Decision Date: February 29, 2016
Link: Case Summary Document
Citation: [2016] FCA 64 (CanLll) Federal Appeal Court of Canada, Noël CJ, Scott, de Montigny JJA

Summary:

This was an appeal from the Tax Court of Canada, with respect to assessments of tax which disallowed the appellant’s claimed tax credits with respect to alleged gifts made to Ideas Canada Foundation, a registered charity, pursuant to section 118.1 of the Income Tax Act, R.S.C. 1985, c. 1 (5th Supp.) (ITA). The appellant (French, joined by 42 other similarly placed appellants) stated that he had made the gifts during the 2000, 2001 and 2002 taxation years. A portion of the appellant’s gifts was made from his personal funds, while the remainder was funded by loans tied to the gifts (referred to as a split gift).

The appellant’s main contention was that he was entitled to the full amount of the claimed tax credits. He further maintained in the alternative that he was entitled to the tax credits claimed in respect of the portion of the gifts that exceeded the value of any consideration he would have received in the process. In making the argument the appellant invoked the civil law of the Province of Quebec, which recognises split gifts, even though none of the purported donations was made in that province. The appellant’s plea in this respect was that sections 8.1 and 8.2 of the Interpretation Act, R.S.C. 1985, c. I-21 (the Interpretation Act) meant that in assessing the legal validity of a gift under the ITA the Parliament intended that a uniform concept of the term ‘gift’ in line with the civil law of the Quebec was to be applied across Canada.

The Tax Court judge had struck out this plea on the basis that the common law meaning of ‘gift’ had been well-established in the case law. He rejected the proposition that French could resort to the civil law of Quebec to determine when a gift arises for purposes of applying the ITA outside of the Province of Quebec. Sections 8.1 and 8.2 of the Interpretation Act ensure that civil law is not applied in the rest of Canada and that common law is not applied in Quebec when private law concepts of the two legal systems are in issue (at [13] of the lower court decision). He added that nothing in the preamble to the Federal Law–Civil Law Harmonization Act, No. 1, S.C. 2001, c. 4, which amended the Interpretation Act by introducing sections 8.1 and 8.2, meant that a judge, as an interpreter of federal legislation, would ignore common law in favour of civil law or vice versa. Rather, the position was ‘quite the opposite’ (at [16] of the lower court decision).

On appeal, the appellant maintained his argument as to bi-juralism, i.e. that both systems of law were meant to be considered to achieve uniform results of interpretation across Canada. This would mean that the issue was whether it was arguable under sections 8.1 and 8.2 of the Interpretation Act that Parliament intended the word ‘gift’, as it is used in subsection 118.1(3) ITA, to encompass split gifts in line with the notion recognised by the civil law.

In allowing the appeal, the appeal court said that it was by no means certain that split gifts had not previously been recognised at common law. The case law could be seen as uncertain and in need of clarification. This was illustrated in the Explanatory Notes to the 2002 amendments which introduced sections 8.1 and 8.2 of the Interpretation Act (at [33]):

On a plain reading, the Explanatory Notes suggest that the state of the jurisprudence in the common law provinces was not as certain as the Tax Court judge held and that there was a need for clarification. An examination of the case law supports that view.

After an examination of the relevant case law, the appeal court concluded (at [42]):

In short, it cannot be said with certainty that the meaning of “gift” prior to the 2002 amendments excluded the notion of split gift in the common law provinces and that the effect of these amendments was to change that state of affairs. Indeed, it is equally plausible that these amendments clarified an area of the law that was uncertain.

On the issue of uniformity, the appeal court also ultimately disagreed with the judge in the court below (at [43]-[44]):

Finally, the Tax Court judge found that a quest for uniformity in the application of federal legislation is not, in and of itself, a sufficient reason for disregarding the applicable private law. I agree. The objective of sections 8.1 and 8.2 of the Interpretation Act is to recognize the role of the civil law and the common law in the application of federal legislation which necessarily entails the possibility of diverging results. However, the appellant does not invoke uniformity for the sake of uniformity. The appellant’s plea is based on the broader proposition that Parliament intended to recognize split gifts, wherever made, in line with the civil law. Given that it would have been open to Parliament to attribute to the word “gift” a meaning which coincides with the civil law and that it is arguable that this is what Parliament intended, there is no basis for striking the appellant’s plea at this stage of the proceedings.

Thus, the appeal was allowed, and the appellant was permitted to plead that Parliament had intended split gifts to be included within the term ‘gift’ for the purposes of section 118.(1)3 ITA. This means that the appellant can carry the plea forward to the full appeal against the disallowance of his assessment. A further appeal is likely.

The case in the lower court can be viewed at:

http://www.canlii.org/en/ca/tcc/doc/2015/2015tcc35/2015tcc35.html

This decision can be viewed at:

http://www.canlii.org/en/ca/fca/doc/2016/2016fca64/2016fca64.html