Claude Theoret v. Minister of National Revenue, [1984] CTC 2960

St-Onge, TCJ [TRANSLATION]:—The appeal of Mr Claude Théoret was heard in Montréal, Quebec on April 4, 1984.

The Court has to determine the taxable income of the appellant for his 1980 taxation year so as to know his Quebec exemption which is refundable for the said year.

The respondent argued that the amount refundable is $6.99, while the appellant placed it at $27.40.

In assessing the appellant the respondent relied, inter alia, on the facts as stated in paragraph 5(a) and (b) of the reply to the notice of appeal, to wit:

5. In assessing the appellant for the 1980 taxation year the respondent relied, inter alia, on the following facts:

(a) in the 1980 taxation year, the appellant received eligible interest income from a Canadian source exceeding $1,000.00;

(b) in his tax return for the year in question, the appellant did not claim the interest deduction in the amount of $1,000.00 to which he was entitled.

The appellant argued that he is not obliged to deduct $1,000 from his interest income, since section 110.1 of the Income Tax Act, SC 1970-71-72, c 63, as amended, states “there may be deducted from his income”, not “there must be deducted”. For this reason, the respondent cannot take it upon himself to grant a deduction to a taxpayer who has not seen fit to take it.

At the hearing, the appellant argued that the respondent’s action had the effect of increasing his tax burden, and that under the rules of interpretation no ambiguity exists regarding the verb “may”, which is permissive for the taxpayer and not for the Minister.

He referred the Court to several texts on the drafting and interpretation of statutes, to wit:

1. Canadian Income Taxation — 3rd ed (1983), by Edwin C Harris, at p 439:

Since, technically speaking, an “exemption” is an identifiable type of income that is not subject to tax, the deductions that we are now considering are not, strictly, exemptions and might be better described as personal “allowances”. Allowances do not represent the exclusion of certain identifiable types of income but represent rather the elimination of a portion of income (regardless of its source or nature) from being subject to tax. Because of the general usage of the term, however, we shall continue to refer to personal “exemptions”.

2. Interpretation des Lois — ed Yvon Blais Inc (1982), by Pierre-André Coté, at p 430:

In tax matters, the prevailing tendency has traditionally favoured both a literal and limiting interpretation. However, at the present time it seems accepted practice that tax statutes should be interpreted in the same way as other statutes, but in cases of a reasonable doubt applied so as to favour the taxpayer.

PARAGRAPH 1: THE PREVAILING TRADITIONAL THEORY

The prevailing approach taken by the courts was in the direction of a literal interpretation favourable to the taxpayer. A literal interpretation: in seeking to determine the legislative intent in tax matters, the wording of the statute played a predominant and almost exclusive role, to the detriment of the context, and especially the purpose; a restrictive interpretation favourable to the taxpayer: the courts placed on the legislator the burden of drafting tax legislation clearly, and resolved any doubt in favour of the taxpayer.

Counsel for the respondent argued that:

— the verb “may” in section 110.1 of the Act indicates an option (Interpretation Act, c 1-23): “may” before an infinitive indicates an option;

— Parliament chose an impersonal, non-subjective form in section 110.1 of the Act, so that if the section had stated that “the taxpayer” may deduct from his income there would have been no doubt.

He then gave the example of paragraph 1100(1)(a) of the Income Tax Regulations, where it does state that the “taxpayer” may claim a deduction for a capital cost allowance. He admitted that the authorities are divided on the Minister’s discretionary power under the old paragraph 85B(l)(c) and paragraph 20(l)(m) of the Act, and there are no decisions on section 110.1 of the Act.

On the reserve for a balance of the selling price of property, he referred the Court to the following cases:

1. — Earl W Gardner v MNR, 39 Tax ABC 162; 65 DTC 591:

. . . The Minister acted irregularly in granting unsolicited reserves wholly on his own initiative.

2. Isadore Weinstein v MNR, 66 DTC 436, at 437:

. . . It appears that either the taxpayer or the Minister’s assessor is at liberty to deduct the amount of a reserve in a proper case in order to arrive at the correct amount of taxable income remaining. The unilateral allowance of a reserve by the Minister in a proper case is simply a normal part of the assessing process and to be endorsed rather than frowned upon. Where the allowance of a reserve is indicated, it might well generate hardship if the Minister were to be regarded as without authority to grant one, except at a taxpayer’s behest. The present case could be distinguished from Gardner v MNR, (65 DTC 591).

As can be seen, when legislation is to be interpreted the more complicated the wording, the more confused we become, and that is why in some cases it is best not to depart too far from a kind of elementary justice, and in uncertain cases to resolve the doubt in the taxpayer’s favour.

In the case at bar and the cases cited, it is true that the Minister of National Revenue has a discretionary power, but he must apply this in accordance with taxpayers’ rights.

Here we have a system of self-assessment. Under this system, therefore, the taxpayer is the first person who may deduct or not deduct. He has the option of choosing: in other words, he has a right conferred by the legislator.

Can the discretionary power of the Minister of National Revenue deprive a taxpayer of a right? The Court does not think the Minister can take away from a taxpayer a right granted to him by the legislator.

For this reason, the appeal is allowed.

Appeal allowed.