Envision Credit Union v. Minister of National Revenue, (2013) 448 N.R. 305 (SCC)

• Judge: McLachlin, C.J.C., LeBel, Rothstein, Cromwell, Moldaver, Karakatsanis and Wagner, JJ.
• Court: Supreme Court (Canada)
• Case Date: March 19, 2013
• Jurisdiction: Canada (Federal)
• Citations: (2013), 448 N.R. 305 (SCC);2013 SCC 48;[2013] 3 SCR 191

Envision Credit v. MNR (2013), 448 N.R. 305 (SCC)

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[French language version follows English language version]

[La version française vient à la suite de la version anglaise]

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Temp. Cite: [2013] N.R. TBEd. SE.015

Envision Credit Union (appellant) v. Her Majesty the Queen (respondent)

(34619; 2013 SCC 48; 2013 CSC 48)

Indexed As: Envision Credit Union v. Minister of National Revenue

Supreme Court of Canada

McLachlin, C.J.C., LeBel, Rothstein, Cromwell, Moldaver, Karakatsanis and Wagner, JJ.

September 26, 2013.

Summary:

Envision Credit Union appealed from reassessments of its tax returns for the 2001 to 2004 tax years.

The Tax Court of Canada, in a decision reported at 2010 TCC 576, allowed the appeal regarding the 2001 tax year, on the ground that the reassessment was statute-barred, and dismissed the appeal as to the remaining years. Envision appealed from the decision regarding the remaining years.

The Federal Court of Appeal, in a decision reported at (2011), 425 N.R. 261, dismissed the appeal. Envision appealed.

The Supreme Court of Canada dismissed the appeal.

Contracts - Topic 7401

Interpretation - General principles - Intention of parties (incl. reasonable interpretation) - [See second Income Tax - Topic 6815 ].

Income Tax - Topic 1182

Income from business or property - Deductions - Capital cost allowance - Deductions in calculating capital cost - [See first and second Income Tax - Topic 6815 ].

Income Tax - Topic 6813

Computation of tax - Rules for corporations - Amalgamations - Liability for tax of predecessor corporation - [See first and second Income Tax - Topic 6815 ].

Income Tax - Topic 6815

Computation of tax - Rules for corporations - Amalgamations - Rules applicable - Under the Income Tax Act (ITA), taxpayers could deduct capital cost allowance (CCA) from business or property income - The CCA was a percentage of the undepreciated capital cost (UCC) of depreciable assets - The UCC of such an asset was its cost of acquisition, less the amount of CCA deductions claimed - In 2000, two credit unions (the predecessors) amalgamated under the Credit Union Incorporation Act (CUIA) to become Envision Credit Union - If s. 87 of the ITA applied to the amalgamation, the combined UCC of the predecessors' depreciable assets was attributable to Envision - Section 87(1)(a) defined "amalgamation" for the purposes of that section as one where "all of the property ... of the predecessor corporations" became property of the new corporation "by virtue of the amalgamation" - The predecessors structured the amalgamation such that the beneficial interest in four surplus real estate lots did not become Envision's property - Envision only became the owner of the legal title to the surplus properties, held in trust for another corporation ("619"), and the owner of the issued shares in 619 - In its returns for tax years 2001 to 2004, Envision claimed CCA based on a starting UCC of $50.9 million, which was the capital cost of the depreciable assets when the predecessors acquired them - On reassessment, applying s. 87, the Minister reduced the CCA to a starting UCC of $20.1 million, which was the amount of the predecessors' UCC balances immediately before the merger - The reassessments were upheld except as to the 2001 tax year - The Supreme Court of Canada dismissed Envision's appeal - The requirements of s. 87 were satisfied by the amalgamation - Under s. 23(b) of the CUIA, the result of an amalgamation was that the amalgamated credit union was the owner of all of its predecessors' property - The court rejected Envision's argument that s. 20 of the CUIA, which permitted credit unions to specify the terms and conditions of the amalgamation, permitted it to contract out of the effect of s. 23(b) - Section 23(b) was a mandatory provision that prescribed the amalgamation's consequences - While s. 20 empowered predecessor credit unions to set terms and conditions of amalgamation, those terms and conditions could not contradict or override the automatic consequences of amalgamation under s. 23 - Therefore, by virtue of s. 23(b), Envision was seized of the surplus properties at the exact moment of amalgamation - This caused the condition in s. 87(1)(a) of the ITA to be fulfilled - Envision's tax attributes had to be adjusted accordingly - See paragraphs 25 to 40.

