Cascades Inc. v. The Queen

Cascades Inc. v. The Queen
Court (s) Database
Tax Court of Canada Judgments
Date
2007-12-06
Neutral citation
2007 TCC 730
File numbers
2005-1424(IT)G
Judges and Taxing Officers
Lucie Lamarre
Subjects
Income Tax Act
Decision Content
Docket: 2005-1424(IT)G
BETWEEN:
CASCADES INC.,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
[OFFICIAL ENGLISH TRANSLATION]
____________________________________________________________________
Appeal heard on December 11, 2006, at Montreal, Quebec.
Before: The Honourable Justice Lucie Lamarre
Appearances:
Counsel for the Appellant:
Wilfrid Lefebvre
Counsel for the Respondent:
Marie Bélanger
Natalie Goulard
____________________________________________________________________
JUDGMENT
The appeal from a determination of loss, the notice of which is dated January 23, 2004, made under subsections 40(3.3), 40(3.4) and 40(3.5) of the Income Tax Act (ITA) for the 2000 taxation year is allowed, with costs, on the basis that the appellant was entitled to claim a capital loss of $15,941,608 during its 2000 taxation year, as this loss is not deemed to be nil pursuant to subsection 40(3.4) of the ITA.
Signed at Ottawa, Canada, this 6th day of December 2007.
"Lucie Lamarre"
Lamarre J.
Translation certified true
on this 22nd day of January 2008.
Erich Klein, Revisor
Citation: 2007TCC730
Date: 20071206
Docket: 2005-1424(IT)G
BETWEEN:
CASCADES INC.,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
[OFFICIAL ENGLISH TRANSLATION]
REASONS FOR JUDGMENT
Lamarre J.
[1] The appellant is challenging a determination of loss, the notice of which is dated January 23, 2004, whereby the Minister of National Revenue (the Minister) reduced the capital loss claimed by the appellant for the 2000 taxation year by $15,941,608. The Minister deemed that loss to be nil under subsection 40(3.4) of the Income Tax Act (ITA).
Agreed Statement of Facts
[2] The parties filed an Agreed Statement of Facts, which reads as follows:
[TRANSLATION]
1. The Appellant is a company incorporated under Part 1A of the Companies Act and a taxable Canadian corporation within the meaning of the Income Tax Act (the Act).
2. At the end of May 2000, the Appellant held 71.1% of the common shares of Les Industries Paperboard International Inc. (PII), a corporation whose shares are traded on the Toronto Stock Exchange (TSE).
3. The adjusted cost base of the PII shares held by the Appellant was at that time $68,783,154 and their fair market value was $52,841,546.
4. In June 2000, the Appellant presented a financial restructuring plan aimed at improving its worth on the financial markets and supporting its future growth. The proposed restructuring plan included exchanging all of the common shares in PII held by minority shareholders for new common shares of the Appellant.
List of documents showing the chronology of the transaction, Schedule A
Appellant's communiqué dated July 10, 2000,
Schedule B
5. On September 8, 2000, 3715965 Canada Inc. was incorporated.
Certificate of Incorporation and Articles of Incorporation, Schedule C
6. On October 17, 2000, the Appellant, PII, Papiers Perkins Ltée and Rolland Inc. entered into a consolidation agreement.
Consolidation Agreement, Schedule D
7. On October 17, 2000, PII, 3715965 Canada Inc. and the Appellant entered into a merger agreement.
Merger Agreement, Schedule E
8. On October 17, 2000, one preferred share of 3715965 Canada Inc. was issued to the Appellant, which thereby became the sole shareholder of 3715965 Canada Inc.
9. On December 5, 2000, the Appellant sold 33,025,966 common shares, namely, all of the shares in PII that it held, to 3715965 Canada Inc. for consideration equal to the fair market value of those shares, thereby creating a capital loss of $15,941,608 (adjusted cost base of $68,783,154 minus the proceeds of disposition of $52,841,546). The consideration received by the Appellant was 33,025,966 common shares of 3715965 Canada Inc.
Contract of sale of shares entered into on December 5, 2000, Schedule F
10. On December 5, 2000, 3715965 Canada Inc. redeemed the preferred share that it had issued to the Appellant.
Certified true copy of a resolution of the directors of 3715965 Canada Inc., adopted on December 5, 2000, Schedule G.
11. On December 31, 2000, that is, 26 days later, PII and 3715965 Canada Inc. merged. It was a three-way merger, to which subsection 87(9) of the Act applied.
Merger Certificate and Articles of Merger, Schedule H.
