The Supreme Court of Canada’s decision in
Daishowa Marubeni International Ltd. v. Canada is a refreshingly clear and logical take on a number of very basic principles of income tax law. It is all the more impressive that this unanimous decision was rendered in a relatively terse 48 paragraphs (roughly half of which involved a review of the facts and procedural history) citing only 7 cases and 6 authors. In a nutshell, Daishowa Marubeni International Ltd. (“DMI”) sold two Alberta forest tenures in 1999 and 2000; the purchasers agreed (which they had to under Alberta law) to assume the reforestation obligations in respect of those tenures. The Minister reassessed DMI on the basis that the agreed value of the reforestation obligations ($11 million in the case of one of the tenures, an unspecified amount in the case of the other) formed part of DMI’s proceeds of disposition and were accordingly taxable. The Minister analogized the situation to the assumption of a mortgage by a purchaser of property. The Supreme Court rejected the Minister’s argument and held that the situation was like the purchase of a rundown property; the cost of needed repairs would affect value of the property and, accordingly, the purchase price but did not form part of the proceeds of sale. The Court held that while the amount of a mortgage does not affect the underlying value of the property, in this case there were no circumstances under which DMI could have realized an additional $11 million plus on the sale of the forest tenures. This decision affirms an unmistakable understanding of commercial reality and introduces a clarity to the tax jurisprudence of the Supreme Court that has seldom been seen.
The Court’s decision is a welcome event and one that may possibly be a harbinger of a new, and more robust, approach to the interpretation of taxation statutes, particularly the Income Tax Act (Canada). Possibly the most significant language in the entire decision is found in the discussion of asymmetrical treatment of taxpayers:
[43] The conclusion I have reached — that a purchaser’s assumption of reforestation obligations does not form part of the vendor’s proceeds of disposition — avoids this asymmetry. Although not dispositive, as Mainville J.A. recognized in his dissent, an interpretation of the Act that promotes symmetry and fairness through a harmonious taxation scheme is to be preferred over an interpretation which promotes neither value.
[Emphasis added]
It is at least arguable that the concepts of symmetry and fairness have now entered that fabled pantheon of “textual, contextual and purposive” as leading touchstones to the interpretation of taxation statutes.
http://scc.lexum.org/decisia-scc-csc/scc-csc/scc-csc/en/item/13071/index.do 