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Appeal Court Dicta

Statutory Interpretation - Taxation

. Emergis Inc. v. Canada

In Emergis Inc. v. Canada (Fed CA, 2023) the Federal Court of Appeal considers the weight to be accorded the 'text/context/purpose' factors in statutory interpretation, here in an income tax context:
[22] The focus in this appeal is on the interpretation of the exception contained in subsection 20(12) of the ITA. Questions of statutory interpretation are to be decided based on a textual, contextual, and purposive analysis.

[23] As noted by the Supreme Court of Canada in Canada v. Loblaw Financial Holdings Inc., 2021 SCC 51:
[41] This narrow question of statutory interpretation requires us to draw upon the well-established framework that “statutory interpretation entails discerning legislative intent by examining statutory text in its entire context and in its grammatical and ordinary sense, in harmony with the statute's scheme and objects” (Michel v. Graydon, 2020 SCC 24, at para. 21). Where the rubber hits the road is in determining the relative weight to be afforded to the text, context and purpose. Where the words of a statute are “precise and unequivocal”, their ordinary meaning will play a dominant role (Canada Trustco Mortgage Co. v. Canada, 2005 SCC 54, [2005] 2 S.C.R. 601, at para. 10). In the taxation context, a “unified textual, contextual and purposive” approach continues to apply (Placer Dome Canada Ltd. v. Ontario (Minister of Finance), 2006 SCC 20, [2006] 1 S.C.R. 715, at para. 22, quoting Canada Trustco, at para. 47). In applying this unified approach, however, the particularity and detail of many tax provisions along with the Duke of Westminster principle (that taxpayers are entitled to arrange their affairs to minimize the amount of tax payable) lead us to focus carefully on the text and context in assessing the broader purpose of the scheme (Placer Dome, at para. 21; Canada Trustco, at para. 11). This approach is particularly apposite in this case, where the provision at issue is part of the highly detailed and precise FAPI regime. I must emphasize again that this is not a case involving a general anti-avoidance rule. The provision at issue is part of an exception to the definition of “investment business” within the highly intricate, highly defined FAPI regime. If taxpayers are to act with any degree of certainty under such a regime, then full effect should be given to Parliament's precise and unequivocal words.
. Stonehouse Group Inc. v. Ontario (Minister of Finance)

In Stonehouse Group Inc. v. Ontario (Minister of Finance) (Ont CA, 2021) the Court of Appeal clarified a new (from 2006) tax statutory interpretation approach:
[13] It is agreed that there is no longer a special rule regarding the interpretation of taxing statutes, that is, such statutes are not to be interpreted strictly against the taxing authority as was once the case. Rather, taxing statutes are to be interpreted as any other statute would be, that is, “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”: Placer Dome Canada Ltd. v. Ontario (Minister of Finance), 2006 SCC 20, [2006] 1 S.C.R. 715, at para. 21.
. Lawyers’ Professional Indemnity Company v. Canada

In Lawyers’ Professional Indemnity Company v. Canada (Fed CA, 2020) the Federal Court of Appeal considered the statutory interpretation that applies to whether the Lawyers’ Professional Indemnity Company (Lawpro), a Law Society of Ontario (LSO) subsidiary, was exempt from taxation as a "public body performing a function of government in Canada":
[29] Before considering whether the Tax Court erred in its interpretation of paragraph 149(1)(d.5) of the ITA, it is first necessary to address the principles of statutory interpretation to be applied in discerning the proper meaning of the statutory provision at issue in this case.

[30] In Canada Trustco Mortgage Co. v. Canada, 2005 SCC 54, [2005] 2 S.C.R. 601, the Supreme Court of Canada identified the approach to be used in interpreting statutory provisions such as the one at issue here. There, the Court stated that the words of a statute "“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”": at para. 10, citing 65302 British Columbia Ltd. v. Canada, 1999 CanLII 639 (SCC), [1999] 3 S.C.R. 804, 179 D.L.R. (4th) 577 at para. 50.

[31] While language in a statutory provision is not to be interpreted independently of its context and legislative purpose, the Court nevertheless went on in Canada Trustco to observe that where the words of a statutory provision are precise and unequivocal, the ordinary meaning of the words will play a dominant role in the interpretive process: above at para. 10. Where, however, the words are capable of supporting more than one reasonable meaning, the ordinary meaning of the words will play a lesser role. Although the relative effects of ordinary meaning, context and purpose on the interpretive process may vary from case to case, courts must seek to read the provisions as a harmonious whole in every case: Canada Trustco, above at para. 10.
. Loblaw Financial Holdings Inc. v. Canada

In Loblaw Financial Holdings Inc. v. Canada (Fed CA, 2020) the Federal Court of Appeal considered whether income from a foreign corporation, registered as a bank, fell under a taxation exemption for arm's length banks. In the course of the case it considered the doctrine of statutory interpretation:
[41] The well-established approach to interpreting statutes in Canada, including the ITA, is to consider the text, context and purpose of the legislation in a manner that is harmonious with the statute as a whole (Canada Trustco Mortgage Co. v. Canada, 2005 SCC 54 at para. 11, [2005] 2 S.C.R. 601).


