Cominco Limited v. Ontario (Minister of Revenue), [1994] 2 CTC 299

MacPherson J.:—

Introduction

This motion raises, as a principal issue, the question of the retroactive application of a provincial taxation statute to a major national corporation. The motion comes to this Court by way of section 22.01(1) of the Rules of Civil Procedure which provides:

22.01(1) Where the parties to a proceeding concur in stating a question of law in the form of a special case for the opinion of the court, any party may move before a judge to have the special case determined.

The factual background underlying the dispute between the parties, Cominco Ltd. (henceforth Cominco) and the Ontario Minister of Revenue (henceforth Ontario) are set out clearly in the Special Case agreed to and filed by the parties. The Special Case states:

SPECIAL CASE

THE FOLLOWING CASE is stated for the opinion of the Court:

1. The appellant is a corporation with its head office in Vancouver, British Columbia.

2. The respondent is the Minister of the Crown responsible for the administration of the Corporations Tax Act, R.S.O. 1980, c. 97, as amended (now R.S.O. 1990, c. C.40, hereinafter referred to as the "Act").

3. The appellant filed a return under the Act for its taxation year ended December 31, 1979 (the "1979 taxation year") on or about June 30, 1980. In computing its taxable income for its 1979 taxation year, the appellant claimed a deduction for a non-capital loss realized by the appellant in a previous taxation year. That deduction was made under section 111 of the Income Tax Act, S.C. 1970-71-72 c. 63 as amended (the “federal Act") which was also applicable for purposes of the Act.

4, The respondent assessed the return as filed by notice of assessment, dated August 27, 1980. That assessment constituted the appellant's original assessment of the 1979 taxation year and was made pursuant to subsection 73(1) of the Act. Total tax assessed to the appellant was $1,748,492.

5. By a notice of reassessment, dated March 28, 1983, the respondent reassessed the appellant in respect of its 1979 taxation year by increasing the tax payable by the appellant from $1,748,492 to $1,759,212. The reassessment resulted from the respondent's reduction of the amount deducted by the appellant in respect of the noncapital loss from the previous taxation year. The appellant did not file a notice of objection in respect of this reassessment.

6. On or about February 19, 1985, the appellant was reassessed by Revenue Canada under the federal Act in respect of its 1979 taxation year.

7. By a notice of reassessment, dated July 31, 1984, the respondent again reassessed the appellant in respect of its 1979 taxation year by increasing the tax payable by the appellant from $1,759,212 to $1,911,326. The reassessment resulted from numerous adjustments to the computation of the appellant's Ontario taxable income. The reassessment paralleled the changes made oy Revenue Canada. It also increased the capital tax payable by the appellant.

8. By a notice of objection, dated January 27, 1988, the appellant objected to the respondent's reassessment referred to in paragraph 7 hereof.

9. By a notice of reassessment, dated November 15, 1989, and following its review of the appellant’s objection, the respondent confirmed the amount of income tax assessed in the reassessment referred to in paragraph 7 hereof and made a small adjustment to the amount of capital tax payable by the appellant in respect of its 1979 taxation year. The appellant’s total tax liability was reduced from $1,911,326 to $1,908,808.

10. The appellant did not file a waiver with the respondent pursuant to subparagraph 73(7)(a)(iv) of the Act in respect of its 1979 taxation year.

11. As it read on the August 27, 1980 date the notice of assessment was issued, paragraph 73(7)(b) of the Act provided that the respondent could reassess or make additional assessments within six years from the day of mailing of a notice of an original assessment.

12. Prior to the July 31, 1987 date on which the reassessment in dispute was issued, paragraph 73(7)(b) of the Act was amended by subsection 20(4) of the Corporations Tax Amendment Act, S.O. 1984 c. 29 (the "amendment Act") to provide that the respondent could assess or make additional assessments within eight years from the day of mailing a notice of an original assessment or of a notification that no taxes were payable for the taxation year, where a corporation had claimed a deduction for that year under section 41 or 111 of the federal Act, as applicable to the Act. Subsection 30(24) of the Amendment Act provides that the amendment to paragraph 73(7)(b) was deemed to have come into force on the 20th day of April, 1983 and was applicable to assessments issued after the 19th day of April, 1983.

