Upper Valley Dodge Chrysler Limited v. The Minister of Finance
[Indexed as: Upper Valley Dodge Chrysler Ltd. v. Ontario (Minister of Finance)]
73 O.R. (3d) 146
[2004] O.J. No. 4323
Ontario Superior Court of Justice, Divisional Court
Matlow, Brockenshire and Whitten JJ.
October 18, 2004
Sale of land -- Land transfer tax -- Exemptions -- Corporation carrying on business of car dealership on lands owned by its sole shareholder [page147] -- Shareholder transferring land to corporation -- Corporation entitled to exemption from land transfer tax -- Corporation an "individual" -- Land Transfer Tax Act, R.S.O. 1990, c. L.6 -- R.R.O. 1990, Reg. 697, s. 3(1).
Statutes -- Interpretation -- Meaning of "individual" -- Meaning of "operated" -- Corporation carrying on business of car dealership on lands owned by its sole shareholder -- Shareholder transferring land to corporation -- Corporation entitled to exemption from land transfer tax -- Corporation an "individual" -- Land Transfer Tax Act, R.S.O. 1990. c. L.6 -- R.R.O. 1990, Reg. 697, s. 3(1).
Upper Valley Dodge Chrysler Limited ("Upper Valley") operated a car dealership on land owned by William Morglan, its sole shareholder and officer. On December 28, 1994, he conveyed the land to his corporation, and Upper Valley claimed exemption from land transfer tax as a transfer to a family business corporation. It relied on s. 3(1) of Reg. 697, which provided an exemption when there was a conveyance from an "individual" to a "family business corporation", provided that the land was being conveyed for the principal purpose of enabling the transferee to continue the "operation" of the business under the direction of a person who is a "member of the family of the transferor" of the land being conveyed. The Ministry of Finance, however, denied the exemption and assessed tax. Upper Valley appealed. The issues were whether under O. Reg. 697, s. 3, Morglan could be said to be the "operator" of the business at the time of the transfer and whether his corporation could be said to be an "individual". Power J. concluded that Morglan was the operator of the automobile business and that Upper Valley was within the definition of "individual". Power J. vacated the assessment, and the Minister of Finance appealed.
Held, the appeal should be dismissed.
Per Brockenshire J. (Whitten J. concurring): Power J. did not err in his conclusions. What Morglan did was within the purpose and intent of the legislation and not expressly prohibited. Power J. showed that the words of the legislation "operate" and "individual" have a variety of meanings, including ones that brought Morglan's actions within the terms of the Regulation. The purposive interpretation of the Regulation supported a broader construction than proposed by the Minister of Finance, which concentrated on the literal interpretation of each word. The purposive interpretation produced a result that was workable and in harmony with the evident purposes of the Regulation. Accordingly, the appeal should be dismissed.
Per Matlow J. (dissenting): Upper Valley, a corporation, could not, as a matter of law, qualify as an "individual" as defined in the Regulation. That was evident from the context of s. 3(1)(a), which refers to "individuals" in a manner which would make sense only if they were human beings or "natural persons" as they once were referred to. Further, the definition of "members of the family" in the Regulation by its reference to family relationships between "individuals" made it clear that they must be human beings. A corporation can be a "member of a family" under the Regulation but it cannot be an individual. Upper Valley did not qualify for the tax exemption.
APPEAL from a judgment of Power J. (2003), 2003 10521 (ON SC), 67 O.R. (3d) 196, [2003] O.J. No. 3754 (S.C.J.) vacating an assessment under the Land Transfer Tax Act, R.S.O. 1990, c. L.6.
Cases referred to R. v. Golden, 1986 50 (SCC), [1986] 1 S.C.R. 209, 25 D.L.R. (4th) 490, 65 N.R. 135, [1986] 3 W.W.R. 1, 86 D.T.C. 6138, 39 R.P.R. 297; Stubart Investments Ltd. v. R., 1984 20 (SCC), [1984] 1 S.C.R. 536, 10 D.L.R. (4th) 1, 53 N.R. 241, 84 D.T.C. 6305 [page148]
Statutes referred to Interpretation Act, R.S.C. 1985, c. I-21 Land Titles Act, R.S.O. 1990, c. L.5 Land Transfer Tax Act, R.S.O. 1990, c. L.6
Rules and regulations referred to R.R.O. 1990, Reg. 697 (Land Transfer Tax Act), s. 3(1)
Authorities referred to Driedger, E.A., The Construction of Statutes (Toronto: Butterworths, 1974) Sullivan, R., Sullivan and Driedger on the Construction of Statutes, 4th ed. (Toronto: Butterworths, 2002)
Dona M. Salomon, for appellant. Nicholas D.C. Holland, for respondent.
