Placer Dome Inc. v. Canada (No. 1), [1991] 1 CTC 361

MacKay, J.:—In this action the plaintiff appeals a reassessment by the Minister for its 1980 taxation year, on the basis that the reassessment in question was made outside the time limit established for reassessments by subsection 152(4) of the Income Tax Act, R.S.C. 1952, c. 148 (am. S.C. 1970-71-72,

c. 63) (the "Act"). At issue is the limitation period for reassessment by the Minister of the plaintiff's tax for the 1980 taxation year, in which a loss had been carried back from 1981. This depends upon the application of subsection 152(4) as amended by S.C. 1983-84, c. 1, subsections 84(3) and (6). The plaintiff contends that amended subsection is not applicable and that its predecessor, subsection 152(4) as it applied when the loss carryback was claimed, applies to preclude the reassessment here made by the Minister.

Facts

The parties filed an agreed statement of facts at the hearing of this appeal. Subject to certain agreed conditions, the statement provides as follows.

1. The Plaintiff is the successor by amalgamation to Placer Development Ltd. (herein called Development").

2. The taxation year of Development ended on December 31st in each calendar year and the income tax return for each fiscal period was due on or before June 30th in the calendar year following the end of any taxation year.

3. Development filed an income tax return for the 1980 taxation year within the time prescribed by the Income Tax Act (Canada) (the "Act") and the return was assessed by the Minister of National Revenue on October 5, 1981.

4. Development filed an income tax return for the 1981 taxation year on July 5, 1982 in which it reported a non capital loss of $2,224,448. At the same time Development, as contemplated by subsection 152(6) of the Act in force at June 30, 1982, filed a prescribed form claiming a deduction of the non-capital loss of $2,224,448 in computing taxable income for the 1980 taxation year.

5. The Minister of National Revenue reassessed Development on June 2, 1983 to allow the deduction of the loss of $2,224,448 in computing income for the 1980 taxation year.

6. On May 24, 1984, the Minister of National Revenue further reassessed Development for 1980 taxation year to reduce the amount of the non-capital loss deductible in computing taxable income to the sum $2,164,743.

7. The actual amount of the non-capital loss incurred in the 1981 taxation year was $1,572,829. [1]

8. On November 20, 1987 the Minister of National Revenue issued a further reassessment to Development for the 1980 taxation year to reduce the amount of 1981 non-capital loss available for deduction thereby increasing taxable income by the sum of $591,914.

The plaintiff objects to the final reassessment, made November 20, 1987, six years and approximately six weeks after the initial assessment. It is said that it was made after expiry of the limitation period established for reassessment by the Minister. The amount of the non-capital loss upon which the Minister bases the reassessment is not at issue. The sole question between the parties concerns the appropriate statutory limitation period for reassessments by the Minister in relation to the carryback of non-capital losses from the 1981 taxation year to the plaintiff's 1980 taxation year.

The Legislative Regime

Subsection 152(4) prescribes the time period in which the Minister may reassess tax. It has been amended since 1982 when the plaintiff taxpayer claimed non-capital loss from its 1981 taxation year to apply to its 1980 year. Then the limitation period for reassessment under subsection 152(4) was four years from the date of mailing an original notice of assessment, unless there was misrepresentation or other fault, or a waiver, by the taxpayer. In 1983 that limitation period was extended to seven years by amendment enacted by S.C. 1983-84, c. 1, subsection 84(3). [2]

Extending the limitation period for reassessment of tax was made in concert with extending the period for carryback of loss to a previous taxation year. In 1982 when the plaintiff claimed the loss from its 1981 taxation year as applicable to its 1980 year, the period allowed under paragraph 111(1)(a) was one year only. By amendment enacted by S.C. 1983-84, c. 1, subsection 54(1) this was extended to three years. [3]

In addition to these provisions, subsection 152(6) of the Act, referred to in subsection 152(4) as amended, under which the taxpayer claiming a loss carryback may require a reassessment to an earlier year to which the loss has been carried, also was revised by S.C. 1983-84, c. 1, subsection 84(4). [4]

Since the amendment to subsection 152(4) in the 1983-84 statutes, the subsection has been further amended (S.C. 1984, c. 45, subsection 59(1)) and the limitation period for reassessments in relation to loss carryback to a previous taxation year has been reduced to six years under paragraph (b) of subsection 152(4). The six-year limitation period was made “ applicable to the 1983 and subsequent taxation years" (S.C. 1984, c. 45, subsection 59(5)).

