Envision Credit Union v. The Queen

Envision Credit Union v. The Queen
Court (s) Database
Tax Court of Canada Judgments
Date
2010-11-17
Neutral citation
2010 TCC 576
File numbers
2008-2213(IT)G
Judges and Taxing Officers
Wyman W. Webb
Subjects
Income Tax Act
Decision Content
Docket: 2008-2213(IT)G
BETWEEN:
ENVISION CREDIT UNION,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
____________________________________________________________________
Appeals heard on April 21, 22 and 23, 2010
and September 13, 14 and 15, 2010
at Vancouver, British Columbia
Before: The Honourable Justice Wyman W. Webb
Appearances:
Counsel for the Appellant:
Joel Nitikman
Michelle Moriartey
Counsel for the Respondent:
Lynn Burch
John Gibb-Carsley
____________________________________________________________________
JUDGMENT
The Appellant’s appeal from the reassessment of its 2001 taxation year is allowed, without costs, and both the second reassessment (dated April 22, 2008) and the first reassessment (dated May 23, 2006) are vacated.
The Appellant’s appeals from the reassessments of its 2002, 2003 and 2004 taxation years are dismissed, without costs.
Signed at Halifax, Nova Scotia, this 17th day of November, 2010.
“Wyman W. Webb”
Webb, J.
Citation: 2010TCC576
Date: 20101117
Docket: 2008-2213(IT)G
BETWEEN:
ENVISION CREDIT UNION,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Webb, J.
[1] This appeal arises as a result of a merger of two Credit Unions that the Appellant submits was a merger to which section 87 of the Income Tax Act (the “Act”) did not apply. There are a number of issues that have been raised:
(a) Was the merger of Delta Credit Union (“Delta”) and First Heritage Savings Credit Union (“First Heritage”) on January 1, 2001 an amalgamation to which section 87 of the Act applies?
(b) If this merger of Delta and First Heritage was not an amalgamation as defined in subsection 87(1) of the Act:
(i) Do the tax attributes, such as the undepreciated capital cost (“UCC”) of the assets of the various classes of depreciable property of Delta and First Heritage, flow through to the Appellant? It is the position of the Appellant that the tax attributes of Delta and First Heritage do not flow through to the Appellant and therefore that the UCC of the assets of the various classes of depreciable property of the Appellant as of the beginning of the Appellant’s 2001 taxation year reverts to the original cost of the assets to the predecessor companies. It is the position of the Respondent that the tax attributes do flow through and therefore the UCC of the assets of the various classes of depreciable property of the Appellant as of the beginning of the Appellant’s 2001 taxation year is the cumulative total amount of the UCC of the assets of the various classes of depreciable property to Delta and First Heritage as of the end of their 2000 taxation years.
(ii) If the Appellant’s position, as outlined in the immediately preceding paragraph, is correct, does the general anti-avoidance rule (“GAAR”), in section 245 of the Act, apply to reduce the UCC of these assets to the Appellant as of the beginning of its 2001 taxation year to the total UCC of these assets to Delta and First Heritage as of the end of their 2000 taxation years?
(c) Is the reassessment of the Appellant’s 2001 taxation year, which was issued after the end of the normal reassessment period for this year, valid?
[2] Section 87 of the Act applies if there has been an amalgamation of two or more companies in the manner as set out in subsection 87(1) of the Act. This subsection provides that:
87. (1) In this section, an amalgamation means a merger of two or more corporations each of which was, immediately before the merger, a taxable Canadian corporation (each of which corporations is referred to in this section as a “predecessor corporation”) to form one corporate entity (in this section referred to as the “new corporation”) in such a manner that
(a) all of the property (except amounts receivable from any predecessor corporation or shares of the capital stock of any predecessor corporation) of the predecessor corporations immediately before the merger becomes property of the new corporation by virtue of the merger,
(b) all of the liabilities (except amounts payable to any predecessor corporation) of the predecessor corporations immediately before the merger become liabilities of the new corporation by virtue of the merger, and
(c) all of the shareholders (except any predecessor corporation), who owned shares of the capital stock of any predecessor corporation immediately before the merger, receive shares of the capital stock of the new corporation because of the merger,
otherwise than as a result of the acquisition of property of one corporation by another corporation, pursuant to the purchase of that property by the other corporation or as a result of the distribution of that property to the other corporation on the winding-up of the corporation.
