Date:
20110317
Docket: A‑44‑10
Citation: 2011 FCA 104
CORAM: BLAIS
C.J.
PELLETIER
J.A.
TRUDEL
J.A.
BETWEEN:
HER MAJESTY
THE QUEEN
Appellant
and
GILDARD HACHÉ
Respondent
REASONS FOR JUDGMENT
TRUDEL J.A.
[1]
Are
the proceeds of the respondent’s disposition of two commercial fishing licences
taxable as a capital gain? The outcome of this appeal hinges on the answer to
that question, which requires that the Court first determine whether these
fishing licences are property within the meaning of subsection 248(1) of
the Income Tax Act, R.S.C., 1985, c. 1 (5th Supp.) (ITA).
[2]
The
Tax Court of Canada (TCC) judge who considered the issue found that fishing
licences were not property (within the meaning of the ITA) that the respondent
could dispose of and “that the amount received thus [could not] give rise to a
capital gain that must be included in his taxable income for the 2001 taxation
year” (Reasons for Judgment at paragraph 1: 2010 TCC 10, January 7,
2010, Justice Lamarre).
[3]
With
respect, I cannot agree with those findings. I would therefore allow the appeal
with costs in both Courts.
Relevant Facts
[4]
In
the TCC, the parties filed a statement of agreed facts (appeal book, tab F
at page 40). For the purposes of this appeal, it is sufficient to know
that the respondent, Gildard Haché, is a commercial fisher registered under the
Fisheries Act, R.S.C., 1985, c. F‑14 (FA). From 1996 to 2000,
inclusively, he was the holder of two fishing licences issued by the Minister
of Fisheries and Oceans (MFO), one for snow crab and the other for groundfish.
He was also the owner of a fishing vessel and the equipment required for his
fishing activities.
[5]
Throughout
the year 2000, in response to the Supreme Court of Canada’s judgment in R.
v. Marshall, [1999] 3 S.C.R. 456, the MFO implemented the Fisheries Access
Program [the Program] to increase First Nations’ participation in commercial
fisheries by transferring to them quotas and the vessels, gear and equipment required
for fishing.
[6]
This
access to commercial fisheries was implemented through a voluntary
relinquishment program. The MFO offered fishing vessel owners and commercial
fishing licence holders the opportunity to relinquish their interest in that
property in exchange for payment.
[7]
This
is the context in which, in February 2001, the respondent decided to
participate in the Program and, one month later, signed the agreement
reproduced in the appendix, by which the MFO agreed to make a voluntary payment
of $3,050,000 to him (article 9 of the agreement).
[8]
In
his income tax return for 2001, the respondent treated an amount of $2,825,000
as the proceeds from the disposition of an eligible capital amount. This amount
represented the portion of the voluntary payment received from the MFO that the
respondent allocated to the retirement of his fishing licences.
[9]
In
January 2004, following an audit of his 2000 and 2001 taxation years, the
respondent received a notice of reassessment stating that the Minister of
National Revenue (Minister) had determined that the proceeds of the disposition
of the licences were in the amount of $2,583,465. The $466,535 allocated to the
disposition of the fishing vessel and gear is undisputed.
[10]
The
appeal therefore concerns the tax treatment of the amount of $2,583,465 which,
according to the TCC, should not be included in the respondent’s income for the
2001 taxation year.
TCC judgment
[11]
To
reach this conclusion, the judge relied on the decisions in Saulnier v.
Royal Bank of Canada, 2008 SCC 58, [2008] 3 S.C.R. 166 [Saulnier]
and Manrell v. Canada, 2003 FCA 128 [Manrell].
(a) Saulnier
[12]
In
this first decision, the issue was whether Mr. Saulnier’s licence was “property”
under the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B‑3 (BIA) and
the Nova
Scotia
Personal Property Security Act, S.N.S. 1995-96, c. 13.
