Canadian Bijuralism and the Concept of an Acquisition of Property in the Federal Income Tax Act

Canadian Bijuralism and the Concept of an

Acquisition of Property in the Federal

Income Tax Act

David G. Duff*

The acquisition of property plays an important
role in the federal Income Tax Act (ITA), determining
eligibility for a number of tax benefits, including
entitlement to capital cost allowance, investment tax
credits, and the deductibility of interest expenses
incurred in respect of eligible property. In spite of its
importance, the concept of an acquisition of property is
not defined in the ITA, and it has been subject to
divergent interpretations in the common law and the
civil law.

The author traces the sources of law informing the
meaning of an acquisition of property in the common
law and the civil law, and concludes that certain
transactions may be
tax
consequences depending on whether they occurred in a
common law province or in Quebec. The author
demonstrates that the primary reference for determining
whether a taxpayer acquired propertythe twofold test
in M.N.R. v. Wardean Drilling Ltd.is premised on
common law concepts and is incompatible with the
goals of Canadian bijuralism expressed in the Federal
LawCivil Law Harmonization Act, No. 1 and section
8.1 of the federal Interpretation Act. In response to this
contradiction, the author proposes a number of statutory
amendments to ensure the uniform and predictable
application of the ITA across Canada.

to different

subject

Dans la Loi de limpt sur le revenu (LIR),
lacquisition de bien permet de dterminer lligibilit
un nombre davantages fiscaux, notamment au droit la
dduction pour amortissement, au crdit dimpt
linvestissement et la dductibilit des frais dintrts
encourus relativement au bien ligible. Malgr son
importance, le concept dacquisition de bien nest pas
dfini dans la LIR et a reu des interprtations
divergentes en common law et en droit civil.

Lauteur retrace les sources de droit clairant le
sens dacquisition de bien en common law et en droit
civil. Il conclut que
la ralisation de certaines
transactions dans une province de common law ou au
Qubec peut entraner des consquences fiscales
diffrentes. Lauteur dmontre que
rfrence
principale en matire de dtermination dacquisition de
bien par un contribuable (le test en deux parties de
laffaire M.N.R. v. Wardean Drilling Ltd.) est base sur
des concepts de common law et est incompatible avec
les objectifs du bijuridisme canadien tel quexprim
dans la Loi d’harmonisation n 1 du droit fdral avec
le droit civil et dans
la Loi
dinterprtation fdrale. Afin de rpondre cette
contradiction,
nombre
damendements lgislatifs pour assurer une application
uniforme et prvisible de la LIR partout au Canada.

larticle 8.1 de

propose

lauteur

la

un

*Professor, University of British Columbia Faculty of Law. For research assistance in the
preparation of this paper, I am indebted to Ata Kassaian (B.C.L./LL.B. student at the McGill Faculty
of Law), Mike McGonnell (LL.M. student at the University of Toronto Faculty of Law), Kendall
McLaughlin (J.D. student at the University of Toronto Faculty of Law), and Rgine Tremblay
(B.C.L./LL.B. student at the McGill Faculty of Law).

David G. Duff 2009
To be cited as: (2009) 54 McGill L.J. 423
Mode de rfrence : (2009) 54 R.D. McGill 423

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Introduction

I. The Acquisition of Property in Canadian Income

Tax Law
A. Wardean Drilling
B. Subsequent Tax Cases in Common Law Provinces
C. Subsequent Tax Cases in Quebec

II. The Ownership and Transfer of Property in Common

Law and Civil Law
A. The Ownership and Transfer of Property in Common

Law

B. The Ownership and Transfer of Property in Civil Law

III. Canadian Bijuralism and the Meaning of an Acquisition

of Property in the Income Tax Act
A. Canadian Bijuralism and Section 8.1 of the Federal

Interpretation Act

B. Section 8.1 of the Federal Interpretation Act and the
Concept of an Acquisition of Property in the Income
Tax Act
1. The Need to Refer to Private Law
2. Whether Otherwise Provided by Law
3. Conclusion

IV. Codifying the Concept of an Acquisition of Property

in the Income Tax Act

Conclusion

2009] D.G. DUFF BIJURALISM AND THE ACQUISITION OF PROPERTY IN THE ITA 425

Introduction

The concept of an acquisition of property plays an important role in the federal
Income Tax Act,1 determining eligibility for a number of benefits. The ability to
deduct capital cost allowance, for example, depends on the prior acquisition of
depreciable property,2 the definition of which requires that the property was acquired
by the taxpayer.3 Similarly, investment tax credits are available only where the
taxpayer has acquired the property in that fiscal year,4 while the deduction for
interest expenses under subparagraph 20(1)(c)(ii) of the ITA applies to interest on an
amount payable for property acquired by the taxpayer.5 Despite its importance, the
concept of an acquisition of property is not defined in the ITA, leaving its meaning to
judicial interpretation.

For almost thirty years now, the meaning of this expression for Canadian income
tax purposes has generally been governed by the judicial test set out in M.N.R. v.
Wardean Drilling Ltd., in which Justice Cattanach stated that the proper test as to
when property is acquired must relate to the title to the property in question or to the
normal incidents of title, either actual or constructive, such as possession, use and
risk.6 Regularly cited in subsequent tax cases involving the acquisition of property,7
this twofold test stipulates that property is acquired by a taxpayer within the meaning
of the ITA not only when the taxpayer obtains legal title to the property, but also when

1 R.S.C. 1985 (5th Supp.), c. 1 [ITA].
2 Ibid., s. 13(21), s.v. undepreciated capital cost.
3 Ibid., s. 13(21), s.v. depreciable property.
4 Ibid., ss. 127(5)(a), 127(6)(a). See also ibid., s. 127(9), s.v. investment tax credit, certified
property, qualified property (all of which require the taxpayer to have acquired the property at
specific times).

5 Ibid. (permitting a deduction for interest on an amount payable for property acquired for the
purpose of gaining or producing income from the property or for the purpose of gaining or producing
income from a business).

6 [1969] 2 Ex. C.R. 166 at 172, [1969] C.T.C. 265 [Wardean Drilling].
7 See e.g. Canada v. Henuset Brothers Ltd. (No. 2), [1977] C.T.C. 228, 31 D.T.C. 5169 (F.C.T.D.)
[Henuset Brothers cited to C.T.C.]; Schultz v. M.N.R., [1979] C.T.C. 2328, 33 D.T.C. 279 (T.R.B.)
[Schultz cited to C.T.C.]; Kirsch Construction Ltd. v. M.N.R. (1988), 23 F.T.R. 67, 42 D.T.C. 6503
[Kirsch cited to F.T.R.]; Browning Harvey Ltd. v. M.N.R. (1990), 31 F.T.R. 229, 44 D.T.C. 6105
[Browning Harvey cited to F.T.R.]; Borstad Welding Supplies (1972) Ltd. v. M.N.R. (1993), 67 F.T.R.
118, 47 D.T.C. 5457 [Borstad cited to F.T.R.]; Gartry (W.C.) v. Canada, [1994] 2 C.T.C. 2021, 48
D.T.C. 1947 (T.C.C.) [Gartry cited to C.T.C.]; Canada v. Construction Brou (1999), [2000] 2 C.T.C.
174, 53 D.T.C. 5868 (F.C.A.) [Brou cited to C.T.C.]; Mimetix Pharmaceuticals v. Canada, [2002] 1
C.T.C. 2188, 55 D.T.C. 1026 (T.C.C.) [Mimetix cited to C.T.C.], affd 2003 FCA 106, [2003] 3 C.T.C.
72, 57 D.T.C. 5194; Terexcavation Antoine Grant v. Canada (2002), 59 D.T.C. 709 (T.C.C.)
[Terexcavation].

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the taxpayer obtains constructive or beneficial ownership of the property (i.e.,
through the normal incidents of title such as possession, use and risk).8
Although the concept of beneficial ownership is well established in common law
systems, where the law of equity and trusts has long recognized a distinction between
legal and beneficial ownership,9 it does not exist in civilian systems, which regard
ownership as absolute and indivisible.10 For this reason, a number of tax cases in the
Province of Quebec have established that lessee-purchasers under lease-option
agreements do not acquire property within the meaning of the ITA if legal ownership
is retained by the lessor-vendor, notwithstanding the fact that the lessee-purchaser has
obtained possession and use of the property and has assumed the risks normally
associated with ownership.11 In Brou, however, a majority of the Federal Court of
Appeal rejected this line of reasoning, concluding that the test in Wardean Drilling
governs the acquisition of property in Quebec as well as the rest of Canada.12 In so
doing, the decision effectively distinguished or dissociated the tax meaning of an
acquisition of property from the civil law of Quebec.13
Because the judgment in Brou was released on 15 November 1999, the court did

not consider section 8.1 of the federal Interpretation Act,14 which came into force on 1
June 2001. According to this provision:

Both the common law and the civil law are equally authoritative and
recognized sources of the law of property and civil rights in Canada and, unless
otherwise provided by law, if in interpreting an enactment it is necessary to
refer to a provinces rules, principles or concepts forming part of the law of

8 See e.g. Kinguk Trawl v. Canada, [2002] 2 C.T.C. 2229 at para. 123, 56 D.T.C. 1399 (T.C.C.)
(relying on Wardean Drilling for the proposition that [t]he concept of beneficial ownership, which
might differ from strict legal ownership, is well recognized in the case law).

9 Catherine Brown, Symposium: Beneficial Ownership and the Income Tax Act (2003) 51 Can.

Tax J. 401 at 405-423.

10 Further discussion of civilian systems will be found in Part II.B, below.
11 Fortin & Moreau v. M.N.R. (1989), [1990] 1 C.T.C. 2583, 44 D.T.C. 1436 (T.C.C.) [Fortin &
Moreau cited to C.T.C.]; Canada v. Construction Brou (1996), 116 F.T.R. 267, 52 D.T.C. 6401
[Brou (F.C.T.D.) cited to D.T.C.], revd Brou, supra note 7; Dumais (D.) et fils c. M.N.R. (1990),
[1991] 1 C.T.C. 2650, 46 D.T.C. 1107 (T.C.C.) [Dumais cited to C.T.C.]; Location Gatan Lvesque v.
M.N.R., [1991] 2 C.T.C. 2795, 91 D.T.C. 1374 (T.C.C.) [Gatan Lvesque cited to C.T.C.]; and
Laurent Goulet & Fils v. M.N.R. (1991), [1992] 1 C.T.C. 2419, 46 D.T.C. 1605 (T.C.C.).

12 Supra note 7.
13 David G. Duff, The Federal Income Tax Act and Private Law in Canada: Complementarity,
Dissociation, and Canadian Bijuralism (2003) 51 Can. Tax J. 1 at 40-41. On the concept of
dissociation between federal law and provincial private law, see Louise Maguire Wellington,
Bijuralism in Canada: Harmonization Methodology and Terminology in The Harmonization of
Federal Legislation with the Civil Law of the Province of Quebec and Canadian Bijuralism (Ottawa:
Department of Justice Canada, 2001) [Harmonization] fasc. 4, 1 at 5.

14 R.S.C. 1985, c. I-21.

2009] D.G. DUFF BIJURALISM AND THE ACQUISITION OF PROPERTY IN THE ITA 427

property and civil rights, reference must be made to the rules, principles or
concepts in force in the province at the time the enactment is being applied.15

Thus, the test in Wardean Drilling may no longer apply within the Province of
Quebec if the two conditions in section 8.1the necessity of referring to provincial
sources of law and the absence of a prohibition on doing soare met in interpreting
the meaning of an acquisition of property in the ITA. If so, it would be advantageous
to amend the ITA to ensure that the meaning of an acquisition of property for tax
purposes has uniform application throughout Canada.

This paper examines the concept of an acquisition of property for the purposes of
the ITA, considering tax cases in which the concept has been addressed; private law
rules, principles, and concepts that may be relevant to its interpretation; the impact of
section 8.1 of the Interpretation Act on this interpretation; and the merits of a
statutory amendment to ensure that the meaning of this expression is given uniform
application throughout Canada. The first part of the paper reviews tax cases in which
the concept of an acquisition of property has been interpreted and applied, beginning
with the judgment in Wardean Drilling and then considering tax cases in common
law provinces and the Province of Quebec. The second part of the paper examines the
common law and civil law rules, principles, and concepts to which courts have
implicitly or explicitly referred in order to interpret the meaning of an acquisition of
property for tax purposes, with particular attention to conditional sales agreements
and leasing transactions, the most common types of tax cases concerning the
acquisition of property. The third part of the paper considers the impact of the
Interpretation Act on the meaning of an acquisition of property in the ITA, arguing
that the two conditions in section 8.1 for referring to provincial sources of law are
met. Since this analysis suggests that the meaning of an acquisition of property may
be subject to different interpretations in common law provinces and the Province of
Quebec, the fourth part of the paper proposes that the ITA should be amended to
include a statutory definition of this term to ensure that the concept is given a uniform
interpretation throughout Canada. The fifth part of the paper summarizes the
argument and offers concluding observations.

I. The Acquisition of Property in Canadian Income Tax Law
In order to appreciate the possible effect of section 8.1 of the Interpretation Act

on the meaning of an acquisition of property for tax purposes, it is essential to begin
by examining the way in which Canadian courts have interpreted this concept thus
far. The following sections review the interpretation of this concept in Wardean
Drilling and subsequent tax cases in common law provinces and in Quebec.

