Sarchuk
J.T.C.C.:
—
The
appeal
of
Bernard
Spiegel
(the
Appellant)
is
from
an
assessment
of
tax
in
respect
of
his
1986
taxation
year,
in
which
the
Minister
of
National
Revenue
(the
Minister)
denied
the
scientific
research
tax
credit
(SRTC)
claimed
by
the
Appellant.
The
parties
have
filed
with
the
Court
a
Statement
of
Agreed
Facts
,
which
reads
as
follows:
1.
The
taxation
year
in
issue
is
1986.
2.
Subject
to
paragraph
3
hereof,
the
documents
contained
in
the
Common
Book
of
Documents
are
hereby
admitted
as
evidence
without
proof
thereof.
3.
The
parties
reserve
the
right
to
dispute
the
legal
significance
of
the
documents
referred
to
in
paragraph
2
hereof.
4.
The
Appellant
resides
in
the
Municipality
of
Metropolitan
Toronto
in
the
Judicial
District
of
York.
His
municipal
address
is
130
Baycrest
Avenue,
Toronto,
Ontario,
M6A
1W5.
5.
Seatech
International
Research
&
Development
Inc.
(“Seatech”)
was,
at
all
material
times,
a
corporation
incorporated
pursuant
to
the
laws
of
British
Columbia,
with
its
head
office
located
in
the
City
of
Victoria,
British
Columbia.
6.
On
December
31,
1985,
Seatech
issued
3,632,094
Class
B
8%
non-
cumulative
redeemable
voting
research
and
development
preferred
shares
(“Class
B
Preferred
Shares”)
for
a
total
consideration
of
$3,632,094.
7.
On
December
31,
1985,
Seatech
also
issued
767,906
Class
C
8%
non-
cumulative
redeemable
voting
research
and
development
preferred
shares
(“Class
C
Preferred
Shares”)
for
a
total
consideration
of
$767,906.
8.
Goliath
Financial
Services
Partnership
(the
“Partnership”)
was
formed
on
December
31,
1985
between
Seaboy
Marine
Systems
Ltd.
(incorrectly
described
as
Seaboy
Marine
Services
Ltd.
in
the
Partnership
Agreement
dated
December
31,
1985)
and
Fisher
Research
Centre
Inc.
under
the
firm
name
and
style
of
Goliath
Financial
Services.
the
first
year-end
of
the
Partnership
was
December
30,
1986.
9.
On
December
31,
1985,
the
Partnership
purchased
2,829,910
of
the
Class
B
Preferred
Shares
from
Seatech
for
$2,829,910.
10.
In
January
1986,
Seatech
filed
a
T2113
Designation
form
prescribed
under
the
Income
Tax
Act
(Canada)
(the
“Act”).
A
copy
is
attached
as
Exhibit
A.
The
security
is
described
as
Research
and
Development
Preference
Shares,
and
the
total
amount
designated
is
$1,570,090.
The
amount
designated
consists
of
$767,906
for
the
Class
C
Preferred
Shares
and
$802,184
for
Class
B
Preferred
Shares
other
than
those
purchased
by
the
Partnership
(namely
3,632,094
total
Class
B
Preferred
Shares
issued
minus
the
2,829,910
Class
B
Preferred
Shares
purchased
by
the
Partnership).
11.
In
February
1986,
Seatech
filed
a
T2114
Summary
form,
prescribed
under
the
Act.
A
copy
is
attached
as
Exhibit
B.
The
security
is
described
as
Promissory
Notes,
and
the
total
amount
designated
in
respect
of
the
security
is
$1,570,090.
This
amount
does
not
include
those
Class
B
Preferred
Shares
purchased
by
the
Partnership.
12.
Also
in
February
1986,
Seatech
filed
a
T2114
Summary
form,
prescribed
under
the
Act,
in
respect
of
certain
of
the
securities
issued
by
it
on
December
31,
1985.
A
copy
is
attached
as
Exhibit
C.
The
security
is
described
as
Research
&
Development
Preferred
Shares,
and
the
total
amount
designated
in
respect
of
the
security
is
$1,570,090.
This
amount
does
not
include
those
Class
B
Preferred
Shares
purchased
by
the
Partnership.
The
purpose
of
this
filing
was
to
correct
an
error
made
in
the
T2114
Summary
form
referred
to
in
paragraph
11
hereof
in
describing
the
relevant
security
or
right.
13.
By
Declaration
of
Trust
dated
December
24,
1986,
the
Bernard
Spiegel
Client
Trust
was
created,
with
Mr.
Bernard
Spiegel
as
sole
trustee.
The
following
is
a
list
of
the
beneficiaries
of
the
Bernard
Spiegel
Client
Trust,
together
with
their
payments
to
the
trustee:
Queen
City
Bedding
Company
Limited
|
$250,000
|
Mark
Kogan
|
120,000
|
Rakhil
Kogan
|
93,750
|
Boruch
Goland
|
12,500
|
Roza
Goland
|
13,750
|
Eugene
Kogan
|
10,000
|
Dr.
Sheldon
Silver
|
25,000
|
Dr.
Marcy
Alexis
|
50,000
|
Dr.
Morris
Wallach
|
16,000
|
Dr.
Edith
Lorimer
|
21,875
|
Dr.