[3] Delta and First Heritage were amalgamated pursuant to the provisions of the Credit Union Incorporation Act (British Columbia) (the “CUIA”) as First Heritage Delta Credit Union effective January 1, 2001. On November 30, 2001, First Heritage Delta Credit Union changed its name to Envision Credit Union.
[4] Section 20 of the CUIA provides that:
20 (1) Two or more credit unions (the "amalgamating credit unions") may amalgamate and continue as one credit union (the "amalgamated credit union"), but must not do so except in accordance with this section.
(2) Amalgamating credit unions, including any ordered under section 277 (g) of the Financial Institutions Act to amalgamate, together must propose and submit to the commission an amalgamation agreement that
(a) specifies
(i) the name of the proposed amalgamated credit union,
(ii) the terms and conditions of the amalgamation,
(iii) the manner of carrying the amalgamation into effect,
(iv) the names and addresses of the individuals proposed as the directors and senior officers of the proposed amalgamated credit union,
(v) whether the business proposed to be carried on by the proposed amalgamated credit union is deposit business or both deposit business and trust business,
(vi) the services that the proposed amalgamated credit union intends to offer to its members,
(vii) the common bond of membership of the proposed amalgamated credit union,
(viii) the manner in which the issued and unissued shares of each amalgamating credit union will be exchanged for those of the amalgamated credit union, and
(ix) the fair market value of the equity shares of any class, or a method of determining the fair market value of the equity shares of any class, for the purpose of section 24, and
(b) contains
(i) the constitution prepared in accordance with section 6, and
(ii) the rules prepared in accordance with section 7,
that are proposed as the constitution and rules of the amalgamated credit union.
(3) On receiving a proposed amalgamation agreement submitted to the commission, including one where one or more of the amalgamating credit unions is acting under section 21 through an administrator,
(a) the commission may consent to the proposed amalgamation agreement, or
(b) if the commission considers that the proposed amalgamation agreement is contrary to the interests of one or more of the amalgamating credit unions or its or their members, the commission may refuse to consent to it.
(4) If the commission consents under subsection (3) to a proposed amalgamation agreement under which any of the proposed amalgamating credit unions is one that is not acting under section 21 through an administrator, then this subsection applies to that amalgamating credit union, and it must
(a) submit the proposed amalgamation agreement to its members for approval by special resolution, if it is a credit union that has issued no equity shares or has issued no equity shares other than the membership shares, or
(b) submit the proposed amalgamation agreement
(i) to its members for approval by special resolution, and
(ii) to the holders of each class of equity shares other than the membership shares for approval by a separate resolution of the holders of that class, requiring a majority of 2/3 of the votes cast,
if it is a credit union that has issued 2 or more classes of equity shares.
(5) If an amalgamating credit union to which subsection (4) applies has provided in its rules as set out in section 58 (2) respecting rights or special rights attached to its issued equity shares, then, on a separate resolution required under subsection (4) (b) (ii), each holder of equity shares has one vote in respect of each share held by that holder.
(6) If the members or the members and other equity shareholders, as the case may be, of an amalgamating credit union to which subsection (4) applies have approved the proposed amalgamation agreement in compliance with subsections (4) and (5), that amalgamating credit union may enter into the proposed amalgamation agreement, which, when executed by each of the amalgamating credit unions, including any of them acting under section 21 through an administrator, must be delivered to the registrar together with a certified copy of each of any resolutions required in respect of an amalgamating credit union to which subsection (4) applies.
(7) On receiving the executed amalgamation agreement, or the executed amalgamation agreement and a certified copy of each of any resolutions, delivered under subsection (6), the registrar must
(a) register the agreement or the agreement and a certified copy of each resolution, as the case may be,
(b) issue a certificate of amalgamation showing that the amalgamating credit unions are amalgamated and the date of the amalgamation, which must not be earlier than the date the documents are received by the registrar, and
(c) publish in the Gazette a notice of the amalgamation showing the names of the amalgamating credit unions, the name of the amalgamated credit union, the address of its registered office and the date of the amalgamation.
