. Minister of National Revenue, [1982] CTC 2002, 82 DTC 1017

Guy Tremblay:—This case was heard in Winnipeg, Manitoba on February 13, 1981. The case was taken under advisement on April 24, 1981, after the filing of the written arguments.

1. The Point at Issue

The point at issue is whether or not the appellant, B B Fast & Sons Distributors Ltd and Willmar Window Industries Ltd were associated corporations during the 1975, 1976 and 1977 taxation years. If they are associated, they are bound by subsection 125(3) of the Income Tax Act. Therefore in the present case the appellant is not entitled to small business deductions for the said years.

2. The Burden of Proof

The burden is on the appellant to show that the respondent’s assessments are incorrect. This burden of proof results particularly from several judicial decisions, including the judgment delivered by the Supreme Court of Canada in Johnston v MNR, [1948] CTC 195; 3 DTC 1182.

2.02 In the same judgment the Court decided that the assumed facts on which the respondent based the assessments or reassessment are also deemed to be correct. In the present case the assumed facts are described in the reply to notice of appeal as follows:

3. In assessing the Appellant, the Respondent made the following assumptions of fact, inter alia:

(a) at all material times the issued common shares of the Appellant were owned as follows:

Cornelius B Fast	100 shares
Bernhard B Fast	100 shares
William A Fast	100 shares
Louise Goossen	100 shares
Cornelia Dahl	100 shares

(b) the individuals in subparagraph (a) herein were all brothers and sisters;

(c) at all material times the issued common shares of Willmar Windows Industries

Ltd (“Willmar”) were owned 50% by William A Fast and 50% by his wife;

(d) at the end of each of its 1974 and 1975 taxation years, Willmar’s cumulative deduction account exceeded $500,000, and it exceeded $750,000 at the end of its 1976 taxation year.

3. The Facts

The facts are not in dispute.

3.01 The appellant (hereinafter called “Fast Ltd”), a Manitoba corporation, was incorporated in 1963 (Letters Patent, Exhibit A-3).

3.02 Fast Ltd is a corporate partner of three other Manitoba corporations incorporated at the same time. With them, it carried on the business of selling retail and wholesale furniture under the firm name “C A DeFehr & Sons”.

3.03 The appellant is and was during the 1975, 1976 and 1977 taxation years, a Canadian-controlled private corporation carrying on business in the Province of Manitoba.

3.04 The appellant’s shareholders are as follows:

They are a related group.

3.05 The five shareholders of the appellant are all brothers and sisters.

3.06 Willmar Window Industries Ltd (hereinafter called “Willmar Ltd”) was incorporated in 1970 under the laws of Manitoba (Letters Patent, Exhibit A-4).

3.07 Willmar Ltd carried on the business of manufacturing windows in the Province of Manitoba.

3.08 During the 1975, 1976 and 1977 taxation years, Willmar Ltd was a Canadian-controlled private corporation.

3.09 The shareholders of Wilmar Ltd, during the said years, were as follows:

They are a related group.

3.10 For its 1975, 1976 and 1977 taxation years, the appellant claimed the small business deduction provided in section 125 of the Income Tax Act. On November 2, 1979, the respondent reassessed the appellant so as to disallow the said deduction on the basis that the appellant was associated with Willmar Ltd within subsection 256(1) of the Income Tax Act.

3.11 Willmar Ltd has also claimed the small business deduction. It is not necessary to go into the details of the utilization by Wilmar Ltd of its prescribed yearly business limits and total business limits or the amount of its cumulative deduction accounts. Indeed, Fast Ltd acknowledges that if Fast Ltd and Willmar Ltd were associated corporations within the meaning of section 256 of the Act, as contended by the respondent, Fast Ltd was not entitled to the small business deduction which it claimed for its 1975, 1976 and 1977 taxation years.

4. Law—Cases of Law—Analysis

4.01 Law

The pertinent sections of the Income Tax Act involved in the present case are 3,9, 125, 251 and 256.

