Airtel Communications Ltd. v. The Queen, [1991] 1 CTC 514 (NBQB)

Dickson, J.:—This is an appeal by Airtel Communications Ltd. under section 22 of the Income Tax Act, R.S.N.B. 1973, c. 1-2, from the respondent's disallowance of a deduction claimed by Airtel under paragraph 4.3(1)(a) of the Act in respect of the 1986 taxation year.

Traditionally the income tax levied upon a taxpayer by the province of New Brunswick under the provincial Income Tax Act has basically been computed or assessed as a percentage of the federal income tax imposed on the taxpayer by Canada under the federal Income Tax Act.

Generally speaking, at all material times a corporate taxpayer was basically assessed a federal tax amounting to 46 per cent of its taxable income, which assessment was reduced to 36 per cent of taxable income when the income was earned in Canada. Where taxable income was under $200,000 a further “small business” reduction in assessment to 15 per cent of taxable income was allowed under subsection 125(1) of the federal Act. For such small businesses the provincial tax was nine per cent of taxable income, making total tax payable 24 per cent, i.e., 15 per cent representing federal income tax and nine per cent provincial income tax. Those rates no longer prevail, but that is not here material.

In 1985 the provincial Legislature, motivated quite obviously by a desire to encourage and assist smaller businesses at the lower end of the income scale

— at least for a three-year period from 1986 to 1988 inclusive — enacted section 4.3 of the provincial Act providing, in certain cases, for the deduction of certain amounts from the provincial income tax otherwise payable.

Section 4.3 provides:

4.3(1) Notwithstanding subsection 3(1) and section 4.1, for a year when a corporation has been allowed a deduction from the tax payable under the provisions of subsection 125(1) of the Federal Act, if the income of the corporation, and of all Canadian-controlled private corporations that are associated with it, for the year from all active businesses in Canada is in the aggregate $110,000 or less, there may be deducted from the tax otherwise payable under paragraph 4.1(a) the lesser of

(a) $3,960, and

(b) 44 per cent of the tax payable under paragraph 4.1(a).

(2) Subsection (1) is applicable after December 31, 1985 and until December 31, 88.

(3) In this section "active business", "income of the corporation for the year from an active business” and “ Canadian-controlled private corporations that are associated” have the same meaning as they have in section 125 of the Federal Act.

The relevant facts are not in dispute. The appellant is a Canadian-controlled private corporation which operates in New Brunswick. Its 1986 income from all active businesses in Canada was $111,884 and it was allowed the small business deduction under subsection 125(1) of the federal Income Tax Act, R.S.C. 1952,

c. 148 (am. S.C. 1970-71-72, c. 63).

Central Answering Service (1986) Ltd. is a Canadian-controlled private corporation associated with the appellant and is the only such corporation associated. In 1986 its loss from all active businesses in Canada was $11,281.

For the 1986 taxation year the appellant claimed a deduction under section 4.1 of the provincial Act on the ground that that section envisaged—as it claimed and still claims on this appeal-that a corporate taxpayer claiming such a deduction is entitled to offset against its own income any loss suffered by an associated corporation for the corresponding year and that, if as here the net amount so determined falls below the sum of $110,000, then entitlement to the deduction is established. The net amount so calculated here would of course be $100,603.

The federal sub-Department Revenue Canada, Taxation, which under a collection agreement with the Province in large part administers the provincial Act and collects the tax imposed thereunder, disallowed the claim for the deduction on the ground that the income of the appellant, and of all Canadian- controlled private corporations associated with it, for 1986 from all active businesses in Canada was not in the aggregate $110,000 or less. Its assessment, including disallowance of the claimed deduction, was confirmed by the Minister responsible, and it is that assessment which the appellant now appeals.

The outcome, of course turns upon the question of whether the wording, punctuation and form of subsection (1) of section 4.3 of the provincial Act supports that interpretation placed upon it by the appellant or that placed upon it by the respondent.

Few general principles followed in statute interpretation which might here be useful have been cited by counsel. Perhaps passing reference should be made to the principle that in income tax appeals the burden is on the appellant to show that the assessment is incorrect (see Johnston v. M.N.R., [1948] S.C.R. 486; [1948] C.T.C. 195; 3 D.T.C. 1182 (S.C.C.)) and also to that principle that where an exempting provision, as opposed to a taxing provision, is as here in issue an appellant" must show that every constituent element necessary to the exemption is present. . . and that every condition required by the exempting section has been complied with”. (see Lumbers v. M.N.R., [1943] C.T.C. 281; 2 D.T.C. 631 at 290 (D.T.C. 635) (Ex. Ct.); affd [1944] S.C.R. 167; [1944] C.T.C. 67; 2 D.T.C. 652 (S.C.C.)). Perhaps also marginally relevant is that principle, referred to in the majority judgment of the Supreme Court of Canada in Rawluk v. Rawluk, [1990] 1 S.C.R. 70; 65 D.L.R. (4th) 161, that as a general rule a legislature is presumed not to depart from prevailing law without expressing its intention to do so with irresistible clearness.

Quite regardless of those principles I must conclude that the proper interpretation to be placed on section 4.3 is that advanced by the respondent. I do so for the following reasons:

A. The word "income" as used in subsection 4.3(1), insofar as a particular corporation is concerned, quite obviously means its net income. It must either have had an income or not have had an income. If it had no income then it had a net loss.

B. The second phrase of the words" if the income of the corporation, and of all Canadian-controlled private corporations that are associated with it,” can only, particularly having regard for the use of the two commas before and after that phrase, be read to mean"and (the income)" or" (that— meaning the income—) of all (etc.)."

C. The word "aggregate" in general usage connotes "total" or "sum total”. In the context in which it is used in subsection 4.3(1) it is, in my view, apparent that the Legislature intended that it should here have that connotation, viz, that what was to be aggregated was the total of the income of the principal corporation plus the income of any Canadian-controlled associated private corporation. If the associated corporation suffered a loss, viz, enjoyed no income, then there could be no income to be added to that of the principal corporation by which a "total" or an "aggregate" could be obtained which would differ from the income of the principal corporation.

D. I am aware of no instance under taxation laws where, when a taxpayer is permitted to offset losses against income or profit for the purpose of determining whether net income or net profit exists, the Legislature has failed to provide specifically that such an offset could be made. It is in my view impossible here to read such a connotation into the expression "in the aggregate", as the appellant would have us do. Had the Legislature intended that a business loss of an associated company could be offset against the income of the principal company for the purpose of determining the aggregate under subsection 4.3(1), it would surely have so expressly provided. The addition of a few simple words in the subsection would most easily have accomplished that purpose had it been desired. The absence of such words can only lend strength to that interpretation which the respondent suggests.

It should perhaps have been noted earlier that neither subsection (3) of section 4.3 of the provincial Act or section 125 of the federal Act, referred to in subsection (3) seem to assist in any material way in the interpretation with which we have here been concerned.

The appeal is dismissed. In line with what I understand to be the practice in corresponding appeals under the federal Act, I make no order as to costs.

Appeal dismissed.