Income Tax - Topic 6815

Computation of tax - Rules for corporations - Amalgamations - Rules applicable - Under the Income Tax Act (ITA), taxpayers could deduct capital cost allowance (CCA) from business or property income - The CCA was a percentage of the undepreciated capital cost (UCC) of depreciable assets - The UCC of such an asset was its cost of acquisition, less the amount of CCA deductions claimed - In 2000, two credit unions (the predecessors) amalgamated under the Credit Union Incorporation Act (CUIA) to become Envision Credit Union - If s. 87 of the ITA applied to the amalgamation, the combined UCC of the predecessors' depreciable assets was attributable to Envision - Section 87(1)(a) defined "amalgamation" for the purposes of that section as one where "all of the property ... of the predecessor corporations" became property of the new corporation "by virtue of the amalgamation" - The predecessors structured the amalgamation such that the beneficial interest in four surplus real estate lots did not become Envision's property - Envision only became the owner of the legal title to the surplus properties, held in trust for another corporation ("619"), and the owner of the issued shares in 619 - In its returns for tax years 2001 to 2004, Envision claimed CCA based on a starting UCC of $50.9 million, which was the capital cost of the depreciable assets when the predecessors acquired them - On reassessment, applying s. 87, the Minister reduced the CCA to a starting UCC of $20.1 million, which was the amount of the predecessors' UCC balances immediately before the merger - The reassessments were upheld except as to the 2001 tax year - The Supreme Court of Canada dismissed Envision's appeal on the basis that, under s. 23(b) of the CUIA, Envision was seized of the surplus properties at the exact moment of amalgamation, which caused the condition in s. 87(1)(a) of the ITA to be fulfilled - Section 87 of the ITA applied - The court rejected Envision's argument that, if s. 23(b) made it impossible for Envision to structure its affairs such that the surplus properties did not become Envision's property, the amalgamation agreement might be invalid - At the moment that Envision was created, it was seized of the predecessors' property and was immediately able to transact in that property - This meant that, although the agreements for the sale of the surplus properties listed the predecessors as vendors, Envision was immediately able to fulfill the predecessors' obligation to sell the surplus properties to 619 - The sale agreements were effective - Nothing in s. 23(b) rendered any portion of the amalgamation agreement invalid - While there was extrinsic evidence that the predecessors had intended to prevent Envision from being seized of the surplus properties, such an arrangement would be in violation of s. 23(b) of the CUIA - When a contract could be construed in two ways, the lawful interpretation was to be preferred - Accordingly, the contract was best interpreted as merely ensuring that the surplus properties were sold at the time of amalgamation - This was consistent with s. 23(b) - See paragraphs 41 to 56.

Income Tax - Topic 6815

Computation of tax - Rules for corporations - Amalgamations - Rules applicable - Under the Income Tax Act (ITA), taxpayers could deduct capital cost allowance (CCA) from business or property income - The CCA was a percentage of the undepreciated capital cost (UCC) of depreciable assets - The UCC of such an asset was its cost of acquisition, less the amount of CCA deductions claimed - In 2000, two credit unions (the predecessors) amalgamated under the Credit Union Incorporation Act (CUIA) to become Envision Credit Union - If s. 87 of the ITA applied to the amalgamation, the combined UCC of the predecessors' depreciable assets was attributable to Envision - Section 87(1)(a) defined "amalgamation" for the purposes of that section as one where "all of the property ... of the predecessor corporations" became property of the new corporation "by virtue of the amalgamation" - The predecessors structured the amalgamation such that the beneficial interest in four surplus real estate lots did not become Envision's property - Envision only became the owner of the legal title to the surplus properties, held in trust for another corporation ("619"), and the owner of the issued shares in 619 - In its returns for tax years 2001 to 2004, Envision claimed CCA based on a starting UCC of $50.9 million, which was the capital cost of the depreciable assets when the predecessors acquired them - On reassessment, applying s. 87, the Minister reduced the CCA to a starting UCC of $20.1 million, which was the amount of the predecessors' UCC balances immediately before the merger - The reassessments were upheld except as to the 2001 tax year - The Supreme Court of Canada dismissed Envision's appeal on the basis that, under s. 23(b) of the CUIA, Envision was seized of the surplus properties at the exact moment of amalgamation, which caused the condition in s. 87(1)(a) of the ITA to be fulfilled - While it was unnecessary for the court to consider the Federal Court of Appeal's approach of tracing the surplus properties through the shares of 619, had it been necessary, the court would have rejected the tracing approach - The legislative language in s. 87 was not as explicit as other provisions in the ITA that permitted shareholders to be deemed to be the owners of corporate property - The tracing approach could not be used to cause an amalgamation to meet the requirements of s. 87 - See paragraphs 57 and 58.

Statutes - Topic 5126

Operation and effect - Enabling acts - Obligatory, mandatory, imperative and absolute Acts - What constitutes a mandatory power - [See first Income Tax - Topic 6815 ].

Cases Noticed:

R. v. Black & Decker Manufacturing Co., [1975] 1 S.C.R. 411; 1 N.R. 299, refd to. [para. 18].

Manco Home Systems Ltd., Re, 1989 CanLII 2819 (B.C.S.C.), refd to. [para. 51].

Pope v. Canadian Pacific Ltd. et al.; Wotherspoon et al. v. Canadian Pacific Ltd. et al., [1987] 1 S.C.R. 952; 76 N.R. 241; 21 O.A.C. 79, refd to. [para. 57].

Envision Credit Union v. Minister of National Revenue, 2010 D.T.C. 1399; 2010 TCC 576, refd to. [para. 63].

Statutes Noticed:

Credit Union Incorporation Act, R.S.B.C. 1996, c. 82, sect. 23(b) [para. 27].

Income Tax Act, R.S.C. 1985 (5th Supp.), c. 1, sect. 87(1)(a) [Appendix].

Authors and Works Noticed:

British Columbia Company Law Practice Manual (2nd Ed. 2007), vol. 1, p. 11-7 [para. 47].

McMeel, G., The Construction of Contracts: Interpretation, Implication and Rectification (2nd Ed. 2011), para. 7.31 [para. 56].

Counsel:

Joel A. Nitikman and Jessica Fabbro, for the appellant;

Daniel Bourgeois and Eric Noble, for the respondent.

Solicitors of Record:

Dentons Canada, Vancouver, British Columbia, for the appellant;

Attorney General of Canada, Ottawa, Ontario, for the respondent.

This appeal was heard on March 19, 2013, by McLachlin, C.J.C., LeBel, Rothstein, Cromwell, Moldaver, Karakatsanis and Wagner, JJ., of the Supreme Court of Canada. On September 26, 2013, the court's decision was released in both official languages with the following opinions:

Rothstein, J. (McLachlin, C.J.C., and Lebel, Moldaver, Karakatsanis and Wagner, JJ., concurring) - see paragraphs 1 to 60;

Cromwell, J., concurring in the result - see paragraphs 61 to 72.