The main provisions, however, by which the question at issue must be resolved is paragraph 256(1 )(e) of the new Act and paragraph 39(4)(e) of the former Act. They read as follows:

256. (1) For the purposes of this Act one corporation is associated with another in a taxation year if at any time in the year,

(e) each of the corporations was controlled by a related group and each of the members of one of the related groups was related to all of the members of the other related group, and either of the related groups owned directly or indirectly, in respect of each corporation, not less than 10% of the issued shares of any class of the capital stock thereof.

39. (4) For the purpose of this section, one corporation is associated with another in a taxation year, if at any time in the year,

(e) each of the corporations was controlled by a related group and each of the members of one of the related groups was related to all of the members of the other related group, and one of the members of one of the related groups owned directly or indirectly one or more shares of the capital stock of each of the corporations.

4.02 Cases of Law

The cases of law to which counsel for the parties referred are:

For the appellant

1. Bishop of Vancouver Island v City of Victoria, [1921] 3 WWR 214;

2. Hatch v MNR, [1938] 4 DLR 658;

3. Shaw v MNR, [1939] 4 DLR 81;

4. Regina v American News Company Limited, 25 CR 374;

5. The Corporation of the City of Ottawa v Alexander Hunter, [1900] 31 SCR 7;

6. J Euclide Perron Ltée et al v MNR, [1976] CTC 2263; 76 DTC 1190; [1980] CTC 216; 80 DTC 6207;

14105 Wynndel Logging Co Ltd et al v MNR, [1980] CTC 2141; 80 DTC 1125;

8. Dame Mary Wylie v The City of Montreal, [1885-86] 12 SCR 384;

9. H A Fawcett & Son, Limited v HMQ, [1979] CTC 303; 79 DTC 5224; affirmed by [1980] CTC 293; 80 DTC 6195;

10. Buckerfield’s Ltd et al v MNR, [1964] CTC 504; 64 DTC 5301:

11. HMQ v Mars Finance Inc et al, [1980] CTC 216; 80 DTC 6207;

12. The John Bertram and Sons Company Limited v HMQ, [1968] CTC 391; 68 DTC 5246;

13. Canada Steamship Lines Limited v MNR, [1966] CTC 255; 66 DTC 5205;

14. Halsbury’s Laws of England, Vol 36, paras 585, 593 and 625;

15. Vina-Rug (Canada) Limited v MNR, [1968] CTC 1; 68 DTC 5021;

16. Maxwell, The Interpretation of Statutes, p 286;

17. Fenton, [1920] 2 WWR 367; 53 DLR 82, reversing [1920] 2 WWR 34, 51 DLR 694;

18. R Rv Thompson, [1931] 1 WWR 26; 2 DLR 282.

4.03 Analysis

4.03.1 Paragraph 256(1)(e)

Both parties admitted that the crux of the matter is the interpretation of paragraph 256(1)(e).

From the reading of this provision quoted above, three conditions must be present for corporations to be regarded as associated under it:

First condition—Each corporation must be controlled by a related group.

It is clear from the facts that this condition is satisfied (see paras 3.04 and 3.09).

Second condition—Each member of a related group must be related to all members of the other related group.

This condition also is satisfied because Mr and Mrs William A Fast (related group of Willmar Ltd) are related to each member of the Fast family (related group of Fast Ltd). They are brothers and sisters-in-law of each of these persons.

Paragraphs 251 (1 )(a), 251 (2)(a) and 251 (6)(a) and (b) are clear. They read as follows:

251. (1) For the purposes of this Act,

(a) related persons shall be deemed not to deal with each other at arm’s length;

and

(2) For the purpose of this Act “related persons”, or persons related to each other, are

(a) individuals connected by blood relationship, marriage or adoption;

(6) For the purposes of this Act, other than clause 109(1 )(b)(ii)(B),

(a) persons are connected by blood relationship if one is the child or other descendant of the other or one is the brother or sister of the other;

(b) persons are connected by marriage if one is married to the other or to a person who is so connected by blood relationship to the other; and

Third condition—One of the two related groups must be owner, directly or indirectly, in respect of each corporation of not less than 10% of the issued shares of any class of the capital stock thereof.

