A-120-87
Her Majesty the Queen (Appellant)
v.
Guaranty Properties Limited and Forest Glenn
(Dixie) Limited (Respondent)
INDEXED AS: GUARANTY PROPERTIES LTD. V. CANADA (CA.)
Court of Appeal, Stone, MacGuigan and Desjar-
dins JJ.A.--Toronto, April 23 and 24; Ottawa,
May 16, 1990.
Income tax — Associated companies — Reassessment
issued in name of company already amalgamated with other
companies valid — Trial Judge erring in interpretation of s. 87
of Act — S. 87 not establishing code on amalgamation
Consequences varying under applicable corporate law — Pred
ecessor corporations not ceasing to exist on amalgamation
pursuant to The Business Corporations Act of Ontario
Remaining jointly liable with successor companies for liabili
ties extant at time of amalgamation.
This was an appeal from the decision of Rouleau J. that an
income tax reassessment was invalid as it had been issued in the
name of a company which had already amalgamated with other
companies under The Business Corporations Act of Ontario.
The Trial Judge had interpreted section 87 and particularly
paragraph 87(1)(b) of the Income Tax Act as requiring that all
of a predecessor corporation's liabilities became liabilities of
the new corporation upon amalgamation, the former no longer
continuing to have liabilities attached to it for income tax
purposes.
The appellant argued that section 87 of the Act did not
constitute a complete code on amalgamation and that the
consequences of amalgamation varied under corporate law. The
appellant maintained that under Ontario and federal corporate
statutes, amalgamating corporations were not extinguished
upon amalgamation and that no new corporation was created.
The respondent argued that, for income tax purposes, the
general corporate law was negatived by the language of
section 87 of the Act.
Held, the appeal should be allowed.
The reassessment was valid. Section 87 did not purport to
establish a code on amalgamation. Predecessor corporations in
an amalgamation did not cease to exist but remained jointly
liable with their successor companies for liabilities they carried
at the time of amalgamation. The principal effect of paragraph
87(2)(a) was that, for income tax purposes, the amalgamated
corporation is deemed to be a new taxpayer with a fresh
taxation year as of the date of amalgamation. Paragraph
87(1)(b) did not necessarily imply a transfer of liabilities upon
amalgamation.
STATUTES AND REGULATIONS JUDICIALLY
CONSIDERED
Canada Business Corporations Act, S.C. 1974-75-76,
c. 33.
Canada Corporations Act, R.S.C. 1970, c. C-32, s. 137.
Income Tax Act, R.S.C. 1952, c. 148, s. 851(2)(a) (as
am. by S.C. 1958, c. 32, s. 35).
Income Tax Act, S.C. 1970-71-72, c. 63, ss. 87(1) (as
am. by S.C. 1974-75-76, c. 26, s. 51; 1979, c. 5 s. 28),
87(2)(a),(w) (as am. by S.C. 1977-78, c. I, s. 42(3)),
(jj) (as am. by S.C. 1979, c. 5, s. 28(2)).
The Business Corporations Act, R.S.O. 1970, c. 53, s.
197(4) (as am. by S.O. 1979, c. 36, s. 16).
CASES JUDICIALLY CONSIDERED
APPLIED:
Witco Chemical Co. v. Town of Oakville et al., [1975] I
S.C.R. 273; (1974), 43 D.L.R. (3d) 413; 1 N.R. 453; R.
v. Black & Decker Manufacturing Co. Ltd., [1975] 1
S.C.R. 411; (1974), 43 D.L.R. (3d) 393; 15 C.C.C. (2d)
193; 13 C.P.R. (2d) 97; 1 N.R. 299; revg Re Black and
Decker Manufacturing Co. Ltd. and The Queen, [1973] 2
O.R. 460; (1973), 34 D.L.R. (3d) 308; 11 C.C.C. (2d)
470; 10 C.P.R. (2d) 154 (Ont. C.A.).
