Ketz v. The Queen, 79 DTC 5142, [1979] CTC 186 (FCTD)

Dube, J:—Both parties are in agreement as to the facts. The sole issue is a question of law, namely whether the plaintiff, a non-resident of Canada in the year 1976 who had elected under section 216 of the Income Tax Act to pay taxes as if he were resident in Canada in that year, was entitled to avail himself of the general averaging provisions of subsection 118(1) of the Act. The relevant subsections read:

216.(1) Where an amount has been paid during a taxation year to a non-resident person, or to a partnership of which he was a member, as, on account or in lieu of payment of, or in satisfaction of, rent on real property in Canada or a timber royalty, he may, within 2 years from the end of the taxation year, file a return of income under Part I in the form prescribed for a person resident in Canada for that taxation year and he shall, without affecting his liability for tax otherwise payable under Part I, thereupon be liable, in lieu of paying tax under this Part on that amount, to pay tax under Part I for that taxation year as though

(a) he were a person resident in Canada and were not exempt from tax under section 149,

(b) his income from his interest in real property in Canada, timber resource properties and timber limits in Canada and his share of the income of a partnership of which he was a member from its interest in real property in Canada, timber resource properties and timber limits in Canada were his only income, and

(c) he were not entitled to any deduction from income for the purpose of computing taxable income.

118.(1) Notwithstanding section 117, where, in the case of an individual who was resident in Canada throughout the taxation year immediately preceding a particular taxation year (which particular taxation year is hereafter in this section referred to as the “year of averaging’’), any excess remains when

(a) the greater of 110% of his income for the immediately preceding taxation year and 120% of the quotient obtained when

(i) the aggregate of all amounts each of which is the individual’s income for a taxation year in the period of such of the consecutive taxation years (not exceeding 4) immediately preceding the year of averaging as were years throughout which he was resident in Canada

is divided by

(ii) the number of years in the period described in subparagraph (i) is deducted from

The plaintiff was the owner of real property located in the City of Montreal from which he earned rental income and for which he claimed capital cost allowance which was recaptured when he sold the said property in 1976. During the period in which he owned the property the plaintiff elected to be taxed under the provisions of section 216 of the Income Tax Act and filed returns of income under Part I in the form prescribed for a person resident in Canada. In computing his income for the taxation year 1976 he purported to avail himself of the general averaging clause under the provisions of subsection 118(1), but his claim for tax savings under the clause was dissallowed by the Minister. This is an appeal from that decision.

It is common ground that for his 1976 taxation year the plaintiff does not qualify for general averaging under subsection 118(2) applicable to nonresident individuals. He alleges that since subsection 216(1) allows a nonresident to file a return under Part I, then all the provisions of Part I are available to him, with the necessary changes in detail. He points to subsection 216(3) in support of his contention. It reads:

216.(3) Idem. Part I is applicable mutatis mutandis to payment of tax under this section.

Plaintiff’s learned counsel provided the Court with some definitions of mutatis mutandis which were quite acceptable to counsel for the Minister and to the Court.

Hausman v Waterhouse, 182 NYS 249, 251, 191 App Div 850.

The words “mutatis mutandis” mean “with the necessary changes in detail to conform to a single vital change.”

Copeland v Eaton, 95 NE 291, 209, Mass 139, Ann Cas 1212B, 521.

Where profits are defined by a certain article, all the provisions of which are to apply to the relations between the parties springing into existence after the expiration of the Contract “mutatis mutandis,” these latter words mean “necessary changes in details to conform to a single vital alteration,” and suggest a reversal of the relative positions of the parties under the Contract, which was to continue the same in all other respects.

Re Kipnes and Attorney-General for Alberta, (1966) 4 CCC 387 (CA).

Earl Jowitt’s Dictionary of English Law defines “mutatis mutandis'’ as “with the necessary changes in points of detail,” and Black’s Law Dictionary, 4th Edition, “with the necessary changes in points of detail, meaning that matters or things are generally the same, but to be altered when necessary, as to names, offices, and the like.” (Hausman v Waterhouse cited with approval).

Petit Larouse, 1976.

“mutatis mutandis: en changeant ce qui doit être changé; en faisant les changements nécessaires.”

Plaintiff proposed a draft of subsection 118(1) which would include the added words necessary to obtain the desired results. The proposed “changes in detail” apear in italics. For brevity’s sake, the paragraphs and subparagraphs of 118(1) are not reproduced.

118.(1) Notwithstanding section 117, where, in the case of an individual who was not resident in Canada throughout the taxation year immediately preceding a particular taxation year (which particular taxation year is hereafter in this section referred to as the “year of averaging”), but had, during the year immediately preceding the year of averaging, elected to file a return of income under this Part in the form prescribed for a person resident in Canada for that taxation year, any excess remains

In his argument counsel for the Minister avers that the general scheme of the Income Tax Act allows non-resident persons to pay an income tax of 25%, or such other rate as may be prescribed by treaty, on their Canadian rental income. The Act provides that a non-resident person can elect to pay tax under Part I of the Income Tax Act, if that person receives rental income from real property in Canada and files a return of income under Part I in the form prescribed for persons resident in Canada for that taxation year, as if that person was resident in Canada and as if that property income was his only income. The Income Tax Act provides that Part I is applicable mutatis mutandis to a person paying tax under section 216(1), that is with the necessary changes in detail, not with changes of substance.

But, whereas subsection 216(1) applies to a non-resident person, subsection 118(1) applies to an individual who was a resident in Canada throughout the preceding year: it is common ground that the plaintiff was not a resident of Canada during his 1975 taxation year.

Therefore, the defendant submits, subsection 216(3) is of no assistance to the plaintiff since residence for the previous year is an essential condition for the application of subsection 118(1), not merely a point of detail.

The defendant further submits that plaintiff’s construction of subsections 118(1) and 216(1) would lead to a perverse conclusion: a non-resident would benefit from a more favourable tax treatment than a resident.

In my view, in order to so transform subsection 118(1) as to have it apply to a non-resident, changes have to be brought about which would indeed go to the very substance of the provision. In the construction of statutes, words must be interpreted in their ordinary grammatical sense, in harmony with the scheme of the Act and the intention of Parliament, unless there be something in the context to show otherwise. Subsection 118(1) clearly applies to an individual who was a resident in Canada throughout the taxation year immediately preceding a particular taxation year. Plaintiff was not a resident of Canada in 1975, he merely had elected to file a return of income for that year under Part I as if he were a resident. If it had been the intention of Parliament to open the general averaging provisions of subsection 118(1) to non-residents, that intention would have been clearly spelled out in the Statute.

Plaintiff’s counsel advances a second argument. He points out that subsection 216(7) provides that section 61 is not applicable where a nonresident person is liable to pay under Part I. Section 61 is the section dealing with income averaging annuity. Subsection 216(7) reads as follows:

Election. Where, by virtue of subsection (5), a non-resident is liable to pay tax under Part I for a taxation year, for greater certainty section 61 is not applicable in computing his income for that year.

Counsel argues that since annuity income averaging is specifically excluded, and the Act is silent on the exclusion of income averaging, therefore by virtue of the rule exclusio unius inclusio alterius, income averaging would be permissible for a non-resident filing income tax under Part I as a Canadian resident.

The doctrine may not be invoked in this instance. Section 61 is specifically made not applicable to a non-resident person who has elected to pay tax as a resident under Part I because it would otherwise have been available to him. The situation with reference to subsection 118(1) is manifestly different: it is apparent on the face of it that it applies only to an individual who was a resident in Canada throughout the preceding year.

The appeal therefore is dismissed with costs.