Joseph
(Mike)
Lorimer
|
3,125
|
Bernard
Spiegel
|
10,750
|
Adrienne
Spiegel
|
8,625
|
Adrienne
Management
Corporation
4,000
2643,500
14.
The
sole
purpose
of
the
Bernard
Spiegel
Client
Trust
was
to
acquire
interests
in
the
Partnership.
15.
By
cheque
dated
December
30,
1986
the
amount
of
$643,500
was
paid
by
Bernard
Spiegel
Client
Trust
to
Weir
&
Foulds
in
Trust
to
facilitate
the
trust’s
acquisition
of
an
interest
in
the
Partnership.
16.
On
December
30,
1986,
the
Appellant,
through
the
Bernard
Spiegel
Client
Trust,
subscribed
for
21,500
units
in
the
Partnership.
17.
On
December
30,
1986,
the
Partnership
redeemed
1,287,000
Class
B
Preferred
shares
for
the
sum
of
$785,070
(61
cents
per
share).
18.
On
December
31,
1986,
the
total
capital
account
of
the
Partnership
was
$1,287,000.
19.
On
December
31,
1986,
the
interest
of
Bernard
Spiegel
Client
Trust
in
the
Partnership
was
transferred
to
a
Patrick
Fisher.
20.
A
“T3”
trust
return
was
filed
by
the
Bernard
Spiegel
Client
Trust
for
the
taxation
year
ending
December
31,
1986.
21.
Before
the
end
of
March
1987,
The
Bernard
Spiegel
Client
Trust
purported
to
issue
a
T2114
Supplementary
form,
prescribed
under
the
Act,
to
each
of
the
persons
listed
in
paragraph
13
above
in
order
to
enable
them
to
claim
the
tax
credit
in
issue.
22.
The
Appellant
claimed
a
federal
scientific
research
tax
credit
of
$7,310
on
his
income
tax
return
for
the
1986
taxation
year.
23.
On
or
about
February
29,
1988,
Seatech
purported
to
file
a
T2113
Designation
form
pursuant
to
subsection
194(7)
of
the
Act.
A
copy
is
attached
as
Exhibit
D.
On
or
about
February
29,
1988,
Seatech
paid
to
the
Respondent
the
amount
of
$12,500,
which
amount
would
be
the
appropriate
penalty
under
the
Act
for
a
late
filed
designation.
24.
By
Notice
of
Reassessment
dated
July
18,
1988
(the
“Reassessment”),
the
Respondent,
through
the
Minister
of
National
Revenue
(the
“Minister”),
reassessed
the
Appellant
in
respect
of
his
1986
taxation
year
and
denied
the
scientific
research
tax
credit
claimed
by
the
Appellant
in
respect
of
his
1986
taxation
years.
25.
The
Appellant
filed
a
Notice
of
Objection
to
the
Reassessment,
dated
September
8,
1988.
26.
On
or
about
January
30,
1989,
Seatech
filed
a
T2114
Summary
form
in
which
the
“total
amount
designated”
is
$2,857,090.
A
copy
is
attached
as
Exhibit
E.
27.
By
Notification
of
Confirmation
by
the
Minister
dated
December
4,
1991,
the
Respondent,
through
the
Minister,
confirmed
the
Reassessment
and
denied
the
Appellant’s
claim
for
the
scientific
research
tax
credit
on
the
grounds
that
no
valid
designation
for
the
scientific
research
tax
credit
existed.
28.
The
Minister
applied
the
$12,500
amount
referred
to
in
paragraph
23
to
reduce
Seatech’s
unpaid
balance
on
the
Part
VIII
assessment
for
the
taxation
year
ending
November
30,
1986.
29.
No
notice
contemplated
by
subsection
194(7)
of
the
Act
was
mailed
by
the
Minister
to
Seatech.
30.
By
letter
dated
September
26,
1993,
the
Respondent
withdrew
the
claim
that
the
Class
B
Preferred
Shares
issued
by
Seatech
to
the
Partnership
did
not
meet
the
requirements
set
out
in
subsection
194(4.2)
of
the
Act.
The
Appellant
also
testified.
Aside
from
providing
background
information
with
respect
to
his
involvement
in
this
transaction,
little
information
relevant
to
the
issue
in
dispute
was
provided.
The
Respondent
adduced
evidence
from
Philip
Stephen
Feely,
a
Chartered
Accountant
who
was
employed
by
Revenue
Canada
in
1982
as
an
auditor.
In
1986,
he
joined
the
Research
and
Development
Group
(an
audit
group
at
Revenue
Canada’s
head
office)
and
ultimately
was
the
Research
and
Development
(R
&
D)
coordinator
for
the
Ottawa
Audit
Division,
which
was
basically
involved
in
the
scientific
research
and
development
tax
incentive
program.
More
recently,
his
primary
responsibility
was
providing
training
to
auditors
across
Canada
with
respect
to
the
SRTC
program.
Currently,
he
is
the
senior
R
&
D
tax
policy
officer
dealing
with
research
and
development
tax
incentives
at
the
Department
of
Finance.
His
testimony
was
directed
to
the
nature
of
the
SRTC
program
and
the
“mechanics”
of
how
a
SRTC
transaction
works
assuming
that
all
things
take
place
according
to
the
requirements
of
the
Income
Tax
Act
(the
Act)
and
to
the
steps
taken
by
Revenue
Canada
for
the
purpose
of
determining
the
existence
of
a
Part
VIII
liability.
