THE INCOME TAX ACT, THE EXCISE TAX ACT AND THE TERM INTEREST: AN INTERESTING CASE FOR HARMONIZATION
Author: Martin Lamoureux
TABLE OF CONTENTS
Introduction 1. The term interest in its technical meaning: significant notable distinctions
1.2.1. The general meaning of “interest” (intérêt) 1.2.2. The technical meaning of “interest” (intérêt )
1.3.1. Interest in a business 1.3.2. Interest in a life insurance policy 1.3.3. Interest in an obligation 2. Part One: Harmonization of the term “interest” with the terminology of the common law in French
3. Part Two: Identification of problem provisions in the ITA and the ETA 4. Part Three: The Quebec civil law equivalent of the term Intérêt: “real right”
4.4.3.1. The lease in civil law: a comparison with the common law 4.4.3.2. Security interests, the civil law and the common law 4.4.3.3. The trust and civil law 4.4.3.4. The trust and the usufruct 4.4.3.5. The usufruct and its similarity to the notion of future interest 4.4.3.6. Trust and substitution
5. Part Four: Conceptual similarities and differences between the notions of “interest” (intérêt) and “real right” (droit réel) 6. Part Five: Definition of the terms interest and real right in the ITA and ETA
Conclusion Bibliography Schedule
INTRODUCTION* From the outset, it should be noted that income tax is a statutory creature. In Canada, the Income Tax Act[1] (ITA) governs taxpayers’ liability to the Federal government. However, the ITA must apply within the context of the private law of each Canadian province or territory.[2] As a matter of fact, provincial or territorial private law comes into play in the interpretation of private law concepts[3] used in the ITA but not specifically defined therein. The application and terminology ofthe ITA must therefore be harmonized with the common law and the civil law, the two legal systems upon which Canadian private law is founded. The same goes for the Excise Tax Act[4] (ETA) given that its application requires an interpretation of private law. Canada is a bijural state characterized by the co-existence of a civil law system and a dozen common law systems. Federal legislative drafters are therefore faced with an enormous task: as much as possible, their work must constantly be respectful of this Canadian bijuralism. A reading of the ITA and the ETA alerts us to the fact that all federal statutes do not respect the principle of Canadian bijuralism. This is evident, for example, with respect to the legal notion of “interest” which will be the subject matter of this paper. In particular, it will be limited to the harmonization of the term “interest” as understood in its technical legal sense. Indeed, our research has revealed that the French term“droit” is used to translate the English term “interest”. To begin with, it is obvious that this translation does not respect the principle of Canadian bijuralism as the notion of interest is foreign to the Quebec civil law tradition. Moreover, it should not be forgotten that to respect Canadian bijuralism is to take into consideration four separate legal audiences: Anglophones and Francophones subject to the civil law, on the one hand, and Anglophones and Francophones subject to the common law, on the other hand. The purpose of this study is therefore to find a French equivalent of the term “interest” as it is used under Britishcommon law, to harmonize it with the civil law legal system and, finally, to propose a French equivalent for the term “interest” for a Francophone common law audience. To harmonize the term “interest” with the civil law, one must obviously find a civil law equivalent of the term “interest”. As a prerequisite, we must define the term “interest” in its technical sense at common law and superimpose such a definition over its closest Quebec civil law equivalent. This would put us in a position to suggest an equivalent term that is not only respectful of the federal Parliament’s intent, but that also reflects the spirit of the law of each Canadian province and territory. In short, our purpose is to harmonize the terminology relating to the notion of “interest” with the civil and common law in order to respect the law of each province and territory. In particular, we will suggest alternative harmonization solutions for the notion of “interest” that are reflective of Canada’s four legal audiences in order to respect Canada’s bijural traditions in the spirit of fiscal equity in the application of the ITA and the ETA, i.e. each Canadian taxpayer must be taxed in the same manner regardless of where he or she resides. This study is divided into five parts: (1) the harmonization of the term “interest” with the terminology of the common law in French, (2) the identification of problem provisions within the ITA and ETA, (3) the Quebec civil law equivalent of the term “interest”(intérêt), (4) the conceptual similarities and differences between the notions of “interest”(intérêt) and “real right”(droit réel) and (5) the definition of the terms “interest” and “real right” in the ITA and the ETA. However, before proceeding, we will first determine the scope of the notion of “interest” for the purposes of this paper. 1. THE TECHNICAL MEANING OF TERM “INTEREST”: SIGNIFICANT NOTABLE DISTINCTIONS Before dealing specifically with the harmonization of the term “interest”(intérêt), we will first define the notion for the purposes of this study, i.e. within the context of the law of property. In this regard, it should be noted from the outset that with particular reference to the law of property, an “interest”(intérêt) denotes that bundle of rights that a person may assert over a thing whether as owner or encumbrancer. As stated earlier, the term “droit” is unfortunately used in Federal legislation as a translation of the term “interest”. First, we will specify the legal meaning to be given to the notion of “interest”(intérêt) in contrast to other meanings ascribed to it by Parliament in the ITA and the ETA. Then, we will show that the term “right”(droit) does not have the same scope as the notion of “interest”(intérêt) and that therefore the use of the term “droit”as atranslation of the term “interest”(intérêt) in its legal sense is inappropriate for Francophone common lawyers.
First of all, it is absolutely essential to understand that it is impossible to define a term such as “interest”(intérêt) without first specifying the context within which the meaning should be understood. To the extent that we are being asked to define it in terms of its usage at common law and in the law of property, any definition herein provided will already be limited per se. Indeed, by restricting the definition to specific contexts, there is a risk of overlooking other important meanings, some of which may be relevant to tax law. For example, let us take the term “interest” in the sense of interest payable on a mortgage loan or the notion to which it refers when used in the context of procedural law to mean an interest to sue. We have also taken it for granted that we did not have to catalogue and determine the interpretation to be given to the terms covered in the legislation. The explanations provided here deal with the meaning of the terms in their general and technical usage in the law of property, without taking into account any relevant statutory changes, with the exception of those which, over the centuries, have had the effect of changing their meaning imperceptibly. Moreover, it is impossible to disregard the historical context in which the common law has evolved. It is therefore absolutely necessary to be mindful of the importance of this historical context to understand the law of property in general. Lest we forget, at common law, there is no ownership of land, except absolute title to land which belongs to the Crown. “Owners” so called in popular language only hold land in freehold, and it is this right which belongs to the individual that can be conveyed. On the other hand, there is absolute ownership of personal property. In the same vein, it should be emphasized that the law of property can also be explained through notions which are less evident today because they are considered, sometimes mistakenly, as obsolete. It is important to understand, for example, that “seisin” or the concept of peaceful possession was the most important concept relating to property at common law. For several centuries, proof of seisin was the essential standard of proof at common law and no one could challenge the interest, right or title to the property of the person so seised. Moreover, the concept of seisin applied both to realty and personalty.
