Survivance (La) v. Minister of National Revenue, 2006 FCA 129

• Judge: Décary, Noël and Pelletier, JJ.A.
• Court: Federal Court of Appeal (Canada)
• Case Date: March 31, 2006
• Jurisdiction: Canada (Federal)
• Citations: 2006 FCA 129;(2006), 353 N.R. 22 (FCA)

Survivance v. MNR (2006), 353 N.R. 22 (FCA)

MLB headnote and full text

[French language version follows English language version]

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

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Temp. Cite: [2006] N.R. TBEd. AP.027

La Survivance (appelante) c. Sa Majesté la Reine (intimée)

(A-230-05; 2006 CAF 129; 2006 FCA 129)

Indexed As: Survivance (La) v. Minister of National Revenue

Federal Court of Appeal

Décary, Noël and Pelletier, JJ.A.

March 31, 2006.

Summary:

In 1994, a Canadian life insurance company, considered a public corporation for the purposes of the Income Tax Act, sold all of the shares of its subsidiary, a property insurance company, to another property insurance company. The purchaser was a private corporation. The life insurance company lost $2,654,372 in the transaction. The life insurance company deducted this loss as a business investment loss for the year 1998. The Minister of National Revenue disallowed the deduction. The life insurance company appealed.

The Tax Court of Canada dismissed the appeal. The life insurance company appealed.

The Federal Court of Appeal allowed the appeal. The court directed the Minister to issue a new assessment on the basis that the life insurance company was entitled to a deduction for a business investment loss for 1998.

Income Tax - Topic 1263

Income from a business or property - Deductions - Business losses - What constitutes a business loss - On July 5, 1994, a Canadian life insurance company, considered a public corporation for purposes of the Income Tax Act, sold its 100% owned Canadian subsidiary to a private corporation - The life insurance company lost $2,654,372 in the transaction - The Federal Court of Appeal held that the life insurance company was entitled to deduct this loss as a business investment loss where (1) the subsidiary came under the control of the private corporation at the beginning of the day on July 5, 1994, pursuant to the legal fiction under s. 256(9) of the Act, and (2) as a result, the subsidiary became, at the beginning of the day on July 5, 1994, a "Canadian-controlled private corporation" and a "small business corporation" whose disposition at a loss by the life insurance company on July 5, 1994, entitled the life insurance company to deduct the loss as a business investment loss.

Quebec Nominate Contracts - Topic 3052

Sale - Title and transfer of ownership - When transfer occurs - In 1994, a life insurance company sold all of the shares of its subsidiary, a property insurance company, to another property insurance company - The purchaser took up and paid for the shares on July 5, 1994, in accordance with the May 3, 1994, purchase and sale agreement between the parties and the terms of the June 8, 1994, public share offering required under the Quebec Securities Act - The life insurance company had deposited the shares with an approved depositary on June 16, 1994, also in accordance with the May 3, 1994, purchase and sale agreement and the June 8, 1994, public share offering - The Federal Court of Appeal held that the sale took place on July 5, 1994 - The parties had agreed that the transfer of ownership should coincide with the taking of possession of the shares in return for payment - See paragraphs 41 to 52.

Statutes - Topic 2459

Interpretation - Interpretation of words and phrases - Interpretation and definition clauses - Use of word "deemed" - Section 256(9) of the Income Tax Act contained a deeming provision that stipulated that where control of a corporation was acquired by a person or group of persons at a particular time on a day, control of the corporation was deemed to have been acquired by the person or group of persons at the commencement of that day - The Federal Court of Appeal held that insofar as s. 256(9) effectively altered reality, its meaning should be limited to what was clearly expressed - A deeming provision could not otherwise modify the actual situation that obtained - See paragraphs 53 to 55.

Cases Noticed:

Hewlett Packard (Canada) Ltd. v. Canada, [2004] F.C.J. No. 1084, refd to. [para. 23].

Raschella v. 3633713 Canada Inc., [2003] J.Q. No. 23 (C.A.), consd. [para. 26].