[13]
Although
the benefits arising from the licence did not fully correspond to all of the
rights required for a thing to be considered “property” at common law, the
right to participate in exclusive fishing activities in accordance with the
conditions of the licence and the proprietary right in the wild fish caught,
including the resulting income from sales [the “bundle of rights”] was reasonably
analogous to a common law profit à prendre, “which is undeniably a
property interest” (Saulnier, at paragraph 47). The definition of “property”
at section 2 of the BIA included “every description of estate, interest
and profit, present or future, vested or contingent, in, arising out of or
incident to property”, thus including Mr. Saulnier’s licence.
[14]
That
being the case, the judge departed from Saulnier by distinguishing that decision
from the case at bar, for two reasons. First, the passage above, drawn from the
definition of “property” in the BIA, does not appear in the definition of the
same term in the ITA. Second, the judge noted that in Saulnier, the
fisher held valid licences at the time of his bankruptcy, unlike, she
concluded, the respondent, who, at the time of signing the agreement, “no
longer possessed a ‘bundle of rights’ related to those licences that would have
conferred on him a proprietary right that could have constituted property”
(Reasons for Judgment at paragraph 21). Last, the respondent did not
transfer his licence to anyone who could exercise his rights in his stead.
Mr. Haché, unlike Mr. Saulnier whose property was seized by the
trustee in bankruptcy, simply relinquished his right to apply for a fishing
licence (ibidem at paragraph 23).
(b) Manrell
[15]
Furthermore,
the judge also referred to Manrell, a decision in which this Court found
that a payment received under a non‑competition agreement did not
constitute the proceeds of a disposition of property within the meaning of the
ITA.
[16]
Drawing
an analogy, the judge stated that:
. . . In my opinion,
giving up one’s right to operate a business, and thus a right to income, by
agreeing to sign a non‑competition agreement may be considered analogous
to giving up the right to apply for a fishing licence and thereby giving up any
profit à prendre from that licence. As in Manrell, I do not
believe there has been a disposition of property within the meaning of the ITA.
(ibidem at paragraph 24).
Analysis
[17]
The
facts are not in dispute. The disagreement between the parties essentially
concerns the interpretation to be given to the term “property” in the ITA, a
question of law reviewable according to the correctness standard; and the
application of the facts of this case to that definition, a mixed question of
fact and law on which our Court will only intervene to correct a palpable and
overriding error (Housen v. Nikolaisen, 2002 SCC 33, [2002] 2 S.C.R.
235).
[18]
In
this case, the judge did not make any error in identifying the analysis
framework required in matters of capital gains. She considered whether the
respondent’s abandonment of his fishing licences constituted a disposition of
property - a condition precedent to realizing a capital gain. Moreover, it is
clear that the issue of the validity of the respondent’s licences and this
Court’s conclusion in Manrell were determinative for the judge. In my
opinion, they should not have been so. The judge’s conclusion resulted in
errors of fact and law requiring this Court’s intervention. First of all, the
analogy with Manrell is infelicitous.
[19]
The
issue in Manrell was whether a payment made by a purchaser of shares as
consideration for the seller’s promise not to compete for a specified period
within a specified territory gave rise to a taxable capital gain. Her Majesty
the Queen argued that the payment made in relation to the restrictive covenant
was the proceeds of the disposition of the [translation]
“right to compete”, a right of “any kind whatever” within the meaning of
subsection 248(1) of the ITA.
|
PART XVII
INTERPRETATION
248(1) In this Act,
. . .
