Bank of Nova Scotia v. The Queen, [1980] CTC 57, 80 DTC 6009 (FCTD), aff'd 81 DTC 5115, [1981] CTC 162 (FCA)

Addy, J:—The plaintiff taxpayer appeals against a reassessment by the Minister of its income tax return for the 1972 taxation year. The appeal relates to a tax credit claimed by the taxpayer pursuant to paragraph 126(2)(a) of the Income Tax Act, SC 1971-72, c 63 (as amended retroactively by SC 1973-74, c 14) for United Kingdom tax paid for the business which it carried on in that jurisdiction during the period in question.

An agreed statement of facts was filed. There is no issue between the parties as to the facts, as to the law of the United Kingdom applicable thereto nor as to the total amount payable to that government for that period in pounds sterling, namely, £179,596. The sole issue before this Court is whether the amount of tax credit to which the plaintiff is to be entitled, when translated in Canadian dollars is to be calculated according to the rate of exchange in existence as of the time when the tax was actually paid on January 1,1974, or whether it is to be calculated in accordance with the rate of exchange existing when it accrued, namely during the 1972 fiscal year.

The law of the United Kingdom, which has since been modified to some extent, then provided that, although the plaintiff became liable for the tax on the basis of the amount of business transacted there during its 1972 fiscal year, the tax would only become payable fourteen months after the end of that year. The fiscal year of the Bank ended on October 31, 1972, and the entire tax was accordingly paid when due and payable on January 1, 1974, except for a comparatively small amount of some £15,209 which had been withheld at source during the period, in respect of interest on certain United Kingdom Government bonds.

The policies of the Bank of England, which by law are binding on the plaintiff, also provided that, during the taxation period, foreign banks would have to set aside in pounds sterling an estimated amount required to meet the tax. The plaintiff, accordingly, set aside at the end of the first three of its quarterly accounting periods, sterling or assets payable in sterling which it estimated as being sufficient to meet the liability. It was entitled, until the United Kingdom taxes were actually paid, to use in its United Kingdom business transactions, the amount so set aside to meet its liability for the taxes, providing the amount always remained payable entirely in sterling.

For Canadian taxation purposes the foreign currency profits and losses obviously must be expressed in terms of Canadian currency. Due to the constantly fluctuating foreign exchange situation, where there is an accounting for profits and losses on an accrual basis of accounting for a given fiscal period, it would be impossible to translate each entry as it occurs into Canadian funds in accordance with the prevailing rate of exchange existing at that time. It is therefore not only common accounting practice and good sense but it is a practice fully accepted and recognized by the defendant, that an average rate of exchange known as the weighted average of the rates prevailing during the period in question is used to translate into Canadian funds, at the end of the period the foreign profits realized and the losses incurred during that period. In the case at Bar, it is common ground that the weighted average figure of currency exchange for the fiscal period ending October 31, 1972, was 2.52122 Canadian dollars to the pound sterling. Therefore, if that figure is used, the credit for £179,596 amounts to $452,794. On the other hand, if the rate of exchange existing on the date of payment is used, namely, 2.3131 for the £15,209 withheld at source and 2.2954 for the balance of the tax paid on January 1, 1974, the resulting tax credit would only be $412,514. The difference between the two figures amounts to $40,280.

The relevant portion of section 126 of the Income Tax Act reads as follows:

(2) Idem. Where a taxpayer who was resident in Canada at any time in a taxation year carried on business in the year in a country other than Canada, he may deduct from the tax for the year otherwise payable under this Part by him an amount not exceeding the least of

(a) such part of the aggregate of the business-income tax paid by him for the year in respect of businesses carried on by him in that country and his foreign- tax carryover in respect of that country for the year as the taxpayer may claim,

(b) the amount determined under subsection (2.1) for the year in respect of businesses carried on by him in that country, and

“Business-income tax” is defined by paragraph 126(7)(a) as follows:

(7) Definitions. In this section,

(a) “Business-income tax’’.—“business-income tax” paid by a taxpayer for a taxation year in respect of businesses carried on by him in a country other than Canada (in this paragraph referred to as the “business country”) means such portion of any income or profits tax paid by him for the year to the government of any country other than Canada or to a state, province or other political subdivision of any such country as

(i) may reasonably be regarded as tax in respect of the income of the taxpayer

from any business carried on by him in the business country, and

The Canadian-United Kingdom Income Tax Agreement (hereinafter referred to as “the Tax Agreement”) authorized by the Canada-United Kingdom Income Tax Agreement Act, 1967, SC 1966-67, c 75, Part IV (hereinafter referred to as the “Tax Agreement Act’’) are relevant to the issue before me.

Article 21 of the Tax Agreement reads:

(2) Subject to the provisions of the law of Canada regarding the deduction from tax payable in Canada of tax paid in a territory outside Canada (which shall not affect the general principle hereof), United Kingdom tax payable in respect of income from sources within the United Kingdom shall be deducted from any Canadian tax payable in respect of that income. Where such income is a dividend paid before April 6, 1966, by a company which is a resident of the United Kingdom, the deduction shall take into account any United Kingdom income tax appropriate to the dividend.

Section 11 of the Tax Agreement Act reads:

(1) The Agreement entered into between the Government of Canada and the Government of the United Kingdom of Great Britain and Northern Ireland, set out in Schedule IV is approved and declared to have the force of law in Canada during such period as, by its terms the Agreement is in force.

(2) In the event of any inconsistency between the provisions of this Part, or the Agreement, and the operation of any other law, the provisions of this Part and the Agreement prevail to the extent of the inconsistency.

The argument centered to a great extent around the word “paid” in the expression “business-income tax paid by him” contained in paragraph 126(2)(a) and in the expression “income or profits tax paid by him” in paragraph 7(a), as opposed to the word “payable” in the expression “United Kingdom tax payable in respect of . . as contained in Article 21 of the Tax Agreement.

Wherever a term is not defined in the Act, then, unless the context otherwise requires, it must be given its common ordinary meaning and, where the term is a common commercial or financial one its meaning must be determined according to ordinary commercial or financial principles. (See Dominion Taxicab Association v MNR, [1954] SCC 82; [1954] CTC 34; 54 DTC 1020.) The word “payable” normally does not mean “paid.” Kohler’s Dictionary for Accountants, 5th ed defines “payable” as follows: “adj. “Unpaid whether or not due. n. A liability; a debt owing to another; and account or note payable” Normally, for an amount to be payable there must be a clear legal though not necessarily immediate obligation to pay it. (Refer MNR v John Col ford Contracting Company Limited, [1960] CTC 178; 60 DTC 1131, as to the similar comment relating to the word “receivable.”) It seems self- evident that ordinarily an amount which is payable is not yet paid and con- versely an amount which is paid is no longer payable. The state of being “payable” always precedes the state of being “paid” in point of time.

Counsel for the defendant argued that since paragraph 126(2)(a) of the Income Tax Act mentions that the taxes are to be “paid” and that article 21 of the Tax Agreement mentioned only that the United Kingdom taxes are to be “payable” then, because of subsection 11(2) of the Tax Agreement Act, the only way of avoiding inconsistency and of reconciling the two is to resolve the inconsistency in favour of the Tax Agreement and find that “paid” in paragraph 126(2)(a) really means “payable.”

I— Assuming that the expression “tax payable” in the Tax Agreement

does prevail over the expression “tax paid” in paragraph 126(2)(a) of the Income Tax Act.

