Date: 20021210
Dockets: A-824-00
A-825-00
Neutral citation: 2002 FCA 491
CORAM: STONE J.A.
BETWEEN:
PAUL SATINDER
Applicant
- and -
ATTORNEY GENERAL OF CANADA
Respondent
AND:
PUSHPA SATINDER
Applicant
- and -
ATTORNEY GENERAL OF CANADA
Respondent
Heard at Toronto, Ontario, on Monday, December 9th, 2002.
Judgment delivered at Toronto, Ontario, on Tuesday, December 10th, 2002.
REASONS FOR JUDGMENT BY: SHARLOW J.A.
CONCURRED IN BY: STONE J.A.
MALONE J.A.
Date: 20021210
Dockets: A-824-00
A-825-00
Neutral citation: 2002 FCA 491
CORAM: STONE J.A.
BETWEEN:
PAUL SATINDER
Applicant
- and -
ATTORNEY GENERAL OF CANADA
Respondent
AND:
PUSHPA SATINDER
Applicant
- and -
ATTORNEY GENERAL OF CANADA
Respondent
REASONS FOR JUDGMENT
SHARLOW, J.A.
[1] Dr. Paul Satinder and his wife Pushpa Satinder have applied for judicial review of identical decisions of a Judge of the Tax Court of Canada rendered on November 21, 2002 under the informal procedure. The decisions are unreported. Both of the applicants were reassessed under the Income Tax Act, R.S.C. 1985, c. 1 (5th supp.) for 1996 and 1997. Both appealed to the Tax Court, which dismissed their appeals.
[2] Each of the applicants filed elections under subsection 39(4) of the Income Tax Act. The relevant parts of section 39 read as follows:
| 39.(4) Except as provided in subsection 39(5), where a Canadian security has been disposed of by a taxpayer in a taxation year and the taxpayer so elects in prescribed form in the taxpayer's return of income under this Part for that year, |
39.(4) Sauf dans les cas prévus au paragraphe (5), lorsqu'un contribuable dispose d'un titre canadien au cours d'une année d'imposition et qu'il exerce un choix, selon le formulaire prescrit, dans sa déclaration de revenu produite pour l'année en vertu de la présente partie: |
| (a) every Canadian security owned by the taxpayer in that year or any subsequent taxation year shall be deemed to have been a capital property owned by the taxpayer in those years; and |
a) chacun des titres canadiens qu'il possède au cours de l'année ou de toute année d'imposition ultérieure est réputé avoir été une immobilisation qu'il possédait au cours de ces années; |
| (b) every disposition by the taxpayer of any such Canadian security shall be deemed to be a disposition by the taxpayer of a capital property. ... |
b) chaque disposition par le contribuable d'un tel titre canadien est réputée être une disposition par lui d'une immobilisation. ... |
| 39.(6) For the purposes of this section, "Canadian security" means a security (other than a prescribed security) that is a share of the capital stock of a corporation resident in Canada, a unit of a mutual fund trust or a bond, debenture, bill, note, mortgage, hypothecary claim or similar obligation issued by a person resident in Canada. |
(6) Pour l'application du présent article, "titre canadien" s'entend d'un titre (à l'exclusion d'un titre visé par règlement) qui est une action du capital-actions d'une société qui réside au Canada, une unité d'une fiducie de fonds commun de placement ou quelque obligation, effet, billet, créance hypothécaire ou titre semblable émis par une personne qui réside au Canada. |
[3] During 1996 and 1997, the applicants each owned interest bearing bonds upon which they received interest. There is no dispute as to the amount of interest they received. It is also common ground that the bonds met the definition of "Canadian security" in subsection 39(6) of the Income Tax Act.
[4] According to Dr. Satinder, some or all of the bonds that are the subject of the reassessments under appeal were redeemed or otherwise disposed of during 1996 or 1997. In those cases, interest accrued as of the date of redemption or disposition was paid at or about the same time as the redemption or disposition. I will assume for present purposes that Dr. Satinder has correctly stated the facts, although the record does not refer to any redemptions or other dispositions of the bonds.
