Resolving Ambiguity

In rejecting a taxpayer submission that "the Act is null and void ‘due to vague and convoluted interpretations in the [Act]'" and, in particular, that definitions of various terms including "taxpayer" and "business" were vague, Webb JA quoted with approval (at para. 10) the statement of Lord Denning in Fawcett Properties Ltd. v. Buckingham County Council, [1961] A.C. 636 at 676 that "when a statute has some meaning, even though it is obscure, or several meanings, even though there is little to choose between them, the courts have to say what meaning the statute is to bear, rather than reject it as a nullity," and (at para. 11) of Gonthier J. in R. v. Nova Scotia Pharmaceutical Society, [1992] 2 S.C.R. 606 that "a law will be found unconstitutionally vague if it so lacks in precision as not to give sufficient guidance for legal debate."

After finding that the taxpayer was not liable to a penalty under s. 162(2.1) of the Act, C. Miller, J. stated (at para 12):

where the Government penalizes a taxpayer and in this case a non-resident, I am of the view that such penalty provision should be absolutely crystal clear. If there is ambiguity, it should be resolved in favour of the taxpayer. However, in this particular provision, I find no ambiguity.

After describing at para. 76, a statement in the taxpayer's factum, that "where the words of the statute are clear and plain, other techniques of interpretation cannot alter the result" as "rigid or simplistic" the Court went on to state (at para. 85):

The Supreme Court has recognized that except in the rarest of cases where the language admits of absolutely no doubt or ambiguity, the object and purpose of legislation plays a fundamental role in any statutory interpretation, and that the oft-cited quote from Drieger referred to in Stubart Investments best encapsulates the preferred approach.

Before going on to reject the interpretation in the Supreme Court of Canada decision in the Moldowan case that had the effect of reading the word "combination" out of s. 31(1), Sharlow J.A. noted (at p. 6556) that the objective that tax rules should be "consistent, predictable and fair" might be further undermined if the provisions of the Act "are applied on the basis of a judge-made rule that has no statutory foundation", and further stated (at para. 78) that "the Courts would do well to approach the combination question in section 31 with an eye on the case of Johns-Manville" where Estey J. stated that reasonable uncertainty resulting from lack of explicitness in the statute should be resolved in favour of the taxpayer.

Before going on to find that an ambiguity in the statutory provisions of the Mining Tax Act (Ontario) should be resolved in favour of an interpretation that did not result in treating a definition of "hedging" as redundant, LeBel J. stated (at p. 6536):

The interpretive approach is thus informed by the level of precision and clarity with which a taxing provision is drafted. ... Where, as in this case, the provision admits of more than one reasonable interpretation, greater emphasis must be placed on the context, scheme and purpose of the Act. ... Although there is a residual presumption in favour of the taxpayer, it is residual only and applies in the exceptional case where application of the ordinary principles of interpretation does not resolve the issue ... .

Sexton J.A. found that although a purposive interpretation of s. 67.1(1) would have resulted in a conclusion that the taxpayer was not subject to the expense-deduction limitation in that provision, the plain meaning of the provision and the legislative scheme indicated that the limitation applied. Accordingly, the taxpayer's appeal failed.

In finding that s. 39(4) elections that were made with late-filed returns were valid, Rothstein J.A. stated (at p. 5388):

"Where the Act prescribe sanctions for late filing, those sanctions will apply. Where it does not, the Court will not read into the Act sanctions that do not appear"

In rejecting a submission that in order for a child support order to establish a commencement day, all orders in the judgement were required to have the same date, Linden J.A. stated (at p. 6027) that "needlessly technical interpretation that deprives custodial parents of tax relief granted to them by Parliament is to be avoided".

After referring to dictionary definitions of the word "poursuite", the Court stated (at p. 5191):

It would therefore be difficult to conclude definitively that 'poursuite' is more restrictive than 'proceedings' and that this is determinative in the context of s. 32. It is then necessary, in this case, to conclude that the common meaning of the English and French versions of the provision is unclear and that resort to the other rules of statutory interpretation is necessary in order to discern Parliament's intent.

Evans J.A. stated (at p. 5089) that "even though ambiguities in tax legislation are presumptively resolved in a manner that prevents the Crown from obtaining more than it was legally entitled to receive", in this instance the provision was sufficiently clear that it should be found that the Minister did not have the power to allow by reassessment the deduction of interest that was deductible by the taxpayer because the years in question were statute barred.

In December 1991 the taxpayers (who were Canadian residents) acquired most of the partnership interests in a partnership ("Klink") that had been formed approximately 12 years earlier and whose principal asset, in December 1991, was an IBM mainframe computer which originally had cost U.S.$3.7 million but which had a current fair market value of $5,000. Klink then transferred the computer to a recently-formed British Columbia limited partnership in consideration for a partnership interest therein.

