Couture, CJ.T.C.[Translation]:—These appeals concern the 1979, 1980 and 1981 taxation years of each appellant.
In Ronald Clément's case there were two issues, and at the outset of the hearing, counsel for the respondent informed the Court that the respondent was consenting to judgment as regards the amounts of $1,008.40 for the 1980 taxation year and $908.40 for the 1981 taxation year. It appears from the assessments issued by the respondent that these amounts had been added to his income as a benefit for the use of an automobile provided by his employer.
The remaining issue is common to the two appellants and the relevant facts are identical for each except that the amounts are different. The facts can be summarized as follows.
During the 1979, 1980 and 1981 taxation years, the appellants were employed by Nadeau Electrix Inc. (hereinafter referred to as "the company”). The company had given each of them an interest-free loan in 1976 to purchase a house. These loans were in the following amounts during the taxation years in question:
| CLEMENT | NADEAU | |
| 1979 | $19,550 | $18,900 |
| 1980 | $17,350 | $16,800 |
| 1981 | $15,150 | $14,700 |
The respondent added the following amounts to the appellants’ income for the years in question:
| CLEMENT | NADEAU | |
| 1979 | $1,158.22 | $1,027.75 |
| 1980 | $1,265.41 | $1,136.25 |
| 1981 | $1,104.00 | $1,045.25 |
Relying on the provisions of subsection 80.4(1) of the Income Tax Act (the Act), inter alia, the respondent maintained that a benefit had been conferred on them by the company equal to the interest they should have been charged on these loans at the rate prescribed by section 4300 of the Income Tax Regulations on the amounts indicated in the preceding paragraph.
Counsel for the appellants for his part maintained that the provisions of subsection 80.4(1) did not apply to loans made prior to 1979. Subsection 80.4(1) was added to the Act by Statutes of Canada 1977-78, c. 1, s. 35(1) (hereinafter referred to as S.C. 1978) applicable to the 1979 and subsequent taxation years. It read as follows:
80.4 (1) Where an individual
(a) is an officer or employee or is related to an officer or employee and has received a loan by virtue of his office or employment or the office or employment of a person to whom he is related, or
(b) is a shareholder of a particular corporation or is related to a shareholder of a particular corporation and has received a loan (other than an excluded loan) from the particular corporation, from a corporation related to the particular corporation or from a partnership of which the particular corporation or a corporation related to the particular corporation is a member,
he shall be deemed to have received a benefit in a taxation year equal to the amount, if any, by which the aggregate of
(c) the amount, if any, by which interest in respect of the taxation year on all housing loans received by him, computed at a prescribed rate per annum, exceeds the aggregate of
(i) interest in respect of the taxation year paid by him before the end of the immediately following taxation year on all such loans, and
(d) the amount, if any, by which interest in respect of the taxation year on all loans described in paragraphs (a) and (b) (other than housing loans and excluded loans) received by him, computed at a prescribed rate per annum, exceeds the interest in respect of the taxation year paid by him before the end of the immediately following taxation year on all such loans,
exceeds
(e) $500.
(2) For the purpose of subsection (1),
(a) "excluded loan” means
(i) the portion of any loan made by a corporation to an officer or employee of the corporation to enable or assist him to purchase fully paid shares of the capital stock of the corporation or of a corporation related to it to be held by him for his own benefit.
(ii) the portion of any loan included in computing the income of the individual to whom it was made, and
(iii) a loan made by an individual (other than a trust) to an individual with whom he was not dealing at arm's length;
(b) "housing loan" means the portion of any loan, made or guaranteed by an employer, to an officer or employee of the employer to enable or assist him to acquire a dwelling for his own occupation if the acquisition of that dwelling was made in the course of a change in his residence and he was (or would have been had he moved after 1971 and incurred moving expenses) entitled to a deduction under section 62 in respect of such expenses.