12. In the merger, all of the common shares of PII, other than those held by 3715965 Canada Inc., were exchanged for common shares of the Appellant. The class A and B preferred shares of PII were converted respectively into class A and B preferred shares of the merged corporation, 384894-9 Canada Inc. (PII Fusionco). For each of the common shares it issued to the holders of common shares of PII, the Appellant received one common share of PII Fusionco.
13. Each of the common shares of 3715965 Canada Inc. held by Cascades was converted into a common share of PII Fusionco.
14. The Appellant became the sole shareholder of PII Fusionco (except for the holders of class A and B preferred shares issued at the time of the merger).
15. The Minister of National Revenue (the Minister) reduced the capital loss claimed by the Appellant for its 2000 taxation year by $15,941,608. A Notice of Determination of Loss to that effect was issued on January 23, 2004.
Notice of Determination of Loss and Form T7W-C, Schedule I
16. The Appellant objected to this Notice of Determination of Loss by notice of objection dated January 29, 2004, and the Minister confirmed the determination by notice of confirmation dated February 21, 2005.
Notice of objection, Schedule J
Notice of confirmation, Schedule K
Issue
[3] The issue is whether the appellant was entitled to claim the $15,941,608 loss immediately in its 2000 taxation year, when all of its shares in Les Industries Paperboard International Inc. (PII) were disposed of in favour of 3715965 Canada Inc. (371), a corporation affiliated with the Appellant within the meaning of section 251.1 of the ITA.
[4] The respondent relied on subsections 40(3.3), 40(3.4) and 40(3.5) of the ITA, the import of which, when they are considered as a whole, is that the stop-loss rules should apply. These rules are aimed at preventing a corporation (in this case, the appellant) from recognizing a capital loss on capital property for as long as the property or identical property (the substituted property) is held by the transferor (the appellant) or a person affiliated with the transferor. The respondent relied on paragraph 40(3.5)(c) to argue that the corporation formed on the merger of PII and 371, namely 384894‑9 Canada Inc. (PII Fusionco), was deemed to hold the shares of PII (sold by the appellant and giving rise to the loss at issue) as long as it was affiliated with the appellant. The presumption in paragraph 40(3.5)(c) of the ITA is that when a transferor (the appellant) disposes of a share of the capital stock of a corporation (PII) that is then merged with one or more other corporations (371), the corporation formed on the merger (PII Fusionco) is deemed to own the share as long as it is affiliated with the transferor. If such was the case, the appellant's loss would be deemed to be nil under subsections 40(3.3) and 40(3.4) of the ITA and would be suspended until the property in question was no longer the property of the transferor (the appellant) or a person affiliated with the transferor.
[5] The appellant argues that the presumption in paragraph 40(3.5)(c) does not apply in this case, and that, as a result, one of the conditions in subsection 40(3.3)—in particular that set out in paragraph 40(3.3)(c)—not having been fulfilled, subsection 40(3.4), which provides for the suspension of the loss where all the conditions of subsection 40(3.3) are met, cannot apply. According to the appellant, the loss in question is not nil under paragraph 40(3.4)(a).
Statutory provisions
Income Tax Act, R.S.C. 1985, Chapter 1 (5th Supp.), as amended
Loi de l’impôt sur le revenu, L.R.C. 1985, chapitre 1 (5e Suppl.), telle que modifiée
40(3.3) When subsection (3.4) applies -- Subsection (3.4) applies when
40(3.3) Application du par. (3.4) -- Le paragraphe (3.4) s’applique lorsque les conditions suivantes sont réunies :
(a) a corporation, trust or partnership (in this subsection and subsection (3.4) referred to as the “transferor”) disposes of a particular capital property (other than depreciable property of a prescribed class) otherwise than in a disposition described in any of paragraphs (c) to (g) of the definition "superficial loss" in section 54;
a) une société, une fiducie ou une société de personnes (appelées « cédant » au présent paragraphe et au paragraphe (3.4)) dispose d’une immobilisation, sauf un bien amortissable d’une catégorie prescrite, en dehors du cadre d’une disposition visée à l’un des alinéas c) à g) de la définition de « perte apparente » à l’article 54;
(b) during the period that begins 30 days before and ends 30 days after the disposition, the transferor or a person affiliated with the transferor acquires a property (in this subsection and subsection (3.4) referred to as the “substituted property”) that is, or is identical to, the particular property; and
b) au cours de la période qui commence 30 jours avant la disposition et se termine 30 jours après cette disposition, le cédant ou une personne affiliée à celui-ci acquiert le même bien ou un bien identique (appelés « bien de remplacement » au présent paragraphe et au paragraphe (3.4));
(c) at the end of the period, the transferor or a person affiliated with the transferor owns the substituted property.
c) à la fin de cette période, le cédant ou une personne affiliée à celui-ci est propriétaire du bien de remplacement.
