Kathleen B Helliwell v. Minister of National Revenue, [1985] 2 CTC 2188, 85 DTC 491

Rip, TCJ:—The appellant appeals from an income tax reassessment for 1982 in which the respondent, the Minister of National Revenue, reduced the deduction, pursuant to section 121 of the Income Tax Act (“Act”), from tax otherwise payable under Part I of the Act by the appellant, for 1982, from 75 per cent of the amount required by paragraph 82(1 )(b) of the Act to be included in computing her income for the year, as claimed by the appellant, to 68 per cent.

The facts are not in issue and the parties proceeded by way of the following agreed statement of facts:

1. Kathleen B Helliwell (the “Appellant”) is a beneficiary of two trusts, and as such has an absolute right to receive one-third of the income of one of the trusts, and all of the income of the other.

2. The taxation years of the trusts end on April 30 and October 31, respectively.

3. During the 1982 taxation year of each of the trusts, but before December 31, 1981, the trusts received taxable dividends from taxable Canadian corporations.

4. The dividends which were immediately payable to the Appellant were designated under subsection 104(19) of the Act in respect of the Appellant in the 1982 income tax returns of the trusts.

5. The Appellant included the amount so designated, plus 50% thereof (the “gross-up”) as required by paragraph 82(1)(b) of the Act, in computing her income for the 1982 taxation year.

6. An arithmetical error was made in determining the amount of the gross-up, with the result that the Appellant’s income for the 1982 taxation year was overstated by $400.

7. In assessing the taxes payable by the Appellant for the 1982 taxation year, the Minister allowed a dividend tax credit of 68% of the amount of the gross-up.

In her 1982 income tax return the appellant deducted from tax otherwise payable under Part I of the Act three-quarters of one-half of taxable dividends received from taxable Canadian corporations by the trusts prior to calendar year 1982 (but in the trusts' 1982 taxation year) and designated by the trusts in accordance with subsection 104(19) of the Act to be deemed to be taxable dividends received by her in 1982 from taxable Canadian corporations.

With respect to dividends received by the trusts after calendar year 1981 and designated to be taxable dividends received by the appellant in 1982 the appellant claimed a tax credit equal to 68 per cent of the amounts required by paragraph 82(1 )(b) to be included in her income for 1982.

The only question to be decided by the Court is whether in respect of taxable dividends received prior to calendar year 1982, but in the 1982 taxation year of both trusts, the deduction from tax otherwise payable by the appellant under Part I of the Act is three-quarters of the amount required by paragraph 82(1)(b) to be included in income, as claimed by the appellant, or 68 per cent, as reassessed by the respondent.

For 1981 section 121 of the Act read as follows:

There may be deducted from the tax otherwise payable under this Part by an individual for a taxation year 4 of any amount that is, by paragraph 82(1)(b), required to be included in computing his income for the year.

Section 121 was amended by SC 1980-81-82-83, c 140, (hereinafter referred to as “amending legislation"') s 81(1), as follows:

There may be deducted from the tax otherwise payable under this Part by an individual for a taxation year 68% of any amount that is, by paragraph 82(1)(b), required to be included in computing his income for the year.

Subsection (2) of section 81 of the amending legislation provides that: "Subsection (1) is applicable with respect to dividends received after 1981."

Does "1981" in subsection (2) mean "after the 1981 taxation year" as held by the respondent, or "after the 1981 calendar year” as maintained by the appellant?

In counsel for the appellant's view subsection 104(19) simply provides that taxable dividends received by a trust in its taxation year from a Canadian corporation may be designated by the trust to be deemed to be a taxable dividend received by a particular beneficiary in the trust's taxation year as a dividend from the corporation. Once the trust makes the designation, for purposes of the Act the dividends are deemed not to have been received by the trust but by the beneficiary; subsection 104(19) is intended to facilitate the flow-through of the dividend tax credit to beneficiaries of trusts. Thus, counsel submits, subsection 104(19) of the Act deems the appellant to have received taxable dividends from the paying corporation during the 1982 taxation year of the trust, and permits her to claim the benefit of the dividend tax credit pursuant to section 121 of the Act. Counsel for respondent does not dispute this submission.

However, counsel for the appellant adds, while the effect of subsection 104(19) of the Act is to deem taxable dividends to be received by the appellant in the same taxation year the dividends were received by the trust, subsection 104(19) does not read as deeming those taxable dividends to be received at any particular time in the trust's taxation year, in this case the 1982 taxation year of each trust. Ms Sharlow adds that the proper application of section 121 of the Act depends on the date on which a particular dividend is received, not the taxation year in which the taxable dividend is to be included in income. In the case at bar the dividends in question were received by both trusts in calendar year 1981; they were not received after 1981.

Respondent's counsel argued that subsection (2) of section 81 of the amending legislation must be read together with subsection (1) and subsection 104(19) of the Act. Reference in subsection 81(1) is to “‘taxation year". Subsection 104(19) provides that the taxable dividends received by the trust, if designated to the beneficiary, shall be deemed to be received by the beneficiary in the same taxation year as they were actually received by the trust; ie, in the 1982 taxation year. The deduction from tax is for a taxation year and the income inclusion is to the same taxation year. One must therefore conclude that "1981" in subsection (2) must mean "1981 taxation year".

The object of all interpretation is to discover the intention of Parliament, but the intention of Parliament must be deduced from the language used. Omissions are not to be inferred unless there are adequate grounds to justify the inference that the legislature intended something which it omitted to express.* [1]

The year “1981” in subsection (2) of section 81 of the amending legislation refers to the calendar year 1981; this appears to have been the intent of Parliament. In legislating the effective date of provisions in the amending legislation Parliament has used both the calendar year and the taxation year. For example, the sections immediately preceding and following section 82 of the amending legislation provide that their provisions are “applicable to the 1982 and subsequent taxation years” (SC 1980-81-82-83, c 140, s 81 and s 83). Subsection 7(1) of the amending legislation amended subsection 15(2) of the Act in respect of certain loans made and indebtedness incurred “after 1981”. Parliament intended “1981” to have a different meaning than ‘1981 taxation year”. The words “taxation year” were deliberately omitted by Parliament in subsection 82(2) of the amending legislation. Subsections 81(1) and (2) of the amending legislation together provide that dividends received in the particular taxation year are to be included in income for the taxation year, but the amount of the dividend tax credit available to the taxpayer for that year is dependent on when the dividend was received.

The dividends in question were in fact received by the trusts in 1981. The trusts designated that the dividends be deemed to be taxable dividends received by the appellant in its 1982 taxation year and not to be taxable dividends received by the trusts. The trusts are deemed not to have received the dividends from the particular corporations; the dividends must have been “received” by the appellant some time in the 1982 taxation year of the trusts and common sense dictates that the dividends are deemed to be received by the appellant from the paying corporations when they were actually received by the trusts, that is, in 1981.

At the commencement of trial counsel for both parties agreed that the appellant’s taxable income for 1982 was overstated in the amount of $400 and therefore should be reduced accordingly.

The appeal will therefore be allowed with costs.

Appeal allowed.