M.N.R. v. Adelman
T-50-92
Strayer J.
4/8/93
12 pp.
Appeal from Tax Court decision allowing defendant's appeal from reassessment of 1985 income -- In 1985 defendant reporting allowable business loss from disposition of shares purchased prior to 1972 -- Instead of filing form prescribed for exercise of election under Income Tax Application Rules, 1971, s. 26(7), defendant filing schedule stating "Adjusted cost base[cad 177]Valuation day[cad 177]$3.50 per share" -- Deduction disallowed for failure to elect under s. 26(7) to establish cost of all capital property owned by taxpayer on December 31, 1971 as being fair market value on valuation day -- Income Tax Regulations, s. 4700 providing any election under s. 26(7) shall be made by filing form prescribed -- Defendant alleging schedule attached to return sufficient exercise of election -- Tax Court, following Trynor, G.H. et al. v. Minister of National Revenue (1988), 88 DTC 1294 (T.C.C.), holding statutory requirement of filing election in prescribed form directory rather than mandatory -- Appeal allowed -- Income Tax Regulations, s. 4700 mandatory -- Interpretation Act, s. 11 providing "shall" imperative, "may" permissive -- S. 3(1) providing every provision of Interpretation Act applies, unless contrary intention appears, to every enactment -- "Enactment" meaning Act or regulation -- "Regulation" including form made in execution of power conferred by or under Act -- Re Manitoba Language Rights, [1985] 1 S.C.R. 721 holding presumption "shall" imperative unless utterly inconsistent with context and rendering section irrational or meaningless -- Not irrational for Regulations to require taxpayer to clearly express election not only to establish cost of first property disposed of after valuation day to be its value on valuation day, but also to accept that all other property owned by him before 1972, when disposed of in future, should have attributed to it acquisition cost equal to value on valuation day -- Not irrational for Minister to be satisfied, through use of prescribed form, taxpayer understands implications of election -- Not irrational to require separate and distinct document completed by taxpayer which can be filed separate from particular tax return in respect of which election first made for future reference -- S. 26(7) conferring right to take advantage of optional determination of cost of property based on value on valuation day provided taxpayer prepared to have same rule apply to all other property acquired before 1972 -- Neither unjust, unreasonable nor inconsistent with Act or Regulations for taxpayer to be required to adhere strictly to procedure prescribed by law for exercise of right having regard to fact its exercise will affect position and Minister's in respect of both particular disposition and all future dispositions involving pre-1972 property -- Advantages to use of form over obscure statement precluding interpretation of "shall" in s. 26(7) as irrational, meaningless -- Principle substance should take precedence over form when characterizing transaction for fiscal purposes not pertinent -- Problem not to characterize business transaction, but to interpret statutory instrument imposing conditions on taxpayer for invoking advantageous option made available by statute -- Case law rejecting earlier strict interpretation of taxation statutes more pertinent -- Cardinal rule to give statute plain meaning i.e. advantage available under s. 26(7) cannot be claimed unless election filed -- Income Tax Act, S.C. 1970-71-72, c. 63 -- Income Tax Application Rules, 1971, S.C. 1970-71-72, c. 63, Part III, s. 26(7) (as am. by S.C. 1973-74, c. 14, s. 75; 1974-75-76, c. 26, s. 131) -- Income Tax Regulations, C.R.C., c. 945, s. 4700 -- Interpretation Act, R.S.C., 1985, c. I-21, ss. 2, 3, 11, 16.