15 Ibid., s. 8.1.

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A. Wardean Drilling
The issue in Wardean Drilling concerned the date at which property was acquired

by the taxpayer for the purpose of deducting capital cost allowance. The taxpayer had
carried on a business of drilling oil wells in Alberta and Saskatchewan and had
purchased a drilling rig and a substructure for the rig, in respect of which it deducted
capital cost allowance in computing its business income for its 1963 taxation year.
Although the taxpayer entered into an agreement to purchase the rig on 26 December
1963, the property required extensive modification for the taxpayers purposes and
delivery did not occur until 18 February 1964. According to the agreement, payment
was to be made in thirty-six equal monthly instalments commencing on 1 June 1964,
title was to pass upon shipment, and payment was to be secured by a chattel mortgage
on the rig. While the taxpayer entered into the agreement to purchase the substructure
on 23 December 1963, this item did not exist at the time and was neither constructed,
delivered, nor paid for until well into 1964.16

The minister disallowed the deductions on the grounds that the property in each
case was not paid for or delivered until the following taxation year. The Tax Appeal
Board allowed the taxpayers appeal on the basis that the taxpayer had incurred
expenditures in 1963 by entering into binding agreements to purchase the property.17
The Exchequer Court reversed the decision and upheld the assessment on the grounds
that the taxpayer had not acquired the rig and the substructure during its 1963
taxation year.
At the Exchequer Court, the taxpayer relied on the Tax Appeal Board decision,
arguing that goods are acquired by a purchaser for tax purposes when the vendor and
the purchaser have entered into a binding and enforceable contract of sale and
purchase.18 Rejecting this interpretation, Justice Cattanach held that the proper test
to determine when property is acquired must relate to the title to the property in
question or to the normal incidents of title, either actual or constructive, such as
possession, use and risk.19 Thus, he explained, a purchaser has acquired assets for
the purpose of computing capital cost allowance either (1) when title has passed,
assuming that the assets exist at that time, or (2) when the purchaser has all the
incidents of title, such as possession, use and risk, although legal title may remain in
the vendor as security for the purchase price as is the commercial practice under
conditional sales agreements.20 Applying the first branch of this twofold test, Justice
Cattanach concluded that the taxpayer acquired neither the rig nor the substructure in
1963 on the grounds that the contract itself stipulated that title to the rig would not

16 Wardean Drilling, supra note 6 at 169-71.
17 Wardean Drilling Ltd. v. M.N.R., [1967] Tax A.B.C. 171 [Wardean Drilling (T.A.B.)].
18 Wardean Drilling, supra note 6 at 172.
19 Ibid.
20 Ibid. at 173.

2009] D.G. DUFF BIJURALISM AND THE ACQUISITION OF PROPERTY IN THE ITA 429

pass until shipment, which was not until February 1964,21 while title to the
substructure could not pass until it was actually constructed in 1964.22
Although Justice Cattanach did not cite any legal authority for the test that he
adopted in Wardean Drilling, the distinction between actual or legal title and
constructive title based on all the incidents of title is premised on the common
law distinction between legal and beneficial ownership. As the Federal Court of
Appeal observed in Hewlett Packard (Canada) Ltd. v. Canada,23 the language and
reasoning used by Justice Cattanach corresponds to the common law conception of
property employed by the Supreme Court of Alberta in Hendrickson v. Mid-City
Motors Ltd., in which the court held that a conditional sale agreement resulted in a
sale under the Alberta Sale of Goods Act on the basis that the agreement effectively
transferred the property in the goods to the purchaser in the form of beneficial
ownership, notwithstanding the fact that the vendor retained legal title until the
purchase price was paid in full.24 Therefore, it is clear that the test in Wardean
Drilling is firmly rooted in principles and concepts specific to the common law, even
though it is often viewed as an autonomous interpretation based on the language and
purposes of the ITA alone.25 As explained in the third part of this paper, it is this
connection to private law principles and concepts that engages the interpretive rule in
section 8.1 of the Interpretation Act.

B. Subsequent Tax Cases in Common Law Provinces

Although the decision in Wardean Drilling ultimately turned on the first branch
of Justice Cattanachs test, subsequent cases in common law provinces have regularly
looked to the second branch of the test to determine whether property has been
acquired for the purposes of the ITA.26 In Henuset Brothers, for example, the Federal
Court concluded that the taxpayer, which entered into a conditional sales agreement
to purchase several tractors on 30 December 1971, had acquired the tractors on that
date notwithstanding the fact that legal title to the tractors was retained by the vendor

21 Ibid. at 174, citing the Alberta Sale of Goods Act, R.S.A. 1955, c. 295, ss. 20-21, as am. by R.S.A.
2000, c. S-2, s. 19(1) (stipulating that property in specific or ascertained goods passes at the moment
that the parties intend).

22 Wardean Drilling, supra note 6 at 174-75, citing the Alberta Sale of Goods Act, ibid., s. 21(1)
(now s. 20(3)): Where there is a contract for the sale of specific goods and the seller is bound to do
something to the goods for the purpose of putting them into a deliverable state, the property does not
pass until the thing is done and the buyer has notice thereof.

23 2004 FCA 240, 324 N.R. 201, 58 D.T.C. 6498 [Hewlett Packard].
24 [1951] 3 D.L.R. 276 at 284, 1 W.W.R. (N.S.) 609 [Hendrickson cited to D.L.R.].
25 See e.g. Terexcavation, supra note 7 at para. 35. This case is discussed at infra notes 86-88 and

accompanying text.

26 For another case applying the first branch of the twofold test in Wardean Drilling, see Schultz,
supra note 7 (the taxpayer could not deduct capital cost allowance in respect of a building before it
was completed since it did not have legal possession of the property).

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and the tractors themselves remained at the vendors premises.27 Noting that the
taxpayer had the right to use the tractors, could have taken delivery once the sale was
completed, and that the contracts obliged the taxpayer to insure the tractors against
risks specified by the vendor, Justice Bastin concluded that all the incidents of
ownership other than the legal title reserved in the vendor by the conditional sales
agreements such as possession, risk and the right to use the tractors were acquired by
the buyer on December 30, 1971.28 In support of this conclusion, the court cited the
twofold test in Wardean Drilling.
Likewise, in Gartry, the Tax Court of Canada relied on the second branch of the

test in Wardean Drilling to conclude that the taxpayer, who had purchased a boat that
sank in heavy seas before delivery and before title had passed, had acquired
sufficient of the incidents of ownership to allow him to treat the boat as depreciable
property in respect of which he could deduct a terminal loss under subsection 20(16)
of the ITA.29 According to Justice Bowman (as he then was), if a taxpayer has
exercised sufficient dominion over property he has promised to purchase such that
he orders its modification for his specific purposes, and supervises and pays for
those modifications, then he acquires a sufficient interest in the property and
indicia of title thereto, and the property becomes depreciable property in his hands
even if transfer of actual title is deferred until full payment is received.30 Therefore,
even though legal title and possession remained with the vendor, the court concluded
that the taxpayer had obtained constructive ownership of the boat under the second
branch of the test in Wardean Drilling.

Furthermore, a number of other decisions in common law provinces have applied
the second branch of the twofold test from Wardean Drilling to conclude that
property was not acquired within the meaning of the ITA. In Kirsch, for example, the
Federal Court considered both branches of the test to decide that the taxpayer, which
entered into an agreement to purchase a road paver on 30 March 1977,31 had not
acquired the property before the end of its taxation year, ending 31 March 1977.
Regarding the first branch of the test, the court held that the taxpayer did not have
legal title to the road paver before 31 March 1977 because, among other things, the
contract provided that title would not pass until full payment was made, which did
not occur until 14 June 1977.32 With respect to the second branch, the court concluded
that the taxpayer did not have all the incidents of ownership before 31 March 1977
because it did not obtain possession or use of the property and did not assume any of

27 Supra note 7.
28 Ibid. at 229.
29 Supra note 7 at 2029.
30 Ibid. at 2030 [emphasis added].
31 Supra note 7 at para. 11.
32 Ibid. at para. 8.

2009] D.G. DUFF BIJURALISM AND THE ACQUISITION OF PROPERTY IN THE ITA 431

the risks associated with ownership until after the road paver was delivered on 25
May 1977.33
Similarly, in Browning Harvey, where a taxpayer sold coolers to shopkeepers for

the exclusive display of its soft drinks under conditional sales agreements, the Federal
Court held that the shopkeepers had not acquired the coolers when they obtained
possession because they did not have all the incidents of title.34 Despite obtaining
possession, the court noted that the shopkeepers possession was limited by the
taxpayers right to repossess the coolers if they failed to comply with the terms of the
agreement and that their use of the coolers was limited to storage and display for sale
of soft drinks manufactured by the taxpayer.35 As well, while the shopkeepers were
required to insure the coolers against loss, any insurance proceeds were payable to the
taxpayer, who was obliged to pay for repairs to the coolers after the manufacturers
warranty expired. Finally, the court observed that the shopkeepers were not entitled
to destroy the coolers, to dispose of them, or to use them as security for loans.36
Justice Martin concluded:

In my view it is clear from the terms of the agreement that the defendant
reserved to itself ownership in and title to the coolers for the full seven year
term of the agreement and by placing the limitations on the use of them which
the defendant did in the agreement it refused to give to the shopkeepers
sufficient of the essential incidents of ownership as would cause me to find that
the parties to the agreement intended by its terms that property in the coolers
would pass from the defendant to the shopkeepers at the time of the execution
of the agreement.37

Because the shopkeepers had not acquired the coolers, the court concluded that the
taxpayer could not deduct a terminal loss on their alleged disposition.
Although Henuset Brothers, Gartry, Kirsch, and Browning Harvey all involved
conditional sales agreements, tax cases in common law provinces have also applied
the second branch of the test in Wardean Drilling to determine whether a lessee has
acquired property for tax purposes under the terms of a lease. In Borstad, for
example, a taxpayer sold refillable gas cylinders over a five-year period, selling one-
fifth of the cylinders each year and leasing the remainder to the purchaser until they
were sold.38 The Federal Court applied the second branch of the Wardean Drilling test
to conclude that the purchaser did not acquire the leased cylinders until they were
actually sold. Noting that the parties expressly contracted that the taxpayer was to
retain ownership of the property during the term of the lease, that the purchaser was
obliged to indemnify the taxpayer if the cylinders were not maintained, that the

33 Ibid. at para. 10.
34 Supra note 7 at para. 23 [emphasis in original].
35 Ibid. at para. 24.
36 Ibid. at para. 28.
37 Ibid. at para. 28.
38 Supra note 7.

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purchaser was required to retain possession and control of the cylinders, and that the
taxpayer could terminate the agreement if the purchaser defaulted on any term of the
contract, Justice Reed concluded that the provisions of the agreement were not
consistent with the view that the purchaser had acquired all the incidents of title to
the cylinders except legal title.39 On this basis, she rejected the ministers argument
that the taxpayer had disposed of the cylinders when the parties entered into a master
agreement governing their lease and sale.
Likewise, in Mimetix, the Tax Court of Canada employed the second branch of

the Wardean Drilling test to conclude that the taxpayer, which purchased a mixing
machine after leasing it for eighteen months, did not acquire the property for tax
purposes until it was actually purchased.40 Observing that the lease agreement did not
include an option to purchase the mixing machine for a price less than its expected
fair market value at the purchase date, that the lessor continued to bear risks
associated with ownership, and that the contract required the lessee to pay the lessor
cost plus 10 per cent for the repair or replacement of damaged or missing
components, Justice Lamarre concluded that the taxpayer was ineligible for an
investment tax credit in respect of the mixer, since the property had already been used
before the taxpayer acquired it in October 1996.41
While the judgments in Borstad and Mimetix held that the lessees in question did
not acquire property under the terms of the respective lease-purchase agreements,
other cases in common law provinces have held that lessees did acquire property
pursuant to financing or capital leases. In Kamsel Leasing v. M.N.R., for example, the
Tax Court of Canada accepted the taxpayers argument that the lease agreements that
it had entered into in the course of its lease financing business effectively transferred
substantially all of the benefits and risks of ownership to the lessees.42 Of particular
relevance to its conclusion that the transactions were properly characterized as sales
rather than leases, the court noted that (1) the lessees had the right at the expiration
of the lease to acquire the property at a price which at the inception of the lease could
be said to be substantially less than the probable fair market value of the property at
the time of permitted acquisition, and (2) the option permitted a lessee to acquire
the property at a price which at the inception of the lease was such that no reasonable
person would fail to exercise and a substantial percentage of the lessees exercised
the option.43 Similarly, in M.N.R. v. Moore, the Federal Court concluded that the
taxpayer and other investors had acquired capital property under a sixty-year lease
with an option to purchase, for which they had prepaid rent for the entire term. The

39 Ibid. at para. 26.
40 Supra note 7.
41 Ibid. at 2212.
42 [1993] 1 C.T.C. 2279 at 2282, 47 D.T.C. 250 (T.C.C.) [Kamsel Leasing].
43 Ibid. at 2283. Sarchuk J. added that [t]hese two findings … mirror the circumstances under
which, according to IT-233R, Revenue Canada would consider a transaction to be a sale rather than a
lease (ibid.). This Interpretation Bulletin is discussed at infra notes 80 and 109.

2009] D.G. DUFF BIJURALISM AND THE ACQUISITION OF PROPERTY IN THE ITA 433

court noted that they acquired substantially all the benefits and risks incidental to
ownership of property and there was reasonable assurance that they would
exercise their option to purchase the land in view of the fact that they were to
construct a 33-unit apartment building on the site.44 Although neither of these
judgments cited the twofold test for an acquisition of property in Wardean Drilling,
the language and reasoning in each case is similar to the second branch of this test.

In marked contrast to all of these judgments, the Federal Court of Appeal in
Kowdrysh v. Canada concluded that in the context of a temporary investment tax
credit, the taxpayer in question had acquired farming equipment when the equipment
in an ascertained form was purchased by means of a binding and enforceable
contract.45 Rejecting the ministers argument that the taxpayer had not acquired the
equipment until he obtained legal title or beneficial ownership of the property, the
court held that the meaning of an acquisition of property must be understood in the
context of the specific provision which employs this concept. According to Justice
Ltourneau (with Justices Desjardins and Dcary concurring):

In my view, in the context of this temporary investment tax credit, especially in
the farming industry where substantial investments are made with respect to
costly, large, sophisticated and specialized equipment which requires a
considerable amount of time for production, verification, approbation,
transportation and delivery, the term acquired and the time of acquisition
take a different meaning and connotation.46

For this purpose, therefore, the court gave the concept of an acquisition of property a
similar meaning to the interpretation adopted by the Tax Appeal Board in Wardean
Drilling (T.A.B.).47 Since this interpretation was explicitly rejected on appeal to the
Exchequer Court,48 it is surprising that it should reappear over thirty years later, even
if only in the context of a special investment tax credit.

