Canadian Bijuralism and Harmonization of

Federal Tax Legislation **

 

Authors: Marc Cuerrier, Sandra Hassan, Marie-Claude Gaudreault

The purpose of this article is to give a general overview of the Harmonization Program and its progress as of October 2002.  Before exploring some of the differences in the provincial private law and their potential impact on federal tax legislation, it would be useful to give background information on the duality of our legal system and on the particular interaction between federal law and provincial private law in Canada.  Next we will give a broad overview of the most important differences between the common law tradition and the civil law tradition in order to illustrate the challenge at hand in applying federal tax legislation fairly and efficiently. Also we will briefly explain the Harmonization Program, its objectives and techniques, and report on the harmonization work done thus far.

This article is followed by four in depth articles studying problems in the application of the Income Tax Act[1] arising from differences in provincial private law.  For example, the institution of trust and the concept of ownership vary considerably as between the common law provinces’[2] private law and Quebec’s civil law regime.  Moreover, even between common law provincial jurisdictions, significant differences may arise as a result of variations in provincial statutes dealing with such matters as what might constitute a charitable activity in the province or who might be viewed as residing in the province.  Such diversity in provincial private law is, as will be seen in the articles that follow, susceptible of producing significant differences in the application of federal legislation – tax and other – from one province to the other.

1.  Canadian Duality: Bijuralism  

Bijuralism, in the Canadian context, is the coexistence of two major contemporary legal traditions, namely civil law and common law.[3]  Canadian legislation must not only be drafted in both official languages (bilingualism) but it must also respect the duality of two Canadian legal traditions: common law and civil law (bijuralism).[4]  Tax legislation like all other federal legislation must be compatible with the two legal systems of private law. 

After the 1760 Conquest, common law and equity had been introduced throughout Canada under the Royal Proclamation, 1763.[5]  Canadian bijuralism dates back to the Quebec Act, 1774,[6] which recognized that in matters of property and civil rights (private law), the civil law tradition, inspired by French civil law, applied in Quebec in the same way that the common law tradition, inspired by British common law, applied in such matters of property and civil rights outside of Quebec.  Conversely, in matters other than property and civil rights (public law), the common law tradition has applied and continues to apply in Quebec[7] and outside Quebec.  The duality of our legal heritage has also been entrenched in the Constitution Act, 1867[8] where provinces have maintained exclusive jurisdiction over matters of property and civil rights.[9]  This enactment confirmed Quebec’s right to keep its civil law of French origin and that of the other provinces to keep their common law regime of British origin.  While the federal Parliament may have jurisdiction over certain private law matters[10] and may set out its own private law rules, the bulk of Canadian private law is in provincial law. 

The distinction between private law matters and public law matters is critical as bijuralism only extends to private law matters.  In federal tax legislation, concepts or rules that are borrowed from provincial private law include such matters as the concepts of ownership, partnership, liability or any other private law matter that involves the relations between persons.  This means that such concepts or matters may call for a different meaning and application from one legal tradition to the other or worse that the concepts might have no meaning or application in the other legal tradition.  On the other hand, if a concept or rule referred to in federal legislation belongs to public law as opposed to private law, such concept or rule should have the same meaning and application throughout Canada whether the federal legislation is applied in the common law jurisdictions or in Quebec.  These principles have been reviewed and confirmed by the Federal Court of Appeal in St-Hilaire v. Canada.[11]

[40] In the first place, it is The Quebec Act, 1774 [R.S.C., 1985, Appendix II, No. 2] that sealed the fate of the two legal systems that were to govern the applicable law in Quebec: the French civil law as it existed prior to 1760 with its subsequent alterations in Quebec in regard to anything affecting property and civil rights, and the common law as it existed in England at the same time with its subsequent alterations in Quebec and in Canada in regard to anything affecting the public law. Article VIII of The Quebec Act, 1774, which prescribed that "in all Matters of Controversy, relative to Property and Civil Rights, Resort shall be had to the Laws of Canada," was the precursor of subsection 92(13) of the Constitution Act, 1867 [30 & 31 Vict., c. 3 (U.K.) (as am. by Canada Act 1982, 1982 c. 11 (U.K.), Schedule to the Constitution Act, 1982, Item 1) [R.S.C., 1985, Appendix II, No. 5]. (…)

[43] Fourthly, the federal private law in Quebec is composed of the private law defined in a statute of the Parliament of Canada and the civil law if it is necessary to resort to an external source in order to apply a federal statute. The Parliament of Canada may enact private law legislation that will form a complete code in which case there is no need to resort to an external source, the civil law, or it may enact private law legislation which, because it is incomplete, will refer either expressly or by implication to the civil law for its implementation.

[44] Fifthly, the Parliament of Canada may derogate from the civil law when it legislates on a subject that falls within its jurisdiction.

Although the Court’s decision specifically addressed the relationship between federal legislation and Quebec civil law, the same rules apply with regards to any other province.

