A-570-78
Attorney General of Canada (Applicant)
v.
Matador Inc. (Respondent)
and
Matador Converters Co. Ltd. (Joint Party)
Court of Appeal, Pratte and Ryan JJ. and Lalande
D.J.—Montreal, November 21; Ottawa, December
17, 1979.
Judicial review — Income tax — Income calculation —
Sale of land and building — Allocation of proceeds between
land and building — Application by the Minister to have
certain questions determined pursuant to s. 174 of the Income
Tax Act and to join purchaser as party defendant — Order
granted to join party — Questions determined by Tax Review
Board — No allocation of proceeds to building and no capital
cost incurred by purchaser — Application to review decision of
Tax Review Board — Whether Tax Review Board had the
duty to determine questions — Whether decision of Tax
Review Board with respect to allocation was correct — Income
Tax Act, S.C. 1970-71-72, c. 63, ss. 68, 174 — Federal Court
Act, R.S.C. 1970 (2nd Supp.), c. 10, s. 28.
This section 28 application to review a decision of the Tax
Review Board determining questions set forth in an application.
made by the Minister of National Revenue pursuant to section
174 of the Income Tax Act, whereby the Board decided that as
a result of the sale of a property comprising land and building,
the proceeds of disposition to the vendor, the respondent, as
well as the capital cost to the purchaser, the joint party, of the
depreciable property, was nil. Respondent first submits that
this section 28 application is directed against a non-existent
decision. Respondent further submits, with respect to the merits
of the case, that the Board was correct in finding that the
market value of the whole property did not exceed the fair
market value of the bare land.
Held, the application is granted, the determination of the
Board in respect of the two questions set forth in the Minister's
application is set aside and the matter is referred back for
determination. Once an order has been made pursuant to
paragraph 174(3)(b), the Board must, in addition to disposing
of the appeal, make a determination binding all the persons
concerned in respect of the questions raised by the Minister. In
allocating the sale price between land and building, the Board,
although it is governed by section 68 of the Income Tax Act,
must make that allocation reasonably, having regard to all
circumstances. It cannot apply blindly a principle that was
never intended to govern the allocation to be made under that
section.
APPLICATION for judicial review.
COUNSEL:
Roger Roy and Guy Laperrière for applicant.
Mario Ménard for respondent.
Michael Vineberg for joint party.
SOLICITORS:
Deputy Attorney General of Canada for
applicant.
Verchère, Gauthier, Noël & Eddy, Montreal,
for respondent.
Phillips & Vineberg, Montreal, for joint
party.
The following are the reasons for judgment
rendered in English by
PRATTE J.: This is a section 28 application to
review and set aside a decision of the Tax Review
Board dated October 1978, determining a question
set forth in an application made by the Minister of
National Revenue pursuant to section 174 of the
Income Tax Act, S.C. 1970-71-72, c. 63.
By deed of sale dated January 12, 1973, Mata
dor Inc. sold to Matador Converters Co. Ltd. a
property, land and building, located at 9450 and
9470 de l'Esplanade Avenue in Montreal. That
sale was made for a price of $185,000 which the
parties did not apportion between land and
building.
In December 1975, the Minister issued a notice
of reassessment in respect of Matador Inc.'s 1973
taxation year based on the assumption that, of the
amount received from Matador Converters Co.
Ltd., an amount of $124,000 represented the price
of the building and the balance the price of the
land. Matador Inc. appealed from that assessment
to the Tax Review Board. It was its contention
that the whole of the price of $185,000 had been
paid for the land and that, consequently, it had
received nothing for the disposition of the building.
That appeal was pending when the Minister made
an application to the Board under section 174 of
the Income Tax Act.' By that application, the
Minister indicated that the questions in respect of
which he requested a determination were:
' 174. (1) Where the Minister is of the opinion that a
question of law, fact or mixed law and fact arising out of one
and the same transaction or occurrence or series of transactions
or occurrences is common to assessments in respect of two or
more taxpayers, he may apply to the Tax Review Board or the
Federal Court—Trial Division for a determination of the
question.