[5] Section 23 of the CUIA provides that:
23 On and after the date of the amalgamation shown in a certificate of amalgamation issued under section 20 (7) (b),
(a) the amalgamating credit unions are amalgamated and are continued as one credit union under the name and with the constitution and rules provided in the amalgamation agreement,
(b) the amalgamated credit union is seized of and holds and possesses all the property, rights and interests and is subject to all the debts, liabilities and obligations of each amalgamating credit union, including any obligations to members or auxiliary members under section 24, and
(c) every member and auxiliary member of each amalgamating credit union is bound by the amalgamation agreement.
[6] It is the position of the Appellant that even though Delta and First Heritage were amalgamated as provided in the CUIA, that this merger was not an amalgamation as defined in subsection 87(1) of the Act because each of the predecessor credit unions transferred an interest in certain real property to 619547 B.C. Ltd. (“619”) at precisely the time of the amalgamation and therefore not all of the property of the predecessor credit unions immediately before the merger became property of the Appellant by virtue of the merger. During the course of the hearing an amalgamation that complies with the applicable corporate legislation related to the amalgamation of two or more companies but which does not satisfy the requirements of the definition of “amalgamation” contained in subsection 87(1) of the Act was referred to as a broken amalgamation, a taxable amalgamation or a non-qualifying amalgamation.
[7] The Appellant’s position is that the amount of the UCC of the assets of each class of the Appellant, as of the commencement of the first taxation year following the amalgamation, was the capital cost of the assets of the various classes to the predecessor credit unions. The following table sets out the balance of the UCC of the assets of the various classes to Delta and First Heritage as of the end of the last taxation of these companies ending before the amalgamation (the closing balance) and the opening balance of UCC as stated by the Appellant:
Class
Closing Balance UCC - Delta
Closing Balance UCC – First Heritage
Combined UCC Balance
Opening Balance of UCC - Appellant
1
3,865,000
6,863,291
10,728,291
17,919,244
3
195,522
469,479
665,001
3,326,000
6
172,805
9,379
182,184
1,193,125
8
1,499,659
1,760,140
3,259,799
12,538,015
10
1,408,341
1,371,048
2,779,389
11,796,495
10.1
203
577
780
24,000
12
0
0
0
116,998
13
60,852
0
60,852
165,202
13
0
0
0
362,813
13
118,729
0
118,729
245,344
13
441,919
0
441,919
882,031
13
277,675
0
277,675
504,203
13
88
0
88
871
13
361,271
0
361,271
656,796
13
0
1,121,140
1,121,140
1,191,114
17
3,143
102,967
106,110
57,508[1]
Total:
8,405,207
11,698,021
20,103,228
50,979,759
[8] In total the Appellant would have additional capital cost allowance (“CCA”) of $30,876,531 ($50,979,759 - $20,103,228) that it could deduct over time than it would if the closing UCC balances would have been carried forward as the opening balance of UCC to the Appellant. It appears from the CCA schedules for Delta and First Heritage that were submitted as an exhibit that neither one of these companies reported any recapture of CCA in their tax returns for the period ending immediately before the amalgamation and therefore the $30,876,531 would represent CCA that would be claimed twice – once by Delta or First Heritage and again by the Appellant.
[9] In filing its tax returns for its 2001 to 2004 taxation years (which are the taxation years that are the subject of these appeals) the Appellant claimed CCA in each year based on a total opening balance of UCC of all classes of property of $50,979,759 as of the commencement of the first taxation year following the amalgamation. The Appellant was reassessed to reduce the amount of CCA allowed for each year to the amount that could be claimed if the opening balance of UCC of all classes of property was $20,103,228 as of the commencement of the first taxation year following the amalgamation. The CCA claimed in each year was therefore reduced.
[10] The Appellant also, in filing its tax return for its 2001 taxation year, did not include the allowance for doubtful debts in the amount of $851,649[2] that had been deducted by Delta in computing its income for its 2000 taxation year. There is also a reference to excess tax reserves of $888,291 in the Reply and this will be discussed below in relation to the reassessment of the Appellant’s 2001 taxation year.
