Kempo,
T.C.J.:—This
appeal
is
from
the
respondent's
reassessment
of
the
appellant's
1983
and
1984
taxation
years.
The
reassessment
disallowed
a
$100,000
scientific
research
tax
credit
claimed
by
the
appellant
in
its
1984
taxation
year
with
a
consequential
disallowance
of
a
carry
back
portion
of
that
credit
to
its
1983
taxation
year.
Prologue
A
brief
and
generalized
background
to
the
matter
at
hand
is
useful.
In
1984
amendments
were
made
to
the
Income
Tax
Act
(the
Act)
which
effectively
permitted
Canadian
corporations
to
transfer
to
purchasers
of
certain
securities
its
own
tax
benefits
from
expenditures
made
or
to
be
made
on
research
and
development.
This
program
was
undoubtedly
instituted
to
encourage
funding
of
new
research
and
development
projects.
By
giving
up
its
tax
benefits,
including
those
yet
to
be
earned,
the
corporation
was
able
to
create
a
scientific
research
tax
credit
("SRTC")
in
the
hands
of
the
purchaser.
The
corporation
could
designate
an
amount
up
to
100
per
cent
of
the
consideration
it
had
received
on
the
issuance
of
the
security,
and
50
per
cent
of
the
amount
so
designated
became
a
corporate-purchaser's
SRTC
deductible
by
it
from
its
tax
otherwise
payable
for
the
year
or
the
previous
year.
Filing
of
the
designation
was
made
fundamental
to
the
purchaser's
entitlement
to
an
SRTC.
The
designation
was
effective
if
filed
in
the
prescribed
form
(T2113)
no
later
than
the
end
of
the
month
following
the
month
in
which
the
designation
was
made.
The
designating
corporation
was
then
liable
to
pay
a
refundable
tax
of
50
per
cent
of
the
amount
so
designated
which
was
payable
upon
the
filing.
The
Act
also
provided
a
late
filing
period
under
certain
conditions.
The
issue
in
this
appeal
centred
around
late
filing
matters,
including
questions
of
statutory
interpretation.
Written
submissions,
comprised
of
the
agreed
facts,
the
issues,
and
the
applicable
provisions
of
the
Act,
have
been
filed
by
counsel
for
each
party.
The
facts
(with
one
slight
exception)
were
as
described
in
the
appellant's
pre-trial
memorandum
thusly:
Agreed
Statement
of
Facts
1.01
On
May
31,
1984
Acadia
Saw
Mills
Limited
(the
"Company"),
in
consideration
of
the
payment
of
$200,000
by
United
Equities
Limited
(the
"Appellant"),
issued
a
debenture
in
the
amount
of
$114,000
to
the
Appellant
(the
"Debenture").
Pursuant
to
the
agreement
between
the
Company
and
the
Appellant,
dated
the
28th
day
of
May,
1984
(the
"Agreement"),
the
Company
was
to
designate
the
$200,000
for
the
purposes
of
the
scientific
research
and
experimental
development
tax
credit
(
the
“Tax
Credit"
)
pursuant
to
Section
127.3
and
Part
VIII
of
the
Income
Tax
Act
(the
"Act").
1.02
Due
to
inadvertence
on
the
part
of
the
solicitors
for
the
Company
the
documents
that
were
required
to
be
filed
to
permit
the
designation
of
the
Tax
Credit
were
not
filed
within
the
prescribed
time.
Pursuant
to
the
Act
and
the
Regulations
thereto
the
designation
was
to
be
made
by
filing
on
or
before
June
30,
1984
the
prescribed
form,
Form
12113.
Further,
information
returns,
Form
12114
Summary
and
Form
12114
Supplementary
(the
“Information
Returns"),
were
to
be
filed
on
or
before
February
28,
1985.
The
Form
12113
and
the
Information
Returns
were
not
filed
until
October
17,
1985.
1.03
Bruce
Marchand,
solicitor
for
the
Company,
was
alerted
to
the
fact
that
the
appropriate
forms
had
not
been
filed
in
a
telephone
conversation
with
Mr.
David
Fancy
of
the
Halifax
office
of
Revenue
Canada
—
Taxation.
Mr.
Fancy
was
inquiring
as
to
the
whereabouts
of
the
Tax
Credit
designations
and
related
forms.
Upon
determining
that
the
appropriate
forms
had
not
been
filed
Mr.
Marchand
discussed
the
matter
with
Mr.
Fancy.
Mr.
Fancy
advised
Mr.
Marchand
to
forward
the
documents
directly
to
him
without
a
penalty
payment.*
Mr.
