Court of Appeal for Ontario

Citation: Dam Investments Inc. v. Ontario (Finance), 2007 ONCA 527

Date: 20070710

Docket: C44338

Before: FELDMAN, GILLESE AND MACFARLAND JJ.A.

Between:

DAM INVESTMENTS INC.

Appellant (Respondent in Appeal)

And

MINISTER OF FINANCE

Respondent (Appellant in Appeal)

Counsel:

Dona M. H. Y. Salmon for the appellant

Myron W. Shulgan, Q.C. and Crista L. Rea for the respondent

Heard: June 21, 2007

On appeal from the judgment of Justice Richard C. Gates of the Superior Court of Justice dated September 23, 2005, with reasons reported at [2005] O.J. No. 4050.

BY THE COURT:

[1] At the conclusion of argument on this appeal we informed counsel that the appeal would be allowed for reasons to follow. These are those reasons.

[2] The Minister appeals the judgment of Gates J. which resulted in the respondent Dam Investments Inc. (DAM) being entitled to defer the payment of land transfer tax in relation to its acquisition of three properties in Windsor, Ontario from Mady Family Holdings Ltd. (MFHL).

[3] David Mady is the sole shareholder of DAM; his father, Charles Mady is the majority shareholder of MFHL. The evidence discloses that the two companies carry on business together in the nature of a joint venture. It is not disputed that Charles Mady is in de facto control of both companies. He makes all decisions in relation to both corporations and his son, David has no decision-making authority.

[4] The respondent requested a deferment of land transfer tax on the basis that the two companies were affiliates controlled by the same person pursuant to s. 3(9) of the Land Transfer Tax Act, R.S.O. 1990, c. L.6 (LTTA) which provides:

3(9) Deferred payment

(9) If the disposition of a beneficial interest in land is from one corporation to another corporation, each of which is an affiliate of the other immediately before and at the time of the disposition, the Minister may defer the payment of the tax payable by virtue of this section by the corporation acquiring the beneficial interest …

[5] To determine whether companies are “affiliates”, one looks to the language of s. 3(14) which, at the relevant time, read:

3(14) Affiliate

(14) For the purposes of this section,

(a) a corporation shall be deemed to be an affiliate of another corporation if one of them is the subsidiary of the other or if both are subsidiaries of the same corporation or if each of them is controlled by the same person or persons;

[6] Thus it will be seen that pursuant to s. 3(14), a company is deemed to be an affiliate of another in one of three circumstances:

1. if it is a subsidiary of the other;
2. if both are subsidiaries of the same corporation; or
3. if each of the companies is controlled by the same person or persons.

[7] There is no dispute that this case does not concern subsidiary corporations; the sole issue is whether the corporations are controlled by the same person within the meaning of s. 3(14).

[8] Section 3(14)(c) of the LTTA provides that subsections 1(3) through 1(6) of the Securities Act, R.S.O. 1990, c. S.5 apply in determining whether one corporation is an affiliate of another. Section 1(3) deals with control. It reads as follows:

1(3) A company shall be deemed to be controlled by another person or company or by two or more companies if,

(a) voting securities of the first-mentioned company carrying more than 50 per cent of the votes for the election of directors are held, otherwise than by way of security only, by or for the benefit of the other person or company or by or for the benefit of the other companies; and

(b) the votes carried by such securities are entitled, if exercised, to elect a majority of the board of directors of the first-mentioned company.

[9] Clearly, on the evidence here, the corporations are not controlled, as that term is defined, by the same person or persons. David holds all the voting shares of DAM, while his father holds the majority of the voting shares of MFHL.

[10] The issue boils down to whether, as a matter of statutory interpretation, the deeming definition of “affiliate” in subsection 3(14) is exhaustive. If it is, then it does not include de facto control and deferment is not available; if it is not, deferment may be available.

[11] The modern approach to statutory interpretation is simply stated:

[T]he 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.

See Re Rizzo & Rizzo Shoes Ltd., 1998 837 (SCC), [1998] 1 S.C.R. 27 at para. 21, quoting Elmer A. Driedger, Construction of Statutes, 2d ed. (Toronto: Butterworths, 1983) at p. 87.

[12] Further this approach has been held to apply to taxation statutes no less than it does to other statutes: Stubart Investments Ltd. v. The Queen, 1984 20 (SCC), [1984] 1 S.C.R. 536 at 578. As LeBel J., writing for a unanimous court, noted in Placer Dome Canada Ltd. v. Ontario (Minister of Finance), 2006 SCC 20, [2006] 1 S.C.R. 715 at para. 21:

… because of the degree of precision and detail characteristic of many tax provisions, a greater emphasis has often been placed on textual interpretation where taxation statutes are concerned: Canada Trustco Mortgage Co. v. Canada, 2005 SCC 54, [2005] 2 S.C.R. 601, 2005 S.C.C. 54, at para. 11. Taxpayers are entitled to rely on the clear meaning of taxation provisions in structuring their affairs. Where the words of a statute are precise and unequivocal, those words will play a dominant role in the interpretive process.