Feely
also
discussed
departmental
policy
and
criteria
for
dealing
with
specific
cases
where
the
designations
were
“technically
invalid”.
Issue:
The
issue
for
this
Court
to
determine
is
whether
the
Minister
properly
denied
the
Appellant’s
claim
for
the
scientific
research
tax
credit
on
the
grounds
that:
(a)
the
provisions
of
subsection
194(4)
and
194(7)
of
the
Act
had
not
been
complied
with
and
that
accordingly,
no
valid
designation
for
the
scientific
research
tax
credit
had
been
made,
or
(b)
that
the
Appellant
is
not
entitled
to
deduct
the
said
credit
pursuant
to
subsection
127.3(3)
of
the
Act
in
that
the
Bernard
Spiegel
Client
Trust
(BSCT)
was
not
the
first
person
to
be
registered
holder
of
the
Class
B
Preferred
shares
issued
by
Seatech.
Appellant’s
Position:
The
Appellant
contends
that
paragraph
194(7)(a)
of
the
Act
should
be
read
so
as
not
to
require
a
T2114
information
return
(information
return)
to
be
filed
by
the
due
date
that
would
have
applied
had
a
designation
been
made
under
subsection
194(4).
In
summary,
Counsel
for
the
Appellant
submitted
that
reading
out
the
timing
requirement
in
paragraph
194(7)(a)
accords
with
the
modern
framework
for
statutory
interpretation
set
out
by
the
Supreme
Court
of
Canada,
because:
(i)
Paragraph
194(7)(a)
especially
in
its
interaction
with
Regulations
205(1)
and
226(2),
creates
an
ambiguity
in
the
context
of
late-filed
designations
under
subsection
194(7)
because
the
regulations
and
the
information
returns
effectively
direct
a
taxpayer
to
set
out
designations
that
have
not
yet
been
made.
(ii)
United
Equities
and
the
legislative
context
in
which
subsection
194(7)
and
Regulations
205(1)
and
226(2)
appear
indicate
that
the
SRTC
provisions,
and
in
particular
the
curative
subsection
194(7),
should
be
interpreted
in
a
manner
that
is
“investor-
friendly”.
(iii)
The
goal
of
a
T2114
information
return
is
to
provide
information
to
the
Minister
regarding
SRTC
designations.
This
goal
of
providing
information
was
achieved
in
the
case
at
bar
by
the
filing
of
a
T2113
designation
form
on
February
29,
1988
and
by
the
filing
of
a
T2114
Supplementaries
with
the
Minister
in
March,
1987.
(iv)
To
the
extent
that
the
application
of
the
ordinary
rules
of
interpretation
does
not
resolve
the
ambiguity
in
the
application
of
subsection
194(7),
such
ambiguity
ought
to
be
resolved
in
favour
of
the
taxpayer.
In
the
alternative,
the
Appellant
submits
that
the
information
return
filed
on
January
30,
1989
is
a
valid
amendment
to
the
original
information
return
filed
on
February
28,
1986
and
that
the
amended
information
return
should
effectively
relate
back
to
the
earlier
date.
With
respect
to
the
Respondent’s
alternative
position,
the
Appellant
contends
that
on
a
plain
reading
of
subsections
127.3(3)
and
(4),
the
BSCT
was
deemed
to
be
the
first
holder
(as
contemplated
by
subsection
127.3(3))
of
the
relevant
SRTC
instruments.
Respondent’s
Position:
The
Respondent
takes
the
position
that
no
proper
designation
was
filed
in
accordance
with
the
provisions
of
subsection
194(4)
of
the
Act
and
Regulations
205
and
226.
She
contends
that
while
subsection
194(7)
of
the
Act
and
Regulations
205
and
226
provide
for
the
filing
of
a
late
designation,
in
order
to
comply
with
the
requirements
the
designation
would
have
been
required
to
be
filed
on
or
before
January
31,
1987
and
the
information
return
would
have
been
required
to
be
filed
on
or
before
February
28,
1987.
That
had
not
been
done.
No
substantive
submissions
were
made
with
respect
to
the
application
of
subsections
127.3(3)
and
(4)
of
the
Act.
The
Law:
The
relevant
provisions
of
the
Act
and
the
Income
Tax
Regulations
are
as
follows:
Income
Tax
Act:
194(1)
Corporation
to
pay
tax.
-
Every
corporation
shall
pay
a
tax
under
this
Part
for
a
taxation
year
equal
to
50%
of
the
aggregate
of
all
amounts
each
of
which
is
an
amount
designated
under
subsection
(4)
in
respect
of
a
share
or
debt
obligation
issued
by
it
in
the
year
or
a
right
granted
by
it
in
the
year.
(4)
Corporation
may
designate
amount.
