Digests

Metro-Can Construction Ltd. v. Canada

A-652-98

McDonald J.A.

22/6/00

9 pp.

Appeal from Tax Court Judge's decision finding Income Tax Act (ITA), s. 80(1) can be applied at partnership level--Metro-Can parent company of Elvo Development (Elvo) and Bevo Developments (Bevo)--Elvo and Bevo corporate partners in partnership Gramar Developments (Gramar)--In 1986, 1987 and 1988, Gramar had debts forgiven totalling $457,428--ITA, s. 80(1) requiring amount of forgiven debt be applied against taxpayer's non-capital losses, farm losses, net capital losses and restricted farm losses, in that order--Gramar interpreting term "taxpayer" as referring to partners in partnership, not to partnership itself--Debt forgiveness amounts assigned to each of Gramar partners, including Elvo and Bevo--As result of assignment, Gramar maintained significant undepreciable capital cost on building--In year ending in 1988, Gramar sold building and took terminal loss of $469,388--Amount of loss then allocated to partners, including Elvo and Bevo--Elvo and Bevo then wound up by Metro-Can and amount of losses applied to off-set Metro-Can's income for 1989 and 1990 taxation years--In 1993, Minister reassessed Metro-Can for tax on income for 1989 and 1990, taking position amount of debt forgiveness should have been applied at partnership level: should have been applied to undepreciated capital cost of Gramar's building--Thus terminal loss claimed by Gramar in 1988 would have been significantly reduced--Reduced amount, then, would have been allocated to partners--Thus, when Metro-Can folded Elvo and Bevo, amount of their capital losses would have been less, Metro-Can could not have off-set their income tax by as much in 1989 and no losses would have remained to be applied against their 1990 income--Appeal dismissed--Tax Court Judge correctly found although profits those of partners, such profits computed at partnership level for attribution among partners--ITA, s. 80 not rendered meaningless by its application at partnership level--Fact section applies differently in case of partnership arrangement, and that one portion of section not relevant in these circumstances not rendering section meaningless--Fact every part of section not applying to all taxpayers not generally creating anomaly--Not necessary for purposes of s. 80 partnership be deemed taxpayer--Since s. 80 concerned with computation of income, gains and losses and s. 96 says partnership to be treated as if it were taxpayer for purposes of calculating income, s. 80(1)(b) clearly must apply at partnership level--ITA, s. 80 concerned with effect of debt forgiveness on calculation of losses; not operating, as ITA, s. 31, to restrict claim for losses once they have been calculated--Topolewski v. MNR (1986), 86 DTC 1824 (T.C.C.) and Gordon v. The Queen (1986), 86 DTC 6426 (T.C.C.), affd by (1989), 89 DTC 5481 (F.C.A.) distinguished as simply treating partnership as taxpayer for limited purpose of computing income as contemplated in Act, s. 96--Furthermore, application of ITA, s. 80(1) consistent with object and purpose of section--Amendments enacted to ITA, s. 80 in 1994 so extensive that of little use as interpretive aid--In absence of any external evidence Parliament intended amendments to make change in application of ITA, s. 80 to partnerships, amendments themselves offer little support for appellant's interpretation of section--Income Tax Act, R.S.C., 1985 (5th Supp.), c. 1, ss. 31, 80 (as am. by S.C. 1994, c. 7, Sch. II, s. 57), 96.