Glaxo Wellcome Inc. v. The Queen, 96 DTC 1159, [1996] 1 CTC 2904 (TCC), aff'd 98 DTC 6638 (FCA)

Bowman J.T.C.C.: — This appeal is from an assessment for the appellant’s 1988 taxation year. The sole question is whether the appellant is entitled to treat property sold by it as a “former business property” within the meaning of section 44 of the Income Tax Act so as to defer the recognition by it of the capital gain realized on the sale.

At trial the style of cause was amended to change the appellant’s name from Glaxo Canada Inc. to Glaxo Wellcome Inc.

The only evidence adduced was in the form of a Statement of Agreed Facts and a Joint Book of Documents.

A brief summary of the facts is sufficient for the purposes of dealing with the question of law.

In 1965, a predecessor of the appellant, Glaxo-Allenburys (Canada) Limited (“G-A”) bought an 18.2 acre parcel of land on Eglinton Avenue East in Mississauga, Ontario. The Eglinton property was purchased with the specific intention of using it in an anticipated future expansion of G-A’s pharmaceutical business. To this end consultants and architects were engaged with a view to constructing a facility on the Eglinton property.

In 1970 as the result of the acquisition in 1968 by G-A’s parent of the parent of The British Drug Houses (Canada) Limited (“BDHC”), G-A and BDHC amalgamated to form Glaxo Canada Inc., the present appellant, (or, at all events, the predecessor to Glaxo Wellcome Inc.) (“Glaxo”).

BDHC, prior to its amalgamation with G-A, operated a facility at 1025 The Queensway in Etobicoke, Ontario. That facility had enough room to accommodate the merged operations and accordingly Glaxo deferred its proposed construction on the Eglinton property.

It was, however, intended to expand and to this end the Eglinton property was retained. By 1987, Glaxo realized that its growth was of such a magnitude that a future expansion would require more space than the 18.2 acres comprising the Eglinton property. It therefore sold the Eglinton property for $9.5 million dollars in 1988 and bought a 61.58 acre site in Mississauga for $24,682,707 for its future expansion requirements.

From 1970 to a time subsequent to the acquisition of the Mississauga property in 1989 Glaxo operated primarily out of the Queensway property. The Eglinton property remained vacant throughout the entire period from its acquisition until its sale.

In its return of income for 1988 Glaxo filed elections under subsection 44(1) with a view to deferring the recognition of the capital gain realized on the sale of the property but this was denied on assessing. Hence this appeal.

In essence, section 44 permits a taxpayer to defer the recognition of a capital gain realized on the disposition of a “former business property” where before the end of the second taxation year following the year of disposition the taxpayer acquires a “replacement property”. Both the former business property and the replacement property must be capital properties. There is no issue on the latter point, nor is there any issue that if the Eglinton property is a “former business property” the Mississauga property is a “replacement property”.

Former business property is defined in section 248 in part as follows:

“former business property” of a taxpayer means a capital property that was used by him primarily for the purpose of gaining or producing income from a business, and that was real property or an interest therein of the taxpayer, but does not include....

In the French version of the Income Tax Act the expression is “ancien bien d’entreprise” which is defined in part as follows:

“ancien bien d’entreprise” S’entend d’un bien en immobilisation d’un contribuable utilisé par lui ou par une personne qui lui est liée principalement en vue de tirer un revenu d’une entreprise et qui était un bien immeuble du contribuable ou un droit y afférent. En sont exclus:...

The entitlement of the appellant to the deferral contemplated by section 44 depends on the meaning to be ascribed to one word - used - (utilisé).