C. Subsequent Tax Cases in Quebec

While judicial decisions involving transactions in common law provinces have
generally applied the second branch of the twofold test in Wardean Drilling to
determine whether a taxpayer has acquired property for tax purposes, cases involving
transactions in Quebec have generally ignored or rejected the test for this purpose;
that is, until the Federal Court of Appeal decision in Brou.49 In Canada v. Lagueux &
Frres, for example, a taxpayer leased logging equipment from loan and rental
companies that had purchased the equipment directly from manufacturers for the sole

44 (1986), 3 F.T.R. 173 at para. 52, 86 D.T.C. 6325.
45 2001 FCA 34, 267 N.R. 180 at para. 13, 55 D.T.C. 5221 [Kowdrysh].
46 Ibid.
47 Supra note 17. See Part I.A, above.
48 Wardean Drilling, supra note 6.
49 Supra note 7.

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purpose of leasing the property to the taxpayer, under terms that allowed the taxpayer
to purchase the equipment at a price much lower than its market value when the
option was exercised. The Federal Court relied on the civil law of Quebecnot the
twofold test in Wardean Drillingto determine whether the taxpayer had acquired
the property within the meaning of the ITA.50 Explaining that the nature of the rights
and obligations created by the contracts [at issue] must be arrived at by reference to
the provisions of the Civil Code,51 Justice Dcary cited the Civil Code of Lower
Canada, the views of French commentators, and jurisprudence on Quebec law to
conclude that the contracts were properly characterized as conditional sales, on a
suspensive condition, and not leases.52 On this basis, he held that the taxpayer had
acquired the logging equipment for tax purposes and could therefore deduct only
capital cost allowance, not rental payments.
Similarly, in Chibougamau Lumber lte v. M.N.R.,53 a taxpayer entered into

several agreements to lease equipment with an option to purchase the property for one
dollar plus any unpaid amounts remaining under the terms of each lease. The
judgment turned not on the judicial test in Wardean Drilling (which the Tax Review
Board did not mention), but on the boards conclusion as a matter of private law that
the contracts at issue were not, by any stretch of the imagination, leases in the true
legal sense of the term, but rather represented no more than a purchase on a time
payment plan.54 On this basis, as in Lagueux & Frres, the board disallowed the
difference between the deduction of rental payments claimed by the taxpayer and
capital cost allowance to which it was properly entitled.
Notwithstanding these decisions, the Federal Court did rely on the Wardean
Drilling test in Olympia and York Developments Ltd. v. Canada, a case in which a

50 [1974] 2 F.C. 97, 74 D.T.C. 6569 (F.C.T.D.) [Lagueux & Frres cited to F.C.]:

[F]iscal law is an accessory system, which applies only to the effects produced by
contracts. Once the nature of the contracts is determined by the civil law, the Income
Tax Act comes into effect, but only then, to place fiscal consequences on those
contracts. Without a contract, without a law and an obligation, there can be no fiscal
levy. Application of the Income Tax Act is subject to a civil determination, whether such
a determination be according to civil or common law (at 103).

51 Ibid.
52 Ibid. at 106, citing art. 1013 C.C.L.C. (When the meaning of the parties in a contract is doubtful,
their common intention must be determined by interpretation rather than by an adherence to the literal
meaning of the words of the contract); Marcel Planiol & Georges Ripert, Trait pratique de droit civil
franais, t. 10 by Joseph Hamel, Franois Givord & Andr Tunc, 2d ed. (Paris: Librairie gnrale de
droit et de jurisprudence, 1956) No. 220; Gravel c. Massicotte et Couillard (1931), 52 B.R. 146;
Carey c. Carey (1912), 42 C.S. 471; A.R. Williams Machinery & Supply v. Morin, [1933] S.C.R. 570,
4 D.L.R. 818.

53 [1973] C.T.C. 2174, 27 D.T.C. 134 (T. Rev. B.) [Chibougamau Lumber cited to C.T.C.].
54 Ibid. at 2178 (emphasizing that the contracts were never intended … to be a true reflection of the
arrangement and were therefore shams or artificial transactions subject to the anti-avoidance rule in
then s. 137(1) of the ITA).

2009] D.G. DUFF BIJURALISM AND THE ACQUISITION OF PROPERTY IN THE ITA 435

taxpayer conveyed possession of an apartment building in 1969 under an agreement
and retained ownership until it received a stipulated amount through instalment
payments.55 Although concluding on the basis of civil law authorities that the
taxpayer had not sold the property in 1969, Justice Addy nonetheless held that the
taxpayer had disposed of the property in that year for two reasons: First, he explained,
because the statutory definition of a disposition in then paragraph 20(5)(c) (now
subsection 248(1)) was not exhaustive or restrictive,56 the concept should be given
its broadest possible meaning.57 Second, he declared, since the concept of an
acquisition is obviously the direct opposite of a disposition, the twofold test in
Wardean Drilling should apply to determine the disposition of property as well as its
acquisition.58 On this basis, the court concluded that the taxpayer disposed of the
property in 1969 when it completely divested itself of all of the duties,
responsibilities and charges of ownership and also all of the profits, benefits and
incidents of ownership, except the legal title.59
Although Olympia and York was followed in at least one subsequent decision
involving a disposition of property in Quebec,60 other decisions in the early 1990s
continued to apply the civil law rather than Wardean Drilling to decide if a taxpayer
had acquired property for the purposes of the ITA. In Fortin & Moreau, for example,
a taxpayer sought to deduct capital cost allowance on garbage trucks and bins that it
had leased for a sixty-five-month term with a purchase option after sixty months at a
price less than the probable value of the equipment at that time.61 The Tax Court of
Canada relied on the civil law, not Wardean Drilling, to conclude that the taxpayer
had not acquired depreciable property within the meaning of the ITA. Emphasizing
that the Code does not recognize [the] … dismemberment of ownership rights
presumed by the second branch of the twofold test in Wardean Drilling,62 Chief
Justice Couture of the Tax Court of Canada characterized the contract as a a
conditional obligation on a suspensive condition, which does not transfer ownership
until the purchase option is exercised.63 He thereby disallowed the deduction on the

55 (1980), [1981] 1 F.C. 691, 34 D.T.C. 6184 (T.D.) [Olympia and York cited to F.C.].
56 Ibid. at 709.
57 Ibid., citing Canada v. Cie Immobilire BCN lte (1978), [1979] 1 S.C.R. 865 at 876, 97 D.L.R.

(3d) 238 [Cie Immobilire].

58 Olympia and York, ibid. (An acquisition within the meaning of the ITA must contain substantially
the same elements viewed from the side of the person acquiring the asset as opposed to the person
disposing of it at 709).

59 Ibid. at 710.
60 See Robert Bdard auto lte v. M.N.R., [1985] 2 C.T.C. 2354, 39 D.T.C. 643 (T.C.C.).
61 Supra note 11.
62 Ibid. at 2595, citing art. 406 C.C.L.C. (Ownership is the right of enjoying and of disposing of
things in the most absolute manner, provided that no use be made of them which is prohibited by law
or by regulation).

63 Ibid. at 2596 (Writers are of the opinion that the suspensive obligation does not transfer the right
of ownership on the date of execution of the agreement. Ownership is only transferred to the
purchaser when the condition is fulfilled, with retroactive effect to the date of the agreement). The

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ground that the applicable statutory definition of depreciable property required the
taxpayer to own the property at the end of its taxation year in order to have acquired
the property for tax purposes.64 Notwithstanding this conclusion, however, Chief
Justice Couture relied on the second branch of the twofold test in Wardean Drilling to
conclude that the taxpayer had acquired property for the purpose of the interest
deduction in paragraph 20(1)(c) and the investment tax credit in subsection 127(10)
on the basis that these provisions, unlike the definition of depreciable property, did
not require the taxpayer to own the property at the end of the year.65

Fortin & Moreau was followed in two subsequent tax cases in Quebec, each of
which involved leasing agreements with an option to purchase during the term of the
lease.66 Chief Justice Coutures conclusion that the taxpayer had not acquired
depreciable property within the meaning of the ITA was also upheld on appeal by way
of trial de novo at the Federal Court, Trial Division. The Federal Court affirmed his
opinion that capital cost allowance may only be deducted by the owner of the
property, and his determination that the contract did not transfer ownership of the
property until the purchase option was exercised.67 Unlike the Tax Court of Canada,
however, the Federal Court also disallowed the deduction of the interest expenses and
investment tax credits claimed by the taxpayer on the ground that it had not acquired
the property for the purpose of these provisions, or fulfilled the statutory definition of
depreciable property. Rejecting the taxpayers argument that it had acquired the
property under the second branch of the twofold test in Wardean Drilling, Justice
Tremblay-Lamer distinguished Wardean Drilling on the basis that it had not involved
an option to purchase, and declined to apply its twofold test to the lease-option
agreements because this would produce a legal effect that fails to reflect the
obligations created by the applicable private law, in this case the civil law.68 As a

legal nature and effect of conditional obligations in civil law are examined more fully at infra notes
120ff. and accompanying text.

64 Ibid. at 2597 (Prior to the 1979 taxation year, the Act referred essentially to property acquired by
a taxpayer during a fiscal year, but … an amendment was made to the paragraph applicable to property
acquired since December 11, 1979, requiring the taxpayer, from that date, to own such property, at the
end of the year, that is, his taxation year).

65 Ibid. (the agreement between the parties resulted, for the purposes of the Act, in the acquisition
of property by the [taxpayer]. It had possession and use of the … property and had assumed all the
risks; furthermore it was almost certain [to] exercise the option to purchase when the agreement
expired at 2599).

66 See Dumais, supra note 11 (the taxpayer could not deduct capital cost allowance because it only
had the rights of a lessee determined by the terms of the leasing contract and was therefore not the
owner of this property at 2658 [translated by author]). See also Gatan Lvesque, supra note 11,
Lamarre Proulx T.C.J. at para. 14 (ownership of property is essential for a taxpayer to deduct capital
cost allowance).

67 Brou (F.C.T.D.), supra note 11 at para. 22.
68 Ibid. at para. 58. Tremblay-Lamer J. explained that because the taxpayers acquisition of property
in the case before her depended on this future and uncertain event, it was difficult to conclude that
the taxpayer had acquired the property prior to the exercise of this option, even if the term [was]
given the expansive meaning of M.N.R. v. Wardean Drilling Limited (at para. 57).

2009] D.G. DUFF BIJURALISM AND THE ACQUISITION OF PROPERTY IN THE ITA 437

result, she concluded, absent an irrevocable promise of purchase and sale, I am
unable to conclude that there was an acquisition before the option was exercised.69
On further appeal, however, a majority of the Federal Court of Appeal reversed
the trial decision and allowed the deduction of capital cost allowance, interest
expenses, and investment tax credits, on the ground that the taxpayer had acquired the
property for the purposes of the ITA irrespective of its ownership under the civil law
of Quebec.70 For Justice Desjardins, this conclusion rested on three propositions:
First, she explained, through subparagraph 54(c)(v) of the statutory definition of a
disposition71 and the interpretive rule in subsection 248(3),72 as these provisions then
read, Parliament had devised, for tax purposes and for all of Canada, a common
concept covering the ideas of disposition (disposition des biens) and beneficial
ownership (proprit effective), both in civil and common law.73 Second, she
emphasized, the parties themselves admitted that the effect of s. 54(c)(v) was to
incorporate into the Act the common law rule that property is subject to a disposition
when there is a transfer of beneficial ownership, even though the legal ownership
remained unchanged.74 Third, she declared, the corollary of these provisions is that
when there was a disposition for a party to a contract the other party made an
acquisition or obtained the beneficial ownership of it.75 As a result, she
concluded:

69 Ibid. at para. 62.
70 Brou, supra note 7.
71 Ibid. at 182. According to this provision (an amended version of which now appears in ss. (e) and
(f) of the definition of a disposition in s. 248(1) of the ITA), a disposition of property does not
include any transfer of property by virtue of which there is a change in the legal ownership of the
property without any change in the beneficial ownership thereof (Income Tax Act, S.C. 1970-71-72,
c. 63, s. 54(c)(v)).

72 Brou, ibid. at 183. According to this provision, which was subsequently amended:

In its application in relation to the Province of Quebec, a reference in this Act to any
property that is or was beneficially owned by any person shall be read as including a
reference to property in relation to which any person has or had the full ownership
whether or not the property is or was subject to a servitude, or has or had a right as a
usufructurary, a lessee in an emphyteutic lease, an institute in a substitution or a
beneficiary in a trust; and a reference in this Act to the beneficial owner of any property
shall be read as including a reference to a person who has or had, accordingly as the
context requires, such ownership as a right in relation to that property.

73 Brou, ibid.
74 Ibid. Curiously, the provision does not actually state this, providing only that a transfer of legal
ownership without a change in beneficial ownership does not constitute a disposition, not that a
transfer of beneficial ownership without a change in legal ownership does constitute a disposition. For
a similar observation, see Marie-Pierre Allard, The Retroactive Effect of Conditional Obligations in
Tax Law (2001) 49 Can. Tax J. 1726 at 1796 [Marie-Pierre Allard, Conditional Obligations]. See
also Duff, supra note 13 at 57-58.

