Date: 20000925
Docket: 2000-1953-GST-I
BETWEEN:
EDWINA ARSENAULT,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasons for Judgment
Bell, J.T.C.C.
GENERAL:
[1] This appeal was instituted under Part IX of the Excise Tax Act ("Act") respecting tax on goods and services ("GST").
ISSUE:
[2] The issue is whether, in the determination of an exception to "exempt supply" of real property under the Act[1] the Minister was correct in interpreting the words
the parcel was subdivided or severed into two parts[2]
to take into account parts of a parcel of land ("Woodlot") subdivided between 1966 and 1978.[3]
FACTS:
[3] John Angus Chisholm ("Chisholm") acquired Woodlot in 1966. Over the ensuing 12 years he sold lots from that land, the last lot having been subdivided in 1978.
[4] Chisholm died intestate on July 4, 1994 leaving 17 people with an interest in his estate. The court found that Woodlot was not capable of equitable division and ordered it to be sold. The Appellant purchased it for $60,000. The Administrator of Chisholm's estate, one Mrs. Asselstine, collected $9,000 (Harmonized Sales Tax ("HST"))[4] and remitted it to the Receiver General for Canada.
[5] The Appellant requested a ruling from Revenue Canada respecting that transaction. In the ruling, made on December 17, 1997, the Minister of National Revenue ("Minister") took the position that the sale fell within a 1997 amendment of section 9(2)(c) of Part I of Schedule V to the Act. That provision excluded from exemption of non-commercial sales of vacant real property, land that had previously been subdivided or severed once. In reaching that conclusion, the Minister took into account the subdivision of lands between 1966 and 1978.
APPELLANT'S SUBMISSIONS:
[6] Appellant's counsel submitted that the Minister's interpretation resulted in inappropriate retroactive taxation. Counsel also argued that Woodlot had devolved directly to the heirs and, therefore, was beyond the ambit of the amendment.[5] He submitted that the amendment to the Excise Tax Act in 1990 did not require the collection of GST by someone not engaged in the business of dealing in land. He said that the 1997 amendment dealing with the subdivision exception to the exemption from GST constituted, as applied by the Minister, a retroactive application of law that could only be sustained if Parliament had directed it to be so in clear and unambiguous language.
[7] He referred to Gustavson Drilling (1964) Limited v. Minister of National Revenue [1977] 1 S.C.R. 271 in which, at 279, Mr. Justice Dickson stated:
... The general rule is that statutes are not to be construed as having retrospective operation unless such a construction is expressly or by necessary implication required by the language of the Act. An amending enactment may provide that it is to be operative with respect to transactions occurring before its enactment. In those instances the statute operates retrospectively. ...
[8] Counsel also referred to Driedger on the Construction of Statutes, page 513, describing retroactivity as follows:
A retroactive statute or provision is one that applies to facts that were already in the past when the legislation came into force. It changes the law applicable to past conduct or events; in effect, it deems the law to have been different from what it actually was.
[9] He then referred to Cote in his text, The Interpretation of Legislation in Canada where at pages 117-118 he said:
A statute has retroactive effect when it is deemed to operate in the past (retro agere). Roubier says that such statutes "purport to apply to events which have already taken place, and he defines retroactivity as "the process of antedating the operation of a statute to a time prior to its commencement, or the fictitious pre-existence of a statute"". Canadian courts sometimes describe such retroactive statutes as ex post facto. Cases defining the concept of retroactivity are scarce.
A retroactive effect can be defined as follows: there is retroactive effect when a new statute applies in such a way as to prescribe the legal regime of facts entirely accomplished prior to its commencement.
[10] Counsel then said that Cote distinguishes among three type of legal facts that can be affected by legislation:
"momentary" or "ephemeral" facts", that take place and are complete at a discrete and identifiable time in the past, the legal consequences of which are fixed as of that moment; and "continuing" or "successive" legal facts, that are not completed in the past, but are still in the process of occurring when a statute is passed or amended. It is when such a law purports to affect the first category of "momentary" facts, by attaching new legal consequences, that it can be said to have retroactive effect.
