Laurencim Limitee v. Minister of National Revenue, [1972] CTC 2674, 72 DTC 1534

Roland St-Onge:—The appellant company was established and incorporated by the amalgamation of four companies—Atlas Transport Inc, Amelotte Transport Inc, La Cie de Forage Chomedey Ltée and Bernard Transport Inc—which were assessed on March 12, 1971, at $4,046.13, $1,601.73, $895.82 and $1,063.87, respectively, for the 1966 taxation year.

At the hearing, counsel for the parties agreed on the following Statement of facts:

(TRANSLATION)

1. During the 1966 fiscal year, Amelotte Transport Inc., la Cie de Forage Chomedey Limitée, Bernard Transport Inc. and Atlas Transport Inc. (the former companies) were associated with each other and with Les Entreprises Beaulieu Inc. and A. Billet Ltée, according to section 39(4) of the Income Tax Act;

2. The fiscal year of Bernard Transport Inc. ended on October 31 of each year, whereas the fiscal year of the other five companies mentioned in the preceding paragraph ended on February 28 of each year;

3. During 1966, six companies mentioned in paragraph 1 applied to the Minister of National Revenue to change the date on which their fiscal years ended in the following manner;

1. From October 31 to December 31 for Bernard Transport Inc.:;

2. From February 28 to December 31 for the other five companies mentioned in paragraph 1;

4. In a letter dated November 21, 1966, the Minister of National Revenue approved the change in the date on which the fiscal years of the six companies mentioned in paragraph 1 ended;

5. The companies, Amelotte Transport Inc., La Cie de Forage Chomedey Ltée, Bernard Transport Inc. and Atlas Transport Inc. amalgamated with the company Les Entreprises Beaulieu under the name of Laurencim Limitée, and the certificates of merger of the above-mentioned companies were issued on January 3, 1969;

6. The companies mentioned in paragraph 1 above, for their fiscal period ending February 28, 1966, were parties to an agreement between associated corporations, which agreement was submitted to the Department of National Revenue. A photocopy of this agreement is annexed hereto, and is to be considered an integral part thereof to have legal effect as if herein quoted in extenso. The Minister of National Revenue, the respondent, acknowledges having received this agreement;

7. The companies mentioned in paragraph 1 herein, for their fiscal period ending December 31, 1966, were parties to an agreement between associated corporations, which agreement was submitted to the Department of National Revenue. A photocopy of this agreement is annexed hereto, and is to be considered an integral part thereof to have legal effect as if herein quoted in extenso. The Minister of National Revenue, the respondent, acknowledges having received this agreement but contests its legality;

8. By notice of reassessments of March 12, 1971, the Department of National Revenue added the following sums:

Amelotte Transport Inc.	$1,601.73
Atlas Transport Inc.	$4,046.13
La Cie de Forage Chomedey Ltée	$ 895.82
Bernard Transport Inc.	$1,063.87

to the tax payable by Laurencim Limitée for the account of the former companies for their fiscal period ending December 31, 1966, alleging that their income for their fiscal period ending December 31, 1966, should be taxed at the rate of 50 per cent and also alleging that the $35,000 allocation between associated corporations provided for in section 39(3) of the Income Tax Act must be made according to form T-2013 filed for the fiscal period ending February 28, 1966;

9. Last May 26, Laurencim Limitée filed notices of objection to the new notices of assessment mentioned above;

10. The appellant claims that the companies, mentioned in paragraph 1 above, acted at all times in accordance with the provisions of the Income Tax Act and, more particularly, with the provisions of the Act which refer to associated companies. The appellant claims in particular that the companies, mentioned in paragraph 1 above, can be parties to an agreement between associated corporations for each of their fiscal periods ending during 1966. The respondent claims that the companies, mentioned in paragraph 1 above, cannot be parties to two different agreements between associated corporations for fiscal periods ending in the same year, 1966.

According to these facts, the fiscal year of Bernard Transport Ltée ended on October 31, 1966, whereas the fiscal year of the other companies ended on February 28 of the same year. Consequently, said companies had a common period, from January 1 to February 28, 1966.

The associated companies filed a 12013 agreement in which they decided to allocate the $35,000 as follows:

They later requested and were granted permission to change their fiscal year to correspond with the calendar year. After this request was granted, the companies made a new election in accordance with form 12013 and subsection 39(4) of the Income Tax Act, to obtain an allocation different from the first.

This sum of $35,000 was to be distributed as follows:

The respondent disallowed the second election by claiming that one or more associated companies could not make more than one election in one taxation year.

At the hearing, counsel for the appellant claimed that the expression “in a taxation year” as stipulated in subsection 39(3) should be interpreted in conjunction with subsection 139(2) and paragraph 139(1)(r). These provisions read as follows:

39. (3) Notwithstanding subsection (2), if all of the corporations of a group that are associated with each other in a taxation year have filed with the Minister in prescribed form an agreement whereby, for the purposes of this section, they allocate an amount to one or more of them for the taxation year and the amount so allocated or the aggregate of the amounts so allocated, as the case may be, is $35,000, the tax payable by each of the corporations under this Part upon its amount taxable for the year is, except where otherwise provided by another section, the aggregate of

(a) 18% of the amount so allocated to it, if any, or the amount taxable, whichever is the lesser, and

(b) 47% of the amount, if any, by which the amount taxable exceeds the amount, if any, so allocated to it.