If, notwithstanding the opening words of limitation of article 21(2) of the Tax Agreement, it was found that subsection 11(2) of the Tax Agreement Act does cause the expression “tax payable” in the Tax Agreement to prevail over the expression “tax paid” in paragraph 126(2)(a) of the Income Tax Act, to the extent of creating in the case of United Kingdom tax liability a right to a Canadian tax credit as soon as the United Kingdom tax accrues and becomes “payable” in the ordinary sense of that word, then it is quite evident that the appeal must succeed: the right to credit would arise at the end of the taxation year, that is at the end of October 1972, and the rate of exchange existing at the time of actual payments would have absolutely nothing to do with calculating the credit.

II— Assuming that “tax payable” in the Tax Agreement means “tax paid” as in paragraph 126(2)(a) of the Income Tax Act.

In this latter case the problem is much more involved. On examining the wording of the Tax agreement it seems that any inconsistency which might appear to exist between “paid” and “payable” might possibly be resolved quite properly and logically by attributing the meaning of “paid” to article 21(2) of the Tax Agreement where it is stated that .. United Kingdom taxes payable in respect of income from sources within the United Kingdom shal be deducted from any Canadian tax payable in respect of that income.” Such a substitution might not contradict nor do violence to the meaning of that article, on the contrary, it might be argued that the word “payable” as there used could just as readily be read as “paid.” The situation is almost identical to that considered in the case of Greig (Inspector of Taxes) v Ashton, [1956] 3 All ER 123 at 125, where Harman, J stated:

The portion of the convention providing for double taxation relief with the United States appears in the Schedule to the Double Taxation Relief (Taxes on Income) (USA) Order, 1946 (SR & C 1946 Nc 1327), of which art XIII(2) provides:

“Subject to such provisions . .. as may be enacted in the United Kingdom, United States tax payable in respect of income from sources within the United States shall be allowed as a credit against any United Kingdom tax payable in respect of that income.’’

It is agreed that “payable” in one sense must mean “paid”; in other words, credit cannot be given in England for tax which has not been paid in the United States. So that anybody who, in respect of income from sources within the United States (ie, here, the work done by the taxpayer in the United States), finds himself liable for tax to the United States is allowed a credit against the United Kingdom tax payable in respect of the same income.

(The Italics are mine.)

Thus, it would follow that, in order for a taxpayer to become entitled to the tax credit for a foreign tax, the latter must not only be payable but must actually have been paid at the time when it is claimed. One could say that the actual tax credit really flows from the Income Tax Act and not from the Tax Agreement, section 21 of the Tax Agreement only serving to make it clear against what tax otherwise payable the credit is to be applied.

An expert witness called on behalf of the plaintiff testified that the Bank kept its accounts and prepared its statements on an accrual method rather then on a cash method not only because it was obliged by law to do so under the Bank Act, RSC 1970, c B-1, but also because it is usual and normal commercial and accounting practice to do so. He stated that a cash method of keeping accounts for such a corporation would be unlikely to result in a proper matching of costs and revenues and would in effect be misleading. I accept this opinion and counsel for the defendant does so as well.

The witness added that since the plaintiff maintains its accounts and prepares its statements for shareholders in Canadian currency, it is necessary to translate into Canadian funds, its foreign revenues, costs, taxes and profits attributable to the fiscal period as well as its assets and liabilities at the end of the fiscal period. When United Kingdom income tax is not due for payment until fourteen months after the end of the fiscal year, it is evident that the exchange rate which will prevail at the time of payment is not known when the financial statements are prepared or even by the time that the Canadian income tax statements are required to be filed and the Canadian tax paid. Accordingly, it is impossible to use the exchange rate that would be prevailing at the time of payment where the time of payment has not arrived and, therefore, the only exchange rate which might be used in such financial return is the weighted average one for the fiscal period. He stated further that the retaining of the provision for the United Kingdom taxes in sterling rather than in dollars or other currency obviously had the effect of guarding against a loss which might otherwise arise by reason of fluctuations in the foreign exchange rate. An unfavourable rate prevailing at the time of payment would of course produce a loss, as the payment of United Kingdom taxes must be paid in sterling.

