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
1.1. The influence and the importance of the context used to limit the notion of interest
1.2. The common law and the scope of the term "interest" (intérêt )
1.2.1. The general meaning of "interest" (intérêt)
1.2.2. The technical meaning of "interest" (intérêt )
1.3. ITA and ETA provisions incorporating the term "interest" (intérêt) which are not
problematic, but which must be distinguished
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
2.1. The general meaning of the term right
2.2. The technical meaning of the word right
2.3. Licence – An example in which the term "droit" has a broader scope than the term
interest
2.4. Recommendation concerning the translation of the term interest to harmonize it for
Francophone common lawyers
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"
4.1. Objectives of the harmonization of the term "interest" (intérêt) to make it
accessible to the French and English language audiences of the Province of Quebec
4.2. The notion of "interest" (intérêt ) in the Quebec civil law tradition
4.3. The basic characteristics of the right of ownership in civil law
4.4. The right of ownership and the notion of real right
4.4.1. Definition of a real right
4.4.2. Dismemberments of the right of ownership in Quebec civil law
4.4.3 The right of ownership, Quebec civil law and the common law: comparing basic concepts
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
4.4.4. Tax problems arising from the conceptual differences between a trust, a
usufruct and a substitution
4.4.5. Parliament’s solution to these problems
4.5. Real right: the solution proposed to harmonize the term interest (intérêt )
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
6.1. Recommendations relating to the definitions of the terms "interest" (intérêt) and
"real right" (droit réel) in the ITA and ETA
6.2. A definition which sets the parameters for the application of the notion of "interest"
(intérêt)
6.3. Adopting the common law definition of "interest" (intérêt)
6.4. Adopting the civil law definition of "real right" (droit réel )
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.
1.1. THE INFLUENCE AND IMPORTANCE OF THE CONTEXT USED TO
LIMIT THE NOTION OF INTEREST
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.
1.2. THE COMMON LAW AND THE SCOPE OF THE TERM "INTEREST"
(INTÉRÊT)
1.2.1. THE GENERAL MEANING OF "INTEREST" (INTÉRÊT)
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:
A person is said to have an interest in a thing when he has rights, advantages, duties,
liabilities, losses or the like, connected with it, whether present or future, ascertained or
potential: provided that the connection, and in the case of potential rights and duties, the
possibility, is not too remote. The question of remoteness depends upon the purpose
which the interest is to serve.
[...]
Before 1926, interest as applied to property was used in a wide sense to include estates
(legal and equitable), charges, estatements, profits a prendre, licences, equities of
redemption and generally every right in respect of property which entitled or might in
future entitle the holder to make use of it in some way, as opposed to bare powers,
uses, authorities, possibilities, expectations, rights of presentation and the like. Hence
"interest" was used in conveyances, etc., to denote every beneficial right in the property
conveyed.[6]
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]
1.2.2. THE TECHNICAL MEANING OF "INTEREST" (INTÉRÊT)
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):
In a narrower sense, interest was used as opposed to estate, and therefore denoted
rights in property not being estates [...] interests resembling estates but not recognized
as such by the common law, e.g., executory interests in land and those interests in
personalty which closely resembled estates properly so called.[8]
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:
"Interest" was used by real property lawyers in several technical senses; thus at one
time it might denote certain rights intimately connected with the soil of land, such as
commons and other profits a prendre, licences for profit certain, etc., as opposed to
"matters of easement and discharge", such as right of way or a mere authority to enter
upon land; while in another sense "interest" was used to denote an exclusive right to
land, namely that arising from ownership, as opposed to rights in alieno solo, such as
commons. "Interest" was also opposed to "possession", as when it was said that an
estate was vested in interest, meaning that the right had accrued, but that the possession
was deferred; thus a vested remainder was an estate vested in interest.[9]
An "estate"(domaine)usually encompasses the notion of "interest"(intérêt)which is described as
an"incorporeal interest", for example, easements:
An easement creates an interest in land and is an incorporeal hereditament. In essence
the holder of the easement has the right to compel the use or restrict the use of the land
of the giver of the easement... [10][...] Apart from estates in land, the common law
recognized a variety incorporeal interests. These included advowsons, rents, easements
and commons. The latter are the predecessor of the profits a prendre...[11]
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. [...]
He has an absolute ownership of the property when he is the sole owner and has
absolute dominion over it, and may use it or dispose of it according to his pleasure,
subject only to general law. This term absolute must, however, be understood to mean
that the total, or absolute property it points to is limited by that system of law under
which he lives. (Emphasis added.)[12]
In fact, depending on the context, the expression "interest in property" appears to be the
converse of the notion of absolute ownership:
Technically, a right in or to property which is less than ownership or title. In a broader
sense, ownership of a particular property, whether of the full or a lesser interest. In free
usage, an estate in land. Such an interest may embrace both legal and equitable
rights.[13]
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
Proprietary interest (intérêt propriétal),
in re propria interest(intérêt in re propria)
encumbrance (grèvement),
interest in aliena (intérêt in re aliena)

