Regulations/Statutory Delegation


McNeeley v. Canada, 2021 FCA 218

principle that the Act must prevail over an overlapping Regulation

Webb JA noted that a trust (the D2L Employee Trust) satisfied the terms both of the definition of an employee benefit plan (EBP) in s. 248(1) and the description of a prescribed trust in Reb. 4800.1. In finding that it was an EBP, he cited (at para. 29) Oldman for the proposition that “[o]rdinarily … an Act of Parliament must prevail over inconsistent or conflicting subordinate legislation,” and then stated (at para. 30):

In this case, it is not possible to reconcile the two provisions as they apply to the D2L Employee Trust. The D2L Employee Trust fulfills both the requirements to be an employee benefit plan and a prescribed trust. The tax consequences for the D2L Employee Trust and the appellants are significantly different based on the classification of the D2L Employee Trust as an employee benefit plan or a prescribed trust. However, since the definition of an employee benefit plan is set out in the Act and since the definition of a prescribed trust is set out in the Regulations, the paramountcy of the definition of an employee benefit plan in the Act must govern. Otherwise, the Act would be amended by the Regulations if an arrangement, such as the one in this appeal, is not an employee benefit plan as defined in the Act because it is also a prescribed trust as defined in the Regulations.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 248 - Subsection 248(1) - Employee Benefit Plan plan that came within EBP and Reg. 4800.1 descriptions was to be treated as an EBP 631
Tax Topics - Income Tax Regulations - Regulation 4800.1 prescribed trust was to be treated as an EBP and thus excluded from s. 107 rules 283

Canada v. The Mark Anthony Group Inc., 2019 FCA 183

an exemption provision should not be interpreted to give CRA discretion as to its scope

An excise duty exemption applied to Canadian cider if it could be said that it was “produced in Canada and composed wholly of agricultural or plant product grown in Canada.” This quoted requirement, if interpreted literally, would be commercially impossible to comply with if it was to be tested at the time of packaging the beverage, because by that time there invariably would have been something added to the beverage, such as a preservative, that was not an agricultural product. In rejecting the CRA position in this regard, Webb JA stated (at para. 28):

The Crown’s interpretation … [is] that all ingredients that are included in the packaged product must be agricultural or plant products grown in Canada, except those that are permitted to be added by the CRA, on the basis that they are “incidental”. This would result in a delegation of authority to the CRA to decide what wine will qualify for the exemption. … [I]t would not have been the intent of Parliament to implicitly delegate this authority to the CRA.

Webb JA went on to find that the quoted wording was to be applied only to each alcoholic component of the blended product, e.g., the alcoholic product of the cider fermentation process, or any spirits that were added to fortify the cider.

Locations of other summaries Wordcount
Tax Topics - Other Legislation/Constitution - Federal - Excise Act, 2001 - Section 135 - Subsection 135(2) - Paragraph 135(2)(a) all-ingredients test applied to each alcoholic component – not to all components 320

Canada v. Société des alcools du Québec, 2002 FCA 69

Reg. providing a partial rebate for FST included in transitional inventory improperly failed to provide a full refund according to legislative intent to avoid double taxation

The respondent, which was the Quebec liquor marketing board, sought a full refund of the federal sales tax (imposed at a 19% rate) that was included in the cost of its alcoholic-products inventory on January 1, 1991, but instead was allowed only a rebate equalling the factor of 8.1% applied to the value of that inventory. ETA s. 120(3) provided that the Minister shall, on application of a registrant with “any tax-paid goods in inventory at the beginning of” January 1, 1991 (other than used goods) “pay to that person a rebate in accordance with subsections (5) and (8),” with s. 120(5) relevantly providing that such rebate was “the amount determined by a prescribed method using prescribed tax factors.” Ss. 3(b) and (c) of the Federal Sales Tax Inventory Rebate Regulations provided or a full rebate of the included sales tax, whereas s. 3(h) provided a rebate for goods not otherwise specified of 8.1% of their value.

