Nova Scotia (Attorney General) v. Co-operative Trust Company of Canada

Nova Scotia (Attorney General) v. Co-operative Trust Company of Canada Court Court of Appeal Date 1995-03-21 Citation 1995 NSCA 36 Docket CA 110040 Judge/Registrar/Adjudicator Chipman, David (Honourable Justice); Freeman, Gerald B. (Honourable Justice) (CA); Matthews, Kenneth M., (Honourable Justice) Document Type Decision Decision Content C.A. No. 110040 NOVA SCOTIA COURT OF APPEAL Matthews, Chipman and Freeman, JJ.A. Cite as: Nova Scotia (Attorney General) v. Co-operative Trust Company of Canada,1995 NSCA 36 BETWEEN: ATTORNEY GENERAL OF NOVA SCOTIA ) John D. Wood ) for the Appellant Appellant ) ) - and - ) ) COOPERATIVE TRUST COMPANY OF CANADA ) Alexander S. Beveridge ) and Edwin C. Harris, Q.C. Respondent ) for the Respondent ) ) ) ) Appeal Heard: ) February 13, 1995 ) ) ) Judgment Delivered: ) March 21, 1995 THE COURT: The appeal is dismissed with costs in the amount of $1,000.00 plus disbursements, to be taxed, as per reasons for judgment of Chipman, J.A.; Matthews and Freeman, JJ.A., concurring. CHIPMAN, J.A.: This is an appeal by the Attorney General of Nova Scotia from a decision of the Supreme Court in Chambers allowing an appeal by the respondent from a notice of assessment pursuant to the Corporation Capital Tax Act, R.S.N.S. 1989, c. 99 (the Act). The respondent is a trust company within the meaning of the Act. Its head office is in Saskatoon, Saskatchewan and it carries on the business of a trust company in all provinces of Canada except Quebec. Its sole fixed place of business in the Atlantic Provinces is its office maintained in Halifax. Its business includes the lending of money on the security of real property, making consumer loans secured by collateral other than real property, the earning of administration and management fees in connection with financial services and earning interest and dividends from portfolios. All such business carried on in the Atlantic Provinces is carried on from the office in Halifax. This office is a "permanent establishment" within the meaning of the Act. The respondent has such a permanent establishment in a total of five provinces. Under the Act the respondent is required to pay a corporate capital tax to the Province at an annual rate of 3% of its "amount taxable". This term is defined in the Act to mean in relation to a corporation resident in Canada "the taxable paid up capital of the corporation allocated to the Province in accordance with the Regulations". The taxable paid up capital in the case of the respondent, a trust company, is defined in s. 6(2) of the Act. Under the Regulations, such capital that is allocated to Nova Scotia is ascertained in an indirect manner by calculating (pursuant to Schedule 4 of the Regulations) the percentage of the trust company's gross revenues for the year in question that are regarded as having been earned outside of Nova Scotia and subtracting that percentage from 100% to determine the percentage of gross revenues deemed to have been earned in Nova Scotia. Then, under Schedule 2 of the Regulations, the percentage so arrived at is applied to the trust company's total taxable paid up capital to determine the amount of taxable capital used by the corporation in Nova Scotia. Regulation 4 provides the method of calculating a trust company's gross revenues that are regarded as having been earned outside of Nova Scotia with reference to a formula expressed in Regulation 4(1): A = B x E F The variables in the formula are defined in the Regulations: A is the value of the amount of taxable capital used by the corporation in a jurisdiction outside the province. B is the amount taxable. F is the total gross revenue of a corporation in all jurisdictions in a financial year. The following definition of E in Regulation 4(3)(d) was at the heart of the issue before the Chambers judge: "(d) "E" means the gross revenue of a corporation's permanent establishment in jurisdictions outside the Province and is equal to the aggregate of the corporation's gross revenue for a fiscal year arising from: (i) loans secured by real property situated outside the Province, (ii) loans not secured by real property and made to persons residing outside the Province, and (iii) business conducted at the corporation's permanent establishments in jurisdictions outside the Province, other than revenue arising from loans." Schedule 4 is a part of the Regulations and is to be appended to the Corporation Capital Tax Return (Schedule 1). It provides for making the calculation pursuant to Regulation 4(3)(d) in the following manner: Nova Scotia Amount Taxable for A Trust and Loan Company _____________________________________________________________ Gross revenue for a fiscal year arising from loans secured outside Nova Scotia $ _______ A Gross revenue for a fiscal year arising from loans not secured by real property and made to persons residing outside of Nova Scotia $ _______ B Gross revenue for a fiscal year arising from business conducted at the corporation's permanent establishments in jurisdictions outside Nova Scotia other than revenue arising from loans. $ _______ C A + B + C = D $ _______ D The issue before the Chambers judge and on this appeal is whether the Act imposes liability with respect, indirectly, to loans made and serviced by the respondent's Halifax office but made to persons residing outside Nova Scotia or secured by real property outside Nova Scotia. The correct application of the formula will resolve the issue. If the loans fall within E then the result is a greater figure for A and hence a smaller residual percentage to be applied to the total taxable paid up capital in order to determine the capital used by the respondent in the Province. The appeal to the Chambers judge concerned the taxation year 1991. In its Corporation Capital Tax Return for that year, the respondent calculated in Schedule 4 the total gross revenues which it considered to have been earned outside Nova Scotia to be $103,919,000 which was 95.9% of its total gross revenues. This resulted in 4.1% of total gross revenues to be considered as earned in Nova Scotia. In its