Provincial Law

In challenging a set-off under s. 224.1 of a tax debt of the taxpayer against 30% of Canada Pension Plan and Old Age Security payments receivable by the taxpayer, the taxpayer could not rely on a rule in the Civil Code of Quebec that provided that "compensation" cannot take place if the object of the debt is property that is exempt from seizure. The court found no evidence of a Parliamentary intention to import the Quebec civil law concept of "compensation" into statutory set-off.

After finding that the taxpayer had not transferred the ownership of old fleets of cars before the end of its current taxation year for purposes of the Civil Code of Quebec as well as under the common law provinces, Noël J.A. went on to note (at p. 6506) that even if the application of the Civil Code gave rise to a different result, "this Court has held that, for the sake of uniformity, the common law approach should prevail even in Quebec."

Ss.1(2) and 12(1) of the Maintenance Enforcement Act (Alberta), which provided that a child maintenance agreement filed with the Alberta Director of Maintenance Enforcement which, in turn, was filed by the Director with the Court of Queen's Bench was deemed to be a judgement of the Court, had the effect of qualifying such an agreement as "an order made by a competent tribunal in accordance with the laws of a province" under para. (b) of the definition on "support amount" in s. 56.1(4). Sharlow J.A. noted (at p. 6281) that in the quoted wording Parliament had "indicated that the question of whether there is an order meeting that description is a matter of provincial law".

Deschamps J. stated (in dissenting reasons with which the majority did not disagree) (at p. 5430) that:

"It is settled law that the legislature may assign tax consequences to a juridical act that are different from the consequences that follow under the rules of the civil law."

She went on to find that the arrangement in question, which was not a trust under civil law, nonetheless could be characterized for purposes of the Act as a trust.

In rejecting the relevance of provincial interpretation bulletins to the issue before it, the Court stated:

"On the issue of consistency, once there is a court-mandated interpretation for one province, it is desirable and likely that the same provision in other provinces' complementary legislation will be interpreted the same way. In other words, the policy objective of a uniform interpretation is achieved by court interpretation of the 'plain meaning' of identical language in the same way, not by any mandate imposed by interpretation bulletins."

After affirming a finding that the taxpayers had not become members of a Texan partnership notwithstanding expert evidence that under the laws of Texas the partnership existed, the Court stated (at p. 5156):

"... Where a Canadian taxpayer seeks to deduct a partnership losses through s. 96 of the Act, the taxpayer must satisfy the essential ingredients of a partnership under Canadian law. Even in respect of foreign partnerships, for the purposes of s. 96 of the Act, the essential elements of a partnership that exists under Canadian law must be present. A partnership must be that entity familiar to Canadian law, it must be more than a partnership in name only."

The majority found that the determination of who was a director of a Nova Scotia corporation for purposes of s. 227.1 of the Act should be governed by the provisions of the Companies Act (Nova Scotia).

The majority found that the determination of who was a director of a Nova Scotia corporation for purposes of s. 227.1 of the Act should be governed by the provisions of the Companies Act (Nova Scotia).

Létourneau J.A. found (at p. 5870) that s. 248(3) of the Act reflected an:

"attempt by Parliament to harmonize the two [common law and civil] systems with a view to providing fair and equal treatment to all Canadian taxpayers ... . Hence, the necessity for a judicial interpretation which allows for the implementation of this legislative intent."

Before rejecting a submission by the Inspector of Taxes that the position of the taxpayers, as members of a Scottish partnership, should be the same as if they were members of an English partnership, Park J. stated (at p. 154) that:

"... If the tax liability of an English taxpayer depends on the nature of some entity or structure which is not constituted under English law, the matter is determined by reference to what the commissioner finds to be the actual legal characteristics of that entity or structure under its own governing law."

In finding that the corporate character of a dividend governed the analysis of whether s. 56(2) applied to a dividend received by the taxpayer's wife, Iacobucci C.J. stated (at. p. 6304) that "it is well accepted that tax law embraces corporate law principles unless such principles are specifically set aside by the taxing statute".

Before going on to find that an order received from the Nova Scotia Supreme Court retroactively amending the share capital of the taxpayer should also have effect for purposes of the Act, Robertson J.A. stated (at p. 5255):

"In determining whether a legal transaction will be recognized for tax purposes one must turn to the law as found in the jurisdiction in which the transaction is consummated. Often that determination will be made without the aid of guiding precedents which are on point and, hence, the effectiveness of a transaction may depend solely on the proper application of general common law and equitable principles ... . As for the Minister, he must accept the legal results which flow from the proper application of common law and equitable principles, as well as the interpretation of legislative provisions."

It was noted that the income tax law is, essentially, an accessory to the general law, importing the concepts of general public and private law.

Liability for income tax is determined by the income which property yields to the beneficial owner of the property, and the determination of a person's beneficial interest "is established according to the law of property (including equity where applicable) of the province in which the goods or property are located".

It was found that since income tax law "must be interpreted consistently throughout Canada", the conferral of a benefit by deed of sale should not be regarded as a gift for the purpose of s. 69(1)(c) of the Act even though it would probably be considered as a gift in Quebec law.

After referring to the common law authorities on the distinction between a contract of sale of goods and a contract for work and materials, it was stated:

"While the distinctions employed here may seem somewhat technical and remote from revenue law, one must assume that Parliament in speaking [in s. 125.1(3)(a)] of goods for sale or lease had reference to the general law of sale or lease to give greater precision to this phrase in particular cases."

Since the Finance Act 1965 is "applicable to Scotland as well as to England and Wales ... it should be given an interpretation which would produce a similar effect in both parts of the Kingdom."

In applying the "rule of construction of statutes that new principles are not to be introduced into any branch of the law except by clear language," Hutcheon J.A. found that a definition in the Interpretation Act (B.C.) of a person as including a partnership did not displace or abrogate the general law of partnerships.

"In determining whether money or other benefits received by a person are income of that person, the courts must, of course, look to common law and civil law - whichever may be relevant - concepts and institutions, including such concepts and institutions as ownership, trust, partnership and corporation. It is important, however, to bear in mind that what is involved is the interpretation of a statute, the Income Tax Act. In that Act, concepts which have their origin in and derive their meaning from the common law may be expressedly or impliedly changed or modified."

Although a contract for the sale of land arguably was ultra vires the purchaser, who in turn sold the land to the City of Calgary, the title to the land depended upon the executed transfer rather than upon the ultra vires contract. The purchase accordingly was effective for purposes of the Act.

In finding that lease agreements were in reality purchase agreements, Decary, J. stated: "fiscal law is an accessory system, which applies only to the effects produced by contracts. Once the nature of the contracts is determined by the civil law, the Income Tax Act comes into effect, but only then, to place fiscal consequences on those contracts."

Martland J. stated, in his dissenting reasons for judgment, (p. 1165):

"... while it is obvious that a provincial Legislature cannot legislate in such a manner as to alter the provisions of the Dominion Succession Duty Act, nevertheless, in applying the provisions of that Act, it is necessary to look to relevant provincial legislation to determine what property may be included in a succession."

Before adopting an interpretation of Schedule D, Cases I and II, Rule 9 pursuant to the Income Tax Act, 1918 that differed somewhat from the English conception of a partnership, Viscount Simon, L.C. stated (p. 422):

"So far as English law is concerned, it is indisputable that a partnership firm is not a single persona, though a different view is obtained in Scotland, and in construing a taxing statute which applies to England and Scotland alike, it is desirable to adopt the construction of statutory words which avoids differences of interpretation of a technical character such as are calculated to produce inequalities in taxation as between citizens of the two countries."