In Silverman v. M.N.R., [1989] 2 C.T.C. 2024; 89 D.T.C. 307 (T.C.C.) Kempo, T.C.J. rejected a taxpayer's argument that the six-year limitation period was intended to apply to reassessments made in calendar years after 1983, i.e., that the effective date of the amendment for purposes of reassessment was a calendar year after 1983 so that the amendment enacted by S.C. 1984, c. 45 applied to preclude a reassessment made some six years and four months after the original assessment. In that case loss had been carried back from the taxpayer's 1980 to his 1979 year and the final reassessment was made in 1986,

taxation year immediately following the taxation year, . . .

B. As amended S.C. 1983-84, c. 1, subsection 54(1):

111. (1) For the purpose of computing the taxable income of a taxpayer for a taxation year, there may be deducted such portion as he may claim of

(a) his non-capital losses for the 7 taxation years immediately preceding and the 3 taxation years immediately following the year, . . .

This amended provision is“ applicable with respect to the computation of taxable income for the 1983 and subsequent taxation years” by virtue of S.C. 1983-84, c. 1, subsection 54(6)].

more than six but less than seven years after the date of the original assessment. While the facts in the case before this Court are analogous to those in Silverman the taxpayer here raises an issue not there raised and does not argue that subsection 152(4) as amended by S.C. 1984, c. 45, subsection 59(1) is here applicable. The plaintiff's argument here would limit the reassessment period to four years, as it was at the time the loss carryback was claimed.

Outline of the Parties' Positions

The plaintiff argues that subsection 152(4), as amended by S.C. 1983-84, c. 1, subsection 84(3), and made effective in accord with subsection 84(6), must be interpreted to apply only to those situations in which the taxpayer has availed himself of subsections 152(6) and 111(1) as amended by the same amending statute and that it is not applicable to situations previously governed by the preamended subsection 152(6) and section 111. To these situations it is urged that subsection 152(4) applies as it was prior to amendment by the 1983-84 statutes. It is submitted that the amendments be read in the context of the scheme of the Income Tax Act as a whole with regard to the purpose of the amendment in that context. As the basis of this interpretive approach, counsel relies upon Stubart Investments Ltd. v. The Queen, [1984] 1 S.C.R. 536; [1984] C.T.C. 294; 84 D.T.C. 6305 and Lor-Wes Contracting Ltd. v. The Queen, [1985] 2 C.T.C. 79; 85 D.T.C. 5310; 60 N.R. 321 (F.C.A.). In reliance upon the latter counsel also invites consideration of explanatory notes, released by the then Minister of Finance explaining the amending bill, to which the Minister made reference in debate in the House of Commons. This document, it is said, supports the interpretation of subsection 152(4) urged by the plaintiff. In that context the key to resolution of the issue in this case is said to be the interpretation of subsection 84(6), relating to the application of the amended subsection. [5]

The Minister's position was essentially that the amending Act's provisions relating to applicability of the amendments, subsection 84(6), were clear, and expressly provided for reassessments of the sort that the Minister has made in this case.

Interpreting the 1983-84 Amendments

In Stubart Investments Ltd. v. The Queen, supra, Mr. Justice Estey, speaking for the Supreme Court at 316 (D.T.C. 6323; S.C.R. 578), referred to the principle of interpretation stated by E.A. Driedger, in Construction of Statutes, 2nd ed. (1983) at page 87:

Today there is only one principle or approach, namely, the words of an Act are to be read in their entire context and in their grammatical and ordinary sense harmoniously with the scheme of the Act, the object of the Act, and the intention of Parliament.