[52] One error concerns how the arm’s length test is to be interpreted in the specific context of foreign banks.

[53] The Tax Court determined that a proper interpretation of the arm’s length test in a banking context requires one to examine the bank’s activities from the perspective of both the receipt and use of funds (paragraph 209). This was based on the Court’s view that a bank’s business necessarily involves two sides - receipts and uses. The Court appeared to rely entirely for this conclusion on the definition of an "“international banking business”" in the Barbados legislation.

[54] This conclusion was a legal error. Simply because Barbados legislation defines international banking in a particular manner does not mean that receipts and uses are always a necessary requirement to carry on a banking business – in Barbados or elsewhere.

[55] Canadian courts find it difficult to define the term "“banking”". The Supreme Court discussed this difficulty in the context of a constitutional matter in Canadian Pioneer Management Ltd. v. Labour Relations Board of Saskatchewan (1979), 1979 CanLII 180 (SCC), [1980] 1 S.C.R. 433, 107 D.L.R. (3d) 1. In that case, the decision of the majority concluded that "“banking”" is an elusive concept, difficult to define, and its meaning should be based on a formal, institutional approach rather than a substantive approach, in the sense of the functions of banking. It follows that the use of the term "“bank”" in the name of the entity, and whether it is regulated, are factors to be considered, rather than the actual activities that are conducted.

[56] The Tax Court’s approach is at odds with Canadian Pioneer, which details that a formal, institutional approach should be taken to define a banking business. Using this approach, there is no reasonable basis to conclude that the arm’s length test requires both business receipts and uses.

[57] The Tax Court’s error that business receipts and uses are necessary to comply with the arm’s length test spawned two incorrect conclusions: (1) that the receipt side of the business implies an element of competition (paragraph 210), and (2) that the necessity for business receipts means that the exclusion does not apply if a business simply manages its own funds (paragraph 325). Since the term "“banking”" depends on formal factors rather than functions, it is a legal error for the Tax Court to make these inferences.

[58] In addition, the Tax Court’s focus on competition, which was dealt with at length in the Court’s reasons, is an example of a court inferring a purposive interpretation from unexpressed legislative intent. This is also a legal error. As stated by the Supreme Court of Canada: "“This Court has consistently held that courts must therefore be cautious before finding within the clear provisions of the [ITA] 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 [ITA]”" (Shell Canada Ltd. v. Canada, 1999 CanLII 647 (SCC), [1999] 3 S.C.R. 622 at para. 43, 178 D.L.R. (4th) 26). The emphasis in the Tax Court’s reasons on an unexpressed intention of competition is not appropriate in this case which involves a FAPI scheme that is drafted with mind-numbing detail.

[59] The Tax Court also erred by conflating the rationale of the legislation for purposes of a GAAR analysis with the purpose of the legislation in a statutory interpretation analysis. These are distinctly different exercises (Canada v. Oxford Properties Group Inc., 2018 FCA 30 at paras. 40–42, [2018] 6 C.T.C. 1, citing Copthorne Holdings Ltd. v. R., 2011 SCC 63 at paras. 66, 70, [2011] 3 S.C.R. 721). It appears that the Tax Court brushed over this distinction, referring to it as "“something of a fine, legalistic point”" (paragraph 218).

[60] As discussed in the Tax Court reasons, competition is recognized as a policy rationale for limiting FAPI to passive income and as such it would be relevant in a GAAR analysis. However, Parliament has not explicitly required competition as an element of the foreign bank exclusion at issue. This may be contrasted with other FAPI provisions where a competition requirement is explicit (see, for example, subsection 95(2.4) of the ITA).

[61] The Court also erred in not respecting the fundamental principle that a corporation and its shareholders are separate and distinct entities (see Chevron Corp. v. Yaiguaje, 2015 SCC 42 at para. 95, [2015] 3 S.C.R. 69).

[62] This error is manifested in the Court’s determination that Glenhuron’s activities involving the purchase of short-term debt securities and its swap transactions were conducted with Loblaw. In each case, the Court stated that Glenhuron was acting on behalf of Loblaw whose money it was investing (paragraphs 242, 247). Except with respect to investment management services which are not relevant in this part of the analysis, Glenhuron was not managing Loblaw’s money but its own. It was an error of law for the Court to consider that Glenhuron’s money belonged to Loblaw.


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