75 Brou, ibid. at 183 (Desjardins J.A. cited Olympia and York (supra note 55) in support of this
view). As explained in Part III of this paper, this proposition does not follow as a logical corollary of

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[I]n so far as the leasing contracts in the case at bar may be seen as contracts
recognizing beneficial ownership like the contracts given as examples in s.
248(3) of the Act, the beneficial ownership of the dump trucks was acquired by
the appellant when the contracts were concluded in 1982. … Since the appellant
had the possession and use of the dump trucks in addition to assuming the risk
and obligations pertaining to them, it obtained beneficial ownership of that
property in 1982.76

Similarly, Justice Ltourneau based his conclusion that the taxpayer had acquired
the property for tax purposes on the legislative intent expressed in subsection 248(3)
to harmonize the civil law of Quebec with the common law of other provinces,77 on
the judicial presumption that an acquisition of property is the counterpart of a
disposition, and on the further proposition (which was admitted by the parties) that,
under subparagraph 54(c)(v), there was a disposition of property when there was a
transfer of beneficial ownership even though the seller retained legal ownership.78 In
addition, he suggested, this conclusion was consistent with developments in the civil
law, which [o]ver the years, … gradually and from necessity, has been adapted to
correspond to certain commercial situations and particular subdivisions of the
ownership right which the common law had devised to meet the demands of these
situations.79 As well, Justice Ltourneau emphasized that these considerations
provided a sound basis for the application in Quebec of the Canada Revenue
Agencys Interpretation Bulletin identifying circumstances in which it would consider
a transaction to be a sale rather than a lease,80 and that it would be inappropriate for

then ss. 54(c)(v) and 248(3), but depends on Desjardins J.A.s second proposition that the effect of s.
54(c)(v) was to extend the definition of a disposition to include transfers of beneficial ownership, and
on the judicial interpretation in Olympia and York that the concept of an acquisition is the direct
opposite of a disposition and must contain substantially the same elements from the side of the
person acquiring the asset as opposed to the person disposing of it (supra note 55 at 709).

76 Brou, ibid. at 184.
77 Ibid. at 186 [footnotes omitted].
78 Ibid. at 188.
79 Ibid. at 187. See also ibid. at 189 (the trend in the civil law is to approximate more closely to the
common law); ibid. at 191-92 (civil law courts have often characterized lease-option agreements as
instalment sales in which the normal incidents of ownership (beneficial ownership) were transferred
to the purchaser, and the Court of Appeal of Qubec concluded that the lessee under a leasing
agreement had acquired the property when he obtained beneficial ownership of it, even though he
lacked the real right conferred by legal ownership).

80 Ibid. at 186. Canada Revenue Agency, Interpretation Bulletin IT-233R, Lease-Option
Agreements; Sale-Leaseback Agreements (11 February 1983) at para. 3. This Interpretation Bulletin
replaced IT-233 (14 July 1975), and was cancelled by the Canada Revenue Agency in 2001 because it
was inconsistent with the Supreme Court of Canadas statement in Shell Canada Ltd. v. Canada that
the economic realities of a situation [cannot be used] to recharacterize a taxpayers bona fide legal
relationships ([1999] 3 S.C.R. 622 at 641, 178 D.L.R. (4th) 26). As a result, according to the Canada
Revenue Agency, the determination of whether a contract is a lease or sale is based on the legal
relationships created by the terms of the agreement, rather than on any attempt to ascertain the
underlying economic reality. Therefore, in the absence of a sham, it is our view that a lease is a lease
and a sale is a sale (Income Tax Technical News, No. 21 (14 June 2001)).

2009] D.G. DUFF BIJURALISM AND THE ACQUISITION OF PROPERTY IN THE ITA 439

this Court to ignore or repudiate the content of the said Bulletin 17 years later, as the
respondent is asking us to do in the case at bar.81 As a result, he concluded, the
taxpayer had acquired the property within the meaning of the ITA when it obtained
the usual incidents of the right of ownership over the property, namely possession,
use and risk of loss, together with the obligations resulting from those incidents.82
Dissenting, Justice Nol would have disallowed the deductions for three reasons:
First, in the absence of a statutory definition, the concept of an acquisition of property
must be understood in its ordinary sense that is as referring to the acquisition of
ownership of property.83 Second, he emphasized, in the absence of some indication
to the contrary, ownership of property cannot be acquired otherwise than in
accordance with the applicable private law.84 Third, since the parties did not intend
ownership of the property to be transferred until the purchase option was exercised, it
followed that the taxpayer did not acquire the property for the purposes of the ITA
until the option was exercised.85
Three years later, in Terexcavation, the Tax Court of Canada considered yet

another lease-option agreement involving a tractor that the taxpayer leased for six
months with an option to purchase at the end of the lease.86 Allowing the taxpayers
appeal from an assessment disallowing the deduction of an investment tax credit on
the grounds that the tractor was no longer new when the taxpayer acquired it at the
end of the lease, Justice Lamarre Proulx relied on the second branch of the twofold
test in Wardean Drilling to conclude that the taxpayer had acquired the tractor at the
outset of the lease, which she characterized as a financial lease for the purpose of
acquiring property.87 Significantly, Justice Lamarre Proulx declared:

[I]t is a mistake to see the issue of the interpretation to be given to the term
acquired as a debate between civil law and common law on the concept of
ownership. In the Court’s view, Wardean interpreted the meaning of the term
acquired on the basis of the tax legislation. That interpretation may or may
not correspond to the common law concept of ownership; that is not the point.
The point is that this interpretation was made on the basis of the tax
legislation.88

As a result, she suggested, the concept of an acquisition of property has a tax meaning
that is effectively dissociated from all private law concepts, even if its interpretation
happens to correspond to the common law distinction between legal and beneficial

81 Brou, ibid. at 193.
82 Ibid. at 186-87.
83 Ibid. at 221 [emphasis in original].
84 Ibid.
85 Ibid. at 225.
86 Supra note 7.
87 Ibid. at para. 39.
88 Ibid. at para. 35.

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ownership. As argued in Part III of this paper, it is doubtful that this conclusion can
survive the enactment of section 8.1 of the Interpretation Act.

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II. The Ownership and Transfer of Property in Common Law and

Civil Law

As the tax cases in the first part of this paper demonstrate, courts have generally
referred to common law or civil law concepts in order to interpret the meaning of an
acquisition of property for tax purposeseither explicitly as in Lagueux & Frres,
Fortin & Moreau, the trial decision in Brou (F.C.T.D.), and Justice Nols dissenting
opinion on appeal, or implicitly as in Justice Cattanachs twofold test in Wardean
Drilling and subsequent cases that have relied on this test. Before considering the
impact of section 8.1 of the Interpretation Act on the meaning of this concept, it is
useful to review the rules, principles, and concepts governing the ownership and
transfer of property in common law and civil law in order to understand their possible
impact on the meaning of an acquisition of property for tax purposes.

A. The Ownership and Transfer of Property in Common Law

The concept of ownership in the common law tradition is generally understood as
an enforceable bundle of rights that links a person to a thing.89 As A.M. Honor
explains in a much-cited article on the subject: Ownership comprises the right to
possess, the right to use, the right to manage, the right to the income of the thing, the
right to the capital, the right to security, the rights or incidents of transmissibility and
absence of term, the prohibition of harmful use, liability to execution, and the incident
of residuarity.90 For Bruce Ziff, these rights may be reduced to the following four: (1)
possession, management, and control; (2) income and capital; (3) transmission inter
vivos and on death; and (4) protection under the law.91

In addition to this bundle of rights concept, the common law generally
distinguishes between legal and beneficial ownershipa distinction that
originates in the common law of trusts, but has developed a legal meaning that
extends beyond the relationship between trustees and beneficiaries.92 Most property in
common law jurisdictions is held both legally and beneficially, such that the person
with legal title also has the right to use and enjoyment.93 However, the concepts are
widely used, as one commentator explains, to distinguish a right or power one

89 Derek Mendes da Costa & Richard J. Balfour, Property Law: Cases, Text and Materials, 2nd ed.

by Eileen E. Gillese (Toronto: Emond Montgomery, 1990) at 2:1.

90 Ownership in A.G. Guest, ed., Oxford Essays in Jurisprudence: A Collaborative Work (London:

Oxford University Press, 1961) 107 at 113.

91 Principles of Property Law, 4th ed. (Toronto: Carswell, 2006) at 2-3.
92 Brown, supra note 9 at 452.
93 Arthur Allen Leff, The Leff Dictionary of Law: A Fragment (1985) 94 Yale L.J. 1855, s.v.

beneficial.

2009] D.G. DUFF BIJURALISM AND THE ACQUISITION OF PROPERTY IN THE ITA 441

possesses for his own use and enjoyment from one possessed for the use and
enjoyment of another.94 In these circumstances, the common law regards the person
who holds legal title to the property as its legal owner and the person who
possesses the bundle of rights comprising the normal incident of ownership as the
beneficial owner of the property.95 Since the common law conceptualizes
ownership as a bundle of rights, moreover, the beneficial owner is generally regarded
as the real or true owner of the property.96
Where two parties enter into a contract to sell property, common law jurisdictions
generally provide that the property is transferred to the buyer at such time as the
parties to the contract intend it to be transferred.97 For this purpose, according to
provincial sale of goods statutes, regard shall be had to the terms of the contract, the
conduct of the parties and the circumstances of the case.98 In addition, these statutes
contain several rules for ascertaining the intention of the parties as to the time at
which the property in goods is to pass to the buyer, which generally apply [u]nless
a different intention appears.99 In Wardean Drilling, the court relied on one of these
rules to help determine when the taxpayer had acquired the property for tax
purposes.100 In other cases, courts have relied on more general principles to determine
if, and when, property has passed to a purchaser of goods. The most difficult of these
cases involve conditional sales agreements and lease-option agreementsin each of
which legal title to the property remains with the vendor or lessor until the conditions
are satisfied or the purchase option is exercised.
Where conditional sales agreements are involved, courts in common law
provinces have generally held that the purchaser acquires either property in the
goods, or equitable ownership, once possession, use, and risk are transferred.101 In

94 Ibid.
95 Blacks Law Dictionary, 8th ed., s.v. beneficial owner.
96 See e.g. Csak v. Aumon (1990), 69 D.L.R. (4th) 567 (Ont. H.C.J.) (the beneficial owner of
property is the real owner of the property even though it is in someone elses name at 567);
MacKeen Estate v. Nova Scotia (1977), 25 N.S.R. (2d) 572, (sub nom. Cowan v. Nova Scotia
(Minister of Finance)) 78 D.L.R. (3d) 66 (S.C.(T.D.)) (the plain ordinary meaning of the expression
beneficial owner is the real or true owner of the property N.S.R. at para. 46), affd (1978), 28
N.S.R. (2d) 3, 89 D.L.R. (3d) 426.

97 See e.g. the Alberta Sale of Goods Act, supra note 21, ss. 19(1)-(2). Identical provisions appear in

sale of goods statutes in other common law provinces.

98 Ibid., s. 198(2).
99 Ibid., s. 20(1).
100 Supra note 6. See especially supra note 21 and accompanying text.
101 See e.g. R. v. Hemingway, [1955] S.C.R. 712 at para. 38, 1 D.L.R. (2d) 34, Estey J. (the accused
was found guilty of obtaining goods by false pretences on the basis that he had acquired possession
of the goods and a special property or interest therein pursuant to a conditional sales agreement with
the vendor); C.C. Motor Sales Ltd. v. Chan, [1926] S.C.R. 485 at 491, [1926] 3 D.L.R. 712 (the
plaintiff, who had purchased an automobile under a conditional sales agreement, was entitled to the
excess of proceeds over unpaid instalment payments after the defendant took possession of the vehicle

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Hendrickson, for example, the plaintiff sued the defendant for conversion after the
defendant purchased and resold an automobile from an individual who acquired it
under a false name from the plaintiff pursuant to a conditional sales agreement.102 The
Alberta Supreme Court found for the defendant on the basis that the conditional sales
agreement had transferred property in the goods to the individual, notwithstanding
that the vendor retained title to the goods until all amounts owing were paid.
According to the court:

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It will be observed that what is reserved to the vendor until payment in full
is title to the said goods. Nowhere in the agreement is it stated that property
in the goods shall remain in the vendor until payment in full. Now, I conceive
title and property to be two entirely different things. One person may hold
bare title to property while the whole beneficial ownership rests in some other
person. A reservation of title does not necessarily imply that no property shall
pass to the purchaser, and indeed the agreement itself contemplates that some
property interest will pass to this purchaser.103

As Justice Nol observed in Hewlett Packard, the language and reasoning that Justice
Cattanach employed in Wardean Drilling is similar to that in Hendrickson.104
Where possession is conveyed under a lease with a purchase option, courts in
common law provinces have generally distinguished between true leases under
which the essential incidents of ownership remain with the lessor, and financing
leases or security leases, under which the lessee acquires beneficial ownership
while the lessor retains legal title as a form of security interest.105 Although the
distinction between these two kinds of leases is often difficult to draw in practice,106
factors favouring characterization as a financing or security lease include: (1)
automatic vesting of ownership in the lessee at the end of the lease or upon payment
of a stipulated amount, or an obligation to purchase the property at the end of the
lease; (2) a lease term that corresponds to the propertys useful life; (3) lease
payments that are equal to or greater than the sum of the propertys capital and
finance costs; (4) an option price lower than the expected value of the property when
the option may be exercised; (5) lease terms allocating the loss or gain from a
subsequent disposition of the property to the lessee; (6) transactions in which the
lessor purchases property from a supplier selected by the lessee for the purpose of

and sold it under the provisions of the agreement, on the grounds that the plaintiff had acquired
equitable ownership of the property, notwithstanding that the defendant retained legal ownership).

102 Supra note 24.
103 Ibid. at 283-84.
104 Supra note 23.
105 See Ronald C.C. Cuming, Catherine Walsh & Roderick J. Wood, Personal Property Security

Law (Toronto: Irwin Law, 2005) at 67-75.

106 See e.g. Re Philip Services Corp. (1999), 15 C.B.R. (4th) 107, 94 A.C.W.S. (3d) 13 (Ont. Sup.
Ct. J.), Farley J. (the task involves a weighing of the various material matters involved. It is not a
simple analysis of determining between black and white but rather the shade of grey where all factors
are weighed in the balance as to whether the scales would tip towards a true lease relationshipor
alternatively against being a true lease relationship at 109).

