T-4256-75
David George Child Menzel, Executor of the Last
Will and Testament of and Trustee of the Estate
of Robin Ellis Agnew (Plaintiff)
v.
The Queen (Defendant)
Trial Division, Mahoney J.—Toronto, June 24;
Ottawa, June 28, 1976.
Income tax—Taxpayer dying in 1973—Executor reporting
gains on deemed disposition of capital property and electing 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)—Regulation 4300.
Taxpayer died in 1973 and his executor reported gains on
deemed disposition of capital property as required by section
70(5) of the Income Tax Act, electing, on June 25, 1974, under
section 159(5) to defer payment of tax. An order in council was
published July 24, 1974 providing a 6% rate of interest for the
purpose of section 159(7), to be effective on and after Decem-
ber 23, 1971. Plaintiff argued that the regulation was void for
uncertainty and ambiguity, and ultra vires the authority given
the Governor in Council under section 159(7), claiming it did
not authorize the prescribing of a rate of interest having
retroactive effect on a previously made election.
Held, the action is dismissed. The intention of the amend
ment to Regulation 4300(1) is not uncertain, and its expression
is not ambiguous. Section 221(2) provides that, once published,
a regulation shall, if it so provides, have retroactive effect. This
provision, and definitions of "prescribed" and "regulation" in
section 248(1) have been met. No prescribing of an interest
rate for purposes of section 159(7) had been made before the
July 24, 1974 amendment to the Regulations. Section 58 of the
1973-74 amendment to the Act added subsections (4),(5),(6)
and (7) to section 159 and made all the subsections "applicable
to the 1972 and subsequent taxation years." Parliament's inten
tion under section 159(7) was clearly that the prescribed rate in
effect at the time of the section 159(5) election should apply to
each and every deferred payment flowing from the election,
regardless of intervening changes in the rate. It also clearly
contemplates that a rate be prescribed in the first place. The
failure to do so for a period of time was not tantamount to
prescribing a nil rate. The rate prescribed in the first place
must, of necessity, have had retroactive effect in the sense that
it applied to elections during the period when no rate was
prescribed, but that was not a retroactive change in the rate;
there was none to change. The Regulation of July 24, 1974 is
intra vires.
INCOME tax appeal.
COUNSEL:
J. M. Woogh for plaintiff.
C. H. Fryers for defendant.
SOLICITORS:
Campbell, Godfrey & Lewtas, Toronto, for
plaintiff.
Deputy Attorney General of Canada for
defendant.
The following are the reasons for judgment
rendered in English by
MAHONEY J.: The facts are agreed. Robin Ellis
Agnew died in 1973. The plaintiff filed an income
tax return for that portion of the year he had lived
and reported therein 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 issue is the rate of interest payable
in respect of the deferred tax.
The election to defer payment was made June
25, 1974. An order in council' was published in
the Canada Gazette of July 24, 1974 whereby,
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
(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 plaintiff argues that the Regulation is void
for uncertainty and ambiguity. With respect, I see
no merit in that argument. It is clear that the
' 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 P.C. 1974-1531, SOR/74-419.
Governor in Council intended to prescribe an in
terest rate of 6% per annum for purposes of section
159(7) to be effective on and after December 23,
1971. That intention is not uncertain nor is its
expression ambiguous.
The plaintiff also argues that the Regulation is
ultra vires the authority given the Governor in
Council by section 159(7) of the Act 4 .
58. (1) Section 159 of the said Act is amended by adding
thereto the following subsections:
(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.
The emphasis is mine. The plaintiffs position is
that section 159(7) does not authorize the Gover
nor in Council to prescribe a rate of interest
having retroactive effect upon a previously made
election.
Other pertinent provisions of the Act are:
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.
248. (1) In this Act,
"prescribed", in the case of a form or the information to be
given on a form, means prescribed by order of the Minister,
and, in any other case, means prescribed by regulation;
"regulation" means a regulation made by the Governor in
Council under this Act.
These provisions have been met. The question
turns entirely on the wording of section 159(7). No
prescription of a rate of interest for purposes of
that section had been made before P.C. 1974-
1531; that Order in Council established that rate
for the first time.
Section 58 of the 1973-74 amendment to the
Income Tax Act added subsection (7), as well as
4 S.C. 1973-74, c. 14, s. 58(1), assented to April 18, 1973.
subsections (4),(5) and (6), to section 159 of the
Income Tax Act. By its very terms, it made all of
those subsections "applicable to the 1972 and sub
sequent taxation years". Parliament's intention,
under section 159(7), is clearly that the prescribed
rate of interest in effect at the time of the election
under section 159(5) shall apply to each and every
deferred payment flowing from that election
regardless of intervening changes in the prescribed
rate. It also clearly contemplates that a rate be
prescribed in the first place. The Governor in
Council might, to be sure, have prescribed a nil
rate but his failure, for a period, to prescribe any
rate was not tantamount to the prescription of a nil
rate for that period. The rate prescribed in the first
place must, of necessity, have had retroactive
effect in the sense that it applied to elections made
during the period when no rate was prescribed but
that was not a retroactive change in the prescribed
rate; there was no prescribed rate to change.
In my opinion P.C. 1974-1531 is intra vires the
authority given the Governor in Council, by sec
tion 159(7), to prescribe a rate of interest for
purposes of that section and, by virtue of section
221(2) of the Act and section 58(2) of the 1973-74
amendment, is properly retroactive to the date of
the election made in this case. The action is dis
missed with costs.
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.