It is the interpretation of this third condition which is in dispute. 4.03.2 Parties’ position

According to the appellant, William A Fast owns 20% of Fast Ltd. However, William A Fast is an individual and not a group as paragraph 256(1 )(e) says. Therefore the two companies are not associated.

According to the respondent, to meet the requirements of paragraph 256(1 )(e) it is sufficient that one person of the Willmar Ltd group own shares of Fast Ltd, provided that person owns not less than 10% of the issued shares. Mr William Fast, of the Willmar Ltd group, owns 20% of the issued shares of Fast Ltd. Therefore the two companies are associated.

4.03.3 Appellant’s Argument

(a) The appellant’s argument is, in sum, as follows: In the absence of any obscurity or ambiguity in the wording of paragraph 256(1 )(e), there exists no good reason for not giving it the grammatical and ordinary sense prescribed by the “Golden Rule”. The golden rule was expressed by Lord Atkinson:

In the construction of statutes their words must be interpreted in their ordinary grammatical sense, unless there be something in the context, or in the object of the statute in which they occur, or in the circumstances with reference to which they are used, to show that they were used in a special sense different from their ordinary grammatical sense. In Grey v Person, 6 HL Cas 61 at 106, 10 ER 1216, Lord Wensleydale said: “I have been long and deeply impressed with the wisdom of the rule, now I believe, universally adopted, at least in the Courts of Law in Westminster Hall, that in construing wills, and indeed statutes, and all written instruments, the grammatical and ordinary sense of the words is to be adhered to, unless that would lead to some absurdity, or some repugnance or inconsistency with the rest of the instrument, in which case the grammatical and ordinary sense of the words may be modified, so as to avoid that absurdity and inconsistency, but no farther". (Victoria v Bishop of Vancouver Island, (1921) 3 WWR 214, (1921) 2 AC 384; 59 DLR 399, affirming (1920) 3 WWR 493, 28 BCR 533, 54 DLR 615, reversing (1920) 1 WWR 120, 27 BCR 516)

(b) In requiring such an interpretation, the “Golden Rule” is not in conflict with the following rules, which reinforce the prohibition against departing from it:

(1) Taxing statutes are to be interpreted strictly, and

. . . in case of doubt the construction of the Act must be resolved in favour of the taxpayer.

per Angers, J in Hatch v MNR, [1938] Ex CR 208; [1938] 4 DLR 658; and per Duff, CJC.

It is no part of our duty in construing and applying a taxing statute to ask ourselves what might have been in the draughtsman’s mind or to accept the impression received from a casual inspection of the enactment to be applied. It is our duty to analyze such enactments with strictness and, in the case of a definition such as this (“income” for income tax purposes), to apply it only to those cases which plainly and indubitably fall within it when strictly read. (Shaw v MNR, (1939) SCR 338, 6 ILR 237, (1939) 4 DLR 81, reversing (1939) Ex CR 35.)

(2) Concerning the changes from previous statutes on the same subject matter the Court has stated:

It is generally a fair presumption when a legislative body in a later statute departs from language used by it in an earlier statute relating to the same subject matter, that the alteration of language in the later statute was intentional. (R v Amer News Co, 25 CR 374)

and

Per Taschereau J: . . when we see in statutes in pari materia, by the very same legislature, additional words of that nature to a prior enactment, we would be setting at naught the very clear intention of the Legislature if we gave to the last enactment the same construction that had been judically given to the prior one . . . We cannot so read out of a statute expressions that must be held to have deliberately been inserted so as to make the new statute different from the prior one." (Ottawa v Hunter, 31 SCR 7)

(c) The only “cross-ownership” of shares in both Fast Ltd and Willmar Ltd which could possibly bring about the association alleged by the respondent would be that of William A Fast. He owned only 50% of the shares of Willmar Ltd; therefore he did not control it. (If he had controlled Willmar Ltd paragraph 256(1 )(d) would have been applicable.) He was but “one of the members of one of the related groups” (which consisted of himself and his wife), as per the wording of “old” paragraph 39(4)(e); he was not “one of the related groups”, as per the wording of “new” paragraph 256(1 )(e).

An individual can never be a group.