Reasons of Brockenshire J.
1BROCKENSHIRE J. (WHITTEN J. concurring): -- The issue in this appeal is the proper interpretation of s. 3 of Regulation 697 under the Land Transfer Act, R.S.O. 1990, c. L.6, as amended, which grants an exemption, in certain circumstances, to tax payable on the conveyance of land from an individual to a "family business corporation". This section does not appear to have previously been judicially examined in Ontario.
2The factual situation agreed on by counsel was that William Morglan had been the owner of land on which the appellant car dealership operated. He was also the sole shareholder and officer of the appellant. On December 28, 1994, he conveyed the land from himself to his corporation, and claimed exemption from land transfer tax, as the transfer was to a family business corporation that had carried on business on the land for several years, for the purpose of enabling the business to continue on the land, under the direction of Mr. Morglan. The respondent assessed land transfer tax, and the assessment was successfully appealed before Power J., whose decision is now before us on this appeal. The issues raised by the Minister were whether Mr. Morglan could be said to be the "operator" of the business at the time of the transfer, and whether his corporation could be said to be an "individual".
3The wording of s. 3 of the Regulation at the relevant time was as follows:
3(1) Subject to subsections (2) and (3), sections 2 and 2.1 of the Act do not apply to a conveyance of land from an individual or individuals, each of [page149] whom is a member of the family or a same-sex partner of the other to a family business corporation provided that,
(a) prior to such conveyance the land was used predominantly in the operation of an active business which was operated exclusively by an individual or individuals, each of whom is a member of the family or a same-sex partner of each transferor of the land being conveyed;
(b) the land is being conveyed for the principal purpose of enabling the transferee to continue the operation of such business on the land under the direction of a person or persons, each of whom is a member of the family or a same-sex partner of each transferor of the land being conveyed;
(c) for its taxation year ending next following the date of registration of any conveyance with respect to which the expression is being applied, qualifies for a deduction under subsection 125(1) of the Income Tax Act (Canada) notwithstanding that no deduction is allowed under that subsection by reason only that the amount determined under paragraph 125(1)(a) or (b) of that Act is nil for such taxation year; and
(d) for its taxation year ending next following the date of registration of any conveyance with respect to which the expression is being applied, derives at least 75 per cent of its gross income from an active business carried on in Canada.
4Power J. concluded that the word "operate" has many meanings and, in this statutory and factual context, Mr. Morglan, as the sole shareholder and officer of the appellant, was the operator of the automobile business. He further concluded that, as the Act and Regulation did not define "individual" but did, in defining "members of the family", state that corporations owned by family members fitted within that definition, and as case law and definitions in other statutes included corporations in the definition of "individual", it was open to him to find that the appellant fitted within that word, and if the legislature intended differently, it should have said so.
5I do not find that Power J. erred in his conclusions and am bolstered in my view by the following considerations: The Land Transfer Tax Act is a "fiscal" statute. In c. 17 of Sullivan and Driedger on the Construction of Statutes, 4th ed., Professor Sullivan considers the case law on the traditional approach to the interpretation of tax law, and the later adoption in some Supreme Court of Canada cases of "Dreidger's modern principle", and cites Stubart Investments Ltd. v. R., 1984 20 (SCC), [1984] 1 S.C.R. 536, 84 D.T.C. 6305 and R. v. Golden, 1986 50 (SCC), [1986] 1 S.C.R. 209, 25 D.L.R. (4th) 490, at p. 214 S.C.R., p. 496 D.L.R., where Estey J. said:
In Stubart . . . the court recognized that in the construction of taxation statutes the law is not confined to a literal and virtually meaningless interpretation [page150] of the Act where the words will support on a broader construction a conclusion which is workable and in harmony with the evident purposes of the Act in question. Strict construction in the historic sense no longer finds a place in the canons of interpretation applicable to taxation statutes in an era such as the present, where taxation serves many purposes in addition to the old and traditional object of raising the cost of government from a somewhat unenthusiastic public.
