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A-756-84
The Queen (Appellant) v.
British Columbia Forest Products Limited (Respondent)
Court of Appeal, Thurlow C.J., Mahoney and Marceau JJ.—Vancouver, October 18; Ottawa, November 12, 1985.
Income tax — Income calculation — Capital cost allowance — Appeal from trial judgment — Whether s. 13(7.1) requiring tax credit claimed to be taken into account in computing undepreciated capital cost of pertinent classes of depreciable property — Trial Judge relying on AEL Microtel Limited v. The Queen (1984), 84 DTC 6374 (F.C.T.D.) where held noth ing "received" merely because taxpayer taking advantage of provision permitting payment of less tax than otherwise pay able — Appeal allowed — Trial Judge in AEL Microtel erred
— Parliament expressly contemplating taxpayer may "receive" assistance from government in form of "deduction from tax" in s. 13(7.1) — Respondent receiving assistance within s. 13(7.1) when electing to take deduction for tax credit — Income Tax Act, S.C. 1970-71-72, c. 63, ss. 13(7.1) (as am. by S.C. 1974-75-76, c. 26, s. 6), 125(1), 127(5) (as am. by S.C. 1974-75-76, c. 71, s. 9), (9) (as am. idem), (10) (as am. idem)
— Income Tax Act, R.S.C. 1952, c. 148, s. 20(6)(h) (as am. by S.C. 1966-67, c. 91, s. 5).
CASES JUDICIALLY CONSIDERED OVERRULED:
AEL Microtel Limited v. The Queen (1984), 84 DTC 6374 (F.C.T.D.).
CONSIDERED:
G.T.E. Sylvania Canada Limited v. The Queen, [1974] 1 F.C. 726 (T.D.).
COUNSEL:
Ingeborg E. Lloyd for appellant. Brian J. Wallace for respondent.
SOLICITORS:
Deputy Attorney General of Canada for appellant.
Lawson, Lundell, Lawson & McIntosh, Van- couver, for respondent.
The following are the reasons for judgment rendered in English by
THURLOW C.J. (dissenting): The facts and ap plicable statutory provisions are sufficiently set out in the reasons for judgment of Mr. Justice Mahoney and need not be repeated. The issue is whether the investment tax credit provided by subsections 127(5), (9) and (10) of the Income Tax Act [S.C. 1970-71-72, c. 63 (as am. by S.C. 1974-75-76, c. 71, s. 9)] for the 1975 taxation year in respect of the acquisition by the taxpayer of depreciable property was required by subsection 13(7.1) [as am. by S.C. 1974-75-76, c. 26, s. 6] of the Act to be deducted from the capital cost of the depreciable property, for the purpose of computing capital cost allowances, by reason of the credit being "assistance" which the taxpayer "has received or is entitled to receive" ... "from a government, municipality or other public authority in respect of, or for the acquisition of, depreciable property, whether as a grant, subsidy, forgiveable loan, deduction from tax, investment allowance or as any other form of assistance...."
The position of the appellant as I understand it is that the investment tax credit was assistance received as a deduction from tax and thus fell within the statutory wording.
As the credit in question arises on the wording of subsection 125(1) that "There may be deducted from the tax otherwise payable ...", I have no difficulty in regarding it as being in fact a "deduc- tion from tax" and, therefore, in the context of subsection 13(7.1), "assistance" which the taxpay er "has received or is entitled to receive" within the meaning of that provision. But I am unable to see how the credit can be regarded as assistance from a government, municipality or other public authority.
It is not a gift or grant by any such body. Nor is it something that a government, municipality or other public authority has any discretion or au thority to give or to refuse. The credit is a statu tory right which arises to the taxpayer when the prescribed facts exist. It is simply an amount of
tax that in the circumstances is not imposed or required by the law to be paid.
Statutory authorities for a government or mu nicipality or other public authority to afford assis tance to taxpayers in defined situations by reduc tions of or deductions from taxation are not unknown and it appears to me that they are situa tions in which the wording "assistance" by way of "deduction from tax" has scope to operate. I see no sufficient reason to infer that the investment tax credit, which is provided as a right by subsec tion 127(5), and which is not subject to being denied by the Government of Canada or by those charged with the administration of the Income Tax Act is referred to or included in the descrip tion "assistance from a government, municipality or other public authority".
I would dismiss the appeal with costs.
* * *
The following are the reasons for judgment rendered in English by
MAHONEY J.: This is an appeal from the Trial Division [(1984), 84 DTC 6391 (F.C.T.D.)]. The issue is whether the amount of a tax credit claimed by the respondent in respect of tax payable for its taxation year ended December 31, 1975, was required, by subsection 13(7.1) of the Income Tax Act, to be taken into account in computing the undepreciated capital cost of the pertinent classes of depreciable property owned by it December 31, 1975.
