2018 QCCA 1886, 2018 QCCA 1886

Développements Iberville ltée c. Agence du revenu du Québec 2018 QCCA 1886 COURT OF APPEAL CANADA PROVINCE OF QUEBEC REGISTRY OF MONTREAL No: 500-09-026184-168 (500-80-021660-122, 500-80-026471-137, 500-80-026472-135, 500-80-026473-133, 500-80-026474-131, 500-80-027165-134, 500-80-030023-155) DATE: November 12, 2018 CORAM: THE HONOURABLE FRANCE THIBAULT, J.A. MARK SCHRAGER, J.A. MARIE-JOSÉE HOGUE, J.A. LES DÉVELOPPEMENTS IBERVILLE LTÉE LOCATION LES DÉVELOPPEMENTS IBERVILLE LTÉE CARREFOUR DE L’ESTRIE INC. 6482651 CANADA INC. 4317653 CANADA INC. APPELLANTS – Plaintiffs v.

AGENCE DU REVENU DU QUÉBEC RESPONDENT – Defendant JUDGMENT [ 1 ] On appeal from a judgment rendered on June 2, 2016, by the Quebec Court, District of Montreal (the Honourable Daniel Bourgeois), disposing of a number of appeals from tax assessments. [ 2 ] For the reasons of Justice Schrager, with which Justices Thibault and Hogue concur, THE COURT : [ 3 ] DISMISSES the appeal with legal costs. FRANCE THIBAULT, J.A. MARK SCHRAGER, J.A. MARIE-JOSÉE HOGUE, J.A.

Mtre Dominic Charles Belley NORTON ROSE FULBRIGHT CANADA For Appellants Mtre Louis Riverin Mtre Pierre Zemaitis REVENU QUEBEC For Respondent Date of hearing: September 24, 2018

REASONS OF SCHRAGER, J.A. [ 4 ] On June 2, 2016, the Quebec Court, District of Montreal (the Honourable Daniel Bourgeois), found that the Appellants’ use of the “Quebec Year-End Shuffle (Q-YES)” triggered the General Anti-Avoidance Rule (“GAAR”) in the Taxation Act (Québec). [1] [ 5 ] In addition to the foregoing, two other matters arising from the judgment are appealed: 1- the tax treatment of gains arising from the sale of certain land in the Town of Brossard; and 2- the capitalization of certain expenses incurred to construct retail stores for two tenants.

I - FACTS [ 6 ] The facts are not in dispute and are related in detail in the judgment of the lower court. [2] I sketch here in skeletal form those essential for the understanding of these reasons.

The necessary legislation and regulatory enactments appear as schedules to these reasons. [ 7 ] The Appellants, Les Développements Iberville Ltée (“Développements”), Carrefour de l’Estrie inc. (“Estrie”), Location Les Développements Iberville Ltée (“Location”), 4317653 Canada inc. (“4317653”) and 6482651 Canada inc. (“6482651”) are all related companies forming part of the Iberville Group controlled by Sylvan Adams and his family. [ 8 ] At the relevant times, the Iberville Group developed, owned and operated commercial real estate, principally shopping centers. [ 9 ] Between 2004 and 2006, the Appellants, following the tax advice of Mr.

Serge Bilodeau of the firm KPMG, undertook a series of transactions related to the sale by them of several shopping centers to arms-length parties. The tax strategy employed, known as the Q- YES, allowed the Appellants to avoid the payment of virtually all Quebec tax that would have otherwise been payable on the capital gains realized on these sales and the resulting recapture of depreciation.

The gains totalled $728,851,976 while the recovery of the depreciation amounted to $67,063,573. [ 10 ] Prior to the third party sales, each of Développements, Location and Estrie had transferred the real estate in question by rollover to limited partnerships controlled by them, pursuant to

Section 614 TA so that the capital gains and recoveries of depreciation were deferred. Développements, Location and Estrie transferred their units in the limited partnership to the two Appellant numbered companies by way of rollovers under

Section 518 TA so that the gains and recapture of depreciation were again deferred. [ 11 ] Mr. Sylvan Adams, the sole director of these two companies, selected February 28, 2006 as the fiscal year-end for federal (and Ontario) tax purposes, but March 19, 2006 for Quebec purposes.

On March 1, the two Appellant numbered companies acquired units in two Ontario limited partnerships, having the effect of transferring most of their business to Ontario. [ 12 ] Following such transfer the proportion of the numbered companies’ revenue in Quebec, as of March 19, 2006 was respectively 0.0587% and 2.6761% upon application of the formula found in Rule 771R3. [3] [ 13 ] For the year ending February 28, 2006, the two numbered companies declared, for federal and Ontario purposes, no capital gains or recapture of depreciation. [ 14 ] As stated, the different year-ends for the same companies, the disposition of the real estate between the two fiscal year-end dates and the application of the income allocation rules (R771) allowed the Appellants to avoid payment of virtually all tax in Quebec on the gains realized pursuant to the real estate sales and the recovery of depreciation arising from the sales. [ 15 ] Following audits, the Respondent issued notices of assessments concerning the transactions, the contestations of which give rise to these proceedings.

The Respondent has applied the GAAR found in

Section 1079.10 and following TA to the series of aforementioned transactions so that neither the rollovers nor the different fiscal year-ends were recognized. In the result, the gains on the sale of the real estate and recapture of depreciation were assessed by the Respondent against Développements, Location and Estrie in Quebec.

The Respondent also disallowed the expense deduction related to the professional fees incurred in connection with the tax planning. [ 16 ] As well, gains arising from the sale of certain lands in the Town of Brossard were taxed by the Respondent as income and not capital gain as declared by the Appellant Location. The factual underpinning of such assessment is as follows. In the year 2000, Location acquired approximately 30 million square feet of land at the intersection of Autoroutes 10 and 30 in the Town of Brossard. According to Mr.

Adams’ testimony, he sought 10 million square feet to develop, build and subsequently operate a shopping center but the vendor/then owner of the land insisted that Mr. Adams acquire all 30 million square feet available or nothing at all.

The profit realized on the eventual sale of the 20 million square feet not required for the shopping center was reported as capital gain but assessed by the Respondent as business income. [ 17 ] Lastly, in 2003 and 2007 Location entered into lease agreements with two retailers, Pier 1 Imports and Bureau en Gros providing for the construction of buildings that would house stores for each of these enterprises in Sherbrooke and Candiac, Quebec, respectively. In its tax returns for 2004, 2005 and 2007, Location capitalized 50% of the construction cost of such stores while deducting the other half as current expenses.

The Respondent issued assessments based on its refusal to allow the expense deduction on income, taking the position that the entire construction expense should be capitalized. [ 18 ] All appeals from each of the assessments were joined together and decided by one judgment.