(2) An application under subsection (1) shall set forth
(a) the question in respect of which the Minister requests a
determination,
(b) the names of the taxpayers that the Minister seeks to
have bound by the determination of the question, and
(c) the facts and reasons on which the Minister relies and on
which he based or intends to base assessments of tax payable
by each of the taxpayers named in the application,
and a copy of the application shall be served by the Minister on
each of the taxpayers named in the application and on any
other persons who, in the opinion of the Tax Review Board or
the Federal Court—Trial Division, as the case may be, are
likely to be affected by the determination of the question.
(3) Where the Tax Review Board or the Federal Court—
Trial Division is satisfied that a determination of the question
set forth in an application under this section will affect assess
ments in respect of two or more taxpayers who have been
served with a copy of the application and who are named in an
order of the Board or the Court, as the case may be, pursuant
to this subsection, it may
(a) if none of the taxpayers so named has appealed from such
an assessment, proceed to determine the question in such
manner as it considers appropriate, or
(b) if one or more of the taxpayers so named has or have
appealed, make such order joining a party or parties to that
or those appeals as it considers appropriate.
(4) Where a question set forth in an application under this
section is determined by the Tax Review Board or the Federal
Court—Trial Division, the determination thereof is, subject to
any appeal therefrom in accordance with the Federal Court
Act, final and conclusive for the purposes of any assessments of
tax payable by the taxpayers named by it pursuant to subsec
tion (3).
(5) The time between the day on which an application under
this section is served on a taxpayer pursuant to subsection (2),
and
(a) in the case of a taxpayer named in an order of the Tax
Review Board or the Federal Court—Trial Division, as the
case may be, pursuant to subsection (3), the day on which
the question is finally determined pursuant to paragraph
(3)(a) or on which an order is made under paragraph (3)(b),
or
(Continued on next page)
1. What were the proceeds of disposition to
Matador Inc. of the depreciable property sold to
Matador Converters Co. Ltd.?
2. What was the capital cost to Matador Con
verters Co. Ltd. of the same depreciable
property?
The Minister concluded his application by praying
the Board to render an order joining Matador
Converters Co. Ltd. to the appeal of Matador Inc.
On October 31, 1977, Mr. St-Onge, Q.C., a
member of the Board, made an order joining
Matador Inc. to Matador Converters Co. Ltd.
That order was interpreted by all parties con
cerned as joining Matador Converters Co. Ltd. to
the appeal already lodged by Matador Inc.
The appeal of Matador Inc. was heard by the
Board in January 1978. Judgment was delivered
on October 23, 1978, in which Matador Inc. is
referred to as the "actual appellant" and Matador
Converters Co. Ltd. as the "deemed appellant".
That judgment read as follows:
It is ordered and adjudged that the appeal of the actual
appellant pursuant to the Income Tax Act, in respect of the
1973 taxation year be and the same is hereby allowed and the
matter referred back to the respondent for reassessment in
accordance with the attached Reasons for Judgment.
It is furthermore ordered and adjudged that the appeal of the
deemed appellant pursuant to the Income Tax Act, in respect
of the 1973 taxation year be and the same is hereby dismissed
in accordance with the attached Reasons for Judgment.
In his reasons for judgment, the presiding
member of the Board, Mr. Tremblay, first
expressed the following view on the effect of the
order joining Matador Converters Co. Ltd. to the
(Continued from previous page)
(b) in the case of any other taxpayer, the day on which he is
served with notice that he has not been named in an order of
the Board or the Court, as the case may be, pursuant to
subsection (3),
shall not be counted in the computation of
(c) the 4-year period referred to in subsection 152(4),
(d) the time for service of a notice of objection to an
assessment under section 165, or
(e) the time within which an appeal may be instituted under
section 169 or subsection 172(2),
for the purpose of making an assessment of the tax payable by
the taxpayer, serving a notice of objection thereto or instituting
an appeal therefrom, as the case may be.
appeal of Matador Inc.:
... by rendering an Order joining the two parties in the same
hearing, it is deemed on one hand that an assessment is issued
against Matador Converters Co. Limited establishing to noth
ing the value of the building and on the other hand, that the
taxpayer has appealed to the Board ... 2 .