income tax return for 1991 filed pursuant to the Income Tax Act, Statutes of Canada 1970-71-72, c. 63, the respondent was obliged to calculate for the purposes of income taxation the percentage of taxable income for that year to be allocated to Nova Scotia which was one of five provinces in which it had a permanent establishment. Applying the formula in s. 105 of the Regulations under the Income Tax Act, the respondent showed approximately 10.3% of its total gross revenues to be attributed to its permanent establishment in Nova Scotia. No portion of that gross revenue was attributed to any other of the Atlantic Provinces as it had no permanent establishment in any of them. By notice of assessment dated August 7, 1992 the Nova Scotia Department of Finance assessed the respondent for additional corporate capital tax for 1991 on the basis that 10.3% of its gross revenues was attributable to Nova Scotia for the purposes of the Act rather than 4.1% as claimed by the respondent. The Department of Finance took the view that the formula under Regulation 4 quoted above was essentially identical to the formula under s. 405 of the Income Tax Regulations. The appeal before the Chambers judge concerned the correct interpretation of Regulation 4(3)(d). The Chambers judge, after referring to the agreed statement of facts placed before him by the parties, referred to sections of the Act and the Regulations and in particular, Regulation 4(3)(d) which I have quoted. He observed that under the Income Tax Act and Regulations thereunder no taxable income could be allocated to a province in which there was no permanent establishment. Since the respondent had no other fixed place of business in the Atlantic Provinces, it allocated for the purposes of the Income Tax Act its taxable income arising from business conducted in New Brunswick, Prince Edward Island and Newfoundland to its permanent establishment in Nova Scotia. As a result, for income tax purposes, the appellant showed 10.3% of its total gross revenues earned in Canada as being attributed to its permanent establishment in Nova Scotia. On filing its Corporation Capital Tax Return for 1991 under the Act, the respondent was obliged to apply the scheme in that Act to its operation. By its calculations, it determined its taxable paid up capital allocated to Nova Scotia was 4.1% of its total gross revenues earned in Canada. The discrepancy between this figure and that of 10.3% under the federal scheme arose from the respondent's interpretation of the Regulations. The respondent asserted that under the provincial taxation scheme it was entitled to treat as revenue of a permanent establishment outside Nova Scotia all revenue arising from loans made to persons residing outside of Nova Scotia or loans secured by real property situate outside of Nova Scotia even though such loans were made from or service through its permanent establishment in Nova Scotia. The Chambers judge determined the issue before him to be whether, under the Act and Regulations, this contention was valid. After considering the arguments of the parties and applicable case law, the Chambers judge concluded: "In the case at bar, the provision in question, namely clause 4(3)(d) of the Regulations, appears to me to be quite clear and unambiguous. It states that the letter "E" in the formula outlined in clause 4(1) refers to "the gross revenue of a corporation's permanent establishment in jurisdictions outside the province". If that was all that appeared in the provision, the taxpayer would have to turn to the Act to determine what the "permanent establishment" referred to was . . ." However, the judge noted the clause continued by providing that gross revenue equalled the aggregate of three things: (i) loans secured by real property situated outside Nova Scotia; (ii) loans not secured by real property and made to persons residing outside Nova Scotia; and (iii) business conducted at the corporation's permanent establishments in jurisdictions outside Nova Scotia other than revenue arising from loans. The Chambers judge continued: "There is no reference to the requirement of an assignment to a permanent establishment in a jurisdiction outside the Province in (i) and (ii). There is such a reference in (iii). Plainly the drafters meant that the loans referred to in (i) and (ii) did not have to be associated with another permanent establishment outside the Province in order to fall within the exclusion. If they did not intend this why did they make reference to "permanent establishment" in (iii)? The reference there would make no sense. Surely an interpretation which is logically consistent should be favoured over one which appears inconsistent." Accordingly, the respondent's appeal was allowed. In my opinion the Chambers judge did not err in this interpretation. I agree with him that if the clause at issue did not continue by providing a definition of the term "the gross revenue of a corporation's permanent establishment and jurisdictions outside the province", the argument for excluding the loans at issue from that term would be compelling indeed. However, as the Chambers judge noted, the Regulation continued by providing what he referred to as a definition. The respondent in argument referred to it as a "deeming clause". I would agree, and I would add as does the respondent that the clear format of Schedule 4 to the Regulations - an essential part thereof - reinforces the respondent's position. In my opinion, the interpretation of the Regulation admits of no doubt. The meaning therein of the term "gross revenue of a corporation's permanent establishment in jurisdictions outside the province" is clearly deemed to be the aggregate of three items in sub-clauses (i), (ii) and (iii). It is not necessary therefore to call in aid any of the well known tools employed in statutory interpretation or consider the case law referred to in argument. Nor is reference to the system for allocating revenues under the Income Tax Act, supra, necessary or useful. I would dismiss the appeal with costs which I would fix at $1,000.00, plus disbursements. Chipman, J.A. Concurred in: Matthews, J.A. Freeman, J.A.