II - THE JUDGMENT UNDER APPEAL [ 19 ] Over the course of 68 pages, the judge described the facts in detail, reviewed the position of the parties, summarized the applicable legal provisions and considered the relevant case law. [ 20 ] Most significantly, the judge set out the requirements for the application of the GAAR: [4] 1) A tax benefit arising from the transaction or series of transactions; 2) The transaction(

s) is an avoidance transaction – i.e. it was not undertaken for a real commercial purpose but rather purely to obtain a tax benefit; and 3) The avoidance transaction is abusive – i.e. the tax benefit is inconsistent with the object, spirit or purpose of the provision(

s) relied upon by the Appellants. [ 21 ] The judge found and it is confirmed before us that numbers 1 and 2 above are admitted. The appeal thus focuses on the question of abuse. [ 22 ] The judge concluded that the avoidance was abusive and that Mr. Adams was fully aware of the purpose and risk of the tax planning. The judge remarked that the tax expert, Mr.

Bilodeau, admitted that no commercial purpose was sought by the transactions; their sole purpose being the elimination of, or vast reduction in the provincial tax payable as a result of the dispositions of the immovable properties. [5] [ 23 ] The judge observed that the transactions establishing different year-ends for provincial and federal tax purposes run contrary to the intended purposes of s. 7 TA defining a company’s fiscal year as well as Rule 771R3 of the Regulation whose purpose is to ensure an equitable distribution of the tax burden on companies carrying on business in more than one province. [6] [ 24 ] The judge agreed with the British Columbia Supreme Court (“BCSC”) that the object of the provisions was defeated since “tax was not being paid anywhere which ought to have been paid somewhere”. [7] [ 25 ] The judge also held that the rollover transactions were abusive since they run contrary to the legislative intent underpinning ss. 518 and 614 TA which is to defer tax, not to avoid or eliminate it. [8] [ 26 ] Even though the various transactions complied with the letter of the law, the object and spirit of the legal provisions relied upon were violated so that the application of the GAAR and the assessments were justified in the judge’s opinion. [9] [ 27 ] Given that no double assessment arising from the alternative assessments issued by the Respondent was intended, the judge referred the assessments to the Minister to make the appropriate adjustments to eliminate the inappropriate tax advantage once the year- end of the numbered companies was fixed at February 28, 2006. [ 28 ] Before us, the Appellants did not express dissatisfaction with this manner of dealing with the assessments and ask for little more than referral back to the Minister should they succeed in appeal. [ 29 ] Concerning the Brossard land, the judge held that the portion not purchased for purposes of developing the shopping center was inventory, the sale of which gave rise to business income and not capital gain. [ 30 ] Lastly, regarding the construction expenses, the judge concluded that the Appellants had not satisfied their burden to demonstrate that the assessments disallowing the current expense deduction were incorrect.

III - ISSUES IN APPEAL [ 31 ] There are three issues in appeal, the first of which being the most substantial and complex:

A) Did the judge err in the application of the GAAR?

B) Did the judge err in the treatment of the gains arising from the sale of the Brossard land? and

C) Did the judge err in the treatment of the expenses to build the Pier 1 and Bureau en Gros’ stores? IV - ANALYSIS

A) Application of the GAAR 1) The Law [ 32 ] The Quebec GAAR is expressed in

Section 1079.10 and 1079.11 TA . It is virtually identical to Section 245(2) , (3) and (4) of the Income Tax Act , Canada. [10] [ 33 ] As mentioned above, the application of the GAAR in regard to any given transaction or series of transactions is predicated on

the following: 1) The transaction (or series of transactions) gives rise to a tax benefit; 2) The transaction is an avoidance transaction; and 3) The avoidance is abusive.[11] [34] The burden is on the taxpayer to refute 1 and 2 and on the fiscal authorities to establish point 3.[12] [35] Also, as mentioned, points 1) and 2) above have been admitted by the Appellants. Indeed, it is conceded that the transactionshad no real commercial purpose for the Appellants.

The whole arrangement was purely tax driven. [36] To determine whether the avoidance transaction is abusive, a court must go beyond pure considerations of avoidance sincetaxpayers, as a basic principle of tax law, are permitted to arrange their affairs so as to minimize tax, by taking advantage of theprovisions of the tax legislation conferring such benefits.[13] Application of the GAAR is limited to cases where the abusive nature of atransaction is clear.[14] [37] A court’s inquiry requires it to determine “the object, spirit or purpose of the provisions in question”:[15] [69] In order to determine whether a transaction is an abuse or misuse of the Act, a court must first determine the “object, spirit orpurpose of the provisions . . . that are relied on for the tax benefit, having regard to the scheme of the Act, the relevant provisions andpermissible extrinsic aids” (Trustco, at para. 55).

The object, spirit or purpose of the provisions has been referred to as the “legislativerationale that underlies specific or interrelated provisions of the Act” (V. Krishna, The Fundamentals of Income Tax Law (2009), at p.818). [70] The object, spirit or purpose can be identified by applying the same interpretive approach employed by this Court in all questionsof statutory

interpretation — a “unified textual, contextual and purposive approach” (Trustco, at para. 47; Lipson v. Canada, 2009 SCC 1, [2009] 1 S.C.R. 3, at para. 26). While the approach is the same as in all statutory

interpretation, the analysis seeks to determinea different aspect of the statute than in other cases. In a traditional statutory

interpretation approach the court applies the textual,contextual and purposive analysis to determine what the words of the statute mean. In a GAAR analysis the textual, contextual andpurposive analysis is employed to determine the object, spirit or purpose of a provision. Here the meaning of the words of the statutemay be clear enough. The search is for the rationale that underlies the words that may not be captured by the bare meaning of the wordsthemselves.

However, determining the rationale of the relevant provisions of the Act should not be conflated with a value judgment ofwhat is right or wrong nor with theories about what tax law ought to be or ought to do. (Emphasis added) [38] The court must then determine whether the identified purpose of the legislative provision has been frustrated.

As such, the courtexamines the avoidance transactions or series of transactions resulting in the tax benefit: [72] The analysis will then lead to a finding of abusive tax avoidance: (1) where the transaction achieves an outcome the statutoryprovision was intended to prevent; (2) where the transaction defeats the underlying rationale of the provision; or (3) where thetransaction circumvents the provision in a manner that frustrates or defeats its object, spirit or purpose (Trustco, at para. 45; Lipson, atpara. 40). These considerations are not independent of one another and may overlap.