CONSIDERED:
Stanward Corp. v. Denison Mines Ltd., [1966] 2 O.R.
585; (1966), 57 D.L.R. (2d) 674 (Ont. C.A.); Mattabi
Mines Ltd. v. Ontario (Minister of Revenue), [1988] 2
S.C.R. 175; (1988), 53 D.L.R. (4th) 656; [1988] 2
C.T.C. 294; 87 N.R. 300; 29 O.A.C. 268; Scott v.
M.N.R. (1966), 66 DTC 306 (T.A.B.).
REFERRED TO:
Fawcett & Grant Ltd. v. M.N.R. (1965), 65 DTC 313
(T.A.B.); Guaranty Properties Ltd. v. Canada, [1987] 2
F.C. 292; [1987] 1 C.T.C. 242; (1987), 87 DTC 5124; 9
F.T.R. 17 (T.D.); Palmer-McLellan (United) Ltd. v.
M.N.R. (1967), 67 DTC 323 (T.A.B.); Palmer-McLel-
lan (United) Ltd. v. Minister of National Reveue, [1969]
1 Ex.C.R. 107; [1968] C.T.C. 448; (1968), 68 DTC
5304.
COUNSEL:
J. S. Gill, Q.C. and S. Patricia Lee for
appellant.
John P. G. Bell and J. Paul R. Howard for
respondent.
SOLICITORS:
Deputy Attorney General of Canada for
appellant.
Shibley, Righton & McCutcheon, Toronto,
for respondent.
The following are the reasons for judgment
rendered in English by
MACGUIGAN J.A.: The neat question in this
case is whether an income tax reassessment is
invalid because it is issued in the name of a
company which has already amalgamated with
other companies to form a new corporation.
The Trial Judge in this case so held, on Febru-
ary 11, 1987 [[1987] 2 F.C. 292 (T.D.)], and the
Minister of National Revenue ("the Minister"),
unable to issue a corrected reassessment because
the four-year statutory limitation period expired
before he became aware of the problem, has
appealed to this Court on two grounds: (1) that the
notice of reassessment was valid in law; (2) that, in
the alternative, it was amendable since the
respondent was in no way prejudiced by the error.
The skeleton facts, taken from the agreed state
ment of facts (Appeal Book, Vol. I, at pages
23-25) are as follows: (1) Forest Glenn (Dixie)
Limited (called "Dixie" by the parties) was incor
porated in 1963; (2) for the taxation year in
question, the 1976 taxation year, the Minister sent
a notice of assessment in 1977; (3) on May 31,
1978, Dixie and several other companies amal
gamated pursuant to the laws of the Province of
Alberta to form Forest Glenn (Dixie) Limited
(called "Forest Glenn" by the parties to distin
guish it from the identically named Dixie); (4) on
November 28, 1980, there was a second amalga
mation, this time between Forest Glenn and three
other companies and pursuant to the laws of
Ontario, to form Guaranty Properties Limited
("Guaranty Properties"); (5) the Ontario Ministry
of Consumer and Commercial Relations sent a
copy of the articles of amalgamation to the Minis
ter the same day, and all subsequent tax returns
filed by both Forest Glenn and Guaranty Proper
ties clearly referred to the amalgamation, but
somehow the fact that a second amalgamation had
taken place never became known to the Minister's
officials dealing with Dixie's 1976 tax return;
consequently (6) the Minister's notice of reassess
ment of June 23, 1981, following his reassessment
of tax payable for Dixie's 1976 tax year, and his
notice of confirmation of that reassessment on
February 25, 1982, were both directed to Forest
Glenn, in complete ignorance of the second amal
gamation. No similar problem arose concerning
Dixie's 1977 and (shortened) 1978 tax returns only
because the Minister was fully informed in time to
send reassessments for those years to Guaranty
Properties within the limitation period.
The relevant law is contained principally in
subsection 87(1) [as am. by S.C. 1974-75-76, c.