-
Every
taxable
Canadian
corporation
may,
by
filing
a
prescribed
form
with
the
Minister
at
any
time
on
or
before
the
last
day
of
the
month
immediately
following
a
month
in
which
it
issued
a
share
or
debt
obligation
or
granted
a
right
under
a
scientific
research
and
experimental
development
financing
contract
(other
than
a
share
or
debt
obligation
issued
or
a
right
granted
before
October
1983,
or
a
share
in
respect
of
which
the
corporation
has,
on
or
before
that
day,
designated
an
amount
under
subsection
192(4))
designate,
for
the
purposes
of
this
Part
and
Part
I,
an
amount
in
respect
of
that
share,
debt
obligation
or
right
not
exceeding
the
amount
by
which
(a)
the
amount
of
the
consideration
for
which
it
was
issued
or
granted,
as
the
case
may
be,
exceeds
(b)
in
the
case
of
a
share,
the
amount
of
any
assistance
(other
than
an
amount
included
in
computing
the
scientific
research
and
experimental
development
tax
credit
of
a
taxpayer
in
respect
of
that
share)
provided,
or
to
be
provided
by
a
government,
municipality
or
any
other
public
authority
in
respect
of,
or
for
the
acquisition
of,
that
share.
(7)
Late
designation.
-
Where
a
taxable
Canadian
corporation
that
issued
a
share
or
debt
obligation
or
granted
a
right
under
a
scientific
research
and
experimental
development
financing
contract
does
not
designate
an
amount
under
subsection
(4)
in
respect
of
the
share,
debt
obligation
or
right
on
or
before
the
day
on
or
before
which
such
designation
was
required
by
that
subsection,
the
corporation
shall
be
deemed
to
have
made
the
designation
on
that
day
if
(a)
the
corporation
has
filed
with
the
Minister
a
prescribed
information
return
relating
to
the
scientific
research
and
experimental
development
tax
credit
in
respect
of
the
share,
debt
obligation
or
right
within
the
time
that
it
would
have
been
so
required
to
file
the
return
had
the
designation
been
filed
on
that
day,
and
(b)
within
3
years
after
that
day,
the
corporation
has
(i)
designated
an
amount
in
respect
of
the
share,
debt
obligation
or
right
by
filing
a
prescribed
form
with
the
Minister,
and
(ii)
paid
to
the
Receiver
General,
at
the
time
the
prescribed
form
referred
to
in
subparagraph
(i)
is
filed,
an
amount
that
is
a
reasonable
estimate
of
the
penalty
payable
by
the
corporation
for
the
late
designation
in
respect
of
the
share,
debt
obligation
or
right;
except
that,
where
the
Minister
has
mailed
a
notice
to
the
corporation
that
a
designation
has
not
been
made
in
respect
of
the
share,
debt
obligation
or
right
under
subsection
(4),
the
designation
and
payment
described
in
paragraph
(b)
must
be
made
by
the
corporation
on
or
before
the
day
that
is
90
days
after
the
day
of
such
mailing.
127.3(3)
Trust.
For
the
purposes
of
this
section
and
section
53,
where
a
taxpayer,
other
than
a
broker
or
dealer
in
securities,
is
a
beneficiary
under
a
trust
and
an
amount
is
designated
by
a
corporation
under
subsection
194(4)
in
respect
of
a
share,
debt
obligation
or
right
acquired
by
the
trust
in
a
taxation
year
of
the
trust
where
the
trust
is
the
first
person,
other
than
a
broker
or
dealer
in
securities,
to
be
a
registered
holder
of
the
share
or
debt
obligation
or
to
have
acquired
the
right,
as
the
case
may
be,
(a)
the
trust
may,
in
its
return
of
income
for
that
year,
specify
such
portion
of
that
amount
as
may,
having
regard
to
all
the
circumstances
(including
the
terms
and
conditions
of
the
trust
arrangement),
reasonably
be
considered
to
be
attributable
to
the
taxpayer
and
as
was
not
specified
by
the
trust
in
respect
of
any
other
beneficiary
under
that
trust;
and
(b)
the
portion
specified
pursuant
to
paragraph
(a)
shall
be
deemed
to
be
an
amount
designated
on
the
last
day
of
that
year
by
the
corporation
under
subsection
194(4)
in
respect
of
a
share,
debt
obligation
or
right,
as
the
case
may
be,
acquired
by
the
taxpayer
on
that
day
where
the
taxpayer
is
the
first
person,
other
than
a
broker
or
dealer
in
securities,
to
be
a
registered
holder
of
the
share
or
debt
obligation
or
to
have
acquired
the
right,
as
the
case
may
be.
127.3(4)
Partnership.
For
the
purposes
of
this
section
and
section
53,
where
a
taxpayer,
other
than
a
broker
or
dealer
in
securities,
is
a
member
of
a
partnership
and
an
amount
is
designated
by
a
corporation
under
subsection
194(4)
in
respect
of
a
share,
debt
obligation
or
right
acquired
by
the
partnership
in
a
taxation
year
of
the
partnership
where
the
partnership
is
the
first
person,
other
than
a
broker
or
dealer
in
securities,
to
be
a
registered
holder
of
the
share
or
debt
obligation
or
to
have
acquired
the
right,
as
the
case
may
be,
such
portion
of
that
amount
as
may
reasonably
be
considered
to
be
the
taxpayer’s
share
thereof
shall
be
deemed
to
be
an
amount
designated
on
the
last
day
of
that
year
by
the
corporation
under
subsection
194(4)
in
respect
of
a
share,
debt
obligation
or
right,
as
the
case
may
be,
acquired
by
the
taxpayer
on
that
day
where
the
taxpayer
is
the
first
person,
other
than
a
broker
or
dealer
in
securities,
to
be
a
registered
holder
of
the
share
or
debt
obligation
or
to
have
acquired
the
right,
as
the
case
may
be.