After stating (at para. 34) that “the undisputed purpose of the Act was to avoid double taxation by refunding the tax that had been paid under the former Act” and (at para. 37) that Parliament, in authorizing a prescribed method “entrusted the Minister of Finance with the task of identifying the amount of the tax paid under the former Act as accurately as possible, so that it could be refunded,” and before finding (at para. 45) that “subsection 3(h) is ultra vires in so far as it applies to alcoholic beverages,” Noël J.A stated (at paras. 42, 44):

The provinces' liquor boards handle the sale of those goods, from start to finish of the marketing process, with the exception of corner stores and grocery stores in Quebec … . In the circumstances, the extent of the tax paid on those goods should, as a rule, have been equivalent to the rate of tax paid under the former Act, without the discount incorporated by the general factor, to take account of the market level.

… [T]he Minister of Finance[‘s] … discretion, no matter how broad, certainly did not allow the Minister to establish the amount of rebates as he saw fit, or to favour certain goods at the expense of others. He had to identify the factor most likely to achieve the objective established by Parliament, based on relevant considerations. The way in which alcoholic beverages were treated disregarded the considerations that were relevant in identifying the tax that had been paid on those goods, and is contrary to the purpose of the Act.

After then posing (at para. 53) the question, “can we fill the legislative vacuum that results from this declaration of invalidity, or must we temporarily suspend this declaration in order to enable the Minister of Finance to make the Regulations consistent with the legislative intent?”, and indicating (at para. 57) that the answer to this question turned on that to the question, “is the Court in a position to say how the holder of the delegated power would have designed the factor to be applied to alcoholic beverages if he had known that the Act required that a special factor be established for those goods?”, Noël J.A. stated (at paras. 58-60)

[T]he method and factors that Parliament had authorized, in order to achieve that objective [of eliminating double taxation], is also readily understood. It involved formulating factors which, when applied to the cost of inventories held as of January 1, 1991, would identify, with as much accuracy as possible, the amount of the tax paid under the former Act, so that it could be refunded.

It can therefore be said, without fear of error, that in establishing a specific factor for alcoholic beverages the Minister of Finances would have had regard to the rate of tax that applied to those goods under the former Act. He would also have had regard to the uniform method by which those goods are marketed which results in the cost of inventories composed of those goods being, as a rule, equal to the amount on which the tax had been paid.

In the circumstances, it seems obvious that the Minister would have made the rebate factor that applied to alcoholic beverages coincide with the rate of tax that was levied on those goods under the former Act, as he did for gasoline and diesel fuel.

He concluded (at para. 68) that the respondent was entitled to a rebate of tax based on the rate actually paid “despite the regulatory vacuum.”

Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Section 120 - Subsection 120(5) liquor board was entitled to a full rebate of the FST included in its liquor inventory as the Reg. did not give effect to the legislative intent to avoid double taxation 323

British Columbia Ferry Corp. v. Canada, 2001 FCA 146

Reg. improperly provided tax preference to one area of country rather than implementing legislative intent – but nullification of Reg. delayed to permit its replacement

The appellant operated ferries between ports in B.C., so that from a common law and international law perspective, it was operating in the inland waters of Canada. It argued that the Canadian suppliers to it of diesel fuel (who were joined as applicants in this action) should be entitled to a drawback of the excise tax paid on their purchases of the fuel for supply to it. Ss. 68.17(1) and 70(1) of the Excise Tax Act provide for the tax to be paid back by way of refund or "drawback" on goods supplied as "ships' stores". S. 59(3.2) provided:

The Governor in Council may make regulations designating, for the purposes of sections 68.17 and 70, certain classes of goods as ships' stores for use on board a conveyance within such class of conveyances as may be prescribed in the regulations and limiting the quantity of such goods that may be so used. . . .

The Ships Stores Regulations which purportedly implemented s. 59(3.2) effectively provided for a full drawback for diesel fuel consumed in the Ontario portion of the Great Lakes and in the lower Saint Lawrence, but not elsewhere in Canada, including the inland waters of B.C. Strayer JA noted (at para. 21):

There is certainly precedent for the courts examining an Order in Council or other delegated legislation made under the authority of a statute, to see whether it conforms with the purposes of the statute and the scope of the authority given by Parliament for the making of the delegated legislation.

