Currently under reserve at the Supreme Court of Canada are two cases involving issues of statutory interpretation in taxation law, Her Majesty the Queen v. Canada North Group Inc. and Her Majesty the Queen v. Alta Energy Luxembourg SARL, the latter being a case of tax avoidance under the General Anti-Avoidance Rule. While the outcomes in these cases may be less anticipated than that of a certain decision released earlier this year regarding a so-called tax, they are worth paying attention to.
In 1974 Elmer Driedger put forth what is now the modern rule of statutory interpretation: that words of a statute are to be construed based on their text, relevant context and purpose of the legislation. The Supreme Court of Canada has reiterated that this is the approach to be taken with respect to the interpretation of statutes in all areas of law and with respect to all subject matters. However, notwithstanding the Supreme Court of Canada’s constant recourse to the modern rule in matters of statutory interpretation, one could nevertheless argue that the law remains unsettled; the Supreme Court of Canada’s decisions on matters of statutory interpretation are often split and tend to offer conflicting guidance as to how the rule ought to be applied.
For instance, while we know that the text, context and purpose of a provision must be considered, what’s less clear is how they ought to be weighed against one another, particularly where they pull in opposite directions. Moreover, it is not clear which factor ought to anchor the analysis, e.g. whether the text of a statute ought to inform its purpose or whether a broader purpose ought to inform the content of the words used in the text, a choice that can lead to significantly different results. Finally, Courts, whose role is ultimately to adjudicate disputes between parties will often opt for an interpretation that makes practical sense in the circumstances, notwithstanding the fact that the official theory of statutory interpretation as currently stated leaves little room for a consequential analysis.
The law on statutory interpretation arguably becomes less clear in cases of tax avoidance where the general anti-avoidance issue is being invoked. In essence, the general anti-avoidance rule is applied where a tax plan complies with the literal wording of the Income Tax Act, but gives rise to a result that the Minister considers abusive. Therefore, when called upon to interpret the provisions of the Income Tax Act alleged to be abused, a Court will consider the text, context and purpose of those provisions, not to identify the intention of Parliament, but rather to discern their object, sprit or purpose, also referred to as the underlying rationale of the statutory provision in question.
The Federal Court of Appeal has on numerous occasions reiterated that the interpretative exercise employed to uncover the underlying purpose of tax legislation differs from a “traditional words-based approach” and, moreover, that statutory interpretation in the context of tax avoidance may lead to different results than had a traditional approach been taken. This is curious, given that whether a Court is performing a “words based” analysis or seeking the underlying rationale of a statutory provision, the modern rule is called upon.
It is open to argument that in the context of tax avoidance, we are seeing the development of a distinct approach to statutory interpretation, the implications of which have yet to be fully fleshed out. For example, it may be worth considering the rule of law implications that arise where the same rule of statutory interpretation can be applied to the same statutory provisions and yield markedly different results. What also remains to be explained is how the purpose of a provision differs from the intent of Parliament and how adherence to the former rather than the latter is justified from a separation of powers perspective.
While it would be overly optimistic to expect the Supreme Court to offer complete answers to any of the above, one would nevertheless hope that the Court will take hold of these opportunities to offer something more that a mere reiteration of the modern rule.