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leasing the property to the lessee; and (7) contractual remedies characteristic of a
financing transaction, such as acceleration of payments in the event of default.107
Although none of the tax cases in common law provinces involving lease-option
agreements have cited any of the common law judgments in which these factors have
been applied, most have considered similar factors in order to determine whether
lessees have acquired property for tax purposes under the terms of the agreement.108
These factors may also have influenced the Canada Revenue Agencys administrative
practice, as they correspond to the circumstances under which the Canada Revenue
Agency was formerly prepared to characterize lease-option agreements as sales rather
than as leases.109

B. The Ownership and Transfer of Property in Civil Law

Unlike the common law, the civil law of Quebec regards ownership as absolute
and indivisible. According to the Civil Code of Qubec, ownership is defined as the
right to use, enjoy and dispose of property fully and freely, subject to the limits and
conditions for doing so determined by law.110 In addition, the C.C.Q. continues,
ownership of property gives a right to what it produces and to what is united to it,111
so that the fruits and revenues of property belong to the owner.112 As Henri
Mazeaud explains, while the right of ownership under the civil law comprises three
attributesthe jus utendi, or right to make use of the thing, the jus fruendi, or right
to receive income produced by it, and the jus abutendi, or right to dispose of the
thing: to preserve, give, sell, destroy or abandon itthis right is a total right

107 See Cuming, Walsh & Wood, supra note 105 at 70-75.
108 See e.g. Mimetix, supra note 7 (where the definitive factor was the absence of an option to
purchase at a price substantially less than the probable fair market value of the property at the time of
exercising the option at 2211); Kamsel Leasing, supra note 42 (lessees have the right to acquire the
property at the expiration of the lease at a price which at the inception of the lease could be said to be
substantially less than the probable fair market value of the property at the time of permitted
acquisition at 2283).

109 See Interpretation Bulletin IT-233R, supra note 80. The Canada Revenue Agency cancelled this
Interpretation Bulletin on the grounds that the determination of whether a contract is a lease or sale is
based on the legal relationships created by the terms of the agreement, rather than on any attempt to
ascertain the underlying economic reality (Income Tax Technical News, No. 21, supra note 80). The
apparent correspondence between the factors used by common law courts to distinguish true leases
from financing and security leases and the factors listed in the Interpretation Bulletin suggest that this
decision may have been misconceived. These factors can determine the legal relationships created by
the agreement as well as the economic reality.

110 Art. 947 C.C.Q. [emphasis added].
111 Ibid., art. 948.
112 Ibid., art. 949 (adding that the owner bears the costs he incurred to produce these fruits and

revenues). See also ibid., art. 950 (the owner of the property assumes the risks of loss).

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giving the owner complete powers over the thing.113 As a result, it follows, while
the C.C.Q. contemplates various dismemberments of ownership in the form of a
usufruct, use, servitude, or emphyteusis, these dismemberments do not transfer
ownership itself, which remains with the original owner subject to the right or charge
created by the dismemberment.114 Nor does the civil law of Quebec recognize the
common law distinction between legal and beneficial ownership, since these concepts
are merged within a unitary conception of ownership.115
Despite these differences between the civil law and the common law, both legal
systems share the principle that contracts for the sale of property are to be interpreted
according to the intent of the parties.116 According to the C.C.Q., [t]he common
intention of the parties rather than adherence to the literal meaning of the words shall
be sought in interpreting a contract.117 Professor Jobin explains that even where the
wording of a contract does not seem ambiguous, the judge may depart from the
declared will of the parties and adopt an interpretation of the contract that is more
consistent with their true intention. Thus, the formal qualification of a contract as a
sale or as a lease does not oblige the judge to apply the rules relative to these types of
contracts.118 Similarly, the Superior Court of Qubec ruled in Thibault v. Auger that in
order to determine the legal effect of a contract, one must look for the intention of
the parties, whatever the name they may give it. … if the contract that [the parties] call
a lease displays all the characteristics of a sale, it will be governed not by the
principles of lease but by those of sale.119
With respect to the characterization of contracts, the C.C.Q. contemplates
different kinds of sales and different kinds of leasing arrangements. Where a seller
transfers possession, use, and risk to a buyer, but retains ownership pending full
payment of the purchase price, the transaction is defined as an instalment sale.120
While an instalment sale creates an existing obligation to transfer ownership once the
purchase price is paid in full, this obligation constitutes an obligation with a

113 Henri Mazeaud et al., Leons de droit civil, t. 2, vol. 2, 8th ed. by Franois Chabas (Paris:
Montchrestien, 1994) No. 1332, cited in Cie Immobilire, supra note 57 at 876-877 [translated in Cie
Immobilire, emphasis in original]).

114 See arts. 1119, 1120 (usufruct), 1172 (use), 1177 (servitude), 1195 (emphyteusis) C.C.Q.
115 See e.g. Lalibert v. LaRue (1930), [1931] S.C.R. 7, [1931] 2 D.L.R. 12, Rinfret J. ([T]he legal
system in the Province of Quebec does not include the common law concept which recognizes
beneficial ownership in one person and legal title in another. In Quebec, both are invariably combined
in the same person. Ownership is unitary S.C.R. at 16 [translated by author]). It follows that a civil
law trust is conceptually unlike a common law trust. The civil law trust property is owned neither by
the trustee nor the beneficiary but by an autonomous and distinct patrimony in which neither the
trustee nor the beneficiary has rights as an owner (art. 1261 C.C.Q.).

116 See Brou, supra note 7 at 225.
117 Art. 1425 C.C.Q.
118 Pierre-Gabriel Jobin with the collaboration of Nathalie Vzina, Les obligations, 6th ed.

(Cowansville, Qc.: Yvon Blais, 2005) No. 435.

119 [1950] C.S. 343 at 345 [translated by author].
120 Art. 1745 C.C.Q.

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suspensive term that does not become exigible until the occurrence of a future and
certain event.121 As such, an instalment sale does not transfer ownership until the
term is completewhen the buyer has paid the full amount of the purchase price.122

In contrast to instalment sales, which create obligations with a suspensive term,
the C.C.Q. also contemplates transactions which create conditional obligations.
According to article 1497, [a]n obligation is conditional where it is made to depend
upon a future and uncertain event, either by suspending it until the event occurs or is
certain not to occur, or by making its extinction dependent on whether or not the
event occurs.
Where a conditional obligation is suspended until a future and uncertain event
occurs or is certain not to occur, the condition is suspensive and the obligation comes
into existence only when the event occurs or is certain not to occur.123 Where a
conditional obligation is extinguished by the occurrence of a future and uncertain
event, the condition is resolutory and the obligation comes into existence when the
contract is concluded, but ceases upon the occurrence of the future and uncertain
event.124 Although the C.C.Q. is not explicit on the matter, civil law authorities agree
that the future and uncertain event upon which the conditional obligation depends
must be extrinsic to the legal relationship between the parties,125 which
distinguishes this kind of transaction from an instalment sale in which the suspensive
term that the price must be paid in full is intrinsic to the contract.126 As well, since the
C.C.Q. provides that fulfillment of the condition has a retroactive effect, between the
parties and with respect to third persons, to the day on which the debtor obligated
himself conditionally,127 a sale on a suspensive condition is further distinguished
from an instalment sale by making the transfer of ownership on fulfillment of the
condition retroactive to when the agreement was executed.128
In addition to these different kinds of sales transactions, the C.C.Q. also

contemplates different kinds of leasing arrangements. Under a conventional lease,
ownership remains with the lessor, who undertakes to provide … the lessee, in return
for a rent, with the enjoyment of a movable or immovable property for a certain
time.129 Under a contract of leasing, on the other hand, the lessor puts movable

121 Art. 1508 C.C.Q.
122 Marie-Pierre Allard, Conditional Obligations, supra note 74 at 1747.
123 Ibid. at 1730.
124 Ibid. at 1731.
125 Henri Mazeaud et al., Leons de droit civil, t. 2, vol. 1, 9th ed. by Franois Chabas (Paris:
Montchrestien, 1998) at 1078-79 [translated by author]. See also Jobin, Les obligations, supra note
118, No. 611.

126 See e.g. Commission de protection du territoire agricole du Qubec v. Venne, [1989] 1 S.C.R.

880 at 903-04, 95 N.R. 335, Beetz J. See also Jobin, Les obligations, ibid., No. 605.

127 Art. 1506 C.C.Q.
128 Marie-Pierre Allard, Conditional Obligations, supra note 74 at 1730.
129 Art. 1851 C.C.Q.

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property at the disposal of … the lessee, for a fixed term and in return for payment
after acquir[ing] the property that is the subject of the leasing from a third person, at
the demand and in accordance with the instructions of the lessee.130 Although some
authorities suggest that a leasing agreement is a financial operation tending to the
acquisition of ownership by the user when it is combined with an option to purchase
the property,131 the more accurate view is that the promise of a sale accompanied by
yet unfulfilled conditions is not equivalent to a sale,132 and that an option to purchase
property subject to a leasing agreement cannot confer ownership until the option is
exercised.133 Indeed, although the lessee under a leasing arrangement may, as Justice
Ltourneau observed in Brou, be treated … like an owner purchaser in economic
terms,134 the C.C.Q. itself states that [t]he lessor acquires the property that is the
subject of the leasing,135 and Justice Ltourneau himself acknowledged that a leasing
agreement does not confer upon the lessee the real right to the property.136
Although most of the tax cases in Quebec involving lease-option agreements
have considered these civil law rules and principles, they have reached widely
different conclusions on the legal consequences of these rules and principles and on
their implications for the acquisition of property under the ITA. For example, in

130 Art. 1842 C.C.Q.
131 Claude Gilbert, La nature et lintrt du crdit-bail en informatique (1988) 29 C. de D. 815 at
819-20, cited in Brou, supra note 7 at 190, Ltourneau J.A. See also Pacific National Leasing Corp.
c. Rose, [2001] R.J.Q. 78.

132 Lon Faribault, Trait de droit civil du Qubec, vol. 11 (Montreal: Wilson & Lafleur, 1961) No.
116, cited in Brou (F.C.T.D.), supra note 11 at para. 44: even when it is accompanied by delivery, a
promise to sell is not equivalent to a sale where it is made subject to a suspensive condition, or where
the parties have agreed that the prospective vendor is to retain ownership of the res until the purchase
price is paid in full or until the promisee has fulfilled all his obligations [translated by author]. See
also Robertson v. Canada, [1990] 2 F.C. 717, 105 N.R. 123, Marceau J. (We cannot look at the
taxpayer who exercises the option as if he had owned the shares all along; the power to acquire the
shares should not be confused with ownership of the shares itself F.C. at 726); Mitsui & Co.
(Canada) Ltd. v. Royal Bank of Canada, [1995] 2 S.C.R. 187, 142 N.S.R. (2d) 1, Major J. (An option
contract is an antecedent contract because it precedes the contract of purchase and sale that will result
if the opportunity provided by the option is seized upon or exercised. Once an option is exercised,
the parties discharge their obligations under the option contract by entering into the contract of
purchase and sale S.C.R. at 201). Article 1710 of the C.C.Q. states that The promise of sale with
delivery and actual possession is equivalent to sale, but it is possible to depart from this presumption
where the parties have established conditions to be fulfilled before the transfer of ownership. See e.g.
Nadeau c. Dulac, [1953] 1 S.C.R. 164; Matriaux J.C. Brunet c. Caron, [2003] R.D.I. 18, 23 C.L.R.
(3d) 198.

133 Pierre-Gabriel Jobin, Le louage, 2d ed. (Cowansville, Qc.: Yvon Blais, 1996) at 52 (an option to

purchase is a mere possibility. The essence of a leasing is to confer a jus ad rem, not a real right).

134 Supra note 7 at para. 23. See e.g. arts. 1845 (the seller of the property is directly bound towards
the lessee by the legal and conventional warranties inherent in the contract of sale), 1846 C.C.Q. (the
lessee assumes all the risks of loss of the property, even by superior force, from the time he takes
possession of it and likewise assumes all maintenance and repair expenses).

135 Art. 1842 C.C.Q. [emphasis added].
136 Brou, supra note 7 at para. 23.

2009] D.G. DUFF BIJURALISM AND THE ACQUISITION OF PROPERTY IN THE ITA 447

Chibougamau Lumber, the Tax Review Board characterized the agreement as a
purchase on a time payment plan and concluded on this basis that the transaction
transferred ownership of the property to the lessee.137 In Lagueux & Frres, on the
other hand, Justice Dcary characterized the agreement as a sale on a suspensive
condition, but also concluded that the transaction had transferred ownership of the
property to the lessee.138 In Fortin & Moreau, Chief Justice Couture also
characterized the contract as a sale on a suspensive condition, but concluded that the
transaction did not transfer ownership on the grounds that a suspensive obligation
does not transfer ownership until the condition is fulfilled, with retroactive effect to
the date of the agreement.139 In Brou (F.C.T.D.), Justice Tremblay-Lamer concluded
that the contract could not be characterized as a sale on a suspensive condition on the
grounds that an option to purchase property is a condition intrinsic to the contract,
which depends on the will of one of the parties.140 He therefore held that the
taxpayer had not obtained ownership under civil law or acquired the property for tax
purposes until the purchase option was exercised.141 On further appeal to the Federal
Court of Appeal, Justice Nol concurred with this view, whereas Justices Desjardins
and Ltourneau dissociated the tax concept of an acquisition of property from civil
law rules and principles governing the transfer of ownership, concluding instead that
the taxpayer had acquired beneficial ownership of the property under the twofold
test in Wardean Drilling.142 Likewise, in Terexcavation, Justice Lamarre Proulx
dissociated the tax concept of an acquisition of property from the civil law of Quebec,
emphasizing that the meaning of an acquisition of property for tax purposes must be
understood on the basis of the tax legislation rather than the private law of the
province in which the relevant transaction occurs.143
As the next part of this paper explains, it is doubtful whether the Federal Court of
Appeal decision in Brou and the subsequent Tax Court of Canada judgment in
Terexcavation remain valid after the enactment of section 8.1 of the Interpretation
Act. If invalid, moreover, the cases decided prior to these two judgments suggest that
the meaning of an acquisition of property may be subject to considerable uncertainty
in the Province of Quebec.

