Two recent decisions of the Tax Court involving the general anti-avoidance rule (GAAR), Univar Holdco Canada ULC v The Queen, 2016 TCC 159 [Univar] and Oxford Properties Group Inc v The Queen, 2016 TCC 204 [Oxford Properties], have added to the array of inconsistent and controversial case law on the role of subsequent legislative history in the GAAR analysis.
When interpreting legislation, such as the Income Tax Act (Canada), the governing vantage point for the court is the provision in force when the facts or transaction at issue arose. The court must consider those words in their entire context and in their grammatical and ordinary sense harmoniously with the scheme of the Act, the object of the Act, and the intention of Parliament. In the interpretative exercise, any prior legislative history of the relevant provision is a valuable and widely accepted means of discerning context and parliamentary intent. However, when a provision has been amended subsequently, after the facts or transaction arose, what role can this "subsequent legislative history" have in retroactively clarifying meaning and intent?
In interpreting the Act, particularly in the context of the GAAR, many Canadian courts have given subsequent legislative history significant evidentiary weight in the interpretive process. In a GAAR case involving provisions with subsequent legislative history, two competing arguments arise. On one hand, the Minister can argue that the amendment closed a loophole in order to better recognize a pre-existing tax policy in the Act and prevent anomalous and inconsistent results. Put differently, the amendment is evidence of previously unexpressed Parliamentary intent. By contrast, the taxpayer can argue that the amendment demonstrated that Parliament initially encouraged or at least permitted certain transactions or tax structures, but then made a deliberate choice to alter the tax policy in the Act to deny them.
Canadian GAAR jurisprudence on the proper use of subsequent legislative history has been plagued with inconsistencies and diverging views. In one group of cases, the courts have agreed with the Minister, finding that a subsequent amendment to the Act supported the conclusion that transactions undertaken by the taxpayer offended the object, spirit, and purpose of the Act at the time the transactions were implemented. A recent example is provided in Univar. In that case, the Tax Court took into consideration a proposed amendment to subsection 212.1(4) announced in the March 2016 Federal Budget in support of its conclusion that the transactions undertaken by the taxpayer in 2007 frustrated an underlying policy in the Act at that time. According to the Court, the amendment demonstrated that Parliament sought to recognize and clarify a pre-existing tax policy in the Act (at paras 97-98):
The proposed amendment does not retroactively change the law but simply amends the subsection while embodying its underlying rationale as it existed at the time of the transactions in this appeal. The Supplementary Information [released by the Department of Finance with the March 2016 Budget] directly addresses the purpose and the intended scope of the exception as it applied in 2007...
[Quoting Duncan v The Queen, 2002 FCA 291]... "this amendment demonstrates that Parliament moved as quickly as it could to close the loophole exploited by the appellants precisely because the result achieved was anomalous having regard to the object and spirit of the relevant provisions of the Act".
Examples of similar findings include the decisions of the Federal Court of Appeal in Duncan v The Queen, 2002 FCA 291 (sub nom. Water's Edge Village Estates (Phase II) Ltd v The Queen), the Tax Court in Triad Gestco Ltd v The Queen, 2011 TCC 259, and the Court of Québec in Ogt Holdings Ltd c Québec (Sous-ministre du Revenue), 2006 QCCQ 6368, aff'd 2009 QCCA 191 (provincial GAAR).
In a second group of cases, the courts have agreed with the taxpayer's argument, finding that a subsequent amendment served as evidence that Parliament altered the tax policy in the Act, such that the transactions undertaken by the taxpayer did not frustrate the object, spirit, and purpose of the Act at the relevant time. A recent example is provided in Oxford Properties. The Tax Court found that an amendment to paragraph 88(1)(d) in 2012 supported a finding that the transactions carried out by the taxpayer between 2002 and 2006 did not frustrate the object, spirit, and purpose of the Act (at paras 210-212):
... in my view, the amendment reflects the adoption of a new policy by Parliament.
The amendment made substantial changes to the object of the legislation. It is not an amendment that clarified an existing objective. In my view, it is clear from the text of subsection 88(1) as it read prior to the amendment, that the object of the subsection was... However, this changed after this amendment...
... This represents a substantial change in the scope of the bumping provisions; not clarification of the old provisions. When enacting the amendment Parliament decided to substantially narrow the amount by which a partnership interest may be bumped.
Examples of similar findings include the Federal Court of Appeal decision in Triad Gestco Ltd v The Queen, 2012 FCA 258, and the Tax Court decisions in Fredette v The Queen, 2001 DTC 621 (TCC) and Gwartz v The Queen, 2013 TCC 86.