[11] There is another tax account that is affected by the transactions. The preferred rate amounts of Delta and First Heritage were not carried forward to the first taxation year of the Appellant and therefore the Appellant claimed that its opening preferred rate amount was zero. The preferred rate amount is only relevant for credit unions and is used in determining the amount of income that will be subject to the small business tax rate. The net result of subsections 137(3), (4), (4.3) and (6) of the Act is that, in addition to the tax credit that the credit union may be entitled to claim pursuant to section 125[3], the credit union can claim an additional tax credit (which would reduce its tax rate to the small business tax rate). The amount of income on which this additional tax credit may be claimed is limited by subsection 137(3) of the Act.
[12] Subsection 137(3) of the Act limits the amount of taxable income[4] to which this additional tax credit will be applied (which will reduce the tax rate to the small business tax rate) to the lesser of the following two amounts:
(a) the credit union’s taxable income for the year; and
(b) (4/3 of the credit union’s maximum cumulative reserve at the end of the year) minus the credit union’s preferred rate amount at the end of the immediately preceding taxation year.
[13] The maximum cumulative reserve is defined in subsection 137(6) of the Act and is 5% of the total amount owing by the credit union to its members (including deposits) and its share capital.
[14] The preferred rate amount is determined pursuant to subsection 137(4.3) of the Act. The preferred rate amount for the years under appeal was the cumulative total amount of income that was taxed at the small business tax rate[5].
[15] The preferred rate amount will increase every year (assuming that the credit union is profitable). If however the amount of deposits that the credit union has received is large enough (which is determined at the end of the year and therefore will include the net amount of new deposits minus withdrawals made during the year), it is possible that all of the income of the credit union will continue to be taxed at the small business tax rate even though the preferred rate amount is increasing each year since the limit is based on the difference between 4/3 of the maximum cumulative reserve as of the end of the year and the preferred rate amount as of the end of the immediately preceding taxation year.
[16] In this case, the Appellant’s position is that its preferred rate amount that would be relevant in determining its entitlement to a tax credit pursuant to subsection 137(3) of the Act for its 2001 taxation year, is nil. The preferred rate amount for the Appellant for its 2001 taxation year would be its preferred rate amount as of the end of its immediately preceding taxation year. If there has been an amalgamation within the meaning of subsection 87(1) of the Act, paragraph 137(4.3)(b) of the Act provides that:
(4.3) For the purposes of subsection (3),
…
(b) where at any time a new corporation has been formed as a result of an amalgamation of two or more predecessor corporations, within the meaning of subsection 87(1), it shall be deemed to have had a taxation year ending immediately before that time and to have had, at the end of that year, a preferred-rate amount equal to the total of the preferred-rate amounts of each of the predecessor corporations at the end of their last taxation years;
Since it is the position of the Appellant that the amalgamation is not an amalgamation as defined in subsection 87(1) of the Act and therefore that the provisions of this paragraph of the Act do not apply, the Appellant did not carry forward the preferred rate amounts of either Delta or First Heritage.
[17] It is the position of the Respondent that the preferred rate amounts of Delta and First Heritage should have been carried forward by the Appellant and therefore that the preferred rate amount for the Appellant for its 2001 taxation year should have been $72,341,531 because the preferred rate amount for Delta as of the end of its taxation year ending December 31, 2000 was $20,182,268 and for First Heritage as of the end of its taxation year ending December 31, 2000 was $52,159,263.
[18] However both parties did agree that whether the Appellant’s preferred rate amount was nil or $72,341,531 for its 2001 taxation year, the amount of taxes payable by the Appellant under the Act would not be affected for any of the taxation years under appeal. The maximum cumulative reserve amount for each year was sufficiently large that the Appellant would be entitled to the same tax credit pursuant to subsection 137(3) of the Act whether the preferred rate amounts from the predecessors were carried forward to the Appellant or the preferred rate amount of the Appellant for 2001 was nil.
Does section 87 of the Act apply?
