Double Taxation/Deduction (Presumption Against)

Regarding s. 39(2) deeming an FX capital loss to be from the disposition of foreign currency, Webb JA stated (at para. 34):

It could not have been intended that a taxpayer would have been entitled to two deductions for an allowable capital loss on the disposition of a particular property – one related to the disposition of the property actually disposed of and the other related to the deemed capital loss from the disposition of foreign currency.

A tax plan turned upon dividends that in fact were paid to a family trust (Satoma Trust) being attributed under s. 75(2) to a corporation (“9134”) that was connected to the dividend payer, so that the dividends deemed to be paid to 9134 were eligible for the intercorporate dividend deduction. Before confirming an assessment under s. 245(2) that the dividend should be included in the income of Satoma Trust, Noël CJ first found that the application of s. 75(2) to 9134 effectively precluded the dividends’ inclusion in the hands of Satoma Trust in the absence of s. 245(2), stating (at paras. 35-36):

The issue was whether subsection 75(2), by deeming the taxable dividends received by the Satoma Trust to be that of 9134, excluded the possibility of taxing the dividends in the hands of the Satoma Trust. The argument rests on the wording of other attribution rules which specifically provide that when income is deemed to be the income of a taxpayer, it cannot be included in the income of another (See for instance section 74.1). Subsection 75(2) is silent in this regard.

In my view, express exclusions of this type are inserted for greater certainty. This is because the liability for income tax under the Act is cast on “a taxpayer” in the singular (section 3), and there is no basis on which Parliament could have intended the same income to be included in determining the tax liability of more than one taxpayer (See Canada v. Sommerer, 2012 FCA 207 at para. 55). Subsection 82(2) reinforces this conclusion by providing that where a dividend is attributed to another person pursuant to subsection 75(2), that person is also deemed to have received it. The same dividend cannot be received by two persons at once.

S. 87(d) of the Special War Revenue Act, imposed tax on goods which were “for use by the manufacturer or producer and not for sale,” was found to apply to the distribution by a pharmaceutical manufacturer of drug samples to doctors, but for the fact that the samples had already been subject to tax in the hands of the manufacturer. As to the latter point, Anglin, CJ stated (at p. 497) that “it cannot have been the intention of the Legislature to tax the same property twice in the hands of the manufacturer.”