Canada v. Constructions Bérou Inc.
A-249-96
Desjardins, Létourneau JJ.A. and Noël J.A. (dissenting)
15/11/99
69 pp.
Assessment for 1982 taxation year disallowing deductions as capital cost allowance, investment tax credit and interest with respect to transportation equipment (dump trucks) obtained by leasing contracts-Tax Court decision finding appellant entitled to investment tax credit but not capital cost allowance-Trial Division decision affirming assessment on all points-Appeal from latter decision-Appeal allowed (Noël J.A. dissenting)-Per Létourneau J.A.-Income Tax Act, s. 248(3) effort by Parliament to treat beneficial ownership in property same as various forms of ownership recognized in civil law of Quebec so as to obviously offer to Quebec taxpayers same benefits this concept affords taxpayers in common law provinces-Act, s. 248(3) also providing legislative basis for application in Quebec of Interpretation Bulletin IT233R-Question raised herein can no longer arise at present time, at least in same acute form, as since 1990 parties to leasing may determine between themselves who will benefit from deductions for capital cost allowance and interest-As appellant had obtained usual incidents of right of ownership over property, namely possession, use and risk of loss, together with obligations resulting therefrom, had right to capital cost depreciation on property acquired and deduction of interest paid to acquire property-Property acquired by appellant in 1982 depreciable property within Act, s. 13(21)(b)-Acquisition of property for purposes of capital cost allowance when purchaser has all incidents of title such as possession, use and risk, although legal title may remain in vendor as security for purchase price as is commercial practice under conditional sales agreement: Minister of National Revenue and Wardean Drilling Limited, [1969] 2 Ex. C.R. 166-Although in Quebec civil law, ownership right could not be dismembered in same way as common law, over years civil law gradually adapted to correspond to certain common law subdivisions of ownership right, including that found herein-Leasing contract prompted controversy in Quebec civil law as introducing foreign concepts-Québec Court of Appeal recognized vendor's customer had acquired property when he obtained beneficial ownership of it, even though he lacked real right conferred by legal ownership: Nashua Canada Ltée v. Genest, [1990] R.J.Q. 737 (C.A.); Cie d'expertise en sinistres Casualty v. Auto Hamer 1979 Ltd., [1998] R.J.Q. 241 (C.A.)-Matter of surprise that in present appeal, Crown using special nature of Quebec civil law as reason for denying appellant deduction granted to taxpayers and businessmen operating under common law system-In 1982, taxpayer such as appellant who obtained property from lender in leasing transaction under lease-acquisition which at time was deemed to be sale for tax purposes, acquired property for purposes of capital cost allowance mentioned in Act, s. 13(21)(b)-Appellant also had right to receive investment tax credit as qualified transportation equipment acquired for use or lease within meaning of Act, s. 127(10.1)(d)-Transaction herein contained two successive sales of trucks, one by supplier Labrie Equipment to Compagnie de Location C.A.C., and second presumed or deemed sale by C.A.C. to appellant under terms of equipment lease-As C.A.C. did not purchase property to use it or lease it, but rather to resell it, appellant party who acquired it for use and so entitled to investment tax credit-Appellant entitled to investment tax credit of $21,729, capital cost depreciation of $84,219 and deduction for interests paid in amount of $48,931-Per Desjardins J.A., concurring-Contracts met requirements for arriving at conclusion that in accordance with IT-233 and IT-233R, contracts sales and not leases for purposes of depreciation, capital cost allowance and investment tax credit-Federal Parliament devised, for tax purposes and for all of Canada, common concept covering ideas of disposition (disposition de biens) and beneficial ownership (propriété effective), both in civil and common law: corollary being that when "disposition" for party to contract, other party made "acquisition" or obtained "beneficial ownership" of it-Contract clause 20 (providing that at time lessee exercises purchase option, will not receive title and ownership to equipment leased until after lessor has been paid purchase option price in cash) not bar to application of Act, s. 248(3) as standard clause reflecting state of civil law applicable then, according to which lessee only obtained real right over thing leased at option stage-However, in 1982, when leasing contracts signed, s. 248(3) already in place and provided that for tax purposes certain contracts capable of transferring "beneficial ownership"-In case at bar, despite clause 20 of contracts governing parties' rights at civil law, tax law by Act, s. 248(3) recognized that appellant had acquired beneficial ownership of dump trucks since met three requirements, possession, use and risk, recognized by courts-Appellant therefore entitled to depreciation of property under Act, s. 13(21)(b)-In so doing, "acquired" said property within meaning of Act, ss. 20(1)(c) and 127(10.1)(d) and thus became entitled to deduct interest and to claim depreciation tax credit-Per Noël J.A., dissenting-Trial Judge correctly concluded contracts at issue herein did not transfer ownership so long as purchase options contained therein had not been exercised-Question whether by Income Tax Act, Parliament overturned legal entity created by private law in favour of approach set out in Interpretation Bulletin-Word "acquired" contained in each of provisions in issue must be understood in its ordinary sense, as referring to acquisition of ownership of property, and in absence of some indication to contrary, ownership of property cannot be acquired otherwise than in accordance with applicable private law-Act, s. 248(3) clearly intended to treat beneficial ownership of property in manner corresponding to various forms of ownership known to civil law for purposes of its application in Quebec-As parties had agreed ownership would remain with finance companies until time agreed upon for exercise of option and that title and right of ownership would be transferred to appellant then, provided it chose to exercise option and pay option price, and as effect of contract function of intent of parties, ownership (legal or beneficial, from common law perspective) could not have been transferred to appellant before option exercised-No question of any sham or deception-Not up to courts in tax matters to rewrite agreement freely negotiated between two parties because one of them claims after fact to have concluded agreement contrary to contract it signed-Finance companies have claimed capital cost allowance and investment tax credit in accordance with right of ownership which they continued to enjoy pursuant to contracts pending exercise of option-Bulletin IT-233R devoid of any legal basis-Nothing to prevent parties to contract from validly stipulating ownership of leased property will remain with lessor even if cost of exercising option as compared with "probable" value of leased item may appear to be "substantially less" at time contract signed-Apart from fact rule suggested by Bulletin not authorized by Act, results in great uncertainty and invites arbitrariness-Income Tax Act, S.C. 1970-71-72, c. 63, ss. 13(21)(b) (as am. by S.C. 1980-81-82-83, c. 48, s. 5(5)), 20(1)(c), 127(10.1)(d) (as enacted by S.C. 1977-78, c. 1, s. 61(10); 1980-81-82-83, c. 48, s. 73(6)), 248(3).