When used in common parlance, the term “interest”(intérêt)seems to have a very broad meaning and could undoubtedly serve as a generic concept in the context of the law of property: The relation of being objectively concerned in something, by having a right or title to, a claim upon, or a share in. a) The fact or relation of being legally concerned; legal concern in a thing; esp. right or title to property, or to some of the uses or benefits pertaining to property;[5] The term can be used to describe any interest whatsoever to property, including ownership and encumbrance:
It should be borne in mind that Canadian law of real property, i.e. the law that is relevant to the term “interest”(intérêt) within the Canadian context, is rather similar to British law as it existed before 1926, when England substantially amended its substantive law of real property. As we have already stated, the term can be used as a generic concept to encompass the notions of “estate” (domaine)and “right” (droit) as well as the notion of “interest”(intérêt)in its more technical sense: The estate in fee simple is the largest estate or interest known in law and is the most absolute in terms of the rights which it confers. It permits the owner to exercise every conceivable act of ownership upon it or with respect to it, including the right to commit waste.[7]
Because the term “interest”(intérêt) in its general sense appears somewhat vague, one may wonder if it is easier to define it when it is used in a context in which a technical meaning may be ascribed to it. A priori, there is a tendency to believe this to be the case as the term is used as opposed to “estate”(domaine), for example, or even to the term “right” (droit):
When applied to personalty, the term “interest”(intérêt)allows the fragmentation of property rights over time, as personalty is not subject to the “doctrine of estates” (doctrine des domaines). When applied to realty, its meaning may vary, even in a context where the tendency would be to ascribe the technical meaning to the term. For example, the term “interest”(intérêt)is also found in statutes referring either to property rights or to the ownership of land:
An “estate”(domaine)usually encompasses the notion of “interest”(intérêt)which is described as an“incorporeal interest”, for example, easements:
We could quote more definitions and explanations of the term “interest”(intérêt), but none of these definitions appears to be definitive, precise and applicable to all possible uses of the term. As we have already stated, the difficulty may stem from the unique evolutionary path followed by the law of property at common law, and especially from the absence of a theoretical framework for the notion of property. This peculiarity of the common law makes it difficult to spell out a concept that would normally be overlaid on such a theoretical framework. For example, to say that a person has an “interest”(intérêt)in landdoes not necessarily mean that he or she has something akin to title: indeed, the “interest”(intérêt)in question may be much more limited. The following passage is a fair illustration of this situation: From a purely technical point of view, land, houses, buildings, ranches, farms, and the products of land, are things, the subject matter of property. Property is a combination of legal relations sanctioned by the law existing between persons with respect to a thing, in which an aggregate of rights, privileges, powers and immunities collect to form property interests. [...]
In fact, depending on the context, the expression “interest in property” appears to be the converse of the notion of absolute ownership:
In addition, the term “interest”(intérêt)may have several meanings, even when it is used in the particular context of the law of property. In this regard, the following table is an illustration of the different dichotomies in which the term “interest” (intérêt)may be used: DIFFERENT USAGE DICHOTOMIES OF THE TERM INTEREST AT COMMON LAW
*For a definition of these terms, see schedule 1.
As our study is limited to the technical notion of “interest”(intérêt), it is essential to dispel any ambiguity relating to other meanings that may be ascribed to that notion. In particular, there are three types of meanings in the ITA and ETA which must be eliminated from our potential harmonization solution.
When reference is made to interest in a business, it is not a reference to “interest”(intérêt)in a technical sense. In fact, the courts have held that “an interest in a business would possibly be a profit sharing scheme or possibly a right over management.”[14]
Obviously the term “interest”(intérêt), meaning an insurable interest, is beyond the scope of this study.
Contracting with another person does not confer an “interest” (intérêt) in property. In fact, the courts have clearly distinguished this particular meaning of the word “interest” (intérêt) in its technical sense: A much more common use of the word would be to refer to such interest as a beneficiary may have in trust property. The word “interest” is not, however, according to my understanding of the ordinary use of English language, appropriate to refer to an obligation to pay money upon the happening of an event some time in the future or to the actual payment when made. Such an obligation is not an “interest” in property. It is an obligation to find and transfer (pay) unascertained property (money) at some as yet undetermined time in the future. There is no interest in any property created by entering into the contract. The contract merely creates a conditional obligation to pay money. Finally, there is no sense of the word “interest” that extends to a payment of money as such.[15] 2. PART ONE: HARMONIZATION OF THE TERM “INTEREST” WITH THE TERMINOLOGY OF THE COMMON LAW IN FRENCH Presently, as stated above, in the ITA and the ETA, the term “droit” is used as a translation of the term “interest”. We will discuss why we think the term “interest” should be translated in French by the word “intérêt” and not by the word “droit” if it is Parliament’s desire that the scope of the words be similar when law is practiced in French in a common law province or territory.
At common law, the meaning of the term “right” may also depend on the context. It may have a very broad meaning: [b]ut the term right is often used loosely to include any benefit or advantage the law recognizes and allows.[16] Used in the context of the law of property, it may mean a property right and, as such, may include “interests”:
It is interesting to note that it is sometimes said that “property rights” include various “interests”, and sometimes that the owner of an “interest” has a bundle of “rights”: Moreover, inasmuch as the property right consists of a bundle of rights, the owner of an interest has a multitude of rights, powers, privileges and immunities.[18]
Although the term “right” may have a very broad meaning, there is no tendency to use it in a generic sense as is the case with the notion “interest”. “Right” is used by the old writers on real property law in the technical sense of a right which an owner of land had when he had been disseised, so that he had only the right of recovering possession either by entry or action. His estate was then said to be turned to a right, If A was disseised by B, and B died while in possession by entry, but had to bring a possessory action; if A further suffered a certain time to elapse, or had judgement given against him in a possessory action, he could no longer recover by a possessory action, but only by an action on the right, meaning the right of ownership as opposed to the right to possession. Hence his estate was said to be turned to a mere, bare or naked right.[19] The above passage is taken from procedural law and appears to provide a historical explanation of the distinction that is generally made in procedural law between “right” and “interest”. Usually, the term “right” is not used to refer to an “estate”. In the law of property, the term “right” has a more limited meaning than the term “interest” when used alone in its technical sense:
For this term as well as others, it will be noted that definitions found in English language dictionaries, and specialized dictionaries in particular, will describe or explain them by reference to common law notions. 2.3. LICENCE – AN EXAMPLE IN WICH THE TERM “DROIT” HAS A BROADER SCOPE THAN THE TERM “INTEREST”At common law, a “licence” is not an “interest”(intérêt)[21]. A “licence” simply grants permission to enter upon land and, absent such permission, such entry would be a trespass. In fact, [a] licence does not create an interest in land but rather gives the right to use property in a manner which otherwise would be a trespass.[22] In addition, it is important to note that there appears to be common ground that the term “interest”(intérêt) excludes the notions of “licence”, “bare expectancy” or “spessuccessionis”. On the other hand, a licence is a “right”(droit). This notion is also an example of the case that the translation of the term “interest” by the word “droit” may create problems in the interpretation of the ITA and the ETA, inasmuch as the notion of “interest”(intérêt) under subsection 248(3) of the ITA expressly includes a leasehold interest in property : it is Parliament’s intent that this notion be considered an “interest”(intérêt), whereas a licence is not considered an “interest”(intérêt). It is extremely important to make this distinction because in the ETA, for example, a lease may be exempt whereas a licence is taxable.[23] This example is a concrete illustration of the fact that Parliament has to be specific if it wants to harmonize the notion of “interest”(intérêt) in the ITA and ETA.
