Specific v. General Provisions

The taxpayers, which carried on consulting businesses, computed their income for financial statement purposes by valuing the work in progress at the end of each year at fair market value (i.e., including a portion of the profit on uncompleted consulting contracts based on a percentage-of-completion method). The trial judge (2008 TCC 106) found that they were required to follow the same method for purposes of computing their income under the Act, given that a different conclusion would have made section 34 of the Act, which permitted certain professions to exclude income in respect of work in progress in computing their income, meaningless.

The Court of Appeal disagreed. Noël J.A. stated at para. 33 that s. 10(1), which requires that inventory be valued at the lesser of cost or fair market value, overrides any GAAP considerations. Noël J.A. also stated at para. 35:

With respect, it is incorrect to say that section 10 applies whenever section 34 applies. These two provisions operate differently. Taxpayers subject to section 10 must account for the value of their inventoried work in progress based on cost or FMV, depending on the circumstances; however, section 34 gives taxpayers the choice of excluding their inventoried work in progress in computing their income, in which case, section 10 does not apply.

Sharlow, J.A. found that the "gift portion" exception to the rollover rule in s. 87(4) did not apply to a transaction in which the taxpayer received, on an amalgamation of its subsidiary with a subsidiary of another corporation, preferred shares that had a lower fair market value than the shares which it held of the subsidiary going into the amalgamation. In rejecting an alternative submission of the Minister that the amalgamation entailed an appropriation of property of the taxpayer (namely, its shares of its subsidiary) for the benefit of its shareholder (who wished this transaction to occur as part of a larger transaction), so that such shares of the subsidiary were deemed to be disposed of for their fair market value, Sharlow, J.A. stated (at para. 71-72):

"If subsection 69(4) can be applied to the disposition of shares to which para. 87(4)(a) also applies, the result in many cases (and certainly in this case) would be two statutory deeming rules creating two different statutory fictions. That cannot be ... In my view, the specific provisions of subsection 87(4) must trump the more general rule in subsection 69(4)."

After noting that ss.84(2) and 85.1 were both contained in subdivision h of Division B of Part I of the Act, Favreau, J. found (at para. 12) that it was not possible to say that one provision was of general application and the other was more specific in its application, so that the latter took precedence.

After noting that in the City of Verdun v. Doré [1997] 2 S.C.R. 862, the court held that "where general legislation is stated to operate 'notwithstanding any stipulation to the contrary,' the legislation derogates from prior specific legislation. In such a case, it is not necessary to rely on 'specific v. general legislation' statutory interpretation rules." (p. 6066) Chadwick J. went on to note that other authorities indicated that the principle of implied exception was generally to be preferred to the principle of implied repeal and found that the provisions of the Companies' Creditors Arrangement Act applied so as to deny the federal Crown a super priority in relation to GST.

The Court adopted the position of the trial Judge that to the extent that amounts paid to the taxpayer were exempted under s. 6(1)(f), they could not be included in her income under s. 6(1)(a), which was a section of more general application.

S.138(9) was determined to be a complete code for determining whether interest income earned by the taxpayer on an overpayment of taxes was income from its Canadian insurance business. Sharlow J.A. noted (at p. 6705) that:

"To require a non-resident insurer to look beyond subsection 138(9) to determine the tax character of its investment income would render the scheme of subsection 138(9) largely redundant with respect to the very question it is intended to address, or it would result in the Canadian allocation of the investment income being larger or smaller than the allocation dictated by subsection 138(9). There is no reason to believe that Parliament intended such a redundancy, or such inconsistency."

A lump-sum payment received by the taxpayer pursuant to a claim against her employer's disability insurer was not taxable under s. 6(1)(f) and, therefore, was not taxable as employment income under s. 6(1)(a) as (p. 848) "the subject matter of payment under an accident plan [was] dealt with under paragraph 6(1)(f)".

In refusing to apply s. 67 to interest that was found to be reasonable in amount for purposes of the reasonableness limitation expressed in s. 20(1)(c), McLachlin J. stated (at p. 5678):

"... it seems to me that Parliament intended s. 67 to apply primarily to those deductions claimed under the provisions of the Act that do not have their own internal limiting clauses ... . Where the applicable provision has its own internal reference to 'reasonableness', as does s. 20(1)(c)(i), s. 67 could not apply without distorting the plain meaning of the more specific provision."

In finding that paragraph 13(21)(d) rather than 79(c) governed the determination of the proceeds of disposition of a property, Linden J.A. stated (at p. 6576):

"... this is not a case where, because of a conflict, the Court must choose to apply a specific provision over a general one in accordance with that well-known principle of statutory interpretation; there is no conflict here. Both provisions are specific, but they cover different situations - paragraph 13(21)(d) and 54(h), covering sales and other situations where a precise compensation figure is known and paragraph 79(c), applying to foreclosures and repossessions where there is no ascertained amount."

La Forest stated (at p. 6117) that accepting the Crown's argument that a lump sum received by the taxpayer for repudiation of an employment contract represented income under s. 3 notwithstanding that it did not come within the definition of a retiring allowance in s. 248(1) "would amount to giving precedence to a general provision over the detailed provisions enacted by Parliament to deal with payments such as that received by Mr. Schwartz pursuant to the settlement".

Although a lump sum received by the taxpayer might be considered to come within the more general terms of "remuneration" under s. 6(3)(b) in addition to constituting a retiring allowance, the rule generalia specialibus non derogant was applied to find that a retiring allowance should not be included in remuneration under s. 6(3)(b).

In finding that the taxpayer was precluded from deducting her child care expenses under s. 9 of the Act without limitation, rather than in accordance with s. 63, Iacobucci J. indicated (p. 6019) that if "the actual purpose of [an] expenditure is addressed in the Act", then "if a specific provision exists which limits deductibility in respect of that purpose", the specific provision governs. Otherwise, recourse may be had to more general rules governing deductibility.

In finding that an arrangement which came within the description both of an employee benefit plan in s. 248(1) and an employee stock option arrangement in s. 7(1) should be governed by the latter provision, Strayer J. stated (p. 6348):

"The common law has well established that wherever there is a particular provision and a general provision in the same statute and the latter if taken in its broadest sense would overrule the former, then the particular provision must be given effect and the general provision must be taken not to apply in these specific circumstances."

Because Urie J.A. found s. 10(1) to be "a provision of general application conferring the possibility for a taxpayer to make a choice of his method of inventory valuation without reference to any time period" whereas computation of income under s. 9 "must relate to the taxpayer's taxation year", he rejected a submission that s. 10(1) was a specific provision overriding the general provision, namely, s. 9.

Reed, J. stated with respect to an argument that there is no specific provision imputing benefits on interest free loans: "it is of course true that there is no section of the Act (comparable to subsection 15(1)) specifically dealing with the fact situation now in issue. This is irrelevant, however, if the situation falls within one of the more broadly drafted sections such as subsections 3(1) or 245(2)."

The extent of the Minister's power to demand information under s. 231(3) was found to be narrow in light of his ability also to obtain information under s. 221(1)(d).

In rejecting a submission that s. 245(1) of the Act (which prohibited the deduction of undue or artificial expenses) could not apply to a deduction permitted by what then was s. 66 of the Act, the Court stated (at p. 5247) that if this argument prevailed:

"it is difficult to think of any case where section 245(1) would apply inasmuch as, in relation to any provision providing for a deduction in computing income, section 245(1) is always, by its nature, a general provision. Parliament must have intended the provision to have some effect ...".