What is the significance of recognizing the duality of our legal traditions in federal legislation?  Having evolved differently one from the other, our two private law systems involve divergent, often incompatible institutions, rules and approaches.  Yet it is necessary that federal tax legislation apply equally and coherently across the country in both linguistic versions and in both legal traditions.  Aside from the need to reconcile linguistic differences that may exist between the French and English versions of legislation, there is a further requirement to reconcile the differences that result from our different private law systems.  How does the drafter of tax legislation ensure that it applies to Francophones and Anglophones alike and also applies equally to taxpayers whether in the civil law tradition or the common law tradition?  To meet this challenge, federal tax legislation must use terminology that is compatible with each of the two legal systems, in both official languages.  The need to make Canadian legislation accessible to the four legal audiences of this country has led to the adoption in 1995 of the Policy on Legislative Bijuralism, which: 

formally recognizes that it is imperative that the four Canadian legal audiences (Francophone civil law lawyers, Francophone common law lawyers, Anglophone civil law lawyers and Anglophone common law lawyers) may, on the one hand, read federal statutes and regulations in the official language of their choice and, on the other, be able to find in them terminology and wording that are respectful of the concepts, notions and institutions proper to the legal system (civil law or common law) of their province or territory;[12] 

Thereafter, in 1999, the Program for the Harmonization of Federal Legislation with the Civil Law of Quebec was implemented.[13]  This program is also a consequence of the coming into force of the Civil Code of Québec[14] on January 1, 1994 where important changes in a number of substantive rules and to the civil law terminology were brought forward.  These changes have an impact on the application in Quebec of federal acts and regulations.  Harmonization ensures that the civil law institutions and concepts are respected and that the correct terminology is used when referring to them.  Professor Nicholas Kasirer, while appearing before the Standing Senate Committee on Legal and Constitutional Affairs, described harmonization in the following terms:

Harmonization, as a musical technique, shows how the four voices of federal legislation are being fine-tuned with full respect being paid to bilingualism and bijuralism. (…)

First then, what does “harmonization” imply as a matter of legislative technique?  Harmony takes different forms in music theory.  Multiple voices can come together as one or differently to achieve a unified effect.  Quite plainly, the federal Parliament has chosen the model of polyphonic music as opposed to monophonic song for Bill S-4, and one presumes for the legislation that will be sung in this chamber hereafter.

By “polyphony” I mean that musical form whereby multiple voices, each singing in a different register, combine differently to form a musical whole.  (…)

Polyphonic legislation would thus be the method by which the legislative song, as it were, emerges as a whole through the harmonious combination of four different voices – the common law in English and French and the civil law in English and French, which taken separately are radically different but taken together express the whole of the legislative norm.

The task is daunting, but it is the imperative of section 133 of the Constitution Act, 1867, which give French and English equal authority as expressions of legislative text and the coexistence of the common law and the civil law as varying bases of suppletive law for federal legislation that imposes this polyphonic legislative form.

Plainly, the former reality, in which the English text represents the common law and the French text represents the Civil Code, not only ignored the reality of a vibrant civil law culture in English in Quebec but also the promise of a common law culture in French outside of Quebec such that two of the voices of Canadian law were in some measure silenced.[15]

Harmonization is thus a pragmatic exercise, which ensures that federal legislation is compatible with and applicable within each of our two legal traditions in both of our official languages.

Viewed from a drafting perspective, Canadian bijuralism appears to impose a tremendous challenge on the structure and interpretation of Canadian legislation (and particularly tax legislation which depends so much on an equal distribution of tax burdens and benefits).  However, as a country immersed in two legal traditions – common law and civil law – the world’s two major legal systems, bijuralism places Canada in a privileged position within the international community.[16]  Based on a study undertaken in 1998 by the Law Faculty of the University of Ottawa,[17] civil law and common law systems represent 72% of the world’s legal systems, civil law systems accounting for 43.8% alone.  Canadian bijuralism thus offers at the same time a tremendous challenge domestically and “gives us a window on the world.”[18]  Indeed bijuralism viewed from an international perspective expands considerably our legal connectivity to the global village.

2.  Complementarity and Dissociation: The Interplay of Federal and Provincial Law[19]

Having acknowledged the need for bilingual and bijural tax legislation, let us examine the relationships between federal and provincial private law.  As such, federal legislation does not often stand alone and depends on provincial private law for meaning. 

Federal law is not “an island unto itself”.  Some federal enactments are fully comprehensive and self-contained.  Others, however, can only be fully understood and comprehended if reference is made to extrinsic legal sources.  In most instances, those external sources are composed of provincial law.  While the content of provincial law may vary from province to province, the validity of any such provincial law, in large measure, depends of s. 92 of the Constitution Act 1867.[20]

As noted earlier, the division of legislative powers under the Constitution Act, 1867 provides that provincial legislatures have exclusive jurisdiction over matters of property and civil rights.  Most of Canada’s private law is provincial.  Therefore, where federal legislation refers to private law terms and concepts such as mortgage, property, trust and leases, without defining such terms and concepts, they take the meaning that applies in the private law of the province in which the provision is being applied.  Provincial law thus is in symbiosis with federal legislation and gives it meaning.  This interaction of federal and provincial legislation is called complementarity.  Provincial private law, in this relationship, can be viewed as the backdrop or legal infrastructure of the federal legislation.  Provincial private law provides the suppletive law by completing federal legislation where it is silent or incomplete on an issue.  In common law provinces this backdrop or infrastructure is the general common law but in Quebec the backdrop is the Civil Code of Québec and civil law principles of general application.

It is always open, under the Constitution Act, 1867, for federal policy makers to write out their own private law rules and to derogate from the relationship of complementarity.  This is done typically where federal policy makers want greater consistency in federal policies.  This other type of relationship is called dissociation.  For example, provincial family law is often heterogeneous as some of its rules vary from one province to the other.  The lack of symmetrynecessary to administer coherently federal policies and programs sometimes calls for definitions in federal legislation like that of “child” or “common law partner”.  Overall, however, it is usually more convenient and logical for the federal legislator to work with the existing provincial private law infrastructure than to reinvent it in every federal statute.  Thus, even where federal definitions or specific federal rules are provided, they often refer, in varying degrees, to provincial private law rules and concepts.  The interpretation of federal legislation requires an awareness of the differences in our legal traditions and of the diversity in our provincial private laws. 