26, s. 51; 1979, c. 5, s. 28] and paragraph 87(2)(a)
of the Income Tax Act, S.C. 1970-71-72, c. 63
("the Act"):
87. (1) In this section, an amalgamation means a merger of
two or more corporations each of which was, immediately
before the merger, a taxable Canadian corporation (each of
which corporations is referred to in this section as a "predeces-
sor corporation") to form one corporate entity (in this section
referred to as the "new corporation") in such manner that
(a) all of the property (except amounts receivable from any
predecessor corporation or shares of the capital stock of any
predecessor corporation) of the predecessor corporations
immediately before the merger becomes property of the new
corporation by virtue of the merger,
(b) all of the liabilities (except amounts payable to any
predecessor corporation) of the predecessor corporations
immediately before the merger become liabilities of the new
corporation by virtue of the merger, and
(c) all the shareholders (except any predecessor corporation)
of the predecessor corporations immediately before the
merger receive shares of the capital stock of the new corpora
tion by virtue of the merger,
otherwise than as a result of the acquisition of property of one
corporation by another corporation, pursuant to the purchase of
such property by the other corporation or as a result of the
distribution of such property to the other corporation upon the
winding-up of the corporation.
• • •
(2) Where there has been an amalgamation of two or more
corporations after 1971 the following rules apply:
(a) for the purposes of this Act, the corporate entity formed
as a result of the amalgamation shall be deemed to be a new
corporation the first taxation year of which shall be deemed
to have commenced at the time of the amalgamation, and a
taxation year of a predecessor corporation that would other
wise have ended after the amalgamation shall be deemed to
have ended immediately before the amalgamation;
The analysis and conclusion of the learned Trial
Judge was as follows (at pages 303-305):
The purpose of section 87 of the Income Tax Act is to
provide the applicable rules where two or more Canadian
corporations are amalgamated. From an income tax aspect, the
complete code on amalgamations is to be found in section 87 of
the Act. The general scheme of the section is to treat the
amalgamated corporation as a continuation of the predecessor
corporations standing in their place with respect to assets,
liabilities, surpluses and other tax oriented accounts. However,
the amalgamated corporation is, for most purposes of the Act, a
new corporation, although in certain limited cases the amal
gamated corporation is deemed to be the continuation of a
predecessor corporation.
Subsection 87(1) [as am. by S.C. 1974-75-76, c. 26, s. 51(1);
1979, c. 5, s. 28(1)] defines an amalgamation for the purposes
of the Income Tax Act. It is essentially a corporate transaction
and each of the provincial companies acts and the federal
corporation legislation provide for statutory amalgamations.
Although the definition of amalgamation for income tax pur
poses would cover most statutory amalgamations, it should be
remembered that this definition is independent of the federal
and provincial corporate statutes. Subsection 87(1) defines
amalgamation as follows
• • •
Counsel for both parties have made submissions that the
Court make a finding that Forest Glenn either ceased to exist
or did not cease to exist at the time of the second amalgamation
on November 28, 1980. I have carefully considered the argu
ments and submissions of both parties and I am of the opinion
that the question of whether predecessor corporations cease to
exist upon amalgamation for the purposes of the Income Tax
Act is not determinative of the issue at hand.
The key factor here is the treatment afforded by the Income
Tax Act to the liabilities of predecessor corporations. The
subsection 87(1) definition of amalgamation as quoted above,
and in particular paragraph (b), requires that all of a predeces
sor corporation's liabilities immediately before the amalgama
tion become liabilities of the new corporation. In other words,
whether or not the predecessor corporation continues to exist, it
is plain and obvious that it no longer continues to have liabili
ties attached to it, at least for income tax purposes. In order for
a transaction to qualify as an amalgamation under subsection
87(1) therefore, the amalgamated corporation must assume all
liabilities of the predecessor corporation.