[19] The first issue that must be addressed is whether section 87 of the Act applies to the amalgamation of Delta and First Heritage. It is clear that subsection 87(1) of the Act provides a definition of “amalgamation” for the purposes of section 87 of the Act. Therefore if any part of the definition is not satisfied, then, even though the merger may be an amalgamation for the purposes of the applicable corporate legislation, it will not be an amalgamation for the purposes of section 87 of the Act.
[20] It is clear that the merger of Delta and First Heritage was driven by business considerations. It is also clear that the parties intended to structure the merger in a manner that would result in the amalgamation failing to meet the definition of amalgamation in subsection 87(1) of the Act and that the means by which this would be accomplished were dictated by Fraser Milner Casgrain. Although the Respondent argued that the officers of the predecessors and the accountant for one of the predecessors (who was also the accountant for the Appellant) did not seem to fully understand how the transactions were structured, they were not the individuals who structured the transaction. There are probably many transactions that are structured by tax advisors which clients do not fully understand. The issue is not whether the officers of the predecessors understand what happened, but what did happen.
[21] The Respondent had focused on some inconsistencies between the amalgamation agreement and the transactions that were completed. In particular, the Respondent referred to the fact that the amalgamation agreement had provided that a new corporation was to be incorporated at the time of the amalgamation (the “Effective Time”) but 619 was actually incorporated before that time on December 19, 2000. There is no reason why the incorporation of 619 on December 19, 2000 would prevent the transfer of property as proposed by the Appellant. It would actually assist the Appellant since the new company would have to be incorporated to acquire the property and incorporating 619 before January 1, 2001 simply reduced the number of transactions or events that were to occur at the Effective Time and removed any concerns about whether this company could actually be incorporated at the Effective Time.
[22] As noted by Justice Archambault in Fredette v. The Queen, 2001 DTC 263, 2001 DTC 621, [2001] 3 C.T.C. 2468 at paragraph 45:
45. …According to well-settled case law, the tax consequences of a transaction must be determined on the basis of the actual transactions that took place.
[23] Therefore it is necessary to examine the actual transactions that were completed by the parties as it is the actual transactions that were completed that will determine the tax consequences and not what the parties agreed to do if there is any inconsistency between what the parties agreed to do and what they actually did do.
[24] The Respondent had also raised arguments related to simultaneous transactions and whether simultaneous transactions are effective. In particular the Respondent raised the issue of the number of transactions or events that the Appellant appeared to be claiming had happened simultaneously. However in relation to the Appellant’s argument that the amalgamation was not an amalgamation as defined in subsection 87(1) of the Act, the two transactions or events that the Appellant would have to establish as occurring simultaneously are the transfer of the beneficial interest of either Delta or First Heritage in at least one property to 619 and the amalgamation of Delta and First Heritage. In relation to the definition of “amalgamation” in subsection 87(1) of the Act, the issue is whether the beneficial interests in the properties were transferred from Delta and First Heritage (or at least from one of these companies) to 619 at the exact moment that the amalgamation occurred so that the beneficial interest in these properties did not become property of the Appellant by virtue of the amalgamation. The focus is on the property of the predecessors and whether all of the property of Delta and First Heritage became property of the Appellant by virtue of the amalgamation. It seems to me that the amalgamation was the event that determined the timing of the transfer of the beneficial interest in the properties by Delta and First Heritage to 619. In order to establish that the amalgamation of Delta and First Heritage was not an amalgamation as defined in subsection 87(1) of the Act the Appellant would simply have to establish that the beneficial interests in the properties that were transferred by Delta and First Heritage to 619 were transferred to 619 at the exact time of the amalgamation. Whether any other transaction or event, such as the issuance of shares by 619, occurred at that moment or at a later time is irrelevant.
[25] The Respondent had also raised the issue of the capacity of the predecessors to complete the transactions as submitted by the Appellant. In the written arguments submitted by counsel for the Respondent the following statements are made:
1.34 It is our submission that the simultaneous transaction device is incompatible with continuation model amalgamations. In a continuation model amalgamation, at the moment of amalgamation the predecessor corporations become streamed in the amalgamated entity. Predecessors don’t die or disappear and are not extinguished but neither are they able to enter into new contractual arrangements in their previous identities. …
1.35 Regardless of how the appellant explains the timing of these transactions, as of the commencement of January 1, 2001, the time of the Amalgamation, neither First Heritage nor Delta was capable of negotiating or executing independent transactions….