In finding that the Regulations were invalid, he stated (at para. 28):

At best they appear designed to give a fiscal preference to certain areas of the country compared to certain other areas. I am unable to see how this can be justified under subsection 59(3.2) as making distinctions between "classes of conveyances". The … distinctions made by the regulations based on the area of voyages taken cannot be supported by the bare language of the section … .

Before further finding (at para. 35) that he would be prepared to declare the appellants’ exclusion from the benefit of the Regulations as invalid, he stated (at paras. 32-33):

There appear to be two main options. Either the Court can sever and annul the impugned portion where it can be determined that that portion was intended by the legislator to be cumulative, not dependent on other provisions, and was "enacted distributively and not with the intention that either all or none should come into force" … . Or the Court can refuse to sever where it considers that after finding a certain portion to be invalid

[W]hat remains is so inextricably bound up with the part declared invalid that what remains cannot independently survive . . . .

In the present case I believe that I should apply the "cumulative" approach adopted by Chief Justice Laskin in the Alaska Trainship case. While it is always difficult to gauge the intention of the legislator -- here the Governor in Council -- and to decide whether its members would have adopted the taxation exemptions in respect of ships' stores of other operators if they had known they could not distinguish in this way between the beneficiaries of their largesse and those denied that largesse, I believe it is reasonable to assume that they would have done so. … It does not appear to me that the denial of benefits to some and the grant of it to others were "inextricably bound" together.

However, he concluded (at para. 41) that “for the same rationale as prevailed in Schachter [[1992] 2 S.C.R. 679], the best solution would appear to be a delayed declaration of the invalidity of the Ships Stores Regulations” so as to “enable the Governor in Council to devise a scheme which is legally defensible given the terms of its regulation-making authority under the Excise Tax Act.” In reaching this conclusion, he stated (at paras. 39-40):

[I]t is beyond the role of this Court in effect to devise a valid scheme for exempting "ships stores" through selective excisions or additions to the Ships Stores Regulations, or to the statutory definitions of "inland waters" or "inland voyage" or "minor waters of Canada" incorporated by reference in the regulations. I believe that a meaningful pursuit of the stated purpose of the tax exemption would require an extensive knowledge of the shipping industry. …

In short, there is no practical way in which the Court can, through selective nullification of the regulations and their adopted definitions, or by reading in some simple exemptions, design a scheme which we could confidently pronounce as accurately implementing the intention of the Excise Tax Act in its conferral of the regulation-making power in subsection 59(3.2), nor which we could hold out as implementing an intention which the Governor in Council would have had, had it known the discrimination against the appellants to be invalid.

Friends of the Oldman River Society v. Canada (Minister of Transport), [1992] 1 S.C.R. 3

approval given pursuant to a federal navigation statute should be interpreted as being subject to an order issued under a federal environmental statute

Before confirming the quashing of an approval of the federal Minister of Transport given pursuant to the Navigable Waters Protection Act (Canada) for a dam to be built on the Oldman river in Alberta on the basis that no environmental assessment had been performed as required under the “Guidelines Order” issued under the Department of the Environment Act (Canada), La Forest J considered the argument of the appellants, Alberta and the federal Ministers, that the Guidelines Order was inconsistent with and therefore must yield to the requirements of the Navigable Waters Protection Act, namely, that the Minister of Transport was confined by that Act to a consideration of matters pertaining to marine navigation alone, and that the Guidelines Order could not displace or add to the criteria mentioned in that Act.

