T-5139-73
G.T.E. Sylvania Canada Limited (Plaintiff)
v.
The Queen (Defendant)
Trial Division, Cattanach J.—Montreal, May 2;
Ottawa, May 27, 1974.
Income tax—Capital cost allowance—Deductions from
revenue permitted in province—Whether `grant, subsidy or
other assistance"—Income Tax Act, R.S.C. 1952, c. 148, s.
11, Reg. 1100(1XaXviii) and Sch. B; s. 20(6)(h) —Corpora-
tion Tax Act, R.S.Q. 1964, c. 67, s. 16a, en. 1967-68, c. 28,
s. 1, amended 1971, c. 23, s. 1.
For the purpose of computing its income for the year
1971, the plaintiff ' company proceeded under section
11(lxa) of the Income Tax Act permitting the taxpayer, in
computing income, to deduct such amount of the capital
cost as is allowed by regulation. Reg. 1100(lxaxviii) and
Schedule B provided for allowance to a maximum of 20 per
cent of the capital cost. The plaintiff claimed the full allow
ance thereunder.
The Minister re-assessed the plaintiff by adding to its
income the sum of $18,233 which was 20 per cent of
$91,166, the net Quebec tax reduction allowed the plaintiff
under section 16a of the Corporation Tax Act (Que.) as
amended. This section, for the encouragement of manufac
turers and processors in the Province, allowed deduction, in
computing net revenue during the period 1968-71, of sums
invested in the acquisition of new machinery.
In re-assessing, the Minister assumed that the deductions
made by the plaintiff in computing net revenue under the
Corporation Tax Act (Que.) and the resulting saving there-
under by the plaintiff in the sum of $91,166 was for the
acquisition of property and therefore the capital cost of the
property was deemed to be the capital cost thereof, minus
the deductions allowed to the plaintiff in Quebec, as a
"grant, subsidy or other ,assistance" within the meaning of
section 20(6Xh) of the Income Tax Act.
Held, allowing the plaintiff's appeal from re-assessment,
the phrase "grant, subsidy or other assistance" was to be
construed in accordance with the ejusdem generis rule.
"Grant" and "subsidy" each contemplated the gift of money
from a fund by a Government to a person for the public
weal. "Or other assistance" must be coloured by the mean
ing of these words. The forbearance of the Quebec Govern
ment to exact a maximum tax is different from the act of
making a grant or subsidy available to such persons to
enable them to locate in the Province. Hence the tax advan
tage given by the Quebec Government to the plaintiff was
not "other assistance", within the limited sense of those
words in section 20(6)(h) of the Income Tax Act.
United Towns Electric Company Ltd. v. Attorney Gen
eral of Newfoundland [1939] 1 All E.R. 423,
considered.
INCOME tax appeal.
COUNSEL:
R. W. Pound and Robert Couzin for
plaintiff.
N. A. Chalmers, Q.C., and W. Lefebvre for
defendant.
SOLICITORS:
Stikeman, Elliott & Co., Montreal, for
plaintiff.
Deputy Attorney General of Canada for
defendant.
The following are the reasons for judgment
delivered in English by
CATTANACH J.: This is an appeal by way of
statement of claim by the plaintiff from an
assessment to income tax for its 1971 taxation
year by the Minister of National Revenue.
Prior to trial the parties agreed upon a state
ment of facts as follows:
AGREED STATEMENT OF FACTS
The parties hereto, by their respective solicitors, hereby
admit the following facts, provided that such admission is
made for the purpose of this appeal only and may - not be
used against either party on any other occasion or by any
other party.
1. The Plaintiff is a corporation having its head office and
principal place of business at Montreal, in the Province of
Quebec and is engaged in the electronics and related
business.
2. In each of its taxation years from 1968 through 1971 the
Plaintiff was liable to tax by the Province of Quebec under
the Quebec Corporation Tax Act, R.S.Q. 1964, c. 67, as
amended.