At this stage, the Minister must clearly demonstratethat the transaction is an abuse of the Act, and the benefit of the doubt is given to the taxpayer.[16] [39] In the present case, the avoidance is achieved by a series of transactions relying upon several sections of the TA and a regulationmade thereunder. The Respondent has alleged, and the judge agreed, that the Appellants abused

Section 7 TA (defining the fiscalperiod), Sections 518 and 614 (governing the rollovers) and Sections 771R4 (formerly 771R3), 771R7 (formerly 771R4) and 771R21(formerly 771R13) of the Regulations, which I now propose to examine. For the reasons which follow, I find no reviewable error in thatconclusion.[17] 2) Discussion

a) The Regulations [40] The Regulations provide the income allocation rule for companies operating in more than one province. [41] The Appellants submit that the judge’s determination of the object and spirit of Rule 771R3 is erroneous since he concludes thatthe purpose of the allocation regulation was to ensure that income is taxed in one province or another.[18] [42] The Appellants assert that since the provision is a regulation and not a

section of the TA, its purpose cannot be, by definition,the imposition of tax. Here it is Sections 22, 27 and 771 TA that foresee the imposition of the tax. The Appellants add that the judge’sinterpretation runs contrary to the “Constitution” since the province must legislate in order to tax; tax cannot be imposed by regulation. [43] Accordingly, the Appellants continue, the Regulation can only be applied to reduce tax payable in virtue of the TA, which iswhat the Appellants have done. Thus, there has been no abuse of the Regulations’ object or purpose.[19] [44] I disagree with the Appellants’ argument.

Sections 22 and 27 TA provide that when a corporation has an establishment outsideQuebec, taxes are payable in proportion to the business carried on in Quebec and elsewhere determined in accordance with

Section 771TA. That

section of the TA provides that the actual calculation is done in accordance with the Regulation – i.e. Regulation 771.Accordingly, the tax charging provisions are found in Ss. 22, 27 and 771 TA. Rule 771R3 is the tool to calculate the proportion ofbusiness carried on in Quebec, in relation to other provinces.

[ 45 ] It is not contested that other provinces, particularly Ontario, have adopted a similar if not identical allocation rule. [20] These rules at their inception were motivated by the need for intergovernmental coordination to avoid double taxation and under taxation. [21] [ 46 ] The allocation formula has been the object of sparse judicial

interpretation. The judge agreed with the BCSC in Veracity that the purpose of the allocation formula is not to avoid payment of tax but rather to provide a basis to impose tax in the appropriate province. [22] The BCSC judgment has now been, (since the judgment of the Court of Quebec), overturned by the British Columbia Court of Appeal (“BCCA”), stating the following: [101] The Minister argues that it is presumed in the allocation formula’s use of ratios that 100%, and no more or less, of the gain is taxed by the provinces. The Minister argues certain commentary supports this view (Ernest H.

Smith, “Allocating to Provinces the Taxable Income of Corporations: How the Federal-Provincial Allocation Rules Evolved” (1976), 24:5 Can. Tax J. 545-571), and the fact many provinces, including Quebec, adopt allocation rules that are substantially the same buttresses this view. I disagree. [102] In my view, the use of ratios and similar formulae across provinces does not advance the Minister’s contention.

Use of ratios further demonstrates that the purpose of the Allocation Rules is to allocate (i.e., calculate how much each Province gets), but does not fill the “gap” to lead to the conclusion that the purpose is to ensure full allocation, or what the province does with its allocation. As to the use of substantially identical formulae, this does not change the fact that the provincial schemes are nonetheless not perfectly aligned. The purpose of the Allocation Rules is to allocate the income to the provinces.

How the provinces tax that income, if at all, is beyond the purpose, object and spirit of the Allocation Rules. The allocation of income is different from the taxation of income. I note the Supreme Court’s comment in Copthorne at para. 110 that: … in some cases the underlying rationale of a provision would be no broader than the text itself. Provisions that may be so construed, having regard to their context and purpose, may support the argument that the text is conclusive because the text is consistent with and fully explains its underlying rationale. [23] [ 47 ] I disagree with the BCCA.

Literally and arithmetically, the allocation regulation provides what is basically a simple ratio of Quebec revenue to total revenue. When expressed mathematically as a fraction (i.e. ) it is strange to assume as it appears the BCCA has done, that the total of all such fractions for all provinces where a company carries on business would be less than 100%. Total numerators would equal the denominator on a literal analysis. There is simply no room for a “gap”. [ 48 ] Furthermore, I disagree with the BCCA’s

interpretation of the allocation rule. The

interpretation proposed by the BCCA runs contrary to the methodology of

interpretation indicated by the Supreme Court in Copthorne quoted above. It is the rationale of the formula that must be examined. The rationale is to allocate income amongst the provinces where a corporation carries on business. This is done in order to achieve equitable taxation, meaning that not more than 100% of total income should be taxed.

The same rational dictates that no less than 100% of the income should be taxed. [ 49 ] For the sake of completeness, if not fairness, it must be stated that the ratio decidendi of the BCCA in Veracity is that the wording of the GAAR of the British Columbia legislation [24] did not catch the impugned transaction. The GAAR in the B.C. Act targets the abuse of provisions of the B.C. Act and regulations (including enactments incorporated therein by reference – i.e. certain provisions of the ITAC ). Any abuse of the TA or Regulations were ruled not to be within the scope of the B.C.

GAAR. [25] Since the appeal could have been decided on such basis alone, the balance of the reasons of the BCCA might be considered as obiter dicta .

b) Section 7 TA [ 50 ] This

section defines the fiscal period.

Section 7 as it evolved over the years was and remains (until the transaction in this case) essentially a carbon copy of the federal

section presently found in

Section 249.1 ITAC . As such, the definition stands on its own and is not tied to the federal definition by reference or by incorporation as in other provincial tax legislation. [26] Thus, it was possible for the Appellants to select a fiscal period that was different from that selected for federal purposes, the whole in compliance with the letter of

Section 7 TA . [ 51 ] The Appellants, relying on the BCCA judgment in Veracity , would characterize this state of affairs as tax policy so that, should the selection of a fiscal period for Quebec purposes differ from that chosen for federal or Ontario purposes, then the result is merely a reflection of an aspect of Quebec’s tax policy, albeit with an unintended result. [27] [ 52 ] I disagree.

The definition of fiscal period essentially copied from the federal legislation some years ago cannot in context be characterized as tax policy and certainly not a policy to treat capital gains differently from other provinces or from the federal government. The record does not disclose any independent evidence of a policy decision other than that reflected in the text – i.e. to have the same definition of “fiscal period” in the Quebec legislation as in the federal statute.