(2) This section is applicable to the 1979 and subsequent taxation years. [1]
Under c. 5, s. 25(1) of Statutes of Canada 1979 assented to on December 6, 1979 (hereinafter referred to as “S.C. 1979"), subsection 80.4(1) was amended applicable to loans made after November 16, 1978 and this amendment provided as follows:
25.(1) All that portion of subsection 80.4(1) of the said Act following subparagraph (c)(i) thereof is repealed and the following substituted therefor:
(ii) the product obtained when the prescribed rate per annum is multiplied by
(A) in the case of an individual whose spouse with whom he resided in the taxation year had a housing loan, an amount (in this subsection referred to as his “agreed amount") equal to such portion of $50,000 as has, by agreement between the individual and his spouse, been allocated to him and that, when added to the agreed amount of his spouse, does not exceed $50,000, and
(B) in any other case, $50,000, and
(d) the amount, if any, by which interest in respect of the taxation year on all loans described in paragraphs (a) and (b) (other than housing loans and excluded loans) received by him, computed at a prescribed rate per annum, exceeds the interest in respect of the taxation year paid by him before the end of the immediately following taxation year on all such loans,
exceeds
(e) in the case of the individual referred to in clause (c)(ii)(A), that proportion of $500 that his agreed amount is of $50,000, and
(f) in any other case, $500.
(2) Paragraph 80.4(2)(b) of the said Act is repealed and the following substituted therefor:
(b) “housing loan" means the portion of any loan made to an officer or employee or to his spouse, by virtue of his office or employment, to enable or assist him or his spouse to acquire a dwelling for his habitation if the acquisition of that dwelling was made in the course of a change in his residence and he was (or would have been had he moved from a location in Canada after 1971 and incurred moving expenses) entitled to a deduction under section 62.
(3) Subsection (1) is applicable with respect to loans made after November 16, 1978.
(4) Subsection (2) is applicable to the 1979 and subsequent taxation years.
[Emphasis added. I]
Counsel for the appellants submitted that owing to subsection 25(3) of S.C. 1979 reproduced above they are not taxable on the deemed benefit since the loans in question had been made to them by virtue of their employment prior to November 16, 1978.
Counsel for the respondent for his part maintained the contrary. In his reply to the notice of appeal, in paragraph 6, he submitted the following, inter alia:
6(a) during the 1979, 1980 and 1981 taxation years, the appellant was a shareholder and employee of Nadeau Electrix Inc., holding the office of President;
(b) during the 1976 taxation year Nadeau Electrix Inc. gave an interest-free loan to the appellant, who was employed by the said company at the time;
(c) the said interest-free loan was given to the appellant by virtue of his employment, so that he could purchase a house.
[Emphasis added.]
In paragraph 8 of this document he states the following:
8. He maintains that the appellant received a taxable benefit from his employer during the 1979, 1980 and 1981 taxation years by virtue of the fact that he received an interest-free loan, the whole pursuant to the provisions of subsections 15(9) and 80.4 of the Income Tax Act.
Subsection 15(9) applicable to the 1979, 1980 and 1981 taxation years read as follows:
(9) Where an amount in respect of a loan is deemed by subsection 80.4(1) to be a benefit received in a taxation year by an individual referred to in paragraph (b) thereof, that individual shall be deemed for the purposes of subsection (1) to be a shareholder of a corporation and the benefit shall be deemed to be a benefit conferred on a shareholder by the corporation.
Since he admitted that the respondent had issued his assessments on the basis that the loan had been granted to them by virtue of their employment, the provisions of subsection 15(9) are not applicable since subsection 6(9) deals specifically with the treatment of a deemed benefit under subsection 80.4(1) from an office or employment. This subsection reads as follows:
6(9) Where an amount in respect of a loan is deemed by subsection 80.4(1) to be a benefit received in a taxation year by an individual described in paragraph (a) thereof, the amount thereof shall be included in computing the income of the individual for the taxation year as income from an office or employment. [2]
Furthermore, even though the loans were used by the appellants to purchase houses, they did not qualify as “housing loans" as defined in paragraph 80.4(2)(b). They were therefore simply interest-free loans made to employees by virtue of their office or employment provided for in paragraph 80.4(1)(a) and were not subject to the provisions of clause (c)(ii)(A) in force at the time.
