A-513-76
David George Child Menzel, Executor of the Last
Will and Testament of and Trustee of the Estate
of Robin Ellis Agnew, deceased (Appellant)
(Plaintiff)
v.
The Queen (Respondent) (Defendant)
Court of Appeal, Heald and Urie JJ. and MacKay
D.J.—Toronto, March 22 and 23, 1978.
Income tax — Taxpayer dying in 1973 — Executor report
ing gains on deemed disposition of capital property and elect
ing to defer payment of tax under s. 159(5) of Income Tax Act
— Rate of interest payable — Income Tax Act, S.C. 1970-71-
72, c. 63, ss. 70(5)(a), 159(5),(7), 221(2) — Income Tax Regu
lations, SOR/74-419, s. 4300(1).
This is an appeal from a judgment of the Trial Division that
held that respondent, represented by the Minister of National
Revenue, correctly assessed the plaintiff interest in respect of
deferred tax payable by the taxpayer's estate. Taxpayer died in
1973, and his executor filed a return for the portion of the year
taxpayer was living, reported gains on deemed disposition of
capital property as required by section 70(5) of the Income Tax
Act, and elected on June 25, 1974 to defer payment of tax
pursuant to section 159(5). An Order in Council, published
July 24, 1974, imposed a 6% rate of interest for the purpose of
section 159(7), to be effective on and after December 23, 1971.
The predecessor regulation in effect on June 25, 1974, however,
was not made applicable to section 159, and therefore no
interest was payable under that section. The question is wheth
er or not the Income Tax Act and Regulations authorize the
imposition of the 6% rate invoked by the new regulation in
respect of an election made prior to the new regulation coming
into effect.
Held, the appeal is allowed. Sections 221(2) and 159(7)
should be read, if possible, so as to be consistent the one with
the other. If section 221(2) is read as argued by the respondent
the result is to render the words "at the time of the making of
the election" as used in section 159(7) meaningless and of no
effect. The Court will avoid such a construction if at all
possible. The Court will also, particularly in taxation cases, and
where legislation is capable of two interpretations, the one
retrospective and the other not, refrain from applying the
retrospective interpretation. The proper application and inter
pretation of new regulation 4300(1) is that interest at 6% is
chargeable under section 159(7) in respect of the 1972 and
subsequent taxation years but only in respect of elections made
on and after July 24, 1974.
INCOME tax appeal.
COUNSEL:
C. R. Thomson, Q.C., and L. Price for appel
lant (plaintiff).
C. T. A. MacNab and C. Fien for respondent
(defendant).
SOLICITORS:
Campbell, Godfrey & Lewtas, Toronto, for
appellant (plaintiff).
Deputy Attorney General of Canada for
respondent (defendant).
The following are the reasons for judgment
delivered orally in English by
HEALD J.: This is an appeal from a judgment of
the Trial Division [[1977] 1 F.C. 187] in which
the learned Trial Judge held that the respondent,
as represented by the Minister of National Reve
nue, correctly assessed the plaintiff interest in
respect of deferred tax payable by the estate of
Robin Ellis Agnew, who died on May 1, 1973. An
agreed statement of facts filed at trial establishes
that the plaintiff filed an income tax return for
that portion of the year 1973 in which the said
Agnew was alive and reported thereon gains on
deemed disposition of capital property as required
by section 70(5)(a) of the Income Tax Act.'
The plaintiff elected, under section 159(5) of the
Act, 2 to defer payment of the tax attributable to
the increase in taxable income by reason of the
application of section 70(5)(a). The election to
defer payment was made on June 25, 1974. An
Order in Council 3 was published in the Canada
Gazette of July 24, 1974, in which, inter alia, the
Income Tax Regulations were amended as follows:
5. (1) Subsection 4300(1) of the said Regulations is revoked
and the following substituted therefor:
"4300. (1) A rate of interest of 6% per annum is hereby
prescribed
S.C. 1970-71-72, c. 63 as amended by S.C. 1973-74, c. 14,
s. 19(1).
2 S.C. 1970-71-72, c. 63 as amended by S.C. 1973-74, c. 14,
s. 58(1).
3 SOR/74-419.
(a) for the purposes of subsections 159(7), 161(1) and (2),
183(2), 185(2), 187(2), 191(2), 193(2), 195(1), 197(1.1)
and 202(5) of the Act; and
(b) for the purposes of paragraph 64.3(c) of the Income
Tax Application Rules, 1971."
(2) Subsection 4300(1) of the said Regulations, as enacted
by subsection (1) of this section, is effective on and after
(a) December 23, 1971, in respect of the provisions referred
to in paragraph (a) thereof; and
(b) April 18, 1973, in respect of the provisions referred to in
paragraph (b) thereof.
The predecessor regulation 4300(1) which was
in effect on June 25, 1974, the date of the election
in this case, was not made applicable to section
159 of the Act. The position, therefore, as at June
25, 1974, was that no interest was payable under
section 159.
Subsections 159(5) and 159(7) were added to
the Income Tax Act by virtue of section 58 of the
1973-74, c. 14, amending Act on April 18, 1973,
which reads as follows:
58. (1) Section 159 of the said Act is amended by adding
thereto the following subsections:
(5) Where subsection 70(2) or (5) is applicable in respect of
a taxpayer who has died, and the taxpayer's legal representa
tive so elects and furnishes to the Minister security acceptable
to the Minister for payment of any tax the payment of which is
deferred by the election, whether such security is by way of a
charge of any kind on property that was property of the
taxpayer or is property of any other person or by way of
guarantee from any other person, notwithstanding any provi
sion of this Part or the Income Tax Application Rules, 1971
respecting the time within which payment shall be made of the
tax payable under this Part by the taxpayer for the taxation
year in which he died, all or any portion of such part of that tax
as is equal to the amount, if any, by which that tax exceeds the
amount that that tax would be, if this Act were read without
reference to subsections 70(2) and (5), may be paid in such
number (not exceeding 6) of equal consecutive annual instal
ments as is specified by the legal representative in the election,
the first instalment of which shall be paid on or before the day
on or before which payment of that tax would, but for the
election, have been required to be made and each subsequent
instalment of which shall be paid on or before the next follow
ing anniversary of that day.
