Nadeau v. R., [1999] 3 CTC 2235, 99 DTC 324

Tardif T.C.J.:

This case concerns appeals in respect of the 1990 and 1991 taxation years. The appellant was represented at the hearing by her son Claude Nadeau. He testified and was much better informed than the appellant herself about all the facts relating to the assessments at issue in the instant appeals.

At the start of the hearing the appellant admitted all the facts assumed by the respondent to justify the assessments, except for the following allegations:

[TRANSLATION]

(r) as a consequence of the aforementioned series of transactions a tax benefit was conferred on the appellant and the Minister considered that the increase in the paid-up capital of the class C shares from $1.00 to $76.40 a share was an abuse;

(t) the reassessments made by the Minister on June 9, 1994 for the 1990 and 1991 taxation years do not violate the Canadian Charter of Rights and Freedoms.

The appellant’s agent admitted all the other facts assumed in support of the reassessments at issue in the instant appeal.

The facts on which the reassessments were based are not at issue, since the appellant has admitted and recognized that they are accurate, so it is appropriate to set them out below:

[TRANSLATION]

4(a) on July 13, 1982 the appellant and her son Claude Nadeau incorporated

the holding company L. & C. Nadeau Ltée (“the company”) under Part IA of the Quebec Companies Act;

(b) the company has only one investment, namely the shares in its wholly owned subsidiary, Maurice Delgrave Inc. (“the subsidiary”);

(c) the subsidiary has operated a furniture retail business for a number of years;

(d) the appellant and her son Claude respectively hold 51% and 49% of the outstanding common shares in the company;

(e) in April 1990 the market value and tax consequences of the company’s

shares were the following;
	No. of			Paid-up
	shares	FMV	ACB	capital
Appellant	61	$467,687	$ 6,100	$ 6,100
Claude Nadeau	59	$452,353	$ 5,900	$ 5,900
	120	$920,040	$12,000	$12,000
PER SHARE		$ 7,667	$ 100	$ 100

(f) in early 1990 the appellant decided that it was a good time for her to withdraw from the furniture retail business:

(g) on June 8, 1990 numbered company 2757-6958 was incorporated under the Quebec Companies Act with the appellant’s son Claude Nadeau as its sole proprietor;

(h) on July 20, 1990 the appellant and her son Claude transferred their Class A shares to the company in consideration of new Class A shares of the company with the following values:

	No. of
	shares	FMV	ACB	Legal paid-
				up capital
Appellant	61 A	$467,687	$467,687	$ 6,100
Claude Nadeau	59 A	$452,353	$400,000	$ 5,900
	120 A	$920,040	$867,687	$12,000
PER SHARE		$ 7,667	$ 7,667	$ 100

(i) on July 20, 1990 the appellant’s son Claude Nadeau subscribed and paid $100 for 100 Class B shares;

0)

on July 24, 1990 the company altered its articles as follows:

i. all the authorized shares that had not been issued were cancelled:

(11.) an unlimited number of no par value Class A, B, C and D shares were created;

iii. the 120 shares described in paragraph 4(e) were converted to 120 Class A shares as described in paragraph 4(h);

iV. each of these new shares had rights of participation and voting

rights attached to it and was convertible into a Class C or D share at the option of the holder and the company;

V. each issued and outstanding Class A share was split into 100 shares;

vi. the Class B shares came with the usual rights of common shares;

Vil. the Class C shares:

(I) were non-voting shares;

(11) were retractable at the market value received by the company in consideration of their issue; and

(III) carried the right to a cumulative 10% dividend calculated based on the redemption price, and this right was held in preference to the Class A, B and D shares; and

viii. the Class D shares came with the same rights, privileges and

restrictions as the Class C shares, but the dividend was 9% and had to be paid in preference to the Class A and B shares;

(k) on July 31, 1990 the appellant and her son Claude Nadeau converted their Class A shares into new Class C and D shares at the following values:

	No. of
	shares	FMV	ACB	Legal paid-
				up capital
Appellant	6,100C	$467,687	$467,687	$6,100
Claude Nadeau	5,900D	$452,353	$400,000	$5,900
PER SHARE		$76.67	$76.67	$1.00

(D on August 8, 1990, 2757-6958 Québec Inc. (“2757-6958") subscribed

and paid $460,000 for one Class C share in the company, and the company’s Class C paid-up capital thus rose from $6,100 to $466,100 while the paid-up capital of each share, which had been $1.00, became $76.40 (($460,000 + $6,100)/6,101);

(m) 2757-6958 borrowed $460,000 from the National Bank of Canada (“the Bank”) payable on a demand note guaranteed by the appellant and her son Claude Nadeau;

(n) on August 9, 1990 the company redeemed the Class C share held by 2757-6958 for $460,000 and 2757-6958 repaid the Bank and paid $198.49 in interest:

(o) 2757-6958 reported receiving a deemed dividend of $459,924 in 1990, and as of the date of the assessment it had engaged in no transactions other than the ones mentioned above;

(p) on August 17, 1990 the appellant and her son Claude Nadeau agreed as shareholders in the company to have the company redeem 407 of the appellant’s Class C shares each year beginning in 1990 and for the following 13 years, and 402 shares in the fifteenth year, at a price of $76.67 a share;

(q) the appellant asked the company to redeem the Class C shares on the

following dates:
Date	Number of shares
August 20, 1990	237 shares
December 28, 1990	170 shares
April 24, 199]	136 shares
August 29, 199]	136 shares
December 26, 1991]	135 shares

(r) as a consequence of the aforementioned series of transactions a tax benefit was conferred on the appellant and the Minister considered that the increase in the paid-up capital of the Class C shares from $1.00 to $76.40 a share was an abuse.

(S) as the appellant did not report the disposition of the said Class C shares in her tax returns for the 1990 and 1991 taxation years, the Minister considered that there had been a deemed dividend of $38,498 in each of those years;

(t) the reassessments made by the Minister on June 9, 1994 for the 1990 and 1991 taxation years do not violate the Canadian Charter of Rights and Freedoms.

After admitting and subsequently repeating that the alleged facts were correct, the appellant maintained that the tax planning arrangements at issue had been devised and carried out by experts in taxation and that this had been done in strict compliance with all provisions of the Act.

She accordingly concluded that the respondent had arbitrarily applied the tax avoidance provisions and in the same breath argued on the basis of the Canadian Charter of Rights and Freedoms that she was being treated unfairly and in a completely discriminatory manner because of the mother- son relationship.

Claude Nadeau constantly repeated that everything was done in a proper, legitimate and legal fashion: he argued that the Department could not make reassessments and that the said assessments should thus be vacated because they were improper, unfair and discriminatory.

The appellant adduced no real evidence in support of her arguments; her submissions were confined to repeating that if Claude Nadeau’s mother had sold to a third party her tax burden would have been considerably reduced. Although the Court insisted that she explain how she had reached her conclusions, the appellant was unable to give a clear, precise and coherent explanation of the basis for her arguments.

The content of the Notice of Appeal signed on September 15, 1997 was much more complete and elaborate than the evidence submitted to the Court, which consisted primarily of her son Claude’s testimony.

I therefore think it is worth reproducing the content of the Notice of Appeal dated September 15, 1997:

[TRANSLATION]

Ste-Julie, September 15, 1997

Revenue Canada

500 Place D’ Armes

Bureau 1800

MONTREAL, QUEBEC

H2Y 2W2

NOTICE OF APPEAL

Lyse Nadeau

SIN: 212-910-418

Dear Sir/Madam:

With reference to the Notification of Confirmation, form T-2008A, dated August 25, 1997, by Claude Grégoire, Chief of Appeals, Montérégie-Rive-Sud T.S.O., we are appealing to the Tax Court of Canada under the “informal procedure”.