Legal issue

The legal issue that arises on this motion is set out in the Special Case in these terms:

THE QUESTION for the opinion of the Court is:

1. Was the respondent's notice of reassessment, dated July 31, 1987 made within the time specified in paragraph 73(7)(b) of the Act for reassessing, making additional assessments or assessing tax, interest or penalties in respect of the appellant’s 1979 taxation year?

Key statutory provisions

There are, in my view, three statutory provisions that lie at the heart of this litigation. The first is the “old” or former paragraph 73(7)(b) of the Ontario Corporations Tax Act which provided:

73(7) The Minister may at any time assess tax, interest or penalties, or notify in writing any person by whom a return of income or other subject of tax for a taxation year has been filed that no tax is payable for the taxation year, and may. . . .

(b) within six years from the day referred to in subclause (a)(iv), in any other case,

reassess or make additional assessments or assess tax, interest or penalties, as the circumstances require.

The other two crucial statutory provisions are found in the Corporations Tax Amendment Act. The first is subsection 20(4) which creates the "new" and current paragraph 73(7)(b) in these terms:

20(4) Clause 73(7)(b) of the said Act is repealed and the following substituted therefor:

(b) within eight years from the day of mailing of a notice of the original assessment or of a notification that no tax is payable for the taxation year, where tne corporation has claimed a deduction for the taxation year under section 41 or 111 of the Income Tax Act (Canada), as applicable to this Act;

The second relevant provision in the Corporations Tax Amendment Act is subsection 30(24) which provides:

30(24) Subsections 20(4), 21(2) and 23(2) shall be deemed to have come into force on the 20th day of April, 1983 and apply to assessments issued after the 19th day of April, 1983.

Position of the parties

It is common ground that the disputed reassessment of Cominco's 1979 corporate tax return, dated July 31, 1987, must be anchored in the new paragraph 73(7)(b) of the Corporations Tax Act. The six-year reassessment period in the old paragraph 73(7)(b) had expired on August 27, 1986. However, the eight-year period in the amended paragraph 73(7)(b) was still operative—Ontario's purported reassessment on July 31, 1987 was more than a full year inside this time frame.

What divides the parties is the effect of subsection 30(24) of the Corporations Tax Amendment Act, the retroactivity provision, on Ontario’s reassessment of Cominco's 1979 return. Ontario says that it is a clear provision giving it the authority to reassess Cominco's return for eight years from the date of the original assessment. Ontario admits that the provision authorizing this is a retroactive one; however, contends Ontario, a legislature is permitted to enact a law having a retroactive application if it does so clearly, and subsection 30(24) is clear.

Cominco's response is that there is a strong presumption against the retroactive application of laws. In this case, says Cominco, the presumption is not rebutted. Subsection 30(24) can and should be interpreted to permit Ontario to reassess tax returns within the eight-year time period only if the taxpayer seeks to take advantage of complementary amendments to the Act. Cominco has not sought to do this and therefore its 1979 tax return should remain closed. [1]

Analysis

The starting point in a retroactivity situation is the oft-cited general principle enunciated by the Supreme Court of Canada in Gustavson Drilling (1964) Ltd. v. M.N.R., [1977] 1 S.C.R. 271, [1976] C.T.C. 1, 7 D.T.C. 5451. Dickson J. said, at page 279 (C.T.C. 6-7, D.T.C. 5454):

The general rule is that statutes are not to be construed as having retrospective operation unless such a construction is expressly or by necessary implication required by the language of the Act. An amending enactment may provide that it shall be deemed to have come into force on a date prior to its enactment or it may provide that it is to be operative with respect to transactions occurring prior to its enactment. In those instances the statute operates retrospectively.