Accordingly, prior to the amalgamation on November 28,
1980 there is no question that it was Forest Glenn who was
liable for the reassessment of Dixie's 1976 taxation year. Forest
Glenn had assumed that liability at the time of the first
amalgamation on May 31, 1978. Thereafter, Dixie had no
liabilities for income tax purposes. Similarly, at the time of the
second amalgamation on November 28, 1980 Guaranty Proper
ties assumed all of Forest Glenn's liabilities, including the
reassessment for Dixie's 1976 taxation year. It matters not
whether Forest Glenn ceased to exist as a legal entity or
whether it didn't. The point is that the amalgamation, which
fell within the definition of amalgamation in subsection 87(1)
of the Act, meant that pursuant to paragraph 87(1 )(b) all of
the liabilities of the predecessor corporation, Forest Glenn,
immediately before the merger became liabilities of the new
corporation, Guaranty Properties, by virtue of the merger.
Therefore, after November 28, 1980 liability could no longer be
affixed to Forest Glenn for the reassessment of Dixie's 1976
taxation year. That is, in my opinion, the legislative scheme
contained within the Income Tax Act as it pertains to
amalgamations.
Accordingly, I agree with the plaintiffs that the only party
who could be reassessed for Dixie's 1976 taxation year after
November 28, 1980 was Guaranty Properties.
The appellant argued that the Trial Judge erred
in concluding that section 87 of the Act constitutes
a complete code on amalgamations and urged that
that section had to be seen in the context of the
general corporate law on amalgamation.
It was said that under corporate law the conse
quences of amalgamation vary, depending upon
the applicable jurisdiction. Under the corporate
statutes of provinces like Quebec and Manitoba,
amalgamating corporations cease to exist upon
amalgamation and a new entity is created in the
form of the amalgamated corporation, which is
separate and distinct from the amalgamating cor
porations: Fawcett & Grant Ltd. v. M.N.R.
(1965), 65 DTC 313 (T.A.B.). However, the result
of amalgamation effected under the Canada Busi
ness Corporations Act [S.C. 1974-75-76, c. 33] or
The Business Corporations Act [R.S.O. 1970, c.
53] of Ontario was said to be that no "new"
corporation is created nor are the amalgamating
corporations extinguished. The authorities cited
for this proposition were two cases decided by the
Supreme Court of Canada on the same day, Witco
Chemical Co. v. Town of Oakville et al., [1975] 1
S.C.R. 273; and R. v. Black & Decker Manufac
turing Co. Ltd., [1975] 1 S.C.R. 411.
In Black & Decker an amalgamation had taken
place under the Canada Corporations Act, R.S.C.
1970, c. C-32, section 137 of which read in part as
follows:
137. (1) Any two or more companies to which this Part
applies may amalgamate and continue as one company.
. .
(13) Upon the issue of letters patent pursuant to subsection
(11), the amalgamation agreement has full force and effect and
(a) the amalgamating companies are amalgamated and are
continued as one company (in this section called the "amal-
gamated company") under the name and having the author-
ized capital and objects specified in the amalgamation agree
ment; and
(b) the amalgamated company possesses all the property,
rights, assets, privileges and franchises, and is subject to all
the contracts, liabilities, debts and obligations of each of the
amalgamating companies.
(14) All rights of creditors against the property, rights,
assets, privileges and franchises of a company amalgamated
under this section and all liens upon its property, rights, assets,
privileges and franchises are unimpaired by the amalgamation,
and all debts, contracts, liabilities and duties of the company
thenceforth attach to the amalgamated company and may be
enforced against it.
The Supreme Court, reversing the Ontario Court
of Appeal [[1973] 2 O.R. 460], explained that
section this way (per Dickson J., as he then was, at
416-418):
[lit would seem that the Court [of Appeal] accepted, as a first
step, the proposition that the "new" company, i.e. the amal
gamated company, is a different, separate and distinct company
from the "old" companies, i.e. the amalgamating companies.
