A partnership ("SDF") of which the taxpayer and two trusts for his children were the partners owned substantially all the units in a second partnership ("SA") which, in turn, owned rental properties. SDF and SA had February 28 and January 31 fiscal periods with the result that net rental income of SA was not included in the income of the taxpayer for approximately two years. Archambault T.C.J. found that although the Act permitted income to be carried over for one year, the provisions of the Act, read as a whole, were contravened if a second, third or fourth partnership was interposed to defer the taxation of income for two, three or four years. Parliament's intent in enacting ss.96(1)(b), 248(1) and 249(2) was not to enable a taxpayer to defer the taxation of its income indefinitely. Accordingly, the fiscal period of SDF was to be treated as if it ended on February 28.
Given that s. 245(4) did not reference the Regulations, it was inappropriate for the Minister to assess on the basis that there was an abuse of the Reg. 1100(11) rental property restriction rules for the taxpayer to finance his investment at a personal level and deduct interest personally, so that the partnership's capital cost allowance claims were not restricted. Archambault, J.T.C.C. stated (at para. 72):
It is clear in administrative law that an act and regulations, although both enactments, are very different in nature. An act is passed by Parliament or a provincial legislative assembly, whereas regulations are most often adopted by a government (the executive) under the authority of an act. In my view, since subsection 245(4) of the Act does not say "the Act and Regulations read as a whole", one must not take into account the rules adopted by the government in the Regulations. If Parliament had wanted them to be considered, it would have clearly so stated in subsection 245(4) of the Act, as it has done in a number of other provisions of the Act.
Furthermore, even if Reg. 1100(11) could be considered in determining whether there was an abuse, there was none, given that it is quite common for a shareholder (or partner) to borrow in order to provide capital, and given that s. 245 cannot be used by the Minister as a tool to force taxpayers to structure a transaction in a manner most favourable to the tax authorities.