[11] He then referred to section 9(2)(c) of Schedule V, Part I to the Act which reads, in part, as follows:
(2) a supply of real property made by way of sale by an individual or a personal trust, other than
...
(c) a supply of a part of a parcel of land, which parcel the individual, trust or settlor of the trust subdivided or severed into parts, except where
(i) the parcel was subdivided or severed into two parts and the individual, trust or settlor did not subdivide or sever that parcel from another parcel of land ...
[12] Counsel submitted that Chisholm, in 1970, subdivided Woodlot for the second time. He stated that the process of conveying the lot was discrete and final, in no way being a continuing fact. He said that fact then had no tax consequences and that Chisholm was free to subdivide and convey land without any legal obligation to collect tax from the purchaser. He added that Chisholm made six further conveyances from Woodlot in the ensuing years, each distinct and final, or in Cote's term, "ephemeral", each with no sales tax consequences. He then referred to Parliament changing the law some twenty years later which had the effect, according to the Respondent, of going back and changing the legal significance of that second subdivision, by causing it to be the event which removed the availability of HST exemption.
[13] He referred again to Gustavson in which Justice Dickson in describing what constitutes retroactive effect, described it at page 279 as one that:
...alters rights as of a past time ... [that] and reaches into the past and declare[s] that the law or the rights of parties as of an earlier date shall be taken to be something other than they were as of that earlier date.
[14] He then said that the Minister's interpretation, reaching into the past, deemed a subdivision that occurred before the arrival of GST to have the effect of putting a supply that occurred in 1997 beyond the scope of the Schedule V exemption.
[15] Again, referring to Gustavson in which a Parliamentary act prospectively changed the future tax consequences of certain actions in the past, he submitted that Gustavson had not made certain drilling and exploration deductions and thereby took the risk that the law would change, which it did.
[16] Counsel then said a similar effect arose in Venne v. Quebec [1989] 1 S.C.R. 880 and A.G. Quebec v. Expropriation Tribunal [1986] 1 S.C.R. 271. He said that in Venne, the Appellant had entered into what amounted to an agreement of sale of land, a contract pursuant to which it would only obtain title upon completion of a schedule of payments. Before it completed those payments, the province enacted legislation for the purpose of protecting agricultural land, thereby affecting the Appellant's plans. In A.G. Quebec an amendment to expropriation legislation imposed new requirements on discontinuance of proceedings and the province sought to avoid those requirements in respect of an expropriation begun before the amendment. Counsel submitted that in both cases the Court decided that the impugned legislation was not retroactive. In the expropriation case the amendment was merely having an immediate effect on continuing proceedings and the fact that the initiation of those proceedings pre-dated the amendment was not relevant. In Venne, the Court also decided that the new legislation could legitimately have immediate effect on an ongoing situation, as opposed to an accomplished fact.
[17] He concluded his analysis of those cases by stating that in each such case the legislation affected fact situations that were pending and that it did not have the status of accomplished and completed fact. He submitted that, as a result, they did not fall within the category of laws that in Justice Dickson's words "alter rights as of a past time" or "reach into the past".
[18] Counsel then made submissions respecting the necessity of legislation being expressly retroactive. He referred to MacKenzie v. B.C., 1992 D.L.R. (4th) 532 in which Wood, J.A. at 537 said:
... in the absence of express words to the contrary, or a necessary and distinct implication arising from the construction of the statute as a whole, an amendment is presumed not to have retroactive effect. That is a presumption of law, and the onus is on the appellant [in this case the appellant propounded the retroactivity of the legislation in question] to demonstrate the probability that the amendment in question was intended by the legislature to have such an effect.