3. During the same period the Plaintiff was a company
engaged in the operation of a manufacturing or processing
business in the Province of Quebec within the meaning of
subsection 16a(2) of the Quebec Corporation Tax Act, and,
in conformity with the limitations and conditions imposed
therein, deducted in computing its net revenue for purposes
of the said Act an amount in respect of "investments" made
by it in such business, as defined in paragraph 16a(lxc),
which deduction was made in respect of the acquisition of
new machinery included in class 8 of Schedule B of the
Income Tax Regulations.
4. Such deductions resulted in a reduction of Plaintiff's net
revenue for purposes of the Quebec Corporation Tax Act as
follows:
Year Amount
1968 $ 48,495
1969 172,820
1970 178,164
1971 427,413
$ 826,892
5. The Plaintiff paid $91,166 less tax under the Quebec
Corporation Tax Act for the taxation years in question than
it would have paid in the absence of the deduction contem
plated in section 16a of the said Act, as follows:
Total deductions claimed $ 826,892
apply tax rate of 12% under Quebec Corpora
tion Tax Act
Quebec tax reduction claimed 99,227
less: adjustments per assessments
1968 taxation year. $ 81
1969 taxation year ........ .. 7,980 (8,061)
Net Quebec tax reduction . .. . $ 91,166
6. In computing the undepreciated capital cost to the Plain
tiff of class 8 depreciable property owned by it as at the end
of its 1971 taxation year for purposes of computing its
income under the Income Tax Act, the Plaintiff did not take
into account the net Quebec tax reduction as determined in
paragraph 5 above.
7. By Notice of Re-assessment dated Mar 8, 1973 the
Minister of National Revenue added to the Plaintiff's
income for its 1971 taxation year, inter alia, the amount of
$18,233 which was described as excess capital cost allow
ance in respect of class 8 depreciable property, and which
was determined by reducing the undepreciated capital cost
of property in class 8 by $91,166.
8. The Plaintiff duly objected to the said re-assessment by
notice dated May 29, 1973 and the re-assessment was
confirmed by the Minister of National Revenue by notifica
tion dated September 25, 1973.
The plaintiff in its 1971 taxation year, and in
its antecedent taxation years, was subject to tax
by the Province of Quebec under the Corpora
tion Tax Act (R.S.Q. 1964, c. 67) hereinafter
sometimes referred to as "The Provincial Act".
Under that Act the scheme of taxation is
similar to that under the Income Tax Act (chap-
ter 148, R.S.C. 1952).
The Provincial Act imposes upon every com
pany subject to that Act an annual tax equiva
lent to 12% of the net revenue in each of its
financial years. Net revenue under the Provin
cial Act is analogous to taxable income under
the Income Tax Act in that in each instance the
taxpayer first determines its income or profits
taking into account those deductions permitted
by law in earning that profit and when that
amount is determined then that amount may be
reduced by deductions permitted under the
respective statutes.
Under the Provincial Act the deduction which
gives rise to the controversy in this appeal is a
deduction under section 16a added to the Pro
vincial Act by 1967-68, S.Q., c. 28, s. 1, which
reads:
16a. (1) For the purposes of this section the following
expressions and words mean:
(a) "company": in addition to its ordinary meaning, a
company contemplated in sub-paragraph a of paragraph 4
of section 2, except a company engaged in a business
excluded in sub-paragraph 6;
(6) "manufacturing or processing business": a manufac
turing or processing business within the meaning of the
regulations, except however any business for the opera
tion of gas or oil wells, or for mining, logging or farming
operations, any construction or fishery business and any
business whose principal activity is the wrapping, packag
ing, washing or sorting of products or merchandise;
(c) "investment": the portion exceeding $50,000 of the
amounts of money which have been invested by a com
pany in a manufacturing or processing business, during
any of its financial years, for the construction or exten
sion of works or manufactories or the purchase of new
machinery, tools or equipment for operating works or
manufactories, to the extent allowed by the regulations.