This by no means speaks to specifically allowing different financial year-ends for Quebec purposes. [ 53 ] The present case is not an instance where a taxpayer organizes its business activities and/or places of business in order to direct revenue or certain types of revenue to a province where such revenue is not taxable or is taxed in a favourable manner. Such was the case in Husky Energy inc. [28] when the Husky Group arranged its affairs so that interest on borrowed money was paid to a member of the Group, resident in Ontario, but incorporated in the British Virgin Islands.

Such interest income was not taxable under Ontario law so no tax was payable there by the recipient even though the payments of interest were deducted by the payer corporations resident in Alberta. The Alberta Court of Appeal held: [49] Here, the borrowers used the funds to run their businesses. Based on these cases, it would be a stretch to find abusive avoidance simply because a taxpayer took the benefit of another province’s advantageous tax treatment. That proposition lies at the heart of Alberta’s position and cannot be accepted.

It is difficult to see how, therefore, these transactions could be considered abusive simply because the lender received more favourable tax treatment in another Canadian province. This is especially so since differing provincial

tax policies are a fundamental part of the Canadian federation. [ 54 ] Similarly, Inter-Leasing, Inc. v. Ontario (Revenue) , [29] holds that such an avoidance transaction as in Husky is not abusive. Closer to the facts of the case at bar, in Imperial Oil Ltd. v. Canada , [30] loans between companies with different year-ends allowed them to take advantage of a loophole and avoid tax.

The judgment is of little solace to the Appellants as the loans were observed to be “ordinary commercial transactions with no artificial elements, undertaken for both tax and non-tax purposes”. [31] As such, one could question that the transactions in Imperial Oil were even avoidance transactions when measured against the dicta of the Supreme Court in Trustco decided subsequently.

In Imperial Oil , the court added that there was no abuse since there was no basis for the Minister’s contention that the value of a corporation’s capital at year-end should be representative of such value throughout the year. [32] Of significance for present purposes is that lender and borrower had different year-ends.

They were two distinct corporations so that the factual underpinning of the case is wholly different from the present case where different fiscal year-ends were put in place for the same corporation and this, for the sole purpose of taking advantage of the Q-YES. [ 55 ] The BCCA bases its reasoning on this case law to conclude that because there is no uniform system of provincial taxation in Canada, then something may well “fall through the cracks”. [33] Such reasoning may well apply where provinces ascribe different tax treatment to the same category of revenue (as in the Husky case).

However, such is not the case at bar, where all acknowledge that since 1972, both Quebec and Canada tax capital gains, and this in the same manner – i.e. half the gain is treated as income. [34] Accordingly, in my respectful view, the BCCA erred when it overturned the BCSC which decided that the allocation rules must result in 100% of the income being taxed somewhere. [ 56 ] In the present case, the income, or capital gain is treated the same in Quebec, Ontario and by the federal government for tax purposes so that upon application of the allocation formula, 100% of the income must result in taxation somewhere as the Quebec Court judge correctly decided. [35]

c) Sections 518 and 614 TA [ 57 ] In OGT Holdings Ltd. v. Québec (Sous-ministre du Revenu) , [36] the Court held that the object and spirit of the rollover provisions of

Section 518 TA was to allow for deferral of tax but not the avoidance of the payment of tax. The Federal Court of Appeal came to a similar conclusion in Canada v.

Oxford Properties Group Inc. , [37] such that the tax arising from the disposition of capital property pursuant to a rollover must be paid upon the subsequent disposition of the property by the holder of the property following the rollover. [38] [ 58 ] The Appellants contend that OGT Holdings does not apply to the case at bar since in that case the taxpayer opted that the proceeds of disposition be equal to the adjusted cost base of its share for provincial purposes while not making such election for federal tax purposes.

Provincial tax was avoided because Ontario law provided that the cost of the shares was deemed to be their cost for federal tax purposes. To distinguish OGT Holdings , the Appellants revert to their “constitutional” argument saying that the judgment does not apply to whether the provisions of a regulation (as opposed to a statute) were abused which is the manner the Appellants read the assessments issued against them.

The Appellants add that they clearly did not abuse the rollover provisions in the TA (as was the case in OGT Holdings ) since the cost base used by the Appellants in their rollovers was identical for provincial and federal tax purposes. [ 59 ] The Appellants now find support from the BCCA in Veracity where that Court ruled that the rollover provisions (of

Section 85 of the ITAC ), preserve a gain and defer the imposition of tax but do not ensure, in the words of the BCCA, that “the gain will give rise to an actual tax liability (…). Nothing in the text of the provision, or its effect, demonstrates that it extends to ensuring that intervening events do not interfere to negate an actual taxable gain”. [39] [ 60 ] Such a premise is, in my opinion, of no help to the Appellants because their “intervening events” to negate the tax liability arising from the capital gains and recapture of depreciation are purely artificial.

It is not disputed that the transactions had no commercial purpose. The tax liability was altered by an artificial modification of the Quebec tax base. The Federal Court of Appeal has upheld assessments where a capital gain was reduced by an artificial capital loss; this constituted an abuse. [40] I believe the analogy straightforward.

The Appellants’ liability was reduced (or practically eliminated) by an artifice of having it occur in different years by creating two fiscal periods for the same corporate entity. [ 61 ] As in OGT Holdings , where the capital gains were directed to Ontario where no tax would be payable in the circumstances, the Appellants transferred their business to Ontario knowing that because of the creation of two fiscal periods, tax would not be paid there.

The Appellants knew that no tax would be payable in Quebec because (theoretically) it was payable in Ontario upon application of the allocation formula, but because of the different fiscal periods, no tax would ultimately be paid in Ontario. [ 62 ] Thus, the rollover provisions have been used, as in OGT Holdings , to avoid the payment of tax and not simply defer its payment. In this manner, the Appellants have acted contrary to the object and spirit of Ss. 518 and 614 TA . This constitutes abuse.

d) Section 1079.13 TA [ 63 ] Again, on a constitutional theme, the Appellants submit that the Respondent is seeking to apply the GAAR in order to collect tax on income earned by the Appellants outside of Quebec. [ 64 ] However, the Respondent is not seeking to collect tax rightly payable to the Ontario government. There was no avoidance of Ontario tax by the Appellants.

Rather, as stated, the Appellants avoided payment of Quebec tax on the pretext that it was being paid somewhere else (i.e. – Ontario) whereas their planning made it such that no Ontario tax was payable (as was the case in OGT Holdings ). [ 65 ] The judge of the Court of Quebec, applying the GAAR, looked beyond the outward appearance of the transaction by ignoring the different fiscal year-ends for Quebec and using February 28, 2006 – i.e. the date used for federal purposes by the Appellant numbered companies. [ 66 ] At the end of February, the numbered companies carried on 100% of their business in Quebec.

