Judgments

[1993] 2 F.C. 179

A-1161-91

Her Majesty the Queen (Appellant) (Defendant)

v.

Vancouver Art Metal Works Ltd. (Respondent) (Plaintiff)

Indexed as: Vancouver Art Metal Works Ltd. v. Canada (C.A.)

Court of Appeal, Marceau, Létourneau and Robertson JJ.A.—Vancouver, February 9; Ottawa, February 18, 1993.

Income tax — Income calculation — Income or capital gain — Income Tax Act, s. 39 giving taxpayers option to treat gains or losses from transactions in Canadian securities as capital in nature but, under s. 39(5), option denied to “traders or dealers in securities” — Appeal from Trial Division's ruling, in answer to question of law submitted pursuant to Federal Court Rules, R. 474, “trader or dealer in securities” in s. 39(5) limited to persons registered or licensed by regulatory authority to buy and sell securities and to those who in ordinary course of business buy and sell securities for others — Appeal allowed — “Trader or dealer in securities” referring to anyone carrying on business of trading or dealing in securities, not only to brokers or professionals registered or licensed by regulatory authority; broad enough to include anyone other than person engaged in adventure or concern in nature of trade — Whether one's activities amount to carrying on trade or business question of fact.

Construction of statutes — “Trader or dealer in securities” in Income Tax Act, s. 39(5) — Whether referring only to brokers or professionals registered or licensed by regulatory authority — S. 39(5) not to be read as if words “registered or licensed by regulatory authorities to buy and sell securities” appeared therein — Presence of restriction in one paragraph reinforces position Parliament did not intend to restrict scope of other paragraphs in which restriction did not appear — Interpretation reinforced by fact subsequent amendment to Act expressly restricting definition to registered or licensed professionals, but not making restriction applicable to s. 39(5) — For noscitur a sociis interpretation rule to apply must be distinct genus from which general words can take colour or meaning — No such genus in s. 39(5) to justify restrictive meaning — When “traders or dealers” given ordinary meaning, interpretation not only in conformity with text of provision, but also with intention of Parliament.

STATUTES AND REGULATIONS JUDICIALLY CONSIDERED

Criminal Code, R.S.C. 1970, c. C-34, s. 443 (as am. by S.C. 1985, c. 19, s. 69).

Federal Court Rules, C.R.C., c. 663, R. 474 (as am. by SOR/79-57, s. 14).

Income Tax Act, S.C. 1970-71-72, c. 63, ss. 38 (as am. by S.C. 1977-78, c. 42, s. 2; 1983-84, c. 1, s. 12), 39(4) (as enacted by S.C. 1977-78, c. 1, s. 16; 1980-81-82-83, c. 140, s. 18), (5) (as enacted by S.C. 1977-78, c. 1, s. 16; 1980-81-82-83, c. 140, s. 18; 1985, c. 45, s. 14), 47.1 (as enacted by S.C. 1984, c. 1, s. 17).

CASES JUDICIALLY CONSIDERED

APPLIED:

R. v. Multiform Manufacturing Co., [1990] 2 S.C.R. 624; (1990), 1 C.B.R. (3d) 290; 58 C.C.C. (3d) 257; 79 C.R. (3d) 390; 113 N.R. 373; 32 Q.A.C. 241; Palmer, MA v. The Queen, [1973] CTC 323; (1973), 73 D.T.C. 5248 (F.C.T.D.).

REFERRED TO:

Stouffville, Assessment Commissioner of The Corporation of the Village of v. Mennonite Home Association of York County et al., [1973] S.C.R 189; (1972), 31 D.L.R. (3d) 237; Imperial Stables (1981) Ltd. v. Minister of National Revenue (1990), 32 F.T.R. 279; 90 DTC 6135 (F.C.T.D.); confd A-996-90, Hugessen J.A., judgment dated 17/2/92, F.C.A., not yet reported, sub nom. Imperial Stables (1981) Ltd. v. Canada; Forest Lanes Holdings Ltd. et al. v. The Queen (1990), 90 DTC 6495 (F.C.T.D.); Karben Holdings Ltd. v. Canada, [1989] 2 C.T.C. 145; (1989), 89 D.T.C. 5413 (F.C.T.D.); Minister of National Revenue v. Taylor, James A., [1956-60] Ex. C.R. 3; [1956] C.T.C. 189; 56 D.T.C. 1125; Tara Exploration& Development Co. Ltd. v. M.N.R., [1970] C.T.C. 557; (1970), 70 D.T.C. 6370 (Ex. Ct.).