Referring to the comments of Estey, J. in that case, Mr. Justice MacGuigan, speaking for the Federal Court of Appeal in Lor-Wes Contracting, supra, stated

at 83 (D.T.C. 5313): "The only principle of interpretation now recognized is a words-in-total-context approach with a view to determining the object and spirit of the taxing provisions."

In reliance upon that approach it is urged on behalf of the plaintiff that the total context in which subsection 152(4) was amended to provide for a sevenyear period for reassessment includes an appreciation of related changes introduced by the same amending statute, including the change to subsection 152(6), section 111 and the provisions bringing these changes into effect. [6] Thus, it is said that the amended subsection 152(4) is enacted in concert with and with reference to the extended period for loss carryback, up to three years, introduced by the amended section 111, and that the amended subsection 156(6) provided a complementary requirement for reassessment by the Minister in a variety of circumstances, including when a deduction under section 111 is made in respect of a loss in a subsequent taxation year.

For the record I note that the amendment to section 111(1), extending the period for loss carryback to three years (S.C. 1983-84, c. 1, subsection 54(1)), is made applicable to "the computation of taxable income for 1983 and subsequent taxation years" (S.C. 1983-84, c. 1, paragraph 54(6)(a)). An exception is provided for the 1983 taxation year whereby, in the case of a public company like the plaintiff, not qualifying under the Act as a small business, the carryback period was limited to two years (S.C. 1983-84, c. 1, paragraph 54(6)(b)). Full implementation of the three-year carryback for non-capital losses in the case of such companies was phased in over two years. It was stated by counsel for the plaintiff that the amendment to section 111 did not permit the plaintiff corporation to carry back a loss from 1983 to its 1980 year, a result which seems to me clear from the exception clause, idem. I note that counsel for the defendant did not agree in argument that the plaintiff corporation was so limited in relation to any loss incurred in the 1983 taxation year but disagreement on that point has no significance for determination of this case. The significance of the coming-into-force provisions relating to section 111 is that it was applicable to 1983 and subsequent taxation years.

The key to the interpretation of subsection 152(4) is said for the plaintiff to be found in the provision bringing the amendment of that subsection into effect. That provision (S.C. 1983-84, c. 1, subsection 84(6), quoted supra, note 5) deals with the amended subsection 152(4) and the amended subsection 152(6) and it provides that they

. . . are applicable after April 19, 1983, except that where the subsequent taxation year referred to in subsection 152(6) of the said Act, as enacted by subsection (4), is a taxation year ending after 1982, the prescribed form referred to in subsection 152(6) may be filed for the subsequent taxation year at any time on or before the later of

(a) the day on or before which it would be required by the said subsection 152(6) to be filed, and

(b) the day that is 90 days after the day on which this Act is assented to.

It is the plaintiff's contention that read together, the amendments introduced by subsections 84(3), (4) and (6) mean that the power to reassess for up to seven years only applies when an application is made, after April 19, 1983, under subsection 152(6) as amended after that same date, to carry back a loss, or when the "subsequent year", the year in which the loss is incurred, is a taxation year after December 31, 1982. Since neither of those circumstances occurred in this case it is urged that subsection 152(4) as amended has no application and the previous version of that subsection, limiting the reassessment period to four years, in force at the time the loss was claimed, is the appropriate section for determining the time within which the Minister is to reassess, if he decides to do so.

The plaintiff urges that support for its interpretation of the Act is found in three circumstances. These are the purpose of the amendments as appears from the explanatory notes of the then Minister of Finance when the amending bill was before Parliament, the inclusion in subsection 152(4) of reference to subsection 152(6) for the first time in the 1983-84 amendment, and the anomalous situation that would prevail in relation to reassessments if the interpreta- ion urged by the defendant is accepted.