Thus, the judgment of the Court

of Quebec does not have the effect of collecting Ontario tax but rather of determining that the income was actually earned in Quebec after examining the object and spirit of

Section 7 TA .

B) The Brossard land [ 67 ] Regarding the assessments of revenue from the sale of approximately 20 million square feet of land, I underline that the issues raised are basically factual and revolve around the intention of Location when it purchased the land. Iberville Group including Location were developers of commercial real estate, principally shopping centers. Mr. Adams was candid in his trial testimony that the intention was to build a shopping center on 10 million square feet.

The other 20 million square feet was purchased on the vendor’s insistence of “all or nothing”. [ 68 ] Obviously, Location would not build a shopping center next door to its own shopping center on 20 million square feet and it was not in the business of developing residential real estate. The proof indicates that albeit not finalized, the zoning for at least a substantial portion of the 20 million square feet would be, to the knowledge of Mr.

Adams, residential. [ 69 ] Against the foregoing background, there is no reason to find error in the judge’s conclusions: [262] L’intention d’Adams, en achetant les terrains de Trizec, était donc double soit la conservation d’une

partie des terrains pour l’exploitation commerciale et la vente d’une autre

partie des terrains pour un secteur d’activité qu’il n’entendait pas développer. [263] Il est donc clair, selon le Tribunal, que la vente par Location des terrains à des entrepreneurs en construction et en développement résidentiel, postérieur à l’achat en septembre 2000, doit être considérée comme du revenu d’entreprise puisque ces terrains, dès le départ, ont été acquis pour être des biens en inventaire. [ 70 ] The 10 million square feet was capital property intended for development to generate revenue; [41] the 20 million square feet was inventory meant for resale.

The gain on the resale of the latter is income. [42] [ 71 ] The question is one of fact or mixed fact and law. The threshold for appellate intervention is well known; an error must be palpable and overriding which is not the case here. I underline that throughout, the burden to demonstrate that the instant assessments were incorrect lay with the Appellants. They did not satisfy the burden before the Court of Quebec nor convince me that the findings of that Court are affected by reviewable error.

C) Expenses incurred to build the Pier 1 and Bureau en Gros stores [ 72 ] The Appellant Location takes the position that the judge having accepted that the expenses in question were incurred to satisfy the requirements of Pier 1 and Bureau en Gros, then upon application of the principles laid down by the Supreme Court of Canada in Canderel Ltd. v. Canada , [43] the disbursements are deductible from income as current expense, in the year incurred. [ 73 ] The judge correctly identified and enunciated the principles as set down in the Canderel case.

In Canderel , payments made to a prospective tenant to induce it to lease premises in the taxpayer’s building were deducted as current expenses. Could such tenant inducement be deducted from income entirely in the year made or should it be amortized over the term of the lease to which it is related? This was the issue in Canderel .

The issue is essentially the same in this case. [ 74 ] The judge correctly stated that no provision of the legislation seeks to define whether any given expense is current (and thus deductible in the year incurred) or capital in nature (to be amortized). [44] The determination depends on the circumstances of each case. [45] [ 75 ] The Appellant Location contends that the construction requirements for the stores emanated from Pier 1 and Bureau en Gros, respectively.

As such, they justify the current nature of the expenditure. [ 76 ] However, the judge found that the Appellant had not clearly proved that all of the construction expenses were dictated by the tenants’ requests. [46] These were new buildings, the construction costs of which would normally be in the nature of capital expenditure. The Appellant points to the allocations made by the architect (who did not testify on the subject) with regard to certain expenditure items as partially interior/partially “structure” which the Appellant extended for accounting purposes to “current” and “capital”.

However, as noted by the judge, there is no basis in the evidence to tie the current portion of such allocations to the building specifications dictated by Pier 1 and Bureau en Gros. [47] Moreover, no such information can be gleaned from the lease documentation where the relevant annexes are largely illegible or indecipherable nor can such assertion be grounded on the testimony on such subject, which the judge found unconvincing. [48] [ 77 ] The nature of the expenses in question was essentially the outcome of a factual inquiry even if the application of the Canderel principles to determine what is profit (i.e. income minus expenses) is a question of law. [49] The Appellant Location did not satisfy its burden in first instance to demonstrate the facts necessary to conclude that the assessments issued by the Respondent were wrong nor has the Appellant Location satisfied its burden on appeal to establish any reviewable error by the judge on this final ground of appeal. *** [ 78 ] For all of the above reasons, I would dismiss the appeal with legal costs.

MARK SCHRAGER, J.A.

SCHEDULE I-3 - Taxation Act

PART I INCOME TAX Definition of “fiscal period” 7. In this Part and the regulations, unless the context indicates otherwise, “fiscal period” of a business or a property of a person or partnership means the period for which the person’s or partnership’s accounts in respect of the business or property are made up for purposes of assessment under this Part. However, a fiscal period may not end (

a) in the case of a business or a property of a corporation, more than 53 weeks after the period began; (

b) in any of the following cases, after the end of the calendar year in which the period began unless, in the case of a business, the business is not carried on in Canada, is a prescribed business or is carried on by a prescribed person or partnership: i. a business or property of an individual, other than an individual in respect of whom any of sections 980 to 999.1 applies or other than a testamentary trust, i.1. a business or property of an inter vivos trust, other than a fiscal period in respect of which paragraph c of

section 1121.7 applies, ii. a business or property of a particular partnership of which an individual, other than an individual in respect of whom any of sections 980 to 999.1 applies or other than a testamentary trust, a professional corporation, or a partnership in respect of which this subparagraph applies, would, if the fiscal period of the particular partnership ended at the end of the calendar year in which the period began, be a member in the fiscal period, or iii. a business or property of a professional corporation that would, if the fiscal period ended at the end of the calendar year in which the period began, be in the fiscal period a member of a partnership in respect of which subparagraph ii applies; (

c) in any other case, more than 12 months after the period began. For the purposes of this section, the activities of a person in respect of whom any of sections 980 to 999.1 applies are deemed to be a business. 1972, c. 23, s. 7; 1997, c. 3, s. 71 ; 1997, c. 31, s. 3 ; 2001, c. 53, s. 3 ; 2004, c. 8, s. 6 . Liability for tax 22. Every person who is an individual resident in Québec on the last day of a taxation year or a corporation having an establishment in Québec at any time in a taxation year shall pay a tax on the taxable income of the individual or the corporation, as the case may be, for that taxation year. The tax payable under

section 750 by an individual referred to in the first paragraph who carries on a business in Canada but outside Québec is equal to the proportion of the tax that would be determined under this