What interpretation should be given to the legislation applicable to the 1979, 1980 and 1981 taxation years having regard to the deemed benefit provided for in paragraph 80.4(1)(a) in view of the amendments referred to above?
Prior to the coming into force of paragraph 80.4(1)(a), paragraph 6(1)(a), which is still in force, provided as follows:
6(1) There shall be included in computing the income of a taxpayer for a taxation year as income from an office or employment such of the following amounts as are applicable:
(a) The value of board, lodging and other benefits of any kind whatever (except the benefit he derives from his employer's contributions to or under a registered pension fund or plan, group sickness or accident insurance plan, private health service plan, supplementary unemployment benefit plan, deferred profit sharing plan or group term life insurance policy) received or enjoyed by him in the year in respect of, in the course of, or by virtue of an office or employment.
Regardless of the scope of this paragraph, it is clear that in enacting subsections 80.4(1), (2) and (3) provided for in S.C. 1978, Parliament was legislating exclusively with respect to the taxation of certain loans described in these provisions made to employees by virtue of their office or employment and specifically decreed in what circumstances this type of loan constituted a taxable benefit for such an employee.
There is no doubt that Parliament wished to exempt the loans in question from the general provision in paragraph 6(1)(a) and provide specifically for tax thereon. This is further confirmed by the addition to the Income Tax Act (the Act) of subsection 6(9), which makes a deemed benefit under paragraph 80.4(1)(a) added to the Act by S.C. 1978 taxable.
The effect of subsection 80.4(1) was not to provide that an interest-free loan made to an employee was deemed to be a taxable benefit but that a benefit was deemed to have been received where the interest paid on such a loan was less than interest at the prescribed rate under the Income Tax Regulations. It is only pursuant to subsection 6(9) that this benefit is taxable.
S.C. 1978 also provided that subsection 80.4(1) applied to the 1979 and subsequent taxation years.
It is therefore clear that for a taxpayer who had received a deemed benefit as provided in subsection 80.4(1) of the Act in 1979 or a subsequent year, this benefit was taxable regardless of the year during which the loan had been made to him.
Furthermore, by S.C. 1979 assented to on December 6, 1979, as mentioned above, all that portion of subsection 80.4(1) following subparagraph (c)(1) was repealed and replaced by another provision which provided how to establish the amount of this benefit, which was taxable pursuant to subsection 6(9) in the case of an employee.
By repealing this part of the Act, even though subsection 80.4(1) itself in force since 1978 was not affected, Parliament eliminated the possibility of calculating the value of this benefit, in other words, the amount which was taxable under subsection 6(9), and replaced this calculation by an identical calculation but provided in subsection 25(3) of S.C. 1979 that this new provision, and therefore the method of calculating the taxable amount of the benefit, applied to loans made after November 16, 1978.
Subsection 80.4(1) underwent other amendments applicable to the years subsequent to 1979, but subsection 25(3) of c. 5 of S.C. 1979 was never repealed by Parliament.
Since the loans made to the appellants were made prior to the date prescribed in subsection 25(3) of S.C. 1979, they therefore did not come under subsection 80.4(1) of the Act for the taxation years in question.
For these reasons the appeals of Ronald Clément are allowed and the assessments referred back to the respondent so that in computing his taxable income he may deduct the interest claimed on the loans made to him by the company. These appeals are dismissed as regards the expenses of $1,008.40 for the 1980 taxation year and $908.40 for the 1981 taxation year.
The appeals of Gérald Nadeau are allowed.
The appellants are entitled to party-and-party costs.
Appeals allowed.
'Amendments were subsequently made to subparagraph (2)(a)(i) and paragraph 2(b) but they are of no relevance for purposes of these appeals.
Amendments were subsequently made to this subsection but do not in any way affect the assessments under appeal for the 1979, 1980 and 1981 taxation years.