With regard to the questions mentioned in the
application for determination, Mr. Tremblay, in
his reasons, found in effect that the whole price of
$185,000 had been paid for the land and, conse
quently, that
(a) Matador Inc. had received nothing for the
sale of its building to Matador Converters Co.
Ltd., and that
(b) Matador Converters Co. Ltd. had incurred
no capital cost in respect of the acquisition of
that building.
Following that decision, the applicant filed a
notice of an application under section 28 of the
Federal Court Act, R.S.C. 1970 (2nd Supp.), c.
10:
... for an Order setting aside a decision of the Tax Review
Board dated November 2, 1978, determining a question set
forth in an application made by the Minister of National
Revenue pursuant to section 174 of the Income Tax Act,
whereby the Board decided that as a result of the sale of a
property located at 9450 and 9470 de l'Esplanade Avenue, City
of Montreal, on January 12, 1973, the proceed of disposition to
the vendor, Matador Inc., as well as the capital cost to the
purchaser, Matador Converters Co. Ltd., of the depreciable
property, was nil.
The first submission of the respondent in opposi
tion to that section 28 application is that it is
directed against a non-existent decision. There is,
it is said, "no decision of the ... Board ... deter
mining a question set forth in an application ...
pursuant to section 174 . ..". The respondeiit's
position on this point is explained in the following
terms in its factum:
3. Section 174(1) of the Income Tax Act authorizes the Minis
ter, inter alia, in an appropriate case, which this apparently
was, to apply to the Board for determination of a question that
is common to assessments of two taxpayers. Section 174(3)
authorizes the Board, where such an application has been
made, to do one of two things depending on the circumstances.
z This is obviously a mistaken view of the effect of the order
made under paragraph 174(3)(b). The effect of such an order is
simply to make the person joined to the appeal a party to that
appeal so that he will be bound by the determination made in
deciding that appeal.
The Board may "determine" the question "if" none of the
taxpayers has appealed (Section 174(3)(a)). However, if a
taxpayer has appealed, all that the Board can do by virtue of
Section 174 is to make an order joining the other taxpayer to
that appeal (Section 174(3)(b)).
This is a case where one of the taxpayers had appealed and the
Board, therefore, had no authority, by virtue of Section 174, to
"determine" the question.
4. Because one of the taxpayers (the Respondent) had
appealed and the other had not, what the Board was authorized
by Section 174 to do, and all that it was authorized by that
Section to do, was to join Matador Converters as a party to the
Respondent's appeal. The reason is obvious. What was desired
was that both taxpayers would be bound by whatever conclu
sion was reached. Once the second taxpayer is made a party to
the first taxpayer's appeal, he is entitled to take part to the
extent that he is concerned, the principles of res judicata apply
to The extent that he is concerned and he is entitled to appeal to
the extent thâthe is concerned.
5. Consequently,'in this case, as was obviously appreciated by
Mr. Tremblay, the Board had no authority under Section 174
to "determine" the questions set forth in the Minister's Section
174 application. All that the Board could do, and all that it
purported to do, insofar as the Respondent was concerned, was
to give Judgment under Section 171 disposing of the Respond
ent's appeal. ...
6. For the above reasons, it is contended that there is no
decision of the Board that is attacked by the Section 28
application. It is submitted, therefore, that the Section 28
application should be dismissed.
That contention is, in my view, based on a
wrong interpretation of section 174. That section
provides that, in certain circumstances, the Minis
ter may apply for the determination of a question.
Such an application, in my opinion, leads to a
determination, which is a decision reviewable
under section 28, in the case provided for in para
graph 174(3)(b) as well as in the case provided for
in paragraph 174(3)(a). When an order has been
made pursuant to paragraph 174(3)(b) joining a
party to an appeal, the effect of that order is not
merely to add a new party to the appeal but also to
transform the nature of the determination that will
have to be made in the course of deciding that
appeal. Once an order of that kind has been made,
the tribunal must, in addition to disposing of the
appeal, make a determination in respect of the
question raised by the Minister. In other words,
the tribunal must then make two decisions: one on
the appeal, the other on the question to be deter
mined. If the making of an order under paragraph
174(3)(b) did not have that effect, the determina
tion of the question by the tribunal seized of the
appeal would not, in itself, constitute a decision
but would merely be a step in the reasoning lead
ing to the decision of the appeal. That would mean
that, in such a case, the determination of the
question put forward by the Minister could neither
be reviewed under section 28 (since it would not be
a decision) nor be the object of an appeal (since
there is no appeal from the reasons for judgment
but only from the judgment itself). I cannot accept
such a result.