To provide a precise and static definition of a term used in the ITA and ETA would have the effect of making the definition different from the underlying common law notion. It is the courts that interpret the law and we believe it is practically impossible to foresee and to prevent in advance any potential ambiguity. We would be more inclined to suggest to Parliament to use language that is as precise as possible[24] while respecting Canadian bijuralism, despite the fact that respecting bijuralism in its purest form may admittedly result in drafting that may seem inelegant (or, at the very least, that may be ineffectual in avoiding verbosity). In our opinion, any other alternative risks becoming a problematic compromise. After all, it is Parliament’s duty and not the duty of the legislative drafter to merge Canada’s two legal systems. Accordingly, we recommend that each time the term “interest” is used in its technical sense in the English version, the term “intérêt” should be used in the French version. As such, the French version of the ITA and ETA will neither be more precise nor more ambiguous than the English version : it will just be its equivalent. In our opinion, the objective here is not to use the French version to make the ITA or the ETA more accurate. Any ambiguity in the English version should be reflected in the French version: that should be the objective of any terminology used in bilingual or bijural drafting. In fact, that is precisely one of the concerns of the terminology standardization project, as evidenced by this passage taken from the partial conclusion of the Technical Committee on the term “interest”(intérêt): Because of the unsettled nature of the term “interest”, we believe that it is essential that its French equivalent be semantically coterminous with the English term. Accordingly, in our opinion, there should only be one French equivalent to all the various meanings of the term “interest”, which can be used as a generic or specific term, or both.[25] (Emphasis added.) It is evident that the various meanings of the term “intérêt” available today in the French legal tradition are not properly coterminous with all the various meanings of the English term. However, we believe that the French term has all the semantic characteristics of the “linguistic envelope” which allows it to legitimately adapt to the semantic variations of the English term.[26]
In our opinion, this could not have been better said and we will likewise conclude that from a common law perspective, the term “interest” should be translated by the term “intérêt”. 3. PART TWO: IDENTIFICATION OF PROBLEM PROVISIONS IN THE ITA AND ETA We have noted all problem provisions in the ITA and ETA. We excluded all instances in which the term “interest” (intérêt) was not used in its technical sense in the context of the law of property. In this regard, we counted 68 problem provisions in the ITA and 34 in the ETA . Because of the fact that there are sometimes several instances of the term “interest”(intérêt)within the same provision, there are approximately 150 problem instances altogether.[27] 4. PART THREE: THE QUEBEC CIVIL LAW EQUIVALENT OF THE TERM “INTÉRÊT”: “REAL RIGHT” In Quebec civil law, there is no equivalent to the word “interest”(intérêt) as it is used in the law of property. In fact, the term “intérêt”(interest)comes from thecommon law and is not used in ordinary civil law parlance. At this stage of our study, we should be mindful of the fact that in the civil law tradition property means the res itself, whereas at common law, the holder of an “interest”(intérêt)only has rights to the property.
It should be remembered that our terms of reference are to harmonize the common law term “interest”(intérêt) with Quebec civil law in order to increase the effectiveness of the courts charged with applying the ITA and the ETA, by making Parliament’s intention more understandable and while minimizing interpretation problems. In fact, in order to properly accomplish our task, it is extremely relevant to remember that where the intent of Parliament is unstated in a statute, whether private or public, provincial law (obviously civil law in Quebec) supplements private law concepts not therein defined.[28] It is therefore in this spirit that we must seek and analyze the Quebec private law notion that is the most closely related to the notion of “interest”(intérêt). This approach will help us to effect a pragmatic and effective harmonization of the notion of “interest”(intérêt). In this regard, it should be noted from the outset that harmonization has three objectives: “uniformity of treatment, respect of the civil law of the Province of Quebec and reduction of the caseload of litigation”.[29] In our opinion, in tax matters, uniformity of treatment of all taxpayers and the reduction of litigation should be the priorities in the preparation of tax legislation, although sometimes the attainment of these two harmonization objectives is obtained at the expense of the full respect of the Quebec private law system.
In civil law, in contrast to the common law where there is no right of ownership to land, it is possible for a person to exercise rights directly upon a thing.[30] It is important to understand this conceptual difference before undertaking any harmonization whatsoever, especially as in civil law the right of ownership is considered as the right with “the broadest possible scope […] Any right of more limited scope must necessarily be excluded from the right of ownership having the same object”.[31]
For the purposes of this project, it is important to note that the right of ownership confers upon its titulary the right to use a thing (usus), to enjoy it (fructus) and to dispose of it either materially or juridically (abusus). It is the most complete real right.[32] It should be noted that the object of a real right is necessarily a thing, whether corporeal or incorporeal, immoveable or moveable. To that effect, the owner may decide to subdivide his right between coproprietors or even to dismember it; however, commentators will always refer to a single and unique right of ownership to the thing in contrast to the common law where these same commentators would say that the beneficiaries have different rights to the property in question.
Note that, as with the notion of “interest”(intérêt), the Civil Code of Quebec[33] expressly identifies the right of ownership as a “real right”(droit réel).[34]
A real right is a right that a person exercises directly upon a thing. More precisely, a real right is a right to a thing (jus in re), i.e. a direct power exercisable by a person on a given thing. A real right is “a power exercised directly and immediately upon a thing. It is a direct connection, with no intermediary, between the titulary and the thing in question”.[35] In applying this definition to existing rights, we can see that a lease is a concrete example in which the Quebec civil law regime of property law is directly contrary to the common law as we will explain further in part 5.As such, under Quebec civil law, a lessor is not entitled to a real right to the property leased, whereas at common law, he or she would have an interest in the property.[36] From this example, we can therefore conceive that a resident of Quebec would have no right of ownership to property whereas if the same person resided in a common law province or territory he or she would have a certain form of property right. It is critical to understand this difference for the purposes of the application of the ITA or the ETA to key tax law concepts such as the acquisition or disposition of property.
