Nova Scotia Power Inc. v. Canada, [2004] 3 S.C.R. 53, 2004 SCC 51

Nova Scotia Power Inc. Appellant

v.

Her Majesty The Queen Respondent

Indexed as: Nova Scotia Power Inc. v. Canada

Neutral citation: 2004 SCC 51.

File No.: 29649.

Hearing and judgment: June 11, 2004.

Reasons delivered: July 16, 2004.

Present: McLachlin C.J. and Major, Binnie, LeBel and Deschamps JJ.

on appeal from the federal court of appeal

Crown — Crown agent — Immunity — Provincial power corporation — Whether corporation entitled to immunity from legislation — Whether corporation was agent of Crown acting within its purposes — Interpretation Act, R.S.C. 1985, c. I-21, s. 17 — Power Corporation Act, S.N.S. 1973, c. 47, ss. 4, 6.

The issue in this appeal is whether the Nova Scotia Power Corporation (“NSPC”), created by the province of Nova Scotia, was an agent of the province and thereby immune from the Income Tax Act by virtue of s. 17 of the federal Interpretation Act. The Tax Court of Canada found that the province did not exercise sufficient control over NSPC for it to be a Crown agent. The Federal Court of Appeal set aside the decision, holding that NSPC was an agent of the Crown acting within its purposes and was therefore entitled to Crown immunity.

Held: The appeal should be dismissed.

NSPC is entitled to immunity from legislation as provided by s. 17 of the Interpretation Act. Section 4 of the Nova Scotia Power Corporation Act expressly makes NSPC an agent of the Crown and, in view of s. 6 of that Act, by acquiring and owning the assets at issue in this case, NSPC was acting within the purposes for which it was made a Crown agent.

Cases Cited

Applied: R. v. Eldorado Nuclear Ltd., 1983 CanLII 34 (SCC), [1983] 2 S.C.R. 551; Canadian Broadcasting Corp. v. The Queen, 1983 CanLII 50 (SCC), [1983] 1 S.C.R. 339; Alberta Government Telephones v. Canada (Canadian Radio‑television and Telecommunications Commission), 1989 CanLII 78 (SCC), [1989] 2 S.C.R. 225.

Statutes and Regulations Cited

Income Tax Act, R.S.C. 1985, c. 1 (5th Supp.).

Interpretation Act, R.S.C. 1985, c. I-21, s. 17.

Nova Scotia Power Privatization Act, S.N.S. 1992, c. 8.

Power Corporation Act, S.N.S. 1973, c. 47, ss. 4, 6.

APPEAL from a judgment of the Federal Court of Appeal, [2003] 2 C.T.C. 180, 2003 D.T.C. 5090, 299 N.R. 374, [2003] F.C.J. No. 79 (QL), 2003 FCA 33, setting aside a decision of the Tax Court of Canada, [2002] 1 C.T.C. 2276, 2002 D.T.C. 1432, [2002] T.C.J. No. 53 (QL). Appeal dismissed.

Warren J. A. Mitchell, Q.C., and Douglas H. Mathew, for the appellant.

Urszula Kaczmarczyk and Michael J. Lema, for the respondent.

The judgment of the Court was delivered by

1 Major J. — This case was launched over disputed tax deductions. It now, as Mr. Mitchell, counsel for the appellant, accurately observed, has evolved into a dispute about Crown agency. Tax deductibility is not the subject of this appeal.

2 The issue is whether the Nova Scotia Power Corporation (“NSPC”), created by the Province of Nova Scotia, was an agent of the Province of Nova Scotia and thereby entitled to immunity from legislation provided by s. 17 of the federal Interpretation Act, R.S.C. 1985, c. I-21.

3 The Federal Court of Appeal decided that the express statutory provisions of the provincial legislation defining NSPC as an agent of the province prevailed. We agree and the appeal is dismissed with costs.

I. Facts

4 This case started by a reference to the Tax Court of Canada. The parties relied upon an agreed statement of facts, found in the lower court decisions. The key events in summary are as follows.

5 In 1973, with the Power Corporation Act, S.N.S. 1973, c. 47, the Government of Nova Scotia created NSPC to generate and supply electricity to the province. In 1992, the government privatized NSPC, and passed the Nova Scotia Power Privatization Act, S.N.S. 1992, c. 8, which provided for the sale of the assets of NSPC to the appellant, Nova Scotia Power Incorporated.

6 The terms of the Nova Scotia Power Privatization Act set the appellant’s capital cost for the assets it purchased as equivalent to the original cost to NSPC. Prior to 1992, NSPC had not filed tax returns, had not claimed depreciation for their assets, and had not added the interest paid on the money borrowed to acquire the assets to the capital cost of those assets.

7 After the purchase the appellant deducted capital cost allowance for the assets they had acquired. To increase the size of the deduction, the appellant wanted to maximize the initial capital cost of the assets and attempted to do so by causing NSPC to file tax returns for the years 1980 to 1992 in which they made the election required to add the interest cost to the capital cost.