I accept this statement and the witness’s opinion that, since the Bank is accounting on an accrual basis as opposed to a cash basis, in the circumstances of this case general commercial and accounting practice would require that the liability for United Kingdom taxes for a fiscal year be reflected in the books of the plaintiff for the year in accordance with the weighted average rate of exchange prevailing during the fiscal period in issue. I also accept that it represents the true state of affairs as of the end of that period, especially since the amount set aside for the liability is fixed in sterling assets and not subject to change.

It is well established that when calculating, pursuant to section 9 of the Income Tax Act, the profits and losses of a business, these must be determined in accordance with ordinary commercial principles, subject to any specific provision to the contrary in the statute, and that the question is ultimately one of law for the Court, the evidence of experts not being in any way conclusively binding. (See Associated Investors of Canada Limited v MNR, [1967] 2 Ex CR 96; [1967] CTC 138; 67 DTC 5096, and Canadian General Electric Company v MNR, [1962] SCR 3; [1961] CTC 512; 61 CTC 1300.)

I do not accede, however, to the argument of counsel for the defendant that generally recognized accounting and commercial principles are to be applied solely to the calculation of profit and loss as well as revenues and expenditures before arriving at taxable income and that these principles are not applicable at any time during a later stage such as when one is considering and expressing foreign tax credits to be deducted from taxable income. Generally recognized accounting and commercial principles and practices are to be applied to all matters of commercial and taxation accounting unless there is something in the taxing statute which precludes them from coming into play. The legislator when dealing with financial and commercial matters in any enactment, including of course a taxing statute, is to be presumed at law to be aware of the general financial and commercial principles which are relevant to the subject-matter covered by the legislation. The Act pertains to business and financial matters and is addressed to the general public. It follows that where no particular mention is made as to any variation from common ordinary practice or where the attainment of the objects of the legislation does not necessarily require such variation, then common practice and generally recognized accounting and commercial principles and terminology must be deemed to apply.

Because of the particular wording of subsection 126(2), however, even though I accept the evidence of the plaintiff’s expert as above stated, the matter is by no means disposed of. The Crown maintains that since the only possible interpretation of paragraph 126(2)(a) is that the tax must have been paid in order for the foreign tax credit to be applied, that the taxpayer is not entitled to any credit until that time and that he is only entitled to a credit for the amount actually paid, it necessarily follows that in order to give effect to the intent and purpose of the Act, the rate which must be applied is the exchange rate applicable at the time of payment when translating that payment into Canadian dollars.

Counsel for the plaintiff on the other hand has advanced several cogent arguments in support of his interpretation. They are based on the concept that, even if the right to a credit should arise only after payment of the foreign tax, section 126 as well as the Income Tax Act generally, leave totally unanswered the question as to what exchange rate is to be applied when translating what has been paid in foreign tax into Canadian dollars. Since the statute is completely silent on the question, there would therefore be no reason why one should not apply ordinary accounting and commercial principles which normally require all assets and liabilities in any fiscal year to be measured by the same yardstick: where the weighted average rate in the year is adopted and used by both the taxpayer and the taxing authority to translate all profits and expenses and the taxable income in any given fiscal period into Canadian dollars, it would be only logical, reasonable and consistent that the same measure be used to translate tax credits applicable to the same period, since these credits arose by reason of the amount of foreign tax which accrued during the same period. He argued further that this approach is not only logical, reasonable and consistent but is also fair to both parties. On the other hand the use of the rate of exchange in effect as to the date of payment rather than that prevailing during the period when the liability for the foreign tax arose and was effectively borne by the provision funds to meet it, would automatically render the taxpayer subject to double taxation to the extent that the Canadian Government did not allow credit for the United Kingdom tax paid where, as in the present case, at the time of payment the rate of exchange was not favourable to the taxpayer. This would contravene the express provision of the Tax Agreement itself which in its preamble states that the parties desire “to conclude an agreement for the avoidance of double taxation. ..