(3.4) Loss on certain properties -- If this subsection applies because of subsection (3.3) to a disposition of a particular property,
(3.4) Perte sur certains biens
-- Lorsque le présent paragraphe s’applique par l’effet du paragraphe (3.3) à la disposition d’un bien, les présomptions suivantes s’appliquent :
(a) the transferor’s loss, if any, from the disposition is deemed to be nil, and
a) la perte du cédant résultant de la disposition est réputée nulle;
(b) the amount of the transferor’s loss, if any, from the disposition (determined without reference to paragraph (2)(g) and this subsection) is deemed to be a loss of the transferor from a disposition of the particular property at the time that is immediately before the first time, after the disposition,
b) la perte du cédant résultant de la disposition, déterminée compte non tenu de l’alinéa (2)g) et du présent paragraphe, est réputée être sa perte résultant d’une disposition du bien effectuée immédiatement avant le premier en date des moments suivants qui est postérieur à la disposition :
(i) at which a 30-day period begins throughout which neither the transferor nor a person affiliated with the transferor owns
(i) le début d’une période de 30 jours tout au long de laquelle ni le cédant, ni une personne affiliée à celui-ci n’est propriétaire :
(A) the substituted property, or
(A) du bien de remplacement,
(B) a property that is identical to the substituted property and that was acquired after the day that is 31 days before the period begins,
(B) d’un bien qui est identique au bien de remplacement et qui a été acquis après le jour qui précède de 31 jours le début de la période,
(ii) at which the property would, if it were owned by the transferor, be deemed by section 128.1 or subsection 149(10) to have been disposed of by the transferor,
(ii) le moment auquel le cédant serait réputé, par l’article 128.1 ou le paragraphe 149(10), avoir disposé de l’immobilisation s’il en était propriétaire,
(iii) that is immediately before control of the transferor is acquired by a person or group of persons, where the transferor is a corporation,
(iii) si le cédant est une société, le moment immédiatement avant l’acquisition du contrôle du cédant par une personne ou un groupe de personnes,
(iv) at which the transferor or a person affiliated with the transferor is deemed by section 50 to have disposed of the property, where the substituted property is a debt or a share of the capital stock of a corporation, or
(iv) si le bien de remplacement est une dette ou une action du capital-actions d’une société, le moment auquel le cédant ou une personne affiliée à celui‑ci est réputé, par l’article 50, avoir disposé du bien,
(v) at which the winding-up of the transferor begins (other than a winding-up to which subsection 88(1) applies), where the transferor is a corporation,
(v) si le cédant est une société, le moment auquel sa liquidation commence, sauf s’il s’agit d’une liquidation à laquelle s’applique le paragraphe 88(1);
and for the purpose of paragraph (3.4)(b), where a partnership otherwise ceases to exist at any time after the disposition, the partnership is deemed not to have ceased to exist, and each person who was a member of the partnership immediately before the partnership would, but for this subsection, have ceased to exist is deemed to remain a member of the partnership, until the time that is immediately after the first time described in subparagraphs (b)(i) to (v).
c) pour l’application de l’alinéa b), la société de personnes qui cesse d’exister après la disposition est réputée ne cesser d’exister qu’au moment donné immédiatement après le premier en date des moments visés aux sous-alinéas b)(i) à (v), et chaque personne qui en était un associé immédiatement avant le moment où elle aurait cessé d’exister, n’eût été le présent paragraphe, est réputée le demeurer jusqu’au moment donné.