Why is this so difficult a question? The word “use” is one of the commonest and most frequently used in the English language, as is “utiliser” in French. Indeed, the definition of the verb “use” in the New Shorter Oxford Dictionary of the English Language is “make use of (a thing) esp. for a particular end or purpose; utilize, turn to account...; work, till, occupy, (land, ground etc)”. The noun “use” is defined as “act of using, fact of being used”. After this exercise in circularity we are no wiser than before (or, for that matter, any better informed). Similarly, “utiliser” is defined in Le Petit Robert 1 dictionnaire de la langue française as “rendre utile, faire servir à une fin précise... employer”. I should not have thought that the resolution of this apparently (but deceptively) simple question would force me to bring to bear the vast array of principles of statutory interpretation that are regularly enunciated by our courts.

We have, to start with, the “teleological” approach discussed by Gonthier J. in Québec Communauté urbaine v. Corp. Notre-Dame de Bon-Secours, [1994] 3 S.C.R. 3 (sub nom. Notre-Dame de Bon-Secours (Corp.) v. Québec (Communauté urbaine)), [1995] 1 C.T.C. 241 (sub nom. Corp. Notre-Dame de Bon-Secours v. Québec (Communauté urbaine)), 95 D.T.C. 5017 at 17 (C.T.C. 250, D.T.C. 5022); then, we have the “words- in-total- context” approach discussed by MacGuigan J. in Lor-Wes Contracting Ltd. v. R., [1985] 2 C.T.C. 79, 85 D.T.C. 5310. In Tennant v. R. (sub nom. Tennant v. Canada) [1994] 2 C.T.C. 113, 94 D.T.C. 6505 (F.C.A.) we are instructed to avoid a “results oriented approach” and by Swantje v. R. (sub nom. Swantje v. Canada), [1994] 2 C.T.C. 382 (sub nom. R. v. Swantje), 94 D.T.C. 6633 (F.C.A.), affirmed (February 2, 1996), Doc. 24439 (S.C.C.) to avoid a “purely mechanical” approach in favour of a “functional” one. The matter was put with elegance and simplicity by Cartwright J. (as he then was) in Highway Sawmills Ltd. v. Minister of National Revenue, [1966] S.C.R. 384, [1966] C.T.C. 150, 66 D.T.C. 5116, where he said at page 393 (C.T.C. 157, D.T.C. 5120):

The answer to the question what tax is payable in any given circumstances depends, of course, upon the words of the legislation imposing it. Where the meaning of those words is difficult to ascertain it may be of assistance to consider which of two constructions contended for brings about a result which conforms to the apparent scheme of the legislation.

Many other quotations of high authority might be found. There is, for example, a set of rules enunciated in Stubart Investments Ltd. v. R., [1984] 1 S.C.R. 536, [1984] C.T.C. 294, 84 D.T.C. 6305, where the concept of object and spirit is discussed. ,

Obviously one starts with the plain words of the statute. If the words of the legislation are clear and unambiguous and admit of but one interpretation one need look no further. If they are not and are susceptible of more than one interpretation one must look to the scheme of the act and its object and spirit. It is only when recourse to all of the other tools of statutory interpretation fails to yield a clear answer that one is entitled to invoke the principle that in case of ambiguity the benefit of the doubt must go to the taxpayer. As Fauteux, C.J. said in Montreal (City) v. ILGWU Centre, [1974] S.C.R. 59, 24 D.L.R. (3d) 694, 2 L.C.R. 26 at page 66 (D.L.R. 699, L.C.R. 30):

The legislator is presumed to mean what he says; and there is no need to resort to interpretation when the wording is clear...

The same view was expressed by Chief Justice Isaac in Hawboldt Hydraulics (Canada) Inc. (Trustee of) v. Canada, (sub nom. Hawboldt Hydraulics Inc. Estate (Trustee of) v. Canada) [1994] 2 C.T.C. 336 (sub nom. R. v. Hawboldt Hydraulics (Canada) Inc.), 94 D.T.C. 6541, leave to appeal to S.C.C. refused (sub nom. Hawboldt Hydraulics (Canada) Inc. (Bankrupt) v. Minister of National Revenue) (1995), 187 N.R. 237, at page 342 (D.T.C. 6546):

But these principles are not invitations to Courts to ignore other well- accepted rules of construction, such as that which requires Courts to construe statutes so as “to ascribe some meaning to each word used by the legislature,” Atco et al. v. Calgary Power Ltd. et al., [1982] 1 S.C.R. 557 at 569.