[19] Counsel then referred to Kent v. The King [1924] S.C.R. 388 in which the Supreme Court of Canada expressed the principle of restrictive interpretation of retroactive legislation in this fashion at 397 per Duff, J.:
... where an enactment, admittedly retroactive, is expressed in language which leaves the scope of it open to doubt, and according to one construction it imposes retrospectively a new liability, while upon another at least, equally admissible, it imposes no such burden, the latter construction is that which ought to be preferred.
[20] He then submitted that nothing in the section under examination made reference to the operative time of subdivision. He said that it used the verb "was" but this was undoubtedly used because the introductory language of paragraph (c) in describing the exemption, refers to a supplier having "subdivided or severed" land into parts and, in any event, is consistent with a reading that takes into account only subdivisions that have taken place since 1990. He said that had Parliament intended that subdivisions predating GST be taken into account, it would have so stipulated.
[21] He then said that the amending Act expressly made retroactive changes to the section but only to a limited extent. Section 90(1) of that Act made the amendment effective as of December 17, 1990, except that
(b) section 9(2)(c) of Part I of Schedule V to the Act does not apply to supplies of real property made on or before April 23, 1996.
[22] He said that accordingly, property transactions between the date on which GST came into effect and the date Parliament was made aware of the Government's intentions in this regard were not to be subject to the new regime in regard to subdivision. He submitted further, that in light of the fact that Parliament went so far as to stipulate retroactive effect in this regard, the failure to go further and mandate retroactive effect in regard to pre-1990 subdivisions was significant.
[23] Counsel then referred to the ruling made by the Technical Interpretation Services Branch of Revenue Canada in response to the Appellant's request for same which read, in part, as follows:
The amendments to section 9, Part I of Schedule V of the Act apply to supplies made after April 23, 1996. There is no provision in the Act that restricts the application of this section dependent on when the subdivision or severance occurred. It is the Department's position that the exclusion to the exemption found in paragraph (c) will apply regardless of when the subdivision or severance occurred. [emphasis added by Appellant's counsel]
[24] Counsel submitted that implicit in this approach is the assumption that, in order to limit the retroactive effect of the amendment, Parliament should have expressly done so. He then stated that this was wholly incorrect and that if legislation is intended to have a retroactive effect, it must expressly do so.
[25] Counsel then referred to Bill C-70, substantially devoted to establishing the new blended sales tax ("HST") in the Atlantic provinces. He stated that in Committee, there was a brief but revealing statement by the Parliamentary Secretary to the Minister. He said that at a meeting of the Finance Committee of the House of Commons on January 21, 1997 Barry Campbell, M.P. made a statement reviewing the contents of the Bill. In regard to the amendment in issue, he said:
This legislation will also resolve several issues relating to the sales tax treatment of real property. For example, the exemption for inherited real property will be broadened. The Bill also proposes new rules for the self-assessment of tax on the construction of subsidized housing. Competitive equity in the real property sector would be enhanced by limiting the scope of the GST exemption for subdivided land. [emphasis added]
[26] He then submitted that the statement evidently had reference to the fact that, since the introduction of GST, persons who sold property and who fell outside the exemption because they were, for example, in the business of selling land, were at a disadvantage compared to persons who were not engaged in such business. They could subdivide and sell real property without having to collect tax. That competitive advantage, he said, would be eliminated by the amendment which would limit such persons to one subdivision (other than to family members for personal use) after which further sales would attract tax.
[27] Counsel then said in order to accomplish the desired "enhancement of competitive equity" it was unnecessary to include pre-1990 subdivisions in the 1997 amendment. That would be effected by counting subdivisions that occurred after the institution of GST. He then said that including pre-1990 subdivisions had the effect of shifting the competitive inequity to the "non-commercial" vendor by removing the one subdivision to which he would otherwise be entitled as a consequence of an action taken before there was any tax.