4.03.4 Respondent’s argument

The respondent relies mainly on the case of Wynndel Logging Co Ltd et al v MNR, [supra], a decision given by Mr François Joseph Dubrule of this Board. The point in that case was the same as in the present case. At 2151 [1133], Mr Dubrule said:

The appellants’ submission, as stated above, was that each member of one of the groups must own at least one share of the other corporation, the total of their ownership being in excess of 10%. I believe that one must ascertain or delineate the group and, having done that, must determine whether or not that group has at least a 10% shareholding in the other corporation. There is no requirement that each member of that group must own at least one share. As to the change between the predecessor section and section 256(1 )(e), I believe that increasing the shareholding from one share to 10% of the issued shares increases the restriction which previously existed.

Another decision was given by another member of the Tax Review Board, Mr Delmer E Taylor on August 7, 1981 in the following cases heard on common evidence, Roclar Leasing Ltd (80-852), Les Entreprises de Déblaiement Général (Montréal) Inc (80-853 et 80-980) & Atomic Truck Cartage Ltd (80- 979) v MNR (the Board was informed that these decisions have been appealed). This decision is the same as the one given by Mr Dubrule in Wynn- del Logging Co Ltd et al v MNR. In fact, after quoting the same quotation as the one in the former paragraph, Mr Taylor added:

In my view, the weakness in the argument of counsel for the appellants is that he is placing the relationship base of the group on common ownership of stock rather than on common blood tie. The fact that Royal owned stock in Atomic and Wanda did not, has no effect at all on the generic constitution of the group formed in “Les Entreprises”. The relationship between the corporations for purposes of the Act does not revert to one of an individual nature as contended by counsel for the appellants, but remains that of a group as contended by the Minister. I would interpret the phrase “directly or indirectly” as covering a description such as “within the group”, rather than the exclusive format proposed by counsel for the appellants, which would require that each member of the related group in one corporation own at least one share of stock in the second corporation. Counsel for the respondent submitted that the decision of Mr Dubrule “should be followed in the case at bar not only on the basis that it is correct in law but also upon the rule of ‘comity among judges’.” This rule, better known as “judicial comity rule”, can be Summarized in quoting Cattanach, J in the case of The John Bertram and Sons Co Ltd v HMQ, [supra]:

However this Court has generally taken the position that judgments of courts of equal or co-ordinate jurisdiction should be followed in the absence of strong reasons to the contrary.

I presume that, after the decision of Mr Taylor was made, counsel for the respondent would stress his argument.

4.03.5 In trying to determine the meaning of paragraph 256(1 )(e), one cannot ignore the interpretation of Jackett, P in the case of Buckerfield’s Ltd et al v MNR, [supra], that one person is not a group: “the word ‘group’ in its ordinary meaning, as I understand it, can refer to any number of persons from two to infinity”. In fact, this is its ordinary meaning.

The Board is inclined to approve the following reasoning of the appellant’s counsel:

It is simply impossible that the word “group”, with its indispensable connotation of not less than two, should mean just that the first three times it is used in the sentence of 256(1 )(e), but should cease to have that very same meaning the fourth time it is used in the very same sentence, and somehow acquire an entirely different meaning, namely that of individual or member of the “group”.

If it were the legislators’ intention to oblige each member of the group to participate in the ownership of 10% of the issued shares of the other company, would it not be a “must” to specify it? It seems not, because the word group means more than one person.

If each member of the group is not obliged to participate, it seems at first glance that the group, in its ordinary sense, does not own the 10% of the issued shares. If it were the legislators’ intention not to oblige each person of the group to participate in the ownership of 10% of the shares of the other company, is it not a “must” to specify it? It seems that this question must be answered affirmatively.

Paragraph 39(4)(e) of the former Act specifies:

. . . and one of the members of one of the related groups owned directly or indirectly one or more shares of the capital stock of each of the corporations.