Explanatory notes published by the Minister may not in themselves readily qualify as an aid to interpretation. In this case, however, the Minister of the day specifically referred to explanatory notes he had published in conjunction with consideration of the bill amending the Act, and it is urged these notes be considered in support of the submission of the plaintiff about the mischief sought to be remedied, and the general purpose of the amendments, following the principle set out by MacGuigan, J.A. in Lor-Wes Contracting, supra, at 84 (D.T.C. 5314):

I am strengthened in this conclusion by the clear indication of the evil sought to be remedied found in the parliamentary debates, of which as public documents this Court can take judicial notice. While the rule still remains that legislative history is not admissible to show the intention of the legislature directly, the Supreme Court of Canada has nevertheless increasingly looked to legislative history for related purposes, not only in constitutional cases (Re Anti-Inflation Act, [1976] 2 S.C.R. 373, Re Objection by Quebec to a Resolution to Amend the Constitution, [1982] 2 S.C.R. 793), but also in relation to the interpretation of statutes generally.

In that case, the learned Justice, after referring to other examples of decisions of the Supreme Court, discussed the budget statement of the then Minister of Finance as it was included in Hansard (Debates of the House of Commons).

In this case, plaintiff's counsel points to debates in the House of Commons, [7] concerning the bill containing the amendments in issue, in which the then Minister of Finance referred to the amendments and to explanatory notes he had published, in the following words:

The bill also allows business losses to be carried back three years and forward seven years, instead of one year back and five years forward as at present. The three year carryback will be phased in over two years for most businesses, but for small business corporations, this new benefit will take effect immediately.

I was pleased to see that the House Standing Committee on Finance, Trade and Economic Affairs took note of the release on August 15 of explanatory notes to the draft bill. The Committee described this initiative as a major improvement in the effort to make complex tax changes more understandable to the general public. Late last month I made available revised explanatory notes. I have given my commitment that simplification of the tax system will be a continuing high priority, particularly as it applies to the small business sector.

The explanatory notes to which the Minister made reference, includes comment upon the amendment to subsection 152(4), upon which the plaintiff relies in the following terms:

Existing subsection 152(4) of the Act provides that in the absence of fraud or misrepresentation the Minister of National Revenue may not assess or reassess tax, interest or penalties after four years from the day of mailing the original notice of assessment. This amendment extends the four-year reassessment period to seven years in certain circumstances. The need for the amendment arises out of the extension of the carryback period for losses and investment tax credits.

Paragraph 152(4)(b) of the Act is amended to permit the Minister to assess or reassess tax Within seven years where the assessment or reassessment for a year requires an adjustment described in subsection 152(6), such as the carry back of a loss or an investment tax credit from a subsequent year. Thus, for example, if a non-capital loss for 1984 is claimed by a taxpayer in 1981 and, within seven years from the date of mailing the original notice of assessment for 1981 it is determined that the actual amount of that loss is less than the amount claimed, the Minister may reassess the 1981 year to the extent that the reassessment relates to the adjustment of the loss carryback. . ..

The plaintiff urges that read in light of the other amendments with which it was interrelated, including the coming-into-force provisions, and the explanatory note, the reasonable interpretation is that the change of the assessing period to seven years only applies when one is dealing with a 1983 or subsequent taxation year loss or a request for a carryback made after April 19, 1983.

Counsel for the defendant does not object to the Court's resort to the explanatory notes published and referred to in parliamentary debate by the then Minister, so long as the explanatory notes are not taken to displace the plain meaning of the words in subsection 84(6) " applicable after April 19, 1983”. Moreover, the defendant argues that "the need for the amendment" referred to in the explanatory notes cited by the plaintiff includes the need to provide for a seven year period for reassessment in relation to the 1980 taxation year since the loss carryback extension under the amended subsection 111(1) included situations where the carryback period for the 1983 taxation year for noncapital losses extended to three years, i.e., to 1980.

In my view the reference to the explanatory notes does not resolve the principal issue between the parties. If consideration is to be given to these notes, that should include more than the passage cited in argument by counsel for the plaintiff. Thus, the notes referring to subsection 152(4) conclude: "The amendments to subsection 152(4) of the Act are applicable after April 19, 1983” and with reference to the coming-into-force provisions, the notes state:

[The provision sets out] the effective dates for the amendments to section 152 of the Act and provide for an extension of the time for filing the prescribed forms required by subsection 152(6) where a taxation year ends before these amendments are enacted.