The important differences that exist in our legal traditions and in the private law of the provinces may produce tax results in one province that are not desirable from a legislative or policy perspective (undesirable asymmetry).  In keeping with the principle of complementarity these adverse tax results must be anticipated and the gaps between common law and civil law must be adequately bridged with specific provisions if federal tax legislation is to apply effectively and equitably throughout Canada.

To better understand some of the issues that have to be addressed in the process of harmonizing federal legislation, let us briefly set out some of the major differences between the common law and the civil law.

3.  Common Law and Civil Law: A Brief Comparison

Differences exist between Quebec civil law and the common law; sometimes they are trivial, often they are gaping.  Conceptually, both systems are different.  What characterizes civil law is codification.  Most of the civil law rules are set out in the Civil Code of Québec.  There is a predominance of certainty over flexibility.  Confronted with a given set of facts, in civil law one will have to determine which of the rules found in the Civil Code is to be applied.  Because no court can change a written rule, if a rule becomes the source of injustice, the only solution available will be to amend the law.  Such a process can be both difficult and time consuming.

One of the common law’s predominant features is its flexibility.  Furthermore, if the result of the application of common law rules is inadequate, it is possible to obtain certain equitable remedies.  One of the most interesting and challenging features of English law for civil law practitioners is this duality that exists between common law and equity and the possibility of having title to property at common law and title at equity.[21] This duality stems from the coexistence of the courts of law and the courts of equity where equitable principles were developed to temper the effects of some of the common law rules.[22]  “While the courts of common law and equity are now fused in virtually all jurisdictions, the separate rules of law remain in force.  (…)  Thus, the distinction between legal and equitable interests still maintains.”[23]  The latter distinction was reaffirmed in Canson Enterprises Ltd. v. Boughton[24] and in Martin v. Goldfarb.[25]  On the other hand, the only equitable rules that apply in civil law are those expressly provided for in the Civil Code or other statutes.[26]

3.1 Property Law

In the field of property law, the differences between both systems have given rise and continue to give rise to many questions for tax law purposes including the questions pertaining to the acquisition and disposition of property.  Listing the characteristics pertaining to the nature and scope of ownership allows one to identify some of the differences between the common law and the civil law.

3.1.1 Characteristics of Both Legal Systems

Civil law has a very Cartesian approach to the law of property.  Article 899 of the Civil Code states that “Property, whether corporeal or incorporeal, is divided into immovables and movables”.  The Civil Code then lists the property that is or is deemed immovable[27] and all other property, if not qualified by law, is deemed movable.[28] 

By comparison, at common law, property is fundamentally divided between real property and personal property.  The rules pertaining to the classification of property owe their origin, as stated by Professor Ziff “to the rules of civil procedure that governed litigation at common law during the Middle Ages.”[29]  Even though the forms of action at common law were abolished, these labels have remained.[30]  A real action could be undertaken with regards to property for which the return of the land could be ordered.[31]  This property was eventually designated as real property.  The personal action was originally one for which only damages could be awarded.  Personal property eventually became the label ascribed to the property subject to such actions.[32]  A hybrid category developed for the lease, which is now a chattel real, but is nevertheless considered as a personal property.

Property under civil law is thus qualified pertaining to its nature whereas it is the form of action that is the qualifying element at common law.

3.1.2 The Concept of Ownership

In civil law, ownership is central.  Effectively, there is always just one right of property on movables or immovables.  Regardless of whether property is movable or immovable, one will always try to answer the question: “Who owns or has title to the property?”  At common law, on the other hand, one’s analysis will depend on whether the property is personal or real.  One can own personal property[33] in a manner much similar to the civil law conception of property but “ownership” is a concept that clashes with the doctrines of estates and tenures in common law.  With regards to real property,[34] the law historically developed around the idea that land is owned by the Crown who grants rights and interests: it recognizes no absolute ownership of land and instead recognizes estates or interests in land (theory of the bundle of rights).[35]  Possession is an essential feature of the law of real property.  At common law, one’s inquiry will pertain not to the question of ownership of land but to the length of time of the possession (doctrine of estates) as well as the quality of the possession (doctrine of tenures).[36] 

3.1.3 Property: a Conceptual Difference

At common law, property is composed of and can be fragmented into various rights and interests that coexist.[37]  Furthermore, common law and equity make it possible for different people to hold concurrently a common law title and an equitable title (beneficial ownership) for the same property.[38]  Such a coexistence of titles is not possible in civil law since the distinction between the legal and equitable title does not exist and never has. 

Article 947 CCQ provides that “ownership may be in various modes and dismemberments”.  What characterizes all dismemberments is that they do not entail a change in the ownership of the property but rather involve a separation of the attributes of ownership: usus, fructus and abusus.  Namely, dismemberments are the usufruct, the use, the servitude and the emphyteusis.[39]  For example, the usufruct is defined as “the right of use and enjoyment, for a certain time, of property owned by another as one’s own, subject to the obligation of preserving its substance”[40] whereas a right of use is “the right to enjoy the property of another for a time and to take the fruits and revenues thereof, to the extent of the needs of the user and the persons living with him or his dependants.”[41]  On the other hand, the modes of ownership are co-ownership and superficies.[42]  As such, the modes of ownership do not call for a separation of the attributes of ownership; the right of ownership remains whole.  In a co-ownership,[43] the exercise of the attributes of ownership on a subject matter is however limited by the fact that two or more persons detain the same right of ownership.  Moreover, a superficies is characterized by the fact that it results in the physical division of the subject matter of the right of ownership and superimposes two complete and distinct rights of ownership on the divided subject matter.  For example, the owner of land with buildings erected upon it may choose to sell the buildings while remaining the owner of the land.[44]

