Noranda Mines Ltd. v. The Queen, 82 DTC 6212, [1982] CTC 226 (FCTD), aff'd 85 DTC 5001, [1984] CTC 659 (FCA)

Addy, J:—The issue in this income tax appeal involves the manner by which losses of previous years could properly be taken into account for the plaintiff’s 1974 taxation year. Neither the facts nor the figures are disputed but merely the manner of calculation. The determination of the question in issue turns entirely on the interpretation of the words “taxable income earned in the year” found in paragraph 124(2)(b) of the Income Tax Act as enacted in 1974.

Subsection 124(2) as amended for 1974 (it has since been repealed) read as follows:

(2) There may be deducted from the tax otherwise payable under this Part by a corporation for a taxation year an amount equal to 15% of the lesser of

(a) its taxable production profits from mineral resources in Canada for the year; and

(b) the amount, if any, by which its taxable income earned in the year exceeds the aggregate of

(i) 4 times the amount, if any, deductible under section 125 from the tax for the year otherwise payable by it under this Part, and

(ii) its Canadian investment income and its foreign investment income (within the meanings assigned by subsection 129(4)) for the year.

[The italics are mine.]

There is no definition in the Act of the expression “taxable income earned in the year”. There is, however, a clear definition of “taxable income”, which subsection 2(2) defines as follows:

(2) The taxable income of a taxpayer for a taxation year is his income for the year minus the deductions permitted by Division C.

Previous to the 1974 amendment, legislation had been enacted to provide for a deduction of a portion of actual mining taxes paid to a province for the year and the expression “taxable income earned in the year in a province” was defined and is still defined as follows:

(4) In this section

(a) “taxable income earned in the year in a province” means the amount determined under rules prescribed for the purpose by regulations made on the recommendation of the Minister of Finance; and

Counsel for the taxpayer admits that under the last-mentioned provision, losses would be taken into account because of subsection 2(2) and of the fact that the Regulations specifically defined the expression. However, he submits that, as the Regulations do not define “taxable income earned in a year”, the words “in a province” no longer being there, we are now dealing with something quite different. He concedes, however, that if only the words “taxable income” were used, subsection 2(2) would apply. In drawing the distinction he relies on the statement of Anglin, J in the case of Jane Williams v John Box, 1910 44 SCR 1 at 24:

To treat any part of a statute as ineffectual, or as mere surplusage, is never justifiable if any other construction is possible. The rejection or excision of a word or phrase is permissible only where it is impossible otherwise to reconcile or give effect to the provisions of the Act.

He points out that, since in paragraph 124(2)(b) the words “earned in the year” are added to taxable income, it must mean something different from mere “taxable income” provided for in subsection 2(2) and adds that subsection 2(2) mentions income for the year while in paragraph 124(2)(b) the Act speaks of income in the year. There is, of course, a difference in meaning between the words “in” and “for” when used in relation to the concept of time, “in” being used generally to indicate inclusion within or occurrence during a period or limit of time while “for” might mean “with regard to or with respect to a certain time”, although it also can mean “during the continuation of”.

The Crown’s position is that taxable income as found in paragraph 124(2)(b) simply means taxable income as defined in subsection 2(2) of the Act, the words “earned in the year” being mere surplusage and that an acceptance of the taxpayer’s argument would be contrary to the scheme of the Act and would lead to absurd results.

Taxable income is strictly a legal concept arrived at by applying the provisions of the Act. (See Russel Snow v MNR, [1979] CTC 227; 79 DTC 5177.) Unless the context clearly indicated it, one should not conclude that in the same Act there would be two definitions of tax or two concepts of taxable income.

There is no doubt that considerable difficulty arises in attempting to ascertain the meaning of the words in issue. We are, of course, dealing with a tax credit and any such provision should be strictly construed against the taxpayer and, where two constructions are plausible, the one which conforms to what appears to be the general scheme of the legislation should prevail unless the context presents an insurmountable obstacle to any such interpretation.

I am not satisfied that in removing the words “in a province” Parliament intended to change completely the meaning of “taxable income” as it has been clearly defined in subsection 2(2). In the Act, when one refers to a tax credit the taxable income has already been determined. In order to conform to the general scheme of the Act, the provision can only mean that the corporation is entitled to 15% of the lesser of: “the amount by which the taxable income, as defined, exceeds the investment income” and not “the amount by which the taxable income (as defined) plus the loss carry back exceeds the investment income” for the simple reason that the loss carry back has already been considered in computing taxable income and failing a very clear provision of the Act to that effect, the same deduction should not be taken into account twice. There exists no such provision.

It follows that the appeal must fail and the assessment be confirmed. The respondent will be entitled to costs of the action.