AUTHORS CITED

Black's Law Dictionary. 6th ed. St. Paul, Minn.: West Publishing Co., 1990 “dealer”, “trader”.

Côté, Pierre-André. The Interpretation of Legislation in Canada. Cowansville, Que.: Les Éditions Yvon Blais Inc., 1984.

Cross, Sir Rupert. Statutory Interpretation. London: Butterworths, 1976.

Dictionnaire Encyclopédique Quillet. Paris: Librairie Aristide Quillet, 1975 “courtier”, “négociant”.

Driedger, Elmer A. Construction of Statutes. 2nd ed. Toronto: Butterworths, 1983.

Grand Robert de la langue française. 2^e éd. Paris: Dictionnaires Le Robert, 1986.

Harrap's Shorter dictionnaire anglais-français, French- English dictionary. Diffulivre-Gage, 1982 “commerçant”, “négociant”.

Oxford English Dictionary. 2nd ed. Oxford: Clarendon Press, 1989 “dealer”, “trader”.

Roget's II: The New Thesaurus. Boston: Houghton Mifflin Co., 1980 “dealer”, “trader”.

Shorter Oxford English Dictionary. 3rd ed. Oxford: Clarendon Press, 1975 “broker”.

Words and Phrases. Permanent Edition, St. Paul, Minn.: West Publishing Co., 1979 “dealer”, “trader”.

APPEAL from a Trial Division ruling (T-2074-87, Jerome A.C.J., judgment dated 4/4/91, (F.C.T.D.) not reported), in answer to a question of law submitted for determination under Rule 474 of the Federal Court Rules that the words “a trader or dealer in securities” in subsection 39(5) of the Income Tax Act were limited to persons who are registered or licensed by regulatory authority to buy and sell securities and to those who in the ordinary course of business buy and sell securities on behalf of others. Appeal allowed.

COUNSEL:

I. E. Lloyd for appellant (defendant).

C. C. Sturrock and Karen R. Sharlow for respondent (plaintiff).

SOLICITORS:

Deputy Attorney General of Canada for appellant (defendant).

Thorsteinssons, Vancouver, for respondent (plaintiff).

The following are the reasons for judgment rendered in English by

Létourneau J.A.: Pursuant to Rule 474 of the Federal Court Rules [C.R.C., c. 663 (as am. by SOR/79-57, s. 14)], the parties had submitted the following question of law for a determination:

Do the words “a trader or dealer in securities” in subsection 39(5) of the Income Tax Act refer only to a person who is registered or licensed by regulatory authority to buy and sell securities, or to a person who in the ordinary course of business buys and sells securities on behalf of other persons; or are the words broad enough to include anyone other than a person engaged in an adventure or concern in the nature of trade?

Broadly stated, subsection 39(4) of the Income Tax Act [S.C. 1970-71-72, c. 63 (as enacted by S.C. 1977-78, c. 1, s. 16; 1980-81-82-83, c. 140, s. 18)] authorizes a taxpayer, who disposes of Canadian securities in a given year, to elect in his return of income for that year or any subsequent taxation year to treat all his gains and losses resulting from these transactions as being capital in nature. However, subsection 39(5) [as enacted by S.C. 1977-78, c. 1, s. 16; 1980-81-82-83, c. 140, s. 18; 1985, c. 45, s. 14] denies this election to some taxpayers, including those who can be considered as traders or dealers in securities. Subsections 39(4) and (5) read as follows:

39. ...

(4) Except as provided in subsection (5), where a Canadian security has been disposed of by a taxpayer in a taxation year and the taxpayer so elects in prescribed form in his return of income under this Part for that year,

(a) every Canadian security owned by him in that year or any subsequent taxation year shall be deemed to have been a capital property owned by him in those years; and

(b) every disposition by the taxpayer of any such Canadian security shall be deemed to be a disposition by him of a capital property.

(5) An election under subsection (4) does not apply to a disposition of a Canadian security by a taxpayer who, at the time the security is disposed of, is

(a) a trader or a dealer in securities,

(b) a bank to which the Bank Act or the Quebec Savings Banks Act applies,

(c) a corporation licensed or otherwise authorized under the laws of Canada or a province to carry on in Canada the business of offering to the public its services as trustee,

(d) a credit union,

(e) an insurance corporation,

(f) a corporation whose principal business is the lending of money or the purchasing of debt obligations or a combination thereof, or

(g) a non-resident,

or any combination thereof.