Fancy
stated
that
the
matter
of
whether
a
penalty
would
be
payable
would
be
referred
to
Ottawa
for
final
determination.
Mr.
Marchand
forwarded
the
appropriate
forms
by
letter
dated
October
17,
1985.
*[Counsel
for
the
Minister
disagreed
with
this
sentence,
noting
that
the
penalty
was
not
submitted
on
17
October
1985
because
Mr.
Marchand
did
not
think
this
was
an
appropriate
case
for
a
penalty
to
be
levied.
He
submitted
that
the
decision
not
to
submit
the
penalty
on
that
date
was
that
of
Mr.
Marchand,
that
Mr.
Fancy
had
acted
as
a
mere
conduit
and
that
he
had
told
Mr.
Marchand
that
he
was
not
involved
in
the
imposition
of
penalties.]
1.04
Revenue
Canada
—
Taxation
responded
to
the
October
17,
1985
letter
from
Mr.
Marchand
by
forwarding
to
the
Company
a
letter
dated
November
18,
1985
and
signed
by
Mr.
D.
Dexter
of
Revenue
Canada
—
Taxation
(the
"November
18,
1985
Letter").
In
the
November
18,1985
Letter
Mr.
Dexter
indicated
that
the
Form
12113
had
not
been
properly
filed
as
it
could
not
be
accepted
without
payment
of
the
applicable
penalty
of
$8,000.
He
further
stated:
The
enclosed
form
12113
will
be
accepted
as
filed
on
the
original
filing
date
if
it
is
re-submitted
with
the
applicable
penalty
payment
within
30
days
of
the
mailing
of
this
letter.
Failure
to
submit
the
requested
penalty
payment
with
the
enclosed
12113
will
result
in
an
invalid
designation
and
the
disallowance
of
tax
credits
claimed
by
investors.
Company
officials
did
not
bring
the
November
18,
1985
Letter
to
the
attention
of
Mr.
Marchand
prior
to
the
expiry
of
the
30-day
period
referred
to
therein.
1.05
Following
a
series
of
telephone
conversations
and
written
correspondence
between
solicitors
for
the
Company
and
Revenue
Canada
—
Taxation
the
Form
12113
was
resubmitted
together
with
the
late
filing
penalty
of
$8,000
on
January
27,
1986.
The
cheque
representing
payment
of
the
$8,000
penalty
was
cashed
on
or
about
February
5,
1986.
1.06
By
letter
dated
June
6,
1986
and
signed
by
Mr.
W.
Tallack
Revenue
Canada
—
Taxation
advised
the
Company
that
the
Form
12113
and
the
Information
Returns
had
not
been
filed
according
to
the
provisions
of
Part
VIII
of
the
Act
and
consequently,
the
designation
was
invalid
for
the
purposes
of
the
Tax
Credit.
Revenue
Canada
—
Taxation
advised
that
any
action
in
respect
of
the
Tax
Credit
claimed
by
the
Appellant
would
be
held
in
abeyance
for
a
period
of
30
days
to
allow
time
for
the
Company
to
make
representations.
Mr.
Marchand
responded
in
a
letter
dated
June
25,
1986.
By
letter
dated
July
4,
1986,
Mr.
Tallack
advised
that
the
matter
had
been
referred
to
Head
Office
for
consideration
and
that
a
final
reply
would
be
forthcoming.
Revenue
Canada
—
Taxation
did
not
advise
Mr.
Marchand
or
the
Company
of
its
final
decision
in
this
matter.
Issues
These
have
been
described
by
appellant’s
counsel
and
concurred
in
by
respondent's
counsel,
as
follows:
1.
Does
subsection
194(7)
provide
that,
where
the
Minister
has
mailed
a
notice
to
a
corporation
that
a
designation
has
not
been
made
as
required
by
subsection
194(4),
such
designation
will
be
deemed
to
have
been
duly
filed
if
the
Form
T2113
is
filed,
together
with
the
penalty
prescribed
by
subsection
194(8),
on
or
before
the
date
that
is
90
days
after
the
date
of
such
notice,
notwithstanding
the
fact
that
the
corporation
has
failed
to
file
the
Information
Returns
on
or
before
the
date
prescribed
for
the
filing
of
such
forms.
[my
emphasis]
2.
Does
the
November
18,1985
Letter
constitute
the
"notice"
referred
to
in
subsection
194(7)
for
the
purposes
of
the
90-day
filing
period;
and
3.