Whether an amalgamation creates or extinguishes a corporate
entity will, of course, depend upon the terms of the applicable
statute, but as I read the Act, in particular s. 137, and consider
the purposes which an amalgamation is intended to serve, it
would appear to me that upon an amalgamation under the
Canada Corporations Act no "new" company is created and no
"old" company is extinguished. The Canada Corporations Act
does not in terms so state and the following considerations in
my view serve to negate any such inference: (i) palpably the
controlling word in s. 137 is "continue". That word means "to
remain in existence or in its present condition" — Shorter
Oxford English Dictionary. The companies "are amalgamated
and are continued as one company" which is the very antithesis
of the notion that the amalgamating companies are extin
guished or that they continue in a truncated state; (ii) the
statement in s. 137(13)(b) that the "amalgamated company
possesses all the property, rights ..." If corporate birth or
death were envisaged, one would have expected to find, in the
statute, some provision for transfer or conveyance or transmis
sion of assets and not simply the word "possesses", a word
which re-enforces the concept of continuance ... (vi) if Parlia
ment had intended that a company by the simple expedient of
amalgamating with another company could free itself of
accountability for acts in contravention of the Criminal Code
or the Combines Investigation Act or the Income Tax Act, I
cannot but think that other and clearer language than that now
found in the Canada Corporations Act would be necessary.
In reversing the Ontario Court, the Supreme
Court adopted the view expressed by Kelly J.A. of
the same Court in Stanward Corp. v. Denison
Mines Ltd., [1966] 2 O.R. 585 (C.A.), at page
592:
What we have here is an amalgamated company into which,
simultaneously, two amalgamating companies have fused along
with their assets and liabilities. Under this fusion, and by virtue
of its statutory implementation, it may be said, broadly, that
the amalgamated company acquired the assets and assumed the
liabilities of the two component companies;
• • •
The language of s. 96 is in my opinion unambiguous in provid
ing that the two amalgamating companies shall continue as one
company. While it may be difficult to comprehend the exact
metamorphosis which takes place, it is within the Legislature's
competence to provide that what were hitherto two shall contin
ue as one.
In analyzing the different ways in which compa
nies are put together, Dickson J. stated (at page
421):
[Tin an amalgamation a different result is sought and different
legal mechanics are adopted, usually for the express purpose of
ensuring the continued existence of the constituent companies.
The motivating factor may be the Income Tax Act or difficul
ties likely to arise in conveying assets if the merger were by
asset or share purchase. But whatever the motive, the end result
is to coalesce to create a homogeneous whole. The analogies of
a river formed by the confluence of two streams, or the creation
of a single rope through the intertwining of strands have been
suggested by others.
He then concluded (at page 422):
The effect of the statute, on a proper construction, is to have
the amalgamating companies continue without subtraction in
the amalgamated company, with all their strengths and their
weaknesses, their perfections and imperfections, and their sins,
if sinners they be. Letters patent of amalgamation do not give
absolution.
It was this notion, that "amalgamating companies
continue without subtraction in the amalgamated
company," (which was also applied by the
Supreme Court to The Business Corporations Act
of Ontario, R.S.O 1970, c. 53 in obiter in Witco),
that became the principle of the appellant's case.
The respondent (correctly, in my view) did not
dispute that the appellant was right "from a strict
corporate law point of view," but contended this
general corporate law was negatived by the lan
guage of section 87 of the Income Tax Act. As
support for this contention, the respondent drew
the Court's attention to the Interpretation Bulletin
issued by Revenue Canada, Taxation ("the
Department") as IT-474 on March 30, 1981, and
particularly to the following paragraphs (Appeal
Book, Vol. II, at pages 171 and 176):
New Corporation
10. Notwithstanding corporate law which in most jurisdictions
provides that the corporate entity formed as a result of an
amalgamation is a continuation of the predecessor corporations
rather than a new corporation, paragraph 87(2)(a) states that
such entity is deemed to be a new corporation for the purposes
of the Act. A number of the points discussed below arise from
this deeming provision. Where the provisions of paragraph
87(2)(a) produce unintended consequences which are unfavour
able to the taxpayer, the Corporate Rulings Directorate of the
Department is prepared on a case by case basis to consider
whether relief is appropriate.