(3.5) Deemed identical property -- For the purposes of subsections (3.3) and (3.4),
(3.5) Bien identique présumé
-- Les présomptions suivantes s’appliquent dans le cadre des paragraphes (3.3) et (3.4) :
(a) a right to acquire a property (other than a right, as security only, derived from a mortgage, agreement for sale or similar obligation) is deemed to be a property that is identical to the property;
a) le droit d’acquérir un bien (sauf le droit servant de garantie seulement et découlant d’une hypothèque, d’une convention de vente ou d’un titre semblable) est réputé être un bien qui est identique au bien;
(b) a share of the capital stock of a corporation that is acquired in exchange for another share in a transaction to which section 51, 85.1, 86 or 87 applies is deemed to be a property that is identical to the other share;
b) l’action du capital-actions d’une société qui est acquise en échange d’une autre action dans le cadre d’une opération à laquelle s’appliquent les articles 51, 85.1, 86 ou 87 est réputée être un bien qui est identique à l’autre action;
(c) where subsections (3.3) and (3.4) apply to the disposition by a transferor of a share of the capital stock of a corporation, and after the disposition the corporation is merged with one or more other corporations, otherwise than in a transaction in respect of which paragraph (b) applies to the share, or is wound up in a winding-up to which subsection 88(1) applies, the corporation formed on the merger or the parent (within the meaning assigned by subsection 88(1)), as the case may be, is deemed to own the share while it is affiliated with the transferor; and
c) lorsque les paragraphes (3.3) et (3.4) s’appliquent à la disposition par un cédant d’une action du capital-actions d’une société et que, après cette disposition, la société est fusionnée avec une ou plusieurs autres sociétés en dehors du cadre d’une opération relativement à laquelle l’alinéa b) s’applique à l’action ou fait l’objet d’une liquidation à laquelle s’applique le paragraphe 88(1), la société issue de la fusion ou la société mère, au sens de ce paragraphe, est réputée être propriétaire de l’action tant qu’elle est affiliée au cédant;
(d) where subsections (3.3) and (3.4) apply to the disposition by a transferor of a share of the capital stock of a corporation, and after the disposition the share is redeemed, acquired or cancelled by the corporation, otherwise than in a transaction in respect of which paragraph (b) or (c) applies to the share, the transferor is deemed to own the share while the corporation is affiliated with the transferor.
d) lorsque les paragraphes (3.3) et (3.4) s’appliquent à la disposition par un cédant d’une action du capital-actions d’une société et que, après cette disposition, l’action est rachetée, acquise ou annulée par la société en dehors du cadre d’une opération relativement à laquelle les alinéas b) ou c) s’appliquent à l’action, le cédant est réputé être propriétaire de l’action tant que la société lui est affiliée.
. . .
. . .
87(2g.4) Superficial losses —
capital property --
for the purpose of applying paragraph 40(3.5)(c) in respect of any share that was acquired by a predecessor corporation, the new corporation is deemed to be the same corporation as, and a continuation of, each predecessor corporation;
87(2)g.4) Perte apparente —
immobilisation --
pour l’application de l’alinéa 40(3.5)c) relativement à une action acquise par une société remplacée, la nouvelle société est réputée être la même société que chaque société remplacée et en être la continuation;
[Emphasis added.]
[Je souligne.]
Appellant’s arguments
[6] According to the appellant, the wording of the preamble to subsection 40(3.5) and of paragraph 40(3.5)(c) is clear enough that the presumption of ownership of the shares set out in paragraph 40(3.5)(c) can only be relied on if subsections 40(3.3) and 40(3.4) apply first. In this case, however, for subsection 40(3.4) to apply so that the loss is deemed nil, the three conditions set out in subsection 40(3.3) must first be met. The appellant acknowledges that paragraphs 40(3.3)(a) and (b) apply since it (as transferor) disposed of capital property (its shares in PII) (paragraph 40(3.3)(a)) and, during the period commencing 30 days before and ending 30 days after the disposition, a person affiliated with the transferor (371) acquired the same property or identical property (substituted property) (paragraph 40(3.3)(b)). However, according to the appellant, the condition set out in paragraph 40(3.3)(c) was not met. In order for that provision to apply, at the end of the 61-day period specified in paragraph 40(3.3)(b), the transferor or an affiliated person must own the substituted property. The substituted property in this case would be the shares in PII. But, at the end of the 61-day period, these shares no longer existed, since 371, which held the shares, and PII were merged, thus eliminating the shares of PII. Since these shares no longer existed at the end of the 61-day period, it can no longer be claimed that the transferor (the appellant) or an affiliated person (371) or even PII Fusionco owned the substituted property because, again, this property no longer existed. The appellant therefore contends that the conditions of subsection 40(3.3) were not all met. This being so, it cannot be argued that subsection 40(3.4) applies to deem the loss to be nil, since subsection 40(3.4) can only apply because of subsection 40(3.3) to a disposition of a particular property (“le présent paragraphe [40(3.4)] s'applique par l'effet du paragraphe (3.3) à la disposition d'un bien”, according to the French version).