Income
Tax
Regulations:
205(1)
Date
returns
to
be
filed.
-
All
returns
required
under
this
Part
shall
be
filed
with
the
Minister
without
notice
or
demand
and,
unless
otherwise
specifically
provided,
on
or
before
the
last
day
of
February
in
each
year
and
shall
be
in
respect
of
the
preceding
calendar
year.
226(2)
Each
corporation
that
has
designated
an
amount
under
subsection
194(4)
of
the
Act
in
respect
of
a
security
issued
or
granted
by
it
shall
make
an
information
return
in
prescribed
form
in
respect
of
each
such
security.
Conclusion:
The
main
issue
before
this
Court
is
whether
there
has
been
compliance
by
the
Appellant
with
paragraph
194(7)(a)
notwithstanding
the
fact
that
no
information
return
in
respect
of
the
SRTC
instruments
was
received
by
the
Minister
until
January
30,
1989.
The
position
taken
by
the
Minister
in
assessing
and
the
submissions
made
by
Counsel
for
the
Respondent
in
support
thereof
appear
to
be
based
on
two
assumptions.
First,
that
an
information
return
is
essential
to
the
proper
administration
of
the
SRTC
scheme.
In
my
view,
that
is
not
the
case.
First,
the
testimony
of
Feely
falls
far
short
of
establishing
that
the
filing
of
an
information
return
is
in
any
substantive
way
integral
to
the
Minister’s
administrative
practices
with
respect
to
subsection
194(7)
of
the
Act.
Second,
this
issue
was
put
to
rest
by
Robertson
J.A.
in
United
Equities
Ltd.
v.
Minister
of
National
Revenue
in
the
following
words:
Regardless
of
how
one
wishes
to
characterize
the
Trial
judge’s
interpretation
of
subsection
194(7),
that
interpretation
does
not,
in
my
view,
lead
to
an
unworkable
and
impractical
result.
This
takes
me
to
the
nub
of
the
appellant’s
argument,
namely
that
filing
of
information
returns
is
critical
to
the
administration
of
subsection
194(7).
Like
the
Trial
judge,
I
do
not
find
this
argument
persuasive
once
it
is
learned
that
“no
provision
of
the
Act
specifies
the
need
or
time
for
filing
information
returns,
a
matter
dealt
with
by
regulation”
(per
MacKay,
J.
at
6578-6579).
If
the
information
returns
are
as
critical
as
suggested
by
the
appellant,
then
surely
the
Act
would
have
emphasised
the
need
for
their
filing.
The
appellant’s
argument
loses
its
appeal
even
further
if
one
compares,
for
example,
the
content
of
the
designation
form
(Form
T2113,
Appeal
Book,
Vol.
II,
at
199)
with
the
summary
information
return
(Form
T2114,
Appeal
Book,
Vol.
II,
at
200).
That
comparison
reveals
two
single-page
documents
containing
virtually
identical
information.
During
oral
argument,
counsel
for
the
appellant
noted
that
the
latter
document
would
differ
from
the
former
had
there
been
multiple
investors.
Presumably,
the
submission
of
multiple
designation
forms
would
have
achieved
the
same
result.
As
to
the
argument
that
a
Minister’s
notice
cannot
issue
until
such
time
as
he
receives
the
information
returns,
I
note
three
facts.
First,
in
this
case
the
Department
learned
of
the
failure
to
file
the
designation
without
an
information
return
having
been
filed.
Second,
the
information
returns
in
questions
did
not
have
to
be
filed
until
eight
months
after
the
designation
was
filed.
Normally,
one
would
expect
that
documents
which
are
supposedly
critical
to
the
administration
of
a
taxing
scheme
will
be
subject
to
a
requirement
that
they
be
filed
prior
to
or
at
the
same
time
as
other
required
documents.
Third,
in
1985,
procedures
were
put
into
place
whereby
the
Department
was
able
to
tie
an
investor’s
claim
for
a
SRTC
with
that
of
the
corresponding
designating
company,
notwithstanding
the
failure
to
file
the
required
information
returns.
In
my
opinion,
a
designating
company’s
failure
to
file
such
documents
did
not
and
does
not
undermine
the
Minister’s
ability
to
exercise
his
powers
under
subsec-
tion
194(7)
of
the
Act.
I
add
only
that
in
the
present
appeal,
Revenue
Canada
also
learned
of
the
failure
to
file
the
designation
without
an
information
return
having
been
filed.
The
second
assumption
is
that
exempting
provisions
in
the
Act
are
to
be
interpreted
strictly
against
the
taxpayer.
More
specifically
that
in
this
case,
the
relief
under
paragraph
194(7)(a)
is
only
available
if
the
prescribed
information
return
has
been
filed
as
required
by
subsection
194(4)
of
the
Act
and
sections
205
and
226
of
the
Regulations.
In
particular,
Counsel
for
the
Respondent
argued
that
Regulation
226(2)
requires
that
each
corporation
designating
an
amount
under
subsection
194(4)
“shall
make
an
information
return
in
prescribed
form”
and,
pursuant
to
Regulation
205(1),
the
return
“shall
be
filed”
before
the
last
day
of
February
in
each
year.