Let us then start with the word “used”. About as garden-variety a word as one is likely to find anywhere. A company uses a piece of land on which it locates its factory, and carries on its business. A farmer uses land on which he plants crops. Indeed, I would extend the word “use” to cover land that a farmer summer-fallows for a season. Unless some principle of interpretation compels me to ascribe a broader meaning to the word, “use” connotes actual utilization for some purpose, not holding for future use. “Used primarily for the purpose of gaining or producing income from a business” would, prima facie, imply that the land be put to some productive use in the business.

Do any of the other approaches - functional, teleological, words- in- total-context, object and spirit, scheme of the Act - suggest a different result? In applying the teleological approach, which appears to subsume the others, [1] one must first identify the telos at which the legislature is aiming. That first step is perhaps the most difficult. If the legislative intent is not obvious from the legislation itself the Court is sometimes invited to resort to extrinsic aids. In recent years Hansard, or other speeches by politicians, have been referred to. These should be used with great care. Pronouncements of politicians consist as a rule of broad generalities and are seldom a reliable guide in interpreting the specific words of a statute. Seldom do speeches of politicians in Parliament provide any real enlightenment except possibly in the broad sense of identifying governmental policy.

One must bear in mind that it is Parliament that passes legislation, and it is through the words of that legislation that Parliament speaks. An act of Parliament represents the collective will of Parliament. One cannot be certain that the same can be said of extrinsic materials. To attempt to determine the intent of a statutory provision by reference to a speech delivered by a member of the government, a speech that he or she may well not have written, or by technical or explanatory notes prepared by officials of the Department of Finance, or other budgetary materials, strikes me as a potentially dangerous course of action. Where a court strains to assign to reasonably comprehensible language an extended meaning that conforms to what it conceives, on the basis of extrinsic materials, to be what Parliament was seeking to achieve it runs the risk of crossing the line that separates the judicial from the legislative function.

Nonetheless, the strict exclusionary rule that was stated unambiguously in Canada (Attorney General) v. Reader's Digest Assn., [1961] S.C.R. 775, [1961] C.T.C. 530, 61 D.T.C. 1273 appears to have been relaxed, and such extrinsic materials may now be referred to. See: Hawboldt Hydraulics (Canada) Inc., (supra), at page 340 (D.T.C. 6545); R. v. Lyons, [1984] 2 S.C.R. 633, 56 N.R. 6, 14 D.L.R. (4th) 482, at page 684 (N.R. 31, D.L.R. 522); R. v. Morgentaler, [1993] 3 S.C.R. 463, 157 N.R. 97, 107 D.L.R. (4th) 537, at pages 484-85 (N.R. 121, D.L.R. 553); Edmonton Liquid Gas Ltd. v. R., [1984] C.T.C. 536, 84 D.T.C. 6526 (F.C.A.). In Canterra Energy Ltd. v. R., [1985] 1 C.T.C. 329, 85 D.T.C. 5245 (F.C.T.D.), Reed J. dealt at some length with the use of extrinsic materials. Her judgment was reversed by the Federal Court of Appeal ([1987] 1 C.T.C. 89, 87 D.T.C. 5019) but the appropriateness of using such materials was not argued in that court. In Maritime Telegraph & Telephone Co. v. R., (sub nom. Maritime Telegraph Telephone Co. v. Canada) [1992] 1 C.T.C. 264, 92 D.T.C. 6191 (F.C.A.) MacGuigan J. referred to a technical note accompanying an amendment. The same trend is evident in the United Kingdom. See: Pickstone v. Freemans Pic. [1989] A.C. 66 and Pepper (Inspector of Taxes) v. Hart, [1993] A.C. 593 at 630-40.