8 The Minister of National Revenue denied the deductions created by this increase to the capital cost on the basis that, as a Crown agent, NSPC was immune from income tax legislation because of s. 17 of the Interpretation Act. The appellant disagreed and the parties referred the following two questions to the Tax Court of Canada.

[Up until] the period [in] 1992 when it disposed of its assets:

(1) Did Nova Scotia Power Corporation conduct its principal income‑earning activities as an agent of Her Majesty the Queen such that section 2 of the Income Tax Act (including ancillary provisions such as section 21 of the Act) did not apply to it? And

(2) If the answer to (1) is no, was Nova Scotia Power Corporation an agent of Her Majesty the Queen with respect to the ownership of assets used in its business such that section 21 of the Income Tax Act did not apply to depreciable assets acquired by it?

II. Judicial History

9 Bowman A.C.J., at the Tax Court of Canada, relied on the common law control tests for agency and determined that the Province of Nova Scotia did not exercise sufficient control over NSPC for it to be a Crown agent. He found the company was by its activity a principal and not an agent: [2002] 1 C.T.C. 2276.

10 The appeal from this decision was allowed by the Federal Court of Appeal: [2003] 2 C.T.C. 180, 2003 FCA 33. Pelletier J.A. decided the legislature’s express designation of NSPC as an agent of the Crown had to be given effect. The proper question to him was not whether NSPC was an agent of the Crown, but for what purposes it had been made a Crown agent. He concluded NSPC was an agent of the Crown acting within its purposes and was therefore entitled to Crown immunity.

III. Issues

11 (1) Does s. 4 of the Power Corporation Act make NSPC an agent of the Crown?

(2) Was NSPC acting within the purposes for which it was made an agent?

IV. Analysis

12 There are two ways in which an entity can become an agent of the Crown. The first is when the Crown exercises sufficient control over it so that it can be said to be in de jure control, which requires a careful examination of the relationship between the parties: see R. v. Eldorado Nuclear Ltd., 1983 CanLII 34 (SCC), [1983] 2 S.C.R. 551, at pp. 573-74. The respondent Minister conceded before the Federal Court of Appeal that the de jure control test would not be met by the degree of control the Province of Nova Scotia exercised over NSPC.

13 The second way is for the legislature to expressly legislate it to be an agent: Eldorado Nuclear, supra, at pp. 575-76. This is what happened here. The Nova Scotia legislature presumably did not want to leave the finding of agency to the common law and so included s. 4(1) of the Power Corporation Act, which reads:

4 (1) The Commission shall continue as a body corporate and as agent of Her Majesty the Queen in the right of the Province under the name of “Nova Scotia Power Corporation” and shall consist of a Board of Directors comprised of a Chairman, President and not more than twelve other Directors. [Emphasis added.]

14 The respondent submitted that NSPC, as an agent of the Crown, is immune from the Income Tax Act, R.S.C. 1985, c. 1 (5th Supp.), by virtue of s. 17 of the Interpretation Act. But the jurisprudence imposes a second requirement before immunity from the statute in question will inure to the Crown agent. Immunity from legislation only exists where the entity was acting within the purposes for which the legislature made it an agent of the Crown: see Eldorado Nuclear, supra; Canadian Broadcasting Corp. v. The Queen, 1983 CanLII 50 (SCC), [1983] 1 S.C.R. 339; Alberta Government Telephones v. Canada (Canadian Radio-television and Telecommunications Commission), 1989 CanLII 78 (SCC), [1989] 2 S.C.R. 225.

15 The appellant submitted that the purposes for which Crown agency status was granted to NSPC could not be determined only by examining the designation of agency in s. 4(1) of the Power Corporation Act. The reading of the statute demonstrates the legislative intent that NSPC conduct its earning activities and acquire the necessary assets as principal and not as agent. It contended that since the designation was not made for all purposes, the scope must be determined from the statute as a whole.

16 The respondent countered that the purposes for which NSPC was made a Crown agent did not need to be distilled from the statute, as they are expressly stated in s. 6 of the Power Corporation Act. In my view the respondent is correct and the purposes of NSPC are clear from s. 6:

6 The object of the Corporation is to develop for Nova Scotia the maximum use of power on an economic and efficient basis and for this purpose to engage in Nova Scotia and elsewhere in the development, generation, production, transmission, distribution, supply and use of electricity, water, steam, gas, oil or other products or things used or useful in the production of power.

17 There was no evidence that NSPC, by acquiring and owning the assets at issue in this appeal, was acting outside the scope of s. 6.

18 NSPC was an agent of the Crown acting within the purposes for which it was made a Crown agent. As a result the appeal is dismissed with costs.

Appeal dismissed with costs.

Solicitors for the appellant: Thorsteinssons, Toronto.

Solicitor for the respondent: Deputy Attorney General of Canada, Toronto.