The purpose of foreign tax agreements generally is to avoid double taxation of the taxpayer who is taxed in his country of residence on the basis of his world income and is at the same time taxed in the foreign country on the basis of the part of his business done there. (Refer Simon’s Taxes, 3rd ed, Volume F, paragraph Fl 252 and also Wheatcroft, The Law of Income Tax, Surtax and Profits Tax section 1-735.) The same principle, of course applies to the Tax Agreement in the case at Bar. In this regard reference is made to Interprovincial Pipe Line Company v MNR, [1968] 1 Ex CR 25; [1967] CTC 180; 67 DTC 5125, where Jackett, P, as he then was, dealt with the former section 41 which is now section 26 of the present Act; see also ARA Scace, The Income Tax Law of Canada, 3rd ed, at 668 and 1971 Canadian Tax Journal, Volume 19, by James Scott Peterson on Canada’s Foreign Tax Credit System at 89.

It is important to note, however, that, even if the interpretation of paragraph 126(2)(a) of the Act which counsel for the Minister urges upon this Court, is to be adopted, the statute itself would not thereby cause double taxation: the taxpayer in a case such as the present one, who might wish to avoid the possibility of double taxation due to an unfavourable rate of exchange which might exist fourteen months after the end of the fiscal period in question, has the very simple alternative of paying the United Kingdom tax immediately during or at the end of the fiscal year itself and not wait for the fourteen months to run. There is no legal impediment whatsoever to this course being adopted. The argument that a bank would be absolutely foolish not to take advantage of the free use of that money for fourteen months is without a doubt a very valid and indeed and unanswerable one from a practical business standpoint, but the fact remains that it is not the taxing statute which causes the double taxation but solely the business decision of the taxpayer who chooses to risk the possibility of suffering the financial consequences of a lesser credit at the end of the fourteen-month period in exchange for the very real, substantial and undeniable benefit during that period of the use of those assets set aside for United Kingdom taxes. It follows that even if one were to find that the rate at time of payment had to be used, this would not result in the statute having built into it the incidence of double taxation as any such taxation penalty would result entirely from the free choice of the taxpayer. I therefore reject this argument of the plaintiff based on double taxation.

Another argument advanced was that if the interpretation of the defendant is to be followed, then, one must find that within section 126 itself two rates are to prevail because the amount to be determined under paragraph 126(2)(b) as opposed to paragraph 126(2)(a), must pertain in effect to the amounts, determined on the accrual accounting basis, of the businesses carried on by the taxpayer in the foreign country concerned, during the period in question. This, of course, when the amounts are translated into Canadian dollars, would bring into play the weighted average rate of exchange then existing. The defendant’s interpretation of paragraph 126(2)(a) would bring into play a completely different rate, that is, the rate prevailing as of the time of payment which, of course, is the fixed rate determined on that very day on a cash basis. This, in my view, is not a compelling argument but it does have some bearing on the issue.

An objection somewhat similar to the last one was advanced by the plaintiff to the effect that, if the foreign exchange rate applicable is to be the rate prevailing at the date of payment of the foreign tax, we would then be obliged to conclude that paragraph 126(2)(a) would have built into it as an integral part of the section, the absolute requirement of submitting a revised return in every case where the taxpayer is entitled to pay the foreign tax at a later date. The Canadian taxpayer can only claim in his return the tax credit at the rate prevailing at the time of filing his return since he would have no idea of what the constantly fluctuating foreign exchange rate might be several months later. It would be sheer coincidence if both rates were identical.

This last objective is answered and, in my view, is completely and effectively disposed of if in fact no legal right to a foreign tax credit arises until the tax is actually paid, as no credit whatsoever based on that tax could legally be claimed until that time in any event and, therefore, the taxpayer would have to submit a revised return claiming the credit when he actually paid the foreign tax. On the other hand, if he paid foreign tax before submitting his Canadian return he could then claim the credit at the rate prevailing as of the date of payment.