Cominco relies heavily on the “general rule" enunciated in the first sentence. [2] Ontario relies on the phrase in the second sentence "An amending enactment may provide that it shall be deemed to have come into force on a date prior to its enactment” — it says that subsection 30(24) does precisely this.

I do not see any inconsistency between the two sentences in this passage from Gustavson. The first sentence simply enunciates the general principle against retroactivity; the second then states two methods for a legislature to give retroactive force to statutory provisions despite the presumption. Ontario contends that it has chosen one of those methods and that this choice concludes the matter.

I do not agree with Ontario's assertion.. Although subsection 30(24) states clearly that paragraph 73(7)(b) comes into force on April 20, 1983, what remains in issue is the interpretation of the contents of paragraph 73(7)(b). When a legislature states clearly, as Ontario has done here, that an enactment is to apply retroactively, that clear statement still leaves open the circumstances in which the enactment will apply.

In this case, Ontario asserts that paragraph 73(7)(b) applies to all reassessments. Cominco contends, on the other hand, that paragraph 73(7)(b) applies only to reassessments that arise when corporations seek to take advantage of other amendments to the Act. In other words, says Cominco, Ontario should not be able to reopen Cominco's 1979 tax return and reassess it under the new Act unless Cominco has first reopened its own return and tried to take advantage of the new Act. I would label this Cominco's "fairness" argument.

In making this argument, Cominco is forced to assert that this Court should look at not just the words of paragraph 73(7)(b) in isolation, but also at the scheme and language of several of the other amendments to the Act. In short, Cominco must assert that there was a context in which paragraph 73(7)(b) was enacted and that this context supports its “fairness” interpretation of that provision.

I have no difficulty accepting Cominco's submission about the relationship between statutory language and surrounding context in a case raising a retroactivity issue. In Nova, an Alberta Corp. v. Amoco Canada Petroleum Co., [1981] 2 S.C.R. 437, 128 D.L.R. (3d) 1, Estey J. was faced with such an issue and said, at page 448 (D.L.R. 9):

[E]ach statute must, for the purpose of its interpretation, stand on its own and be examined according to its terminology and the general legislative pattern it establishes. . . .

[Emphasis added.]

See also: Brosseau v. Alberta Securities Commission, [1989] 1 S.C.R. 301, 35 Admin. L.R. 1.

A similar approach has been evident in the taxation law domain. In The Queen v. Golden, [1986] 1 S.C.R. 209, [1986] 1 C.T.C. 274, 86 D.T.C. 6138, Estey J. stated, at pages 214-15 (C.T.C. 277, D.T.C. 6140):

[l]n the construction of taxation statutes the law is not confined to a literal and virtually meaningless interpretation of the Act where the words will support on a broader

construction a conclusion which is workable and in harmony with the evident purposes of the Act in question. Strict construction in the historic sense no longer finds a place in the canons of interpretation applicable to taxation statutes in an era such as the present, where taxation serves many purposes in addition to the old and traditional object of raising the cost of government from a somewhat unenthusiastic public.

[Emphasis added.]

And in The Queen v. McClurg, [1990] 3 S.C.R. 1020, [1991] 1 C.T.C. 169, 91 D.T.C. 5001, Dickson C.J., after summarizing many of the recent taxation cases, stated, at page 1050 (C.T.C. 183, D.T.C. 5011):

Thus, in proceeding to analyze the tax consequences of the application of the discretionary dividend clause, it is necessary to determine both the purpose of the legislative provision and the economic and commercial reality of the taxpayer's actions.

[Emphasis added.]

I conclude, on the authority of recent decisions of the Supreme Court of Canada in both the retroactivity and taxation domains, that it is open to me, and indeed desirable, to interpret the words of paragraph 73(7)(b) in light of the purpose of the amending Act and the relationship between paragraph 73(7)(b) and other provisions in the Act.