Viking Food Products Ltd. v. Minister of National Revenue (1967), 67 D.T.C. 5067, consd. [para. 30].

Minister of National Revenue v. Duha Printers (Western) Ltd., [1998] 1 S.C.R. 795; 225 N.R. 241, refd to. [para. 35].

Fonds de placement immobilier Cominar (fiduciaire de) v. Constructions Myo inc., [2000] J.Q. no. 2129 (S.C.), refd to. [para. 44].

Larabie c. 3917592 Canada inc., [2004] J.Q. no. 11574, refd to. [para. 44].

Nauss et al. v. Minister of National Revenue (1978), 78 D.T.C. 1796, refd to. [para. 51].

R. v. Verrette, [1978] 2 S.C.R. 838; 21 N.R. 571, consd. [para. 53].

Canada (Attorney General) v. Scarola (2003), 303 N.R. 85 (F.C.A.), consd. [para. 54].

Ludco Enterprises Ltd. et al. v. Ministre du Revenu national, [2001] 2 S.C.R. 1082; 275 N.R. 90, refd to. [para. 65].

Colubriale v. Canada, [2005] N.R. Uned. 229; 2005 FCA 329, refd to. [para. 67].

Statutes Noticed:

Income Tax Act, R.S.C. 1985 (5th Supp.), c. 1, sect. 39(1)(b), sect. 39(1)(c)(iii) [para. 16]; sect. 54 [para. 41]; sect. 88(1)(c.6) [para. 61]; sect. 89(1) [para. 18]; sect. 125(1)(a)(i), sect. 125(7)(a) [para. 15]; sect. 141(2) [para. 14]; sect. 248(1) [paras. 14, 17, 18]; sect. 249(4) [para. 19]; sect. 256(9) [para. 20].

Income Tax Act Regulations (Can.), Income Tax Regulations, C.R.C. 1978, c. 945, sect. 6204(4) [para. 61].

Income Tax Regulations - see Income Tax Act Regulations (Can.).

Authors and Works Noticed:

Canada, Minister of National Revenue, Technical Interpretation 9525315, Associated Corporations (February 26, 1996), generally [paras. 75, 76].

Deslauriers, Jacques, Le droit commun de la vente (2003-2005), vol. 5, p. 161 [para. 44].

Jobin, Pierre-Gabriel, La Vente (2nd Ed. 2001), para. 44 [paras. 37, 44].

Johnston, David L., and Doyle Rockwell, Kathleen, Canadian Securities Regulation (2nd Ed. 1998), p. 160 [para. 49].

Legault, Francis R., Offres publiques d'achat et d'échange (fusions et acquisitions), in Développements récents sur les valeurs mobilières (2002), vol. 164, pp. 113 to 137 [para. 47].

MacIntosh, J.G., and Nicholls, C.C., Securities Law (2002), p. 303 [para. 47].

Vesely, J. George, and Roberts, Robert A., Takeover Bids: Selected Tax, Corporate, and Securities Law Considerations, Report of Proceedings of the Forty-Third Tax Conference, 1991 Conference Report (1992), p. 11:1-47, fn. 42 [para. 51].

Thomas, Yan, Fictio Legis, L'empire de la fiction juridique et ses limites médiévales (1995), 21 Droits - Revue française de théorie juridique 17, generally [para. 54].

Counsel:

Robert Couzin and Brenda Didiy, for the appellant;

Yanick Houle and Jane Meagher, for the respondent.

Solicitors of Record:

Couzin Taylor LLP, Toronto, Ontario, for the appellant;

John H. Sims, Q.C., Deputy Attorney General of Canada, Ottawa, Ontario, for the respondent.

This appeal was heard at Montreal, Quebec, on March 1, 2006, by Décary, Noël and Pelletier, JJ.A, of the Federal Court of Appeal.

The decision of the Court of Appeal was delivered at Ottawa, Ontario, on March 31, 2006, by Noël, J.A.