Read as a whole the explanatory notes are generally supportive of the plaintiff's argument that the purpose of the amendments in question is to facilitate arrangements for extension of the period for loss carryback (and, incidentally, carry forward) with appropriate time for the Minister to reassess. The explanatory notes are not essential to assessment of that purpose and they do not, in my view, assist in resolution of the issue between the parties.

The plaintiff submits that its interpretation is further supported by the inclusion of reference to subsection 152(6) in the text of subsection 152(4) for the first time in the 1983-84 amendment. It is submitted this inclusion supports the interpretation of subsection 152(4) as amended, as intended to relate to situations to which the amended subsection 152(6) and subsection 111(1) with the extended carryback period, apply. It is urged that an inference supporting this can be drawn from the inclusion of the amended subsections 152(4) and 152(6) in the same provision for their application, i.e., S.C. 1983-84, c. 1, subsection 84(6). In my view, those readings of the amendments are dependant upon acceptance of the plaintiff's construction, consistent with its view of the purpose of the amendments. They do not, independently of that purpose, assist in determining legislative intent.

Finally, it is urged that this interpretation avoids retrospective application of the amended subsection 152(4) to any extent greater than required to give effect to the purposes of the amendment, ensuring that the Minister and the taxpayer would not be prejudiced by a shortened or expired limitation period in circumstances where the taxpayer claimed an adjustment as a result of the expanded loss carryback provision. In turn, this avoids the anomalous result, which the interpretation urged by the defendant would allow, that is, that while the loss year here involved, 1981, could not be reassessed beyond four years, the 1980 taxation year for which an adjustment was claimed from the loss incurred in 1981 would be reassessable for a period up to seven years. It was urged that such a result would be simply fortuitous for the Minister, and that there was no need for extending the time for reassessment by the Minister beyond the period known to both parties at the time the carryback was claimed within the limit of one year then provided.

As a final point the plaintiff urged that to the extent there is uncertainty about the intention of Parliament, that should be resolved in favour of the taxpayer. In my view, that issue does not arise since the application of the legislation to the circumstances of the plaintiff is here resolved.

In response to the arguments of the plaintiff counsel for the defendant relies principally on the argument that the words in subsection 84(6) of S.C. 1983-84, c. 1, concerning the application of the amended subsection 152(4), are clear and unambiguous. It is urged that the words used with reference to that amended subsection, " applicable after April 19, 1983”, are clear, that there is therefore no necessity to look beyond them for a purpose which would in any way qualify the intention of Parliament revealed by those words. Thus, the extended reassessment period to seven years under the amended subsection 152(4) authorizes the reassessment made in this case by the Minister, more than six years but less than seven after the date of the original assessment for the 1980 taxation year.

Referring to Silverman, supra, counsel urges the approach there followed; by reference to other sections of the same amending statute it is urged that if Parliament had intended the amended subsection 152(4) to apply only to certain taxation years it would have said so, as subsection 84(5) of S.C. 1983-84,

c. 1 does in respect of amendments enacted to subsections 152(1.1) and 152(1.3) of the Act which are specifically said to be "applicable to the 1983 and subsequent taxation years". I am not persuaded that this assists in resolving the issue raised by the plaintiff, for the object of subsections 152(1.1) and 152(1.3) is, in my view, to require the Minister, having ascertained the amount of a taxpayer's loss for a taxation year which has not been reported by the taxpayer as a loss for that year, to determine at the taxpayer's request the amount of the loss and to send notice of that to the taxpayer, and that determination is binding, subject only to the taxpayer's right to object and to appeal. The provision for the application of these amendments thus simply ensures that they are applicable with effect from the 1983 taxation year to ensure that there is no retroactive application unless that be, as it turned out to be, for the taxation year before the amending Act was ultimately adopted by Royal Assent on January 19, 1984. Moreover, it is not surprising that these other amendments were made applicable to a specified taxation year since the provisions were concerned with a single taxation year.