According
to
the
Respondent,
the
proper
interpretation
of
the
word
“shall”
is
imperative
unless
found
in
an
enactment
where
the
context
indicates
otherwise,
which
is
not
the
case
here.
In
support,
Counsel
for
the
Respondent
referred
to
the
decision
of
the
Supreme
Court
of
Canada
in
Reference
re
Language
Rights
under
s.
23
of
the
Manitoba
Act,
1970
(sub
nom.
Reference
re
Lanaguage
Rights
Under
s.
23
of
the
Manitoba
Act,
1870
and
s.
133
of
the
Constitution
Act,
1867)
where
the
following
statement
was
made:
As
used
in
its
normal
grammatical
sense,
the
word
“shall”
is
presumptively
imperative.
See
Odgers’
Construction
of
Deeds
and
Statutes,
(5th
ed.
1967)
at
page
377;
The
Interpretation
Act,
1867
(Can.),
31
Viet.,
c.
1,
s.
6(3);
Interpretation
Act,
R.S.C.
1970,
c.
1-23,
s.
28
(“shall”
is
to
be
construed
as
“imperative”).
It
is
therefore
incumbent
upon
this
Court
to
conclude
that
Parliament,
when
it
used
the
word
“shall”
in
section
23
of
the
Manitoba
Act,
1870,
intended
that
those
sections
be
construed
as
mandatory
or
imperative,
in
the
sense
that
they
must
be
obeyed,
unless
such
an
interpretation
of
the
word
“shall”
would
be
utterly
inconsistent
with
the
context
in
which
it
has
been
used
and
would
render
the
section
irrational
or
meaningless.
See,
e.g.
Re
Public
Finance
Corp.
and
Edwards
Garage
Ltd.
(1957),
22
W.W.R.
312,
page
317
(Alta.
S.C.).
Counsel
for
the
Respondent
also
sought
support
from
the
following
comment
by
Strayer
J.
in
R.
v.
Adelman
:
...
It
seems
neither
unjust
nor
unreasonable,
nor
in
any
way
inconsistent
with
the
Act
or
the
Regulations,
for
a
taxpayer
to
be
required
to
adhere
strictly
to
the
procedure
prescribed
by
the
law
for
the
exercise
of
this
right
having
regard
to
the
fact
that
its
exercise
will
affect
his
position
and
that
of
the
Minister
both
in
respect
of
this
particular
disposition
but
also
in
respect
of
all
those
dispositions
in
the
future
...
I
am
unable
to
give
“shall”
a
mandatory
interpretation
in
the
circumstances
of
this
appeal,
since
that
would
render
the
effect
of
paragraph
194(7)(a)
of
the
Act
irrational
and
unworkable.
Such
an
approach
to
the
relevant
legislative
provision
would,
in
my
view,
ignore
the
modern
purposive
and
contextual
approach
set
out
by
the
Supreme
Court
of
Canada
in
Stubart
Investments
Ltd.
v.
R.,
(sub
nom.
Stubart
Investments
Ltd.
v.
The
Queen)
with
respect
to
which
Estey
J.
made
the
following
comment
in
the
Golden
v.
R.,
(sub
nom.
Golden
v.
The
Queen)?
the
Court
recognized
that
in
the
construction
of
taxation
statutes
the
law
is
not
confined
to
a
literal
and
virtually
meaningless
interpretation
of
the
Act
where
the
words
will
support
on
a
broader
construction
a
conclusion
which
is
workable
and
in
harmony
with
the
evident
purposes
of
the
Act
in
question....
[Emphasis
added.]
With
regard
to
the
legislative
purpose
of
subsection
194(7)
of
the
Act,
Robertson
J.A.
speaking
for
the
Court
in
United
Equities
(supra),
said
the
following,
at
pages
174-75:
The
Trial
judge
rightly
noted
that
the
provisions
of
the
Act
governing
SRTCs
are
intended
to
encourage
otherwise
risky
private
investment
in
research
and
development
projects,
and
it
is
in
this
context
that
subsection
194(7)
must
be
interpreted.
In
my
opinion,
that
subsection
is
a
curative
provision
intended
to
provide
relief
against
forfeiture
of
intended
tax
benefits.
Without
a
legislative
mechanism
for
allowing
late
filing,
the
designating
company
and
the
investor
may
forfeit
the
right
to
create
and
purchase
a
tax
credit
respectively.
As
in
the
present
case,
an
investor
who
did
everything
that
was
required
of
it
under
the
Act
could
still
lose
its
SRTC
because
of
an
inadvertent
late
filing
of
information
returns
by
the
designating
company.
Since
subsection
194(7)
is
a
curative
provision,
I
do
not
see
how
a
narrow
interpretation
of
that
provision
would
further
the
legislative
aim
of
encouraging
investment,
when
such
a
construction
reduces
the
possibility
of
investors
and
designating
companies
obtaining
relief
from
forfeiture.
A
liberal
construction,
that
is
to
say
one
that
the
subsection
can
reasonably
bear
and
is
consistent
with
legislative
objectives,
has
the
effect
of
giving
the
Minister
the
discretion
to
develop
policies
which
take
into
account
the
competing
interests
of
Canadian
taxpayers
and
innocent
investors
and
to
refuse
to
send
a
notice
where
it
is
found
that
the
interests
of
the
former
should
prevail
over
the
latter.
