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Statutory Interpretation - "Distribution". Grenon v. Canada
In Grenon v. Canada (Fed CA, 2025) the Federal Court of Appeal considered the specific statutory interpretation of the term "distribution":(c) Interpretation of Regulation 4801(a): Distribution
(i) Text
[188] Distribution is not defined in the Income Tax Act. While the word has many possible meanings, I agree with the parties that "“distribution”" in Regulation 4801 is concerned with a distribution of securities—units of a trust.
[189] The Supreme Court tells us it is both appropriate and consistent with the modern principle of statutory interpretation to reference the broader commercial law to give meaning to words and expressions that have well-defined meanings outside of the Income Tax Act: Will-Kare Paving & Contracting Ltd. v. Canada, 2000 SCC 36, [2000] 1 S.C.R. 915 at paras. 31-33; Canada (Deputy Minister of National Revenue) v. Mattel Canada Inc., 2001 SCC 36, [2001] 2 S.C.R. 100 at paras. 57-59.
[190] There is no dispute that the relevant commercial law here is provincial securities law. That said, even in that context, "“distribution”" can have more than one meaning, as Grenon RRSP concedes. It can, for example, refer to a trade in a single security, as is evident from the Alberta and British Columbia securities legislation the Tax Court cited.
[191] However, securities legislation also uses "“distribution”" to refer to the issuance of securities to all investors in a single offering: see, for example, Securities Act, C.Q.L.R., c. V-1.1, ss. 5, 12, 89; Securities Act, R.S.B.C. 1996, c. 418, ss. 83(1), 131(9), 183(15); Securities Act, R.S.O. 1990, c. S.5, ss. 1(1) (definition of "“distribution to the public”"), 57(2), (2.2), 62(3), (4), 63(7), 70(1); Securities Act, R.S.A. 2000, c. S-4, ss. 128(1), 129, 184(2), 203(8).
[192] Similarly, section 1.8 of Companion Policy 45-106CP Prospectus Exemptions states "“A distribution of securities to a person that had no pre-existing purpose and is created or used solely to purchase or hold securities under exemptions (a ‘syndicate’) may be considered ""a distribution of securities to the ""persons beneficially owning or controlling the syndicate”" (emphasis added). See also subsections 3.6(3) and 3.8(6) of Companion Policy 45-106CP.
[193] Moreover, an issuer offering securities by prospectus or registration statement is often described as undertaking a distribution of securities notwithstanding that thousands of subscribers may acquire securities under the prospectus or registration statement.
[194] Thus, read in isolation, "“distribution”" as used in Regulation 4801(a)(i)(A) may be described as ambiguous. It could refer to an issuance of units to a single investor in accordance with provincial securities laws or an issuance of units to numerous investors in a single offering. I refer to the latter as the "“collective”" meaning of distribution.
[195] It would, however, be an error to read "“distribution”" in isolation because what the distribution condition requires is "“a lawful distribution in a province to the public”".
[196] The Tax Court determined that "“distribution”" had the collective meaning. Accordingly, it concluded that each income fund completed only one distribution of units before Grenon RRSP later acquired units in a second distribution: Tax Court reasons at paras. 28, 192-193, 198, 203-208. As I will explain, I have not been persuaded the Tax Court erred in its interpretation.
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