Is
the
Minister
estopped
from
enforcing
strict
compliance
with
the
terms
of
the
Act
due
to
representations
made
by
Revenue
Canada
—
Taxation
officials
to
the
Company
and
its
solicitors
which
were
relied
upon
by
the
Company
and
its
solicitors
to
the
appellant's
detriment.
Further,
should
the
Court
find
that
the
$8,000
sum
paid
by
the
Company
did
not
represent
the
actual
penalty
due
and
payable
at
that
time,
then
whether
that
sum
represented
a
reasonable
estimate
of
the
penalty
payable
by
the
Company
at
that
time
pursuant
to
paragraph
194(7)(b)(ii)
of
the
Act
and
whether
the
Minister
is
estopped
from
claiming
that
the
$8,000
did
not
represent
a
reasonable
estimate
of
the
penalty.
Statutory
Provisions
The
relevant
portions
of
the
applicable
provisions
of
the
Act
as
they
read
in
1984
were
as
follows:
127.3(1)
There
may
be
deducted
from
the
tax
otherwise
payable
under
this
Part
by
a
taxpayer
for
a
taxation
year
an
amount
not
exceeding
the
aggregate
of;
(a)
his
scientific
research
tax
credit
for
the
year;
and
(b)
his
unused
scientific
research
tax
credit
for
the
taxation
year
immediately
following
the
year.
(2)
For
the
purposes
of
this
Act,
(a)
“scientific
research
tax
credit”
of
a
taxpayer
for
a
taxation
year
means
the
aggregate
of
all
amounts
each
of
which
is
an
amount
equal
to
(i)
where
the
taxpayer
is
a
corporation,
50%
of
an
amount
designated
by
a
corporation
under
subsection
194(4)
.
.
.
.
194.(1)
Every
corporation
shall
pay
a
tax
under
this
Part
for
a
taxation
year
equal
to
50%
of
the
aggregate
of
all
amounts
each
of
which
is
an
amount
designated
under
subsection
(4)
in
respect
of
a
share
or
debt
obligation
issued
by
it
in
the
year
or
a
right
granted
by
it
in
the
year.
(4)
Every
taxable
Canadian
corporation
may,
by
filing
a
prescribed
form
with
the
Minister
at
any
time
on
or
before
the
last
day
of
the
month
immediately
following
a
month
in
which
it
issued
a
share
or
debt
obligation
or
granted
a
right
under
a
scientific
research
financing
contract
.
.
.
designate,
for
the
purposes
of
this
Part
and
Part
I,
an
amount
in
respect
of
that
share,
debt
obligation
or
right
not
exceeding
the
amount
by
which
.
.
.
.
(7)
Where
a
taxable
Canadian
corporation
that
issued
a
share
or
debt
obligation
or
granted
a
right
under
a
scientific
research
financing
contract
does
not
designate
an
amount
under
subsection
(4)
in
respect
of
the
share,
debt
obligation
or
right
on
or
before
the
day
on
or
before
which
such
designation
was
required
by
that
subsection,
the
corporation
shall
be
deemed
to
have
made
the
designation
on
that
day
if
(a)
the
corporation
has
filed
with
the
Minister
a
prescribed
information
return
relating
to
the
scientific
research
tax
credit
in
respect
of
the
share,
debt
obligation
or
right
within
the
time
that
it
would
have
been
so
required
to
file
the
return
had
the
designation
been
filed
on
that
day,
and
(b)
with
in
3
years
after
that
day,
the
corporation
has
(i)
designated
an
amount
in
respect
of
the
share,
debt
obligation
or
right
by
filing
a
prescribed
form
with
the
Minister,
and
(ii)
paid
to
the
Receiver
General
an
amount
that
is
a
reasonable
estimate
of
the
amount
of
the
penalty
payable
by
the
corporation
for
the
late
designation
in
respect
of
the
share,
debt
obligation
or
right;
except
that,
where
the
Minister
has
mailed
a
notice
to
the
corporation
that
a
designation
has
not
been
made
in
respect
of
the
share,
debt
obligation
or
right
under
subsection
(4),
the
designation
and
payment
described
in
paragraph
(b)
must
be
made
by
the
corporation
on
or
before
the
day
that
is
90
days
after
the
day
of
such
mailing.