In a further group of cases, the courts refused to place any weight on the subsequent amendment as evidence of whether the taxpayer abused or misused the object, spirit, and purpose of the Act. Examples include the Tax Court decisions in Landrus v The Queen, 2008 TCC 274 aff'd 2009 FCA 259 and 1207192 Ontario Ltd v The Queen, 2011 TCC 383, aff'd 2009 FCA 113.
Notably, in existing GAAR jurisprudence, the courts have ostensibly ignored significant non-tax jurisprudence that has considerably limited the role of subsequent legislative history as a tool of statutory interpretation. Important examples include Association of Radio and Television Employees of Canada v Canadian Broadcasting Corporation, [1975] 1 SCR 118; United States of America v Dynar, [1997] SCR 462; Mandavia v Central West Health Care Institutions Board, 2005 NLCA 12; The Queen v Banks, 2007 ONCA 19; Canada (Commissioner of Competition) v Premier Career Management Group Corp, 2009 FCA 295; Brick Protection Corp v Alberta (Provincial Treasurer), 2011 ABCA 214; and Bradshaw v Stenner, 2012 BCCA 481. These courts, as well as academic commentators, have advanced several objections against reliance on subsequent legislative history (see e.g., Pierre-André Côté, The Interpretation of Legislation in Canada, 4th ed (Toronto: Thomson Reuters Canada Ltd, 2011) at 563-673; Ruth Sullivan, Sullivan on the Construction of Statutes, 6th ed (Markham: LexisNexis Canada Inc, 2014) at 675-679):
... What legal commentators call "subsequent legislative history" can cast no light on the intention of the enacting Parliament or Legislature. At most, subsequent enactments reveal the interpretation that the present Parliament places upon the work of a predecessor. And, in matters of legal interpretation, it is the judgment of the courts and not lawmakers that matters. It is for judges to determine what the intention of the enacting Parliament was.
While the foregoing objections would apply generally to interpretations of the Act and the application of the GAAR, they have largely been ignored in GAAR jurisprudence. Several courts considering the GAAR appear to have treated the mere fact that an amendment occurred as independent evidence in support of their view of the object, spirit, and purpose of the provisions of the Act under review. Thus, in some cases the amendment was proof that Parliament closed a loophole in order to better recognize a pre-existing tax policy in the Act, while in other cases the amendment was proof that Parliament made a deliberate choice to alter a policy in the Act.
The concern with these decisions is not the finding that an amendment represented a clarification or change in policy, but the apparent independent evidentiary weight given to the fact that an amendment occurred. Practically, the courts are reaching an initial conclusion with respect to a policy in the Act, following an analysis of the entire legislative context. Then, subsequent legislative history is allowed to take on additional and unwarranted evidentiary value in support of the court's finding.
The significance of a subsequent amendment can only be discerned once the object, spirit, and purpose of the relevant provisions of the Act, in force when the facts or transaction at issue arose, have been accurately determined. Whether an amendment clarifies or alters a pre-existing policy in the Act cannot be distinguished unless and until that pre-existing policy is ascertained. Put simply, the impact of a subsequent amendment is only understood once the analysis of the entire legislative context is complete.
What role, if any, should subsequent legislative history play in the GAAR analysis? While the Interpretation Act statutorily bans reliance on subsequent legislative history as an automatic presumption of legislative intent, it does not eliminate its use as an interpretive aid entirely. In certain cases, subsequent legislative history may retain a limited role in the interpretive process. The value lies not in the factual occurrence of an amendment, but in concurrent statements of Parliamentary intent, including Explanatory Notes, Budget Releases, and other Department of Finance commentary. There may well be reasons to find these expressions persuasive. Bureaucrats in the Department of Finance who draft amendments often remain despite a change in government, and retain a good understanding of the original legislative scheme and why an amendment is required. Of course, these statements are merely opinion, representing the interpretation of the Act that the present legislator places on the work of its predecessor. Furthermore, remarks of the present legislator have the inherent risk of being self-serving, and particularly so in the GAAR context. Courts should approach these statements with caution. In most cases, their persuasive value could be considered analogous to CRA administrative statements and notable academic commentary.
By attributing independent evidentiary weight to subsequent amendments in support of conclusions with respect to the object, spirit, and purpose of provisions of the Act, the GAAR jurisprudence discussed above has caused significant uncertainty and confusion in the law. Taxpayers and the Minister thus continue to raise inappropriate and competing arguments about the independent evidentiary significance of subsequent legislative history. The courts need to make a clear statement: subsequent amendments, in and of themselves, are irrelevant in establishing the object, spirit, and purpose of provisions of the Act.