The Minister stated:

That the series of transactions by which the common shares of L. &

C. Nadeau Ltée were converted to Class [[C]] shares, with immediate issue and redemption of one such share held by 2757-6958 Québec Inc., took place in such circumstances that the transaction is an avoidance transaction with the meaning of s. 245(3) of the Income Tax Act; you are therefore deemed, pursuant to s. 84(3) of the Act, to have received a dividend amounting to $30,798 for each of the years 1990 and 1991 at the time of the acquisition by L. & C. Nadeau Ltée of Class [[C]] shares belonging to you.

We are appealing because the result of the series of transactions was the same as if Ms. Nadeau had disposed of her shares to a third party.

This transaction was not contrary to the Act. It is not an abuse of the Act read as a whole. The Act contains a number of specific rules which do not apply in our case. The non-application of these various rules cannot constitute an abuse having regard to the Act read as a whole.

The Act is incorrect: these transactions cannot result in an abuse having regard to the Act when the Act is abusing someone. Under the Charter of Rights and Freedoms the federal government and the provincial and territorial governments must respect this Charter, which protects, among other things, the equality rights of every individual.

By applying the general anti-avoidance provision the Minister of National Revenue reduced the paid-up share capital, which meant that the redemption produced a dividend instead of a capital gain. The application of this anti-avoidance rule is contrary to the Charter of Rights and Freedoms, section 15(1) of which reads as follows:

Equality rights: Every individual is equal before and under the law and has the right to the equal protection and equal benefit of the law without discrimination ... based on race....

Accordingly, there has been discrimination here and, as we have been injured by the anti-avoidance provision, we are applying to your Court as provided for in s.24(1) of the Charter:

Enforcement: Anyone whose rights or freedoms, as guaranteed by this Charter, have been infringed or denied may apply to a court of competent jurisdiction to obtain such remedy as the court considers appropriate and just in the circumstances.

This is why: as this transaction was at the fair market value, which the Minister accepted, it conferred no greater tax benefit on Ms. Nadeau than if she had disposed of her shares to a third party.

To sum up: why would Ms. Nadeau be taxed on the proceeds, the benefit of her 30 years’ work with Delgrave Meubles, and why should she pay tax on a (dividend) share retraction by someone who is related to her when if she had sold to a stranger it would be regarded as a disposition of shares (capital gain) to a third party and tax-free.

This is an infringement of individual rights and freedoms and we ask that you correct this injustice.

LYSE NADEAU

LN/sp

In court the appellant’s agent essentially made gratuitous statements, referring constantly to a handwritten document which, according to him, contained the essence of the appellant’s arguments.

In view of the importance attached by the appellant to this document, which moreover made up the gist of the evidence (Exhibit A-1), I feel that it too should be reproduced. It reads as follows:

[TRANSLATION]

Your Honour, we do not deny the Minister’s arguments, as the result of the series of transactions was the same as if Mrs. Nadeau had disposed of her shares to a third party; however, we contest his conclusion.

We have not contravened the Act in applying certain of its provisions but have merely structured the truth as permitted by the Act, so as to maximize the tax benefit for both the seller and the purchaser.

In equity, the transaction is beyond reproach. However, because the seller is Mrs. Nadeau and the purchaser, myself, her son, there is a presumption by the Minister of I don’t know what, fraud or guilt? But the [illegible] in that Mrs. Nadeau has been very harshly penalized.

If the purchaser were anyone else, someone not related, and Mrs. Nadeau made a capital gain, the same thing would happen as when we bought the Maurice Delgrave Inc. business in 1982, that is, the former owner and founder Maurice Delgrave made a capital gain.

In this case, the Minister’s reasoning, made possible only by the general antiavoidance provision, which allows the tax authorities to ignore the application of any other provision of the Act, is in violation of s. 15(1) of the Charter of Rights and Freedoms, which states that:

Every individual ... has the right to the ... equal benefit of the law.

