Kaiser v. MNR, 91 DTC 1057, [1991] 2 CTC 2168 (TCC)

Christie, A.C.].T.C.:—The period in respect of which the appellant's liability to tax is in dispute is 1980. In that year he resided in British Columbia and had employment income in the United States which, when converted to Canadian currency, amounted to $463,435 in respect of which he paid the equivalent of $241,864 Cdn in tax to the government of that country.

Under subsection 126(1) of the Income Tax Act, R.S.C. 1952, c. 148 (am. S.C. 1970-71-72, c. 63) (the "Act"), [1] the appellant deducted from the tax otherwise payable by him for 1980 the maximum allowable to him of $144,481 and claimed a tax credit of $39,384 under the Income Tax Act of British Columbia. Together this is $183,805 and relates to the $241,864 paid to the United States government. There is no controversy regarding either of these steps. The litigation is about whether in computing his income under the Act he may also deduct the balance of the $241,864, i.e., $57,999, under subsection 20(12) of the Act. At the time relevant to this appeal it provided:

20. (12) In computing the income of a taxpayer for a taxation year, there may be deducted such amount as he may claim not exceeding the non-business income tax paid by him for the year to the government of a country other than Canada (within the meaning assigned by paragraph 126(7)(c) read without reference to subparagraph (iii) thereof) other than any such tax, or part thereof, that may reasonably be regarded as having been paid by a corporation in respect of income from a share of the capital stock of a foreign affiliate of the corporation.

Paragraph 126(7)(c) as applicable to 1980 provided:

126.(7) In this section,

(c) “non-business-income tax" paid by a taxpayer for a taxation year to the government of a country other than Canada means such portion of any income or profits tax paid by him for the year to the government of that country, or to the government of a state, province or other political subdivision of that country, as

(i) was not included in computing the taxpayer's business-income tax for the year in respect of any business carried on by him in any country other than Canada,

(ii) was not deductible by virtue of subsection 20(11) in computing the taxpayer's income for the year, and

(iii) was not deducted by virtue of subsection 20(12) in computing the taxpayer's income for the year,

but does not include the portion of any tax that would not have been payable had the taxpayer not been a citizen of that country and that cannot reasonably be regarded as attributable to income from a source outside Canada.

The parties agree that the $241,864 paid to the government of the United States was non-business income tax.

The appellant contends that he is entitled to the claimed deduction under subsection 20(12) and that it can be made in relation to all sources of income. His counsel informed the Court that these words set out the nub of his client's case:

Subsection 8(2) prohibits any non-section 8 deduction when computing “income from employment". Subsection 20(12) permits a deduction in computing "income". The deduction under subsection 20(12) does not relate to any particular source of income (e.g., business, property, employment) but is a deduction from “income” generally. Accordingly, subsection 8(2) has no application to subsection 20(12), regardless of whether the non-business income tax arose in whole or in part out of foreign tax paid on foreign employment income.

In the course of argument a deduction allowed under subsection 20(12) was also described as "a non-source specific deduction”, "a global deduction" and "a deduction attributable to all sources of income".

It was made clear by counsel for the appellant that if the Court concluded that the deduction allowed under subsection 20(12) is other than as just described, the appeal should be dismissed. This is because if, as contended by the respondent, deductions under subsection 20(12) can only be made for the purpose of computing income from a business or property, referring the matter back for reassessment on that basis would be of no benefit to the appellant because of the particular facts pertaining to his income in 1980.

In my opinion a deduction under subsection 20(12) is limited to the purposes of computing income from a business or property. All of the provisions of the Act that are relevant to this appeal are to be found in Part I. The headings therein are of some significance. Division B relates to computing of income- basic rules and subdivision a thereof to income or loss from an office or employment—basic rules. Deductions in this regard are dealt with under section 8 of the Act. Subdivision b pertains to income or loss from a business or property—basic rules and deductions in this regard are dealt with in sections 18 to 21. Division E relates to computation of tax and it has subdivisions a, b and c that contain rules applicable to individuals, corporations and all taxpayers. Section 126 is in subdivision c.

Sections 13 and 14 of the Interpretation Act deal with preambles, marginal notes and reference to former enactments. They read:

13. The preamble of an enactment shall be read as a part of the enactment intended to assist in explaining its purport and object.

14. Marginal notes and references to former enactments that appear after the end of a section or other division in an enactment form no part of the enactment, but are inserted for convenience of reference only.

Nothing is said in that Act about headings. They can, however, be of significance in the interpretation of a statute. In E. A. Driedger's Construction of Statutes (1983) 2nd Ed. this is said at page 138:

Headings, like marginal notes, are also included in the body of a statute but are not a grammatical part of the enacted words. However, they have a higher status than marginal notes. Channel B. in Eastern Counties Railway v. Marriage (1861), 9 H.L. Cas. 32, at p. 41 said:

These various headings are not to be treated as if they were marginal notes, or were introduced into the Act merely for the purpose of classifying the enactments. They constitute an important part of the Act itself. They may be read, I think, not only as explaining the sections which immediately follow them as a preamble to a statute may be looked to, to explain its enactments, but as affording as it appears to me, a better key to the construction of the sections which follow than might be afforded by a mere preamble.

See also The Interpretation of Legislation in Canada by Pierre A. Côté at page 44:

It is accepted today that headings are part of a statute and thus relevant to its construction. Headings may help to situate a provision within the general structure of the statute: they indicate its framework, its anatomy. Headings may also be considered as preambles to the provisions they introduce. "The heading is a key to the interpretation of the sections ranged under it": Per Rinfret J. in Acme Village School District v. Steele-Smith, [1933] S.C.R. 47 at 64.

Subsection 20(12) does not identify any source. It simply states: "In computing income of a taxpayer for a taxation year, there may be deducted .. . .”. Other provisions under Division B, subdivision b regarding deductions use different approaches. For instance, subsections 18(1) and (2) and 20(1)specify both business or property. Subsection 20(10) refers to business only and subsection 20(11) to property other than real property. Subsection 19(1), like 20(12) does not identify a source. Where, as with these two subsections, the enactment is silent in respect of the source from which income is to be computed under Division B, subdivision b, and assuming there is a well- founded doubt in this regard, it can be resolved by having reference to the wording of these headings which clearly indicate business or property. I say assuming there is a well-founded doubt because it strikes me that apart from the headings referred to, if subsection 20(12) is considered in its entire context the clear inference to be drawn is that the deductions permitted by it relate to computing income from a business or property.

The appeal is dismissed.

Appeal dismissed.