Counsel for both parties made reference, for different purposes, to the later amendment of subsection 152(4), by S.C. 1984, c. 45, subsection 59(1), limiting the reassessment period to six years which was made applicable to the 1983 and subsequent taxation years. I am not disposed to consider this later enactment as an aid in considering the earlier amendments which present the issue in this action. For the same reason, since Silverman deals with the later amendment and its interpretation, and does not deal with the issue raised in this case, that is the application of subsection 152(4) as amended by S.C. 1983-84, c. 1, subsections 84(3) and (6), that case is not directly relevant here.

Conclusion

At the risk of oversimplifying this case, I see it as a question of whether Parliament intended the extended period for reassessment, up to seven years, to apply to all cases in which a loss had been carried back even before the amendment under rules prevailing before the amendment, or whether it was to apply only to cases where the taxpayer took advantage of the extended period for loss carryback, or at least applied for loss carryback, under the amended section 111.

In my view, the intention of Parliament must be deemed to be the latter for two reasons. First, that is consistent with the purpose of the Act in light of the coordination of amendments to subsections 111(1), 152(4) and 152(6). The object of these was to facilitate the opportunity to claim a loss carryback, or to carry it forward, for an extended period. Within that objective subsection 152(4) was amended to extend the reassessment period. That reassessment period is deemed to be related to those who took advantage of the opportunity to claim a carryback of loss under the amended subsection 111(1), which became effective for the 1983 taxation year. The second reason, supporting that conclusion, is the presumption against retrospective application of legislation which has a prejudicial or adverse effect upon persons in relation to completed transactions or events. [8] While that presumption may be rebutted where Parliament clearly or by necessary implication so states, that statement or implication must be clear. Here the retrospective application of subsection 152(4) to transactions completed under a different legislative regime, i.e., permitting reassessment up to seven years rather than the four years in vogue when the loss was claimed and assessed, is not clearly specified as an objective of the legislation. It is not suggested as necessary to accomplish the purpose or object of the amendments in question when read together, and thus it is not supported by any necessary implication.

Generally, legislation is applied with prospective effect only. The presumption against retrospective application is ignored where the statute is deemed beneficial in its effects, or where it is merely procedural without affecting substantive interests, or where, within comparatively narrow limits it is deemed to be enacted to protect special public interests. The legislation here in question, in my view, fits none of those categories. Rather, if deemed to apply to past events its effects are primarily prejudicial or adverse to the substantive interests of the taxpayer, and the presumption against retrospective application applies.

I conclude that subsection 152(4) as amended by S.C. 1983-84, c. 1, subsections 84(3) and 84(6), has prospective effect only, in all aspects of its application, and is applicable only where the opportunity afforded by the amended subsection 111(1) is taken by the taxpayer after April 19,1983 to claim a loss carryback, which could only be done for a taxation year commencing after December 31, 1982. In any case like that of the plaintiff here where the loss was claimed in a prior taxation year and carried back within the then prevailing limit of one year, the Minister is limited in the period for reassessment by the terms of subsection 152(4) as it was prior to April 19, 1983, permitting reassessment for a period up to four years. If it were otherwise, and the extended period for reassessment at the option of the Minister were deemed to apply, transactions com- pleted under the law then prevailing (here the filing of a tax return, its assessment and reassessment by the Minister) could be affected adversely to the interests of the taxpayer.

Parliament might so provide by legislation but its intent to regulate past transactions of this sort which have been completed must be clear. The defendant's interpretation would imply, for example, that Parliament intended that under the amending statute the Minister's authority to reassess for a period of seven years would permit in 1984, after enactment of the statute, reassessment of the 1975 or 1976 taxation year to which a taxpayer had carried back a loss from 1976 or 1977, the reassessment of which had been closed in 1980 or 1981 under section 152(4) as it then was. I am not persuaded Parliament intended any such action some three or four years after reassessment had been settled. Indeed, if that had been suggested to the Minister of National Revenue by his legal advisers in 1984 I expect he would have been surprised. In my view the intent to reopen transactions previously closed to further reassessment has not here been established.

In the circumstances of this case the Minister's reassessment dated November 20, 1987 was beyond the time limited for reassessment. It is, therefore, of no effect. The appeal of the plaintiff is allowed and the reassessment dated November 20, 1987, of the plaintiff's 1980 taxation year is vacated.

Appeal allowed.