After finding that it was contrary to the scheme of the capital cost allowance provisions of the Act to permit Klink to recognize a terminal loss based on the original historical cost of the computer, Noël J.A. noted (at p. 7180) that the relevant provisions of the Act nonetheless were clear on this point and that:

Faced with such clarity it would be inappropriate, for the reasons expressed by the Supreme Court in a number of recent decisions to attempt to modify the words of the relevant provisions to provide a result which conforms with their object and spirit ... .

After noting that s. 301(1.1) of the ETA clearly provided that the 90-day limitation period therein began to run from the date a notice of assessment was "sent", Isaac J.A. stated (at p. 6546):

"The language of subsection 301(1.1) is clear and unambiguous and must be applied regardless of its object and purpose."

After quoting commentary that "'it would introduce intolerable uncertainty into the Income Tax Act if clear language and a detailed provision of the Act were to be qualified by unexpressed exceptions derived from a court's view of the object and purpose of the provision", Iacobucci J. stated (at para. 51):

This is not an endorsement of a literalist approach to statutory interpretation, but a recognition that in applying the principles of interpretation to the Act, attention must be paid to the fact that the Act is one of the most detailed, complex, and comprehensive statutes in our legislative inventory and courts should be reluctant to embrace unexpressed notions of policy or principle in the guise of statutory interpretation.

Before going on to consider the purpose of s. 224(1.2) of the Act and of s. 337 of the Excise Tax Act, Cory J. stated (at p. 6248):

Thus, when there is neither any doubt as to the meaning of the legislation nor any ambiguity in its application to the facts then the statutory provision must be applied regardless of its object or purpose. I recognize that agile legal minds could probably find an ambiguity in as simple a request as 'close the door please'... However, the very history of this case with the clear differences of opinion expressed as between the trial judges and the Court of Appeal of Alberta indicates that for able and experienced legal minds, neither the meaning of the legislation nor its application to the facts is clear. It would therefore seem to be appropriate to consider the object and purpose of the legislation.

Before finding that s. 56(2) did not apply to the taxpayer, Décary J.A. stated (at p. 6019):

The fact that the application of subsection 56(2) may lead to harsh consequences is an additional reason for the Court, when it assesses the evidence in a case where the motive is not obvious, not to infer to hastily that a taxpayer had evinced a desire such as to attract the application of the provision.

Strayer J.A. stated (at p. 5673), before finding that former s. 245(1) applied to deny the tax benefit that otherwise should have been obtained from a "seeding transaction":

I do not understand the leading authorities on the interpretation of taxing statutes... although they call for a teleological approach to the interpretation of such statutes, to direct that the object and spirit of the Act are to govern even where the words are clear but not in accord with such object and spirit.... Although I find, for reasons to be discussed later, that such a deduction in these circumstances is contrary to the object and spirit of the sections in questions and of the Act, I do not consider this to be a justification for treating the 'seeding transaction' as of no effect for the purposes of subsections 66.1(4) and 66.2(3).

Major J. accepted the following comments in P.W. Hogg's Notes on Income Tax:

It would introduce intolerable uncertainty into the Income Tax Act if clear language and a detailed provision of the Act were to be qualified by unexpressed exceptions derived from a court's view of the object and purpose of the provision ... . When a provision is couched in specific language that admits of no doubt or ambiguity in its application to the facts, then the provision must be applied regardless of its object and purpose.

Robertson J.A., in implying the interpretative approach ennunciated in Communauté Urbaine v. Corp. Notre Dame de Bon-Secours, 95 DTC 5017, [1994] 3 S.C.R. 3 found (at p. 5048) that s. 194(7) should be interpreted in favour of the taxpayer because it was "a curative provision intended to provide relief against forfeiture of intended tax benefits".

Before finding that a non-profit corporation providing low rental housing to indigent elderly persons qualified for exemption under the Act Respecting Municipal Taxation (Quebec) as a "reception centre", Gonthier J. summarized (at p. 5023) the relevant principles of interpretation:

The interpretation of tax legislation should follow the ordinary rules of interpretation;

• a legislative provision should be given a strict or liberal interpretation depending on the purpose underlying it, and that purpose must be identified in light of the context of the statute, its objective and the legislative intent;
• this is the teleological approach; the teleological approach will favour the taxpayer or the tax department depending solely on the legislative provision in question, and not on the existence of predetermined presumption;
• substance should be given precedence over form to the extent that this is consistent with the wording and objective of the statute;
• only a reasonable doubt, not resolved by the ordinary rules of interpretation, will be settled by recourse to the residual presumption in favour of the taxpayer.