3.2 Trusts

Another area in which both legal systems are very different is the law of trusts.  In common law, the trust is a creation of the courts of equity and is best described as a relationship between three parties: the settlor, the beneficiary and the trustee.  The following definition of the concept of trust is most comprehensive:

A trust is an equitable obligation binding a person (who is called a trustee) to deal with property over which he has the control for the benefit of persons (the beneficiaries), of whom he may himself be one, and anyone of whom may enforce the obligation.[45]

The trust involves a split or duality in the transferred property’s title; the trustee having the legal title to the property while the beneficiary or beneficial owner, holds the equitable title to the same property.[46]  The equitable obligation is associated with the idea of a conscience or moral duty owed to the beneficiary.  It is so strong as to allow tracing of the property in the hands of a third party in certain circumstances: “the beneficiary is allowed to trace the trust property into its product.  The beneficiary has a similar right against anyone to whom the trustee has transferred the property, provided the transferee was a volunteer or took with notice of the trust.”[47]  

In civil law, the trust (fiducie) does not have the same colourful history.[48]  Before 1879, a trust could only be used for charitable purposes under a valid will.[49]  The trust was introduced in the former Code nearly 20 years after its adoption.[50]  The trust, as it was known between 1879 and the reform of the Civil Code in 1994, was the subject of many debates as to its nature and effects.[51]  The institution was not well integrated with the civil law theory of property to say the least.[52]  Before 1994, better known civil law institutions such as the usufruct, the right of use and the substitution, were far more prevalent.

In 1994, the Civil Code introduced a new trust, better integrated with the civil law concept of property.  The trust became an autonomous patrimony.[53]  Once the settlor has transferred property to the trust and the trustee has accepted to hold and administer it, nobody owns the property anymore, neither the trustee nor the beneficiary.[54]  There is no duality of property as in common law.  The trustee never becomes the owner of the property at law and although the title is established in his name, ès quality of trustee, he is a mere administrator of the trust property.[55]  Thereafter, the trustee only has duties and obligations and the beneficiary has certain rights to require benefits or payments.[56] 

Duality of title between the legal and beneficial owner is thus an important difference between common law and civil law.  This duality exists not only in the field of trust law but also in other fields related to the law of property such as mortgages and leases. 

3.3 Lease

Again, the major difference between the lease of land and buildings at common law and civil law stems from the fundamental differences in property law.  From a common law point of view,[57] a lease is defined as “a document creating an interest in land for a fixed period of certain duration, usually in consideration of rent.”[58]  The leasehold estate is for a limited or fixed duration.  What characterizes the leasehold estate or interest is that the lessor, while retaining the seisin, conveys possession of the land to a tenant for a given period of time.  The lessor retains a reversionary interest in the land i.e. the right to possession of the land at the end of the lease.  This interest reverts back to the lessor at the end of the lease.[59]

Mossman describes the situation as follows:

the concept of ‘ownership’ does not neatly apply to a leasehold estate, because neither the lessor nor the tenant enjoys sole and exclusive rights of ownership.  Both the tenant and lessor have interests (or estates) in the same piece of land.  The tenant has a possessory interest (or estate in possession) for the duration of the leasehold estate, and the lessor retains a reversion.[60]

In civil law, the lease is one of the various nominate contracts enumerated in the Civil Code.  It belongs to and is best analysed in the context of the law of contract and not the law of property.  The rules pertaining to the lease[61] are perfectly integrated with the civil law conception of property.  The lessor remains at all times owner of the premises.  The lessee has the right to peaceful enjoyment of the premises throughout the term of the lease in exchange for payment of the rent.  He has no real right on the property, only a right of claim.[62]  Upon termination of the lease, the lessee simply surrenders the property to the lessor in the condition he received it.[63]  The lease in no way affects ownership of property, only its enjoyment.

3.4 Mortgage / Hypothec[64]

The basic difference between the civil law “hypothec” and the common law “mortgage” relates to the ownership of the property being mortgaged.  Except for common law provinces wherein the Torrens system of land titles registration applies,[65] a mortgage conveys legal title to real property to the mortgagee (creditor).[66]  In all common law provinces, if personal property is mortgaged (chattel mortgage), legal title to the property is always conveyed to the mortgagee (creditor) as security for the repayment of the loan.[67]  In both cases, legal title to the property is transferred back to the mortgagor (debtor) upon repayment of the loan to the mortgagee.  In comparison, under civil law, when a hypothec is granted, the debtor retains ownership of the property.  The hypothecary creditor only has a charge, a real right on the property.[68] 

These are only but a few examples of some of the existing differences between common law and civil law that may affect the application of federal legislation throughout Canada.

4.      The Harmonization Program and its Objectives

As previously mentioned, the need to harmonize stems from the coexistence of civil law and common law in Canada and from the relationship of complementarity that exists between federal legislation and provincial private law.  It should be emphasized that the harmonization of tax laws is not a byzantine or academic exercise but rather a very practical undertaking aimed at adapting tax laws to the civil law environment.  Harmonization is about bridging the gaps that exist between Canada’s two legal traditions.  It is also about ensuring effective and equitable application and enforcement of federal tax legislation. 