RESPONDENT'S SUBMISSIONS:
[28] Respondent's counsel, referring to section 9(2)(c) focused on a sale being made by an individual or a personal trust. She said that "personal trust" defined in section 123(1) of the Act means, inter alia, a testamentary trust. The definition of that term, according to section 123(1) is as defined in section 248(1) of the Income Tax Act ("ITA") which refers to the definition in section 108(1) of the ITA. This section defines a testamentary trust to mean a trust or estate that arose on and as a consequence of the death of an individual. She then said that, therefore, a "personal trust" referred to in section 9(2) includes the estate that arose as a consequence of the death of Chisholm. She submitted that if Woodlot was sold by the estate of the deceased, it was part of a larger parcel of land the deceased had subdivided into more than two parts. She referred to section 267 of the Act which states that:
... where an individual dies, this Part applies as though the estate of the individual were the individual and the individual had not died ...
excepting reporting period requirements. Her point was that if the estate had sold Woodlot to the Appellant the effect is that the deceased had sold Woodlot, placing the estate in the same position as the deceased would have been in had he sold Woodlot while alive.
[29] She then stated that section 108(1) of the ITA in providing a definition of "testamentary trust" must be read in conjunction with section 104 of the ITA. It states that the reference to a trust or estate in the ITA shall be read as referring to the trustee or executor, administrator, heir or other legal representative having ownership or control of the trust property. She added that as the meaning of "personal trust" includes a "testamentary trust" the "personal trust" referred to in section 9(2)(c) referred to the administrator or heirs. She then submitted that as the deceased had subdivided Woodlot into more than two parts during his lifetime, the sale of Woodlot was subject to HST.
[30] Respondent's counsel then made reference to Gustavson Drilling, submitting that the final fact in the series of relevant facts which triggered the application of section 9(2) was the supply by way of sale of Woodlot.
ANALYSIS AND CONCLUSION:
[31] Appellant's counsel did not agree with Respondent's submission that section 104 of the ITA must be read together with the definition of "testamentary trust" in section 108. Section 104(1) reads as follows:
In this Act, a reference to a trust or estate (in this subdivision referred to as a "trust") shall be read as a reference to the trustee or the executor, administrator, heir or other legal representative having ownership or control of the trust property.
That is clearly expressed to have application to the Income Tax Act and not to a separate piece of legislation, the Excise Tax Act.
[32] I adopt the submissions of Appellant's counsel[6]. Had it been intended to include land subdivisions or severances before the institution of GST the legislation would clearly have to say so. It is wholly illogical, apart from any statutory sanction of such proposition, that transactions pre-dating GST should be taken into consideration in determining the exception to exempt supply. It is absolutely bizarre to contemplate the extension of such proposition in the following fashion. Assume that Sir John A. MacDonald subdivided or severed land in 1864. Assume further that his estate is not yet completed. The spectre of a final disposition of land in that estate attracting GST magnifies the error, if not absurdity, of including pre-GST transactions for the purposes of section 9(2)(c).
[33] The appeal is allowed.
[34] The Appellant elected in the Notice of Appeal to have the informal procedure provided by sections 18.1 to 18.28 of the Tax Court of Canada Act apply. That relates to matters under the Income Tax Act. However, the intention to have the informal procedure was clear. Accordingly, the Appellant will be regarded as having elected under section 18.3001 of that Act. Rule 9 of the Tax Court of Canada Rules, which does not yet reflect Section 18.3009 of the Tax Court of Canada Act in amended form, provides for the awarding of costs. Although the matter of costs was not addressed, I assume from the information available to me that the amount of GST in dispute was less than $7,000 and that the aggregate of supplies for the prior fiscal year was less than $1,000,000. Accordingly, costs are awarded and any filing fee paid under section 18.15(3)(b) of the Tax Court of Canada Act shall be reimbursed.
Signed at Ottawa, Canada this 25th day of September, 2000.
"R.D. Bell"
J.T.C.C.