In this case the conclusion based on the Minister’s reasoning is an improper, unfair, discriminatory and incorrect application of the tax system.

All we are asking is to be treated fairly and equitably, that is, as Mrs. Nadeau would be treated if she had disposed of her shares to a third party.

All we are asking is the equal benefit of the law, the benefit of a disposition of shares to a third party.

Thank you.

At the hearing the Court twice told the appellant and her agent that the burden of proof was on them. Thus, I clearly told them that they had to show on a balance of probabilities that their arguments were valid.

The evidence established that the appellant intended to sell her 51 percent of the shares to her son Claude rather than to a third party: her son, Claude Nadeau, himself held 49 percent of the shares in the same company, L. & C. Nadeau Ltée.

However, the appellant and her son had very specific concerns about how to conduct the transaction and especially about the tax consequences and implications of the transaction.

They wanted the capital gain from the shares to benefit the appellant’s son. Since the son did not have the financial ability to pay the value of the shares, it became necessary, and also safer for the appellant, for her shares to be purchased by the company first.

The appellant and her son therefore instructed the firm Maheu and Noiseux to organize and plan the transfer of the shares, the result of which would enable them to attain the following specific objectives:

• the appellant would receive fair market value for her shares;

• her son Claude would receive the capital gain from L. & C. Nadeau Ltée;

• the appellant would pay a minimum of tax as a result of the transfer of her shares; and

• the appellant and her son Claude would benefit from the capital gains exemption.

These instruction required painstaking, complex work. The experts prepared various scenarios, which they submitted to the appellant and her son.

The appellant adopted the plan with the least costly consequences in terms of the tax burden, and she did so even though the proposed plan mentioned the possibility that it might be questioned under the general antiavoidance provision set out in s. 245(2) of the Income Tax Act (“the Act”), which reads as follows:

Where a transaction is an avoidance transaction, the tax consequences to a person shall be determined as is reasonable in the circumstances in order to deny a tax benefit that, but for this section, would result, directly or indirectly, from that transaction or from a series of transactions that includes that transaction.

The details of the adopted scenario were set out in the Reply to the Notice of Appeal, the relevant paragraphs of which were reproduced earlier in these reasons.

The respondent raised the following three grounds in support of the merits of the assessment:

• an incomplete transaction;

• the use of separate share classes; and

¢ application of the general anti-avoidance provision.

The respondent first argued that L. & C. Nadeau Ltée could not increase the paid-up capital of Class C shares on August 8, 1990, as the said shares had not been paid for when 2757-6958 Québec Inc. gave it a cheque in the amount of $460,000.

Arguing that there had been no increase in the paid-up capital of Class C shares, the respondent maintained that the capital remained at $6,100, which corresponded to $1.00 a share. She accordingly concluded that the redemption of the shares in 1990 and 1991 should result in a deemed dividend of $75.67 per share pursuant to s. 84(3) of the Act.

In arriving at the deemed dividend of $75.67 per share, the respondent relied on s. 123.61 of the Companies Act, stating that a company may increase the amount of its issued and paid-up share capital only if a by-law to that effect is adopted, except where the increase is a result of payment for shares. She further relied on the rule of precedent that the substance of a transaction must take precedence over its form.

It was very clearly established in the instant case that the transaction of August 8 was certainly genuine, but completely devoid of meaning, in that the issue of a single share in return for a cheque for $460,000 had and was intended to have only one purpose: ensuring logic and continuity in order to attain the desired end.

This observation is supported in particular by significant facts which leave no room for ambiguity. The amount of $460,000 at issue essentially proved to be simply an accounting transaction, with no real effect on the parties associated with the transactions. The intention was that within a few hours after the share was issued, it would be redeemed and the amount of the consideration would immediately be returned to the bank, which had loaned it.