(2) Every company engaged in the operation of a manu
facturing or processing business in the Province of Quebec
may, in computing its net revenue, deduct an amount equal
to thirty per cent of the investments made by it in such
business during the period commencing on the 1st of April
1968 and ending on the 31st of March 1971.
(3) Any amount which may be deducted under this section
during a financial year but is not deducted may be deducted
during subsequent financial years.
(4) The amount which a company may deduct under this
section for one of its financial years shall not exceed one-
half of its net revenue established for the financial year
concerned before such deduction is made.
(5) The tax reduction obtained under this section shall not
exceed twelve per cent of the amount which may be so
deducted in computing the net revenue.
(6) No subsidy or premium paid to a company under the
Regional Industrial Development Assistance Act (17 Eliz-
abeth II, chapter 27) or under an equivalent plan within the
meaning of such act shall be included in computing the
company's revenue, and it shall not reduce the cost of any
property for the purpose of the capital cost allowance.
Section 16a quoted above was amended by
1971 S.Q., c. 23, s. 1, as follows:
1. Section 16a of the Corporation Tax Act (Revised
Statutes, 1964, chapter 67), enacted by section 1 of chapter
28 of the statutes of 1968, is amended:
(a) by replacing paragraph c of subsection 1 by the
following:
"(c) "investment": the sum of the amounts of money
which have been invested by a company in a manufactur
ing or processing business, during any of its financial
years, for the construction or extension of works or
manufactories or the purchase of new machinery, tools or
equipment for operating works or manufactories, to the
extent allowed by the regulations but solely with respect
to the portion of such sum which exceeds $50,000 if such
amounts were invested during the period commencing on
the 1st of April 1968 and ending on the 31st of March
1971, and if such amounts were invested during the
period beginning on the 1st of April 1971 and ending on
the 31st of March 1974, with respect to the entire sum so
invested, up to $10,000,000, provided however that the
sum so invested is at least $150,000;"
(b) by inserting after subsection 2 the following:
(2a) Every company which is engaged in the operation of
a manufacturing or processing business in the province of
Québec and which makes an investment contemplated in
paragraph a of section 2 of the Québec Industrial Develop
ment Assistance Act (1971, chapter 64) may, if a certificate
has been issued with respect to such investment by the
Minister of Industry and Commerce in accordance with
subsection 26, in computing its net revenue, deduct:
(a) an amount equal to thirty per cent of such investment
if it was made in zone I during the period commencing on
the 1st of April 1971 and ending on the 31st of March
1974,
(b) an amount equal to fifty per cent of such investment if
it was made in zone II during the period contemplated in
paragraph a, or
(c) an amount equal to one hundred per cent of such
investment if it was made in zone III during the period
contemplated in paragraph a.
"(2 b) A company may avail itself of the advantages
provided for in subsection 2a provided that a certificate has
been issued to it by the Minister of Industry and Commerce
that the investment with respect to which it claims such
advantages is subject to the application of paragraph a of
section 2 of the Québec Industrial Development Assistance
Act; such certificate must mention whether the company is
making the investments which entitle it to avail itself of the
advantages provided in subsection 2a in zone I, zone II or in
zone III."
(d) by inserting after the word "under" in the second line
of subsection 6 the following: "the Regional Development
Incentives Act (Statutes of Canada, 1968/69, chapter 56)
or".
It is noted that in the amending Act, the
designation proceeds from 1(b) to 1(d). There is
no paragraph designated 1(c) which was appar
ently omitted.
There is no dispute between the parties that in
the plaintiff's 1968 to 1971 taxation years the
plaintiff satisfied the conditions precedent to its
eligibility as outlined in section 16a(1)(a), (b)
and (c) in computing its net revenue for the
purpose of the Provincial Act to deduct the
amount expended for investments, as defined in
section 16a(1)(c), for its 1968, 1969 and 1970
taxation years and for its 1971 taxation year as
defined in section 16 a(1)(c) as amended by sec
tion 1(a) of section 1, chapter 23, Statutes of
Quebec, 1971.