. . .
Objections, Appeals and Refunds
30. Where an assessment has been received by a predecessor
corporation prior to amalgamation and
(a) where the predecessor corporation has filed a notice of
objection prior to amalgamation, the new corporation will
possess the rights consequent upon the filing of a notice of
objection and will be able to appeal to the Tax Review Board
or the Federal Court within the time limits set out in sections
169 or 172, or
(b) where the predecessor corporation has commenced an
appeal prior to amalgamation, the new corporation will be
able to continue the appeal.
31. Where an assessment or reassessment of a predecessor
corporation is to be made after amalgamation, the assessment
will be issued to the new corporation which will have the same
rights as the predecessor corporation to file a notice of objec
tion and to appeal the assessment.
32. Refunds in respect of tax paid by a predecessor corporation
to be made after the amalgamation will be issued to the new
corporation.
The respondent also relied on the testimony of
the Department's auditor responsible for the reas
sessment that, had he known the true state of
affairs, he would have reassessed Guaranty Prop
erties, not Forest Glenn (Transcript, at pages
72-73):
Q. Let's get to the heart of it, Mr. Delavigne.
Had you known on June the 23rd of the November 1980
amalgamation, you wouldn't have re-assessed Forest
Glenn, would you?
A. No.
Q. You would have re-assessed Guaranty Properties,
wouldn't you?
A. That's right.
Q. Because that's the way you are told to do it, isn't it?
A. Yes.
Q. That's what the IT Bulletin says, isn't it?
A. Yes.
Q. And you aware that the IT Bulletin states that,
"Notwithstanding what any provincial law may provide,
for the purposes of the Income Tax Act, upon an amalga
mation, a new corporation is deemed to exist."
Isn't that correct?
A. Yes.
Q. And you are told not to re-assess the predecessor corpora
tion, aren't you?
A. We are told to re-assess in accordance with the interpre
tation bulletin.
Q. You are told not to re-assess the predecessor corporation,
aren't you?
A. Yes.
In support of its use of administrative policy and
interpretation, the respondent relied on the case
law, as most recently stated by Wilson J. for the
Supreme Court in Mattabi Mines Ltd. v. Ontario
(Minister of Revenue), [1988] 2 S.C.R. 175, at
pages 195-196:
Crucial to a resolution of this issue is an understanding of the
legal effect of administrative practice as publicized in Interpre
tation Bulletins. As already mentioned, the latter are not
authoritative sources for the interpretation of taxing statutes.
As Cattanach J. put it in Southside Car Market Ltd. v. The
Queen, [1982] 2 F.C. 755 (T.D.), at p. 770, "an interpretation
is not law until so interpreted by a court of competent jurisdic
tion". The same judge noted in Stickel v. Minister of National
Revenue, [1972] F.C. 672 (T.D.), at p. 684, that "[t]he Deputy
Minister does not have the power to legislate". Interpretation
Bulletins, however, do have some persuasive force where there
is an ambiguity in the legislation.
It is, therefore, necessary to focus on provisions
of the Act, and particularly on the language of
section 87.
The respondent's case is based in great measure
on the opening words of paragraph (a) of subsec
tion 87(2), which read as follows: "(a) for the
purposes of this Act, the corporate entity formed
as a result of the amalgamation shall be deemed to
be a new corporation." It is said that it logically
follows, from deeming the corporate entity formed
as a result of the amalgamation to be a new
corporation for the purposes of the Act, that the
Act must also deem that, for purposes of the Act,
the predecessor corporations which amalgamated
to form the new corporation have ceased to exist.
Given that section 87 contains certain other
deeming provisions which expressly provide for the
"continuation" of predecessor corporations in the
form of a new corporation, it was submitted that,
unless otherwise specifically provided in section 87,
the predecessor corporations upon an amalgama
tion cease to exist for tax purposes. None of these
"continuation provisions" provide for the reassess
ment of a predecessor corporation.