section but for this paragraph that the individual’s income earned in Québec is of the individual’s income earned in Québec and elsewhere, as determined by the regulations. 1972, c. 23, s. 17; 1972, c. 26, s. 34; 1973, c. 17, s. 4; 1984, c. 15, s. 14; 1988, c. 4, s. 18; 1989, c. 5, s. 29; 1993, c. 64, s. 7; 1995, c. 63, s. 16; 1997, c. 3, s. 71 ; 1998, c. 16, s. 24 ; 2001, c. 53, s. 10 . Tax payable by non-resident corporations 27. Any corporation not contemplated in

section 22 and not resident in Canada that disposes in a taxation year of taxable Québec property shall pay a tax at the rate established in subsection 1 of

section 771 on the amounts described in subparagraphs d , e , f , h and l of the first paragraph of

section 1089 that are applicable thereto and on the amount by which the aggregate of its taxable capital gains exceeds the aggregate of its allowable capital losses from the disposition of such property. Where a corporation contemplated in

section 22 has an establishment outside Québec, its tax payable is equal to the proportion of the tax established under subsection 1 of

section 771 that the business it carries on in Québec is of the entire business it carries on in Canada or

in Québec and elsewhere, as determined under subsection 2 of

section 771. 1972, c. 23, s. 22; 1973, c. 17, s. 6; 1975, c. 22, s. 3; 1987, c. 21, s. 10; 1991, c. 8, s. 1; 1992, c. 1, s. 13; 1993, c. 16, s. 20; 1995, c. 1, s. 199; 1997, c. 3, s. 71 . Capital property 249. For the purposes of this Title, capital property means any depreciable property of the taxpayer and his other property on the occasion of the disposition of which any gain or loss would be a capital gain or a capital loss for him. 1972, c. 23, s. 231. Transfers to a corporation 518.

The rules provided for in this division and in Divisions II and III apply where a taxpayer disposes of any of the taxpayer’s property to a taxable Canadian corporation for consideration that includes a share of the capital stock of the corporation, if the taxpayer and the corporation make a valid election for the purposes of subsection 1 of

section 85 of the Income Tax Act (Revised Statutes of Canada, 1985,

chapter 1, 5th Supplement) in respect of the disposition or, where that election cannot be made by reason of paragraph 21.2 of

section 13 of that Act, make an election, in the prescribed form referred to in the first paragraph of

section 520.1, to apply the rules in respect of the disposition. 1972, c. 23, s. 406; 1973, c. 17, s. 61; 1975, c. 22, s. 115; 1982, c. 5, s. 120; 1986, c. 15, s. 86; 1986, c. 19, s. 118; 1990, c. 59, s. 188; 1997, c. 3, s. 71 ; 1997, c. 31, s. 54 ; 1997, c. 85, s. 82 ; 2000, c. 39, s. 25 ; 2003, c. 9, s. 32 . Contribution of property to partnership 614.

Where at a particular time after 1971 a partnership acquires property from a taxpayer who is, immediately after such acquisition, a member of the partnership, it is deemed to acquire it at its fair market value at that time and the member is deemed to dispose of it for proceeds equal to such value. Notwithstanding any other provision of this Part, other than

section 93.3.1, where a taxpayer disposes of any property that is a capital property, Canadian resource property, foreign resource property, incorporeal capital property or inventory to a partnership that, immediately after the disposition, is a Canadian partnership of which the taxpayer is a member, and the taxpayer and all the other members of the partnership make a valid election for the purposes of subsection 2 of

section 97 of the Income Tax Act (Revised Statutes of Canada, 1985,

chapter 1, 5th Supplement) in respect of the disposition or, where that election cannot be made by reason of paragraph 21.2 of

section 13 of that Act, make an election, in the prescribed form referred to in the first paragraph of

section 520.1, the following rules apply: (

a) sections 520.1, 520.2, 521.2, 522 and 523 to 526 and paragraph a of

section 528 apply in respect of the disposition as if the references therein to

section 518 were references to this paragraph, and replacing therein i. except in

section 525.1, the words “and the corporation” and “and by the corporation” respectively by the words “and all the other members of the partnership” and “and by all the other members of the partnership”, ii. the words “a share of the capital stock of the corporation” and “a right to receive any such share” respectively by the words “an interest in the partnership” and “a right to receive any such interest”, iii. the words “shareholder of the corporation” by the words “member of the partnership”, iv. except in the second paragraph of

section 522 and in

section 526, any other occurrence of the word “corporation” by the word “partnership” , and v. in the portion of subparagraph a of the third paragraph of

section 520.1 before subparagraph i, the words “the taxation year which, of the taxation years of those persons, ends the latest” by the words “that taxation year of the taxpayer or the fiscal period of the partnership in which the disposition was made, whichever year or period in the latter case ends later”; (a.1) sections 520.3 and 522.1 to 522.5 apply in respect of the disposition, i. by replacing, in the first paragraph of

section 520.3, “the transferee of the property, or a third party” by “a member of the transferee of the property, or a third party”, ii. by replacing, in subparagraphs vii of subparagraph b , and iv of subparagraph c , of the first paragraph of

section 522.1, “corporation, by a third party replacing the taxpayer or corporation” by “any of the members of the partnership, by a third party replacing the taxpayer or partnership”,

iii. by replacing, in the third paragraph of

section 522.1, the words “or corporation” by the words “or any of the members of the partnership”, and iv. by interpreting, in sections 522.1 and 522.3 to 522.5, any other reference therein to the transferor corporation of the property and any reference therein to a taxation year of that corporation, as references to the partnership and the partnership’s fiscal period, respectively; (

b) in computing, after the disposition, the adjusted cost base of the taxpayer’s interest in the partnership immediately after the disposition, the taxpayer shall i. add the amount by which the taxpayer’s proceeds of disposition of the property exceed the fair market value at the time of the disposition, of the consideration other than an interest in the partnership, received by the taxpayer for the property, and ii. deduct the amount by which the fair market value, at the time of the disposition, of the consideration other than an interest in the partnership, received by the taxpayer for the property exceeds the fair market value of the property at that time; and (

c) where the taxpayer so disposes of any taxable Canadian property or any taxable Québec property as consideration for an interest in the partnership, the interest is deemed to be also a taxable Canadian property or a taxable Québec property, as the case may be. 1972, c. 23, s. 460; 1975, c. 22, s. 170; 1984, c. 15, s. 132; 1986, c. 19, s. 133; 1997, c. 3, s. 71 ; 1997, c. 31, s. 153 ; 1997, c. 85, s. 98 ; 2000, c. 5, s. 136 ; 2002, c. 40, s. 43 ; 2003, c. 9, s. 40 ; 2004, c. 8, s. 128 ; 2005, c. 1, s. 122 . Rate for corporations 771.