In computing its net revenue for the purpose
of taxation under the Provincial Act the plaintiff
took advantage of section 16 a(2) with respect to
its 1968, 1969 and 1970 taxation years, and
with respect to its taxation year 1971, the year
presently under review, the plaintiff took advan
tage of section 16a(2a) to compute its net
revenue.
By doing so the deductions resulted in a
reduction of the plaintiff's net revenue for the
purposes of the Quebec Corporation Tax Act as
set forth in paragraph 4 of the agreed statement
of facts.
This, in turn, resulted in a net tax reduction to
the plaintiff under the Provincial Act in the
amount of $91,166, the compilation of which is
outlined in paragraph 5 of the agreed statement
of facts.
There is no dispute between the parties as to
the accuracy of this amount.
Under section 11(1)(a) of the Income Tax Act
a taxpayer is entitled to deduct in computing its
income for a taxation year such amount of the
capital cost to the taxpayer of property as is
allowed by regulation.
By Regulation 1100(1)(a)(viii) a taxpayer in
computing his income in each taxation year may
deduct in respect of class 8 property 20% of the
capital cost of that property.
In Schedule B class 8 property is defined as
property that is a tangible capital asset that is
not included in another class in the Schedule.
The plaintiff claimed the full allowance
outlined in Regulation 1100(1)(a)(viii) and in
Schedule B.
In assessing the plaintiff as he did the Minis
ter of National Revenue did so on the assump
tion that the deductions made by the plaintiff in
computing its net revenue under the Quebec
Corporation Tax Act, and the resultant tax
saving thereunder by the plaintiff, which was in
the amount of $91, 1 66, was in respect of or for
the acquisition of property and therefore the
capital cost of that property to the taxpayer is
deemed to be the capital cost thereof minus the
amount of the grant, subsidy or other assistance
received by the plaintiff from the Quebec Gov
ernment under the Quebec Corporation Tax
Act, within the meaning of section 20(6)(h) of
the Income Tax Act.
Accordingly the Minister computed the unde-
preciated capital cost of the property at $18,233
less than the amount claimed and assessed the
plaintiff accordingly. The amount of $18,233 by
which the undepreciated capital cost was
reduced was arrived at by the simple math
ematical process of taking 20% of the Quebec
corporation tax saving of $91,166.
Again there is no dispute between the parties
as to the accuracy of that figure.
The dispute between the parties, and the cru
cial issue in this appeal, is whether the reduction
in tax as a consequence of the deduction in net
revenue enjoyed by the plaintiff under section
16a of the Quebec Corporation Tax Act consti
tutes a "grant, subsidy or other assistance"
within the meaning of those words in section
20(6)(h) of the Income Tax Act. Section
20(6)(h) reads:
20. (6) For the purpose of this section and regulations
made under paragraph (a) of subsection (1) of section 11,
the following rules apply:
(h) where a taxpayer has received or is entitled to
receive from a government, municipality or other public
authority, in respect of or for the acquisition of prop
erty, a grant, subsidy or other assistance other than an
amount authorized to be paid under an Appropriation
Act and on terms and conditions approved by the
Treasury Board for the purpose of advancing or sus
taining the technological capability of Canadian manu
facturing or other industry, the capital cost of the
property shall be deemed to be the capital cost thereof
to the taxpayer minus the amount of the grant, subsidy
or other assistance;
It is abundantly clear the object of the Legis
lature of the Province of Quebec in enacting
16a of the Corporation Tax Act in 1967-68 and
by the subsequent amendment of that section
was to induce those engaged in the manufactur
ing and processing businesses of newly con
ceived products, products not yet manufactured
in the Province, or if manufactured in the Prov
ince not manufactured in sufficient quantity to
supply domestic and international markets, to
locate within the boundaries of Quebec. To
induce such persons to do so concessions are
held out. The flat rate of tax under the Corpora
tion Tax Act is 12% on a company's annual net
revenue. The inducement held out is that expen
ditures laid out for the construction of factories
or the acquisition of machinery and equipment
may be deducted from net revenue. While the
flat rate of tax of 12% is still applicable to net
revenue it is applicable to a net revenue which
has been reduced. The result is, in effect, the
exaction of a lesser tax than would otherwise be
applicable or in other words, a reduction in tax.
