Subsection 146(9) – Anti-avoidance or Automatic Application
Baker v The Queen, 2014 TCC 204
At issue in this case was the proper application of subsection 146(9) of the ITA. This subsection includes in income of a taxpayer the difference between the fair market value of a security and the value of the consideration given, when the consideration is greater than the FMV.
The taxpayer argued, relying on St. Arnaud v. The Queen, 2013 FCA 88, (Justice Sharlow’s separate concurring opinion) that subsection 146(9) is an anti-avoidance provision, and operates only where there is an avoidance purpose. The Crown argued that the application of the subsection is mechanical, requiring neither avoidance purpose or other forms of intent.
The Crown argued that: (i) Justice Sharlow’s opinion is not binding as it is not the opinion of the majority of the FCA, and (ii) the interpretation proposed by the taxpayer is contrary to accepted statutory interpretation principles that the ITA not be qualified by unexpressed exceptions on the basis of the court’s view of the object and purpose of the provision: Canada Trustco Mortgage Co. v. Canada, 2005 SCC 54 at para 12, and Placer Dome Canada Ltd. v. Ontario (Minister of Finance), 2006 SCC 20 at para 23.
There taxpayer argued that: (i) a lower court is bound by an alternative Ratio of a higher court: Bellamy v. Timbers, [1914] O.J. No. 59 (QL), 31 O.L.R. 613 at paras. 84-85 (QL); United Food and Commercial Workers, Local 1400 v. Wal-Mart Canada Corp. (c.o.b.Wal‑Mart), 2012 SKCA 131 at para. 55; Paragon Properties Ltd. v. Magna Envestments Ltd., [1972] A.J. No. 124 (QL), 24 D.L.R. (3d) 156 at para. 36 (QL).; R. v. J. (J.);[Case NOT found] Chliwniak v. Chliwniak, [1972] 2 O.R. 64 at paras. 18-20 (QL).; and (ii) Hansard shows that the legislative intention was for the provision to be an anti-avoidance provision.
The Court noted that Hansard is of limited use in determining legislative intention: Rizzo & Rizzo Shoes Ltd. (Re), [1998] 1 SCR 27, at para 35; Glaxo Wellcome Inc. v. The Queen, 96 DTC 1159 at 1162.
The Court also defined Fair Market Value, and staid that it contains in it standards of business-like behaviour, and referred to A.G. of Canada v. Nash et al., 2005 FCA 386 at para. 8.:
[…] the highest price an asset might reasonably be expected to bring if sold by the owner in the normal method applicable to the asset in question in the ordinary course of business in a market not exposed to any undue stresses and composed of willing buyers and sellers dealing at arm’s length and under no compulsion to buy or sell. I would add that the foregoing understanding as I have expressed it in a general way includes what I conceive to be the essential element which is an open and unrestricted market in which the price is hammered out between willing and informed buyers and sellers on the anvil of supply and demand.
In this case, the TCC held that it need not choose between the two interpretations of 146(9), as the taxpayer has a collateral tax avoidance purpose.
– Sas Ansari, JD LLM PhD (exp)
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