He instead found that the Guideline Order was not inconsistent with the Navigable Waters Protection Act. He stated:

Just as subordinate legislation cannot conflict with its parent legislation (Belanger v. The King (1916), 54 S.C.R. 265), so too it cannot conflict with other Acts of Parliament (R. & W. Paul, Ltd. v. Wheat Commission, [1937] A.C. 139 (H.L.)), unless a statute so authorizes (Re George Edwin Gray (1918), 57 S.C.R. 150). Ordinarily, then, an Act of Parliament must prevail over inconsistent or conflicting subordinate legislation. However, as a matter of construction a court will, where possible, prefer an interpretation that permits reconciliation of the two. "Inconsistency" in this context refers to a situation where two legislative enactments cannot stand together; see Daniels v. White, [1968] S.C.R. 517. The rule in that case was stated in respect of two inconsistent statutes where one was deemed to repeal the other by virtue of the inconsistency. However, the underlying rationale is the same as where subordinate legislation is said to be inconsistent with another Act of Parliament ‑‑ there is a presumption that the legislature did not intend to make or empower the making of contradictory enactments.

Alaska Trainship Corporation et al. v. Pacific Pilotage Authority, [1981] 1 S.C.R. 261

Regulation improperly implemented protectionism rather than the statutorily-mandated purpose of safety

The Pilotage Act, 1971 (Canada) stated that the purpose of a Pilotage Authority was to "administer in the interests of safety". The Supreme Court held that Parliament intended, in granting the Pilotage Authority power to make regulations, to thereby advance the safety of shipping. The Authority adopted a regulation which required the use of pilots on all larger vessels except for ships registered in Canada and the U.S.. The Court concluded that this was not referable to safety but had probably been adopted for protectionist economic reasons and was therefore invalid.

Laskin C.J. further found the impugned portion of the regulations to be invalid and severable from the balance of the regulations, so that such balance continued to apply. The net effect was for the ship in question (which had a Liberian registry) to gain an immunity from compulsory pilotage requirements, through the striking-out of a few words (stipulating a requirement that a vessel be “registered in Canada” or “registered in the United States”) which had excluded it from the exemption.

Irving Oil Ltd. et al. v. Provincial Secretary of New Brunswick, [1980] 1 S.C.R. 787

Minister could not suppress an exemption contemplated by the taxing statute by not defining an obvious term

A provision of the Social Services and Education Tax Act (N.B.) provided an exemption from provincial sales tax for “machinery and apparatus as defined by the Minister, and complete parts thereof, which in the opinion of the Minister are to be used directly in the process of manufacture or production of goods for sale or use.” The Minister had never issued a definition of the machinery and apparatus exempted from tax under this provision.

In reversing the New Brunswick Court of Appeal and in finding that the exemption was available, Pigeon J stated (at pp. 794-795):

It is obvious that this class of goods is sufficiently described to be ascertainable without a definition. It is not the kind of indefinite expression which requires a definition in order to make sense. The defining power is by no means indispensable for proper application. In fact, it has not been included in the re-enacted federal Excise Tax Act exemption [on which it was modeled]. …

If by issuing no definition, the result was, as the Appeal Division held, that the claim of exemption failed it would mean that by the simple expedient of not making use of the defining power, the Minister could make his decisions unassailable. It must also be considered that the power of issuing a definition is to be exercised in good faith and it would be usurpation of power for the Minister to suppress the exemption by issuing no definition. For those reasons, I must hold that the decision of the Court of Appeal cannot be supported.

Carling Export Brew & Malt Co. v. The King, [1931] A.C. 435 (P.C.)

Regulation to implement an export exemption could be dispensed with

A federal excise tax exemption for goods "manufactured for export, under regulations prescribed by the Minister of Customs and Excise" was applicable even though the Minister had made no regulations. The purpose of the Act was sufficiently clear that no regulations were necessary in order for the Court to be able to give effect to the Act for the benefit of the exporting brewery company. Lord Thankerton stated (at pp. 438 and 439):

In their Lordships' opinion it is not to be readily assumed, in a taxing act, that Parliament has delegated to a Minister the power to settle the limits of taxation, and such intention must be clearly shown by the terms of the statutory provision. A good example of such clear expression is to be found in the Dominion Press case, [1928] A.C. 340, which related to a statutory proviso that the taxes should not be payable "on goods exported or on sales of goods made to the order of each individual customer by a business which sells exclusively by retail under regulations by the Minister of Customs and Excise, who shall be the sole judge as to the classification of a business." It is obvious that no business could claim to be one of the class on which the benefit of exception was conferred unless and until the Minister had placed the business within the class. Their Lordships are unable to find any similar clear expression in the present case ... .