137 Supra note 53 at 2178.
138 Supra note 50 at 692-93. However, Dcary J. is less specific elsewhere in his judgment. He states
that the contracts resulted in a sale on a suspensive condition, on instalment or by leasing (at 691).
As explained in this section, these alternatives are treated differently under the C.C.Q.

139 Supra note 11 at 2596.
140 Supra note 11 at para. 40 [emphasis added]. Tremblay-Lamer J. considered it unnecessary to
determine whether the transaction should be characterized as an instalment sale (as opposed to a
leasing with a purchase option), explaining that the legal consequences resulting from such a
characterization would not affect the outcome, since the contract would be formed upon the payment
of the final fraction of the price (ibid. at para. 48).

141 Ibid. at para. 62.
142 Brou, supra note 7.
143 Supra note 7 at para. 35.

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III. Canadian Bijuralism and the Meaning of an Acquisition of

[Vol. 54

Property in the Income Tax Act

Although the Federal Court of Appeal decision in Brou effectively dissociated
the tax concept of an acquisition of property from the civil law of Quebec, the
judgment was released on 15 November 1999, well before the introduction of section
8.1 of the federal Interpretation Act, which came into force on 1 June 2001.144
Declaring the common law and the civil law to be equally authoritative and
recognized sources of the law of property and civil rights in Canada, this provision
stipulates that where it is necessary to refer to provincial law in interpreting an
enactment, unless otherwise provided by law … reference must be made to the rules,
principles or concepts in force in the province at the time [an] enactment is being
applied.145 Therefore, to the extent that the interpretation of an acquisition of
property under the ITA necessitates reference to provincial law, section 8.1 of the
Interpretation Act may mandate a different result from that reached by a majority of
the Federal Court of Appeal.

This part of this paper considers the impact of section 8.1 of the federal
Interpretation Act on the meaning of an acquisition of property in the ITA, asking
whether it is necessary to refer to provincial rules, principles or concepts forming
part of the law of property and civil rights in order to interpret this concept and, if
so, whether such a reference has been otherwise provided by law. In order to
properly address these questions, however, it begins by reviewing section 8.1 more
generally in light of the broader objectives of Canadian bijuralism.

A. Canadian Bijuralism and Section 8.1 of the Federal Interpretation

Act146

Section 8.1 of the federal Interpretation Act was enacted in 2001 as part of the

Federal LawCivil Law Harmonization Act, No.1,147 the first in a series of legislative
measures designed to advance the goals of Canadian bijuralism by harmonizing
federal legislation with the civil law of Quebec. Defined narrowly as the coexistence
of two legal traditions within a single state,148 bijuralism may also be understood
more broadly as the sharing of values and traditions associated with each of the two
legal systems.149 In Canada, bijuralism of the first kind is rooted in the Quebec Act of

144 Terexcavation was decided after this provision was enacted, but the court did not consider it.
145 Interpretation Act, supra note 14.
146 Part III.A is based on Duff, supra note 13.
147 S.C. 2001, c. 4. For a detailed review of the origins and content of this legislation, see Marie-
Nolle Pourbaix, S-4: A First Harmonization Bill in Harmonization, supra note 13, fasc. 6 at 1-12.

148 Marie-Claude Gervais & Marie-France Sguin, Some Thoughts on Bijuralism in Canada and

the World in Harmonization, ibid., fasc. 2 at 1.

149 Justice Michel Bastarache, Bijuralism in Canada in Harmonization, ibid., fasc. 1, 19 at 26.

2009] D.G. DUFF BIJURALISM AND THE ACQUISITION OF PROPERTY IN THE ITA 449

1774,150 which provided that French law would apply to matters of property and civil
rights in the Province of Quebec, and is confirmed by the Constitution Act, 1867,151
which grants exclusive authority to provincial governments to make laws in relation
to Property and Civil Rights.152 Bijuralism of the second kind is cultural and
aspirational, but finds expression in federal policies and enactments, and in the
evolving jurisprudence of Canadian courts.153
Although bijuralism as narrowly defined has existed in Canada since 1774,
recognition of the civil law tradition at the federal level is a relatively recent
development. Until the 1970s, federal legislation was typically drafted by English-
speaking lawyers trained in the common law and then translated into French by
translators with little or no legal training, with makeshift adjustments to
accommodate the interaction of this legislation and the civil law of Quebec.154 At the
same time, Supreme Court of Canada decisions routinely ignored the distinctive
character of the civil law of Quebec, interpreting provisions of the Civil Code of
Lower Canada in light of English authorities and common law concepts.155
With the development of official bilingualism and biculturalism at the federal
level in the 1960s and 1970s, these unijural approaches to legislative drafting and
judicial decision-making became increasingly anachronistic and unacceptable. In
1975, the Supreme Court of Canada explicitly recognized the Civil Code of Lower
Canada as radically different from the common law, and acknowledged that its
provisions must be interpreted in keeping with the whole of which it is a part.156
Over the next few years, the Court established the basis for a complementary
relationship between federal legislation and provincial private law through a series of
decisions interpreting the words Laws of Canada for the purpose of section 101 of
the Constitution Act, 1867 to require a federal statutory text.157 In 1978 the federal

150 An Act for making more effectual Provision for the Government of the Province of Quebec in

North America, (U.K.) 14 Geo. III, c. 83.

151 (U.K.), 30 & 31 Vict., c. 3, reprinted in R.S.C. 1985, App. II, No. 5.
152 Ibid., s. 92(13).
153 On bijuralism in decisions of the Supreme Court of Canada, see France Allard, The Supreme
Court of Canada and its Impact on the Expression of Bijuralism in Harmonization, supra note 13,
fasc. 3 [France Allard, The Expression of Bijuralism]; Louise Lavalle, Bijuralism in the Supreme
Court of Canada since the Enactment of the Civil Code of Quebec in Harmonization, supra note 13,
fasc. 3. For a notable judicial expression of bijuralism, see St-Hilaire v. Canada (A.G.), 2001 FCA 63,
4 F.C. 289, 204 D.L.R. (4th) 103, Dcary J.A., dissenting in part [St-Hilaire].

154 Lionel A. Levert, The Cohabitation of Bilingualism and Bijuralism in Federal Legislation in

Canada: Myth or Reality? in Harmonization, ibid., fasc. 1, 5 at 6.

155 See France Allard, The Expression of Bijuralism, supra note 153 at 3-12.
156 Pantel v. Air Canada, [1975] 1 S.C.R. 472 at 478, 48 D.L.R. (3d) 1.
157 See Quebec North Shore Paper v. Canadian Pacific Ltd. (1976), [1977] 2 S.C.R. 1054, 71
D.L.R. (3d) 111; Canada v. McNamara Construction (Western) Ltd., [1977] 2 S.C.R. 654, 75 D.L.R.
(3d) 273; Canada v. Thomas Fuller Construction (1958) Ltd. (1979), [1980] 1 S.C.R. 695, 106 D.L.R.
(3d) 193. For a useful discussion of these cases, see France Allard, The Expression of Bijuralism,
supra note 153 at 22-26.

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Department of Justice introduced a new method of drafting legislation, called
codrafting, whereby all bills drafted by the Legislative Services Branch are
prepared by two draftersa francophone who is typically trained in the civil law, and
an anglophone who is typically trained in the common law.158
Although bijural, this method of codrafting did not directly speak to francophone
common law lawyers or anglophone civil law lawyers. Moreover, the new approach
did not make bijuralism an explicit objective of the codrafting process. In June 1995,
therefore, the Department of Justice adopted an explicit policy on legislative
bijuralism, intended to provid[e] Canadians with federal legislative texts that will
reflect, in each linguistic version, the legal system in use in their province.159 In
general, this policy is designed to promote equal access to justice by different legal
and linguistic communities in Canada, equal recognition of the civil and common law
traditions in federal legislation, and a harmonious relationship between federal
legislative objectives and these legal traditions.160 Moreover, given the historical
dominance of common law concepts and principles in federal legislation, an
important objective of this policy was also to ensure that federal legislation does not
treat Quebec Civil law as an inferior or subsidiary component of the Canadian legal
tradition.161

Three years after the adoption of this policy, the federal government introduced
Bill C-50,162 containing amendments to various federal statutes relating to provincial
private law,163 as well as to the federal Interpretation Act. Although Bill C-50 died on
the Order Paper when the House of Commons was prorogued, and a subsequent
version, Bill S-22,164 died when Parliament dissolved in the autumn of 2000, it was

158 Levert, supra note 154 at 6.
159 Department of Justice, Policy on Legislative Bijuralism, reproduced in Wellington, supra note 13

at 22, app. 3.

160 See Marie-Claude Gervais, Program to Harmonize Federal Legislation with the Civil Law of
the Province of Quebec, Assumption of Complementarity and Methodological Issues in
Harmonization, supra note 13, fasc. 1, 10 at 11-12.

161 Roderick A. Macdonald, Harmonizing the Concepts and Vocabulary of Federal and Provincial
Law: The Unique Situation of Quebec Civil Law in The Harmonization of Federal Legislation with
Quebec Civil Law and Canadian Bijuralism: Collection of Studies (Ottawa: Department of Justice
Canada, 1999) [Collection of Studies] 27 at 69. See also Levert, supra note 154 (emphasizing
Parliaments moral duty to take the two systems of law into account in its legislation … when it sets
out standards the application of which intersects with provincial private law at 5).

162 A First Act to harmonize federal law with the civil law of the Province of Quebec and to amend
certain Acts in order to ensure that each language version takes into account the common law and the
civil law, 1st Sess., 36th Parl., 1998 (tabled in the House of Commons 12 June 1998).

163 See e.g. Federal Real Property and Federal Immovables Act, S.C. 1991, c. 50; Bankruptcy and

Insolvency Act, R.S.C. 1985, c. B-3; Crown Liability and Proceedings Act, R.S.C. 1985, c. C-50.

164 A First Act to harmonize federal law with the civil law of the Province of Quebec and to amend
certain Acts in order to ensure that each language version takes into account the common law and the
civil law, 2nd Sess., 36th Parl., 2000.

2009] D.G. DUFF BIJURALISM AND THE ACQUISITION OF PROPERTY IN THE ITA 451

re-tabled at the opening of the subsequent Parliamentary session as Bill S-4,165 and
enacted into law as the Federal LawCivil Law Harmonization Act, No. 1.166 The
preamble to this legislation repeats the basic goals of the Department of Justices
Policy on Legislative Bijuralism, and affirms a principle of complementarity
between federal legislation and provincial private law. According to this principle, the
private law of the relevant province in which a federal statute is applied is, unless
otherwise provided by law, recognized as the body of law that completes federal
legislation if it is otherwise incomplete. More importantly, the legislation also
codifies this principle of complementarity in section 8.1 of the federal Interpretation
Act.167
As explained earlier, this provision declares that [b]oth the common law and the
civil law are equally authoritative and recognized sources of the law of property and
civil rights in Canada. It further stipulates that unless otherwise provided by law, if
in interpreting an enactment it is necessary to refer to a provinces rules, principles or
concepts forming part of the law of property and civil rights, reference must be made
to the rules, principles or concepts in force in the province at the time the enactment
is being applied. As a result, section 8.1 recognizes the equal status of common law
and civil law as sources of the law of property and civil rights in Canada, mandates
complementarity as the proper way to interpret federal legislation relating to
provincial private law, and establishes an ambulatory principle according to which the
relevant provincial source of reference is the private law in force in the province at
the time the enactment is being applied. Crucially, however, the complementarity
principle applies only if the two conditions set out in section 8.1 are met. Each of
these conditions is itself a matter of statutory interpretation, which should presumably
be guided by the broad aims and principles underlying Canadian bijuralism,
particularly those expressed in the preamble to the Federal LawCivil Law
Harmonization Act, No. 1.

The first conditionthat it must be necessary to refer to provincial sources of
law concerning property and civil rights to interpret the enactmentseems to be
satisfied where the legislation in question (1) employs a term that is not defined in
federal legislation but has an established private law meaning, (2) relies on private
law rules, principles, or concepts in order to define the legal relationships to which it

165 A First Act to harmonize federal law with the civil law of the Province of Quebec and to amend
certain Acts in order to ensure that each language version takes into account the common law and the
civil law, 1st Sess., 37th Parl., 2001.

166 Supra note 152.
167 9041-6868 Qubec v. M.N.R., 2005 FCA 334, 350 N.R. 201, Dcary J.A. (s. 8.1 codified the
principle that the private law of a province and a federal statute are complementary, which had been
recognized [in St-Hilaire (supra note 153)] but had not always been put into practice. The
immediate effect of the provision was to restore the role of the civil law in matters under the
jurisdiction of this Court, to bring to light how the common law might have been borrowed from, over
the years, in cases where Quebec civil law applied or should have applied, and to caution us against
any such borrowing in the future at para. 5).

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applies, or (3) is silent on a matter that is governed by a specific provincial rule
forming part of the law of property and civil rights. In these cases, since the
enactment cannot be applied without relying on the private law rules, principles, or
concepts that complete the federal legislation, it follows that these same rules,
principles, or concepts are essential to the interpretation of the enactment.168
Moreover, since the Constitution Act, 1867 provides that provincial governments
have exclusive authority to make laws in relation to property and civil rights,169 the
interpretation of the legislation must, unless it is otherwise provided by law, refer to
provincial sources of law. Conversely, it is not necessary to refer to provincial private
law to interpret concepts that are fully defined in federal legislation, statutory
provisions that do not depend on rules, principles or concepts forming part of the
law of property or civil rights, and legislation that explicitly precludes reliance on
provincial private law.170

The second conditionwhich precludes what would otherwise be a necessary
reference to provincial private law to interpret a federal enactment where it is
otherwise provided by lawis clearly satisfied where the federal enactment
explicitly dissociates the interpretation of a concept or provision from provincial
private law.171 More difficult, however, are circumstances in which dissociation from
provincial private law is implicit in the language or purposes of the statutory text.
Where federal legislation relies on common law terms, for example, a necessary
implication may be raised that its interpretation must be based on common law
principles and dissociated from the civil law of Quebec.172 As well, with much federal
legislation, it is a reasonable presumption that Parliament intends its laws to apply
uniformly throughout Canada,173 and this is particularly so in the field of taxation
where equity and anti-avoidance considerations can weigh heavily.174 As a result, it

168 For a concurring interpretation, see Henry L. Molot, Clause 8 of Bill S-4: Amending the

Interpretation Act in Harmonization, supra note 13, fasc. 6, 1 at 16.

