October 07, 2011

Nova Scotia Power Inc. (Appellant) v. Her Majesty the Queen (Respondent)

Tax Court of Canada
2002 DTC 1432
January 25, 2002

(Court File No. 2001-347(IT)G.)

Determinations of questions of law ? After the enactment in 1973 of the Power Corporation Act, virtually all of the electricity in Nova Scotia produced and delivered by Nova Scotia Power Corporation (“the Corporation”), all the capital of which owned by the Province ? Between 1973 and 1992 the Corporation making significant borrowings at least some of which were used for the acquisition of depreciable property used in the production and distribution of electricity ? No tax payable on the taxable income of the Corporation under the Act, and it did not file tax returns ? Hence it did not deduct capital cost allowance (“CCA”) or interest ? In 1992 the Province enacting the Nova Scotia Privatization Act, under which Nova Scotia Power Incorporated (the corporate taxpayer) purchasing the assets and undertaking previously used by the Corporation in the production and distribution of electricity ? Whether, as a question of law, the Corporation conduct is principal income-earning activities as an agent of the Majesty the Queen, such that section 2 and other ancillary provisions of the Act such as section 21, did not apply to it; and (2) if the answer to (1) were no, was the Corporation an agent of Her Majesty with respect to the ownership of assets used in its business such that section 21 of the Act did not apply to depreciable property acquired by it ? Income Tax Act, R.S.C. 1985 (5th Supp.), c. 1, as amended, ss. 20(1)(a), 20(1)(c), 20(1)(d), 20(1)(e), 20(1)(e.1), 21(1), 21(3), 27(1), 27(2), 27(3), 85(5.1), 124(3), 149(1)(f), 152(1.1) and 173 ? Interpretation Act, s. 17.

After the enactment in 1973 of the Power Corporation Act, virtually all of the electricity in Nova Scotia was produced and delivered by Nova Scotia Power Corporation (“the Corporation”), all the capital of which was owned by the Province. Between 1973 and 1992 the Corporation made significant borrowings at least some of which were used for the acquisition of depreciable property used in the production and distribution of electricity. No tax was payable on the taxable income of the Corporation under the Act, and it did not file tax returns. Hence, it did not deduct capital cost allowance (“CCA”) or interest. In 1992 the Province enacted the Nova Scotia Privatization Act, under which Nova Scotia Power Incorporated (the corporate taxpayer) purchased the assets and undertaking previously used by the Corporation in the production and distribution of electricity. As a result of the application of subsection 85(5.1) of the Income Tax Act (“the Act”), the capital cost of depreciable property acquired by the taxpayer was equal to the capital cost of such property to the Corporation. In its tax returns for 1980 to 1993 (filed in 1998), the Corporation elected pursuant to subsections 21(1) and (3) of the Act, to add interest on money borrowed to acquire depreciable assets in the amount of $995,260,716 to the capital cost of those assets. Also, in May, 1998, the taxpayer filed revised CCA schedules for 1994, 1995 and 1996 claiming additional CCA on the basis that the amount of the said interest reflected in the said elections was properly included in computing the capital cost of the property in issue. The Minister reassessed for 1994, 1995 and 1996, claiming that, in determining the UCC of depreciable property to the taxpayer, the capital cost of the property acquired from the Corporation should be determined without including any amount in respect of interest on borrowed money used by the Corporation to acquire such property. The Minister’s reassessments were based on the assumption that, throughout the period with respect to which the Corporation sought to apply subsections 21(1) and (3) of the Act, it was an agent of Her Majesty in right of Nova Scotia, with the result that the Act had no application to the Corporation, pursuant to section 17 of the Interpretation Act. In due course, the Minister produced a determination of loss under subsection 152(1.1) of the Act and a Notice of Loss Determination. The taxpayer appealed to the Tax Court of Canada. In the course of its appeal, the taxpayer and the Minister submitted two questions to the Court for determination under section 173 of the Act: (1) did the Corporation conduct is principal income-earning activities as an agent of Her Majesty the Queen, such that section 2 and other ancillary provisions of the Act such as section 21, did not apply to it; and (2) if the answer to (1) is no, was the Corporation an agent of Her Majesty with respect to the ownership of assets used in its business such that section 21 of the Act did not apply to depreciable property acquired by it?

Held: The answers to the parts of each question preceding the words “such that . . .” were “no”. On the basis of the material produced, the Court was not prepared to answer the second half of each question. The Minister had argued that, owing to a representation said to have been made to him by the taxpayer’s counsel that the taxpayer was an agent of Her Majesty, the taxpayer was now estopped from contesting that position. However, the representation relied was essentially on a conclusion of law based on a solicitor’s opinion. It could not bind the Court. As for the agency issue, the factors supporting the conclusion that the Corporation was an independent corporation, and not an agent of the Crown in respect of its business and the ownership of its property, outweighed the factors which pointed the other way. For example, there was no evidence that the Corporation’s business, income, undertaking, and property, were owned by the Province.