Minister of Finance for British Columbia v. Canfor Limited, [1977] CTC 269

Carrothers, J (per curiam):—This appeal is brought by the Minister of Finance of British Columbia (“the Minister’’) against the judgment of the Honourable Mr Justice Fulton in effect excluding certain specific items from the calculation of the capital tax base of the respondent Cantor Limited (“Cantor’’) as assessed pursuant to the Corporations Capital Tax Act, SBC 1973, chapter 24 and amendments thereto (“the Act’’) in respect of Cantor’s fiscal year ended December 31, 1973.

The two specific items so excluded and in respect of which this appeal is taken can briefly be described as $4,432,000 of accounts payable by Cantor to affiliated companies and $8,000,000 secured bank indebtedness of Canfor. The issue turns on whether these items, each of which will be dealt with separately, are covered by the statutory definition of the “paid-up capital” (section of the Act) of Canfor as at December 31, 1973.

The incidence of the capital tax and the formulation of the tax base are to be found in the following extracts from the Act:

2. Every corporation that has a permanent establishment in the Province Shall, for every fiscal year of the corporation, pay to Her Majesty in right of the Province the tax imposed by this Act at the time and in the manner provided in this Act and the regulations.

5. Unless otherwise provided in this Act, any tax imposed by this Act shall be determined on the amount of the paid-up capital as such paid-up Capital stood at the close of the fiscal year of the corporation for which the tax is imposed.

7. Every corporation that is liable to the tax imposed under this Act shall pay a capital tax as hereinafter required,

(a) in the case of a corporation other than a non-resident corporation, upon its taxable paid-up capital determined in accordance with sections 11 and 12;

8. . .. the taxable paid-up capital of a corporation shall be measured as at the close of the fiscal year for which the tax imposed by section 7 is levied and is its taxable paid-up capital determined under sections 11 and 12.

11. The paid-up capital of a corporation for a fiscal year is its paid-up Capital as it stood at the close of the fiscal year and includes . . .

(d) all sums or credits advanced or loaned to the corporation by its shareholders directly or indirectly or by any other corporation, excluding such sums or credits of a non-capital nature advanced or loaned to the corporation by a bank; and

(e) all its indebtedness, whether assumed or undertaken by it, represented by bonds, bond mortgages, debentures, income bonds, income debentures, mortgages, lien notes, and any other securities to which the property of the corporation or any of it is subject.

The principles of construction of taxing statutes have been clearly and frequently set out in the authorities. In particular I refer to the dissertation on these principles in the learned trial Judge’s reasons and the examination of these principles by our brother Bull, JA in Sammartino v Attorney General of British Columbia, [1972] 1 WWR 24, at p 32. I adopt these principles in construing the Act.

The $4,432,000 of accounts payable by Cantor to affiliated companies would constitute taxable paid-up capital of Cantor for the purposes of the Act, notwithstanding any accounting practice or common usage to the contrary, if it falls clearly and unambiguously within one of the classifications or categories of paid-up capital described in section 11 of the Act. We must examine the classification or category of taxable paid-up capital described in clause 11(d) being the only one possibly applicable.

As none of the affiliated companies is a bank, the exclusionary provision of clause 11(d) has no application to the accounts payable in question and, in our determination of whether these accounts payable are properly taxable paid-up capital, that exclusionary provision can be ignored in its entirety. The question whether these accounts payable are of a capital or a non-capital nature is irrelevant as the qualifying wording in this regard as contained in the exclusionary provision has application only to that exclusionary provision.