On this broader plane, Comi neo asserts that the eight-year period for reassessment needs to be considered in conjunction with closely related changes to other provisions of the Ontario Act and the federal Income Tax Act. Comi neo asserts that when read together, those provisions, especially paragraph 73(7)(b) of the Ontario Act and section 111 of the federal Act ("which was also applicable for purposes of the [Ontario] Act" — see Special Case, paragraph 3), establish that the reason for the extended period of reassessment in both Acts is that section 111 provides the taxpayer with the benefit of an extended period of loss carryover. [3] In other words, there is a nexus or a mutuality between the new provisions—the taxpayer has the advantage of a new and additional loss carryover period and the two governments are given a new and additional reassessment period. Cominco asserts that these amendments must be viewed as a package and, in particular, that neither Government can take advantage of its reassessment opportunity if the taxpayer has not relied on its loss carryover opportunity. Cominco has not so relied.

In support of this argument, Cominco relies heavily on the decision of MacKay J. of the Federal Court-Trial Division in Placer Dome Inc. v. Canada, [1991] 1 C.T.C. 361, 91 D.T.C. 5115. The issue in that case was whether the four-year reassessment period provided in the old Income Tax Act or the seven-year period in the amended Act applied to Placer Dome's 1981 return. There was a retroactivity clause in play, namely, subsection 84(6) of the Act which provided:

84(6) Subsections (3) and (4) are applicable after April 19,1983. . . .

MacKay J. decided that this subsection did not permit the Minister to reassess Placer Dome's 1981 return under the seven-year period in the amended Act. After a lengthy analysis of a complicated statutory regime and a review of the leading authorities, he stated his conclusion and summarized his reasoning in these terms, at pages 370-71 (D.T.C. 5122-23):

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. 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 completed 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.

Placer Dome was followed by Cullen J. in Flexi-Coil Ltd. v. Canada, [1992] 1 C.T.C. 245, 92 D.T.C. 6047 (F.C.T.D.). In that case the corporate taxpayer applied for loss carrybacks to 1981 in both its 1982 (under the old Act) and 1983 (under the amended Act) taxation years. The Minister purported to reassess these returns in 1989. Cullen J. held that the reassessment of the 1982 return was invalid because the presumption against the retroactive application of laws meant that the four year reassessment period governed. He said, at page 254 (D.T.C. 6054):

I agree with the plaintiff that based on the reasoning and finding of Placer Dome the reassessment of tne 1981 taxation year as it relates to the carryback of the 1982 loss is subject to the four-year limitation period as provided for in subsection 152(4) prior to amendment and therefore the reassessment dated February 15, 1989 with respect to the 1982 loss carryback was issued beyond the time limitation and is invalid.

With respect to the 1983 return, Cullen J. reached a different result, one clearly influenced by the fact that the taxpayer had sought to take advantage of the extended period (two years) for loss carrybacks provided by the amended Act. Cullen J. stated, at page 255 (D.T.C. 6054):

This is not a case, as in Placer Dome, where the loss was claimed in a prior taxation year and carried back within the prevailing limit of one year and the Minister of National Revenue is limited to the terms of subsection 152(4) as it was prior to April 19, 1983, namely, a four-year reassessment period. Further, in this case, unlike Placer Dome, there was an application for the loss carryback to 1981. I am of the opinion that the seven-year assessment period applies in respect of the 1983 loss carryback to 1981 and therefore this portion of the 1981 notice of reassessment is valid.

The decisions of the two learned justices of the Federal Court-Trial Division in Placer Dome and Flexi-Coil pose three questions for me—first, do they deal with substantive taxation provisions similar to the ones before me; second, are the retroactivity provisions in the two Acts similar; third, if I give affirmative answers to these two questions, am I persuaded by the reasoning and conclusions in the two cases and inclined to follow them in this Ontario case.

The first question is easy to answer. The amendments to the federal Income Tax Act and the provincial Corporations Tax Act are, in effect, "mirror" amendments. They are completely intertwined in form and substance. The clearest indication of this relationship, in the context of this case, is the fact that s. 111 of the federal Act is explicitly stated to be the substantive touchstone for the operation of the new and extended reassessment period provided in paragraph 73(7)(b) of the Ontario Act.

