https://decisia.lexum.com/tcc-cci/decisions/en/item/310755/index.do
Iberville Developments Limited v. The Queen (May 28, 2018 – 2018 TCC 102, Boyle J.).
Précis: In this case the taxpayer urged upon the Court an unusual interpretation of the partnership rollover rule contained in subsection 97(2) of the Income Tax Act (the Act):
[2] In this case, the taxpayer limited partner rolled in shopping centres worth $130M with a cost base of $14M and received non‑share consideration or boot of $8.5M. When it later carried out an internal reorganization that resulted in the partnership assets being owned by an affiliated corporation, the taxpayer claimed a realized capital loss of $122M. The Minister of National Revenue reassessed the transaction as a realization by the taxpayer of a $140K capital gain.
[3] This significant difference is entirely dependent upon a proper interpretation and application of subsection 97(2) of the Act. Both sides agree that paragraph 97(2)(b) increases the ACB of the transferor’s partnership interest by an amount equal to the elected amount (subparagraph 97(2)(b)(i)), less any non‑share consideration or boot (subparagraph 97(2)(b)(ii)).
[4] The taxpayer maintains that, by its clear text, paragraph 97(2)(b) applies at any time after the transfer of the assets, and does not preclude the ordinary ACB rules in section 54 applying at the time (or upon) the transfer. Thus, the cost of the partnership interest is the value of the transferred asset for which the partnership interest, or increased partnership interest, was received as consideration. In other words, at the time of the transfer, the rules in section 54 determined the cost of the partnership interest or increased partnership interest to be the fair market value of the transferred shopping centres, and immediately after that time paragraph 97(2)(b) added an amount equal to the elected amount less any boot.
[5] It is the taxpayer’s position that this is the only way that the text of subsection 97(2) can be read and there is no other reasonable interpretation of the text of this provision.
[6] Appellant’s counsel candidly and graciously volunteered several times throughout his argument that:
(i) the result of the taxpayer’s interpretation is absurd,
(ii) this result must not have been intended by Parliament,
(iii) if this was a general anti‑avoidance rule (“GAAR”) case, the taxpayer should lose because the result of these transactions is abusive, and
(iv) if the language of subsection 97(2) permits of any other reasonable interpretation, the taxpayer should lose.
Justice Boyle held that the taxpayer’s interpretation led to an absurd and unintended result not in keeping with a purposive analysis of the underlying provisions and possibly the result of a latent ambiguity in the legislation. As a result the appeal was dismissed with costs.
Decision: Justice Boyle’s reasons provide a very scholarly exegesis of the interactions of subsection 97(2) and the definition of adjusted costs base (ACB) in section 54 of the Act. Nevertheless the nub of his decision boils down to four quite pithy paragraphs:
[65] It is not obvious from the language used in subsection 97(2), read in context, that there is a moment in time at which the transferor partner could recognize a cost under the section 54 definition of ACB that is not immediately after the partnership acquired the property. Section 97 uses the phrase “immediately after . . . the partnership . . . acquired the property” in subsection 97(1), or in French “immediately after the moment of acquisition”. It uses the phrase “immediately after the disposition” in subsection 97(2).
[66] Similarly, paragraph 97(2)(c) which deals with the flow‑through of the character of taxable Canadian property if such property is transferred from a partner to a partnership on a taxable basis or on a rollover basis, applies “at any time that is within 60 months after the disposition”, or in French “at any moment in the 60 months following the disposition”. Just as the Appellant’s moment in time of the disposition not being after the disposition would lead to an absurd and presumably unintended result, so too would it similarly lead to an absurd and unintended opportunity to shed a property’s taxable Canadian property status by flowing it into a partnership.
[67] In short, I do not see room for the taxpayer’s interpretation of the text of subsection 97(2) and the section 54 definition of ACB if read in context and having regard to their purpose.
[68] If the taxpayer is correct and there is a moment in time upon the disposition, that is not at least immediately after the disposition or acquisition, at which point the cost of transferred property could be added under section 54 to the transferor’s ACB of its partnership interest, I would nonetheless reject such an interpretation of the words of the statute, in favour of my reading as described above for the following reasons:
(i) The Appellant acknowledges it leads to an absurd and unintended result.
(ii) The specific language used in section 97 for exactly such transactions should override the general.
(iii) The 1982 Explanatory Notes confirm that no substantive changes were intended by the 1982 amendments.
(iv) The preferred interpretation described above is more consistent with the purpose of the provisions in question themselves.
(v) Even if the taxpayer is correct that its interpretation is the only one the text of subsection 97(2) permits of, since the Supreme Court of Canada in Placer Dome and in Canada Trustco, above, recognizes the possibility that the text of a provision which has no patent ambiguity can have a latent ambiguity revealed or resolved by statutory context or purpose, this is perhaps an example of just such a latent ambiguity in which case I would again arrive at the same result for the same reasons in arriving at the proper interpretation and meaning of these provisions given the latent ambiguity. It is an unfortunate fact that the French and English languages are capable of more precision than many people using them — including judges, lawyers, drafters and legislators. This is perhaps why the courts have introduced the concept of a latent ambiguity in a textual reading.
As a result the appeal was dismissed with costs.