When
viewed
in
this
light,
it
seems
that
the
most
reasonable
construction,
and
one
that
is
in
accord
with
the
objects
and
purposes
of
the
legislation,
is
that
adopted
by
the
Trial
judge.
As
I
see
it,
a
liberal
construction
of
subsection
194(7)
lends
legitimacy
to
and
achieves
the
same
ends
as
the
departmental
policy
implemented
in
February,
1987
dealing
with
the
disposition
of
“technically
invalid
designations”
-
a
policy
which
could
conceivably
be
subject
to
legal
challenge;
see
Trial
judge’s
reasons
(at
6579)
dealt
with
earlier.
The
clear
and
unequivocal
opinion
expressed
by
Robertson
J.A.
with
respect
to
the
proper
construction
of
subsection
194(7)
is
applicable
to
the
appeal
before
me
notwithstanding
that
the
facts
and
issues
in
United
Equities
are
distinguishable.
With
these
principles
in
mind,
I
turn
to
the
Appellant’s
argument
that:
...
the
strict
requirement
in
paragraph
194(7)(a)
that
a
T2114
information
return
had
been
filed
by
the
time
such
a
form
would
have
had
to
have
been
filed
if
a
T2113
designation
had
been
made
on
the
due
date
for
filing
a
T2113
designation
under
subsection
194(4)
(i.e
in
the
case
at
bar,
on
February
28,
1987)
produces
absurd
and
unworkable
results
from
the
point
of
view
of
both
the
corporation
which
issues
SRTC
instruments
and
the
investor
in
SRTC
instruments.
The
results
referred
to
by
Counsel
for
the
Appellant
are,
in
my
view,
readily
apparent
by
examining
subsection
226(2)
of
the
Regulations
which
provides
that
each
corporation
that
has
designated
an
amount
under
subsection
194(4)
of
the
Act
in
respect
of
a
security
issued
by
it,
shall
make
an
information
return
in
prescribed
form
in
respect
of
such
security.
But
it
is
not
possible
for
a
taxpayer
to
file
an
information
return
in
respect
of
a
“designation”
in
circumstances
where
such
“designation”
has
not
in
fact
been
made.
In
drafting
subsection
194(7)
of
the
Act,
Parliament
could
not
have
intended
that
an
information
return,
the
form
and
content
of
which
is
geared
to
amounts
already
designated,
should
also
be
filed
in
anticipation
that
certain
amounts
might
be
designated
at
a
later
date.
It
should
be
noted
that
Regulation
205(1)
is
extremely
broad
in
nature
in
that
it
refers
to
each
and
every
one
of
the
vast
number
of
information
returns
required
by
the
Act
to
be
filed
on
the
last
day
of
February
in
each
year.
It
is
evident
from
the
breadth
and
scope
of
this
Regulation
that
no
consideration
could
have
been
given
by
the
legislators
to
the
consequences
of
the
timing
imposed
by
the
combined
operation
of
subsection
194(7)
and
this
Regulation.
The
facts
before
me
are
that
on
December
31,
1985,
Seatech
issued
3,632,094
Class
B
Preferred
shares
and
767,906
Class
C
Preferred
shares.
On
that
same
date,
Goliath
Partnership
purchased
2,829,910
of
the
Class
B
Preferred
shares.
In
January,
1986,
a
designation
was
filed
with
respect
to
certain
Class
B
and
Class
C
Preferred
shares
other
than
those
purchased
by
the
Goliath
Partnership.
In
February,
1986,
Seatech
filed
an
information
return
with
respect
to
these
shares.
However,
as
of
February
28,
1987,
Seatech,
for
whatever
reason
had
not
yet
made
a
designation
in
respect
of
the
shares
purchased
by
the
Goliath
Partnership,
some
of
which
are
the
subject
of
this
appeal.
Thus,
from
Seatech’s
point
of
view,
the
information
return
filed
on
February
28,
1986
which
designated
the
amount
of
$1,570,090
in
respect
of
the
security
(which
did
not
refer
to
the
shares
purchased
by
the
Partnership)
complied
fully
with
the
requirements
in
Regulation
226(2)
and
the
wording
of
the
form
itself
because
it
reflected
the
situation
as
it
existed
on
that
date,
which
was,
if
I
may
repeat
myself,
that
no
designation
had
yet
been
made
with
respect
to
the
SRTC
instruments
in
issue
in
this
appeal.
Requiring
SRTC
issuers
to
file
an
information
return
indicating
“the
total
amount
designated
in
respect
of
the
security
or
right”
at
a
time
at
which
the
decision
to
designate
may
not
even
have
been
made
is
not
only
unworkable
and
impractical,
but
is
in
cases
such
as
this,
impossible.
In
the
course
of
his
testimony,
Feely
was
asked
whether
the
Minister’s
position
was
that
the
assessment
was
proper
because
no
information
return
was
filed
by
the
prescribed
date
being
February
28,
1987.
Feely
agreed
that
was
the
case.
The
following
exchange
then
took
place:
Q.
All
right.
And
I
am
simply
asking
you
that
in
February,
1987,
the
second
designation
had
not
been
made
so
how
could
we
have
filed
a
T2114
in
February,
1987
to
cover
a
second
designation
that
had
not
yet
been
made?