Counsel for the defendant could only point to one other section in the Income Tax Act, namely subsection 127(1) pertaining to provincial logging tax credits, where a tax credit, which is granted only after payment of an amount, must be allocated to a specific taxation year which is not necessarily the year of payment of the sum claimed as a credit. In the latter case, since the credit comes from provincial governments in Canadian dollars, there can of course be no question of foreign exchange rates and the situation under consideration in the case at Bar can never arise. In all other sections where credits are granted after payment of any sums, those credits are applicable exclusively in reduction of tax in the taxation year when payment is actually made, eg: paragraph 20(1)(aa) pertaining to landscaping expenses and paragraph 20(1)(bb) pertaining to payment for legal advice on sale of a security. The scarcity and even the non-existence of other similar provisions in the taxing statute can have no effect on the interpretation of a section other than inducing the authority interpreting the enactment to examine it with special care and possibly with a view to maintaining consistency and uniformity in the Act, if the context does not otherwise require.

Another aspect of this case is that the specific wording of the procedural provisions of the Act would appear to preclude the plaintiff from obtaining as of right any tax credit whatsoever, if it could not be claimed before the foreign tax was actually paid. A corporation must file its return within six months from the end of the year (refer paragraph 150(1)(a)). The Minister must then ‘with all due dispatch” carry out the assessment (refer paragraph 152(1)). A taxpayer then has only ninety days to object to the assessment (refer section 165). This whole procedure will normally take much less than fourteen months. If the right to claim depends on payment and if the taxpayer has not paid the United Kingdom tax he would have no legal grounds for claiming it in his return or, if he does claim it, for objecting to an assessment denying it. The assessment would then become final and binding on the taxpayer, as there are only two cases provided for in the Act where an assessment which has become final may be re-opened for rectification as of right by the taxpayer, namely, under subsection 152(6) to carry back a loss incurred during a year immediately following the taxation year in question and, under subsection 49(4), where a capital loss may be claimed back on the exercising of an option.

It follows that, if the tax credit cannot legally be claimed in the tax return before payment of the foreign tax or at least before the ninety days provided for in section 165 have expired, the right to a tax credit might well be lost irrevocably, unless the Minister should chose to reassess the taxpayer, as was done in the case at Bar.

This argument would be extremely relevant and quite effective in determining the question whether or not a foreign tax credit can be claimed before the foreign tax is paid. However, if as I have assumed in this part of my reasons, the wording of paragraph 126(2)(a) is not affected by the wording of the Tax Agreement and the right to the credit only arises when the foreign tax is actually paid, then a hiatus in the procedural provisions of the Income Tax Act could not be used to defeat an explicit, essential and fundamental right to the foreign tax credit.

If the right to a credit does not arise before payment of the tax, then, until that time, it matters not what might be the basis of calculating a nonexistent credit and, finally, when the time comes to pay the foreign tax, the ninety-day period would have expired and the procedural anomaly above referred to would have taken effect regardless of what may be the basis of calculation of the tax credit at that time. The argument is, therefore, of no help to the plaintiff although it would clearly point out the requirement for an amendment of the Act to allow a return to be rectified in such circumstances.

On the assumption that the foreign tax must be paid and not merely be payable before the right to a tax credit for same arises, I arrive at the following conclusions based on the above facts, expert opinion and considerations:

1. That both the law and generally accepted good accounting practice require that the plaintiff carry out its accounting on an accrual basis, as in fact it did during the year in issue.

2. That generally accepted good accounting practices do not apply only to the calculation of profits and losses under section 9 of the Income Tax Act but to all matters of account unless there exists some statutory impediment to the application of those practices.

3. That generally accepted good accounting practice would normally require the unpaid United Kingdom taxes, which accrued in 1972, to be carried in the books of the plaintiff for that year and until payment at the weighted average rate of exchange for 1972.

