Date: 20080109
Docket: A-524-06
Citation: 2008 FCA 5
CORAM: RICHARD
C.J.
SHARLOW
J.A.
RYER
J.A.
BETWEEN:
HER MAJESTY THE QUEEN
Appellant
and
CANWEST MEDIAWORKS INC.
(successor by amalgamation to CanVideo
Television Sales (1983) Limited)
Respondent
REASONS FOR JUDGMENT
RYER J.A.
[1]
This is an appeal from a decision of Mr. Justice
Campbell Miller of the Tax Court of Canada (the “TCC”) (2006 TCC 579) allowing
the appeal of Canwest Mediaworks Inc. (the “taxpayer”) against a reassessment
(the “Reassessment”) of its income tax liability for its 1997 taxation year (the
“Taxation Year”) pursuant to the Income Tax Act, R.S.C. 1985, c. 1 (5th
Supp.) (the “ITA”). The TCC held that while the Reassessment was issued on a
timely basis, having regard to a waiver of the normal reassessment period under
the ITA that had been provided by the taxpayer, the Reassessment was
nonetheless invalid because it was made beyond a five year limitation period
that was prescribed by Article XXVII(3) (the “Limitation Provision”) of the Agreement
Between Canada and Barbados for the Avoidance of Double Taxation and the
Prevention of Fiscal Evasion with respect to Taxes on Income and on Capital
(the “Treaty”).
[2]
In the Reassessment, the Minister included
$659,974 into the income of the taxpayer on the basis that such amount
constituted previously unreported foreign accrual property income (“FAPI”),
within the meaning of subsection 95(1) of the ITA, of the taxpayer for the
Taxation Year.
[3]
The Minister justified the Reassessment on the
basis that the Limitation Provision is inapplicable by virtue of the provisions
of Article XXX(2) (the “FAPI Provision”) of the Treaty.
[4]
The inter-relationship of those provisions of
the Treaty is the issue in this appeal. They read as follows:
XXVII(3)
3. A Contracting State shall not, after the
expiry of the time limits provided in its national laws and, in any case, after
five years from the end of the taxable period in which the income concerned has
accrued, increase the tax base of a resident of either Contracting State by
including therein items of income which have also been charged to tax in the
other Contracting State. This paragraph shall not apply in the case of fraud,
wilful default or neglect.)
XXX(2)
2. Nothing in this Agreement shall be
construed so as to prevent Canada from imposing its tax on amounts included in
the income of a resident of Canada according to section 91 of the Canadian
Income Tax Act.
[5]
For the reasons that follow, I am of the view
that the TCC erred in concluding that the Limitation Provision invalidated the
Reassessment and I would allow the appeal.
BACKGROUND
[6]
The taxpayer is a resident of Canada that is the successor, by way of two
amalgamations, to CanVideo Television Sales (1983) Limited (“CanVideo”).
Throughout the Taxation Year, which ended on April 30, 1997, CanVideo was a
resident of Canada. In these
reasons, a reference to the taxpayer shall be a reference to CanVideo and each
of its successors, as applicable.
[7]
CanWest International Communications Inc.
(“CICI”) was an international business corporation formed under the laws of Barbados in 1991. At all relevant times,
CICI was a resident of Barbados
under the Barbados Income Tax Act (the “Barbados ITA”), a non-resident
of Canada for the purposes of
the ITA and a controlled foreign affiliate, within the meaning of subsection
95(1) of the ITA, of CanVideo.
[8]
During its taxation year that ended on August
31, 1996, CICI received interest from the Royal Bank of Canada in the amount of $659,974. That
amount was included in its income under the Barbados ITA.
[9]
CanVideo did not include any amount of FAPI in
the computation of its income for the Taxation Year.
[10]
The normal reassessment period, as defined in
subsection 152(3.1) of the ITA, in respect of the Taxation Year ended on
December 18, 2001. On November 6, 2001, the taxpayer executed a waiver of the
limitation periods under the ITA in respect of a number of issues in relation
to the Taxation Year, including the issue of whether the taxpayer may have had
any FAPI that should have been included in its income for the Taxation Year.
[11]
On August 16, 2004, the Minister issued the
Reassessment pursuant to which $659,974 was included into the income of the
taxpayer for the Taxation Year on the basis that such amount constituted FAPI
of the taxpayer for that year. As a result of the delivery of the waiver, the
Reassessment was issued before the expiry of the limitation periods contained
in the ITA but after the limitation period contained in the Limitation
Provision.
[12]
The taxpayer objected to the Reassessment, the
Minister confirmed it and the taxpayer launched an appeal to the TCC.
THE TCC
JUDGMENT
[13]
The TCC held that the FAPI Provision did not
override the Limitation Provision and, accordingly, the Limitation Provision applied
to invalidate the Reassessment. In doing so, the TCC held that the Limitation Provision
did not prevent Canada from
imposing its tax on the FAPI of the taxpayer. Instead, Canada was “precluded from imposing tax by its own actions of not imposing
tax on a timely basis”.
[14]
The TCC further held that because of the words
“shall be construed so as to” in the FAPI Provision, that provision was only
applicable to or in respect of Articles of the Treaty that required
interpretation. On that basis, according to the TCC, the FAPI Provision did not
apply in relation to the Limitation Provision because the Limitation Provision
required no interpretation.
[15]
In allowing the taxpayer’s appeal, the TCC
concluded that the FAPI Provision could not be interpreted as overriding the
Limitation Provision, as to do so would render the Limitation Provision “meaningless”.
ANALYSIS
[16]
The parties made a number of arguments at the
hearing of the appeal. In my view, it is necessary to deal only with the
argument that the Limitation Provision is inapplicable in respect of the
Reassessment by virtue of the FAPI Provision.
[17]
The Limitation Provision provides a procedural
limitation in relation to the time period within which the Government of one of
the countries may increase the tax base of a resident of either country by
including therein items of income which have also been charged to tax in the
other country. That provision contains no language which indicates that it does
or does not have paramountcy in relation to any other Article in the Treaty.
[18]
The FAPI Provision stipulates that the ability
of Canada to tax FAPI inclusions
in the income of Canadian residents is to be unfettered by any provision of the
Treaty. The language of the FAPI Provision is unqualified and demonstrates that
the FAPI Provision is intended to prevail over every other potentially contrary
provision of the Treaty. There is no indication in the FAPI Provision or
elsewhere in the Treaty that this paramountcy is to be applicable only in
respect of other provisions of the Treaty that may contain interpretational
uncertainties. Moreover, as indicated, nothing in the language of the
Limitation Provision indicates that it is to be exempted from the application
of the FAPI Provision.
[19]
The conclusion that the FAPI Provision overrides
the Limitation Provision in respect of a FAPI reassessment does not render the Limitation
Provision “meaningless”. The Limitation Provision will still be applicable with
respect to items of income other than FAPI that have been added to the income
of a resident of Canada for the
purposes of the ITA.
[20]
In my view, the imposition of tax under the ITA
on the FAPI income inclusion of the taxpayer that was the subject of the
Reassessment will be prevented if the Limitation Provision can be invoked by
the taxpayer to invalidate the Reassessment. That result is contrary to the
clear meaning and purpose of the FAPI Provision and therefore that result
cannot be permitted.
DISPOSITION
[21]
For these reasons, I would allow the appeal,
with costs in this Court as well as in the TCC.
“C.
Michael Ryer”
“I
agree.
J.
Richard C.J.”
“I
agree.
K.
Sharlow J.A.”
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