A
J
Frost:—This
is
an
income
tax
appeal
relating
to
a
notice
of
reassessment
dated
August
27,
1975
with
respect
to
the
appellant’s
1974
taxation
year.
The
appellant
company
‘is
incorporated
under
the
laws
of
the
Province
of
Ontario.
Prior
to
June
24,
1974
the
appellant
was
controlled
by
non-residents
of
Canada
and
accordingly
did
not
qualify
for
the
small
business
deduction
under
subsection
125(1)
of
the
Income
Tax
Act,
SC
1970-71-72,
c
63,
as
amended.
On
June
24,
1974
a
transfer
of
ownership
occurred
and
as
a
result
the
appellant
became
a
Canadian-controlled
corporation
within
the
meaning
of
paragraph
125(6)(a)
of
the
said
Act,
as
the
new
owners
were
Canadian
and
replaced
the
former
American
owners.
In
filing
its
income
tax
returns
for
1972,
1973
and
1974
the
appellant
did
not
calculate
the
cumulative
deduction
account
referred
to
in
paragraph
125(6)(b)
of
the
Income
Tax
Act.
This
paragraph
provides
that
the
limit
with
respect
to
which
the
small
business
deduction
may
be
claimed
for
1972
and
subsequent
years
is
reduced
by
the
cumulative
deduction
account,
and
a
formula
for
the
calculation
of
such
reduction.
The
appellant
did
not
qualify
in
1972,
1973
and
1974
to
claim
the
small
business
deduction
and
did
not
calculate
the
cumulative
deduction
account
amount.
The
Minister,
however,
did
calculate
the
amount
despite
the
fact
that
the
appellant
was
not
entitled
to
claim
the
small
business
deduction
in
those
years,
and
incorporated
the
calculation
into
the
notice
of
assessment
as
part
of
it.
This
did
not
alter
the
amount
levied
as
tax
in
the
taxation
year,
but
did
change
the
overall
tax
position
of
the
appellant
to
the
point.where
it
completely
eliminated
the
availability
of
a
small
business
deduction
for
future
years.
The
inconsistency
in
the
Minister’s
position
lies
in
the
fact
that
this
appellant
did
not
have
the
right
to
claim
any
small
business
deductions,
yet
the
Minister
makes
a
retroactive
calculation,
eliminating
the
rights
conferred
under
section
125
of
the
Income
Tax
Act.
The
Minister
then
takes
the
position
that
the
only
issue
before
the
Board
is
whether
or
not
the
assessment
of
tax
is
too
high
on
the
ground
that,
if
it
is
not
too
high,
the
appellant
does
not
have
anything
to
complain
about
in
the
particular
year
under
appeal,
and
not
having
anything
to
complain
about
in
the
particular
year
under
appeal,
the
appeal
ought
to
be
dismissed.
Counsel
for
the
appellant,
in
his
argument,
submitted
that:
Although
the
definition
of
“cumulative
deduction
account”’
in
Section
125(6)(b)
of
the
Income
Tax
Act
of
Canada
does
not
specifically
state
that
it
is
to
be
computed
only
with
respect
to
Canadian-controlled
private
corporations,
nevertheless,
a
proper
reading
of
Section
125
of
the
Income
Tax
Act
of
Canada
inputs
entirety
requires
that
‘‘cumulative
deduction
account’’
be
defined
in
this
way.
This
interpretation
is
also
backed
up
by
the
tact
that
the
T-2
Income
Tax
Return
instructs
the
Appellant
to
compute
the
cumulative
deduction
account
only
with
respect
to
Canadian-controlled
private
corporations
at
any
time
in
the
taxation
year.
The
appellant
has
a
right
to
be
assessed
according
to
paragraph
125(6)(b)
of
the
Income
Tax
Act,
and
since
that
right
has
been
violated
by
the
Minister,
he
has
a
right
of
appeal
ub/
us
ibi
remedium.
For
the
above
reasons
the
appeal
is
allowed
and
the
matter
referred
back
to
the
Minister
to
either
delete
the
cumulative
deduction
account
calculation
from
the
notice
of
assessment
issued
for
the
1974
taxation
year
entirely
or,
if
on
reconsideration
he
considers
that
some
calculation
is
required
under
the
Income
Tax
Act
as
from
June
24,
1974,
the
date
of
commencement
of
operations
of
the
appellant
as
a
Canadian-
controlled
private
corporation,
to
make
such
calculation
and
amend
the
assessment
accordingly.
The
appeal
is
allowed.
Appeal
allowed.
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