“property” means property of any kind
whatever whether real or personal or corporeal or incorporeal and, without
restricting the generality of the foregoing, includes
(a) a right of any kind whatever,
share or a chose in action,
(b) unless a contrary intention
is evident, money,
(c) a timber resource property,
and
(d) the work in progress of a
business that is a profession.
|
PARTIE XVII
INTERPRÉTATION
248(1) Les définitions qui suivent s’appliquent
à la présente loi :
« biens » Biens de toute nature,
meubles ou immeubles, corporels ou incorporels, y compris, sans préjudice de
la portée générale de ce qui précède :
a) les droits de quelque nature qu’ils
soient, les actions ou parts;
b) à moins d’une intention
contraire évidente, l’argent;
c) les avoirs forestiers;
d) les travaux en cours d’une entreprise
qui est une profession libérale
|
[20]
In
Manrell, that argument having been made, this Court decided as follows:
A general right to do
something that anyone can do, or a right that belongs to everyone, is not the “property”
of anyone. In this case, the only thing that Mr. Manrell had before he
signed the non‑competition agreement that he did not have afterward was
the right he shares with everyone to carry on a business. Whatever it was
that Mr. Manrell gave up when he signed that agreement, it was not “property”
within the ordinary meaning of that word (at paragraph 25). [Emphasis
added.]
[21]
Relying
on that statement, the respondent contends that the only thing he could have
given up when he signed the agreement was the privilege he shared with everyone
else who holds a fishing licence, that is, a general, non‑exclusive right
that could not be “property” within the meaning of the ITA (respondent’s memorandum
at paragraph 91).
[22]
I
cannot agree. First of all, the right in this case cannot be referred to as
general and non‑exclusive, but I will return to that. Foremost, the
respondent’s situation cannot be compared to that of Mr. Manrell, who, subject
to an ancillary stipulation in a share sale agreement, had cashed out his
personal undertaking to the other contracting party not to do something. This
negative obligation he had contracted certainly could not be “a right of any
kind whatever,” or, according to Manrell, “property” entailing “some
exclusive right to make a claim against someone else” (at paragraph 25).
[23]
I
am therefore of the opinion that the judge erred in concluding that the
respondent’s voluntary abandonment of the licences allowing him to participate
in a commercial activity subject to quota was analogous to Mr. Manrell’s
obligation arising from a non‑competition clause.
[24]
That
being said, I will address the issue of the validity of the respondent’s
permits. To better grasp this issue, it is useful to have an understanding of
the government policy applicable in this case. It is entitled the Commercial
Fisheries Licensing Policy for the Gulf Region, Department of Fisheries and
Oceans, and its objective is to “reduce capacity, improve the economic
viability of participants in commercial fishing operations and prevent future
growth of capacity in the commercial fishery” (appeal book at page 69).
[25]
One
of the approaches for reaching this objective was the implementation of a
licensing strategy. According to the definition at section 5 of the
Policy, a licence:
. . . grants
permission to do something which, without such permission, would be prohibited.
As such, a licence confers no property or other rights which can be legally
sold, bartered or bequeathed. Essentially, it is a privilege to do something,
subject to the terms and conditions of the licence.
[26]
More
specifically, a fishing licence:
. . . is an
instrument by which the [MFO], pursuant to his discretionary authority under
the Fisheries Act, grants permission to a person including an Aboriginal
organization to harvest certain species of fish or marine plants subject to the
conditions attached to the licence. This is in no sense a permanent permission;
it terminates upon expiry of the licence. The licensee is essentially given a
limited fishing privilege rather than any kind of absolute or permanent right
or property.
[27]
Furthermore,
a fishing licence does not confer any vested rights on its holder
(subsection 16(2) of the Fishery (General) Regulations, SOR/93‑53)
(Regulations) and may be suspended or revoked by the MFO if, among other
reasons, he notes that its conditions have been breached (section 9 FA).
[28]
There
is no doubt that fishing licence holders are subject to the limits set out in the
FA concerning the period during which, the location where and terms under which
the licence may be exercised (together, the conditions of the licence), but the
fact remains that the commercial reality in this industry is that licences will
be renewed from one year to the next and that departmental policy will protect
those who already hold licences. Indeed, as stated in Saulnier, the
stability of the fishing industry depends on the MFO’s predictable renewal of
licences year after year (Saulnier at paragraph 14).