6Although Professor Sullivan goes on to examine a number of later cases, which on her analysis indicate a continuance of the literalist approach to tax statutes, she [found] no cases saying that Stubart and Golden were wrongly decided.
7While the Land Transfer Tax Act is primarily devoted to raising money for the Province of Ontario from the transfers of land, it is obvious to me that Regulation 697 was passed for a different purpose. It was intended to facilitate the continuance of family businesses in Ontario, by exempting from the usual taxation, transfers of the land used for those operations from the individual or individuals who had operated the business to a "family corporation", which could be owned by, as here, the same individual that had owned the land, but could also be owned, then or in the future, by other members of the family of the transferor, thus permitting succession planning within a family without taxation being imposed again each time the proportions of effective ownership of the family assets changed within the family. As such, it is surely remedial legislation, entitled to the ". . . fair, large and liberal construction and interpretation as will best ensure the attainment of the object of the Act . . ." (Interpretation Act, R.S.C. 1985, c. I-21), and to the analysis now used generally in relation to statutes, including taxing statutes per Stubart and Golden.
8The interpretation of the Regulation urged on us by counsel for the Minister was that a business person cannot start up a business on his land, incorporate the business as a family corporation and have it continue on as his tenant, and then later transfer the land to the family business corporation free of tax. Instead, the business person would have to create the family business corporation, and then simultaneously transfer the business and the land to the corporation, or else transfer the land first, and then the business.
9The obvious problem with that proposal is that the Regulation does not specifically say that, and if that was the intent of the legislature, they could have said it. Further, if simultaneous transfers were to take place, the Land Titles Act, R.S.O. 1990, c. L.5 creates a problem, because while the business person can control the time of the transfer of his assets other than realty, the [page151] transfer of his land only becomes effective, under land titles, on acceptance of the transfer by the Registrar which, as is commonly known, can be much later than the filing of the document.
10This, in my view, gives a further reason for the concern raised by Power J., in the decision appealed from at para. 26 over an accident in time leading to inconsistent results.
11In my view, what Mr. Morglan did here was within the purpose and intent of the legislation. It was not expressly prohibited by the legislation. The specific words of the legislation looked to by the Minister, "operate" and "individual", have been shown by Power J. to have a variety of meanings, including ones that bring Mr. Morglan's actions within the terms of the Regulation. The purposive interpretation of the Regulation, in my view, supports a broader construction than that purposed by the Minister, which concentrated on the literal interpretation of each word, and instead produces a result "which is workable and in harmony with the evident purposes of" (Golden, supra) this Regulation.
12I would dismiss the appeal, with costs on the partial indemnity scale to the respondent.
Dissenting Reasons of Matlow J.
1MATLOW J. (dissenting):-- With the greatest of respect, I am unable to agree with the disposition by the majority. I would allow the appeal, set aside the judgment below and restore the decision of the Director of the Tax Appeals Branch disallowing any exemption from the imposition of Land Transfer tax with respect to the subject conveyance. I would also invite both counsel to make written submissions regarding costs.
2This appeal is by the Minister of Finance ("the Minister"). The previous successful appeal before the Superior Court judge (the "appeal judge") was by Upper Valley Dodge Chrysler Limited ("Upper Valley"). Both parties are, in various places throughout these proceedings, referred to confusingly as "the appellant" and "the respondent". To reduce that confusion here, I will refer to them by their abbreviated names as set out above.
3It raises important issues relating to the proper interpretation of s. 3(1) of the subject Regulation in the context of facts set out in an agreed statement of facts which reads as follows:
The appellant, Upper Valley Dodge Chrysler Limited, is a corporation incorporated under the laws of the Province of Ontario, carrying on business as an automobile dealership.
William Morglan is the sole officer and shareholder of the appellant.