Usufruct, use, servitude and emphyteusis are dismemberments of the right of ownership.[37] In other words, the attributes of the right of ownership may be shared among several individuals, but we must remember that there can only be one right of ownership to the thing. The usufruct is the right of use (usus) and enjoyment (fructus), for a certain time, of property owned by another.[38] It freezes out the substance of the owner’s prerogatives, who becomes a bare owner for the duration of the usufruct. In our opinion, it is curiously similar to the common law concept of life estate.With respect to the right of use, it is a limited usufruct interest to the extent of the needs of the user and the persons living with him or his dependants.[39] A real servitude empowers an owner of land to accomplish certain acts upon another land or requires of the owner of the latter land to abstain from exercising certain rights inherent in ownership (usus). A servitude imposes a charge upon an immoveable (the servient land) in favour of another immoveable (the dominant land). Where there is only a servient land and no dominant land, the servitude is said to be “personal” (by its subject, the beneficiary), although it remains partially real (by its object, the servient land).[40] It should be noted that the person who holds the right of ownership to a thing also has the de facto power to dispose of the thing (abusus). The abusus is the right to dispose of something.This concept is very similar to the common law concept of legal ownership.
In this section, we will look at private law concepts which apply differently depending on the legal system involved.
It should be noted that the holder of a real right benefits directly from the property to which it relates without the intervention of a third party.There is an immediate relationship between the person and the thing: it is said to be a jus in re.[41] That is why a lessee, in contrast to the owner of a house, has no real right but only a personal right. To that effect, it should be noted that his or her right to enjoy the property leased is derived from the lessor.[42] We are therefore of the opinion that, with respect to the notion of a lease, the definitions of “interest” (intérêt) and “real right”(droit réel) should encompassthis notion in order to respect Parliament’s intention.[43]
With respect to security interests at common law and civil law hypothecs – the only type of security interest which is available under Quebec private law[44] –, essentially there is no difference in their treatment in law : under both systems, the holder of a security interest or of a hypothec has a real right.To that effect, it should be noted that Parliament decided to exclude this legal component from the notion of “interest” as defined under subsection248(4) of the ITA: “[an interest in real property] includes a leasehold interest in real property but does not include an interest as security only derived by virtue of a mortgage, agreement for sale or similar obligation.” In our proposed solution, we agree with this exclusion because of the conditions under which the ITA is applied.
It is necessary to highlight certain differences between the common law and the civil law approach to the notion of the benefit of a trust. In fact, a trust created under the C.C.Q. grants no interest to its beneficiary.[45] By contrast, in common law provinces and territories, the beneficiary of a trust has an equitable interest. In addition, it is this absence of a civil law dichotomy with respect to title to property (that may be created by equity) that creates a harmonization problem.
Prior to the reform of the C.c.Q, Parliament decided to deem that a usufruct is a trust, because this concept could be assimilated to the common law institution of beneficial ownership, which has no equivalent with respect to trusts under Quebec civil law. In fact, in the case of the usufruct :
From this, it is easy to see that the application presents some difficulties despite a certain similarity between the dismemberment of the right to property over time when a usufruct is in force in contrast to a trust at common law.
The concept of usufruct, which is a dismemberment of the right of ownership as well as a “real right” (droit réel), can also be assimilated to the common law notion of beneficial ownership. More precisely, in both cases, the holder of the right can use the property and reap the fruits thereof. It is interesting to note that in the case of the usufruct, the usufructuary has the enjoyment, possession, administration, control and the right to revendicate the thing, whereas the bare owner takes ownership immediately upon death, in the sense that he or she has the abusus over the subject property. The concept of usufruct is therefore similar to the common law concept of life estate. In fact, by comparison with the notion of “interest” (intérêt) by which the bare owner will have a future interest, the person who has the right to use the thing and reap the fruits thereof will also be entitled to a life estate under the C.C.Q. Thus, the notion of “real right”(droit réel) is implicitly akin to the notion of “interest”(intérêt) in the sense that the bare owner – if we take the example of a person who dies and bequeaths to his or her spouse his or her house until death and unto his or her son upon the death of the spouse – grants concurrent interests or real rights depending on the person’s place of residence (in Quebec or in another province or territory). To that effect, the legal consequences are that, in civil law, the bare owner obtains a real right to the house, whereas at common law he or she would have a future interest to the house.
In civil law, a substitution exists “where a person receives property by a liberality with the obligation of delivering it over to a third person after a certain period”.[47] For a substitution to exist, the following three elements must be present: (1) two gifts, (2) a time factor between the taking effect of the two gifts, and (3) a successive order.[48] However, using a substitution where the person making it wants it to be deemed a trust can be difficult because of the conceptual differences between these two notions.[49]
The conceptual differences between these three concepts have resulted in several tax problems.For example, a testator “was not legally entitled to a spousal rollover in the case of a testamentary life-usufruct; there were inconsistent administrative arrangements in that regard and Revenue Canada refused to allow a capital loss relating to the property at the time of death of the usufructuary.”[50]
Subsection 248(3) of the ITA was enacted precisely to address these difficulties. Among other effects, it created a legal fiction such that the usufruct and the substitution were deemed to be a trust.It should be pointed out here that the purpose of our study is not to discuss the usefulness of subsection 248(3) of the ITA based on the fact that it was enacted in 1991 whereas the C.C.Q. introduced the notion of “trust” (fiducie) in Quebec law in 1994 when the C.C.Q. was updated to reflect modern realities.However, in our opinion, paragraph 248(3)(f) of the ITA will lose its usefulness if the proposed solution is incorporated in the ITA..[51]
If we start from the premise that an “interest”(intérêt) is a bundle of rights that a person may exercise upon a thing – whether as owner or encumbrancer – we may, by analogy with this definition, state that the civil law notion which is most akin to an “interest”(intérêt) at common law is the notion of “real right”(droit réel). This “real right”, much as an “interest” to a thing, is a right adversus omnes which confers upon the owner of the “interest”(intérêt) or “real right”(droit réel) a right to follow. Moreover, just as an “interest”(intérêt), a “real right”(droit réel) may be a right of ownership, but is not necessarily a right of ownership. A servitude is a convincing example of this. Consequently, in our opinion, the equivalent of “interest”(intérêt) in Quebec civil law should be “real right”(droit réel). Our proposed solution which is to use a simple double that consists in expressing in different terms – “interest”(intérêt) and “real right”(droit réel) – the legal rule applicable to the common law and the civil law. It should be remembered that the fundamental objective of Canada’s legislative bijuralism is to make it possible for each version of a statute – whether all or part of a provision – to take into account the common law and the civil law when there is a point of contact between the statute and provincial or territorial private law[52], as is often the case when the ITA or ETA applies to a given factual situation. 5. PART FOUR: CONCEPTUAL SIMILARITIES AND DIFFERENCES BETWEEN THE NOTIONS OF “INTEREST” (INTÉRÊT) AND “REAL RIGHT” (DROIT RÉEL) As we stated in part three, we propose to harmonize the notion of “interest”(intérêt) with its Quebec equivalent which is “real right”(droit réel). This conclusion is based on a comparative analysis which shows a great similarity between the two concepts. In fact, a comparison of the two concepts shows a similarity between several of their general attributes, for example, the right to follow, the right to assert adversus omnes, a direct right to the thing and the dismemberment of property over time. In addition to these similar attributes, there are several identical legal components between the notions of “interest”(intérêt)and “real right”(droit réel): right of ownership, profit à prendre, servitude, security interest (hypothec for the notion of “real right”(droit réel)) and leasehold interest (emphyteusis for the notion of “real right”(droit réel)). By contrast, there are fundamental differences between the two concepts which we will now address. In particular, the following components are either different or only included in the notion of “interest”(intérêt): beneficiary of a trust,beneficial ownership, equity, vested interest, future interest, licence and the legal treatment of an option. To summarize and illustrate all these similarities, differences and specificities, we think it is appropriate to show a comparative table of the notions of “real right”(droit réel)and “interest”(intérêt): Comparison between real right and interest