[7] According to the appellant, if Parliament had intended that the presumption of ownership in paragraph 40(3.5)(c) be used first to determine whether subsection 40(3.3) applies, it would have so indicated more specifically, or it could have omitted any reference to the application of subsections 40(3.3) and (3.4) as it did in paragraphs 40(3.5)(a) and (b), to expand the concept of identical property. According to the appellant, paragraphs 40(3.5)(c) and (d) have to do with the rule of continuity. So if, after the 61-day period, events such as a merger or a winding up occur, the rule of continuity applies in order to preserve the loss until the property is no longer held by the transferor or a person affiliated with the transferor. The appellant argues that if the merger takes place within the 61‑day period, as was the case here, Parliament allows the transferor to recognize its loss. According to the appellant, Parliament deemed it appropriate to adopt a 61-day rule. The question of whether or not it is justified from an economic standpoint is not relevant.
[8] Moreover, a parallel rule for superficial losses is found in section 54 of the ITA. A superficial loss is defined as follows:
Section 54: Definitions
Article 54 : Définitions
"superficial loss" of a taxpayer means the taxpayer’s loss from the disposition of a particular property where
« perte apparente » Perte d’un contribuable résultant de la disposition d’un bien, dans le cas où, à la fois :
(a) during the period that begins 30 days before and ends 30 days after the disposition, the taxpayer or a person affiliated with the taxpayer acquires a property (in this definition referred to as the “substituted property”) that is, or is identical to, the particular property, and
a) au cours de la période qui commence 30 jours avant la disposition et se termine 30 jours après cette disposition, le contribuable ou une personne affiliée à celui-ci acquiert le même bien ou un bien identique (appelés «bien de remplacement» à la présente définition);
(b) at the end of that period, the taxpayer or a person affiliated with the taxpayer owns or had a right to acquire the substituted property,
b) à la fin de la période visée à l’alinéa a), le contribuable ou une personne affiliée à celui-ci est propriétaire du bien de remplacement ou a le droit de l’acquérir.
except where the disposition was
Toutefois, une perte n’est pas une perte apparente si la disposition qui y a donné lieu est, selon le cas :
(c) a disposition deemed by paragraph 33.1(11)(a), subsection 45(1), section 48 as it read in its application before 1993, section 50 or 70, subsection 104(4), section 128.1, paragraph 132.2(1)(f), subsection 138(11.3) or 142.5(2), paragraph 142.6(1)(b) or subsection 144(4.1) or 144(4.2) or 149(10) to have been made,
c) une disposition réputée avoir été effectuée par l’alinéa 33.1(11)a), le paragraphe 45(1), l’article 48, en son état avant 1993, les articles 50 ou 70, le paragraphe 104(4), l’article 128.1, l’alinéa 132.2(1)f), les paragraphes 138(11.3) ou 142.5(2), l’alinéa 142.6(1)b) ou les paragraphes 144(4.1) ou (4.2) ou 149(10);
(d) the expiry of an option,
d) l’expiration d’une option;
(e) a disposition to which paragraph 40(2)(e.1) applies,
e) une disposition à laquelle s’applique l’alinéa 40(2) e.1);
(f) a disposition by a corporation the control of which was acquired by a person or group of persons within 30 days after the disposition,
f) une disposition effectuée par une société dont le contrôle a été acquis par une personne ou un groupe de personnes dans les 30 jours suivant la disposition;
(g) a disposition by a person that, within 30 days after the disposition, became or ceased to be exempt from tax under this Part on its taxable income, or
g) une disposition effectuée par une personne qui, dans les 30 jours suivant la disposition, est devenue exonérée de l’impôt prévu par la présente partie sur son revenu imposable ou a cessé de l’être;
(h) a disposition to which subsection 40(3.4) or 69(5) applies,
h) une disposition à laquelle s’appliquent les paragraphes 40(3.4) ou 69(5).
and, for the purpose of this definition, a right to acquire a property (other than a right, as security only, derived from a mortgage, agreement for sale or similar obligation) is deemed to be a property that is identical to the property.
Pour l’application de la présente définition, le droit d’acquérir un bien (sauf le droit servant de garantie seulement et découlant d’une hypothèque, d’une convention de vente ou d’un titre semblable) est réputé être un bien qui est identique au bien.
[9] In the case of a superficial loss, if a taxpayer disposes of property and the same or identical property (substituted property) is acquired by that taxpayer or a person affiliated with that taxpayer during the period commencing 30 days prior to the disposition and ending 30 days after the disposition, and the taxpayer or a person affiliated with the taxpayer owns the substituted property at the end of this 61-day period, or is entitled to acquire it, the loss will be a superficial loss deemed to be nil under subparagraph 40(2)(g)(i) and will be carried over, increasing the cost of the newly acquired property by virtue of paragraph 53(1)(f) of the ITA. However, if the property is newly acquired after the 61-day period, the taxpayer will be entitled to claim the loss, as it will not be deemed to be a superficial loss.