In the Trial Division of this Court [T-2074-87, judgment dated 4/4/91, not reported], the learned Associate Chief Justice ruled that such words were indeed limited to persons who are registered or licensed by regulatory authority to buy and sell securities and to those who in the ordinary course of business buy and sell securities on behalf of others. He proceeded to make a purposive interpretation of the statute by referring to the Parliamentary Debates in order to determine the context in which the provision was enacted.

Counsel for the appellant submits that the learned Judge misinterpreted the provision and that “trader” or “dealer” refers to anyone who carries on a business of trading or dealing in securities, not only to brokers or professionals who are registered or licensed by a regulatory authority. In my respectful opinion, I believe her interpretation is the one intended by Parliament. Whether one makes a literal or a purposive interpretation of subsection 39(5) of the Act, one cannot come to the conclusion that the words “a trader or a dealer in securities” are as limited in scope as contended by the respondent.

Literally, one cannot read subsection 39(5) as if the words “registered or licensed by regulatory authority to buy and sell securities” appeared in the provision to qualify traders and dealers. There is no such qualification. In addition, as counsel for the appellant pointed out, paragraph 39(5)(c) does contain an express reference to a corporation “licensed or otherwise authorized”. Had Parliament intended such a restriction to apply to a “trader or dealer” under paragraph 39(5)(a), it would have said so.

In coming to that conclusion, I merely follow the rule of construction applied by the Supreme Court of Canada in R. v. Multiform Manufacturing Co.[1] in its interpretation of section 443 of the Criminal Code [R.S.C. 1970, c. C-34 (as am. by S.C. 1985, c. 19, s. 69)]. Paragraph 443(1)(e) contained a restriction to the general application of that paragraph which did not appear in the other paragraphs. In deciding that the application of paragraphs 443(1)(a) and (b) suffered no restriction, the Supreme Court referred to the maxim expressio unius est exclusio alterius and ruled that the presence of a restriction in one paragraph reinforces the position that Parliament did not intend to restrict the scope of the other paragraphs in which the restriction did not appear.[2]

Furthermore, my conclusion is also supported by a subsequent amendment made by Parliament to the Income Tax Act. As a matter of fact, section 47.1 was added to the Act in 1983-84 [S.C. 1984, c. 1, s. 17], that is to say after the enactment of subsection 39(5), and the words “a trader or a dealer in securities” were introduced in relation to indexed security investment plans. The words were defined and limited to persons who are registered or licensed under the laws of a province to trade in securities. In adding that section to the Act, Parliament expressly restricted the application of that definition to sections 47.1 and 38 [as am. by S.C. 1977-78, c. 42, s. 2; 1983-84, c. 1, s. 12] only. Had Parliament intended a similar restrictive definition of trader or dealer to apply as well to paragraph 39(5)(a) it would have done so.

By making reference to the Budget Speech delivered by the Minister of Finance on March 31, 1977, the learned Associate Chief Justice concluded that Parliament's intention in enacting subsection 39(5) was to exclude institutional investors or financial institutions from the right to elect under subsection 39(4). Hence his finding that the words “a trader or a dealer” in paragraph 39(5)(a) refer only to those who are brokers or who are licensed or registered by a regulatory authority. Counsel for the respondent submits that this finding can be justified by the rule of interpretation noscitur a sociis. According to that rule, “[a]n expression's meaning may be revealed by its association with others”[3] and where general and specific words are associated together and are capable of analogous meaning, the general words should be restricted to the specific meaning unless this would be contrary to the clear intention of Parliament.[4]

However, for the rule to apply, there must be a distinct genus or category from which the general words can take their colour or meaning.[5] With respect, there is no such genus in subsection 39(5) which could justify the restrictive meaning, to wit institutional investor, given to the general words “trader or dealer in securities” found in paragraph 39(5)(a) of the Act. The paragraph refers to a non-resident, some corporations of different status (insurance company, lending company, corporation offering its services as trustee), a credit union and banks. It certainly cannot be said that the enumeration in paragraphs 39(5)(b) to (g) would be pointless if the general words “a trader or a dealer in securities” are given their ordinary meaning or are allowed to stand unrestricted.[6]

Indeed, because of its status, a lending corporation, for example, would be denied the right to elect even if its transactions fell short of making it a trader or dealer in securities. What, then, is the meaning of those words left undefined and unqualified?

In my view, the words “a trader or a dealer” should be given their ordinary meaning. They normally refer to a person who deals in merchandise, is engaged in buying and selling or whose business is trade or commerce. In Black's Law Dictionary, a “dealer” is defined as “any person engaged in the business of buying and selling securities for his own account, through a broker or otherwise, but does not include a bank, or any person in so far as he buys or sells securities for his own account, either individually or in some fiduciary capacity, but not as a part of a regular business”.[7] (My emphasis.)