Based on this comparative table, we still recommend that the civil law equivalent of the common law notion of “interest”(intérêt)should be “real right”(droit réel), but we are of the opinion that it is advisable, if not necessary, that each of the concepts be defined in the ITA and ETA in order to ensure uniform application of these two statutes to all Canadian taxpayers, regardless of where they reside. In fact, the scheme of the ITA and ETA expresses the idea that each taxpayer resident in Canada will be treated equally for tax purposes regardless of his or her province or territory of residence. However, we conceive that the nature of Canadian bijuralism is such that it is difficult to harmonize concepts derived from the common law and the civil law respectively while upholding the principle of uniform application of the ITA and the ETA. In other words, the harmonization of the ITA and ETA is in itself a paradox in relation to the principle of equality of taxpayers which brings us to the conclusion that any attempt to properly standardize the application of the ITA and ETA to all Canadian taxpayers must be preceded by an analysis of some of the legal components of the two concepts in order to give them the same meaning within the two tax statutes while respecting the terminology and the inherent nature of their underlying legal system.This is what will be addressed in a more detailed manner in the next part of our study in which we will define the two notions while ensuring uniformity in their application. 6. PART FIVE: DEFINITION OF THE TERMS “INTEREST” AND “REAL RIGHT” IN THE ITA AND ETA As stated above, the proposed solution consists in expressing in different terms the legal rule applicable to each legal system.Our problem leads us to set one legal rule applicable to Quebec and another legal rule applicable to the other provinces and territories.In Part Three, we suggested the use of the technique of the double in order to respect the principle of bijuralism. By contrast, the definitions of the two legal concepts will be drafted in such a way as to respect the uniformity of application of both statutes. We suggest that there be included two general definitions of the terms “interest”(intérêt) and “real right”(droit réel) – in the sense of an interest or a real right to a thing – so that their legal scope should be limited on the basis of their respective components. To that effect, our assumption is that it is the intention of Parliament to incorporate in the notion of interest the legal and equitable notion of interest – vested or contingent, present or future, but to the exclusion of any interest held solely as a security.[53] With respect to the definition of “real right”(droit réel), it encompasses leases on immovables, the benefit of a trust and options immediately upon being granted to the optionee.In addition, there will be a de facto exclusion of the hypothec from definition which is the only security interest related to the notion of “real right”(droit réel).The only purpose of these inherent characteristics which we confer upon the term “real right”(droit réel) is to harmonize this notion withthe term “interest”(intérêt) so that Canadian taxpayers may be taxed in the same manner regardless of where they reside in Canada and at the same time make the law more predictable for the taxpayer.The effect of this will be to clarify the application of the law and avoid litigation. In addition, according to our preferred solution, the terms “interest”(intérêt) and “real right”(droit réel)will be defined inthe ITA and ETA to ensure the proper determination of their respective scope and the effects that Parliament wanted them to have.
As we have just stated, to complete the harmonization of the notion of “interest”(intérêt), Parliament has to include a definition of the terms “interest”(intérêt) and “real right”(droit réel) in section 248 of the ITA and section 123 of the ETA. However, there are two approaches to defining the notion of “interest”(intérêt). In fact, the first technique that may be used by Parliament could consist in setting out all the desired legal components of the notion of “interest”(intérêt) in the definition. On the other hand, Parliament could leave it up to the courts themselves to define the application parameters. The disadvantage of this technique is that it cloaks the administration of the law with uncertainty. In this respect, it is relevant to quote Iacobbuci, J.’s obiter dictum, which we share entirely, in Canderel Ltée v. Canada[54] that “the law of income tax is sufficiently complicated without unhelpful judicial incursions into the realm of lawmaking.[55] In fact, with respect to the interpretation of the ITA and the ETA, the role of the courts is to apply the law and not to create new tax policies through their decisions.[56]
The advantage for Parliament to use the first technique obviously consists in taking the opportunity to circumscribe the definition so that the courts may apply the legislation in accordance with its intended scheme.By resorting to this technique, Parliament may avoid any unpleasant surprises. For example, according to a number of writers, the term “interest”(intérêt) in the ITA does not include the notions of future interest and equitable interest.[57] Such an interpretation could have fairly disastrous consequences for the Canada Customs and Revenue Agency with respect to subsection 115(3) of the ITA for example. In fact, a restrictive interpretation could allow taxpayers to plead that they are not taxable on the disposition of a given property because they do not have any “interest”(intérêt) in the property in question.To avoid such an interpretation, as stated above, Parliament could enact a broad definition of the notion of “interest” (intérêt) by incorporating into it any legal components that it deems appropriate. Here is how we think “interest”(intérêt) should be defined:
Another approach to the construction of statutes raises the question of the role of the courts in the interpretation of statutes.According to this legal approach, the task of determining the precise and discrete meanings of certain common law terms – a legal system which by definition is not static, which evolves and changes over time – is not an easy task.To provide a single general definition for an entire statute is an even more difficult task. One may wonder if the incorporation of such a definition is advisable as it must be remembered that a statutory definition, in our opinion, is an exercice in codification. This brings us to the idea that the approach which consists in not restricting the term “interest”(intérêt) to a very narrow definition is one which properly respects the common law tradition in that, through such an approach, the proposed French equivalent would be as adaptable and evolving alongside as easily as the English term. In this regard, the definition of the term “interest”(intérêt) in subsection 248(4) of the ITA is one that takes this philosophical approach. However, in our opinion, there is nothing to prevent Parliament from including or excluding certain legal components in order to ensure that they are incorporated or not within the scope of the term “interest”(intérêt).By this approach, Parliament would be respecting the unsettled nature of the term “interest”(intérêt) while limiting it in such a way that the courts will interpret it in accordance with the intended legislative scheme.That is why we recommend that the definition of the term “interest”(intérêt) suggested in the preceding section be included respectively in section 248 of the ITA and section 123 of the ETA. In fact, for Parliament, setting the limits of a term by including or excluding a number of legal components without really defining the term has the advantage of clarifying the state of the law. This is no small advantage considering rightly that a taxpayer is entitled to structure his or her affairs in a manner that minimizes taxes.[58] Moreover, the definition we propose does not restrict the unsettled nature of the term “interest”(intérêt): in interpreting tax legislation, the courts will still be able to evolve the notion bearing in mind Parliament’s intent, an intent which would, at the very least, be clarified by enacting the definition which we propose.