The practice today, in my experience, appears to be to refer in argument to virtually anything that may have some bearing, however remote, on the question to be decided - speeches in Parliament, technical notes, explanatory notes, budgetary materials, commission reports, published advance income tax rulings, texts by authors, whether living or dead, articles and speeches by practitioners or academics, interpretation bulletins - all are grist for the mill and the court is left to determine what assistance, if any, can be gleaned from such materials. [2] The practice is now too well entrenched to be reversed but it is important that the reliability and the utility of such materials be put in their proper perspective and that it be recognized that ultimately the interpretation must be based upon the court’s reading of the legislative language itself. In that endeavour such extrinsic aids must be handled with extreme caution. As Sopinka J. said in Morgantaler at page 484 (N.R. 121, D.L.R. 553):

Provided that the court remains mindful of the limited reliability and weight of Hansard evidence, it should be admitted as relevant to both the background and the purpose of legislation.

Counsel in this case referred to extrinsic materials in an attempt to draw some inference favourable to their interpretation. I did not find these materials added to or detracted from the strength of either position. The object is clear enough. Section 44 is a relieving provision that enables business-persons to dispose of property used in the business and acquire replacement property without incurring the immediate impact of taxation that such disposition would entail. One does not need to read Hansard to see that.

I do however obtain some assistance from the Income Tax Act itself. Cattanach J. said in AEL Microtel Ltd. v. R., [1984] C.T.C. 387, 84 D.T.C. 6374 (F.C.T.D.) at 405 (D.T.C. 6389):

It is a rule of construction that, where in the same Act, and in relation to the same subject matter, different words are used such choice of different words must be considered intentional and indicative of a change in meaning or a different meaning.

The same principle was stated by Wilson J. in Atco Ltd. v. Calgary Power Ltd. [1982] 2 S.C.R. 557, 45 N.R. 1, 140 D.L.R. (3d) 193 at 569 (N.R. 7, D.L.R. 196):

The general canon of interpretation of course requires a court to ascribe some meaning to each word used by the legislature: Saine v. Beauchesne and Gobeil, [1963] S.C.R. 435, at page 437. The words “owning” and “controlling” are sometimes employed synonymously, but here a person who either owns or controls a system is the owner of the system. Consequently, “control” must mean something more than or different from “own”. À person might control and not own a system and might also own, but not on a daily basis control, a system. But in either situation the person may be within the definition of an owner of a public utility.

To the same effect Lord Diplock in Prestcold (Central) Ltd. v. Ministry of Lab our, [1969] 1 All E.R. 69 (U.K. C.A.) said at page 75:

Again, the habit of a legal draftsman is to eschew synonyms. He uses the same words throughout the document to express the same thing or concept, and consequently if he uses different words the presumption is that he means a different thing or concept.

See also R. v. Schwartz, [1977] 1 S.C.R. 673, 8 N.R. 585, 67 D.L.R. (3d) 716 at 680 (N.R. 601, D.L.R. 730), per Dickson J. dissenting (later adopted by the majority of the Court in R. v. Chaulk, [1990] 3 S.C.R. 1303, 119 N.R. 161, 69 Man. R. (2d) 161 at 1352 (N.R. 212, Man. R. 212) per Lamer C.J.):

Before considering the authorities it would be well, I think, to have regard to the internal structure of the Criminal Code. Accepted legal authorities respecting statutory construction confirm the validity of construing one part of a statute by reference to another part of the same statute. If Parliament had intended “wrong” to mean “contrary to law”, one might expect use of the word “unlawful”, which is used in sections of the Code dealing with assembly (s. 64), riots (s. 65), drilling (s. 71), and solemnization of marriage (s. 258) or, possibly the word “illegal”, which is used in s. 251(4) of the Code dealing with arrests.