On December 28, 1994, the business property on which the appellant carried on business was transferred upon registration from William Morglan ("Transferee") to the appellant. [page152]
At the time of registration, no tax was paid as the appellant and Transferee claimed an exemption from land transfer tax under section 3 of Ontario Regulation 697 made pursuant to the Land Transfer Act ("LTTA").
The appellant submitted an Affidavit dated February 23, 1995, claiming that the property was exempt from land transfer tax as the land was conveyed to a family business corporation. In a subsequent Affidavit dated October 25, 1996, the appellant further submitted that the appellant, "... carried on active business under the name and style of Upper Valley Dodge Chrysler Limited on the land being conveyed during the period during which business was carried on the land prior to November 15, 1990 to December 28, 1994".
The appellant submitted that the conveyance was being made for the principal purpose of enabling the transferee corporation to continue the operation of the business on the property under the direction of Mr. Morglan.
On November 6, 1996, the respondent issued Assessment No. 4063 in the amount of $10,813.22 representing tax of $8,810 plus interest of $440.50. The respondent's position is that, prior to the conveyance, the business was not operated by an individual, as required under subsection 3(1)(a) of O. Reg. 697 of the LTTA. Therefore the transfer is taxable.
On or about February 18, 1998, the appellant paid $12,261.71 in tax and interest pursuant to the Decision of the Minister of Finance.
Issue
- Is a corporation an individual for purposes of the exemption to the Land Transfer Tax Act in section 3(1) of Regulation 697?
4In para. 17 of his reasons for his decision allowing the appeal, the appeal judge concluded that, prior to the conveyance, the automobile dealership
. . . was operated exclusively by Mr. Morglan by virtue of his complete ownership and control of Upper Valley. In my opinion, the word "operated" in addition to what I have already stated, refers not simply to ownership of a business but, rather, to effective control of a business i.e., who makes the decisions. Mr. Morglan, in my opinion, was, as aforesaid, the person who operated the business notwithstanding that it was owned by a corporation.
5In my respectful view, para. 17 of the appeal judge's reasons for decision reveals the following reversible errors which now require our intervention.
6The automobile dealership was operated by Upper Valley and not by Morglan. Paragraphs 1 and 5 of the agreed statement of facts established that Upper Valley "carried on" the automobile dealership business. In the context of this case, that also meant that Upper Valley "operated" the business. Morglan had evidently decided prior to the subject conveyance that the dealership would be operated by a corporation and there is no proper reason here to ignore that reality and conclude that it was Morglan who operated the dealership by virtue of his control of Upper [page153] Valley. If control over a corporation were a factor that could affect the determination of who "operated" a business, the legislature would have stated so in appropriate language. To give the Act such an interpretation in the absence of such language changes, without justification, the meaning of the exemption and unduly complicates the determination of the prerequisites for its application.
7Although the provision in the Regulation in issue is admittedly not a model of legislative drafting, it is framed in terms which adequately convey the intention of those who enacted it and thereby gave it the force of law. In particular, by its terms and in its context, it was intended to create a tax exemption in certain defined circumstances for conveyances from human beings to corporations.
8Upper Valley, a corporation, could not as a matter of law, qualify as an "individual" as defined in the Regulation. That is evident from the context of s. 3(1)(a) which refers to "individuals" in a manner which would make sense only if they were human beings or "natural persons" as they once were referred to. As well, the definition of "members of the family" contained in the Regulation, by its references to family relationships between "individuals", further makes it clear that they must be human beings. A corporation can be a "member of a family" under the definition provision in the Regulation but it cannot be an "individual".
9Judgments of Canadian courts at all levels continue to quote with approval Elmer A. Driedger's statement regarding the "modern principle" of statutory interpretation which was published as far back as 1974 in the first edition of his text, The Construction of Statutes. Driedger described it as follows:
Today there is only one principle or approach, namely, the words of an act are to be read in their entire context, in their grammatical and ordinary sense harmoniously with the scheme of the Act, the object of the Act, and the intention of Parliament.
10I conclude, therefore, that Upper Valley did not qualify for the tax exemption provided by s. 3(1) of the Regulation because the subject conveyance did not satisfy the conditions stipulated and that this court should not ignore the clear language of the Regulation and effectively rewrite it in order to create an exemption which the legislators did not.
Order accordingly.
[page154]