Throughout this study, we have highlighted the shared legal components between thenotions of “interest”(intérêt) and “real right”(droit réel).The purpose of our definition of “real right”(droit réel)is to respect one of the principles of equity set out by Parliament: the uniform application of tax legislation to all Canadian residents regardless of where they reside. In furtherance of that objective, our approach to the harmonization of the common law notion of “interest”(intérêt) with its civil law equivalent – “real right”(droit réel) –is based on a comparison of the legal treatment of the components of these notions in order to properly standardize Canadian tax legislation. To begin with, with respect to the harmonization of the notion of “real right”(droit réel), we recommend that real property leases be included in its definition in order to respect the scheme of the ITA by which Parliament had included leasehold interests in real property in the definition of “interest” under subsection 248(4). In our opinion, the definition of “real right”(droit réel)should includebenefits under a trust.By defining the notion in this manner, there would be created a legal fiction similar to the common law notion of beneficial ownership thereby harmonizing this legal component with thenotion of “interest”(intérêt). In addition, we recommend that an optionee be granted a “real right”(droit réel)immediately when the option is created, not only when it is exercised.Harmonizing the civil law with the common law in this manner will avoid situations in which federal tax legislation cannot be uniformly applied from one province or territory to the other.[59] In fact, in Construction Bérou, Desjardins, J.A.,writing for the majority, stated:
Desjardins, J.A. therefore intentionally applied the common law concepts of beneficial ownership and legal ownership to taxpayers resident in Quebec. In the same vein, Létourneau, J.A., again, writing for the majority, expressed the idea that the scheme of subsection 248(3) was to harmonize the civil law with the common law with respect to the legal concept referring to the right of ownership to ensure the fair and equal treatment of all Canadian taxpayers – so that they may all have the same tax benefits regardless of where they reside – hence, the necessity for a judicial interpretation which allows for the implementation of this legislative intent to harmonize.Accordingly, he also decided to grant the beneficial ownership to the crédit-preneur (lessee), even though the latter notion does not exist in the civil law tradition. It should not be forgotten that if Parliament does not specify that provincial private law is not applicable or that it is amended, provincial private law applies to supplement federal legislation.In fact, this was the principle of interpretation preferred by Noël, J.A., dissenting, in Construction Bérou. It is interesting to note that the three judges of the Federal Court of Appeal approached the interpretation of paragraph 248(3)(f) of the ITA differently. This leads us to strongly believe that the state of the law with respect to the concept of beneficial ownership is not as clear as Parliament would like it.In our opinion, the proposed solution would avoid such litigation. In fact, if Parliament granted a real right to the holder of an option to purchase, the optionee would have a de facto right of ownership to the property and, by analogy with the common law, would be entitled to the beneficial ownership (a right of ownership) to the subject property and, by applying Construction Bérou, the outcome would be similar to the majority decision which would have the advantage of standardizing the application of the ITA to all Canadian taxpayers in addition to clarifying the state of the law. Finally, still with a view to respecting Parliament’s intent, we recommend that hypothecs be excluded from the definition of “real right”(droit réel).The exclusion of this legal component would be similar to the tax treatment of the notion of “interest”(intérêt) according to which, from the definition recommended, we have suggested that security interests be excluded. Here therefore are our proposed English and French definitions of “real right”(droit réel):
Obviously, it is important to understand that the ITA and ETA should state that the term “real right” applies to Quebec while the term “interest” applies to the other provinces and the territories.We therefore recommend that the two definitions include a Quebec clause. CONCLUSION Based on our research, we can conclude that it is important for Parliament to be able to harmonize the ITA and the ETA on the basis of provincial and territorial private law. From an abundance of case law, we have learned that if Parliament does not expressly amend provincial private law, provincial law will apply in accordance with the principle of complementarity.[60] In conducting our study – the object of which was to find a solution to harmonize the notion of “interest” for the four Canadian legal audiences —, we quickly realized that it was ironic that the ITA (which has been in force since 1917) could have been applicable to all of Canada although the notion of “interest” does not even exist in Quebec civil law. From this finding, it was not surprising that the translation of the term “interest” by the word “droit” (as a French equivalent of the common law notion) could potentially lead to problems in the interpretation of tax legislation. In this regard, by comparing the definitions suggested by academic writers, we noticed that the two notions do not have the same legal scope because, amongst others, they do not include the same legal components. As a first step, we endeavoured to find a French common law equivalent for the term “interest”. Then, through a comparative analysis of the common law and the civil law, we directed our efforts to finding a Quebec civil law equivalent to the notion of “interest”(intérêt). Based on this process, we recommend, firstly, that the term “interest” be translated – taking into account the French common law legal audience – by the term “intérêt”and that both terms be used jointly in the French and English versions of the of the ITA and ETA Secondly, we recommend that the equivalent of the term “interest”(intérêt) for the French and English civil law audiences should be “real right”(droit réel). Accordingly, the four domestic Canadian legal audiences and the Canadian legal system based on bijuralism will be respected. We are aware that the two terms, despite their similarity on several counts, have different legal attributes. That is why as a result of the comparison of their legal components, we have modified the civil law notion of “real right”(droit réel) so that, on the basis of the definition that we propose, it could be superimposed upon its common law equivalent. We are fully aware that our approach is not necessarily the most appropriate in respecting Canadian bijuralism in its pure form. However, for the purposes of respecting the principle of uniform application of the law, it is our opinion that this solution is consistent with the Canadian constitution, respects the legal terminology of the four Canadian legal audiences and the essence of the two legal concepts. Thirdly, we recommend that the following definitions be included in the ITA and ETA:
The definition of “real right” (droit réel), it must be remembered, must include a Quebec clause. Fourthly, we recommend that subsection 248(4) of the ITA be repealed and that if Parliament includes in section 248 of the ITA a definition of the notion of “interest”, it should consider the possibility of repealing or amending subsection 248(3) of the ITA. We conclude by emphasizing how important we feel Federal legislation should respect the domestic law, the language and the values of two of the world's most important legal systems. Is Canada not blessed to have the benefit of these two systems? Why shouldn't we take advantage of that? We are convinced that it would be, no pun intended, in Canada's interest to do so…
BIBLIOGRAPHYCivil Code of Quebec, L.Q. 1991, c. 64. Excise Tax Act, S.C.R. 1985, c. E-15 as amended. Income Tax Act, S.C.R. 1985, 5th Supp., c.1 as amended. PAJLO/POLAJ, Dictionnaire de la Common Law: Droit des biens et droit successoral/Canadian Common Law Dictionary: Law of Property and Estates, Cowansville, Yvon Blais, 1997.
