Agnew Estate v. The Queen, 78 DTC 6237, [1978] CTC 351 (FCA)

Heald, J (concurred in by Urie, J and MacKay, DJ) (judgment delivered from the Bench):—This is an appeal from a judgment of the Trial Division in which the learned trial judge held that the respondent, as represented by the Minister of National Revenue, 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 paragraph 70(5)(a) of the Income Tax Act, SC 1970-71-72, c 63, as amended by SC 1973-74, c 14, subsection 19(1).

The plaintiff elected, under subsection 159(5) of the Act,* [1] to defer payment of the tax attributable to the increase in taxable income by reason of the application of paragraph 70(5)(a). The election to defer payment was made on June 25, 1974. An Order-in-Councilf [2] 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 at 6% per annum is hereby prescribed

(a) for the purposes of subsection 159(7) . . . of the Act; . . .”

(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; . . .

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 amending Act on April 18, 1973, which reads as follows:

08. (1) Section 159 of the 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 representative 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 provision 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 instalments 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 following 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 subsection 221(2) of the Income Tax Act,* [3] the authority given the Governor-in-Council under subsection 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 subsection 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 interest ‘‘at the rate per annum prescribed for the purposes of this subsection at the time of the making of the election”,t [4] In this case the election was made on June 25, 1974. On June 25, 1974 no rate of interest per annum had been prescribed. Therefore, giving to the words used in subsection 159(7) their plain and unambiguous 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 subsection 159(7) and subsection 221(2) of the Income Tax Act.

Respondent’s counsel submitted (and the trial judge so held) that subsection 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.

Subsections 221(2) and 159(7) of the Act should, if possible, be read so as to be consistent the one with the other. If subsection 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 subsection 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 subsection 159(7) in respect of the 1972 and subsequent taxation years but only in respect of elections made on and after July 24, 1974. Such an interpretation considers new Regulation 4300(1) in the context of both subsection 221(2) and subsection 159(7).

Such an interpretation would also avoid the chaotic and unfair situation which might well result if there were no restrictions on the retroactivity of new Regulation 4300(1). As was pointed out by appellant’s counsel both in his memorandum and in oral argument, if the regulation is 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 language. Likewise, a statute should not be construed so as to have a greater retrospective operation than its language renders necessary.f [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 subsection 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 reassessment 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.