This legislation may be termed incentive.
On the other hand section 20(6)(h) of the
Income Tax Act may be termed countervailing
legislation. The section recognizes that a tax
payer may receive from a government, munici
pality or other public authority a "grant, subsidy
or other assistance" in respect of or for the
acquisition of property; and, in that event, the
capital cost of the property shall be deemed to
be the capital cost thereof to the taxpayer minus
the amount of the "grant, subsidy, or other
assistance". This results in a lesser capital cost
allowance being deductible with an accordingly
increased income tax being payable.
The determination of the present appeal falls
upon the interpretation of section 20(6)(h) of
the Income Tax Act and more particularly
whether the tax concession which enured to the
plaintiff under the Quebec Corporation Tax Act
is "a grant, subsidy or other assistance" within
the meaning of those words as used in section
20(6)(h).
A statute, or a section thereof, must be con
strued by what appears to have been the inten
tion of the legislature but that intention must be
ascertained from the words of the statute and
not from any general inferences to be drawn as
to the object of the statute.
It is axiomatic that the words used in a statute
are to be given their plain and ordinary meaning
but that plain and ordinary meaning may have a
peculiar meaning dictated by the context in
which the words are used.
In the present appeal it is conceded by coun
sel for the parties that the words "other assist
ance" in section 20(6)(h) are general words and
construed in their ordinary meaning are suf
ficiently broad, standing alone, to include the
tax concession under the Quebec Corporation
Tax Act enjoyed by the plaintiff.
However the question is whether the general
words "other assistance" are to be construed in
a sense restricted to things ejusdem generis with
those which have been mentioned before, that is
"grant" and "subsidy".
If the particular words "grant" and "sub-
sidy", presuming the word "grant" to be a par
ticular word, exhaust the whole genus then the
general words "other assistance" refer to some
larger genus.
In my opinion those two words are not
exhaustive and I form that opinion because a
plethora of synonyms occur to me such as
pecuniary aid, allowance, bonus, bounty, gift,
financial support, amongst many others.
The etymological meaning of a word is not
necessarily the meaning of the word which the
context requires and dictionaries may be resort
ed to for the purpose of ascertaining the use of
a word in popular language.
For this purpose counsel have referred me to
standard dictionaries, it being conceded that the
words "grant" and "subsidy" are used in sec
tion 20(6)(h) in their popular sense and not as
terms of art.
In the Shorter Oxford English Dictionary (3rd
ed.) "grant" is defined as "3. An authoritative
bestowal or conferring of a right, etc.; c. a gift
or assignment of money etc. out of a fund". In
addition it also has the legal meaning of a con
veyance by deed.
In Jowitt, The Dictionary of English Law,
"grant" is defined as "the term commonly
applied to rights created or transferred by the
Crown, e.g., grants of pensions, patents, chart
ers, franchises. It is also used in reference to
public money devoted to special purposes".
In Funk and Wagnall's Dictionary "subsidy"
is defined as "1. Pecuniary aid directly granted
by government to an individual or private com
mercial enterprise deemed beneficial to the
public".
"Subsidy" is defined in the Shorter Oxford
English Dictionary (3rd ed.) as: "3. A grant or
contribution of money. c. Financial aid fur
nished by a state or a public corporation in
furtherance of an undertaking or the upkeep of
a thing".