(8)
Where,
pursuant
to
subsection
(7),
a
corporation
made
a
late
designation
in
respect
of
a
share
or
debt
obligation
issued,
or
a
right
granted,
in
a
month,
the
corporation
shall
pay,
for
each
month
or
part
of
a
month
that
elapsed
during
the
period
commencing
on
the
last
day
on
or
before
which
an
amount
could
have
been
designated
by
the
corporation
under
subsection
(4)
in
respect
of
the
share,
debt
obligation
or
right
and
ending
on
the
day
that
the
late
designation
is
made,
a
penalty
for
the
late
designation
in
respect
of
the
share,
debt
obligation
or
right
in
an
amount
equal
to
1%
of
the
amount
designated
in
respect
of
the
share,
debt
obligation
or
right,
except
that
the
maximum
penalty
payable
under
this
subsection
by
the
corporation
for
a
month
shall
not
exceed
$500.
Under
Part
II
of
the
Income
Tax
Regulations
(the
"Regulations")
entitled
"Information
Returns"
it
was
required:
205.(1)
All
returns
required
under
this
Part
shall
be
filed
with
the
Minister
without
notice
or
demand
and,
unless
otherwise
specifically
provided,
on
or
before
the
last
day
of
February
in
each
year
and
shall
be
in
respect
of
the
preceding
calendar
year.
226.(2)
Each
corporation
that
has
designated
an
amount
under
subsection
194(4)
of
the
Act
in
respect
of
a
security
issued
or
granted
by
it
shall
make
an
information
return
in
prescribed
form
in
respect
of
each
such
security.
The
prescribed
forms
for
the
information
return
were
T2114
Summary
and
12114
Supplementary.
The
Position
of
the
Parties
Issue
#1
Counsel
for
the
appellant
noted
that
the
information
returns
were
not
required
to
be
filed
in
order
to
satisfy
the
designation
requirements
under
subsection
194(4)
of
the
Act.
Rather,
they
became
significant
only
when
the
designating
corporation
was
attempting
to
invoke
the
late
filing
provisions
in
accordance
with
subsection
194(7).
However
in
circumstances
where
the
Minister’s
notice
had
been
given
it
both
assisted
and
penalized
the
corporation
in
that,
while
the
three-year
late
filing
period
was
reduced
to
90
days,
the
problem
associated
with
the
failure
to
file
the
information
returns
was
eliminated.
Parliament’s
failure
to
refer
to
clause
(a)
in
the
"except"
proviso
demonstrated
that
it
was
intended
to
be
overridden
and
that
reference
to
clause
(b)
was
merely
to
identify,
without
mere
repetition,
the
documents
required
to
be
filed
and
the
penalty
to
be
paid.
It
was
urged
that
there
was
no
need
to
penalize
the
appellant-investor
under
the
tax
credit
program
simply
because
the
designating
corporation
had
failed
to
file
the
information
returns
and
that
the
"except"
proviso
was
designed
to
avoid
this
hardship.
The
filing
of
the
information
returns
could
be
demanded
by
the
Minister
which
was
enforceable
under
another
provision
(section
238)
of
the
Act.
The
oral
evidence
demonstrated
that
even
Revenue
Canada
—
Taxation
officials
were
confused
as
to
the
interpretation
of
subsection
194(7).
Any
ambiguity
extant
in
that
provision
is
to
be
determined
in
favour
of
the
taxpayer.
Johns-Manville
Canada
Inc.
v.
The
Queen,
[1985]
2
S.C.R.
46;
[1985]
2
C.T.C.
111;
85
D.T.C.
5373
(S.C.C.)
applied
in
Canterra
Energy
Ltd.
v.
The
Queen,
[1987]
1
C.T.C.
89;
87
D.T.C.
5019
(F.C.A.),
both
cases
being
applied
in
J.W.
Baker
v.
Canada,
[1989]
1
C.T.C.
246;
89
D.T.C.
5078
(F.C.A.).
There
is
a
trend
away
from
the
strict
construction
approach
of
taxation
statutes
in
favour
of
the
"object
and
spirit”
approach.
Stubart
Investments
Limited
v.
The
Queen,
[1984]
1
S.C.R.
536;
[1984]
C.T.C.
294;
84
D.T.C.
6305
(S.C.C.)
and
The
Queen
v.
Golden
et
al.,
[1986]
1
C.T.C.
274;
86
D.T.C.
6138
(S.C.C.).
Counsel
for
the
Minister
submitted
that
as
the
designation
form
was
not
filed
by
the
end
of
June
1984
the
designating
company,
Acadia,
had
not
designated
an
amount
under
subsection
194(4),
and
therefore
no
SRTC
was
available
to
the
appellant
under
paragraph
127.3(2)(a).
The
information
returns
were
not
filed
by
the
end
of
February
1985,
so
Acadia
had
not
complied
with
the
paragraph
194(7)(a)
condition.