In our search for the proper construction to be placed on the pertinent part of clause 11(d), we must examine every word by which the Legislature stipulates and defines the elements or characteristics of the “sums or credits” to be included in the taxable paid-up capital for the purposes of the Act. Current trade accounts payable clearly cannot be said to be “sums . . . loaned or advanced” but can they be said to be “credits loaned or advanced”? These “credits” are trade accounts payable by Cantor from time to time in the ordinary course of business to other corporations for services rendered, for materials supplied to Cantor’s inventory for resale and for interest payable. By their very nature and character they cannot, in my view, be said to be “credits advanced or loaned’’. The words “advanced or loaned”, which modify and describe the “credits” are inconsistent and incongruous with accounts such as here which may be incurred but do not have the attributes or character of credits advanced or loaned.

To illustrate this, I refer to two cases which were cited to us in regard to the nature or character of “sums or credits loaned or advanced”, if only to distinguish them on their facts. In Marathon Packages of Canada Limited v Treasurer of Ontario in re Corporations Tax Act (1968), CCH Ontario Tax Reporter, para 200-073 the supply of raw materials by a parent company to its subsidiary in the start-up years of the latter was held by the Chief Justice of the High Court of Ontario to be a “credit lent” and as much an aggregation of the subsidiary’s capital resources as the loan of a sum of money would have been. But in that case, unlike here, the goods and services were furnished with the expectation of future payment. In that case the “credits” were paid for not in the year in which they were incurred but in the subsequent year from the income of the subsidiary when it was established. Those “credits” had the attributes of a loan which the “credits” here do not have. In Re City Parking Canada Ltd and Minister of Revenue (1974), 1 OR (2d) 425 the Ontario Court of Appeal held that the expression “credit advanced” ordinarily and properly includes the extension of credit by a vendor to a purchaser but the amount assessed in that case represented the balance owing to corporate vendors over a period of years under an agreement of purchase of assets and undertakings. There the “credit advanced” had the future payment character of a loan which the trade accounts in the case at bar do not have.

The $8,000,000 secured bank indebtedness represents funds borrowed by Canfor from the Bank of Montreal, repayment of which is secured by three demand promissory notes, an assignment under the provisions of section 88 of the Bank Act (Canada), a general assignment of book debts, and hypothecations of certain securities owned by Canfor.

Clause 11(e) of the Act specifies that included in the taxable paid-up capital of a corporation shall be “indebtedness . . . represented by . . . securities to which the property of the corporation or any of it is subject”. This is the sole material characteristic of the indebtedness needed to qualify the “indebtedness” as taxable paid-up capital under clause 11(e). We are not to be concerned with the identity of the creditor, the duration or the purpose of the indebtedness. Section 2 of the Act defines “property” in the following broad terms:

“property” means property of any kind whatsoever whether real or personal Or corporeal or incorporeal and, without restricting the generality of the foregoing, includes a right of any kind whatever, a share or a chose in action, and, unless a contrary intention is evident, money.

In view of this definition of property there can be no doubt that the assignments and hypothecations given to the bank by Canfor to secure the fulfilment of its obligation to repay the indebtedness constitute “securities to which the property of the corporation or any of it is subject”. It was argued successfully below and forcefully to us that the qualifying phrase “of a non-capital nature” made this an overriding characteristic and an essential element of any and all items of taxable paid-up capital regardless of the classification under section 11 of the Act. Respectfully, I do not agree that this is so. That qualifying phrase appears only in a specific exclusionary provision in clause 11(d) relating to bank loans or advances and, as I have indicated earlier, cannot have application to the balance of clause 11(d) let alone to the construction of clause 11(e).

I would allow the appeal as it relates to the sum of $8,000,000 referred to as secured bank indebtedness of Canfor as it ought to be included in the calculation of Cantor’s taxable paid-up capital as at December 31, 1973 for the purposes of the Act, but I would dismiss the appeal as it relates to the sum of $4,432,000 of accounts payable by Cantor to affiliated companies which cannot be said to have been brought within the definition of paid-up capital as contained in section 11 of the Act.

As to costs, I would pro-rate costs approximately on the basis of success both here and below and amounts involved. The appellant should have two-thirds of its costs and the respondent should have one-third of its costs, to be set off one against the other.