4. That there exists no specific provision in the Income Tax Act itself. which would require the credit in pounds sterling to be translated into Canadian dollars according to the rate of exchange existing at the date of actual payment, nor would the translation in accordance with the weighted average rate in effect for the year during which the liability for the foreign tax was incurred, offend against the general scheme or purpose of the Act nor any of its specific provisions.

9. That no double taxation would be involved if the exchange rate at time of payment were used.

6. That neither method of calculation is basically unfair to either party nor more likely than the other to work to the disadvantage of anyone since the rate of exchange may always vary either way.

7. The procedural anomaly which would appear to prevent a foreign tax liability paid after the ninety-day period for appeal has expired, from being claimed as a tax credit, is of no assistance to the plaintiff.

8. That the following considerations, although not in any way compelling, would, if anything, tend to favour the weighted average rate of the fiscal year in question being used:

(a) It is more logical and simpler for the taxpayer (and especially a corporate taxpayer who must account to its shareholders) who is accounting on an accrual basis, to carry in his tax returns as well as in his general financial statements the same yardstick for tax liabilities and tax credits as for normal profits and losses before taxes.

(b) It is more consistent that the same measure be applicable to paragraphs (a) and (b) of subsection 126(1), than to have two different methods of calculating tax credits in the same section.

(c) Except for subsection 127(1) pertaining to certain provincial logging tax credits, the credit under paragraph 126(1)(a) is the only one in the Income Tax Act where a credit must be allocated to a specific taxation year which is not necessarily the year of payment of the amount.

9. When paragraph 126(1)(a) is considered by itself or in isolation and without taking into account normal accounting practices or any other factors, it would seem to be more natural and normal to calculate the value of the tax in Canadian dollars at the rate of exchange in effect at the date of payment, although there is nothing in the section which actually requires this.

Notwithstanding paragraph 9 above, because of considerations 1, 2, 3, 4 and 8, I would find that the translation into Canadian dollars should be carried out in accordance with the weighted average rate of exchange in effect for the taxation period in question.

Should I be in error in finding that this principle applies to all foreign tax credit cases, then, I would find that, in the particular circumstances of this case, because United Kingdom law requires that the tax be set aside in sterling during the taxation year when it accrued and be kept in sterling until ultimate payment in sterling, the weighted average rate of foreign exchange should apply in any event.

III - Finding

I therefore conclude that whether the right to a credit arises at the time when the United Kingdom tax accrues and becomes payable or whether it arises only when the tax is actually paid the credit must in both cases be calculated by translating the amount of tax payable in sterling into Canadian dollars in accordance with the weighted average rate of exchange prevailing during the taxation year under consideration.

Since it is not necessary for me to decide the question of when the right to the tax credit for United Kingdom taxes actually arises in order to dispose of the litigation between the parties, I am deliberately refraining from doing so.

I wish to point out, however, that there should be some legislation enacted to clarify either the Income Tax Act or the Canada-United-Kingdom Income Tax Agreement Act 1967 or both in this respect, for the following reasons:

1. Two taxing statutes covering the same subject-matter should not on their face appear to contradict each other and the taxpayer should not, in order to determine his rights, be obliged to refer to jurisprudence in such a situation, when an amendment to one or the other piece of legislation could easily clarify the situation.

2. If, as the Minister of National Revenue has urged upon this Court, the right to a tax credit for United Kingdom taxes should only arise on payment of same, the statute should clearly state so. In such event, the resulting procedural anomaly as to the present absence of any right on the part of the taxpayer to submit an amended return after the 90-day period has expired, in order to claim the tax credit, should also be corrected. The Minister would also, in such event, be obliged to collect the full amount of the Canadian tax pending payment of the United Kingdom tax. This does not appear to be the practice at the present time.

For the above reasons, the appeal will be allowed with costs and the assessment of the plaintiff for the 1972 year shall accordingly be referred back to the Minister for reassessment.