The Oxford English Dictionary, Oxford, Clarendon Press, 1933. Canada, Rapport du comité sur le bijuridisme législatif, published on April 4, 1996 by the Legislative Services Branch of the Federal Department of Justice. BARSALOU, P., «L’impact des particularités du droit civil dans l’application des lois fiscales», (1999) Canadian Tax Foundation 8:1. BEAUREGARD, P.-J., «Interaction du droit civil et de la Loi de l’impôt» (1985) Canadian Tax Foundation 9. BURKE, J., Jowitt’s Dictionary of English Law, 2nd ed., London, Sweet & Maxwell, 1977. CARTWRIGHT, J.M., Glossary of Real Estate Law, New York, The Lawyers’ Cooperative Publishing Co., 1972. CRÉPEAU, P.-A., Dictionnaire de droit privé et lexiques bilingues, 2nd ed., Cowansville, Yvon Blais, 1991. CUERRIER, M., S. HASSAN et L. L'HEUREUX, «L'harmonisation des lois fiscales fédérales avec le droit civil québécois et le bijuridisme canadien», Congrès 00, Montréal, Association de planification fiscale et financière, 2000. DUKELOW, DAPHNE, and NUSE, Betsy, The Dictionary of Canadian Law, 2nd ed. Carswell, Ontario, 1995. JOLIN, M., «Utilisation de la substitution en planification testamentaire», dans «Congrès 97 de l'Association de planification fiscale et financière» (1998) volume 1. LAMONTAGNE, D.-C., Biens et propriété, 2nd ed., Cowansville, Éditions Yvon Blais inc., 1993. MIGNEAULT, P.-B., Le droit civil canadien basé sur les «Répétitions écrites sur le Code civil» de Frédéric Mourlon, volume 2, Montréal, C.Théoret, 1896. NORMAND, S., Introduction au droit des biens, 1st ed., Montréal, Wilson & Lafleur, 2000. OOSTERHOFF, A.H. and W.B. RAYNER, Anger & Honsberger, Law of Real Property, vol. 1, 2nd ed., Aurora, Canada Law Book, 1985. PAJLO, 2e Dossier de synthèse, INTEREST. PAYETTE, L., «Des priorités et des hypothèques», no 231 et seq., in La réforme du Code civil, volume 3 Collectif, Ste-Foy, P.U.L. 1993. PIERRE, B., «Classification of Property and Conceptions of Ownership in Civil and Common Law», (1997) 28 R.G.D. 235. SEGAL, B.D., «Dispositions of Interest in and Options on Real Property and Shares by Non-Residents of Canada» (1994) vol. 42, no 2 Canadian Tax Journal. Banque Royale du Canada v. Sparrow Electric Corp., [1997] 1 S.C.R. 411. Canderel Ltée v. Canada, [1998] 1 S.C.R. 147. Kingsdale Securities Co. Ltd. v. M.N.R.,74D.T.C. 6674. Larivière v. Canada, [1989] 2 F.C. 104 (C.A.F.).
M.R.N. v. Lemieux-Fournier, [1971] C.F. 39.
Paquette v. Paquette, [1991] R.J.Q. 1598 (CA).
R. v. Béroux, [2000] 2 C.T.C. 174 (C.F.A).
R. v. Construction Bérou Inc. 99 D.T.C. 5841.
R. v. Lagueux & Frère Inc., 74 D.T.C. 6569.
St-Hilaire v. Canada (Procureur général) [2001] 4 F.C. 289 (F.C.A.) Stubart Investments Ltd. v. R., [1984] 1 S.C.R. 536. Supermarché Dubuc & Frère Inc. v. R,. [1994] C.T.C. 2215.
Supermarché Ste-Croix v. Minister of National Revenu, 97 D.T.C. 5211.
SCHEDULE I VARIOUS WAYS TO CIRCUMSCRIBE THE APPLICATION OF THE TERM “INTEREST” AT COMMON LAW “proprietary interest” (intérêt propriétal) Limited to the interest of an owner strictu sensu to the exclusion of any rights in the property of another (in re aliena), for example by way of an easement or mortgage. “legal interest” (intérêt en common law) Limited to interest traditionally recognized by common law courts as opposed to courts of equity. Examples of interests excluded are the interest of the beneficiary of a trust and executory interests. “interest in land” (intérêt foncier), “interest in realty” (intérêt sur biens réels) Excludes chattel interests and interests in personalty, including choses in action such as intellectual property, debts, rights of action and negotiable instruments. “present interest” (intérêt actuel) Limited to interests which entitle the owner to immediate enjoyment, to the exclusion of any interest to be enjoyed at a later time, i.e. future interests. “absolute interest” (intérêt absolu) Extends to all present and future interests absolutely or indefeasibly vested, as opposed to qualified interests, such as future vested interests subject to divestment or any other type of contingent future interest. “vested interest” (intérêt dévolu) In theory, extends to all present and contingent future interests. But, in practice, refers mainly to legal future interests as opposed to contingent interests. It will therefore be wise to be specific if present interests and certain equitable interests are to be included. Not to be confused with absolute interests and present interests which are of more limited scope. “vested in interest” (dévolu en intérêt) Limited to a specific class of interests in land referred to as estates. When referring to interests generally, one speaks rather of vested future interests. “conditional interest” (intérêt conditionnel) Usually extends to interests subject to condition precedent and interests subject to condition subsequent, to the exclusion of determinable interests. The term is however unsettled and if left undefined would likely lead to interpretation problems. “defeasible interest” (intérêt anéantissable) Usually extends to determinable interests and interests subject to condition subsequent, to the exclusion of interests subject to condition precedent. The term is however unsettled and if left undefined would likely lead to interpretation problems. *The author would like to thank Andréa Boudreau Ouellet and Gérard Snow for their precious collaboration. This text reflects the personal opinion of the author and binds only him. [1] R.S.C. 1985, 5th Supp., c.1 as amended. (Hereinafter referred to as the “ITA”). [2] For example, in Kingsdale Securities Co. Ltd. v. M.N.R.,74D.T.C. 6674, the Federal Court of Appeal correctly stated that: “The validity of contracts and business transactions is governed by the law as to property and civil rights, which is a subject assigned to the provinces by our constitution, it follows that in administering the Income Tax Act the Minister of National Revenue must accept the legal position as it exists under provincial law.” [3] Under section 92 of the Constitution Act, 1867, R.S.C. 1985, App. II, No. 5, provinces and territories may exclusively make laws on property and civil rights in their