Not only did L. & C. Nadeau Ltée stand surety for the $460,000 loan, it left the amount of the loan as security for the loan. In other words, the money did not leave the bank even though the company paid out $198.49 in interest.

The delivery of the $460,000 cheque by 2757-6958 Québec Inc. to L. & C. Nadeau Ltée proved to be the payment for the single share issued by L. & C. Nadeau, which suggests that the paid-up capital of the Class C shares had been increased by $460,000.

Was this a genuine increase? The answer is important since this is determinative as to whether form took precedence over substance.

The $460,000 amount was certainly a payment in form, but was it one in substance? Certain articles of the Civil Code of Lower Canada dealing with the concept of payment are relevant here:

1139. By payment is meant not only the delivery of a sum of money in satisfaction of an obligation, but the performance of any thing to which the parties are respectively obliged.

1140. Every payment presupposes a debt; what has been paid where there is no debt may be recovered.

There can be no recovery of what has been paid in voluntary discharge of a natural obligation.

In the instant case L. & C. Nadeau Ltée received the cheque but the evidence showed that it was never free to dispose of the amount as it wished: it had been agreed in advance that the loan would simply be repaid.

All the facts surrounding the various transactions fully support the respondent’s argument that the continuity of the transactions had only one purpose: decreasing the tax burden. In other words, form was the distinguishing characteristic of the transactions; there were no genuine effects on or consequences for the asset bases of the entities in question.

These same facts also support the respondent’s second argument, that this was an incomplete transaction.

Although the respondent also alleged a departure from the rule that shares in the same class should be equal, I will now turn to the respondent’s final argument, that the general anti-avoidance provision should be applied.

This is an extremely interesting point which has not been considered often by the courts. The respondent cited two leading cases dealing with s. 245 of the Act:

McNichol v. R., 94-1577(IT)G, 94-1578(IT)G, 94-1579(IT)G and 94- 1667(IT)G [reported [1997] 2 C.T.C. 2088 (T.C.C.)]; and RMM Ca- nadian Enterprises Inc. v. R., 94-1732(IT)G and 94-1753(IT)G [reported [1998] 1 C.T.C. 2300 (T.C.C.)].

To begin with, I feel it is worth reproducing the provisions dealing with tax avoidance:

245.(2) Where a transaction is an avoidance transaction, the tax consequences to a person shall be determined as is reasonable in the circumstances in order to deny a tax benefit that, but for this section, would result, directly or indirectly, from that transaction or from a series of transactions that includes that transaction.

(3) An avoidance transaction means any transaction

(a) that, but for this section, would result, directly or indirectly, in a tax benefit, unless the transaction may reasonably be considered to have been undertaken or arranged primarily for bona fide purposes other than to obtain the tax benefit; or

(b) that is part of a series of transactions, which series, but for this section, would result, directly or indirectly, in a tax benefit, unless the transaction may reasonably be considered to have been undertaken or arranged primarily for bona fide purposes other than to obtain the tax benefit.

(4) For greater certainty, subsection (2) does not apply to a transaction where it may reasonably be considered that the transaction would not result directly or indirectly in a misuse of the provisions of this Act or an abuse having regard to the provisions of this Act, other than this section, read as a whole.

In order to conclude that the anti-avoidance provisions apply, the following three elements are required:

• a tax benefit;

• an avoidance transaction; and

• misuse of or abuse having regard to the Act.

The term “tax benefit” is defined as follows:

...a reduction, avoidance or deferral of tax or other amount payable under this Act or an increase in a refund of tax or other amount under this Act....

The evidence on this point is conclusive: the appellant admitted adopting the plan proposed by her experts because of the tax benefit.

This plan enabled the appellant to withdraw the surpluses accumulated in the company without paying tax on a dividend.