In finding that the inclusion of pension income in the formula under s. 180.2(1) should not be regarded as subjecting such pension income to tax, Marceau J.A. stated that (p. 6635):

The proper approach must be a functional one, and the scheme must be considered as a whole, taking into account the intent of the legislation, its object and spirit and what it actually accomplishes.

In finding that the taxpayers are entitled to a deduction under s. 20(14)(b) because they complied with the expressed conditions of the provision, Iacobucci J. stated (p. 6321):

Where the words of the section are not ambiguous, it is not for this Court to find that the appellants should be disentitled to a deduction because they do not deserve a 'windfall', as the respondent contends. In the absence of a situation of ambiguity, such that the Court must look to the results of a transaction to assist in ascertaining the intent of Parliament, a normative assessment of the consequences of the application of a given provision is within the ambit of the legislature, not the Courts.

Rothstein J. articulated various principles of the "modern, interpretative approach to the Income Tax Act" including the following principle:

The Act should be applied as to affect the conduct of a taxpayer which has the designed effect of defeating the expressed intention of Parliament. (p. 6599)

Unlike the Tax Court judge, MacKay J. was able to find an ambiguity in the wording of s. 194(7) when read in light of the general purposes of the legislation. This ambiguity was resolved in the taxpayer's favour on the basis of the principle enunciated in the Johns-Manville case.

After referring to the principle in the Johns-Manville Canada case, Reed J. stated (p. 6353):

In my view, those cases merely indicate that if after one has read the relevant statutory provisions of an Act and read them in the light of the purpose and object of the statute, there is still doubt as to which alternative interpretation was intended, then, that doubt should be resolved in favour of the taxpayer, regardless of whether the provision in question is a charging section or an exemption or deduction provision.

Before finding that there was an ambiguity in s. 224(1.2) which should be resolved in favour of the taxpayer, Scott J.A. stated (p. 6179):

"While statutory 'ambiguity' is now resolved by looking to the purpose and rationale of the particular provision, the purpose rule has not displaced the plain meaning rule in tax law. Put another way, the purpose rule is only used where the statutory language of the provision under scrutiny is obscure or ambiguous".

In finding that s. 152(4) unambiguously indicated that the Minister was precluded from issuing a favourable reassessment of the taxpayer to give effect to its success in litigation of other taxation years, Mahoney J.A. stated (p. 5629):

This is a hard case from the Respondent's point of view but, in my respectful opinion, this appeal is concerned with a rather straightforward question of statutory interpretation. One need go no further into the authorities than the Sussex Peerage case,

If the words of the statute are in themselves precise and unambiguous, then no more can be necessary than to expound those words in their natural and ordinary sense.

In my opinion, there is no ambiguity in subsection 152(4) as it bears on the question here.

In finding that s. 12(1)(x) did not apply to tax damages received by the taxpayer, Denault J. stated (p. 5342):

It is not the function of this Court to expand the meaning of a word to make the tax system fair. Parliament could have been more specific if the intention was to include commercial damage awards in section 12(1)(x). If there is any ambiguity in legislative intent to tax, the taxpayer is entitled to the benefit of the doubt.

Before considering whether s. 56(2) applied to the payment of dividends on a class of shares which permitted discretionary dividends, Dickson, C.J. stated:

In proceeding to analyze the tax consequences of the application of the discretionary dividend clause, it is necessary to determine both the purpose of the legislative provision and the economic and commercial reality of the taxpayer's actions.

The Court was not satisfied that payments by way of strike pay constituted "income ... from a source" within the meaning of s. 3 and "in these circumstances the benefit of the doubt must go to the taxpayers".

... [I]f a provision is not aptly worded to carry out the intent of its drafter, the court should not be precluded from allowing the taxpayer to take advantage of the benefits of the provision as worded.

In finding that the Minister had not followed the proper procedural requirements in order to be able to reassess the taxpayer for its 1980 taxation year, Addy J. stated (p. 6431):

The Act must also be strictly interpreted in favour of the taxpayer and against the taxing authority ... There is no rule of equity or of common law which may somehow assist the taxing authority to obtain revenue which it has lost solely and entirely through its own negligence or failure to exercise the powers granted to it by the Act.

Urie, J.A. interpreted s. 125.1(3)(a) in light of the principle that reasonable uncertainty resulting from lack of explicitness in the statute should be resolved in favour of the taxpayer.

There has been no suggestion that s. 224(1.2) has as its object the achievement of some social or economic policy as compared with fiscal policy. It is a provision designed to maximize fiscal recovery. It therefore becomes unnecessary to explore the uncharted territory which is opened up by Estey's statement that a taxpayer may be held liable if he is within the spirit of the charge.

"[I]f and to whatever extent subsection 32(1) might be thought to be ambiguous in this respect, such ambiguity should be resolved in favour of the taxpayer."

