The
Assistant
Chairman:—The
appeal
is
from
a
tax
assessment
for
the
1969
taxation
year.
Counsel
for
the
parties
agreed
on
the
following
facts:
The
fiscal
period
of
Bates
Construction
&
Development
Corporation
(hereinafter
called
“Bates
Construction”)
ends
on
September
30.
Having
suffered
a
business
loss
of
$95,863
during
the
1967
taxation
year,
Bates
Construction
was
obliged
to
discontinue
its
business
before
the
end
of
the
said
period.
On
September
29,
1967,
a
few
months
after
the
discontinuance
of
business
by
Bates
Construction,
Federal
Construction
Com-
pany
Limited
(“Federal
Construction’)
acquired
control
of
Bates
Construction
by
purchasing
5,005
common
shares
and
93,563
preferred
shares
of
its
capital
stock.
In
1968
and
subsequent
years,
Bates
Construction
engaged
in
the
real
estate
business—a
very
different
business
from
the
one
it
was
operating
when
it
suffered
the
loss
in
question;
during
the
years
1968
and
1969
it
realized
a
substantial
profit
and,
on
the
basis
of
paragraph
27(1
)(e)
of
the
Income
tax
Act
it
attempted
to
deduct
the
said
loss
suffered
in
1967
from
its
1969
income.
In
computing
the
taxable
income
of
Bates
Construction
for
the
year
1969,
the
respondent
refused,
under
subsection
27(5a)
of
the
Aci,
to
allow
deduction
of
the
business
losses
suffered
during
the
1967
taxation
year.
Counsel
for
the
appellant
maintains
that
the
said
subsection
does
not
apply
since
control
was
acquired
during
the
year
1967
while
it
was
carrying
on
its
business.
Counsel
for
the
respondent
contends,
on
the
other
hand,
that
the
case
before
the
Board
meets
all
the
requirements
of
subsection
27(5a)
and
that,
as
a
result,
paragraph
27(1
)(e)
does
not
apply.
Subsection
27(5a)
reads
as
follows:
27.
(5a)
Paragraph
(e)
of
subsection
(1)
does
not
apply
to
permit
a
corporation
to
deduct,
for
the
purpose
of
computing
its
taxable
income
for
a
taxation
year,
a
business
loss
sustained
by
it
in
a
preceding
taxation
year
from
the
carrying
on
of
a
business
if
during
the
preceding
taxation
year
(a)
the
business
of
the
corporation
in
which
the
loss
was
sustained
was
wound
up
or
discontinued;
and
(b)
control
of
the
corporation
was
acquired
(i)
after
the
winding
up
or
discontinuance
of
the
business,
and
(ii)
after
June
13,
1963,
by
a
person
or
persons
who
did
not
control
the
corporation
at
any
time
during
the
preceding
year
when
the
business
was
being
carried
on.
(The
italics
are
mine.)
It
is
therefore
necessary
to
interpret
the
above
section
and
more
especially
the
last
phrase,
which
reads:
“at
any
time
during
the
preceding
year
when
the
business
was
being
carried
on’’.
It
is
an
undisputed
fact
that
a
business
loss
was
sustained
by
Bates
Construction
during
a
previous
year,
namely
the
year
1967,
and
that
its
business
was
discontinued
during
the
said
year.
It
is
also
certain
that
control
of
the
corporation
was
acquired
on
September
29,
1967,
a
few
months
after
its
business
was
discontinued
and
after
June
13,
1963.
Up
to
this
point
subsection
27(5a)
applies
to
the
facts
and
circumstances
of
the
case.
And
now
the
words
“control
of
the
corporation
was
acquired
.
.
.
by
a
person
or
persons
who
did
not
control
the
corporation
at
any
time
during
the
preceding
year
when
the
business
was
being
carried
on”
must
be
interpreted.
Counsel
for
the
appellant
contends
that
control
of
Bates
Construction
was
acquired
and
held
during
the
1967
fiscal
year
while
it
was
carrying
on
its
business
‘and
concludes
that
it
is
not
subject
to
the
provisions
of
subsection
27(5a).
However,
if
this
section
is
considered
as
a
whole,
it
is
difficult
to
justify
the
interpretation
given
by
counsel
for
the
appellant
to
the
words
“at
any
time
during
the
preceding
year
when
the
business
was
being
carried
on”.
Subsection
27(5-a)
describes
the
circumstances
under
which
business
losses
sustained
in
a
preceding
year
cannot
be
deducted
from
the
taxable
income
for
a
taxation
year.
Paragraph
(a)
of
the
said
subsection
27(5a)
clearly
states
“the
business
of
the
corporation
in
which
the
loss
was
sustained
.
.
The
Board
is
aware
that
the
business
being
carried
on
by
Bates
Construction
when
the
loss
was
sustained
was
discontinued
some
months
before
Federal
Construction
took
over
control
of
the
appellant.
Moreover,
once
under
the
control
of
Federal
Construction,
Bates
Construction’s
income
came
from
another
type
of
business,
quite
different
from
the
business
it
was
carrying
on
when
it
sustained
the
loss
in
question,
The
“preceding
year”
definitely
means
the
year
in
which
the
loss
was
sustained,
and
the
words
‘‘when
the
business
was
being
carried
on”
which
follow
‘‘the
preceding
year”
have
the
same
meaning,
in
my
opinion,
as
the
word
“business”
cited
in
paragraph
(a)
of
subsection
27(5a),
namely
“the
business
in
which
the
loss
was
sustained”.
To
interpret
the
word
“business”
in
subparagraph
27(5a)(b)(ii)
as
including
business
of
a
completely
different
nature
from
the
business
in
which
the
loss
was
sustained
and
which
was,
in
fact,
discontinued
a
few
months
before
control
of
the
corporation
was
taken
over
by
a
new
organization
would
seem
to
contradict
the
other
provisions
of
the
said
section
as
well
as
the
purpose
the
legislator
had
in
mind,
which
was
to
check
trading
in
business
losses.
I
therefore
conclude
that
the
appellant
comes
entirely
within
the
provisions
of
subsection
27(5a)
and
is
thus
not
in
a
position
to
benefit
by
the
deductions
for
business
losses
allowed
under
the
provisions
of
paragraph
27(1
)(e)
of
the
Income
Tax
Act.
The
appeal
is
dismissed.
Appeal
dismissed.
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