The respondent's position is supported by the
decision of the Tax Appeal Board in Scott v.
M.N.R. (1966), 66 DTC 306 at page 308, where,
after setting out the predecessor provision to para
graph 87(2)(a) [851(2)(a), R.S.C. 1952, c. 148
(as am. by S.C. 1958, c. 32, s. 35), Assistant
Chairman Fordham' said:
[A]lthough the provincial law reads to the contrary and hard as
it may seem, our federal income tax legislation explicitly
provides that the outcome of an amalgamation shall be deemed
to be a new company. Deemed seems to be a favourite verb in
income tax legislation. The word has been held to be conclusive
in its import and immune to any attempted modification of its
effect. Its use in the Act affords another instance of the
proposition that black may be white, if Parliament so legislates.
The respondent also attempted to rely on Fawcett
& Grant, supra, but that case deals with the
corporate law of Quebec, and I find the language
of the Quebec statute too different from that of
section 87 to be helpful.
Unfortunately for the respondent's analysis of
paragraph 87(2)(a), it seems to me that the pur
pose Parliament had in mind was not to bring
amalgamating corporations to an end but merely
to give them a deemed year-end and the new
corporation a deemed year-beginning. The words
"shall be deemed to be a new corporation" are
immediately followed by the clause "the first taxa
tion year of which shall be deemed to have com
menced at the time of the amalgamation". This
subsequent clause I find to be a defining or restric
tive relative clause, which limits the scope of the
antecedent principal clause to the combined con
' The appellant attempted to rebut this Tax Appeal Board
decision with the subsequent decision by Assistant Chairman
Fordham in Palmer-McLellan (United) Ltd. v. M.N.R. (1967),
67 DTC 323 at p. 325, but to my mind the dicta in that case
fall short of indicating an intention to reverse his interpretation
of the previous year.
cept expressed by the two clauses. The amalgamat
ed corporation is deemed new in that its first
taxation year commences at the time of the amal
gamation. To have created a non-defining or non
restrictive relative clause, the Parliamentary draft-
er would, at the very least, have had to insert a
comma after "a new corporation," or otherwise
vary the syntax.' The principal effect of paragraph
87(2)(a) is that, for income tax purposes, the
amalgamated corporation is deemed to be a new
taxpayer with a fresh taxation year as of the date
of amalgamation. In sum, nothing in the para
graph evinces an intention on the part of Parlia
ment to deem that the amalgamating taxpayer
ceased to exist, much less that it should be relieved
of liability for its own income taxes prior to the
date of amalgamation.
That the paragraph, indeed the entire section,
deals with the computation of income is also an
inference to be drawn from the fact that it falls
under Division B of Part I of the Act which deals
with the computation of income, as opposed to
Division A, which is concerned with liability for
tax. As the appellant pointed out, it is Division A
(section 2 of the Act) that constitutes the charging
section.
Section 87 applies only where an amalgamation
has taken place among "taxable Canadian corpo
rations" and according to ("in such manner that")
the three conditions specified in subsection 87(1).
Since subsection 87(1) by its terms does not apply
to all amalgamations, but only to certain members
of that class, it seems apparent to me that it
derives its notion of amalgamation from elsewhere,
which can mean only from the corporate law rele
vant to the particular corporations in question.
Apparently (the point was asserted by both par
ties but argued by neither), in Quebec amalgamat
ing corporations cease to exist with the creation of
the new entity, so that it is separate and distinct
from the amalgamating corporations. But Witco,
with its incorporation of Black & Decker reason
ing, established that under The Business Corpora
tions Act of Ontario no separate and distinct cor
poration is created in the amalgamated
2 My analysis of the French version of the provision yields
the same result.
corporation, nor are the amalgamating corpora
tions extinguished.