(1) Except as otherwise provided in this Part, the tax payable by a corporation for a taxation year is equal, […]

(2) For the purposes of

section 27, the method of computing the proportion that the business of a corporation carried on in Québec is of the aggregate of the business carried on in Canada or Québec and elsewhere shall be established by regulation. 1972, c. 23, s. 584; 1980, c. 13, s. 68; 1981, c. 12, s. 8; 1987, c. 21, s. 26; 1989, c. 5, s. 115; 1990, c. 7, s. 67; 1991, c. 8, s. 46; 1992, c. 1, s. 59; 1993, c. 19, s. 59; 1995, c. 1, s. 199; 1995, c. 63, s. 64; 1997, c. 3, s. 33 ; 1997, c. 85, s. 149 ; 1999, c. 83, s. 101 ; 2000, c. 39, s. 69 ; 2004, c. 21, s. 198 ; 2005, c. 23, s. 102 ; 2005, c. 38, s. 169 . TITLE I TAX AVOIDANCE

Definitions 1079.9. For the purposes of this Title and

section 1006.1, "tax benefit" means a reduction, avoidance or deferral of tax or other amount payable under this Act or an increase in a refund of tax or other amount under this Act; "tax consequences" to a person means the amount of income, taxable income, or taxable income earned in Canada of, tax or other amount payable by, or refundable to the person under this Act, or any other amount that is relevant for the purposes of computing that amount; "transaction" includes an arrangement or event. 1990, c. 59, s. 351. 1079.9. For the purposes of this Title and

section 1006.1, “tax benefit” means a reduction, avoidance or deferral of the tax or of another amount payable under this Act or an increase in a refund of tax or of another amount under this Act, including a reduction, avoidance or deferral of the tax or of another amount that would be payable under this Act but for a tax agreement, and an increase in a refund of tax or of another amount under this Act that results from a tax agreement; “tax consequences” to a person means the amount of income, taxable income, or taxable income earned in Canada of, tax or other amount payable by, or refundable to the person under this Act, or any other amount that is relevant for the purposes of computing that amount; “transaction” includes an arrangement or event.

The definition of “tax agreement” in

section 1 is deemed, for the purposes of this Title, to have effect from 13 September 1988. 1990, c. 59, s. 351; 2006, c. 13, s. 203 .

General anti-avoidance provision 1079.10. Where a transaction is an avoidance transaction, the tax consequences to a person shall be determined as is reasonable in the circumstances in order to deny a tax benefit that, but for this Title, would result, directly or indirectly, from that transaction or from a series of transactions that includes that transaction. 1990, c. 59, s. 351. Avoidance transaction 1079.11.

An avoidance transaction is any transaction that, but for this Title, would result, directly or indirectly, in a tax benefit or that is part of a series of transactions, which series, but for this Title, would result, directly or indirectly, in a tax benefit, unless the transaction in either case may reasonably be considered to have been undertaken or arranged primarily for bona fide purposes other than to obtain the tax benefit. 1990, c. 59, s. 351; 1996, c. 39, s. 258 . Exception 1079.12.

For greater certainty, where it may reasonably be considered that a transaction would not result directly or indirectly in a misuse of the provisions of this Act or an abuse having regard to the provisions of this Act, other than this Title, read as a whole,

section 1079.10 does not apply to the transaction. 1990, c. 59, s. 351. 1079.12 .

Section 1079.10 applies to a transaction only if it may reasonably be considered that (

a) but for this Title, the transaction would directly or indirectly result in a misuse of the provisions of one or more of i. this Act, ii. the Act respecting the application of the Taxation Act (chapter I-4 ), iii. the Regulation respecting the Taxation Act (

chapter I-3 , r. 1), iv. a tax agreement, or v. any other legislative or regulatory provision that is relevant for computing the tax or another amount payable by a person or refundable to a person under this Act, or for determining an amount that is to be taken into account in that computation; or (

b) the transaction would directly or indirectly result in an abuse having regard to the provisions referred to in paragraph a, other than this Title, read as a whole. 1990, c. 59, s. 351; 2006, c. 13, s. 204 . Determination of tax consequences 1079.13. Without restricting the generality of

section 1079.10, in determining the tax consequences to a person as is reasonable in the circumstances in order to deny a tax benefit that, but for this Title, would result, directly or indirectly, from an avoidance transaction, (

a) any deduction in computing income, taxable income, taxable income earned in Canada or tax payable or any part thereof may be allowed or disallowed in whole or in part; (

b) any deduction referred to in paragraph a, any income, loss or other amount or part thereof may be allocated to any person; (

c) the nature of any payment or other amount may be recharacterized; (

d) the tax effects that would otherwise result from the application of other provisions of this Act may be ignored. 1990, c. 59, s. 351. 1079.13. Without restricting the generality of

section 1079.10 and despite any other legislative or regulatory provision, in determining the tax consequences to a person as is reasonable in the circumstances in order to deny a tax benefit that, but for this Title, would result, directly or indirectly, from an avoidance transaction,

(

a) any deduction, exemption or exclusion in computing income, taxable income, taxable income earned in Canada or tax payable or any part thereof may be allowed or disallowed in whole or in part; (

b) any deduction, exemption or exclusion referred to in paragraph a, any income, loss or other amount or part thereof may be allocated to any person; (

c) the nature of any payment or other amount may be recharacterized; (

d) the tax effects that would otherwise result from the application of other provisions of this Act may be ignored. 1990, c. 59, s. 351; 2006, c. 13, s. 205 . Regulation respecting the Taxation Act , CQLR c I-3, r 1 Generalities 771R3. Subject to the special provisions in Chapters III and IV, where, in a taxation year, a corporation has an establishment in Québec and an establishment in another jurisdiction, the proportion that the business carried on in Québec is of the aggregate of the business carried on in Québec and elsewhere, is one-half of the aggregate of (

a) the proportion that its gross revenue for the year reasonably attributable to the establishment in Québec is of its total gross revenue for the year; and (

b) the proportion that the salaries and wages paid by the corporation in the year to the employees of the establishment in Québec is of the total salaries and wages paid in the year by the corporation. (current ( O.C. 134-2009, s. 1.) 771R4) 771R3.1 . Despite

section 771R3 and subject to the special provisions of Chapters III and IV, where a corporation having an establishment in Québec and an establishment outside Québec does not pay any salaries or wages to its employees during the year or has no gross revenue for that year, the proportion that the business carried on in Québec is of the aggregate of the business carried on in Québec and elsewhere, is the proportion referred to in paragraph a of

section 771R3, and, in the latter case, that referred to in paragraph b of this section. (current ( O.C. 134-2009, s. 1.) 771R5) 771R4. For the purposes of paragraph a of

section 771R4, “gross revenue” does not include interest on a bond, debenture, hypothecary claim or mortgage, dividends, or rentals or royalties from property that is not used in connection with the principal activity of the corporation. (current ( O.C. 134-2009, s. 1.) 771R7) 771R5 .

