Date: 20040603
Dockets: A-431-03
A-432-03
Citation: 2004 FCA 217
CORAM: NOËL J.A.
BETWEEN:
HER MAJESTY THE QUEEN
Appellant
and
LENESTER SALES LTD.
Respondent
AND BETWEEN:
HER MAJESTY THE QUEEN
Appellant
and
SUSHI SALES LIMITED
Respondent
Heard at Toronto, Ontario, on June 3rd, 2004.
Judgment delivered from the Bench at Toronto, Ontario, on June 3rd, 2004.
REASONS FOR JUDGMENT OF THE COURT BY: EVANS J.A.
Date: 20040603
Dockets: A-431-03
A-432-03
Citation: 2004 FCA 217
CORAM: NOËL J.A.
SEXTON J.A.
EVANS J.A.
BETWEEN:
HER MAJESTY THE QUEEN
Appellant
and
LENESTER SALES LTD.
Respondent
AND BETWEEN:
HER MAJESTY THE QUEEN
Appellant
and
SUSHI SALES LIMITED
Respondent
REASONS FOR JUDGMENT OF THE COURT
(Delivered from the Bench at Toronto, Ontario, on June 3rd, 2004)
[1] The issue to be decided in these appeals is whether a Judge of the Tax Court committed a reviewable error when he allowed the appeals of Lenester Sales Ltd. and Sushi Sales Ltd. against the assessment of income tax liability for their 1997 tax year.
[2] The Judge held that the taxpayers were entitled to the full small business deduction provided to Canadian-controlled private corporations by section 125 of the Income Tax Act, R.S.C. 1985, c. 1 (5th Supp.). He rejected the Minister's contention that they did not qualify for the deduction under subsection 125(1) because they were "associated" with Giant Tiger Stores Ltd. ("GTS").
[3] In order to determine whether the taxpayers were "associated" with GTS, the Judge was called upon to consider the definition in subsection 256(1), which provides that "a corporation is associated with another in a taxation year" if "(a) one of the corporations controlled, directly or indirectly, in any manner whatever, the other".
[4] This provision is itself further defined by subsection 256(5.1), which states that, where the Act uses the expression "controlled, directly or indirectly, in any manner whatever", a corporation shall be considered to be so controlled by another corporation at any time when "the controller has any direct or indirect influence that, if exercised, would result in control in fact of the corporation".
[5] The Judge found that the taxpayers were not "controlled" by GTS for the purpose of subsection 256(5.1). This was sufficient to allow the appeals. However, the Judge went on to say that, even if the taxpayers were controlled by GTS, they were still entitled to the deduction, because they came within the exception in subsection 256(5.1) exempting the control exercisable by a franchisor over the conduct of the business of a franchisee.
[6] The Minister has appealed the Tax Court's decision to this Court.
[7] We are all of the opinion that the Judge made no reviewable error in allowing the appeals on the ground that the franchise agreements, the unanimous shareholder agreements, and the leases between GTS and the taxpayers did not confer on GTS control over the taxpayers within the meaning of subsection 256(5.1).
[8] The Judge did not err in his selection of the legal tests for determining whether the necessary degree of control existed. After considering both the various tests found in the jurisprudence, he concluded that, whichever was adopted, the taxpayers were not "controlled" by GTS.
[9] The Judge's application of the tests is a question of mixed fact and law in which fact predominates, and may only be set aside on appeal if vitiated by palpable or overriding error: Housen v. Nikolaisen, [2002] 2 S.C.R. 235. It was not alleged that a more general question of law could be extracted from the Judge's decision on whether GTS controlled the taxpayers for the purpose of subsection 256(5.1).
[10] In reviewing the Judge's application of the law for palpable or overriding error, the Court cannot re-weigh the facts. We may only consider whether the Judge overlooked relevant facts or took irrelevant facts into account, and whether there were any facts rationally capable of supporting his conclusion.
[11] We are not persuaded that the Judge overlooked or misapprehended the relevant facts, or that, when the facts are considered as a whole, his finding that GTS did not control the taxpayers is so clearly wrong as to constitute palpable or overriding error.
[12] In view of our conclusion on the issue of control, it is not necessary that we express an opinion on whether the taxpayers would have come within the franchise exception if they had been controlled by GTS, and we decline to do so.
[13] For these reasons, the appeals will be dismissed with costs. A copy of these reasons, and of the accompanying judgment, will also be filed in Court file A-432-03.
"John M. Evans"
J.A.
FEDERAL COURT OF APPEAL
Names of Counsel and Solicitors of Record
DOCKETS: A-431-03
A-432-03
STYLE OF CAUSE: HER MAJESTY THE QUEEN
Appellant
and
LENESTER SALES LTD.
Respondent
AND BETWEEN:
HER MAJESTY THE QUEEN
Appellant
and
SUSHI SALES LIMITED
Respondent
PLACE OF HEARING: TORONTO, ONTARIO
DATE OF HEARING: JUNE 3, 2004
REASONS FOR JUDGMENT
OF THE COURT BY: NOËL J.A., SEXTON J.A., EVANS J.A.
DELIVERED FROM THE
BENCH BY: EVANS J.A.
APPEARANCES BY:
Mr. Peter M. Kremer, Q.C.
Ms. Carole Benoit FOR THE APPELLANT
Mr. Clifford L. Rand
Ms. Susan Thomson FOR THE RESPONDENTS
SOLICITORS OF RECORD:
Morris Rosenberg
Deputy Attorney General of Canada
Toronto, Ontario FOR THE APPELLANT
Wildeboer, Rand, Thomson, Apps & Dellelce
Toronto, Ontario FOR THE RESPONDENTS