Counsel for Her Majesty the Queen submit
ted that the word "grant" has in itself a very
broad meaning and for that reason it is a general
word. From that premise he then argued that, in
the words "grant, subsidy or other assistance",
there was but one specific word, that is "sub-
sidy", and relied upon United Towns Electric
Co. Ltd. v. Attorney-General for Newfoundland'
where Lord Thankerton held that the principle
of ejusdem generis did not apply in that "a single
[1939] 1 All E.R. 423.
species—for example, water rates—does not
constitute a genus".
I do not accept the premise upon which coun
sel for Her Majesty the Queen founds his argu
ment. In my view the word "grant" as used in'
section 20(6)(h) is not a general word but in
view of its dictionary meaning it is a particular
word.
Again referring to the dictionary meanings of
the words "grant" and "subsidy" there is one
common thread throughout, that is a gift or
assignment of money by government or public
authority out of public funds to a private or
individual or commercial enterprise deemed to
be beneficial to the public interest. Subject to
minor refinements the words "grant" and "sub-
sidy" appear from their dictionary meanings to
be almost synonymous.
I am of the view that rules of interpretation or
canons of construction which have been estab
lished judicially must be applied where pertinent
and in or saying I do so fully cognizant that
such rules, particularly the principle of ejusdem
generis, are a useful servant but a dangerous
master.
The ejusdem generis doctrine is as old as
Bacon's maxims. That rule, which I repeat, is
that where general words follow an enumeration
of particular things they do not introduce
changes of a different character.
In my judgment the familiar rule that where
there are general words following particular and
specific words all of one genus, the general
words are presumed to be restricted to the same
genus as the particular words,—applies to the
words "grant, subsidy or other assistance" as
used in section 20(6)(h) of the Income Tax Act.
In this section there are the specific words
"grant" and "subsidy" followed by the general
words "or other assistance".
The fact is that the general words "or other
assistance" can hardly avoid being ancillary in
nature to the words "grant" and "subsidy". It
seems to me that where there are ancillary
words of this nature it is a sound rule not to give
such a construction to the ancillary words as
will wipe out the significance of the particular
words which antecede them.
As I have said before the constant and domi
nating feature in the words "grant" and "sub-
sidy" is that each contemplates the gift of
money from a fund by government to a person
for the public weal. Something concrete and
tangible is to be bestowed. For the reasons I
have expressed the general words "or other
assistance" must be .coloured by the meaning of
those words.
In the present instance what happened was
that the Government of Quebec, for reasons of
public policy, deemed it fit to forbear from
exacting from companies which met certain pre
scribed conditions, as the plaintiff did, a greater
tax under the Corporation Tax Act than might
otherwise have been done. This forbearance to
exact a maximum tax as an inducement to
manufacturers is different from the act of
making a grant or subsidy available to such
persons to encourage them to locate in the Prov
ince for which reason I conclude that the tax
advantage made available by the Quebec Gov
ernment to the plaintiff is not "other assistance"
within the limited sense of those words as used
in section 20(6)(h) of the Income Tax Act.
While it is not conclusive and was not the
subject of comment by counsel there is a modi
cum of confirmation, upon which I do not rely,
in reaching the conclusion I have in that the
words "a grant, subsidy, or other assistance" in
section 20(6)(h) are immediately followed by an
exception which governs those antecedent
words expressed in the language "other than an
amount authorized to be paid ...". Those
words constitute an exception to a grant, sub
sidy, or other assistance and since they contem
plate the payment of a monetary amount they
are susceptible of and give credence to the
interpretation that "grant", "subsidy", and `oth-
er assistance" also contemplate the active pay
ment of a monetary amount rather than a pas
sive forbearance from exacting a maximum tax
which would otherwise be exigible.
If the intention of Parliament had been other
wise it would have been a relatively simple
matter to make that intention abundantly clear
by the use of appropriate language and thereby
remove any ambiguity.
For the reasons which I have expressed it
follows that the appeal is allowed and the plain
tiff is entitled to its taxable 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.