(emphasis added)
[26] Counsel for the Respondent referred to the decisions of the Supreme Court of Canada in The Queen v. Black and Decker Manufacturing Company Ltd., [1975] 1 S.C.R. 411, Witco Chemical Company, Canada, Limited v. The Corporation of the Town of Oakville et al., [1975] 1 S.C.R. 273, 43 DLR (3d) 413 and the decision of the Federal Court of Appeal in The Queen v. Guaranty Properties Ltd. [1990] 3 F.C. 337, 90 DTC 6363. Counsel for the Respondent then stated that:
1.37 These seminal amalgamation cases are neither authority for, nor capable of being construed as standing for the proposition that predecessor corporations have a residual juridical ability to enter into contractual relations upon amalgamation.
[27] Counsel for the Respondent did not suggest that the consequences of this argument would be that no interest in the real properties was conveyed by either Delta or First Heritage to 619 but this argument was advanced as support for its argument that the transactions were not completed as proposed by the Appellant.
[28] Justice MacFarland of the Ontario Court of Justice (General Division) in Rendall v. Royal Insurance Canada [1997] O.J. No. 2672, 34 O.R. (3d) 762 stated that:
13 Counsel for Royal seize upon the words of Mr. Justice Dickson at page 398 of the decision where he states:
... It is true that upon amalgamation each constituent company loses its "separate" existence but it by no means follows that it has thereby ceased to exist.
Counsel argues that Re/Max Grand ceased to exist as an entity to sue or be sued on its own after November 28, 1995 (the date of amalgamation). He says the company had no status to sue or be sued and that, accordingly, any insurance coverage that had been in place to cover that eventuality will no longer apply. The argument is that each of the amalgamating companies loses its separate existence but has not ceased to exist. He says for practical and legal purposes the amalgamating companies cease to exist as legal entities.
14 The answer to this argument is found , I think, in the judgment of Mr. Justice Spence at page 420 of the Witco Chemical Co. Canada Ltd. case where he considers the judgment of Arnup J.A. in the Ontario Court of Appeal and specifically disagrees with him in this language:
I find it difficult to contemplate a situation where the amalgamating corporation does not cease to exist for all purposes but is not a juristic person with a status to commence an action.
And, further, at page 421:
I am, however, of the opinion that in the present case there was not an extinguishment of the corporate identity of the Witco Chemical Company,Canada, Limited, sufficient to justify the court in holding that the writ had been issued in the name of a non-existent plaintiff.
In my view, the combined effect of what is now section 179 of the Business Corporations Act and the Regina v. Black & Decker and Witco Chemical Co. Canada Ltd. cases is that the amalgamating corporations continue to exist and have juristic status following amalgamation. That being so it follows that the Royal policy, unless there be a specific condition to the effect that coverage ends on amalgamation of the named insured with another corporation, would continue to provide coverage.
(emphasis added)
[29] Delta and First Heritage would therefore continue to exist and have juristic status following the amalgamation. The implication of the statement of the Supreme Court of Canada in the Witco Chemical Company, Canada, Limited case is that an amalgamating company is a juristic person with status to commence an action. If this juristic person can commence an action can it also enter into contracts? This would raise the question of who could negotiate or execute the contract as the officers and directors of the predecessor companies would cease to be officers and directors of these companies upon amalgamation. It does not seem to me that the references to the predecessor companies continuing should be interpreted as the officers and directors of the predecessor companies continuing to hold their office in the predecessor companies following amalgamation. If it did, then, in this case, there would be three boards of directors and three sets of officers – one for Delta, one for First Heritage and one for the Appellant. This cannot be the result of the references to the amalgamating companies continuing.
[30] It seems to me that in order to determine whether there was a transfer of an interest in the real property at the time of the amalgamation it is not necessary to determine whether Delta and First Heritage had any capacity to enter into contracts on their own following the amalgamation and therefore it is not necessary to determine whether the juristic status of Delta and First Heritage would permit them to enter into contracts following the amalgamation.