I am therefore of the view that the Board had
the duty, in this case, to make a determination in
respect of the two questions put by the Minister. I
am also of the view that the Board in effect made
a determination in respect of those two questions.
It is true that, by reason of Mr. Tremblay's errone
ous view of the effect of an order made under
paragraph 174(3)(b), the Board did not make a
formal determination in respect of those two ques
tions. However, it is clear, when both the judgment
and the reasons are read, that the Board answered
those questions. Section 174 does not specify any
particular form in which a determination must be
made and, in my view, it does not matter that it be
made in a judgment or in reasons for judgment
provided that it be clear, as it is in this case, that it
is made with the intention of binding all persons
concerned.
I now turn to the merits of the case.
The reason why Mr. Tremblay answered as he
did the two questions in respect of which the
Minister sought a determination is that he felt
bound in applying section 68 of the Act 3 by a
principle of appraisal according to which, when
built land is sold at less than its market value, the
3 That section reads as follows:
68. Where an amount can reasonably be regarded as being
in part the consideration for the disposition of any property of a
taxpayer and as being in part consideration for something else,
the part of the amount that can reasonably be regarded as
being the consideration for such disposition shall be deemed to
be proceeds of disposition of that property irrespective of the
form or legal effect of the contract or agreement; and the
person to whom the property was disposed of shall be deemed
to have acquired the property at the same part of that amount.
Counsel for the respondent suggested that section 68 was not
applicable to this case. I do not agree. In my view that section
is applicable when "an amount can reasonably be regarded as
being in part the consideration for the disposition of any
property of a taxpayer and as being in part consideration"
either for the disposition of property of another type or for
something other than the disposition of property.
price paid must first be applied to the land. As it
was common ground that the price of $185,000
paid for the property of Matador Inc. was less
than the market value of the bare land, the Board
felt constrained by this principle, which it regarded
as a rule of law, to conclude that the whole of the
price of $185,000 had to be applied to the land. It
is clear, in my view, that the Board erred in law in
so deciding. In allocating the price of $185,000
between land and building, the Board was gov
erned by section 68. It had to make that allocation
reasonably, having regard to all circumstances. It
could not, without error, make that allocation by
applying blindly a principle that was never intend
ed to govern the allocation to be made under
section 68.
Counsel for the respondent tried to justify the
Board's decision by saying that it was founded on
the finding that the market value of the whole
property (land and building) did not exceed the
fair market value of the bare land. This is in my
view a wrong interpretation of the decision. The
Board, far from finding that the presence of the
building on the land sold by Matador Inc. did not
increase the fair market value of the property,
seems to have held, not only that the fair market
value of the land was $200,000 but also that the
fair market value of the whole property was
$500,000.
In the circumstances disclosed by the record, it
is clear that the allocation of the price of $185,000
between land and building should have been made
on the basis
(a) of the Board's finding that the fair market
value of the land (without the building) was
$200,000, and
(b) of the Board's view as to the amount by
which the fair market value of the land was
increased by reason of the presence of the
building. 4
For these reasons, I would grant the application,
set aside the determination of the Board in respect
4 The Board should not, in my opinion, try to determine the
value of the building as if it were an entity separate from land.
In order to arrive at the fair market value of the building, the
Board should make a comparison between the value of the land
without the building and the value of the land with the
building.
of the two questions set forth in the Minister's
application and refer the matter back for determi
nation on the basis that the allocation of the price
of $185,000 between land and building must be
made in the light of the Board's finding concerning
the market value of the land and of the land with
the building.
* * *
RYAN J.: I agree.
* * *
LALANDE D.J.: I agree with the judgment of
Mr. Justice Pratte.
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.