jurisdiction. [4] R.S.C. 1985, c. E-15 as amended. (Hereinafter referred to as the “ETA”). [5]The Oxford English Dictionary (Oxford : Clarendon Press, 1933), s.v. “interest”. [6] J. Burke, Jowitt’s Dictionary of English Law, 2nd ed., (London : Sweet & Maxwell, 1977), s.v. “interest” [Hereinafter referred to as “Jowitt’s Dictionary of English Law”]. See also Dukelow, Daphne, and Betsy, Nuse, The Dictionary of Canadian Law, 2nd ed. Carswell, Ontario, 1995. Under “interest”, it includes “any former exploration agreement, former lease, former permit, former special renewal permit, exploration licence, production licence, or significant discovery licence.” [7] A.H Oosterhoff and W.B. Rayner, Anger & Honsberger, Law of Real Property, vol. 1, 2nd ed., Aurora, Canada Law Book, 1985, p. 98. [8] Ibid. pp. 995-996. [9] Supra, footnote 4. [10] Jowitt’s Dictionary of English Law, supra, footnote 5, p. 226. [11] Ibid., p. 31. [12] J.M. Cartwright, Glossary of Real Estate Law, New York, The Lawyers’ Cooperative Publishing Co., 1972, p. 129. [13] Ibid. [14] Supermarché Dubuc & Frère Inc. v. R., [1994] C.T.C. 2215. [15] Supermarché Ste-Croix v. Minister of National Revenu, 97 D.T.C. 5211. [16] Supra, footnote 5. [17] Supra, footnote 2, pp. 6-7. [18] Ibid., p. 7. [19] Jowitt’s Dictionary of English Law, supra, footnote 5, s.v. “right”. [20] Ibid. [21]PAJLO/POLAJ, Dictionnaire de la Common Law: Droit des biens et droit successoral/Canadian Common Law Dictionary: Law of Property and Estates, Cowansville, Yvon Blais, 1997, defines a licence in the following terms: “a licence is in the nature of a right or privilege to enter upon and use the grantor’s land in a certain manner or for a specified purpose”. It also gives “permission” as a translation in common law in French. [22] Jowitt’s Dictionary of English Law, supra, footnote 5, s.v. “licence”. [23] See in this regard paragraph 25(1)(f) of the ETA. [24] As for the French language terminology of the common law, see supra, footnote 20. [25] PAJLO, 2e Dossier de synthèse, INTEREST, p. C7. [26] Ibid., p. C8. [27] As of September 1st 2001. [28] See in this regard St-Hilaire v. Canada (Attorney General) [2001] F.C.J. No. 444 (QL) (FCA); Larivière v. Canada, [1989] 2 F.C. 104 (FCA); R. v. Construction Bérou Inc. 99 D.T.C. 5841; R. v. Lagueux & Frères Inc., 74 D.T.C. 6569 (FCTD). [29] Marc CUERRIER, Sandra HASSAN and Louis L’HEUREUX, “Harmonization des lois fiscales fédérales avec le droit civil québécois et le bijuridisme canadien”, Congrès 00, Montréal, Association de planification fiscale et financière, 2000, p. 16: 25. [30] See Sylvio NORMAND, Introduction au droit des biens, 1st ed., Montréal, Wilson & Lafleur, 2000; Denys-Claude LAMONTAGNE, Biens et propriété, 2nd ed., Cowansville, Éditions Yvon Blais inc., 1993. [31] P.-A. Crépeau, Dictionnaire de droit privé et lexiques bilingues, 2nd ed., Cowansville, Yvon Blais, 1991. [32]Ibid. [33] L.Q. 1991, c. 64 (Hereinafter referred to as “C.C.Q.”) [34] Art. 947 of the C.C.Q. [35] P.-B. Migneault, Le droit civil canadien basé sur les “Répétitions écrites sur le Code civil” de Frédéric Mourlon, volume 2, Montréal, C.Théoret, 1896, p. 390. [36] Barbara PIERRE, Classification of Property and Conceptions of Ownership in Civil and Common Law, (1997) 28 R.G.D. pp.. 257-261. [37] Art. 1708 of the C.C.Q. [38] Articles 1120 and 1123 of the C.C.Q. [39] Art. 1172 of the C.C.Q. [40] Art. 1177 of the C.C.Q. [41] See supra, footnote 29, p. 44. [42] Art. 1851 of the C.C.Q. [43] It should be noted that at the moment subsection 248(4) of the ITA incorporates leasehold interests in real property in the definition of “interest”. [44]See Louis PAYETTE, “Des priorités et des hypothèques”, no 231 et seq., in La réforme du Code civil, volume 3, Collectif, Ste-Foy, P.U.L. 1993. [45] In Quebec, art. 1260 of the C.C.Q. defines a trust as “an act whereby a person, the settlor, transfers property from his patrimony to another patrimony constituted by him which […] a trustee undertakes […] to hold and administer.” [46] P.-J. Beauregard, “Interaction du droit civil et de la Loi de l’impôt” (1985) Canadian Tax Foundation 9, p. 25. [47] Art. 1218 of the C.C.Q. [48] See M.N.R.. v. Lemieux-Fournier, [1971] F.C. 39 and Paquette v. Paquette, [1991] R.J.Q. 1598 (CA). [49] M. Jolin, “Utilisation de la substitution en planification testamentaire”, in “Congrès 97 de l’Association de planification fiscale et financière” (1998) volume 1 pp.. 23:26-27 where he states: In the case of certain types of substitutions or when they include particular provisions, lets think, amongst others, about gradual substitution, residual substitution or about certain terms relating to the provisions of non-reuse, the tax regime of trust will not be easily adjusted to the substitution. [50] P. Barsalou, “L’impact du droit civil dans l’application des lois fiscales”, (1999) Canadian Tax Foundation, p. 8: 23. [51] The proposed definition of “real right”(droit réel) includes the beneficiary of a trust. [52] Canada, Rapport du comité sur le bijuridisme législatif, published on April 4, 1996 by the Legislative Services Branch of the Federal Department of Justice. [53] This definition is therefore consistent with subsection 248(4) of the ITA which states that: “In this Act, an interest in real property includes a leasehold interest in real property but does not include an interest as security only derived by virtue of a mortgage, agreement for sale or similar obligation”. [54] [1998] 1 S.C.R. 147. [55]Ibid., p. 168. [56] See also Royal Bank of Canada v. Sparrow Electric Corp., [1997] 1 S.C.R. 411 for a discussion of the role of courts in the application of tax legislation. [57] An example of a writer who takes this position is Brian D. SEGAL, “Dispositions of Interest in and Options on Real Property and Shares by Non-Residents of Canada” (1994) vol. 42, No. 2 Canadian Tax Journal 327-347. [58] See Stubart Investments Ltd. v. R. [1984] 1 S.C.R. 536 [59] Similar problems to R. v. Construction Bérou Inc. [2000] 2 C.T.C. 174 (FCA). [60] See R. v. Lagueux & Frère Inc., 74 D.T.C. 6569; Larivière v. Canada, [1989] 2 F.C. 104 (FCA). | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||