In R. v. Frank, [1978] 1 S.C.R. 95, 15 N.R. 487, 75 D.L.R. (3d) 481 at 101 (N.R. 492, D.L.R. 485) per Dickson J. said:

I do not think “Indians of the Province” and “Indians within the boundaries thereof’ refer to the same group. The use of different language suggests different groups.

In R. v. Barnier, [1980] 1 S.C.R. 1124, 31 N.R. 273, 109 D.L.R. (3d) 257 at page 1135-36 (N.R. 285, D.L.R. 265) Estey J. said:

One must, of course, commence the analysis of a statutory provision by seeking to attribute meaning to all the words used therein. Here [in subsection 16(2) of the Criminal Code] Parliament has employed two different words in the critical portion of the definition [of insanity], which words in effect established two tests or standards in determining the presence of insanity... Under the primary canon of construction to which I have referred, “appreciating” and “knowing” must be different, otherwise the Legislature would have employed one or the other only.

Throughout the Act the expressions “used”, “that was acquired for use” “that was intended to be used”, “that was held” are found. It must be assumed that they are not interchangeable.

“Used or intended to be used” is found in clause 18(3. l)(a)(ii)(Bi) and paragraph 138(4.4)(d) of the Income Tax Act.

“Used or held” or “held” is used in the following provisions of the Income Tax Act: section 12.4 and paragraph 18(2)(d), subparagraph 18(3)(b)(ii), subsection 18(13), paragraph 85(1. l)(b), subparagraph 95(1 )(a. l)(i), paragraph 129(4. l)(c), paragraph 129(4.2)(b), subsection 138(4.4), subparagraph 138(5)(b)(i), subparagraph 138(5)(b)(ii), subparagraph 138.l(l)(c)(ii) and subparagraph 138.1(1)(c)(111).

“Acquired for use” appears in subsection 127(9). Indeed in the definition of certified property the two expressions “used” and “acquired for use” are juxtaposed.

It appears obvious that these expressions have a different meaning from “used” when that expression stands alone. As Mr. Justice Collier stated in Evans v. R., [1987] 1 C.T.C. 316, 87 D.T.C. 5226 (F.C.T.D.) , in dealing with the words “was used” in subsection 1100(17) of the Income Tax Regulations at page 318 (D.T.C. 5228):

There was a difference of view, between the parties, as to whether Regulation 1100(17) applied in this case. Was the motorhome, in 1980, a leasing property? The regulation provides that leasing property is “depreciable property” owned by the taxpayer, if in the taxation year, the property

...was used by the taxpayer...principally for the purpose of gaining or producing gross revenue that is rent, royalty or leasing revenue....

The dispute centered on the words “was used”. The plaintiff submitted the words must be given their ordinary meaning; on the evidence, the motorhome was not, in fact, used, in 1980, for the purpose of gaining or producing gross revenue.

The defendant contends that, on the evidence, the plaintiff intended to rent out the motorhome to others; even though no rentals took place in 1980, it was used within the meaning of the regulation.

I disagree. I concur with the plaintiff’s submissions.

The words “was used” must, in my opinion, be given their plain ordinary meaning. The leasing property must have, in fact, been used. Hoped for, or intended use, is not included.

Similarly, in Stearns Catalytic Ltd. v. R. (sub nom. Steams Catalytic Ltd. v. Canada), [1990] 1 C.T.C. 398, 90 D.T.C. 6286 McNair J. said at page 410 (D.T.C. 6294):

In my opinion, the words in subparagraph 127(10)(c)(i) “to be used” connote an actual physical or functional use of the prescribed machinery and equipment and spare parts stocked on shelves as an assurance against possible mechanical breakdown do not come within the concept of use, regardless of the soundness of the underlying business policy in stocking them.