Wilson J. stated respecting the statements of Estey J. in Johns-Manville that "although Estey J. was referring to ambiguity within a single statute, I believe these principles are not inappropriate to a case like the present in which the ambiguity stems from the interplay of a provincial Regulation and federal administrative practice."

In interpreting the deduction for union dues, Cullen, J. applied the principle that reasonable uncertainty should be resolved in favour of the taxpayer.

In resolving in the taxpayer's favour an ambiguity concerning the meaning of the word "minus" in a regulation providing a "super depletion allowance," Urie, J.A. stated:

If the regulation in issue is insufficiently explicit to carry out what may have been the intention of the Governor in Council, the taxpayer should not be deprived of benefits arising from that lack of explicitness.

Wilson, J. stated that if Parliament is to restrict the meaning of the phrase "active business" to a manufacturing or processing business, "it must express itself clearly to that effect." The taxpayer accordingly was able to include interest income in its computation of the manufacturing and processing deduction.

The rule that ambiguity should be resolved in the taxpayer's favour does not apply where "the ambiguity does not originate within the Act itself but rather from seemingly conflicting interpretations found in the interpretation bulletins."

In construing a penal section [here, s. 227(9)] words that are capable of an interpretation that would or would not inflict the penalty must be given the latter interpretation.

At 5384:

[I]f the interpretation of a taxation statute is unclear, and one reasonable interpretation leads to a deduction to the credit of a taxpayer and the other leaves the taxpayer with no relief from clearly bona fide expenditures in the course of his business activities, the general rules of interpretation of taxing statutes would direct the tribunal to the former interpretation ... [A]nother basic concept in tax law [is] that where the taxing statute is not explicit, reasonable uncertainty or factual ambiguity resulting from lack of explicitness in the statute should be resolved in favour of the taxpayer.

Land acquisition expenditures incurred by the taxpayer in relation to its mining activities were found to be deductible.

Reliance was placed on the statement in Morguard Properties Ltd. v. City of Winnipeg (1983), 3 DLR (4th) 1, 13 that "'The resources at hand in the preparation and enactment of legislation are such that a court must be slow to presume oversight or inarticulate intentions when the rights of the citizen are involved.'"

Mahoney J. characterized the finding in Atkins, 81 DTC 5293, that an amount paid in settlement of a claim for damages for wrongful dismissal is not salary, as "an application of the well-known principle that a taxpayer is entitled to the benefit of any doubt as to legislative intention to tax. It is an application in a case where the fisc evidently elected to plead legislative intention on a single, and as it turned out, erroneous basis." (p. 5154)

MacGuigan, J.A. stated that "it is now settled law that there is only one principle of statutory interpretation, which might be designated as the words-in-total-context approach...[:] "'... the words of an Act are to be read in their entire context and in their grammatical and ordinary sense harmoniously with the scheme of the Act, the object of the Act, and the intention of Parliament.'"

Since s. 238(2) was ambiguous, it was given an interpretation that favoured the accused.

Since "paragraph 20(1)(gg) provides for an exception from the general rule for computing income for the purposes of taxation [,] a taxpayer seeking to benefit from such exception must bring himself clearly within the language of the legislation."

It is now settled law that, in the words of E.A. Driedger, Construction of Statutes, 2nd ed., (1983), at 207, 'there are no special rules or canons of construction for tax exemptions, and whether a subject is taxable or exempt depends in all cases on the intention of the legislature to be ascertained in the normal way'.

In allowing the taxpayer's appeal, the Court interpreted s. 18(4) in light of its underlying objective. An argument, that since the taxpayer was seeking a deduction from its income then s. 18(4) should be strictly constructed, was rejected.

In applying an exempting provision (s.65) in accordance with the Crown's interpretation of the provision, it was stated: "It is recognized, of course, that with a taxing statute it is the literal wording and not the general purpose of the Act which generally controls its interpretation".

The strict interpretation rule for the construction of taxing statutes has been modified somewhat in recent years by the plain meaning rule.

Since the purpose of a rollover provision (s.70(6)) was "to give a measure of tax relief to the surviving spouse of a family unit ... the enlargement of time jurisdiction [in s. 70(6)] should be given a generous operation so that this purpose is not lightly defeated: it should not be construed stringently and unsympathetically to the purpose."

It was stated that the strict construction rule (as formulated by Estey, J.), "is rooted in the simple line of reasoning that Parliament, in determining the procedure for recovering the cost of government from the community, must have intended to recover from a particular taxpayer his share of that cost only where the taxing statute clearly defines that share."

Ritchie, J. stated respecting the Excise Tax Act (Canada): "If the charging sections of the present statute are susceptible of alternative meanings, it will be seen that I prefer that which is more favourable to the appellant."

The Partington strict construction rule was applied.