It may be noted that by its initial words subsec
tion 87(1) is limited in its effect to the whole of
section 87 ("In this section"), which would tend to
negative any legislative ambition to establish a
complete code on amalgamations for income tax
purposes. The larger words, "for the purposes of
this Act," found in paragraph 87(2)(a) cannot
extend the narrower intention of the initial words.
They must rather be interpreted as legitimizing
the use of the deemed taxation years there recog
nized for all computations under the Act.
It should also be noted that the verb "become"
as found in paragraph 87(1)(b) ("all of the liabili
ties . .. of the predecessor corporations immediate
ly before the merger become liabilities of the new
corporation by virtue of the merger") does not
necessarily imply transfer of liabilities but means
rather to come into being, without any implication
as to whether the source of its liabilities also
retains responsibility for them. 3
I would therefore conclude that section 87 of the
Act does not purport to establish a code on amal
gamations, and that, having reference to subsec
tion 197(4) of The Business Corporations Act,
R.S.O. 1970, c. 53 as amended by S.O. 1979, c.
3 The appellant relied on Palmer-McLellan (United) Ltd. v.
Minister of National Revenue, [1969] 1 Ex.C.R. 107, at p. 114,
a decision of Thurlow J., as he then was. To the extent that this
case is relevant it supports the appellant's case, but it is too
indirectly relevant to be a great assistance.
The appellant also drew the Court's attention to paragraph
87(2)(w) [as am. by S.C. 1977-78, c. 1, s. 42(3)], which
provides that "a restricted farm loss of a predecessor corpora
tion for a taxation year is not deductible in computing the
taxable income of the new corporation", a provision she argued
would not be necessary if the predecessor and successor corpo
rations were different persons. The respondent made an oppo
site argument with respect to paragraph 87(2)(jj) [as am. by
S.C. 1979, c. 5, s. 28(2)], which provides that in relation to
interest on certain obligations "the new corporation shall be
deemed to be the same corporation as, and a continuation of,
each predecessor corporation". These contentions tend to cancel
each other out.
36, s. 16, as judicially interpreted, 4 predecessor
corporations in an amalgamation do not cease to
exist but remain jointly liable with their successor
corporations for the liabilities they carried at the
time of the amalgamation.
In the light of my decision on this issue, I find it
unnecessary to consider the appellant's alternative
argument.
The respondent requested that, in the event of
the appellant's success on the merits, there should
be no order as to costs, since the Court would then
be pronouncing against the Department's previous
conduct as manifested through its administrative
interpretation and practice. However, that con
sideration is counterbalanced in my mind by the
fact that Forest Glenn's original reasons for objec
tion to the Minister's notice of reassessment make
no reference at all to the section 87 issue herein
presented.
The appeal will therefore be allowed with costs
here and below and the judgment of the Trial
Judge set aside; the reassessment of Forest Gleen
4 The relevant language of subsection 197(4) is virtually
identical to subsection 137(13) of the Canada Corporations
Act interpreted by the Supreme Court in Black & Decker,
viz. that upon the date of the amalgamation:
197. ...
(4) ...
(a) the amalgamation becomes effective and the amal
gamating corporations are amalgamated and continue as
one corporation under the terms and conditions set out
in the amalgamation agreement;
(b) the amalgamated corporation possesses all the prop
erty, rights, privileges and franchises and is subject to all
liabilities, contracts, disabilities and debts of each of the
amalgamating corporations ... [Emphasis added.]
In Black & Decker the statutory provisions read that "the
amalgamating companies are amalgamated and are con
tinued as one company" (emphasis added). The Supreme
Court highlighted the verb continue in paragraph (a) as the
"controlling word in s. 137". Spence J. in Witco, supra, at p.
282, found that it was even clearer under the Ontario than
under the federal statute that an amalgamation did not
extinguish the corporate identity of the amalgamating
corporations.
(Dixie) Limited with respect to its 1976 taxation
year is valid.
STONE J.A.: I agree.
DESJARDINS J.A.: I concur.
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.