[10] Moreover, the fact that the property remains within the group of affiliated corporations does not in itself, according to the appellant, prevent the realization of the loss (reference was made to The Queen v. Donohue Forest Products Inc., 2002 FCA 422, paragraph 22, where it is stated that nothing in the ITA bars a taxpayer from realizing a loss on a corporation's securities sold to third parties, even if a significant portion of the assets to which the loss may be attributed remains within the group of corporations; for example, in the case of a winding up, under subsections 88(2) and 69(5) of the ITA).
[11] Lastly, the appellant pointed out that in S.T.B. Holdings Ltd. v. The Queen, 2002 DTC 1254 (TCC), conf. 2002 FCA 386, the Tax Court of Canada, at paragraph 29, in analyzing the expression “following the application of this section” found in subsection 245(7) of the ITA, analyzed the word “applied”. Judge Campbell Miller of this Court stated the following at paragraph 29:
[29] First, to further flush out the ordinary meaning of subsection 245(7) it is necessary to describe the different interpretations put upon the phrases “following the application of this section” and “involving the application of this section”. Does the ordinary meaning of “following the application of this section” suggest the GAAR provisions have already been applied? What is meant by “applied”? The Applicant argues that “application” means just the process of contemplation by the Minister and discussion with the taxpayer prior to assessment. I fail to see how such musing and communications constitute application. The Minister may consider GAAR, may talk to the taxpayer about GAAR and then may determine not to apply GAAR. This cannot in the ordinary sense be considered the application of the section. The section, as indicated previously, is an assessing tool for the Minister; it follows that an application of the section is only complete upon assessment. That being the case, “following the application” on an ordinary construction means following an assessment involving GAAR. Tax consequences to any person, following the application of this section, must then necessarily refer to tax consequences other than those in the original application of GAAR; it must refer to a subsequent application. It precludes a taxpayer from self-assessing by applying GAAR.
[12] Thus, when one reads at paragraph 40(3.5)(c): "where subsections (3.3) and (3.4) apply to the disposition by a transferor of a share of the capital stock of a corporation ", it is to be understood that subsections (3.3) and (3.4) already apply before paragraph 40(3.5)(c) can be applied. According to the appellant, this is also what is to be understood from the technical notes of December 8, 1997 regarding subsection 40(3.5), which read as follows:
Technical Notes, 40(3.5)
Notes explicatives ---
Loi de l'impôt sur le revenu – Notes explicatives, 40(3.5)
Dec. 1997 TN (technical):
New subsection 40(3.5) sets out four special rules that apply for the purposes of the loss deferral rule in new subsection 40(3.4).
8 décembre 1997, NE:
Le nouveau paragraphe 40(3.5) contient quatre règles spéciales qui s'appliquent dans le cadre de la règle sur le report de pertes énoncée au nouveau paragraphe 40(3.4).
First, paragraph 40(3.5)(a) provides that a right to acquire a property (other than a right that is security for a debt or similar obligation) is treated as being identical to the property.
Premièrement, l'alinéa 40(3.5)a) prévoit que le droit d'acquérir un bien (sauf le droit servant de garantie de dette ou d'un titre semblable) est réputé être identique au bien en question.
Second, paragraph 40(3.5)(b) treats a share that is acquired in exchange for another share under any of sections 51, 85.1, 86 or 87 as identical to that other share.
Deuxièmement, l'alinéa 40(3.5)b) prévoit qu'une action acquise en échange d'une autre action en vertu de l'un des articles 51, 85.1, 86 ou 87 de la Loi est identique à cette autre action.
Third, paragraph 40(3.5)(c) clarifies the result where the property that gives rise to a deferred loss under new subsection 40(3.4) is a share of a corporation that is subsequently merged with one or more other corporations (except where the preceding paragraph already applies to the share) or is wound up into its parent corporation. In such a case, the surviving corporation -- that is, the corporation formed on the merger or the parent corporation -- is treated as continuing to own the share as long as that surviving corporation is affiliated with the transferor.