The Harmonization Program is administered by the Legislative Services Branch of the Department of Justice.  This Program purports to systematically review the existing body of federal legislation – some 700 statutes and their regulations – and ensure their compatibility with civil law when they refer to provincial private law rules and concepts.  This revision is similar in its scope and process to the revision of federal legislation that took place in the late 1980s to ensure conformity with the Canadian Charter of Rights and Freedoms.[69]

Tax law has been identified as one of the key areas requiring harmonization along with regulatory law and commercial law.  Considering that tax legislation has major patrimonial consequences, it is imperative that this legislation be applied so as to produce equal tax obligations and tax benefits to all Canadians, regardless of the legal system that governs them.

Currently, federal legislation covers only partially the four Canadian legal audiences.  Anne McLellan, former Minister of Justice, described the purpose of the Harmonization Program in the following terms:

Despite the historical coexistence in Canada of two major western legal traditions, federal legislation has tended to make civil law, at least at times, an orphan. At times, it created statutes whose very concepts were unique or peculiar to the common law; at times it used terms that had no civil law equivalent or no technical meaning in civil law; and at times it used terms whose meanings were so different in civil and common law that Quebec’s courts tended to favor the common law interpretation as a better reflection of Parliament’s intent. 

The harmonization project therefore represents an opportunity to correct previous oversights, omissions and unijural constructions in existing federal legislation, and to replace them with wording that accurately reflects the vocabulary, concepts, norms and institutions of Quebec’s civil law.[70]

It can readily be seen from these remarks that three types of problems are of concern in the harmonization process:

1)  unijuralism[71]: terms and concepts that only have meaning in common law have to be adapted to the civil law tradition, if tax laws are to apply effectively in Quebec.  Catherine Brown, Mark Brender and Diane Bruneau have addressed such problems in their study of the use of the concept of beneficial ownership and of other trust law concepts in tax legislation.  They have identified specific problems and attempts are made to develop equivalent concepts and rules for the civil law environment.  Other examples of unijuralisms include references to concepts such as “leasehold interest”, “joint ownership” and “bare trust”.

2)  semi-bijuralism[72]: this drafting approach, which consists in using exclusively common law terminology in the English version and exclusively civil law terminology in the French version, is no longer appropriate to address the four legal audiences (common law and civil law in each official language).

3)  obsolete terminology[73]: federal legislation uses terminology that is now obsolete as a result of the reform of the Civil Code of Québec in 1994.  The Civil Code underwent a major overhaul in 1994 and many concepts were either changed or replaced.  As a result, the civil law terminology that is used in federal legislation must be updated to reflect the reform of the Civil Code.  An example of a change that affects tax legislation is the concept of “executor” which has become in Quebec civil law a “liquidator of a succession”.  Similarly the concepts of “offenses and quasi-offenses” / délit et quasi-délit have been replaced by the concept of “extracontractual civil liability” / responsabilité civile extracontractuelle. 

Different drafting techniques can be used to correct harmonization problems.  In each case, the choice of the most appropriate solution will depend “on the situation, the structure of the enactment in which the legislative provision is to be included, the legislative corpus as a whole, and the imperative (…) of simultaneously addressing four different groups”[74] – common law in French and English and civil law in French and English.  Hereafter are the principal drafting techniques used to harmonize federal legislation:

§  common term[75]: the common term (neutral, generic or general) drafting technique consists in using, for civil law and common law, a neutral term which either has no connotation in the two legal systems or has a similar meaning in both legal systems.  This technique is least susceptible of creating differences in application from one system to the other.

§  definition[76]: in a bijuralism context, the definition drafting technique consists in giving a term a meaning that is specific both to civil law and common law.  This technique can already be found in tax legislation; the definition of the words “release or surrender” / abandon, “child” and “common law partner” provided in the I.T.A. offer good examples.  By defining its own rules and concepts the legislator avoids, in whole or in part, references to and potential differences in provincial private law.

§  double[77]: another drafting technique is the double, which consists in formulating the legal rule using, side by side, the terminology applicable to each legal system.  This technique will not always be privileged since simplicity and concision may be lost, notably in long tax provisions.

Harmonization and bijuralism should not only inform the drafting of tax legislation but they should also inform the development of tax policy.  Thus, it is advisable that tax policies not be articulated around unijuralisms or legal concepts that have no equivalent in the civil law tradition.  Using unijural legal concepts and terminology such as leasehold interest, equity, joint ownership or beneficial ownership in the development of tax policy is problematic.  It is preferable to use more neutral terms and concepts that apply readily to both legal traditions or, where this is not possible, to use doubles as described above.  This is another challenge that lies ahead in tax policy development.  Current tax policies that are often structured around common law terms, concepts and rules have to be carefully reviewed and adapted.

Harmonization changes will have an important impact on federal legislation.  Indeed, harmonization will require changes or additions to the terminology used in both linguistic versions of an enactment to ensure they are compatible with civil law and common law.  As a result, the emergence of new terminology in bijural provisions might present a problem for the Anglophone who is not familiar with civil law terminology and for the Francophone who is not familiar with common law terminology.  This raises the issue of marking harmonization changes to indicate whether a provision contains civil law terminology, common law terminology or terminology consistent with both legal systems.  Is it necessary to highlight[78] the harmonized terminology by means of an editorial convention such as italicizing civil law terminology and underlining common law terminology?  Would it be appropriate to create a lexicon[79] of private law terminology used in the English and French versions of federal legislation? 