169 Supra note 151, s. 92(13).
170 Molot, supra note 168:

For example, [federal] legislation could so comprehensively define its terms as to
implicitly exclude any reference to provincial private law as the external source of
interpretation and application. Federal legislation could also expressly refer to some
other external source of interpretation thereby demonstrating a contrary intent as
regards it being necessary to refer to a provinces rules … (at 18).

171 See ibid. (suggesting that the expression unless otherwise provided by law is triggered only by

an express legislative provision to the contrary at 19).

172 See e.g. Jean-Maurice Brisson & Andr Morel, Federal Law and Civil Law: Complementarity,
Dissociation in Collection of Studies, supra note 161, 217 at 235. See also Andr Morel,
Harmonizing Federal Legislation with the Civil Code of Qubec: Why and Wherefore? in
Collection of Studies, supra note 161, 1 (explaining that this helps create the impression that there is
a sort of organic bond, an association inherent in the nature of things, between federal law and
common lawand the language used in those statutes tends to reinforce that impression at 6).

173 See e.g. Brisson & Morel, ibid.; Bastarache, supra note 149 at 21.
174 See e.g. Brisson & Morel, ibid. at 237; Morel, supra note 172 at 7.

2009] D.G. DUFF BIJURALISM AND THE ACQUISITION OF PROPERTY IN THE ITA 453

might be argued, undefined private law concepts in federal legislation should be
given their common law meanings in order to ensure conceptual coherence and
uniformity throughout Canada.
Although the principle of Parliamentary supremacy dictates that courts should
dissociate the interpretation of federal legislation from the private law of one or more
provinces where Parliaments intention is clear, the goals of Canadian bijuralism
suggest that this should be done only when this intention is stated explicitly or
necessarily implied by the language of the statutory text.175 As Professor Macdonald
explains, forcing Parliament itself to make its choices explicitly is the best guarantee
that the distinctive civil law and common law traditions in Canada will be respected
in any legislative reordering.176 Nor should previous judicial decisions be regarded
as law within the meaning of the exclusion in section 8.1 of the federal
Interpretation Act, since this approach would render the provision largely
meaningless.

B. Section 8.1 of the Federal Interpretation Act and the Concept of

an Acquisition of Property in the Income Tax Act

Returning to the concept of an acquisition of property in the ITA, the judicial

decisions examined in the first part of this paper provide a number of arguments that
are relevant to the two conditions in section 8.1 of the federal Interpretation Act. The
following sections consider each of these conditions.

1. The Need to Refer to Private Law

Beginning with the first of these conditions, the strongest arguments against any
need to refer to private law rules, principles, or concepts in order to interpret the
meaning of an acquisition of property for tax purposes are: (1) that this concept can
be understood according to the ordinary meaning of these words; and (2) that the
concept can be interpreted, as Justice Lamarre Proulx suggested in Terexcavation, on
the basis of the tax legislation without resorting to private law.177 To the extent that
the concept of an acquisition of property has an ordinary meaning that does not
depend on private law rules, principles, or concepts, it follows that it is not necessary

175 See e.g. Roderick A. Macdonald, Provincial Law and Federal Commercial Law: Is Atomic
Slipper a New Beginning?, Case Note, (1991-1992) 7 B.F.L.R. 437 [Macdonald, A New
Beginning?] (provincial law in respect of property and civil rights should be displaced by federal law
only explicitly or by absolutely necessary implication at 447 [emphasis in original]). See also
Markevich v. Canada, 2001 FCA 144, [2001] 3 F.C. 449, 199 D.L.R. (4th) 225, affd 2003 SCC 9,
[2003] 1 S.C.R. 94, 223 D.L.R. (4th) 17 (while the ITA may exclude application of general legal
principles, rules and remedies, this must be accomplished by express language or necessary
implication to that effect at para. 25).

176 Macdonald, A New Beginning?, ibid. at 450.
177 Supra note 7 at para. 35.

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to refer to private law in order to interpret its meaning. Likewise, it is not necessary to
refer to private law rules, principles, and concepts to interpret the meaning of an
acquisition of property if the concept has an autonomous tax meaning that is
inherently dissociated from these sources. Although the first of these arguments can,
where applicable, provide a persuasive reason for ignoring provincial rules,
principles, and concepts that might otherwise influence the interpretation of federal
legislation,178 it is not clear that it applies to the concept of an acquisition of property.
On the contrary, as Justice Nel observed in his dissenting opinion in Brou, in the
context of a provision referring to the acquisition of property, the ordinary meaning of
the word acquired means the acquisition of ownership of property.179 The Oxford
English Dictionary, for example, defines the word acquire as [t]o gain, obtain, or get
as ones own, to gain the ownership of,180 while Le Petit Robert defines the word
acquire as [b]ecome owner of (property, right) by purchase, exchange or
succession, and Le Dictionnaire du droit priv defines the word acquisition as [a]ct
by individual of becoming owner of thing or holder of right.181 As a result, as Justice
Nel explains in his dissenting opinion in Brou, in the absence of some indication
to the contrary, ownership of property cannot be acquired otherwise than in
accordance with the applicable private law.182

For this reason as well, the second argumentthat the concept of an acquisition
of property can be interpreted on the basis of the tax legislationshould also be
rejected. On the contrary, as the Supreme Court of Canada has held on several
occasions, where the ITA employs a word or expression with an established private or
commercial law meaning, the word or expression should be construed in accordance
with this private or commercial law meaning in the absence of express direction
that another interpretation is warranted.183 In this circumstance, moreover, section 8.1
of the federal Interpretation Act stipulates that reference must be made to the rules,
principles or concepts in force in the province at the time the enactment is being
applied. Therefore, absent express direction to the contrary, the concept of an
acquisition of property should be interpreted in accordance with the civil law in the
Province of Quebec and the common law in the other provinces.

178 For example, for tax purposes, Canadian courts have interpreted the concept of residence
according to its ordinary meaning without reference to private law. See Thomson v. M.N.R., [1946]
S.C.R. 209, 1 D.L.R. 689. For a brief discussion of this case in the context of Canadian bijuralism, see
Duff, supra note 13 at 33-37.

179 Supra note 7 at 221 [emphasis added].
180 The Oxford English Dictionary, 2d ed., s.v. acquire [emphasis added].
181 Cited in Brou, supra note 7 at n. 34 [emphasis added, translated in Brou].
182 Supra note 7 at 221.
183 Will-Kare Paving & Contracting Ltd. v. Canada, 2000 SCC 36, [2000] 1 S.C.R. 915 at para. 30,
188 D.L.R. (4th) 242, Major J. See also Continental Bank Leasing Corp. v. Canada, [1998] 2 S.C.R.
298, 163 D.L.R. (4th) 385.

2009] D.G. DUFF BIJURALISM AND THE ACQUISITION OF PROPERTY IN THE ITA 455

2. Whether Otherwise Provided by Law

Turning to the second inquiry under section 8.1, the majority reasoning in Brou

suggests three arguments as to why a reference to the civil law of Quebec to interpret
the concept of an acquisition of property might be otherwise provided by law: First,
as Justice Ltourneau declared, subsection 248(3) reflects a legislative intent to
harmonize the civil law and the common law in order to provide fair and equal
treatment to all Canadian taxpayers, as a consequence of which, courts must
interpret the concept of an acquisition of property in accordance with this legislative
intent.184 Second, as Justices Desjardins and Ltourneau both argued, because the
concept of an acquisition is the counterpart of a disposition, and because the effect of
the statutory definition of a disposition is to incorporate into the ITA the common law
rule that there is a disposition of property whenever there is a transfer of beneficial
ownership even though legal ownership remains unchanged, it follows that there is an
acquisition of property whenever a party to an agreement obtains beneficial
ownership even though the other party retains legal ownership.185 Finally, as Justice
Ltourneau also argued, the judicial test in Wardean Drilling and the Canada
Revenue Agencys subsequent Interpretation Bulletin had endured for many years
without legislative amendment, suggesting that they were consistent with the
legislative intent expressed in subsection 248(3).186 As with the arguments against any
need to refer to private law rules, principles, or concepts in order to interpret the
meaning of an acquisition of property for tax purposes, none of these arguments is
persuasive in light of section 8.1 of the Interpretation Act and the goals of Canadian
bijuralism.

Regarding what is now paragraph 248(3)(e), Justice Ltourneau is correct to
suggest that it reflects a legislative intent to harmonize various civil law and common
law concepts for tax purposes. In order to accomplish this harmonization, however,
the provision does not disregard the civil law altogether, but instead deems various
civil law relationships to be trusts, beneficial interests, and beneficial ownership for
the purposes of the application of the ITA in Quebec.187 Most importantly, paragraph
248(3)(e) does not, for these purposes, deem property in relation to which a person
has possession, use, and risk to be beneficially owned by that person, limiting this
status to a situation where a person has in relation to the property (i) the right of
ownership, (ii) a right as a lessee under an emphyteusis, or (iii) a right as a
beneficiary in a trust.188 Thus, while the provision assimilates various civil law
relationships to the common law concept of beneficial ownership, it does not import
the common law concept of beneficial ownership into the application of the ITA in

184 Supra note 7 at 186.
185 Ibid. at 183, Desjardins J., 188, Ltourneau J.
186 Ibid. at 189.
187 Supra note 1. This version, which differs from the version that was discussed in Brou, applies to

property the ownership of which was acquired after 1990.

188 Ibid.

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relation to the Province of Quebec. To conclude that legislative intent requires that the
concept of beneficial ownership be harmonized in this manner therefore misconstrues
the purpose and effect of subparagraph 248(3)(e)(i) and ignores the explicit
legislative intent in section 8.1 of the Interpretation Act to respect both the common
law and the civil law as equally authoritative and recognized sources of the law of
property and civil rights in Canada.

The second argumentthat the statutory definition of a disposition dictates that
property is acquired for tax purposes when a taxpayer obtains beneficial ownership
even though another person retains legal ownershipdepends on two propositions:
(1) that the concept of an acquisition is the counterpart of a disposition, and (2) that
the effect of the statutory definition of a disposition is to incorporate into the ITA the
common law rule that there is a disposition of property whenever there is a transfer of
beneficial ownership even though legal ownership remains unchanged. While the first
of these propositions reflects a plausible reading of the scheme of the ITA, it is not set
out in any statutory provision, but rather depends entirely on judicial interpretation.189
As such, it is not clear that such judicial interpretation should override the legislative
intent expressed in section 8.1 of the Interpretation Act that courts should refer to the
private law of the relevant province to complete federal legislation that employs
undefined terms with established private law meanings. The second of these
propositions is also doubtful, although apparently admitted by the parties in Brou.190
A provision that deems a disposition not to include a transfer of legal ownership
without a change in beneficial ownership does not logically entail that a disposition
includes a transfer of beneficial ownership without a transfer of legal ownership.191
Subsequent amendments to the statutory definition of a disposition make this
proposition even more doubtful by removing the reference to the common law
concept of legal ownership that has no counterpart in the civil law.192 As a result,
although it seems reasonable to conclude (as Justice Addy did in Olympia and York193)
that the statutory definition of a disposition is dissociated from provincial private law
by specifically including any transaction or event entitling a taxpayer to proceeds of
disposition of the property,194 it does not clearly follow that a disposition includes a
transaction in which there is a transfer of beneficial ownership without a transfer of
legal ownershipparticularly in Quebec, where these common law concepts have no
meaning absent a deeming provision in the ITA. On the contrary, since paragraph
248(3)(e) deems property in respect of which a person has the right of ownership195
to be beneficially owned by the person, this provision suggests that a transfer of

189 See e.g. Olympia and York, supra note 55.
190 Supra note 8 at 183, Desjardins J.A., 223, Nol J.A.
191 See Marie-Pierre Allard, Conditional Obligations, supra note 74 at 1796; Duff, supra note 13

at 57-58.

192 ITA, supra note 1, ss. 248(1), s.v. disposition (e)-(f).
193 Supra note 54.
194 See ITA, supra note 1, s. 248(1), s.v. disposition (a).
195 [Emphasis added].

2009] D.G. DUFF BIJURALISM AND THE ACQUISITION OF PROPERTY IN THE ITA 457

possession, use, and risk in Quebec would not constitute a transfer of beneficial
ownership under the ITA so long as the transferor retains the right of ownership in
civil law.