As
no
late
designation
was
available
to
Acadia
under
subsection
194(7)
no
SRTC
was
available
to
the
appellant.
Paragraphs
(a)
and
(b)
of
subsection
194(7)
were
conditions
precedent
to
the
obtaining
of
a
late
designation.
They
were
preceded
by
the
word
“if”,
and
joined
by
the
word
“and”.
Both
must
have
been
met
for
a
late
designation.
Failure
to
file
information
returns
on
time
was
fatal
to
obtaining
a
late
designation.
The
"except"
proviso
did
not
override
paragraph
(a).
Such
an
interpretation
would
involve
reading
into
the
proviso
words
which
were
not
there.
The
proviso
did
not
mention
the
(a)
paragraph;
it
overrode
the
(b)
paragraph
merely
by
reducing
the
three-year
period
to
90
days.
The
appellant's
interpretation
would
lead
to
a
nonsensical
result.
Parliament,
through
the
Regulations
and
by
paragraph
(a)
of
subsection
194(7)
of
the
Act,
had
demonstrated
the
importance
of
the
information
returns
and
of
their
timely
filing.
Their
requirement
and
importance
had
not
been
diminished
or
eliminated
simply
because
the
Minister
had
triggered
the
proviso,
particularly
where
their
obviation
could
not
occur
when
the
late
filing
of
the
designation
was
triggered
by
the
designating
company.
Estoppel
cannot
override
the
law
of
the
land;
per
Cattanach,
J.
in
Stickel
v.
M.N.R.,
[1972]
F.C.
672;
[1972]
C.T.C.
210;
72
D.T.C.
6178;
(F.C.T.D.)
at
6185.
The
SRTC
is
available
upon
strict
compliance
with
section
194,
and
neither
the
Minister
nor
his
employees
have
any
authority
to
override
the
express
provisions
of
the
Act.
Whether
the
Minister's
officials
thought
it
was
still
possible
for
the
designating
company
to
obtain
a
late
designation
is
irrelevant.
Analysis
There
is
no
need
to
set
out
the
submissions
of
the
parties
with
respect
to
issues
#2
and
#3
until
the
first
one
has
been
determined.
In
my
view
respondent
counsel's
interpretative
approach
and
analysis
on
the
first
issue
were
persuasive
and
well
founded.
They
are
the
ones
to
be
adopted
here
along
with
the
resultant
conclusions.
To
have
accepted
the
appellant
counsel's
analysis
would
have
called
for
the
putting
of
words
into
the
"except"
proviso
of
subsection
194(7)
that
were
not
there.
Parliament
had
not
provided
any
provision
or
mechanism
for
a
late
filing
of
the
information
returns
in
conjunction
with
a
late-filed
designation.
Rather
it
had
mandated
the
timely
filing
of
the
former
as
a
condition
precedent
to
the
latter.
A
timely
filing
of
the
prescribed
information
returns
was
the
only
mechanism
provided
to
put
the
Minister
of
National
Revenue
on
statutory
notice
that
a
designation
had
been
made
which,
once
done,
effectually
preserved
the
designator's
late-filing
rights
with
respect
to
the
designation,
and
ultimately
the
purchaser's
entitlement
to
the
SRTC
itself.
One
cannot
help
but
sympathize
with
this
appellant
in
view
of
the
fact
that
it
was
mere
inadvertence
on
the
part
of
Acadia's
legal
advisors
which
caused
the
problem.
Having
said
that,
however,
I
nonetheless
perceive
the
words
employed
in
subsection
194(7)
as
being
“sufficiently
explicit”
in
expressing
the
intent
of
Parliament;
per
Urie,
J.
in
Canterra
Energy
Ltd.
v.
The
Queen,
supra,
at
5023,
and
further
that
here
there
was
no
.
.
.
reasonable
uncertainty
or
factual
ambiguity
resulting
from
lack
of
explicitness
in
the
statute
[which]
should
be
resolved
in
favour
of
the
taxpayer.
per
Urie,
J.
in
Canterra
at
page
95
(D.T.C.
5023)
quoting
from
Johns-Manville
Canada
Inc
v.
The
Queen,
supra.
Conclusion
For
all
of
the
aforementioned
reasons,
the
answer
to
the
question
posed
in
issue
#1
is
no.
As
this
is
sufficient
to
dispose
of
the
appeal,
there
is
no
need
to
deal
with
any
other
of
the
issues
that
have
been
raised
and
argued.
The
appeal
is
to
be
dismissed.
Appeal
dismissed.
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