To a large extent, the two words “trader” and “dealer” overlap.[8]

So do the French equivalents “commerçant ou négociant”,[9] except that the word “négociant” (dealer) has, according to the Dictionnaire encyclopédique Quillet,[10] a wider and less precise meaning than “commerçant” (trader). Both terms, however, import a notion of business or profession.[11]

I note in passing that the word “dealer” has been loosely translated in French by “courtier”. A “courtier” is a “broker”, that is to say a person employed as a middleman to transact business or negotiate bargains.[12] The notion of “broker” necessarily involves the buying and selling on behalf of others. It is, therefore, narrower than either the term “trader” or “dealer”. I hasten to add that it has no impact on the question submitted to us as the English version of paragraph 39(5)(a) contains no such ambiguity and the French word “commerçant” is, in any event, broad enough to include a broker.

I have no doubt that a taxpayer who makes it a profession or a business of buying and selling securities is a trader or a dealer in securities within the meaning of paragraph 39(5)(a) of the Act. As Cattanach J. stated in Palmer, MA v. The Queen,[13]. “[i]t is a badge of trade that a person who habitually does acts capable of producing profits is engaged in a trade or business”.[14] It is, however, a question of fact to determine whether one's activities amount to carrying on a trade or business. Each case will stand on its own set of facts. Obviously, factors such as the frequency of the transactions, the duration of the holdings (whether, for instance, it is for a quick profit or a long term investment), the intention to acquire for resale at a profit, the nature and quantity of the securities held or made the subject-matter of the transaction, the time spent on the activity, are all relevant and helpful factors in determining whether one has embarked upon a trading or dealing business.[15]

In enacting subsections 39(4) and (5), Parliament had, in my view, no intention of allowing a taxpayer, who makes it a business or a profession of buying and selling securities, to convert his business income or losses into capital gains or losses as is the case for a simple investor engaged in an adventure in the nature of trade. Moreover, in my respectful opinion, to limit the scope of the exception to registered or licensed traders or dealers as found by the Trial Judge would lead to a strange result. A taxpayer who has a business of dealing in securities could make the election under subsection 39(4), convert his income into capital gains and avoid falling under the exception relating to dealers not because he is not a dealer, but simply because he has not registered or obtained a licence as required by regulatory authorities.

Counsel for the respondent ably argued that Parliament's intention was to encourage investment in Canadian securities by providing certainty of tax treatment to taxpayers who make an irrevocable election to have all their gains and losses in Canadian securities taxed on capital account. Absolute certainty, in his view, can only be obtained if the words “a trader or a dealer in securities” are restricted, as the Trial Judge found, to those who are licensed or registered or buy and sell on behalf of others. Otherwise, there would have to be an ad hoc or a case-by-case determination of a taxpayer's status with respect to the right to elect under subsection 39(4).

It is true that this kind of assessment will be necessary when a taxpayer's buying and selling amounts to carrying on a business of trading and dealing in securities. There is no doubt that Parliament could have achieved the absolute certainty sought by the respondent by either creating no exceptions at all or by creating a well-defined one with respect to traders and dealers in securities. Obviously, it chose neither course of action, hence the resultant uncertainty. It is clear that Parliament did not want the right to elect under subsection 39(4) to be a blanket provision applicable to every taxpayer irrespective of his status. It is also clear that it did not want the exception relating to traders and dealers to apply only to brokers and like professionals. By giving to the words “a trader or a dealer” their plain and ordinary meaning, this Court not only gives an interpretation which conforms to the text of the provision, but also one that does justice to Parliament's intent in enacting the election rule and its exceptions.

Conclusion

In conclusion, a taxpayer does not necessarily lose his election right under subsection 39(4) when he buys and sells securities for his own account. However, he loses such right to elect when he becomes a trader or a dealer, that is to say when he professionally engages in the business of dealing in securities or when his dealings amount to carrying on a business and can no longer be characterized as investor's transactions or mere adventures or concerns in the nature of trade.

In my opinion, the words “a trader or a dealer in securities” in paragraph 39(5)(a) of the Income Tax Act are broad enough to include anyone other than a person engaged in an adventure or concern in the nature of trade. I would allow the appeal with costs and, pursuant to paragraph 4 of the order of Strayer J., dated October 22, 1990, I would refer the case back to the Trial Division for a hearing on the remaining issues raised in the action.

Marceau J.A.: I agree.

Robertson J.A.: I agree.

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