[29]
Moreover,
that was how the respondent understood the situation. On cross‑examination,
he asserted that [translation] “you
would never apply for a permit” (transcript of the hearing before the TCC, at
page 20, line 20). As a member of what the Policy calls the [translation] “core” (appeal book at
page 45), the respondent was part [translation]
“of this maximum number” of multi‑licensed enterprises (a core enterprise
is a commercial fishing unit composed of a fish harvester, registered vessels
and the licences required by law) who could engage in commercial fishing in the
Gulf region. It is necessary to know that it is not possible to join the “core”
except by replacing an enterprise that is already a member of the core and
being an accredited professional fisher (the Policy at sections 9(7) and
10). Therefore, not simply anyone who wants to may fish. The respondent had
held his licences for 25 years (transcript of the hearing before the TCC
at page 7, line 14).
[30]
I
am of the opinion that the judge would have agreed that these factors argue in
favour of recognizing the respondent’s commercial fishing licences as “property”
within the meaning of the ITA, had she not deemed the licences invalid because
they had expired or had no attached conditions. What was in fact the case?
(a) Groundfish
[31]
The
evidence shows that the respondent held licence #004384 authorizing him to
harvest groundfish (appeal book at pages 46 and 142). Issued on
April 19, 2000, the document attesting to this licence, which bears a separate
number, indicates a validity period from January 1, 2000, to May 14,
2001, whereas the agreement was signed in March 2001. The document
states that [translation] “the
use of this licence is subject to the conditions set by the MFO. The licence
holder must ensure having received the licence conditions and must not engage
in fish harvesting activities with this licence before having received the
valid licence conditions and attached them to this licence”.
[32]
Section 22
of the Regulations provides that the MFO may specify in a licence one or more
conditions ensuring the proper management and control of fisheries and
promoting “the conservation and protection of fish”. Among other conditions
limiting the fishing activity authorized by the licence are the period during which
the activity may be carried out, the vessel and the equipment that is permitted
to be used for that activity and the geographic area and quantities of catches.
[33]
However,
the respondent never received the conditions attached to this licence, given
that many groundfish stocks have been the subject of a moratorium since the
1990s. For that reason, the judge reached the following conclusion regarding
the groundfish licence:
…the Appellant never received
the conditions attached to that licence, with the result that his licence was
not valid for the 2000–2001 period shown on the very face of the licence filed
in evidence (Reasons for Judgment at paragraph 21).
[34]
I
disagree. The licence authorizes its holder to engage in exclusive fishing
activities in compliance with the conditions set out in the licence. The
conditions attached to the licence merely provide the framework for and limitations
on engaging in the authorized activity. The fact is that if the moratorium had
been lifted, in whole or in part, between January 2000 and May 2001,
once the respondent received the conditions for engaging in the activity, he
could have put out to sea and fished for groundfish because he held a valid
licence for that period.
[35]
As
the appellant argues, if the lack of conditions attached to the licence were to
render it invalid, this licence could not have been issued on April 19,
2000, or during previous years when the moratorium was also in place. Moreover,
why pay renewal fees for a licence that will in all likelihood be invalid if
not because this licence gives its holder the exclusive right or authority to
be part of the core and participate in commercial fishing activities? Both the
legislative enactments and the evidence show that the fact that the respondent
did not receive the conditions attached to the licence presented no obstacle to
his holding a “bundle of rights” that he could have exercised once he received
those conditions. The licence itself, not the conditions that were attached to
that licence from time to time, is the source of the respondent’s rights to
participate in an exclusive commercial fishing activity. This distinction,
which I consider determinative, seems to have escaped the judge.
(b) Snow
crab
[36]
The
respondent also held licence #004385, issued on December 16, 2000, which
authorized him to harvest snow crab. The judge found that this licence was not
valid at the time the agreement was signed because it “had expired at the end
of 2000, as can be seen from the period indicated on the temporary licence” (Reasons
for Judgment at paragraph 21). Consequently, the respondent no longer held
a “bundle of rights” related to that licence. Again, I disagree.