[31] In this case it is clear that the agreements in question were executed prior to the amalgamation. By letter from David Jones, Senior Vice-President Corporate Services and C.F.O. for First Heritage to Baker Newby dated December 29, 2000, the executed documents (including the asset transfer agreements and trust agreements) were returned to Baker Newby. Therefore it is clear that the asset transfer documents and the trust agreements were executed on or before December 29, 2000.
[32] In Hewlett Packard (Canada) Ltd. v. The Queen, 2004 FCA 240, 324 N.R. 201, 2004 DTC 6498, Justice Noël, writing on behalf of the Federal Court of Appeal, stated that:
59 Although the civil and the common law notions of ownership stem from different roots, there is one basic rule that is common to both systems: ownership passes when the parties intend it to pass.
[33] In the Hewlett Packard case the property in question was personal property - cars. In this case it is real property.
[34] In Anger & Honsberger “Law of Real Property” Third Edition by Anne Warner La Forest, in describing the classification of property as real or personal property it is stated at page 1-7 that:
…Nevertheless, many differences persist. This is particularly true with respect to the different manner of acquisition, investigation of title and alienation of the two forms of property. In general it may be said that these differences inevitably exist because of the physical differences between them.
[35] In Stonehouse v. British Columbia (Attorney General), [1962] S.C.R. 103, an individual and his wife were the registered owners of a property in Vancouver as joint tenants. Prior to her death, the wife conveyed her interest in the property to her daughter by a former marriage. The deed conveying this interest was not registered until after the death of the wife. Justice Ritchie, on behalf of the Supreme Court of Canada, stated that:
Under the provisions of s. 35 an unregistered deed could not be operative “to pass any estate or interest either at law or in equity” other than that of the grantor, but the effect of Mrs. Munk’s deed was not “to pass” any such estate or interest of Mr. Stonehouse but rather to change its character from that of a joint tenancy to that of a tenancy in common and thus to extinguish his right to claim title by survivorship which is an incident of the former but not of the latter type of interest. The right of survivorship under a joint tenancy is that, on the death of one joint tenant, his interest in the land passes to the other joint tenant or tenants (Megarry and Wade, The Law of Real Property, 2nd ed., p.390. But, on the execution and delivery of the transfer by Mrs. Stonehouse, she divested herself of her entire interest in the land in question. At the time of her death, therefore, there was no interest in the land remaining in her which could pass to her husband by right of survivorship.
(emphasis added)
[36] Therefore an interest in real property in British Columbia will pass upon the execution and delivery of the transfer document even though such document is not registered.[6]
[37] In dealing with delivery, the Nova Scotia Court of Appeal in Re MacNeil Estate, 219 N.S.R. (2d) 80, stated as follows:
11 The law on delivery of deeds is discussed by C. W. MacIntosh in Nova Scotia Real Property Manual, looseleaf, Markham, ON: Butterworths, 1988 at s. 5.5A:
Physical delivery of the deed to the grantee is not necessary to constitute effective delivery. Delivery of a deed is a matter of intention.
What is essential to delivery of the document as a deed is that “the party whose deed the document is expressed to be, having first sealed it, must by words or conduct expressly or impliedly acknowledge his intention to be immediately and unconditionally bound by the expressions contained therein.
The intention is to be determined from the words, conduct and the surrounding circumstances.
…
12 In Ross v. Lynds Estate (1977), 28 N.S.R. (2d) 260 (S.C.T.D.) Hallett, J. (as he then was) said:
[18] One would have thought that delivery of a deed would mean physical delivery but, as indicated earlier in this decision, the Courts over a long period of time have held that physical delivery of a deed to the grantee is not necessary to constitute effective delivery. No doubt the development of the law in this direction was as a result of the Courts attempting to fulfil what they perceive to be the intention of the grantor…
[19] The cases cited earlier show that there does not have to be a physical handing over of a deed to the grantee or to some other person to take it out of the control of the grantor to effect delivery.