The Court must next consider whether the transaction which resulted in the tax benefit should be excluded from the operation of s. 245(3) of the Act on the basis that the transaction can reasonably be considered to have been undertaken or arranged primarily for bona fide purposes. It must be borne in mind that the obtaining of a tax benefit is not regarded as a bona fide purpose.

Although it is legitimate and natural for taxpayers to organize and plan their affairs in order to pay as little tax as possible, they should not initiate actions intended solely to reduce the amount of tax they would otherwise pay.

In other words, a taxpayer cannot be a party to an act or transaction the only bona fide purpose of which is to obtain a tax benefit without running the risk of having his or her case treated as if the act or transaction had never taken place.

The following comment by Judge Bonner in McNichol, supra, amplified our understanding of these provisions:

It is not necessary or helpful to attempt to restate the subsection 245(4) test in language consistent with each word of both the French and English language versions. It is sufficient to note that on any view of subsection 245(4). the transaction now in question, which was, or was part of, a classic example of surplus stripping, cannot be excluded from the operation of subsection (2). After all, Bee’s surplus was, at the very least, indirectly used to fund the price paid to the appellants for their shares. The appellants have sought to realize the economic value of Bec’s accumulated surplus by means of a transaction characterized as a sale of shares giving rise to a capital gain in preference to a distribution of a liquidating dividend taxable under section 84. The scheme of the Act calls for the treatment of distributions to shareholders of corporate property as income. The form of such distributions is generally speaking irrelevant. On the one hand a distribution formally made by a corporation to its shareholders as a dividend to which the shareholders are entitled by virtue of the contractual rights inherent in their shares is income under paragraph 12(1)(/) of the Act. On the other hand, the legislature by section 15 of the Act, which expands the former section 8, demonstrates the existence of a legislative scheme to tax as income all distributions by a corporation to a shareholder, even those of a less orthodox nature than an ordinary dividend.

The former subsection 247(1) of the Act was, prior to the enactment of section 245, one of the legislative responses to the practice of surplus stripping. It was repealed simultaneously with the coming into force of section 245 and I therefore do not suggest that it applies to the present case. However, I do suggest that the repeal cannot be regarded as a basis for a conclusion that the legislature intended to relax the strictures against surplus stripping. In light of the foregoing, subsection 245(4) cannot be invoked by the appellants. The transaction in issue which was designed to effect, in everything but form, a distribution of Bee’s surplus results in a misuse of sections 38 and 110.6 and an abuse of the provisions of the Act, read as a whole, which contemplate that distributions of corporate property to shareholders are to be treated as income in the hands of the shareholders. It is evident from section 245 as a whole and paragraph 245(5)(c) in particular that the section is intended inter alia to counteract transactions which do violence to the Act by taking advantage of a divergence between the effect of the transaction, viewed realistically, and what, having regard only to the legal form appears to be the effect. For purposes of section 245, the characterization of a transaction cannot be taken to rest on form alone. I must therefore conclude that section 245 of the Act applies to this transaction.

In RMM Canadian Enterprises Inc. v. R., supra, at p. 26, Judge Bowman added:

...the Income Tax Act. read as a whole, envisages that a distribution of corporate surplus to shareholders is to be taxed as a payment of dividends. A form of transaction that is otherwise devoid of any commercial objective, and that has as its real purpose the extraction of corporate surplus and the avoidance of the ordinary consequences of such a distribution, is an abuse of the Act as a whole.

Did the transaction in the instant case pursuant to which 2757-6958 Québec Inc. subscribed for a single Class C share in the capital stock of the other company, L. & C. Nadeau Ltée, have a bona fide purpose? What was its purpose?

I have to answer this question in the negative, since the evidence clearly showed that the sole underlying purpose had but one real end, the tax benefit. The aim of the transaction was essentially to redeem the appellant’s shares in such a way that the amount involved would not be dealt with as a dividend, thereby evading the inherent consequences.