139. (2) For the purpose of this Act, a “taxation year” is

(a) in the case of a corporation, a fiscal period, and

(b) in the case of an individual, a calendar year,

and when a taxation year is referred to by reference to a calendar year, the reference is to the taxation year or years coinciding with, or ending in, that year.

139. (1) In this Act,

(r) “fiscal period” means the period for which the accounts of the business of the taxpayer have been ordinarily made up and accepted for purposes of assessment under this Act and, in the absence of an established practice, the fiscal period is that adopted by the taxpayer (but no fiscal period may exceed

(i) in the case of a corporation, 53 weeks, and

(ii) in the case of any other taxpayer, 12 months,

and no change in a usual and accepted fiscal period may be made for the purposes of this Act without the concurrence of the Minister);

He then referred the Board to Built-Rite Homes Ltd et al v MNR, [1969] CTC 971; 69 DTC 669, in which the appellant’s claim was dismissed because the fiscal year of all the companies coincided with the calendar year. He argued that the problem in the present case is different because some of the associated companies have different fiscal years that fall within two calendar years. They all changed their fiscal years in such a way that they had two fiscal years in one calendar year and consequently they were entitled to share $35,000 for each of the fiscal years. Before the fiscal years were changed and during the 1966 calendar year, according to respondent’s counsel, all the associated companies had a common period, from January 1 to February 28, 1966.

According to his interpretation of subsection 39(3), paragraph 139(1 )(r) and subsection 139(2), he claims that the fiscal year includes that one common to all the associated corporations, in this case from January 1 to February 28, 1966. The appellant, who filed an agreement for that period, had it awarded by the Minister because a fiscal year includes that year common to all the corporations. He refers the Board to the following cases: (1) Esson & Sons Ltd v MNR, [1967] 1 Ex CR 82; [1966] CTC 439; 66 DTC 5303, where the Honourable Mr Justice Thurlow said that the “taxation year” mentioned in subsection 39(3) includes the taxation year common to all the corporations; (2) Riverside Builders Supplies Lid v MNR, 26 Tax ABC 227; 61 DTC 189; see DTC headnote:

The appeal was dismissed. It was clear from the wording of section 39(3) that the allocation to be made is with respect to a specific taxation year— a taxation year common to corporations associated with each other.

(3) Built-Rite Homes Ltd et al v MNR (supra) where, at page 976 [672] Mr W O Davis, QC, then member of the Tax Appeal Board, says:

I am unable to see how the Minister in seeking to apply the provisions of section 39(3) could recognize more than one allocation of amounts aggregating $35,000 . . .

He interprets these judgments as meaning that there is only one common period for all the corporations before the change in fiscal period,—namely, the period from January 1 to February 28, 1966; that subsection 39(3) mentions the possibility of an agreement between associated corporations which can be made for a taxation year which, according to the definition in subsection 139(2), includes all the fiscal periods which could be included in the same calendar year—1966.

Appellant’s counsel then reaffirmed that there are two taxation years in one calendar year—1966—and that, if the agreement for one of these taxation years is disallowed, this would mean that the associated companies could claim only one allocation of $35,000 for two fiscal periods, which contravenes the reason for the existence of subsections 39(3) and 139(2), which were enacted to allow the $35,000 allocation.

According to subsection 39(3) of the Income Tax Act, a group of associated corporations can submit to the Department of National Revenue an agreement between associated corporations on the prescribed form to divide among one or more of the corporations, for the taxation year, the amount of $35,000 at a reduced tax rate, as long as the total sum claimed does not exceed $35,000.

According to the precedents cited above, it is clear that the taxation year includes the taxation year common to all the corporations.

Moreover, this interpretation is consistent with the provisions of subparagraph 139(1 )(r)(i), which stipulates that, in the case of a corporation, a fiscal period may not exceed 53 weeks.

In the second agreement, the appellant requested that the fiscal year of Bernard Transport be extended from October 31, 1966 to December 31, 1966, which represents a fiscal period of 14 months.

In short, the corporations in question had in common only the period from January 1 to February 28, 1966 for the 1966 taxation year.

Consequently, the respondent was justified in disallowing the second election by alleging that one or more associated corporations may not make more than one election for a taxation year.

According to the interpretation of the sections mentioned, it is clear that the legislator did not intend to allow more than one election for a taxation year. Even if the Minister allowed the Bernard Transport company to change its taxation year to correspond with the taxation year of the other corporations, it must not be concluded that the Minister thereby allowed a second agreement.

In this case, a new agreement may be filed with regard to the year ending December 31, 1967, which would be the taxation year common to the six associated corporations.

For the preceding reasons, the appeal is dismissed.

Appeal dismissed.