and at para. 23:

The interpretive approach is thus informed by the level of precision and clarity with which a taxing provision is drafted. Where such a provision admits of no ambiguity in its meaning or in its application to the facts, it must simply be applied.

and at para. 24:

Although there is a residual presumption in favour of the taxpayer, it is residual only and applies in the exceptional case where application of the ordinary principles of interpretation does not resolve the issue. Any doubt about the meaning of a taxation statute must be reasonable, and no recourse to the presumption lies unless the usual rules of interpretation have been applied, to no avail, in an attempt to discern the meaning of the provision at issue.

[13] The issue to be determined is whether s. 1(3) of the Securities Act effectively defines the term “control” or just sets out two examples of the circumstances that constitute control for the purpose of determining whether companies are affiliates and entitled to deferment of tax. More particularly, do the words “shall be deemed to be controlled…if” indicate that the conditions listed are exclusive? A useful comparison can be made to the language of s. 1(6) of the Securities Act which provides:

1(6) A company shall be deemed to own beneficially securities beneficially owned by its affiliates.

[14] The defining language in this section is “shall be deemed to”. This language indicates that without this section, one company does not beneficially own securities actually owned by another company. But for the purpose of determining whether one company controls another and is therefore an affiliate of the other within the definition in this section and for the purposes of the Act, s. 1(6) deems something to be the case, which is otherwise in fact not the case. It is a section that deems a thing to fall within a definition or category for the purpose of the section or the Act, when it would not otherwise be so characterized. In contrast, the use of the conditional word “if” in conjunction with “shall be deemed to be”, signifies an exclusive definition.

[15] It may have been more helpful had the legislature included a phrase such as was included in the legislation considered in Regulvar Canada Inc. v. Ontario (2004), 2004 6318 (ON CA), 70 O.R. (3d) 641. That language read: “a body corporate shall be deemed to be controlled by another person or by two or more bodies corporate if, but only if…”. Although the latter words are not present in s. 3(14), nevertheless, in our view, the effect of the language is the same. The words “but only if” would be mere surplusage.

[16] The deeming provision in subsection 1(3) of the Securities Act states how ‘control’ is defined for the purposes of the LTTA – on the basis of majority voting rights. It says nothing of de facto control. Had the legislature intended that ‘control’ would include de facto control in addition to de jure control, as defined in subsection 1(3), it would have said so and not made specific reference to subsection 1(3) of the Securities Act which references only de jure control. See Regulvar Canada Inc., supra, at para. 14. The language is clear and admits of no ambiguity.

[17] We also observe that in Duha Printers (Western) Ltd. v. Canada, 1998 827 (SCC), [1998] 1 S.C.R. 795, the Supreme Court affirmed that under the Income Tax Act, “control” of a corporation normally refers to de jure and not de facto control. Writing for a unanimous court, Iacobucci J. noted that “de jure control has emerged as the Canadian standard, with the test for such control generally accepted to be whether the controlling party enjoys, by virtue of its shareholdings, the ability to elect the majority of the board of directors” (at para. 36). Both the Income Tax Act and the LTTA deal with the same general subject – tax – and are therefore presumed to operate together harmoniously. See Ruth Sullivan, Sullivan and Driedger on the Construction of Statutes, 4th ed. (Toronto: Butterworths, 2002) at p. 328. In our view, it would be undesirable for a different standard to apply to “control” under the LTTA than to “control” under the Income Tax Act.

[18] Furthermore, in Acts such as the LTTA and the Securities Act, being deemed to be an affiliate has significant legal consequences, some of which accord rights while others impose obligations. It is essential that the definition of the term “affiliate” be clear and unambiguous so that a company may look to the definition and be able to know whether it has an obligation arising out of its affiliate status. It would be unworkable if the definition were to be applicable on an ad hoc basis.

[19] The appeal is therefore allowed, the decision of Gates J. is set aside and the decision of the Minister is restored.

[20] The application judge awarded costs against the Minister on a substantial indemnity scale. The respondent concedes in this court that there was no conduct on the part of the Ministry that would justify an award on that scale. That said, this case raised a novel point of statutory interpretation. When awarding costs, the novelty of an issue is a proper consideration both at first instance and on appeal. See Re Canada 3000

(2006), 2006 41650 (ON CA), 83 O.R. (3d) 766 at paras. 9 - 10. In addition to the novelty of the issue, we note that the positions of both parties were reasonable and there is a public interest in having the relevant statutory provisions clarified. In these circumstances, in our view, it is appropriate that each side bear its own costs. Accordingly, we make no order as to costs, here or below.

RELEASED: July 10, 2007 “KNF”

“K. Feldman J.A.”

“E.E. Gillese J.A.”

“J. MacFarland J.A.”