The second question is also, in my opinion, easy to answer. There is a difference in the wording of the two retroactivity provisions—the Ontario law “shall be deemed to have come into force on April 20, 1983 and apply to assessments issued after April 19, 1983”; the federal law “is applicable after April 19, 1983”. However, this difference in wording does not create, in my view, a different legal result. Both laws choose the precise same date, April 19, 1983, as the effective date. Moreover, I see no real difference between the phrases “apply to assessments after" and “is applicable after”. Perhaps the use by Ontario of the word "assessment" adds a small amount of clarity; however, when it is recalled that the subsections to which the federal retroactivity provision “is applicable” are assessment provisions, that additional clarity is minute indeed.

That leaves the third question, namely, whether the two decisions of the Federal Court-Trial Division are worthy of being followed on their merits. In my view, they are. I believe that MacKay J.'s careful analysis in Placer Dome of the entire package of amendments amply supports his statement at page 363 (D.T.C.

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.

[Emphasis added.]

It is clear that the Ontario amendments were designed to mirror the federal amendments. It follows that the new limitation period in the Ontario Act should be read "in concert with” the extended loss carryover provision in the same Act. Accordingly, since Cominco did not attempt to take advantage of the new loss carryover provision, Ontario cannot take advantage of the new reassessment provisions.

Conclusion

Cominco's argument comes down to this: It filed its 1979 taxation return in accordance with the provisions of the applicable federal and provincial laws. These returns were assessed and reassessed under those laws. In Ontario, the sun set on reassessments under the Corporations Tax Act on August 27, 1986. On that date, six years after the original notice of assessment, Cominco was entitled to close its 1979 tax return file, send it to the warehouse and let it gather dust. In 1984 the Act was amended in two important ways. Cominco was given an opportunity to apply for an extended loss carryover into previously unavailable years and Ontario was given an opportunity to commence reassessments up to eight years, not just six, after the original notice of assessment. Cominco did not take advantage of its additional time period. In fairness, Cominco contends, Ontario should not be able to seek a benefit under its additional time period.

I agree with Cominco's argument. The words in paragraph 73(7)(b) (“where the corporation has claimed a deduction for the taxation year under section. . .111 of the Income Tax Act (Canada), as applicable to this Act") establish an explicit link between the loss carryover and reassessment time periods. Cominco applied for a loss carryover under the original Act; it was assessed and reassessed under the original Act. Cominco did not apply for a loss carryover under the amended Act. In those circumstances, it would be unfair to permit Ontario to conduct a further reassessment under the amended Act.

I believe that this conclusion is consistent with the broad themes and specific principles enunciated by the Supreme Court of Canada in its recent retroactivity and taxation cases. With respect to retroactivity, the Court has been particularly vigilant in its interpretation of statutes whose retroactive application would be "prejudicial" to the citizen, as it would be here for Cominco: see Brosseau, supra, at pages 318ff (Admin. L.R. 18ff).

In the taxation domain the Court has sought to determine both "the purpose of the legislative provision and the economic and commercial reality of the taxpayer's actions" (McClurg, supra, at page 1050 (C.T.C. 183, D.T.C. 5011)) and to arrive at "a conclusion which is workable and in harmony with the evident purposes of the Act” (Golden, supra, at page 214 (C.T.C. 277, D.T.C. 6140)). I believe that an interpretation of the Ontario Act along the lines set out above is faithful to these principles. Cominco closed its 1979 tax file in 1986 as it was entitled to do. The amended Act gave it an opportunity to reopen its return and seek additional advantages. Cominco did not do this. It is both possible and fair, in my view, to interpret the new Act to require Ontario to respect Cominco's decision and not try to reopen its assessment of Cominco's return.

For these reasons, the question stated for the opinion of the Court is answered in the negative. It follows that the appellant’s appeal is allowed and it is declared that the respondent's reassessments dated July 31, 1987 and November 15, 1989 are of no force or effect on the basis that the July 31, 1987 reassessment was made beyond the time limit for reassessment as provided for in the Act. The appellant is also entitled to its costs of this motion.

Appeal allowed.