(7) Every election made by a taxpayer under subsection (4)
or by the legal representative of a taxpayer under subsection
(5), as the case may be, shall be made by him in prescribed
form and in prescribed manner, and on condition of payment,
at the time of payment of any amount the payment of which is
deferred by the election, of interest on that amount, at the rate
per annum prescribed for the purposes of this subsection at the
time of the making of the election, from the day on or before
which payment of that amount would, but for the election, have
been required to be made to the day of payment thereof.
(2) This section is applicable to the 1972 and subsequent
taxation years.
Accordingly the issue in the Trial Division and
in the argument before us was whether the new
income tax regulation 4300(1) made effective by
the Order in Council of July 24, 1974, was, in so
far as it applies to subsection 159(7) of the Income
Tax Act, applicable to the payments of income tax
deferred and payable by instalment in respect of
an election made on June 25, 1974 in respect of
the 1973 taxation year pursuant to subsection
159(5) of the Income Tax Act. Put another way,
the question for decision on the facts of this case is
whether the Income Tax Act and Regulations
authorize the imposition of the 6% interest rate
invoked by new regulation 4300(1) in respect of an
election made prior to the said regulation coming
into effect.
The learned Trial Judge held that by virtue of
section 58 of the 1973-74 amendment and section
221(2) of the Income Tax Act, 4 the au
thority given the Governor-in-Council under sec
tion 159(7), to prescribe a rate of interest for
purposes of that section, is properly retroactive to
the date of the election made in this case. With
respect, it is our opinion that he erred in coming to
that conclusion. When new regulation 4300(1) is
considered in the light of the provisions of section
159(7), it is clear that the regulation does not
apply to elections made prior to July 24, 1974
because the section calls for the payment of inter
est "at the rate per annum prescribed for the
purposes of this subsection at the time of the
making of the election." [Emphasis added.] In this
case the election was made on June 25, 1974. On
June 25, 1974 no rate of interest per annum had
° Section 221(2) reads as follows:
221... .
(2) No regulation made under this Act has effect until it
has been published in the Canada Gazette but, when so
published, a regulation shall, if it so provides, be effective
with reference to a period before it was published.
been prescribed. Therefore, giving to the words
used in section 159(7) their plain and unambig
uous meaning, it is our view that no interest can be
charged in the circumstances of this case. In
respect of elections made after July 24, 1974, it
would seem to us that interest at 6% could be
charged by virtue of the combined operation of
new regulation 4300(1), and section 159(7) and
section 221(2) of the Income Tax Act.
Respondent's counsel submitted, (and the Trial
Judge so held) that section 221(2) of the Act
operates so as to give to new regulation 4300(1)
retrospective effect back to the date of the election
in this case. We do not agree.
Sections 221(2) and 159(7) of the Act should, if
possible, be read, so as to be consistent the one
with the other. If section 221(2) is read in the
manner urged upon us by the respondent, then the
result is to render the words "at the time of the
making of the election" as used in section 159(7)
meaningless and of no effect. The Court will avoid
such a construction if at all possible. The Court
will also, particularly in taxation cases, and where
the legislation is capable of two interpretations, the
one retrospective and the other not, refrain from
applying the retrospective interpretation. 5
Looking at the applicable sections of the Act
and the Regulations, it is our view that the proper
application and interpretation of new regulation
4300(1) is that interest at 6% is chargeable under
section 159(7) in respect of the 1972 and subse
quent taxation years but only in respect of elec
tions made on and after July 24, 1974. Such an
interpretation considers new regulation 4300(1) in
the context of both sections 221(2) and 159(7).
Such an interpretation would also avoid the
chaotic and unfair situation which might well
result if there were no restrictions on the retroac-
tivity of new regulation 4300(1). As was pointed
out by appellant's counsel both in his memoran
dum and in oral argument, if the regulation is
5 Compare Industrial Acceptance Corp. Ltd. v. Treasurer of
Ontario per McLennan J., (1962) 30 D.L.R. (2d) 497 at 500.
construed so as to apply to elections made before
July 24, 1974, in respect of the 1972 and 1973
taxation years, no executor could reasonably make
an informed decision on election since he would be
making the estate liable for interest which could be
increased without limit after the election had been
made.
Such a chaotic and unfair result cannot be
presumed to have been intended by Parliament
except by the use of clear and unambiguous lan
guage. Likewise a statute should not be construed
so as to have a greater retrospective operation than
its language renders necessary. 6 Having regard to
all of these considerations it is our opinion that
new regulation 4300(1) should be construed as
only having retrospective operation with respect to
elections under section 159(7) made from and
after July 24, 1974. On this basis, the appeal must
succeed.
We would, accordingly, allow the appeal and set
aside the judgment of the Trial Division and direct
that the notice of re-assessment dated February 3,
1975 be varied by deleting therefrom the interest
charged. We would further direct the payment of
the appellant's costs both here and in the Trial
Division.
* * *
URIE J. concurred.
* *
MACKAY D.J. concurred.
6 See Craies on Statute Law, 7th Edition, p. 388.
You are being directed to the most recent version of the statute which may not be the version considered at the time of the judgment.