The Department of Justice and several academics and practitioners reflected upon these issues and concluded that marking legislation for civil law or common law terminology or creating a lexicon in federal legislation was not desirable for several reasons[80].  The legislature has always spoken in one form with respect to language.  One official language version is not printed in a typeface different from the other. Similarly with the movement to ensure the law speaks to all legal audiences it would be inconsistent to distinguish one legal concept from another by different typefaces or other forms of marking.  The symbolism of the uniform appearance of Canadian statute books is important.  No language or legal concept is more or less important; they are all equal in all respects and none is singled out[81].   

Every one agreed, however, that the new techniques of bijural legislation needed to be communicated effectively to the legal community and to the population in general.  As an alternative, it was decided to create bijural terminology records, an administrative tool to facilitate the interpretation of provisions containing harmonization changes.  Pursuant to a commitment taken before the Standing Senate Committee on Legal and Constitutional Affairs,[82] the Department of Justice made these bijural terminology records available[83].  These bijural records briefly explain the harmonization problems found in the legislative provisions that were amended in the first harmonization act[84] as well as in the Income Tax Amendments Act, 2000[85] and describe the solutions adopted.  These records identify civil law and common law terminology in both official languages.  The bijural terminology records can be used in the interpretation or application of harmonized enactments.[86]  The usefulness of the bijural terminology records has already been demonstrated by the Supreme Court of Canada in the Schreiber case.  The Court relied on these records to confirm that the harmonization changes that had been brought forward were aimed at introducing civil law terminology and did not affect the substance of the provision.[87]

5.  Progress to Date and Legislative Amendments

To date one omnibus Harmonization Act was passed and became the Federal Law – Civil Law Harmonization Act, No. 1.[88]  Its main components consists in the amendments to the Interpretation Act[89] and to approximately fifty federal statutes in matters of property law, civil liability and sureties.  The Department of Justice Canada is working on another series of harmonization proposals for inclusion in a second harmonization bill.  Public consultations are planned for January 2003 on this second set of general harmonization proposals.

On the tax front, harmonization changes have been made in several tax bills adopted over the last few months.

§   Income Tax Amendments Act, 2000 (Bill C-22)[90]

The first harmonization changes to tax legislation can be found in the Income Tax Amendments Act, 2000. Its Part I contains a few harmonization adjustments whereas its Part II pertains solely to harmonization with the civil law of the Province of Quebec of three concepts: executor, mortgage and joint ownership.

§   executor: before these amendments, reference was made solely to the concept of “executor”.  Since the reform of the Civil Code, this term is obsolete, having been replaced with the concept of “liquidator of the succession” / liquidateur de la succession.  In this case, the solution consisted in adding this new civil law concept beside the expression “executor” / exécuteur testamentaire which is still used in common law.

§  mortgage: the second problem was one of semi-bijuralism: the English version of the provisions referred only to “mortgage”.  The English version was adjusted by adding the civil law concept of “hypothec”.  Nothing was added to the French version, as hypothèque is appropriate in French for both common law and civil. 

§  joint ownership: adjustments were made to certain provisions in which reference was made to the concept of joint ownership, a common law concept, which calls for a right of survivorship.  This concept does not exist in civil law.  In order to correct the problem, the neutral term “co-ownership” / copropriété was used which refers to all forms of co-ownership both in civil law and at common law.

These harmonization amendments were made to the Income Tax Act, Excise Tax Act[91] and Income Tax Application Rules.[92] 

§  Customs Act (Bill S-23)[93]

Changes were brought to the Customs Act[94] where one can now find the civil law concept of “hypothec” beside “mortgage”.  In addition, we now find the double “real property or immovable” in the English version and immeuble ou bien réel in the French version.    

§  Excise Act, 2001 (Bill C-47)[95]

Changes similar to those found in the Customs Act were made in the Excise Act[96]in which an additional adjustment was made: the civil law concept of “solidarity” was added beside that of “joint and several” in provisions dealing with liability.

The Department of Finance and the Canada Customs and Revenue Agency (CCRA), like the rest of Government, are committed to the harmonization of tax legislation to ensure its efficient application in the unique civil law environment of Quebec.  Comparative law analyses are being conducted and harmonization changes are being made in tax legislation with a view to adapting federal tax legislation to the legal concepts and rules of Quebec’s private law.

6. New Interpretation Rules

Sections 8.1 and 8.2 of the Interpretation Act constitute the cornerstone and provide the rules for the interpretation of federal legislation in light of Canadian bijuralism.[97]

Although the existence of Canadian Bijuralism stems from the Quebec Act of 1774, it is not formally recognized in any statutory provision.  The same is true of the principle of complementarity of federal law with the law of the provinces respecting property and civil rights.  What is more, there are no rules of interpretation to guide those required to apply bijural legislation.  All these reasons led the Department of Justice, after consulting various experts, to amend the Interpretation Act to add two provisions designed to correct these deficiencies.[98]

§ Section 8.1 of the Interpretation Act[99]

Section 8.1 of the Interpretation Act “has two inseparable objectives: to recognize Canadian bijuralism and to consecrate the principle of the complementarity of federal law and provincial law with respect to property rights.”[100]  The section reads as follows:

Both the common law and the civil law are equally authoritative and recognized sources of the law of property and civil rights in Canada and, unless otherwise provided by law, if in interpreting an enactment it is necessary to refer to a province’s rules, principles or concepts forming part of the law of property and civil rights, reference must be made to the rules, principles and concepts in force in the province at the time the enactment is being applied.

This provision states that civil law and common law are equally authoritative in matters of property and civil rights in Canada, a premise of Canadian bijuralism.  In addition, the provision codifies the principle of complementarity of provincial private law.  We emphasize that the principle of complementarity is cast very broadly so to apply not only in regards to civil law but to all provincial private law, including general common law and provincial statutory law.  In addition to the principle of complementarity, this provision establishes an ambulatory character to provincial private law terms used in federal legislation.