[38] As a result it seems clear that whether an interest in personal property or real property is being transferred the intention of the parties plays an important role in determining when such transfer occurs. In this case it is clear that the documents related to the transfer of the interest in the real property were executed prior to January 1, 2001. The Respondent has not made any argument or suggestion that the documents were not effective to transfer an interest in the property. The only argument raised by the Respondent was with respect to the timing of the transfer of the interest in the property to 619.
[39] It is clear that Delta and First Heritage intended to transfer their interest in the real property to 619 at the moment that they were amalgamated under the CUIA. The Amalgamation Agreement provided as follows:
1.1 In this Agreement:
…
(f) “Effective Time” means the commencement of the Amalgamation Date;
…
2.2 The amalgamation will be effective as and from the Effective Time.
…
8.1 Delta and First Heritage agree that certain assets of each will be surplus to the needs of the Amalgamated Credit Union and will be transferred to a new subsidiary at the Effective Time.
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8.3 At the Effective Time, each of First Heritage and Delta will transfer to the subsidiary those assets determined by the parties prior to the Amalgamation Date to be surplus to the needs of the Amalgamated Credit Union in exchange for Preferred Shares of the subsidiary having an aggregate redemption/retraction amount equal to the fair market value of each asset transferred as agreed on by the parties.
8.4 Where any property transferred is real property the transfer of which is potentially taxable under the Property Transfer Act (British Columbia), the transferring party and the subsidiary will enter into a bare trust/agency agreement providing that the transferring party remain the registered owner of the real property in trust for the benefit of the subsidiary.
[40] There are two Memorandums of Agreement – one between Delta (as the Vendor) and 619 (as the Purchaser) and the other between First Heritage (as the Vendor) and 619 (as the Purchaser). Each agreement is “dated effective the ‘Effective Time’ January 1, 2001 as defined in the Amalgamation Agreement between Delta Credit Union and First Heritage Savings Credit Union dated for reference the 1st day of January, 2001”.
[41] Paragraph 1 of each agreement provided as follows:
1. Subject to the terms and conditions of this Agreement and based on the warranties and representations herein contained, the Vendor hereby sells and the Purchaser hereby purchases the Assets
[42] Paragraph 4 of each agreement provided as follows:
4. The effective date and time of this Agreement and all matters provided for herein shall be the “Effective Time” January 1, 2001 as defined in the Amalgamation Agreement between Delta Credit Union and First Heritage Savings Credit Union dated for reference the 1st day of January, 2001 notwithstanding the actual date of execution of this Agreement or any other documents and deeds made pursuant to this Agreement.
[43] The agreement between Delta and 619 included a schedule that listed the three real properties that were to be included as the “Assets” for that agreement and the agreement between First Heritage and 619 included a schedule that listed the one real property that was to be included as the “Assets” for that agreement.
[44] There were also trust agreements between Delta and 619 and between First Heritage and 619 that were “dated effective the ‘Effective Time’ January 1, 2001 as defined in the Amalgamation Agreement between Delta Credit Union and First Heritage Savings Credit Union dated for reference the 1st day of January 2001”. In the Trust Agreements each of Delta and First Heritage confirmed that they had no beneficial interest in the real properties that were subject to the agreements described above.
[45] It is clear from the documents that were executed that it was the intention of the parties to transfer the beneficial interest in the real properties that were described in the schedules to the memorandums of agreement as of the time of the amalgamation. The Respondent has agreed that the amalgamation occurred at the first moment of time on January 1, 2001. Therefore it is clear that the intention of the parties was to transfer the beneficial interest of Delta and First Heritage in the real properties to 619 as of the first moment of time on January 1, 2001, which was the same moment in time as Delta and First Heritage were amalgamated under the CUIA.
[46] The Respondent referred to the case of Hauber Contracting Ltd. v. British Columbia, [1984] B.C.J. No. 3100 as authority for the proposition that the transfer of assets could not have occurred at the moment of amalgamation. That case dealt with a provision in the regulations made pursuant to the Social Service Tax Act, R.S.B.C. 1979 Chap. 388. Regulation 3 - 14 provided that a transfer of tangible personal property to a corporation would be exempt from social services tax if, inter alia, the “property is sold to a corpora