The link #26 ... January 2008

The Bijural Revision Services Unit (Taxation and Comparative Law) of the Legislative Revision Services Group of the Department of Justice of Canada is pleased to keep you posted on the most recent harmonization news.

Case Update

Supreme Court of Canada dismisses application for leave to appeal: The Minister of National Revenue v. Combined Insurance Co. of America

On October 25, 2007, the Supreme Court of Canada (# 31953) denied the Minister’s request for leave to appeal the decision of the Federal Court of Appeal in Combined Insurance Co. of America v. Minister of National Revenue (2007 FCA 60). The case dealt with the issue of whether the respondent, Mélanie Drapeau, held insurable employment with Combined Insurance or whether she was a self-employed worker. The Tax Court of Canada (2005 TCC 478) had concluded that the respondent held an insurable employment, within the meaning of paragraph 5(1)(a) of the Employment Insurance Act, S.C. 1996, c. 23. The Federal Court of Appeal, in reasons written by Mr. Justice Nadon (Létourneau J.A and Pelletier J.A. concurring), allowed Combined Insurance’s appeal and concluded that the respondent did not hold insurable employment. Contrary to the judgment of the TCC, the FCA judgment was silent on the issue of the application of section 8.1 of the Interpretation Act and on the importance of the control test when seeking to establish employment status under the private law of Québec. The Supreme Court’s comments on this omission would no doubt have been elucidating, and as such it is unfortunate that the matter will not proceed further.

Supreme Court of Canada dismisses appeal: A.Y.S.A. Amateur Youth Soccer Association v. Canada Revenue Agency

On October 5, 2007, the Supreme Court of Canada (2007 SCC 42) dismissed A.Y.S.A.’s appeal from the judgment of the Federal Court of Appeal (2006 FCA 136).  A.Y.S.A. sought and was refused “registered charity” status under the ITA. In appealing this refusal, A.Y.S.A. invoked section 8.1 of the Interpretation Act, arguing that the concept of charity for purposes of the Income Tax Act must be interpreted according to the law of Ontario, and placing reliance on a favourable interpretation given by Ontario courts in Re Laidlaw Foundation, (1984) 13 DLR (4th) 491. That case concerned a statutory definition of “charitable purpose” in the Charities Accounting Act, R.S.O. 1980, c. 65, as amended. The Federal Court of Appeal, per Noël J.A., ruled that the ITA establishes a complete set of rules governing preferred tax status for athletic organizations, namely those governing registered Canadian amateur athletic associations (“RCAAAs”). As such, there was no need to have recourse to common law principles of charity, as organizations such as A.Y.S.A. could only be governed by the RCAAA provisions. While agreeing with the conclusion reached by the FCA, eight of the nine justices of the Supreme Court were of the view that A.Y.S.A.’s inability to qualify as an RCAAA, did not necessarily preclude it from qualifying as a charity and therefore it was appropriate to consider the common law meaning of that term. On this latter analysis, however, the Supreme Court held that the activities of the appellant did not fall within the four recognized classes of charitable activity, distinguishing the Re Laidlaw Foundation decision. In writing for the majority, Rothstein J. opined that “…specific statutory definitions of charity in provincial legislation and decisions dealing with that definition do not dictate the meaning of charity under the ITA” (paragraph 39). In concurring reasons, Abella J. favoured the approach taken by Noël J.A. in the Federal Court of Appeal, finding that the RCAAA provisions in effect prevented A.Y.S.A. from being treated as a charity under the Income Tax Act.

Legislation on Bijuralism

Bill C-10 replaces Bill C-33

With the prorogation of Parliament in September, former Bill C-33 lapsed on the Order Paper and was reintroduced into the House of Commons as Bill C-10 in the 2nd session of the 39th Parliament. Bill C-10, An Act to amend the Income Tax Act, including amendments in relation to foreign investment entities and non-resident trusts, and to provide for the bijural expression of the provisions of that Act was passed by the House of Commons on October 29, 2007, completed second reading in the Senate on December 4, 2007 and is currently before the Senate’s Standing Committee on Banking, Trade and Commerce. The Senate is adjourned until Tuesday, January 29, 2008.

Bill C-10 contains harmonization proposals first released as draft legislation on July 18, 2005.

Please consult http://canada.justice.gc.ca/eng/csj-sjc/harmonization/link-lien/table.html for prior issues of this publication.

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