The evidence in the instant case provided no explanation or justification from which it could be concluded that the transaction was needful or had given rise to consequences other than the tax benefit. Everything was arranged to strip the company of its surpluses, which in itself is sufficient to conclude that there was an abuse having regard to the provisions of the Act.

By means of several of its provisions the Act provides that a shareholder cannot withdraw surpluses accumulated in a company over and above the paid-up capital other than by means of a dividend. Consequently, any transaction or series of transactions designed to achieve indirectly what the Act does not permit an individual to do directly is an abuse of the Act.

Any payment in the form of a dividend is subject to tax. The rule is therefore that a corporation cannot divest itself of accumulated surpluses to vest them in its shareholders other than by declaring a dividend. Obviously, paid-up or invested capital is not part of a surplus.

In the instant case the capital invested by the appellant for the Class C shares was $6,100. At the time of the transaction in 1990 her shares had a fair market value of $467,687. Any withdrawal relating to the difference had to be regarded as a dividend.

The evidence in fact showed that the transaction essentially consisted of enabling the appellant to strip the company of accumulated surpluses other than by means of a dividend.

The appellant has not proven that this did not constitute an abuse having regard to the provisions of the Act. She essentially argued first that the entire transaction was legal, and second that the respondent’s reliance on the general anti-avoidance provision was discriminatory and contrary to s. 15(1) of the Charter of Rights and Freedoms.

Here again, the evidence was not very persuasive since the appellant argued essentially that she had been penalized for selling to her son. How, and why? The appellant did not show this and did not see fit to elaborate or to provide reasons to support her arguments.

The respondent argued, first, that this Charter issue could not be pleaded as notice to that effect had not been given to the Attorney General of Canada. It appears that notices were in fact given, but they may have been misdirected.

I do not think the appellant can rely on s. 15(1) of the Charter of Rights and Freedoms, dealing with equality rights, to challenge the anti-avoidance provision contained in s. 245 of the Act.

At the time the appellant decided to hand control of the company over to her son, a number of scenarios were available for giving effect to her intention.

Like any sensible and well-informed person, she consulted specialists for advice and guidance as to how all her objectives might be attained. The fact that her son was at the centre of the eventual purchase undoubtedly tended to make her more flexible: in other words, the appellant was undoubtedly more co-operative and conciliatory as she had a clear and natural interest in having the business remain in the family.

That being so, the experts she hired studied and analysed all the information and considered the special concerns of the appellant and her son; they suggested various scenarios, describing the tax consequences of each. The plan adopted was clearly the least costly in terms of taxes payable, although there were risks as to what the tax authorities would eventually think of it.

After failing the test, the appellant pleaded discrimination under s. 15(1) of the Charter of Rights and Freedoms.

I do not feel this argument is valid, since the assessment resulted essentially from the choice she herself made and accepted in full knowledge of the consequences.

In my view, the following passage from the decision of Judge Bowman of this Court in Hover v. Minister of National Revenue, 90-2976(IT), at pages 3-5 of the English version, is both appropriate and relevant [reported (1992), [1993] 1 C.T.C. 2585 (T.C.C.)]:

In a broad sense it might be said that any fiscal law that dictates different treatment for different classes of persons discriminates among those classes. Yet the Act abounds in such distinctions. Farmers are treated differently from those engaged in manufacturing who in turn receive a different treatment from those engaged in the resource industry. Employees are treated differently from persons in business. Married persons are accorded treatment that differs from that accorded to single persons.

It must be recognized that taxing statutes have economic and social objectives that far transcend the mere raising of money and it is difficult to conceive of any way in which a modern industrialized state such as Canada could avoid making such distinctions in its fiscal legislation. Such distinctions may appear superficially to be arbitrary and possibly unfair and the appellant has raised squarely whether the category to which the Minister’s assessment under section 31 relegates him in the fiscal scheme of things infringes upon his right of equality under the Charter.