Legal interest (intérêt en common law)
equitable interest (intérêt en equity)
Interest in land (intérêt foncier),
Interest in realty (intérêt sur biens réels)
chattel interest (intérêt-chatel),
interest in personalty (intérêt sur biens personnels)
Present interest (intérêt actuel)
future interest (intérêt futur)
Absolute interest (intérêt absolu)
qualified interest (intérêt relatif)
*For a definition of these terms, see schedule 1.
1.3. ITA AND ETA PROVISIONS INCORPORATING THE TERM
"INTEREST" (INTÉRÊT) WICH ARE NOT PROBLEMATIC, BUT WICH
MUST BE DISTINGUISHED
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.
1.3.1. INTEREST IN A BUSINESS
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]
1.3.2. INTEREST IN A LIFE INSURANCE POLICY
Obviously the term "interest"(intérêt), meaning an insurable interest, is beyond the scope of this
study.
1.3.3. INTEREST IN AN OBLIGATION
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.
2.1. THE GENERAL MEANING OF THE TERM RIGHT
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":
Moreover, the property right may be fragmented into various interests, some of which
are independent of each other, while others are derivative. But they exist side by side.
Thus, for example, the property right may be split into successive interests such as a life
estate followed by a remainder or reversionary interest.[17]
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]
2.2. THE TECHNICAL MEANING OF THE WORD RIGHT
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:
A right is one of the interests in property recognized by the law, and is distinguishable
from a privilege, a power and an immunity. [...] If we use the term right in its strictly
legal sense as necessarily involving a correlative, or reciprocal duty, we leave room for
other property interests to include privileges, powers, and immunities and their
correlatives. Care should be taken when speaking of a right not to confuse it with these
other property interests.[20]
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.
2.4. RECOMMENDATION CONCERNING THE TRANSLATION OF THE
TERM "INTEREST" TO HARMONIZE IT WITH COMMON LAW IN
FRENCH
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.
4.1. OBJECTIVES OF THE HARMONIZATION OF THE TERM
"INTEREST" (INTÉRÊT) TO MAKE IT ACCESIBLE TO THE FRENCH
AND ENGLISH LANGUAGE AUDIENCES OF THE PROVINCE OF
QUEBEC
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.
4.2. THE NOTION OF "INTEREST" (INTÉRÊT) IN THE QUEBEC CIVIL
LAW TRADITION
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]
4.3. THE BASIC CHARACTERISTICS OF THE RIGHT OF OWNERSHIP
IN CIVIL LAW
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.
4.4. THE RIGHT OF OWNERSHIP AND THE NOTION OF REAL RIGHT
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]
4.4.1. DEFINITION OF A REAL RIGHT
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.
4.4.2. DISMEMBERMENTS OF THE RIGHT OF OWNERSHIP IN
QUEBEC CIVIL LAW
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.
4.4.3. THE RIGHT OF OWNERSHIP, QUEBEC CIVIL LAW AND THE
COMMON LAW : COMPARING BASIC CONCEPTS
In this section, we will look at private law concepts which apply differently depending on the
legal system involved.
4.4.3.1. THE LEASE IN CIVIL LAW: A COMPARISON WITH THE
COMMON LAW
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]
4.4.3.2. SECURITY (INTEREST), THE CIVIL LAW AND
THE COMMON LAW
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.
4.4.3.3. THE TRUST AND CIVIL LAW
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.
4.4.3.4. THE TRUST AND THE USURFRUCT
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 :
[…] the usufructuary has the enjoyment, possession, administration and control of the
thing as well as the right to revendicate it, whereas a bare owner acquires the property
upon death. In the case of a trust, the fiduciary holds as depository and administrator on
behalf of the beneficiaries of the income and principal. According to the authorities, he
or she even has a right of ownership sui generis subject to particular rules. In short, the
presence of a usufructuary excludes the presence of a fiduciary as he or she exercises
most of the rights of the latter.[46] (Emphasis added.)
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.
4.4.3.5. THE USURFRUCT AND ITS SIMILARITY TO THE
NOTION OF FUTURE INTEREST
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.
4.4.3.6. TRUST AND SUBSTITUTION
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]
4.4.4. TAX PROBLEMS ARISING FROM THE CONCEPTUAL
DIFFERENCES BETWEEN A TRUST, A USURFRUCT AND A
SUBSTITUTION
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]
4.4.5. PARLIAMENT'S SOLUTION TO THESE PROBLEMS
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]
4.5. REAL RIGHT: OUR PROPOSED SOLUTION FOR THE
HARMONIZATION OF THE TERM "INTEREST" (INTÉRÊT)
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