[37]
First,
I note that the temporary licence was only issued to allow the
respondent to harvest snow crab in accordance with the conditions attached to
that licence for the period from April 15 to August 15, 2000, since
he had not yet received the document attesting to his licence for that calendar
year (appeal book at page 101). In fact, as I mentioned earlier, the
respondent had held the fishing licences at issue in this case for
25 years.
[38]
I
also note that the appeal book contains the form entitled [translation] “Registration and fishing
licence application” to renew the [translation]
“core fisher” registration and fishing licences issued in the respondent’s name
for the 2001 calendar year (appeal book at page 144). The respondent
states that for 2001, he did not pay the fees identified in the Regulations
(section 5), which provide that the MFO, upon application for a licence
and payment of the required fee, may issue that licence.
[39]
However,
the lack of proof of payment in this case is not determinative. For one thing,
this registration application provides that [translation]
“[a]ll licences not renewed by December 31, 2001, at the latest,
are subject to cancellation”, whereas the agreement was signed in
March 2001. From this, I understand that the respondent’s right to his
licence for the 2001 calendar year did not depend only on the payment of the
prescribed fees. In other words, the validity of the licences is confirmed on
the basis of more than receipt of a payment. In this regulated commercial field
subject to quota, the expiry of the licence does not necessarily entail a
finding of invalidity.
[40]
Furthermore,
according to section 19 of the agreement reproduced in the appendix, the
respondent agreed and warranted that his licences were not subject to any
penalty. He was counting on his licences’ being renewed, but stated, [translation] “Why would I have paid? I
was getting rid of my licences” (transcript of the hearing before the TCC at
page 12, lines 6–7). Moreover, to enter into this agreement, the
respondent was the one who set the value of his licences, a fact that the judge
does not discuss in her reasons.
[41]
I
acknowledge that the trial judge’s principal role is to assess and weigh the
evidence adduced by the parties; in this case, I am of the opinion that she
should have given greater consideration to the statements the respondent made
when he demonstrated his interest in participating in the Program. In his
application for the 2000/2001 Fisheries Access Program (appeal book, tab G
at page 145) [emphasis added], the respondent described his two licences
(snow crab and groundfish). In the column marked [translation] “Asking price for full licence packet,” he asked
$2,009,518.20 for the snow crab licence and $100,000 for the groundfish
licence, without regard for any consideration whatsoever as to the validity of
his licences. There is no doubt that the respondent, in my opinion, was then
negotiating on “property” within the meaning of the ITA and that he was
claiming sums as consideration for the disposition of a “right of any kind
whatever.”
[42]
Consequently,
I would allow the appeal with costs in both Courts.
“Johanne
Trudel”
“I
agree.
Pierre Blais C.J.”
“I
agree.
J.D. Denis Pelletier J.A.”
Certified
true translation
Sarah
Burns
APPENDIX
[TRANSLATION]
FISHERIES ACCESS PROGRAM
AGREEMENT BETWEEN THE BENEFICIARY
AND
HER MAJESTY THE QUEEN IN RIGHT
OF CANADA
REPRESENTED BY THE MINISTER OF
FISHERIES AND OCEANS;
AGREEMENT NB‑70‑2001
PART I: RETIREMENT AND
ABANDONMENT OF LICENCES
1. I,
Gildard Haché, SIN: ____________ (hereinafter “the beneficiary”), holder of a
commercial fishing licence for snow crab, being licence No. 4385, and a
commercial fishing licence for groundfish, being licence No. 4384,
(hereinafter “the licences”), hereby abandon all privileges and rights
associated with the licences.
2. In
consideration of the voluntary payments provided for in Part III, I hereby
acknowledge, in my capacity as the beneficiary:
(a) that this abandonment is
irrevocable;
(b) that I understand the
provisions set out in Parts II and III of the present agreement;
(c) that Parts II and III of
the present document form part of the present agreement.
Signature of
beneficiary: ___Gildard Haché________
Date: ________February 26,
2001____
PART II:
TRANSFER OF VESSEL AND GEAR
3.