In my opinion the Eglinton property was not “used” by Glaxo for the purpose of gaining or producing income from its business. It was intended to be used, it was waiting to be used, but in any meaningful sense of the term it was not being used. As Hugessen J. said in Qualico Developments Ltd. v. R. (No. 1), [1984] C.T.C. 122, 84 D.T.C. 6119 at page 130 (D.T.C. 6125-26):

In my view, the “use” of a building in the context of paragraph 20(1 )(aa) of the Income Tax Act requires something more than the passive holding of it, waiting for it to be sold.

Counsel for the appellant referred to a number of English authorities but I think they are distinguishable. In British Motor Syndicate Ltd. v. Taylor & Son Ltd., [1900] 1 Ch. 577 it was held that the transport within the United Kingdom of patented articles was “making use” of them within the Patent, Designs and Trade Marks Act. At page 583 Stirling J. said:

The first meaning assigned to the word “use” in Johnson’s Dictionary is “to employ to any purpose”; it is, therefore, a word of wide signification. It seems to me that the terms “use” and “make use of’ are intended to have a wider application than “exercise” and “put in practice”, and, without saying that no limit is to be placed on the two former expressions in the patent, I think, on the best consideration that I can give, that they are not confined to the use of a patented article for the purpose for which it is patented. In my opinion the transport within the United Kingdom of the articles made according to the plaintiffs’ patent under the circumstances which occurred in this case was, indirectly at least, “making use of’ those articles within the meaning of the patent, and consequently is an infringement.

Here we have the additional words “for the purpose of gaining a producing income from a business”. The land was never put to any use in the business at all. It was held for future use.

In Newcastle City Council v. Royal Newcastle Hospital, [1959] A.C. 248, [1959] 1 All E.R. 734 (N.S.W. P.C.) the question was whether vacant land adjoining a hospital was “used or occupied by a hospital for the uses thereof’. Lord Denning said at pages 254-55 (All E.R. 735):

The hospital acquired the land in a series of parcels from 1926 to 1946, namely, 92 acres in 1926, 4 acres in 1934, 10 acres in 1944, and 220 acres in 1946. There is no doubt that the hospital acquired all the land for the purposes of the hospital. Indeed, when the latest portion of it (220 acres) was compulsorily acquired in 1946, the Government Gazette expressly stated that it was “resumed for the purposes of the Newcastle Hospital.” According to the evidence these purposes were to keep the atmosphere clear and unpolluted: to prevent building upon the land and so act as a barrier against the approach of factories and houses: to provide quiet and serene surroundings for the patients: and to give room to expand the activities of the hospital. The land was undoubtedly acquired and owned for those purposes. But was it used or occupied for those purposes? That is the question.

Their Lordships are of opinion that it was used for those purposes. Mr. MacKenna submitted that an owner of land could not be said to use the land by leaving it unused: and that was all that had been done here. Their Lordships cannot accept this view. An owner can use land by keeping it in its virgin state for his own special purposes. An owner of a powder magazine or a rifle range uses the land he has acquired nearby for the purpose of ensuring safety even though he never sets foot on it. The owner of an island uses it for the purposes of a bird sanctuary even though he does nothing on it, except prevent people building there or disturbing the birds. In the same way this hospital gets, and purposely gets, fresh air, peace and quiet, which are no mean advantages to it and its patients. True it is that the hospital would get the same advantages if the land were owned by the Crown or by a trust which had determined to keep if in a natural state, or by an owner who was under a restrictive covenant not to build on the land. But the advantages then would be fortuitous or at any rate outside the control of the hospital. Here they are intended, and that makes all the difference.

I do not think the situation is the same here. The “use” of the vacant land by the hospital adjacent to the buildings was to assist in keeping the air clean and the atmosphere quiet. That is, in my view, quite a different matter from holding land that is not contiguous to the pharmaceutical company’s premises with a view to future development and for no other purpose than the fulfilment of its future business plans.

In my opinion the Eglinton property was not used by Glaxo for the purpose of gaining or producing income from its business. Therefore it was not a former business property.

The appeal is dismissed with costs.

Appeal dismissed.