See Also

Commissioners for His Majesty's Revenue and Customs v Arrbab, [2024] EWCA Civ 16

restrictive interpretation of power accorded in subordinate legislation to amend the primary legislation

Section 124 of the Finance Act 2008 ("FA 2008") provided inter alia that Treasury could by statutory instrument make an order in connection with appeals against HMRC decisions which amended the provisions of any Act, provided that a draft of the order had been laid before and approved by resolution of the House of Commons. Treasury made such an order, amending the Tax Credits Act 2002 ("the 2002 Act"), whose effect was to inter alia exclude the possibility of a challenge to an HMRC refusal to consider a late request to reconsider its denial of working tax credits (i.e., to exclude the jurisdiction of the First-tier Tribunal (“FTT”) to determine whether to entertain a late appeal. Before concluding that such amendment was ultra vires, Falk LJ stated (at paras. 38-39, 71):

Section 124 FA 2008 is an example of what has come to be referred to as a "Henry VIII power", meaning a provision of primary legislation which permits subordinate legislation to be used to amend primary legislation.

It is now well established that any genuine doubt about the scope of the power conferred by such a provision should be resolved in favour of a restrictive approach. …

The facts of Mr Arrbab's case are an unfortunate illustration of the reality that only a right of recourse to an independent tribunal may provide effective protection against failures of administration, including a failure to recognise that time ought to be extended. This reinforces the need for a clear indication that Parliament intended to remove that right, leaving only the possibility of a judicial review of HMRC's decision-making. Section 124 FA 2008 does not provide such an indication.

Locations of other summaries Wordcount
Tax Topics - Other Legislation/Constitution - Federal - Federal Courts Act - Section 27 - Subsection 27(1.1) conditions for considering an academic appeal were satisfied 319

Attorney General of Canada v. Caisse Desjardins de Limoilou, 2020 QCCA 1612

Regulation did not violate “the rule prohibiting the granting of pure discretion by Regulation”

Reg. 2201 provided a carve-out, from the super-priority of the Crown under ITA ss. 227(4) and (4.1) regarding unremitted source deductions and withholding taxes, for a prescribed security interest (“PSI”). Under Reg. 2201(2)(a), the PSI of the Caisse at the time of a mortgage borrower’s failure to remit source deductions was equal to the mortgage balance owing at that time minus "all rights of the secured creditor securing the [mortgage] obligation.”

The federal Crown successfully took the position that the Caisse’s PSI was reduced by the portion of the mortgage loan that was guaranteed by shareholders of the borrower – notwithstanding that this security was evidently not of much value to the Caisse, as it released those shareholders from their guarantee after the source deduction remittance failure and before the sale of the mortgaged property pursuant to a court-approved sale.

Gagné JCA also rejected an argument that the Reg. was contrary to s. 7 of the Charter.

She further rejected an argument of the Caisse that the Reg. was contrary to principles of administrative law because its vagueness gave the Crown an unlawful degree of discretion. In this regard, she stated (at paras. 49-51, TaxInterpretations translation):

In this case, it cannot be said that subsection 2201(2) of the Regulation does not give any scope for the exercise of the judicial function. As discussed above, the meaning of the words "rights of the secured creditor securing the obligation … " and "… guarantees" can easily be determined by applying the modern method of interpretation.

There remains the rule prohibiting the granting of pure discretion by Regulation. For the Caisse, the determination of the value of the secured creditor's rights under paragraph 2201(2)(a) of the Regulations is the equivalent of a sub-delegation of discretion.