The beneficiary acknowledges that he is the owner of the vessel and the
gear described in greater detail in the schedule to the present agreement
(hereinafter “the property”).
4. The
beneficiary agrees and warrants that the property is not subject to any lien or
other financial obligation or encumbrance, except those noted in the schedule
to the present agreement.
5. The
beneficiary acknowledges that he has agreed to transfer to an Aboriginal
community (hereinafter “the Aboriginal organization”), at his expense, the
title to the property, being the fishing vessel and gear that is described
in the present agreement, free and clear of all privileges, financial
obligations and other encumbrances. [Bolded in original]
6. The
beneficiary agrees that DFO, the Aboriginal organization and any person whom
DFO or the Aboriginal organization designates from time to time may examine the
property at any reasonable time.
7. The
risks related to the property shall be the responsibility of the beneficiary
until title to the property is transferred to the Aboriginal organization.
8. The
beneficiary agrees to maintain the property in a state of seaworthiness and
good repair until it is transferred to the Aboriginal organization.
PART III: VOLUNTARY
PAYMENT
9. DFO
agrees to make to the beneficiary a voluntary payment in the amount of $3,050,000.00
(THREE MILLION AND FIFTY THOUSAND DOLLARS) as soon as:
(a) the beneficiary has signed the
present agreement;
(b) the beneficiary has returned
to DFO all the documents and plates issued with regard to the licences;
(c) the beneficiary has transferred
title to the property to the Aboriginal organization;
(d) DFO is satisfied that the
property is free and clear of all privileges, financial obligations and other
encumbrances.
10. In either of the
following cases:
(a) if the beneficiary provides
false or misleading information to DFO with regard to the present agreement;
(b) if the beneficiary does not
comply with a provision of the present agreement,
DFO may:
(c) terminate any obligation to
make a payment to the beneficiary under the present agreement;
(d) require the beneficiary to pay
back to DFO any payment it has made under the present agreement;
(e) exercise any other remedy
authorized in law.
11. When,
under subclause 10(d) above, DFO asks the beneficiary to pay back a
payment, the amount shall be a debt owed to Her Majesty the Queen in right of Canada.
12. On
request, the beneficiary shall allow DFO, or any person it designates from time
to time, to audit the books and to examine the records, vouchers, reports and
other documents having to do with the present agreement, the licences or the
property that DFO considers it appropriate to examine, and to make copies and
take extracts, and shall provide all the necessary assistance for the purposes
of these audits and examinations.
13. The
beneficiary shall retain the documents referred to in clause 12 for a
period of at least two years following the date on which DFO pays to him
the amount referred to in clause 9.
14. No
member of the House of Commons shall be a party to, or derive benefit from, the
present agreement.
15. The
beneficiary shall release Her Majesty the Queen in right of Canada and her
ministers, officials and employees from all claims, proceedings, actions and
claims related to the licences, and shall save them harmless from all claims,
damages and costs having to do with the licences or the property.
16. DFO may send any
payments to the beneficiary at the following address:
Gildard Haché
P.O. Box 2085
Shippagan, NB
E8S 3H3
17. No
payment shall be made under clause 9 of the present agreement until the
transfer to the Aboriginal organization of title to a vessel forming part of
the property has been registered.
18. Any
obligation that DFO may be under to make a payment to the beneficiary under
clause 9 of the present agreement shall be terminated six months following
the date on which the parties sign the present agreement, unless the
beneficiary has signed Part I of the present agreement, returned to DFO
all the documents and plates issued with regard to the licences, transferred
title to the property to the Aboriginal organization and fulfilled all the
conditions of the present agreement before the expiry of that period.
19. The
beneficiary agrees and warrants that the licences are not subject to any
penalty, except those noted in the schedule to the present agreement.
20. Where
DFO authorizes the retention of one or more licences, the licences shall not be
issued or transferred to another fisher.
21. As
regards any time periods set out in the present agreement, time is of the
essence.
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