The last of these argumentsthat Parliament effectively endorsed Justice
Cattanachs twofold test in Wardean Drilling by allowing it and the Canada Revenue
Agencys subsequent Interpretation Bulletin to stand absent legislative reversalis
also unconvincing. Although Parliaments inaction on the matter may signify
legislative approval in one respect, it is important to note that it was not until the
Federal Court of Appeals 1999 decision in Brou that the twofold test in Wardean
Drilling was conclusively applied within the Province of Quebec. More importantly,
whatever legislative intent might be read into the absence of a statutory amendment is
now subject to the express intent in section 8.1 of the federal Interpretation Act that
[b]oth the common law and the civil law are equally authoritative and recognized
sources of the law of property and civil rights in Canada and that reference must be
made to the rules, principles or concepts in force in the province at the time the
enactment is being applied whenever it is necessary in order to interpret a federal
enactment. For this reason, it is difficult to conclude that legislative failure to assign a
specific meaning to the acquisition of property implies legislative endorsement of a
harmonized concept based on the twofold test in Wardean Drilling. On the contrary,
as argued earlier, the goals of Canadian bijuralism suggest that courts should
dissociate the interpretation of federal legislation from provincial private law only
where a legislative intention to this effect is explicitly indicated or necessarily implied
by the words of the statutory text.196

3. Conclusion

If it is both necessary to refer to rules, principles or concepts forming part of the

law of property and civil rights in order to interpret the meaning of an acquisition of
property and not otherwise provided by law, section 8.1 of the federal
Interpretation Act provides that reference must be made to the rules, principles or
concepts in force in the province at the time [that the relevant provision] is being
applied. As explained in the second part of this paper, these rules, principles, and
concepts are governed by the common law and provincial statutes like the Sale of
Goods Act in the common law provinces, and by the C.C.Q. and other civilian
authorities in the Province of Quebec. To the extent that the twofold test in Wardean
Drilling reflects the common law distinction between legal and beneficial ownership,
therefore, section 8.1 suggests that it should no longer apply within Quebec, thereby
reversing the Federal Court of Appeal decision in Brou. For the same reason, one
might also question the Federal Court of Appeal decision in Kowdrysh, which ignored
the rules, principles, and concepts governing the ownership and transfer of property
in common law jurisdictions in order to conclude that the taxpayer had acquired

196 Supra notes 175-76 and accompanying text.

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property for the purposes of a temporary investment tax credit when he entered into a
binding and enforceable contract. Although this interpretation may have been
justified on tax policy grounds,197 dictionary definitions of the words acquire and
acquisition, and section 8.1 of the federal Interpretation Act, suggest that the
concept of an acquisition of property should, absent an express direction or necessary
implication to the contrary, be governed by the common law test in Wardean Drilling.

[Vol. 54

IV. Codifying the Concept of an Acquisition of Property in the

Income Tax Act
If section 8.1 of the federal Interpretation Act requires courts to interpret the

concept of an acquisition of property in the ITA in accordance with the provincial
private law to which the transaction is subject, differences between civil law and
common law rules, principles, and concepts governing the ownership and transfer of
property may produce different tax consequences depending on whether the
transaction is subject to the civil law of Quebec or the common law of the other
provinces. Where property is sold by means of a conditional sale or lease-option
agreement, for example, the C.C.Q. suggests that the purchaser does not acquire the
property until the condition is satisfied or the option is exercised because ownership
remains with the vendor or lessor until that time,198 while the common law suggests
that the purchaser acquires the property as soon as possession, use, and risk are
transferred, since this results in a transfer of beneficial ownership.199
Although these different outcomes may be compatible with the goal of Canadian
bijuralism to recognize the civil law and the common law as equally authoritative …
sources of the law of property and civil rights in Canada, they contradict an
important principle of Canadian income tax lawthat the ITA should apply equally
and uniformly throughout the country. Moreover, since the impact of section 8.1 on
the interpretation of the ITA will ultimately depend on judicial decisions, the meaning
of an acquisition of property for tax purposes may be subject to significant
uncertainty for a considerable period of timeparticularly in Quebec, where cases
prior to the Federal Court of Appeal decision in Brou took widely different views on
the implications of lease-option agreements on the acquisition of property for tax
purposes. For both of these reasons, it would be advisable to amend the ITA by
enacting a statutory definition of an acquisition of property to ensure uniformity

197 The court explained that to require taxpayers to acquire beneficial ownership of the property in
order to deduct the temporary investment tax credit would provide an unintended windfall to
taxpayers who purchased farming equipment before the program was even conceived and put into
effect and were fortunate enough to have the equipment delivered after 2 December 1992 up to 31
December 1993, while disqualifying taxpayers who the credit induced to purchase farming
equipment after the program came into force but who did not receive the equipment until after 31
December 1993 (Kowdrysh, supra note 45 at para. 8).

198 See the discussion in Part II.B, above.
199 See the discussion in Part II.A, above.

2009] D.G. DUFF BIJURALISM AND THE ACQUISITION OF PROPERTY IN THE ITA 459

and certainty in the application of ITA provisions that rely on this concept to
determine the tax consequences of different transactions.

In order to devise such a definition, at least three issues must be addressed: As a
preliminary matter, one must decide whether a single definition should apply
throughout the ITA or whether different definitions should apply to specific
provisions in which the concept is employed. However this preliminary question is
addressed, a second issue concerns the language and content of the statutory
definition or definitions, which should presumably accord both with the scheme of
the ITA and with the goal of Canadian bijuralism to recognize the equal status of the
common law and the civil law as sources of the law of property and civil rights in
Canada. A final issue concerns the potential implications of this definition or
definitions for related provisions such as the statutory definition of a disposition in
subsection 248(1) and the interpretive rule for civil law relationships in subsection
248(3), or for other provisions such as the available for use rules for depreciable
property,200 the specified leasing property rules in the Income Tax Regulations,201 the
election for leasing properties,202 or the rules in sections 79 and 79.1 governing the
acquisition or reacquisition of property by a creditor as a consequence of a debtors
failure to pay a debt.

Beginning with the first of these issues, it is certainly reasonable to suggest that a
single definition of an acquisition of property for the purposes of the ITA as a whole
might be inappropriate. Since the concept of an acquisition of property appears in

200 ITA, supra note 1, ss. 13(26)-(31). Under these rules, the capital cost of a property acquired by a
taxpayer may not be added in computing the taxpayers undepreciated capital cost of property of the
class until the time the property is considered to have become available for use by the taxpayer.

201 C.R.C., c. 945, ss. 1100(1.1)-(1.3) [Regulations]. In general, these rules limit the amount that a
taxpayer may deduct as capital cost allowance in respect of property that is used principally to earn
rent or leasing revenue to an amount equal to the notional repayment of principal on a notional loan to
the lessee of an amount equal to the purchase price of the property. As explained in the Supplementary
Information accompanying the 1989 Federal Budget, the purpose of the rules is to reduce the tax
advantages that would otherwise be available to tax-exempt or non-taxable taxpayers by leasing
property with accelerated capital cost allowance rates from taxpaying lessors to whom they can
effectively trade the capital cost allowance deductions in exchange for reduced rental payments.
Although the economic effect of these rules from the lessors perspective is to treat a lease as a loan,
the rules depend on the prior characterization of the transaction as a lease and do not actually
recharacterize lease transactions as loans.

202 Ibid., s. 16.1. This provision complements the specified leasing property rules in ss. 1100(1.1)-
(1.3) of the Regulations. It allows lessees to deduct capital cost allowance and notional interest in
respect of leased property where they file a joint election with the lessor of the property. Unlike the
specified leasing property rules, this provision deems the lease not to be a lease, the lessee to have
acquired the property at a cost equal to its fair market value, the lessee to have borrowed an amount
from the lessor equal to this fair market value for the purpose of acquiring the property, interest to
accrue on this loan at a prescribed amount, and lease payments paid by the lessee to be blended
payments of interest and principal on account of the loan. Like the specified leasing property rules,
however, this provision also depends on the initial characterization of the transaction as a lease.

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numerous ITA provisions with different tax implications, one might reasonably expect
that the purpose of each provision in which the concept is used would be better
served by a specific definition applicable to the provision itself rather than a general
definition that applies for the purposes of the ITA as a whole. In Kowdrysh, for
example, the Federal Court of Appeal held that the taxpayer had acquired property
when it entered into a binding and enforceable contract, on the basis that this meaning
of an acquisition of property was more suitable to the temporary investment tax credit
at issue in the case than the judicial test in Wardean Drilling.203 For the purposes of
the capital cost allowance regime, on the other hand, a meaning akin to the second
branch of the twofold test in Wardean Drilling might be more appropriate.204
Notwithstanding this argument for multiple statutory definitions of an acquisition
of property, there are three reasons why a single definition for the ITA as a whole
should be preferred: First, since the words property acquired appear in a consistent
form in the various provisions in which the concept is used, established principles of
statutory interpretation suggest that it should be given the same meaning on the basis
that Parliament is presumed to have intended this result.205 Second, to the extent that
the concept of an acquisition is properly regarded as the counterpart to a disposition,
the existence of a statute-wide definition of the latter in subsection 248(1) suggests
that a statutory definition of an acquisition of property should also apply for the
purposes of the ITA as a whole. Finally, as a practical matter, the urgency of enacting
a statutory definition to prevent inequality and uncertainty in the application of the
ITA favours the rapid enactment of a general definition, to which modifications could
subsequently be made as necessary for the purpose of specific provisions.

Turning to the language and content of the definition, two considerations seem
paramount. First, in order to prevent significant disruption to existing transactions and
commercial practices, a statutory definition of an acquisition of property should
conform as closely as possible to established judicial interpretations of the concept.
Second, in order to recognize the equal status of the common law and the civil law as
sources of the law of property and civil rights in Canada, the definition should be
drafted in a manner that does not subsume one legal system to the other or disregard
one of the two legal systems altogether by employing the rules, principles, or
concepts of one legal system exclusively. While the first of these considerations

203 Supra notes 45-67 and accompanying text. See the discussion in Part III.B.3, above.
204 To the extent that the subsequent disposition of depreciable property results in recaptured
depreciation or a terminal loss, it seems reasonable to conclude that these tax consequences should fall
upon the taxpayer who has the possession and use of the property and bears the risk of its loss. An
emphasis on possession, use and risk is also consistent with the available for use rules in ss. 13(26)-
(31) of the ITA (supra note 1), which in many cases defer the time when a taxpayer may add the
capital cost of the property to the taxpayers undepreciatiated capital cost of property of the class until
the property is delivered to the taxpayer.

205 See Elmer A. Driedger, Construction of Statutes, 2nd ed. (Toronto: Butterworths, 1983) at 93-94;
Ruth Sullivan, Sullivan and Driedger on the Construction of Statutes, 4th ed. (Markham, Ont.:
Butterworths, 2002) at 162-68.

2009] D.G. DUFF BIJURALISM AND THE ACQUISITION OF PROPERTY IN THE ITA 461

might favour a definition based on of the twofold test in Wardean Drilling, the second
rejects this definition to the extent that it reflects the common law distinction between
legal and beneficial ownership. Nonetheless, since the C.C.Q. employs the concepts
of possession, use, and risk,206 it would be possible to draft a statutory definition that
could encompass both legal systems by stipulating that property is acquired for tax
purposes either when a taxpayer acquires ownership of the property or where the
taxpayer obtains possession and use of the property, and assumes all the risks of loss
of the property.

In common law provinces, a definition along these lines would have the same
effects as the twofold test in Wardean Drilling, and would presumably apply to
purchasers under conditional sales agreements and lessees under security or financing
leases. In Quebec, a definition along these lines would capture ordinary sales
agreements, instalment sales, conditional sales with either a suspensive or a
resolutory condition, as well as contracts of leasing, thereby achieving similar results
as the twofold test in Wardean Drilling without relying on the common law concepts
on which this test is based.
With respect to the implications of such a definition for other statutory
provisions, this paper cannot offer definitive conclusions, since it has not examined
these provisions in detail. To the extent that the concept of an acquisition is
understood as the counterpart of a disposition, however, it seems reasonable to expect
that the statutory definition of a disposition should mirror the definition of an
acquisition. Indeed, since the current definition of a disposition refers to the concept
of beneficial ownership, an amendment that would replace this language with a
reference to possession, use, and risk would also advance the goal of Canadian
bijuralism to recognize the equal status of the civil law and the common law. For the
same reason, reconsideration should also be given to subsection 248(3), which
subsumes the civil law of Quebec to the common law of the other provinces by
deeming various civil law relationships to be trusts, beneficial interests, and
beneficial ownership for the purposes of the application of the ITA in relation to the
Province of Quebec. As well, since sections 79 and 79.1 also rely on the concept of
beneficial ownership, they too should be reconsidered in light of any statutory
definition of an acquisition of property. In contrast to these provisions, however, it
does not appear as though any consequential amendment would be required to the
available for use rules in subsections 13(26) to (31), the specified leasing property
rules in subsections 1100(1.1) to (1.3) of the Regulations, or the election in section
16.1, since these provisions do not use common law concepts and do not affect the
meaning of an acquisition of property, but instead determine specific tax
consequences for property that is already acquired within the meaning of the ITA.

206 Supra notes 110-13 and accompanying text.

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Conclusion
Since the concept of an acquisition of property plays an important role in the ITA,

it is somewhat curious that it remains undefined. Although courts have generally
interpreted this concept in accordance with the twofold test in Wardean Drilling, this
test is premised on common law concepts and is incompatible with the goals of
Canadian bijuralism expressed in the Federal LawCivil Law Harmonization Act,
No. 1 and section 8.1 of the federal Interpretation Act. As argued in the third part of
this paper, since it is both necessary to refer to rules, principles or concepts forming
part of the law of property and civil rights in order to interpret the meaning of an
acquisition of property and it is not otherwise provided by law, section 8.1 of the
Interpretation Act requires that the meaning of an acquisition of property be
interpreted in accordance with the civil law in the Province of Quebec and the
common law in the other provinces. For this reason, the continuing validity of the
Federal Court of Appeal decisions in Brou and Kowdrysh is uncertain. As a result,
moreover, transactions may be subject to different tax consequences depending on
whether they are subject to the civil law of Quebec or the common law of the other
provinces. While this result may be compatible with the goals of Canadian bijuralism,
it contradicts a fundamental principle of Canadian income tax lawthat the ITA
should apply equally and uniformly throughout the country.
In order to promote uniformity and certainty in the application of ITA provisions

that rely on the concept of an acquisition of property, this paper recommends that the
ITA be amended by introducing a statutory definition of the concept. More
specifically, it suggests, this definition should apply for the purposes of the ITA as a
whole and should encompass both legal systems by stipulating that property is
acquired for tax purposes either when a taxpayer acquires ownership of the property
or where the taxpayer obtains possession and use of the property, and assumes all the
risk of loss of the property. Finally, the introduction of a statutory definition along
these lines should be accompanied by consequential amendments to the statutory
definition of a disposition of property in subsection 248(1), to the interpretive rules
for civil law relationships in subsection 248(3), and to the rules in sections 79 and
79.1 governing the acquisition or reacquisition of property by a creditor as a
consequence of a debtors failure to pay a debt.