Troisièmement, l'alinéa 40(3.5)c) porte sur ce qu'il advient lorsque le bien qui donne naissance à une perte reportée en vertu du nouveau paragraphe 40(3.4) est une action d'une société qui, par la suite, est fusionnée avec une ou plusieurs autres sociétés (sauf dans le cas où l'alinéa précédent s'applique déjà à l'action) ou fait l'objet d'une liquidation par la société mère. En pareil cas, l'action est réputée continuer d'appartenir à la société survivante, à savoir la société issue de la fusion ou la société mère, tant que celle-ci est affiliée au cédant.
[Emphasis added.]
[Je souligne.]
[13] The appellant concluded that from a textual, contextual and tax‑policy standpoint, subsections 40(3.3), (3.4) and (3.5) do not, given the circumstances of this case, prevent the loss from being allowed in the same year it was incurred, namely in 2000.
Respondent’s argument
[14] The respondent, referring to the principles of interpretation enunciated in the case law, argued that subsections 40(3.3), 40(3.4) and 40(3.5) must be read together to determine their meaning. These statutory provisions deal with specific stop‑loss rules. Thus, according to the respondent, subsection 40(3.3) establishes the conditions of application; subsection 40(3.4) states the actual rule that applies (suspension of the loss); and subsection 40(3.5) was adopted to define substituted property as such, as well as the concept of ownership at a given time. In the respondent's submission, subsection 40(3.5) is relevant for the purposes of determining whether the conditions laid down in subsection 40(3.3) have been met. Thus, the expression "where subsections (3.3) and (3.4) apply to the disposition by a transferor of a share of the capital stock of a corporation", found in paragraph 40(3.5)(c), must be read, according to the respondent, as stating: "where subsections (3.3) and (3.4) [related to or concern] the disposition by a transferor of a share". The respondent accordingly argues that this must be taken to mean that where one seeks to apply the rules set out in subsections (3.3) and (3.4) in a specific sale of shares, one must refer to paragraph (3.5)(c) to ascertain whether condition (c) of subsection (3.3) applies. Thus, according to the respondent, if there is a merger after the disposition of the shares, whether this merger took place within or outside the 61-day period set out in paragraph 40(3.3)(b), the corporation formed from the merger (PII Fusionco) is deemed pursuant to paragraph 40(3.3)(c) to own the shares disposed of at the end of the period in question. Under this presumption, even if the substituted property no longer existed at the end of the 61-day period, PII Fusionco is deemed to own it. The loss from the disposition of the PII shares will be deemed to be nil under subsection 40(3.4) as long as it remains within the group of associated corporations.
[15] According to the respondent, the introductory words of subsection 40(3.5), namely, “[f]or the purposes of subsections (3.3) and (3.4)", and in French, “[l]es présomptions suivantes [a) à d)] s'appliquent dans le cadre des paragraphes (3.3) et (3.4)”, allow of the interpretation she gives paragraph 40(3.5)(c). All the more so, argues the respondent, as, if the conditions of subsection 40(3.3) had to be met before the presumption in paragraph 40(3.5)(c) could be considered, this presumption would never be relevant for the purposes of subsection 40(3.3). On the respondent's interpretation, the presumptions of subsection 40(3.5) are, in the case of paragraphs (c) and (d), an extension of the concept of ownership of identical property. If Parliament had wished to limit this presumption it would have clearly so indicated. This it did not do. Parliament uses the presumptions in subsection 40(3.5) to define the concepts of ownership and substituted property found at subsection 40(3.3). This interpretation would be consistent with the purpose of the stop-loss rules, namely, that the loss is suspended until it becomes a true economic loss caused by the disposition of property outside a group of associated corporations. According to the respondent, there would be no reason for Parliament to allow this basic rule to be circumvented through the loss being recognized where a merger takes place within the 61-day period, but refused if the merger takes place after the 61-day period. That would make it too easy to circumvent the rule.
Analysis
[16] The principles of interpretation that apply to tax laws were summarized once again by the Supreme Court of Canada in Imperial Oil Ltd. v. Canada; Inco Ltd. v. Canada, 2006 SCC 46, [2006] 2 S.C.R. 447. LeBel J. restated them at paragraphs 24 to 29:
D. Principles of Interpretation Applicable to Tax Statutes
24 This Court has produced a considerable body of case law on the interpretation of tax statutes. I neither intend nor need to fully review it. I will focus on a few key principles which appear to flow from it, and on their development.
