Sobier, T.C.J.:—The appellant appeals from the assessment of the Minister of National Revenue (the "Minister") for the 1986 taxation year whereby the appellant's claim for capital gains exemption of $46,121 was reduced to $39,784. In calculating taxable income for ordinary or regular income tax purposes (subsection 2(2) of the Income Tax Act, R.S.C. 1952, c. 148 (am. S.C. 1970-71-72, c. 63) (the "Act")), the appellant claimed a deduction of $46,121 under section 110.6 of the Act, thereby reducing his taxable income to a negative amount of -$7,121. In reassessing the appellant, the Minister reduced the deduction to $39,784 resulting in taxable income of nil.
In calculating adjusted taxable income under subsection 127.52(1), the appellant again claimed a capital gains exemption of $46,121 resulting in adjusted taxable income of $783.98 whereas the Minister calculated adjustable taxable income at $7,121 again using the exemption of $39,784 as was used in calculating ordinary taxable income.
The appellant argues that taxable income may be a negative amount for ordinary tax purposes. He also argues that even if in calculating taxable income for ordinary tax purposes taxable income cannot be a negative amount, for the purposes of subsection 127.52(1) it may be a negative amount. He claims that adjusted taxable income calculated under subsection 127.52(1) is an entirely new calculation based upon the assumption that certain adjustments are made. With this the Court agrees; however, the issue still remains whether adjusted taxable income calculated as aforesaid may be reduced below nil by use of the capital gains exemption.
In Capling Estate v. M.N.R., [1987] 2 C.T.C. 2003; 87 D.T.C. 344 (T.C.C.) and Sybersma Estate v. M.N.R., [1987] 2 C.T.C. 2007; 87 D.T.C. 346 (T.C.C.), Taylor, T.C.J. dealt with the issue of negative taxable income for ordinary tax purposes. It was determined by Judge Taylor in Capling and Sybersma, that taxable income for ordinary tax purposes may not be a negative amount.
The amended definition of taxable income now set forth in subsection 248(1) of the Act was enacted to make it abundantly clear that taxable income under subsection 2(2) cannot be less than nil and this amendment was made retroactive to the 1985 and subsequent taxation years.
The appellant argues that this amendment cannot have effect retroactively. The law is clear that Parliament may enact retroactive legislation. Once there is a Clear indication that the legislation is to operate retroactively any presumption against retroactivity vanishes.
In Gustavson Drilling (1964) Ltd. v. M.N.R., [1976] C.T.C. 1; 75 D.T.C. 5451 (S.C.C.) Dickson, J., as he then was, stated at 6-7 (D.T.C. 5454):
First, retrospectivity. The general rule is that statutes are not to be construed as having retrospective operation unless such a construction is expressly or by necessary implication required by the language of the Act. An amending enactment may provide that it shall be deemed to have come into force on a date prior to its enactment or it may provide that it is to be operative with respect to transactions occurring prior to its enactment.
In Swanick v. M.N.R., [1985] 2 C.T.C. 2352; 85 D.T.C. 630 (T.C.C.) Bonner, T.C.J. quoted the above excerpt from Gustavson and went on to say at 235 (D.T.C. 632):
This is a case, however, in which subsection 128(21) of the amending Act expressly requires that retrospective operation be given to the amendments. Thus, the assessment rests on valid legislation and not, as the appellant suggests, on the expression by a Minister of his intention to seek legislative change.
[Emphasis added.]
However, the definition of taxable income is limited to subsection 2(2) and does not appear to apply to subsection 127.52(1). The definition of taxable income set forth in subsection 248(1) reads as follows:
“taxable income” has the meaning assigned by subsection 2(2), except that in no case may a taxpayer's taxable income be less than nil;
Subsection 2(2) reads as follows:
(2) The taxable income of a taxpayer for a taxation year is his income for the year plus the addition and minus the deductions permitted by Division C.
The reference in subsection 248(1) in the definition of taxable income is to taxable income calculated under subsection 2(2) and does not refer to subsection 127.52(1). Therefore, the amended definition of taxable income does not extend to adjusted taxable income.
However, subsection 127.52(1) only provides the method by which adjusted taxable income is calculated and does not alter the basic principle that taxable income, by whatever name, may not be less than nil since the scheme of the Act is to tax taxable income. It was on this basis that the Minister's original calculation of ordinary taxable income was made.
Having determined that adjusted taxable income cannot be a negative amount, the amount of capital gains exemption claimed must be limited to producing no less than a nil amount of adjusted taxable income.
Dealing with the capital gains exemption and its effect on adjusted taxable income, one must examine paragraph 127.52(1)(h) to see that in computing adjusted taxable income only the amounts which were deductible under sections 109 to 110.6 in computing ordinary taxable income may be deducted in computing adjusted taxable income. The amount permitted to be deducted under subsection 110.6(3) was $39,784.00 in order not to have a negative amount of taxable income. Therefore, the Minister was correct in limiting the Appellant to the amount deductible under subsection 110.6(3) in calculating adjusted taxable income for minimum tax purposes.
For the above reasons, the appeal is dismissed.
Appeal dismissed.