In considering this question, one cannot view section 31 in isolation or attempt to excise it from the complex code that governs farmers generally under the Act. It is not only category II farmers that are singled out for special treatment. Farmers generally enjoy a variety of advantages not accorded to other taxpayers such, to mention only a few, as the right to use the cash basis of accounting, family farm rollovers, accelerated capital cost allowance on certain property, current deductibility of certain expenses that would otherwise be regarded as capital, block averaging, and the exemption from the requirement to make quarterly installments. Many more examples might be cited but they serve to illustrate the virtual impossibility of striking down as discriminatory one aspect of a complex code of fiscal legislation dealing with a particular segment of the community without doing violence to the overall scheme envisaged by Parliament. As stated by McIntyre J. in Andrews at p. 303:

lt is not every distinction or differentiation in treatment at law which will transgress the equality guarantees of s. 15 of the Charter. It is, of course, obvious that legislatures may - and to govern effectively - must treat different individuals and groups in different ways. Indeed, such distinctions are one of the main preoccupations of legislatures. The classifying of individuals and groups, the mak- ing of different provisions respecting such groups, the application of different rules, regulations, requirements and qualifications to different persons is necessary for the governance of modern society.

For the appellant to succeed on this aspect of his case he must establish that the discrimination of which he complains is based upon the enumerated grounds set out in section 15 of the Charter or grounds analogous thereto. The appellant’s contention is that the “discrete and insular minority” 2 to which he belongs is that group of farmers who have other sources of income and that the very fact of their special treatment under section 31 is sufficient to make the special treatment of such a group discriminatory on grounds analogous to those enumerated in section 15.

I am, notwithstanding Mr. Shea’s thorough and articulate submission, unable to accept this argument. There is a world of difference between persons who are accorded unequal treatment under the law because of personal characteristics over which they have no control such as race, colour, sex, age, citizenship or mental or physical disability and persons who voluntarily choose a form of economic activity which carries with it a mix of fiscal advantages and disadvantages. The latter do not, in my view, form a discrete or insular minority in the sense in which the expression has been used in Andrews. It is not open to such persons to invoke the Charter to enable them to avoid the fiscal burdens of the economic endeavour that they have chosen and yet retain the benefits. To give effect to such a contention would be to distort the purpose of the Charter’.

'I do not wish to be taken as subscribing to the observation made by Galligan J. of the Ontario Court in Ontario Public Service Employees Union et al. v. The National Citizens Coalition Inc. et al., 87 D.T.C. 5270 at 5272 where he said, in speaking of the Charter, that “It seems to me to [sic] that it comes dangerously very close to trivializing that very important constitutional law, if it is used to get into the weighing and balancing of the nuts and bolts of taxing statutes.”

The Charter is the supreme law of Canada. It is fair to say that the Income Tax Act has an impact on more Canadians than any other federal statute. I have difficulty in seeing how the Charter is trivialized by subjecting so important a piece of fiscal legislation in appropriate cases to the scrutiny of the courts under the Charter.

2 U.S. v. Carotene Prod. Co., 304 U.S., 144 at 152-3, referred to in Law Society of British Columbia v. Andrews.

^Following the argument of this appeal there was drawn to my attention a decision (Re Finkle issued January 19, 1992) of Madam Justice Reed of the Federal Court, sitting as umpire in an unemployment insurance appeal. She dismissed the appeal on the basis that the appellant’s status as a member of the armed forces was not a “personal characteristic” analogous to the enumerated grounds set out in section 15 of the Charter and that he was not entitled to invoke section 15 of the Charter to avoid the special treatment accorded him under Unemployment Regulation 14(c). The learned umpire’s decision contains a useful analysis of this issue. I had considered recalling counsel to argue the effect of the case but since it confirmed the conclusion which I had reached in any event I did not consider that I was justified in doing so. See: /n re Lawrence’s Will Trusts, [1972] Ch.418 at 436-437.

For all these reasons, the appeals are dismissed.

Appeal dismissed.