This argument lacks merit. There is always an element of discretion in the application of a standard to a particular case but, as Professor Garant explains, it is the granting of pure discretion that is prohibited:

As we have seen above, what is formally prohibited is the according of pure discretion by Regulation. However, there is no prohibition against leaving a certain amount of discretion to the person who is charged with applying the Regulation, provided that sufficiently precise standards exist throughout the Act and Regulation.

Locations of other summaries Wordcount
Tax Topics - Income Tax Regulations - Regulation 2201 - Subsection 2201(2) - Paragraph 2201(2)(a) a mortgagee’s prescribed security interest was reduced under Reg. 2201(2)(a) by the shareholders’ guarantee 397

Weyerhaeuser Company Limited v. The Queen, 2007 TCC 65

narrow construction of Reg. so as to be intra vires

Before going on to interpret Reg. 105 narrowly and find that it was intra vires, Bowie J quoted with approval the statement made by Cartwright J (as he then was) in The Queen v. McKay, [1965] S.C.R. 798 at 803-4:

... if an enactment, whether of Parliament or of a legislature or of a subordinate body to which legislative power is delegated, is capable of receiving a meaning according to which its operation is restricted to matters within the power of the enacting body it shall be interpreted accordingly. An alternative form in which the rule is expressed is that if words in a statute are fairly susceptible of two constructions of which one will result in the statute being intra vires and the other will have the contrary result the former is to be adopted.

Bowie J went on to find (at para. 13) that even if such a narrow construction of the Regulation was not possible, he would have "read down" the Regulation to accord with what was contemplated under the authorizing provision (ITA s. 153(1)(g)), as discussed in B.C. Ferry and Société des alcools.

Locations of other summaries Wordcount
Tax Topics - Income Tax Regulations - Regulation 105 - Subsection 105(1) no withholding on reimbursements for disbursements/no requirement for documentary support for allocations in NRs' invoices/travel time to Canada not re Cdn services 499
Tax Topics - Statutory Interpretation - Interpretation Act - Section 16 "in respect of" in Regulation read narrowly to conform with "for" in statute 169

Placer Dome Canada Ltd. v. Ontario (Minister of Finance), 2006 DTC 6532, 2006 SCC 20, [2006] 1 S.C.R. 715

addition of regulation did not significantly expand scope of tax

A definition of "hedging" was introduced, first by way of Regulation and, subsequently by amendment to the Mining Tax Act (Ontario), which had the effect of expanding the concept of mine production to include profits from related cash-settled derivative contracts. Respecting the intra vires of the introduction by Regulation, LeBel J. stated (at para. 38):

PDC raised several arguments, based on the statutory and constitutional limits on the power of the Lieutenant Governor in Council at the time, about the meaning of “hedging” when it was first introduced in the Regulation. Specifically, PDC argues that no power had been vested in the Lieutenant Governor in Council to make regulations imposing a new tax or expanding the existing tax base, and that any such attempt would have been contrary to s. 53 of the Constitution Act, 1867 , which requires that bills imposing any tax originate in the House of Commons. Both of these arguments depend for their validity on the proposition that the 1975 Regulation created a new tax or expanded the tax base. I am not satisfied that the 1975 Regulation can be so construed — it did not alter the primary definition of “gross receipts” in the Act, but merely clarified the method by which a subsidiary, discretionary amount was to be assessed. This does not, in my view, constitute a change of the radical nature that PDC suggests.

Locations of other summaries Wordcount
Tax Topics - Statutory Interpretation - Interpretation Bulletins, etc. shifting CRA position could not be relied upon except to evidence ambiguity 79
Tax Topics - Statutory Interpretation - Redundancy/reading in words presumption against tautology 120
Tax Topics - Statutory Interpretation - Resolving Ambiguity residual presumption in favour of the taxpayer 133
Tax Topics - Income Tax Regulations - Regulation 1204 - Subsection 1204(1) - Paragraph 1204(1)(b) cash-settled derivatives had the effect of fixing mine production] 453
Tax Topics - Income Tax Act - Section 9 - Capital Gain vs. Profit - Futures/Forwards/Hedges “hedging “ includes cash settled derivatives including options 461