A.
You
cannot
file
a
summary
for
a
designation
that
has
not
been
made.
Q.
That
is
your
answer?
A.
Yes.
The
Appellant’s
position
that
the
time
element
in
subparagraph
194(7)(a)(i),
i.e.
the
prerequisite
that
an
information
return
be
filed
by
the
-due
date
stipulated
in
subsection
194(4)
should
be
read
out
in
this
case
in
order
to
avoid
an
interpretation
inconsistent
with
the
context
in
which
it
has
been
used
and
which
would
render
the
section
meaningless,
has
merit.
To
do
so
would
be
consistent
with
the
principles
to
be
observed
in
the
current
nterpretation
of
taxation
statutes
set
out
by
Gonthier
J.
in
Notre
Dame
de
"ton
Secours
(supra)
as
follows
at
page
252:
The
interpretation
of
tax
legislation
should
follow
the
ordinary
rules
of
interpretation;
A
legislative
provision
should
be
given
a
strict
or
liberal
interpretation
depending
on
the
purpose
underlying
it,
and
that
purpose
must
be
identified
in
light
of
the
context
of
the
statute,
its
objective
and
the
legislative
intent:
this
is
the
teleological
approach;
The
teleological
approach
will
favour
the
taxpayer
or
the
tax
department
depending
on
the
legislative
purpose
in
question,
and
not
on
the
existence
of
pre-determined
presumptions;
Substance
should
be
given
precedence
over
form
to
the
extent
that
this
is
consistent
with
the
wording
and
objective
of
the
statute;
Only
a
reasonable
doubt,
not
resolved
by
the
ordinary
rules
of
interpretation,
will
be
settled
by
recourse
to
the
residual
presumption
in
favour
of
the
taxpayer.
In
the
particular
circumstances
of
this
case,
I
have
concluded
that
an
information
return
need
not
have
been
filed
by
Seatech
as
a
pre-
condition
of
this
Appellant’s
entitlement
to
avail
himself
of
the
remedial
provisions
of
subsection
194(7)
of
the
Act.
This
is
a
liberal
construction
which
in
my
view,
the
subsection
can
reasonably
bear
and
is
consistent
with
its
legislative
objectives,
as
defined
by
Robertson
J.A.
in
United
Equities
(supra).
The
second
ground
pleaded
by
the
Respondent
in
support
of
the
disallowance
of
the
tax
credit
is
that
the
BSCT
was
not
the
first
person
to
be
the
registered
holder
of
the
Class
B
Preferred
shares
issued
by
Seatech.
Counsel
for
the
Respondent
made
only
a
passing
reference
to
subsection
127.3(4)
and
that
in
a
different
context.
Nonetheless,
I
do
not
believe
that
it
would
be
appropriate
to
assume
that
this
ground
has
been
abandoned.
The
relevant
provision
is
subsection
127.3(4).
It
allows
a
partnership
which
is
the
first
holder
of
an
SRTC
instrument
to
“flow
through”
credits
to
individuals
partners
subject
to
a
number
of
conditions.
First,
an
amount
must
have
been
designated
by
the
SRTC
issuer.
Since
I
have
concluded
that
the
designation
filed
February
29,
1988
by
Seatech
is
a
valid
late-filed
designation,
that
condition
has
been
met.
Next,
the
BSCT
must
be
a
member
of
the
partnership
in
question.
The
facts
establish
the
following.
The
Goliath
Partnership
was
formed
December
31,
1985.
The
first
year
end
of
the
partnership
was
December
30,
1986.
On
December
31,
1985,
the
Goliath
Partnership
purchased
2,829,910
of
the
Class
B
Preferred
shares
from
Seatech
for
$2,829,910.
By
Declaration
of
Trust
dated
December
24,
1986,
the
BSCT
was
created.
The
Appellant
was
sole
trustee
and
one
of
the
beneficiaries.
On
December
30,
1986,
the
BSCT
subscribed
for
1,287,000
units
of
the
Goliath
Partnership
during
its
taxation
year
ending
December
30,
1986
and
thereby
was
admitted
to
the
partnership.
As
Counsel
for
the
Appellant
noted,
there
is
no
requirement
that
a
taxpayer
referred
to
in
subsection
127.3(4)
be
a
partner
throughout
the
partnership’s
taxation
year.
Once
those
conditions
have
been
met,
subsection
127.3(4)
deems
the
following
to
be
correct.
First,
BSCT
is
considered
to
have
acquired
the
SRTC
instrument
on
the
last
day
of
the
partnership’s
taxation
year,
being
December
30,
1986
and
second,
it
is
deemed
to
be
the
first
holder
of
the
SRTC
instrument.
Furthermore,
BSCT
must
make
a
reasonable
and
exclusive
allocation
to
the
beneficiary
in
question
(in
this
case
to
the
Appellant)
of
the
amount
designated
by
the
SRTC
issuer
in
question.
That
has
been
done.
Hence,
no
other
conclusion
can
be
reached
but
that
the
provisions
of
subsections
127.3(3)
and
(4)
have
been
met.
In
my
view,
the
Minister’s
assessment
cannot
be
supported
on
this
basis.
The
appeal
is
allowed,
with
costs
to
the
Appellant
to
be
taxed.
Appeal
allowed.