The principles that are found in this provision were the object of many judicial debates in the past.  Before the Supreme Court of Canada’s trilogy – Quebec North Shore Paper Co. v. Canadian Pacific Ltd.,[101] McNamara v. Queen[102] and Queen v. Thomas Fuller Construction Co. (1958) Ltd.[103] – there were two schools of thought, the first one supporting the thesis that there existed “a federal common law in all matters falling within the jurisdiction of the federal government”[104] fully independent of provincial law while the second one argued for the recognition of the complementary nature of provincial private law in matters where federal legislation was incomplete or silent.  The Supreme Court rejected the first thesis and “opened the door to the recognition of bijuralism with respect to federal legislation.”[105]

A new debate ensued from this recognition: does provincial private law complete only federal private legislation or does it apply in all cases regardless of the qualification of an act as private or public legislation?  This precise issue has been addressed by the Federal Court of Appeal in St-Hilaire v. Canada.[106] 

o St-Hilaire: Private Law vs Public Law

Mrs. St-Hilaire, a Quebec resident, stabbed her husband during a violent domestic quarrel.  She was charged with second-degree murder and pleaded guilty to a reduced charge of manslaughter.  Mrs. St-Hilaire, as sole heir and surviving spouse, claimed the surviving spouse’s allowances under the Public Service Superannuation Act.[107]

The Treasury Board refused to pay, on account of the common law rule of public policy that “no one may profit from his or her crime”.  Mrs. St-Hilaire applied to the Federal Court Trial Division for a declaratory judgment that civil law rules applied and that these rules entitled her to the benefits provided in the PSSA.

Justice Blais allowed Mrs. St-Hilaire’s application and ordered the Treasury Board Secretariat to pay her the amounts claimed.[108]  The Trial Division decided that under the civil law of Quebec, no rule applied to disallow Mrs. St-Hilaire’s claim.  The Federal Court of Appeal allowed the appeal.  The Court was divided on the interpretation of the civil law rules of succession but unanimous on the issue of the complementarity of federal legislation and provincial private law where the former is silent on the meaning of a concept.

Justice Décary rejected the argument that provincial private law is to complete only federal private legislation as opposed to public legislation:

[65] What, in my view, should determine whether or not it is necessary to resort to the private law (in Quebec, the civil law) is not the public or private nature of the federal enactment at issue but the fact, quite simply, that the federal enactment in a given case must be applied to situations or relationships that it has not defined and that cannot be defined other than in terms of the persons affected. In some ways the circle is closed and we come back to the point of departure, in section VIII of The Quebec Act, 1774: when these affected persons are litigants and their civil rights are in dispute and have not been defined by Parliament, it is the private law of the province that fills the void. In short, the civil law applies in Quebec to any federal legislation that does not exclude it.[109]

He concluded that the concept of “succession” is a private law concept and consequently that it must be interpreted in light of the private law of the province in which the provision is to be applied:

[68] I do not think there can be any doubt that this part of the Act, which refers to "succession" without defining it, should be interpreted in Quebec in light of the civil law. This is a good example of the danger in concluding that a federal statute is either public law or private law and that once it is public law any reference to a private law concept must be interpreted in light of the common law. I have a hard time imagining how, in the case at bar, Mr. Morin's succession would be determined otherwise than under the Civil Code of Québec. In my opinion, there is no avoiding the fact that a federal statute, albeit one characterized as public law, that refers to a private law concept such as succession without defining it, should be interpreted in Quebec in terms of the civil law.[110]

In keeping with this decision, one will first need to determine if the federal legislation refers to a private law rule, principle or concept.  Then, one will have to determine whether the federal legislation contains its own private law rule.  If federal legislation is silent (as in the St-Hilaire case) or relies upon provincial private law to complete it, then reference is to be made to provincial private law.

§ Section 8.2 of the Interpretation Act[111]

Section 8.2 of the Interpretation Act is “intended to facilitate an understanding of the new drafting techniques designed to reflect Canadian bijuralism in federal legislation.”[112]  It reads as follows:

Unless otherwise provided by law, when an enactment contains both civil law and common law terminology, or terminology that has a different meaning in the civil law and the common law, the civil law terminology or meaning is to be adopted in the Province of Quebec and the common law terminology or meaning is to be adopted in the other provinces.

Section 8.2 of the Interpretation Act mentions that where a provision uses civil law as well as common law terms, the former will be applicable in Quebec and the latter in the other provinces.  The redrafting of certain federal enactments being one of the harmonization tools chosen, section 8.2 was added so that the redrafting process does not give rise to any ambiguity with regard to the goal pursued.[113] 

Thus, a taxpayer who comes across a double such as “mortgage or hypothec” or “real property or immovables” will have to read the provision as referring to the concept of “hypothec” or “immovable” for the Province of Quebec and “mortgage” and “real property” for all other Canadian provinces.  This interpretive approach was recently approved by the Supreme Court of Canada in Schreiber v. Canada.[114]  Although the case does not pertain to taxation, we believe the decision will apply to all harmonized enactments.

o Schreiber: Interpretation of Harmonized Provisions

Mr. Schreiber had been arrested and detained for one week further to a request from Germany.  He sued Germany and Canada claiming one million dollars in damages.  He alleged that Germany did not have immunity of jurisdiction because the exception to state immunity found in paragraph 6(a) of the State Immunity Act[115] was applicable.  This exception initially applied to cases of “any death or personal injury”.  Paragraph 6(a) was amended by the Federal Law – Civil Law Harmonization Act, No. 1and now excludes from state immunity proceedings that relate to “any death or personal or bodily injury”.

