Décary J.A.:
This appeal turns on the interpretation of the transitional provisions that accompanied the coming into force of the amendment made to subsection 13(21.1) of the Income Tax Act (“the Act”) by subsection 7(3) of the Act to amend the statute law relating to income tax and to make a related amendment to the Tax Court of Canada Act, S.C. 1985, c. 45. The provision in question is subsection 7(6) (hereinafter “the transitional provision”), which reads as follows:
7....
(6) Subsection (3) is applicable with respect to dispositions occurring after May 9, 1985 other than dispositions occurring pursuant to the terms of an agreement in writing entered into on or before that date.
7....
(6) Le paragraphe (3) s’applique aux dispositions effectuées après le 9 mai 1985, à l’exception des dispositions effectuées conformément à une convention écrite conclue au plus lard à cette date.
The facts of the case are not in dispute. In their simplest form, they can be summarized as follows. On August 31, 1961, the respondent entered into a lease contract pursuant to which it leased to the tenant a shopping centre located in Scarborough, Ontario. Article 37 of the lease granted the tenant an option to purchase. It provided that the tenant could exercise the option by sending a letter accompanied by a certified cheque, and it specified when the purchase would subsequently be concluded. The article ended with the following words: “The exercise of the option shall not terminate the lease, but the lease shall remain in full force and effect until the sale is closed”.
The tenant exercised the purchase option pursuant to the terms of the contract on January 20, 1986 and the sale of the shopping centre was concluded on August 29, 1986.
The issue is simple, as can be seen. The respondent is arguing that paragraph 13(21.1)(a) of the Act is not applicable because the sale on August 29, 1986 occurred pursuant to the terms of an agreement in writing (the lease, including the purchase option) entered into on August 31, 1961 and thus before May 9, 1985, the date on which the subsection in question came into force. The appellant does not share this view. According to her, the transitional provision does not apply because the sale did not occur pursuant to the terms of the agreement of August 31, 1961, but rather pursuant to the exercise of the option on January 20, 1986. In the appellant’s submission, the “agreement in writing” referred to in the transitional provision must be an agreement entered into on or before May 9, 1985 that required property to be disposed of and purchased but did not take effect until a later date, at a closing meeting. For all practical purposes, the appellant argued that the agreement in question is a bilateral agreement.
At trial, Noel J. rejected the appellant’s arguments. In our view, he was correct to do so and his analysis of the rules applicable to the interpretation of transitional tax provisions in general and the disputed provision in particular is unimpeachable.
Under the general law, it is established that once an owner grants a purchase option in circumstances such as those in the case at bar, the owner assumes an obligation by which he is unilaterally bound until the potential buyer makes a decision. In this regard, it is sufficient to refer to the following comments by Wilson J. in Ameri-Cana Motel Ltd. v. Miller, [1983] 1 S.C.R. 229 (S.C.C.), at p. 238:
There can, in my view, be no doubt about the fact that the grantor of an option does not retain control over the alienation of the optioned lands. He has bound himself to dispose of them to the optionee and to no other during the subsistence of the option. Moreover, he has bound himself by an agreement the performance of which may be specifically enforced against him. He has no further say in the matter. The optionee may, of course, decide not to exercise the option, whereupon disposing power will revert to the optionor once more, but until this happens, if it happens, the optionor has effectively deprived himself of any control over the alienation of the property....
It is also accepted that the transitional provision in question here must be interpreted from the seller’s standpoint since it was enacted solely to protect sellers who had, at the relevant time, bound themselves contractually to make a disposition.
Finally, it is clear that the terms of the transitional provision, whether the English or the French version is considered, do not have the restrictive character the appellant is seeking to give them. On its face, the sale on Au- gust 29, 1986 was concluded pursuant to the terms of (or “conformément à”) the lease entered into on August 31, 1961 and, furthermore, pursuant to the terms of the purchase option granted in article 37 of that lease.
The appellant’s argument that the exercise of the option on January 20, 1986 established a new agreement or broke off the relationship the parties had until that time does not stand up to analysis. The exercise of the option was part of the mechanism established in 1961 to ensure, if necessary, that the lease and the purchase option set out therein would be replaced by a sale. The respondent’s obligation, which was contracted in 1961, did not end until the property was actually sold on August 29, 1986.
In our view, the appellant is trying to rewrite subsection 7(6). The rewriting of statutes is the responsibility of Parliament, not the courts.
The appeal will be dismissed with costs.
Appeal dismissed.
Email this Content