Precision Small Parts LTD v. Minister of National Revenue, [1982] CTC 2799, 82 DTC 1811

John B Goetz:—This is an appeal by the appellant with respect to its taxation year ending June 5, 1978.

The parties agreed to the facts as set forth in the appellant’s notice of appeal, i.e. paragraphs 1, 2 and 3 which read as follows:

1. In its 1978 income tax return for the taxation year ending June 5, 1978, the Appellant reported net income and taxable income in the amount of $45,499. The Appellant’s Cumulative Deduction Account (“CDA”) at the end of the preceding taxation year was shown in the negative amount of $73,929 and the taxable income for the 1978 taxation year was deducted from the CDA to leave a negative balance of $28,430 in the CDA at the end of the 1978 taxation year.

2. By Notice of Assessment, Number 98127226, dated April 23, 1979, the Minister of National Revenue revised the Appellant’s calculation showing the balance of the CDA at the end of the preceding taxation year as $16,650 instead of the negative amount of $73,929 as shown by the Appellant.

3. The Appellant, due to a merger with its parent company, Richard A. MacDonald Limited, had two taxation years ending in 1978. The first period ended March 31, 1978, and the second period ended June 5, 1978. The CDA for the first 1978 period was calculated by the Appellant as follows:

CUMULATIVE DEDUCTION ACCOUNT — March 31,

1978

Cumulative Deduction Account at the end of the
preceding taxation year		$(90,539)
Add: Taxable Income (Cannot be a negative amount)	$16,650
		16,650
		73,889
Cumulative Deduction Account at the End of the Tax
ation Year		$(73,889)
The Second 1978 period was calculated as follows:
CUMULATIVE DEDUCTION ACCOUNT — June 5,
1978
Cumulative Deduction Account at the end of the
preceding year		$(73,929)
Add: Taxable Income (cannot be a negative amount) $45,499		45,499
		$(28,430)
Cumulative Deduction Account at the End of the Tax
ation Year		(28,430)
The respondent, in his reply to notice of appeal, alleged:

2. The Respondent reassessed the Appellant for its taxation year ended March 31, 1978 on the assumption that the Cumulative Deduction Account at the end of its 1977 taxation year, was NIL.

3. The Respondent reassessed the Appellant for its taxation year ended June 5, 1978 on the assumption that its Cumulative Deduction Account at the end of the preceding year, being the taxation year ending March 31, 1978, was $16,650.

4. The Respondent relies, inter alia, upon Paragraph 125(6)(b) of the Income Tax Act, RSC 1952, Chapter 148, as amended by SC 1977-78, C 1, S 59.

5. The Respondent respectfully submits that the Appellant properly has been assessed with respect to its taxation years ending in 1978 as the Appellant’s Cumulative Deduction Account, within the meaning of Paragraph 125(6)(b) of the Income Tax Act can at no time be a negative amount, and was, at March 31, 1977, NIL, and, at March 31, 1978, $16,650.

The matter before me resolves itself to the legal determination of subparagraph 125(6)(b)(i) as it stood prior to its amendment in the Income Tax Act as opposed to the amendment of that section by SC 1977-78, C 1, S 59. Subparagraph 125(6)(b)(i) read as follows prior to the amendment:

“Cumulative Deduction Acount” of a corporation at the end of any taxation years means the amount, if any, by which the aggregate of

(i) the corporation’s taxable incomes for the taxation years commencing after 1971 and ending not later than the end of the particular year

The amendment of that section by SC 1977-78, C 1, S 59(1) reads as follows:

“Cumulative Deduction Account” of a corporation at the end of any taxation year means the amount, if any, by which the aggregate of

(i) the corporation’s Cumulative deduction account at the end of the immediately preceding taxation year

Transitional Rule Section 59(4), SC 1977-78, C 1 reads as follows:

For the purpose of determining a corporation’s Cumulative Deduction Account at the end of its 1978 taxation year or, where it has more than one taxation year ending in 1978, the first of those years, subparagraph 125(6)(b)(i) of the said Act shall read as follows:

(i) the corporation’s cumulative deduction account at the end of its last taxation year ending in 1977 within the meaning of this Act as it read in its application to the corporation’s 1977 taxation year.

Counsel for the appellant contended that the amendment 59(1) is not worded broadly enough to affect the appellant and if it is properly worded it is discriminatory and should in effect carry the 1977 cumulative deduction account to the end of March 31, 1978. He further contended that the legislation was not clear enough to eliminate what was already created at the time the legislation was passed. He maintained therefore there should be some recognition of the state of the CDA account in 1977 (prior to the legislation).

The respondent on the other hand, argued that the provisions of paragraph 125(6)(b) provided a deduction only to small Canadian business corporations; that the words “means the amount, if any,” related back to computations starting in 1971 and that the calculation of the CDA could end in a negative position. Counsel maintained that the amendment by subsection 59(1) put all the corporations in the same position and that mergers made no difference as there was no need to help old established corporations. The respondent further contended that subsection 59(1), the transitional rule, was to ensure that a company knew where to start, namely, the year- end balance concept which would start at the end of the taxation year 1977 and that in the instant case, the fiscal year ending June 5, 1978 can be the only date to be considered. In answer to the appellant’s argument of ambiguity - hence a broader interpretation should be applied in favour of the taxpayer — counsel for the respondent simply stated that the section being considered was an exempting provision which precluded any consideration of ambiguity in favour of the taxpayer.

I can only quote The King v H J Crabbs, [1934] SCR 523 at page 526 in which case it quoted with approval the rule of interpretation applicable to a taxing statute stated by Fitzgibbon, LJ. In Re Finance Act, 1894 and In Re the Estate of Rev George Studdert [1900] 2 IR 400, at 410:

If it be doubtful or difficult of interpretation, which I do not think it is, the Finance Act is subject to the rule that no tax can be imposed except by words which are clear, and the benefit of the doubt is the right of the subject.

I find no ambiguity in the relevant provisions of the Income Tax Act and consequently I am in accord with the basic position taken by the respondent and therefore dismiss the appeal.

Appeal dismissed.