Real right (droit réel)
Interest (intérêt)
Lease
No (1851 C.C.Q.)
the lessee enjoys the property only through the lessor
Yes
Beneficiary of a trust
No (1261 C.C.Q.)
problem in subsection 248(3) of the ITA
Yes
Beneficial ownership
No
Yes
Right of ownership
Yes
Yes
Equity
No
Yes - legal interest
- equitable interest
Vested interest
No
Yes - without reserve
-subject to exclusion
- partial or total
Future interest
Does not exist in civil law
Reversionary interests
Unrealized interests
Licence
(permission)
Does not exist in civil law
No
Option
A real right only when the option is exercised.
A personal right between the granting of the option and the moment when the beneficiary
decides whether or not to exercise it
Yes - creates an equitable interest
Profit à prendre
Yes
Notion of fructus
Yes
Servitude
Yes
Yes
Security interest
Only on accessory real rights
Hypothec (2660 C.C.Q.)
Yes
Exclusion under subsection
248(4) of the ITA
Emphyteusis
Yes
(1195 C.C.Q.)
Does not exist in
common law



Attributes:


Right of preference
Yes
Yes
Right to follow
Yes
Yes
Right to abandon
Yes
Yes
Opposability
Yes
Yes
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.
6.1. RECOMMENDATIONS RELATING TO THE DEFINITIONS OF THE
TERMS "INTEREST" (INTÉRÊT) AND "REAL RIGHT" (DROIT RÉEL)
IN THE ITA AND ETA
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]
6.2. A DEFINITION WHICH SETS THE PARAMETERS FOR THE
APPLICATION OF THE NOTION OF "INTEREST" (INTÉRÊT)
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:
"interest" includes any interest in real and personal property, whether corporeal or incorporeal,
at law or in equity, freehold or leasehold, present or future, vested or contingent, in re propria
or in re aliena, but does not include an interest held as security only nor a pure possessory
right.
«intérêt» Tout intérêt sur un bien réel ou personnel, corporel ou incorporel, reconnu at
common law ou en equity, en tenure franche ou à bail, actuel ou futur, dévolu ou éventuel, in re
propria ou in re aliena, à l’exclusion toutefois d’un intérêt détenu uniquement en garantie et de
tous droits purement possessoires.
6.3. ADOPTING THE COMMON LAW DEFINITION OF "INTEREST"
(INTÉRÊT)
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.
6.4. ADOPTING THE CIVIL LAW DEFINTION OF "REAL RIGHT"
(DROIT RÉEL)
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:
The federal Parliament accordingly devised, for tax purposes and for all of Canada, a
common concept covering the ideas of "disposition" ("disposition de biens") and
"beneficial ownership" ("propriété effective"), both in civil and common law: the
corollary of these provisions being that when there was a "disposition" for a party to a
contract the other party made an "acquisition" or obtained the "beneficial ownership" of
it.
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):
"real right" includes a lease of immovable property, a benefit under a trust, including one
deemed under subsection 248(3), or any option, whether exercised or not, but does not include
a hypothec.
«droit réel» Sont réputés des droits réels les baux sur des biens immeubles, les bénéfices d’une
fiducie, même réputée en application du paragraphe 248(3) et les options, même non exercées.
Sont exclues les hypothèques.
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:
"real right" includes a lease of immovable property, a benefit under a trust, including one
deemed under subsection 248(3), or any option, whether exercised or not, but does not include
a hypothec.
«droit réel» Sont réputés des droits réels les baux sur des biens immeubles, les bénéfices d’une
fiducie, même réputée en application du paragraphe 248(3) et les options, même non exercées.
Sont exclues les hypothèques.

"interest" includes any interest in real and personal property, whether corporeal or incorporeal,
at law or in equity, freehold or leasehold, present or future, vested or contingent, in re propria
or in re aliena, but does not include an interest held as security only nor a pure possessory
right.
«intérêt» Tout intérêt sur un bien réel ou personnel, corporel ou incorporel, reconnu at
common law ou en equity, en tenure franche ou à bail, actuel ou futur, dévolu ou éventuel, in re
propria ou in re aliena, à l’exclusion toutefois d’un intérêt détenu uniquement en garantie et de
tous droits purement possessoires.
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…

BIBLIOGRAPHY
Civil 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).