The Harmonization of Tax Legislation Analysis of the Concept of "Acquisition" in the Case Law (continued)

III.  Section 8.1 of the Interpretation Act and the policy on legislative bijuralism

Canada is a country where two legal traditions co-exist in private law: the civil law in Quebec and the common law in the other provinces. In order to respect these two traditions, the Department of Justice of Canada developed a Policy on Legislative Bijuralism that:

Formally recognizes that it is imperative that the four Canadian legal audiences (Francophone civil law lawyers, Francophone common law lawyers, Anglophone civil law lawyers and Anglophone common law lawyers) may, on the one hand, read federal statutes and regulations in the official language of their choice and, on the other, be able to find in them terminology and wording that are respectful of the concepts, notions and institutions proper to the legal system (civil law or common law) of their province or territory.[32]

Section 8.1 of the Interpretation Act was enacted in the context of the application of this policy and it codified the jurisprudential trend embodied in the principle of complementarity.  By complementarity is meant the use of provincial rules for purposes of the application of a federal enactment that refers to private law concepts without defining their scope.  Section 8.1 of the Interpretation Act provides that:

Both the common law and the civil law are equally authoritative and recognized sources of the law of property and civil rights in Canada and, unless otherwise provided by law, if in interpreting an enactment it is necessary to refer to a province's rules, principles or concepts forming part of the law of property and civil rights, reference must be made to the rules, principles and concepts in force in the province at the time the enactment is being applied.[33]

Bérou was decided before the inclusion of section 8.1 in the Interpretation Act, whereas in Terexcavation Lamarre Proulx J. did not consider that provision in deciding the issue.  Therefore in the light of section 8.1 of the Interpretation Act, it is interesting to ask whether the Federal Court of Appeal and the Tax Court of Canada respectively would make the same decisions today in similar cases given that this section seems to explicitly require the court to apply the private law of the provinces as the suppletive law where the concept to be applied is not defined in the I.T.A. and is a private law concept.  Since the term "acquisition" is not currently defined in the I.T.A., it could be said that the applicable law in a situation similar to that of Bérou and Terexcavation is the law of the place where the legal transaction occurred, i.e., the civil law of the province of Quebec. 

In Terexcavation, Lamarre Proux J. does not refer to section 8.1 of the Interpretation Act, which came into force on June 1, 2001, via the Harmonization Act No. 1,[34] although the decision in Terexcavation was issued on October 18, 2002.  Can it be inferred from this silence that Lamarre Proulx J. held that the concept of "acquisition" was dissociated from the private law of the provinces (at least from the civil law) and that, consequently, this concept is not subject to section 8.1 of the Interpretation Act?

The question, then, is the following: is the concept of "acquisition" dissociated from the private law of the provinces or not?  If it is, the term has a specific meaning in tax law, which must, for want of a definition, be interpreted by the courts.  If not, section 8.1 of the Interpretation Act should apply and the courts should take into account the private law of the relevant province, despite the fact that this creates asymmetry in terms of the tax consequences.  In view of this possibility, it will be up to Parliament and not the courts to take action to counter the asymmetry.

It should be remembered that the case law prior to section 8.1 of the Interpretation Act tended to favour the dissociation of the concept of "acquisition" for purposes of the application of certain provisions, at least where these provisions are applicable in the province of Quebec.  In Bérou, Kowdrysh and Terexcavation, the courts dissociated this concept for income tax purposes.  In contrast, in Bérou, Noël J., in his dissenting judgment, applied the principle of complementarity, a principle that is now enshrined in section 8.1 of the Interpretation Act, as is clear from this passage where he refers to the second branch of the test developed in Wardean Drilling:

In setting forth that rule Cattanach J. did not have it in mind to overturn applicable private law, since the judgment he rendered was to the exact opposite effect. As Chief Judge Couture explained in the case at bar, Cattanach J. in stating that rule:

is merely confirming the distinction [at common law] between the owner who holds legal title and the beneficial owner of the property, that is, the one to whom ownership belongs subsequent to a transaction, but who will receive title to the property at a later date.[35](Emphasis added)

According to Noël J., there can be no acquisition in Quebec without a transfer of the ownership.[36]  The analysis of the meaning to be given to the term "acquisition" in Quebec civil law is beyond the objective of this Chronique, however.

Along the same lines, academics have voiced the opinion that the concept of acquisition is a private law concept and that the principle of complementarity should apply to it.  Professor David Duff, inter alia, wrote, " [I]n common  law provinces, the leading case on the concept of an acquisition of property is Wardean Drilling, which was reviewed earlier as an example of complementarity between the ITA and the private law of provinces other than Quebec." [37] 

In addition, he added:

Again, a general legislative intention that the concepts of an acquisition and a disposition of property should apply uniformly throughout Canada cannot outweigh the specific legislative intention in new section 8.1 of the federal Interpretation Act and the preamble to the Federal Law-Civil Law Harmonization Act, No.1, that provisions that rely on private law relationships that are not fully defined in the ITA should be interpreted in accordance with provincial private law. As a result, therefore, in cases where courts have dissociated the tax concepts of an acquisition and a disposition from those in the private law of Quebec, those decisions should be reconsidered under new section 8.1 of the federal Interpretation Act. (Emphasis added)

In the light of these two contradictory positions and in view of section 8.1 of the Interpretation Act, there is reason to wonder whether the previous case law will be maintained with respect to the interpretation to be given to the concept of "acquisition". 

CONCLUSION

Cattanach J. in Wardean Drilling had probably not foreseen that the second branch of the test, aimed at determining whether a purchaser "acquires" a property on the transfer of the normal incidents of title, would be the source of such extensive discussion.

In applying the second branch of the test developed by Cattanach J. in Wardean Drilling, Bérou and Terexcavation and a number of other decisions whose facts arose the province of Quebec,[38] have given the concept of acquisition a particular tax meaning dissociated from the private law of the province of Quebec.  However, as has been seen, the decision in Bérou was rendered before section 8.1 of the Interpretation Act was enacted.  Moreover, as has also been seen, Noël J. (dissenting in Bérou) and various other academics advocate complementarity with respect to the application of the concept of "acquisition".  In that regard, would it not be a good idea for Parliament to intervene to reduce the current uncertainty regarding the application of the concept? Without such intervention, there is reason to believe that the courts will continue to interpret the concept of "acquisition" in terms of the context and particular facts to the detriment, some commentators will say, of a more predictable Act in terms of its effects…

Footnotes

  • [32]  "Policy on Legislative Bijuralism", in The Harmonization of Federal Legislation with the Civil Law of the Province of Quebec and Canadian Bijuralism, Second Publication, Booklet 4 (Ottawa: Department of Justice Canada, 2001), Appendix III, at p. 23.

  • [33]  Loc. cit., note 3.

  • [34]  S.C. 2001, c. 4.

  • [35]  Loc. cit., note 13, s. 97.

  • [36]  Ibid., para. 71.

  • [37]  David DUFF, "The Federal Income Tax Act and Private Law in Canada: Complementarity, Dissociation and Canadian Bijuralism", [forthcoming], at pp. 40-41. It was written in the context of a research contract granted to Professor Duff by the Department of Justice of Canada.  See also, to the same effect: Marie-Pierre ALLARD, loc. cit., note 10 at pp. 2 : 59-66.

  • [38]  For example, Olympia and York Developments Ltd. v. The Queen, 80 D.T.C. 6184, 6191 (F.C.T.D.) and Robert Bédard Auto Ltée v. MNR, 85 D.T.C. 643 (C.C.I.).

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