Mr. Schreiber argued that adding “bodily injury” to “death or personal injury” had broadened the scope of the exception to state immunity.  Accordingly, he submitted that “bodily injury” referred to damage to the human body and “personal injury” to all other forms of damage such as mental distress and damage to his reputation.  Counsel for the Crown, on the other hand, argued that the insertion of “bodily injury” was intended to “ensure that the wording used in legislation which relies upon complementary provincial law reflect Canada’s bijural and bilingual nature.”[116]

The Supreme Court agreed with the Attorney General’s interpretation of the provision.  The Honourable Justice Lebel, writing the Court’s unanimous decision, rejected Mr. Schreiber’s interpretation of the provision because it neither took into account the purpose of the changes made nor the French version of the provision:

[…] Given that the purpose of the Harmonization Act is to highlight bijural terminology used by common law and civil law systems, and does not substantively change the law as set out in the statute, we are left interpreting s. 6(a) of the State Immunity Act using the usual techniques of interpretation.[117]

The Court then analysed the French version in its attempt to give meaning to the terminology used in the English version.  Since the expression used in the French version (dommages corporels) clearly referred only to damages to the human body, the Court rejected Mr. Schreiber’s claim against Germany.

This decision illustrates that where harmonization changes have been made, the nature of the changes is to be taken into consideration in interpreting the enactment.  Such harmonization changes are not to be construed as substantively changing the law.  The insertion of civil law terminology in the English version and common law terminology in the French version is not to be interpreted as changing the provisions’ scope.

7. Research Contracts

A number of research projects on various issues pertaining to Canadian bijuralism in the tax field have been completed and others are in progress.  The first reports, most of which have recently been published, pertained to the following subjects: a comparative study of the civil law and common law partnerships, the concepts of “right” and “interest”, the concepts of “business”, “employee” and “residence”, the retroactive effect of conditional obligations and the concept of licence (property law perspective) as used in the Excise Tax Act.[118]

Students are also invited annually to participate in harmonization research.[119]  Projects are currently in progress namely on the concept of “indefeasibly vested” / dévolution irrévocable and on time limitation periods.

Four other reports were recently completed and are published hereafter in this Journal.  Professor David Duff analyzes the new interpretation rules and their impact on Canadian tax caselaw.  Me Diane Bruneau’s report deals with the interaction of the trust provisions of the ITA with Quebec civil law.  Professor Catherine Brown analyzes the concept of “beneficial ownership” from a common law perspective whereas Me Mark Brender focuses on the use of this concept in tax legislation and underlines the difficulties for the civil law audience.

The Department of Justice will examine the various solutions proposed in these reports with the Department of Finance and the CCRA to determine the feasibility of harmonization changes to existing tax legislation.

Conclusion

The enactment of sections 8.1 and 8.2 of the Interpretation Act do not in any way change the tax policy principles of equity or of neutrality in taxation.  That tax legislation must provide for an equitable distribution of tax burdens and tax benefits in light of a taxpayer’s ability to pay and irrespective of the province in which income is earned, is not in dispute at all.  What is in issue, however, is the formulation or the expression of the federal tax rules in a bijural environment. 

Given the codification of the principles of equality of common law and civil law and of complementarity of provincial private law with federal legislation, provincial private law principles, rules and concepts should apply in interpreting federal tax legislation unless other specific rules are provided by law.  This means that federal tax provisions cannot be interpreted having regard exclusively to common law concepts and terminology and that their interpretation must also be compatible with civil law concepts and terminology.  Accordingly federal tax legislation must be more “civil law friendly” for purposes of its application in the Province of Quebec.

It should be emphasized further that the requirement of compatibility with provincial private law extends not only to Quebec civil law but also to the private law of the other provinces and territories.  If there are material differences in the provincial private law of common law provinces due for example to the specific statute law applicable in a given province, such differences must be adequately taken into consideration in tax legislation.

As will be seen in Professor David Duff’s article, our courts have played an important role in interpreting federal tax legislation in light of Canada’s legal duality.  In most cases, the courts have interpreted federal tax legislation so as to respect the civil law tradition in Quebec and the general common law in the other provinces. Sometimes, the consequence of respecting provincial private law will be that the tax treatment will differ depending on the province of application.  In a minority of cases, however, the courts have refused to apply the civil law in Quebec, favouring an interpretation resulting in uniformity of application, admittedly, for tax equity reasons.

This interpretative approach must now be reconsidered following the adoption of the principle of complementarity in section 8.1 of the Interpretation Act. This is not to say that the principle of complementarity mandates tax inequities.  Rather it simply means that respect for the diversity of provincial private law and the equality of the civil law and the common law are also important legal principles that must be taken into consideration in interpreting federal tax legislation.  The legislator may always derogate from provincial private law and specifically set out its own rules, where the application of provincial private law leads to differences in tax treatment.  The issue is not one of choosing between tax equity and the respect of provincial legal diversity[120] but rather one of understanding that, where federal law is silent or incomplete on a subject matter, provincial private law will complete it.

In closing it may be said that the rules of interpretation in sections 8.1 and 8.2 of the Interpretation Act now clearly and broadly set the requirement of compatibility with provincial private law.  These rules not only apply to the traditional interpreters like the courts but also to drafters, policy makers, tax administrators and all readers of bijural tax enactments.  These rules should also inform and influence the development and articulation of tax policy and of tax planning for effective national and international transactions.

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