Except where a commission is paid to a person who is not an employee of the corporation, where a remuneration is paid under an agreement by the corporation to a person for services that would normally be performed by the employees of the corporation, such remuneration is deemed to be a salary paid to such employee of the establishment of the corporation to which such services are reasonably attributable and to the extent that they are so attributable. (current ( O.C. 134-2009, s. 1.) 771R8) Computation of gross revenue 771R13.

Where a part of the corporation’s operations are conducted in partnership with another person, the corporation’s gross revenue for a taxation year and the salaries and wages paid by it in the year include, in respect of those operations, only the proportion, for the fiscal period of the partnership coinciding with or ending in the year, of the gross revenue of the partnership or the salaries and wages paid by the partnership, as the case may be, that the corporation’s share of the profit or loss from the partnership for that fiscal period is of the total profit or loss of the partnership for that fiscal period. (current ( O.C. 134-2009, s. 1.) 771R21) Income Tax Act , RSC 1985, c 1 (5th Supp)

PART XVII

INTERPRETATION Definition of “fiscal period” 249.1

(1) For the purposes of this Act, a “fiscal period” of a business or a property of a person or partnership means the period for which the person’s or partnership’s accounts in respect of the business or property are made up for purposes of assessment under this Act, but no fiscal period may end (

a) in the case of a corporation, more than 53 weeks after the period began, (

b) in the case of (

i) an individual (other than an individual to whom

section 149 or 149.1 applies or a testamentary trust), (i.1) a fiscal period of an inter vivos trust (other than a fiscal period to which paragraph 132.11(1)(

c) applies), (ii) a partnership of which (

A) an individual (other than a testamentary trust or an individual to whom

section 149 or 149.1 applies), (

B) a professional corporation, or (

C) a partnership to which this subparagraph applies, would, if the fiscal period ended at the end of the calendar year in which the period began, be a member of the partnership in the period, or (iii) a professional corporation that would, if the fiscal period ended at the end of the calendar year in which the period began, be in the period a member of a partnership to which subparagraph 249.1(1) (b) (ii) applies, after the end of the calendar year in which the period began unless, in the case of a business, the business is not carried on in Canada, is a prescribed business or is carried on by a prescribed person or partnership, (

c) in any other case, more than 12 months after the period began, and, for the purpose of this subsection, the activities of a person to whom

section 149 or 149.1 applies are deemed to be a business. Not a member of a partnership (2) (…) Subsequent fiscal periods (3) (…) Alternative method (4) (…) Alternative method not applicable to tax shelter investments (5) (…) Revocation of election (6) (…) Change of fiscal period

(7) No change in the time when a fiscal period ends may be made for the purposes of this Act without the concurrence of the Minister. NOTE: Application provisions are not included in the consolidated text; see relevant amending Acts. 1996, c. 21, s. 61 ; 1998, c. 19, s. 240 ; 1999, c. 22, s. 81 ; 2001, c. 17, s. 189 . Income Tax Regulations , CRC, c 945

PART IV TAXABLE INCOME EARNED IN A PROVINCE BY A CORPORATION [SOR/94-686, s. 79(F)]

Interpretation 400.

(1) For the purposes of paragraph 124(4) (

a) of the Act, a corporation’s “taxable income earned in the year in a province” means the aggregate of the taxable incomes of the corporation earned in the year in each of the provinces. (2) (…) NOTE: Application provisions are not included in the consolidated text; see relevant amending regulations. SOR/78-772, s. 1; SOR/81- 267, s. 1; SOR/86-390, s. 1; SOR/94-140, s. 1; SOR/94-686, ss. 4(F), 57(F), 79(F). Computation of Taxable Income 401. The amount of taxable income of a corporation earned in a year in a particular province shall be determined in accordance with the provisions of this Part.

NOTE: Application provisions are not included in the consolidated text; see relevant amending regulations. SOR/94-686, s. 79(F). General Rules 402. (1) (…) (2) (…)

(3) Except as otherwise provided, where, in a taxation year, a corporation had a permanent establishment in a province and a permanent establishment outside that province, the amount of its taxable income that shall be deemed to have been earned in the year in the province is (

a) in any case other than a case specified in paragraph (

b) or ( c ), 1/2 the aggregate of (

i) that proportion of its taxable income for the year that the gross revenue for the year reasonably attributable to the permanent establishment in the province is of its total gross revenue for the year, and (ii) that proportion of its taxable income for the year that the aggregate of the salaries and wages paid in the year by the corporation to employees of the permanent establishment in the province is of the aggregate of all salaries and wages paid in the year by the corporation; (

b) in any case where the gross revenue for the year of the corporation is nil, that proportion of its taxable income for the year that the aggregate of the salaries and wages paid in the year by the corporation to employees of the permanent establishment in the province is of the aggregate of all salaries and wages paid in the year by the corporation; and (

c) in any case where the aggregate of the salaries and wages paid in the year by the corporation is nil, that proportion of its taxable income for the year that the gross revenue for the year reasonably attributable to the permanent establishment in the province is of its total gross revenue for the year. (4) (…) (4.1) (…)

(5) For the purposes of subsection (3), “gross revenue” does not include interest on bonds, debentures or mortgages, dividends on shares of capital stock, or rentals or royalties from property that is not used in connection with the principal business operations of the corporation.

(6) For the purposes of subsection (3), where part of the corporation’s operations were conducted in partnership with one or more other persons (

a) the corporation’s gross revenue for the year, and (

b) the salaries and wages paid in the year by the corporation, shall include, in respect of those operations, only that proportion of (

c) the total gross revenue of the partnership for its fiscal period ending in or coinciding with the year, and

(

d) the total salaries and wages paid by the partnership in its fiscal period ending in or coinciding with the year, respectively, that (

e) the corporation’s share of the income or loss of the partnership for the fiscal period ending in or coinciding with the year, is of (

f) the total income or loss of the partnership for the fiscal period ending in or coinciding with the year. (7) (…) (8) (…) NOTE: Application provisions are not included in the consolidated text; see relevant amending regulations. SOR/80-949, s. 1; SOR/94- 327, s. 1; SOR/94-686, ss. 78(F), 79(F), 81(F). [19] I take the Appellants’ argument to be one of

interpretation; the Appellants have not sought a declaration on constitutional grounds that the Regulation is invalid, which would require notice to the Attorney General pursuant to

Article 76 C.C.P.