25 The jurisprudence of this Court is grounded in the modern approach to statutory interpretation. Since Stubart Investments Ltd. v. The Queen, [1984] 1 S.C.R. 536, the Court has held that the strict approach to the interpretation of tax statutes is no longer appropriate and that the modern approach should also apply to such statutes:
[T]he 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…
(E. A. Driedger, Construction of Statutes (2nd ed. 1983), at p. 87; Stubart, at p. 578, per Estey J.; Ludco Enterprises Ltd. v. Canada, [2001] 2 S.C.R. 1082, 2001 SCC 62, at para. 36, per Iacobucci J.)
26 Despite this endorsement of the modern approach, the particular nature of tax statutes and the peculiarities of their often complex structures explain a continuing emphasis on the need to carefully consider the actual words of the ITA, so that taxpayers can safely rely on them when conducting business and arranging their tax affairs. Broad considerations of statutory purpose should not be allowed to displace the specific language used by Parliament (Ludco, at paras. 38-39).
27 The Court recently reasserted the key principles governing the interpretation of tax statutes — although in the context of the “general anti-avoidance rule”, or “GAAR” — in its judgments in Canada Trustco Mortgage Co. v. Canada, [2005] 2 S.C.R. 601, 2005 SCC 54, and Mathew v. Canada, [2005] 2 S.C.R. 643, 2005 SCC 55. On the one hand, the Court acknowledged the continuing relevance of a textual interpretation of such statutes. On the other hand, it emphasized the importance of reading their provisions in context, that is, within the overall scheme of the legislation, as required by the modern approach.
28 In their joint reasons in Canada Trustco, the Chief Justice and Major J. stated at the outset that the modern approach applies to the interpretation of tax statutes. Words are to be read in context, in light of the statute as a whole, that is, always keeping in mind the words of its other provisions:
It has been long established as a matter of statutory interpretation that “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”: see 65302 British Columbia Ltd. v. Canada, [1999] 3 S.C.R. 804, at para. 50. The interpretation of a statutory provision must be made according to a textual, contextual and purposive analysis to find a meaning that is harmonious with the Act as a whole. When the words of a provision are precise and unequivocal, the ordinary meaning of the words play a dominant role in the interpretive process. On the other hand, where the words can support more than one reasonable meaning, the ordinary meaning of the words plays a lesser role. The relative effects of ordinary meaning, context and purpose on the interpretive process may vary, but in all cases the court must seek to read the provisions of an Act as a harmonious whole. [para. 10]
29 The Chief Justice and Major J. then addressed the underlying tension between textual interpretation, taxpayers’ expectations as to the reliability of their tax and business arrangements, the legislature’s objectives and the purposes of specific provisions or of the statute as a whole:
As a result of the Duke of Westminster principle (Commissioners of Inland Revenue v. Duke of Westminster, [1936] A.C. 1 (H.L.)) that taxpayers are entitled to arrange their affairs to minimize the amount of tax payable, Canadian tax legislation received a strict interpretation in an era of more literal statutory interpretation than the present. There is no doubt today that all statutes, including the Income Tax Act, must be interpreted in a textual, contextual and purposive way. However, the particularity and detail of many tax provisions have often led to an emphasis on textual interpretation. Where Parliament has specified precisely what conditions must be satisfied to achieve a particular result, it is reasonable to assume that Parliament intended that taxpayers
would rely on such provisions to achieve the result they prescribe. [para. 11]
(See also Mathew, at paras. 42-43.)
[Emphasis added.]
[17] Moreover, Binnie J., in the same decision, noted that, "[i]ssues of interpretation can be approached with a degree of confidence that in the various detailed provisions of the Act [ITA], Parliament can be taken at its word (or will quickly introduce an amendment if this turns out not to be the case)" (paragraph 73). Analyzing the purpose of the ITA, Binnie J. also referred to the observations by McLachlin J. in Shell Canada Ltd. v. Canada, [1999] 3 S.C.R. 622, at paragraph 43:
. . . courts must therefore be cautious before finding within the clear provisions of the Act an unexpressed legislative intention . . . . Finding unexpressed legislative intentions under the guise of purposive interpretation runs the risk of upsetting the balance Parliament has attempted to strike in the Act. [para. 43]
[18] It is also worth citing Canada Trustco Mortgage Co. v. Canada, 2005 SCC 54, [2005] 2 S.C.R. 601, at paragraph 12:
12 The provisions of the Income Tax Act must be interpreted in order to achieve consistency, predictability and fairness so that taxpayers may manage their affairs intelligently. As stated at para. 45 of Shell Canada Ltd. v. Canada, [1999] 3 S.C.R. 622:
[A]bsent a specific provision to the contrary, it is not the courts’ role to prevent taxpayers from relying on the so