The investment tax credit arose under subpara- graph 127(10)(c)(vii) of the Act and was calculat ed, under subsection 127(9), to be $179,807. The respondent elected, as permitted by subsection 127(5), to deduct the entire $179,807 from its income tax otherwise payable for 1975. These matters are not in dispute and the pertinent provi sions of section 127 need not be recited.
In reassessing, the Minister relied on subsection 13(7.1).
13....
(7.1) For the purposes of this Act, where a taxpayer has received or is entitled to receive assistance from a government, municipality or other public authority in respect of, or for the acquisition of, depreciable property, whether as a grant, sub sidy, forgiveable loan, deduction from tax, investment allow ance or as any other form of assistance other than
(a) an amount authorized to be paid under an Appropriation Act and on terms and conditions approved by the Treasury Board in respect of scientific research expenditures incurred for the purpose of advancing or sustaining the technological capability of Canadian manufacturing or other industry, or
(b) an amount deducted as an allowance under section 65,
the capital cost of the property to the taxpayer shall be deemed to be the amount by which the aggregate of
(c) the capital cost thereof to the taxpayer, otherwise deter mined, and
(d) such part, if any, of the assistance as has been repaid by the taxpayer pursuant to an obligation to repay all or any part of that assistance,
exceeds
(e) the amount of the assistance.
In allowing the respondent's appeal from that reas sessment, the learned Trial Judge relied entirely on an earlier decision of the Trial Division in AEL Microtel Limited v. The Queen (1984), 84 DTC 6374 (F.C.T.D.), in which, at pages 6386 ff., the precise issue had been dealt with. That decision, in turn, had relied extensively on the judgment of this Court in G.T.E. Sylvania Canada Limited v. The Queen, [1974] 1 F.C. 726 (T.D.).
In G.T.E. Sylvania, the Court considered a deduction from tax in 1971, permitted by the Quebec Corporation Tax Act [R.S.Q. 1964, c. 67] in respect of the acquisition of new machinery, taken by the taxpayer. The comparable provision to subsection 13(7.1) was paragraph 20(6)(h) of the Income Tax Act [R.S.C. 1952, c. 148 (as am. by S.C. 1966-67, c. 91, s. 5)]:
20....
(6) For the purpose of this section and regulations made under paragraph (a) of subsection (1) of section 11, the follow ing rules apply:
(h) where a taxpayer has received or is entitled to receive from a government, municipality or other public authority, in
respect of or for the acquisition of property, a grant, subsidy or other assistance ... the capital cost of the property shall be deemed to be the capital cost thereof to the taxpayer minus the amount of the grant, subsidy or other assistance;
The provision was replaced by subsection 13(7.1), as it stood in 1975, by an amendment effective as of May 6, 1974, S.C. 1974-75-76, c. 26, s. 6(4).
The ratio of this Court's decision in G.T.E. Sylvania was that the words "other assistance" in paragraph 20(6)(h) had to be construed ejusdem generis with "grant" and "subsidy" and that the tax credit did not, therefore, fall within the scope of "other assistance" as employed in the provision. The Trial Judge in AEL Microtel also understood the G.T.E. Sylvania decision to hold that a tax payer cannot be held to have "received" anything merely because the taxpayer takes advantage of a provision permitting the payment of less tax than would otherwise be payable. He held that, while it had answered the ejusdem generis ground upon which the taxpayer had succeeded in G.T.E. Syl- vania, the 1974 amendment was no answer to the argument that it had "received" nothing.
With respect, I think the learned Trial Judge in AEL Microtel erred in that conclusion and, it follows, that the learned Trial Judge here erred. Stripped of verbiage immaterial to the present facts, subsection 13(7.1) provided:
... where a taxpayer has received ... assistance from a govern ment ... in respect of ... the acquisition of, depreciable property whether as a .. . deduction from tax ... or as any other form of assistance . .. the capital cost of the property to the taxpayer shall be deemed to be the amount by which the ... capital cost thereof to the taxpayer, otherwise determined, ... exceeds ... the amount of the assistance.
Parliament has expressly contemplated that a tax payer may "receive" assistance from a government in the form of a "deduction from tax". Whatever violence that does to one's semantic scrupulosity, the Court is obliged to give effect to Parliament's clear and unambiguous intention if it can sensibly
do so. The concept may be thought awkward, but it is clearly expressed. In Parliament's prescrip tion, one can "receive" assistance when one takes advantage of an opportunity afforded to deduct from tax an amount that one would otherwise be required to pay. In the circumstances, the respond ent did "receive" assistance within the terms of subsection 13(7.1) when it elected to take the $179,807 deduction permitted it in respect of its 1975 income tax.
I would allow the appeal with costs here and in the Trial Division and would restore the assess ment.
MARCEAU J.: I agree.
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