[5] The applicants were reassessed on the basis that interest accrued on the bonds in 1996 and 1997 was required to be included in the applicants' income pursuant to paragraph 12(1)(c) of the Income Tax Act, regardless of the time or the circumstances of payment of the interest. In the Tax Court, and again in this Court, the applicants argued that the effect of their elections under subsection 39(4) of the Income Tax Act was to require all interest on their bonds to be treated as capital gains. The Tax Court Judge rejected that submission because it was incorrect in law. I agree with the Tax Court Judge.
[6] A subsection 39(4) election does only one thing. It requires that, for income tax purposes, any gain or loss realized on the disposition of Canadian securities will be treated as a capital gain or loss, rather than a profit or loss on income account. Such an election favours the taxpayer who realizes a gain on the disposition of a Canadian security, because capital gains generally are taxed at a lower rate than income. It does not favour the taxpayer who realizes a loss on the disposition of a Canadian security, because capital losses are not deductible except on a restricted basis. Because the Income Tax Act does not allow a subsection 39(4) election to be revoked, a taxpayer who is subject to losses on the disposition of Canadian securities may be seriously prejudiced by having made such an election.
[7] However, for the purposes of this case, the only relevant principle is that a subsection 39(4) election has no effect on interest accrued on a Canadian security prior to its disposition. Interest accrued on a debt, including a Canadian security, must be included in income under paragraph 12(1)(c) regardless of any subsection 39(4) election.
[8] The applicants state that their returns for 1992 to 1995 were filed on the basis of their understanding of the effect of their subsection 39(4) elections (by which I assume they mean that interest on their Canadian securities was reported as capital gains). They say that those returns were audited, and that the Crown accepted them as filed. If that is so, then the Crown erred in accepting incorrect returns. Those errors, assuming they were made, cannot justify the repetition of the same error in 1996 and 1997.
[9] The applicants argue that the Crown should be estopped from reassessing their 1996 and 1997 returns differently from their returns for 1992 through 1995. The Tax Court Judge concluded, correctly, that estoppel cannot be invoked in these circumstances. In a tax appeal, where the fundamental question is whether a person has been taxed in accordance with the taxing statute, the correct interpretation of the taxing statute will always trump the principle of estoppel: Minister of National Revenue v. Inland Industries Ltd., [1974] S.C.R. 514, [1972] C.T.C. 27, 72 D.T.C. 6013; Granger v. Canada (Employment and Immigration Commission) (C.A.), [1986] 3 F.C. 70, affirmed [1989] 1 S.C.R. 141.
[10] For these reasons, these applications for judicial review should be dismissed with one set of costs.
"Karen R. Sharlow"
J.A.
"I agree
A. J. Stone"
J.A.
"I agree
B. Malone"
J.A.
FEDERAL COURT OF CANADA
APPEAL DIVISION
Names of Counsel and Solicitors of Record
DOCKETS: A-824-00
A-825-00
STYLE OF CAUSE: PAUL SATINDER
Applicant
- and -
ATTORNEY GENERAL OF CANADA
Respondent
AND:
PUSHPA SATINDER
Applicant
- and -
ATTORNEY GENERAL OF CANADA
Respondent
DATE OF HEARING: MONDAY, DECEMBER 9, 2002
PLACE OF HEARING: TORONTO, ONTARIO
REASONS FOR JUDGMENT BY: SHARLOW, J.A.
CONCURRED IN BY: STONE, J.A.
MALONE, J.A.
DATED: TUESDAY, DECEMBER 10, 2002
DELIVERED AT TORONTO, ONTARIO, ON TUESDAY, DECEMBER 10, 2002.
APPEARANCES BY: Dr. Paul Satinder
For the Applicant on his own behalf
Ms. Angela Evans
For the Respondent
Page: 2
SOLICITORS OF RECORD: Dr. Paul Satinder
For the Applicant on his own behalf
Morris Rosenberg
Deputy Attorney General of Canada
For the Respondent