It seems clear that it is more usual and sufficient for one person to own one share but it is possible for a group to own one share collectively, especially when the legislation is speaking of “group”. The legislators however specified in the former Act that “one of the members of one of the related groups

Paragraph 256(1 )(e) of the new Act specifies that ownership must be 10% of the issued shares of the other corporation, and not only one share as was specified in the old Act. On the one hand it seems clear that it is more usual for a group, than one person to own 10% of the issued shares of a company. On the other hand, the legislator has not specified that it is sufficient that “one of the members of one of the related groups . ..”. In fact, if it was the intention to oblige each member to participate in the ownership of 10% of the issued shares of the other company, it would be simple to specify:

. . one or more of the members of either of the related groups . ..”.

4.03.6 It is my opinion that the changes from the former subsection 39(4) are substantial not only in the increase from one share to 10% of the issued shares, but in abolishing the words “one of the members” — a fair presumption that the alteration of language in the former statute was intentional as it was said in R v Amer News Co Ltd and in Ottawa v Hunter quoted in paragraph 4.03.3(b)(2).

I do not share the view of counsel for the respondent that it is only “the graces of the style .. .” as used in the quotation from a passage in Maxwell’s The Interpretation of Statutes on page 286 under the title “Cases in which a change of language has not changed the meaning”:

Just as the presumption that the same meaning is intended for the same expression in every part of an Act is not of much weight, so the presumption of a change of intention from a change of language — which is of no great weight in the construction of documents — seems entitled to less weight in the construction of a

statute than in any other case: for the variation is sometimes to be accounted for by the draftsman’s concern for “the graces of the style” and his wish to avoid the repeated use of the same words, sometimes by the circumstances that the Act has been compiled from different sources, and sometimes by the alterations and additions from various hands which Acts undergo in their progress through Parliament. Though the statute is the language of the three estates of the realm, it seems legitimate in construing it to take into consideration that it may have been the production of many minds and that this may better account for any variety of style and phraseology which is found than a desire to convey a different intention. Even where the variation occurs in different statutes, the change is often not indicative of a change of intention.

My humble opinion is that from the strict interpretation of the ordinary meaning of the words used in paragraph 256(1 )(e), the third condition is not satisfied, and the appellant and Willmar Ltd are not associated. However, what about the application of the rule of judicial comity in the present case as invoked by the respondent (para 4.03.4 in fine)?

4.03.7 Rule of the Judicial Comity

Concerning this rule of “judicial comity”, it seems at first glance that this rule must be less strictly applied among the members of the Tax Review Board. This tribunal indeed is at the first level in taxation litigation and therefore it is important that a member have the opportunity to give his opinion on a new point (ie a point not already decided by a higher court), even if another member of the Tax Review Board has already handed down a decision.

4.03.8 According to counsel for the appellant, the modern trend is that, in the interest of justice, not only the “judicial comity” rule but the more encompassing one of stare decisis must be placed in their proper perspective.

It is useful to quote:

On July 26, 1966, a statement was made by Lord Gardiner LC on behalf of himself and the Lords of Appeal in Ordinary to the effect that their Lordships proposed to modify their practice, and while treating former decisions of the House of Lords as normally binding, to depart from a previous decision when it appeared right to do so. The announcement was made in recognition of the fact that too rigid adherence to precedent might lead to injustice in a particular case and also unduly restrict the proper development of the law: See [1966] 3 All ER 77n.

As the Board is at the first step on the scale of judiciary resorts, I think that a higher court must make and take the decision to reverse a well established former decision.

However, at the Board’s level, I think that the judicial comity rule has its justification if two members have given a decision in one sense, especially if it is based on two different reasons.

In the present case, my personal opinion is to the effect that the two companies (the appellant and Willmar Ltd) are not associated. If I had heard the present case and given my judgment before the Wynndel Logging Co Ltd et al v MNR and Roclar Leasing Ltd et al v MNR cases, I would have allowed the appeal. However, despite my personal opinion and the fact that I do not share the opinions of Messrs Dubrule and Taylor, as there are two judgments given by two different members of the Board and for different reasons, I think a good rule is to follow their conclusions to give the Board continuity in its decisions. However, such a rule is logical in as much as an appeal is possible for the loser, as in the present case for the appellant.

5. Conclusion

The appeal is dismissed in accordance with the above reasons for judgment.

Appeal dismissed.