The Assistant Chairman:
1 This is the appeal of Sydney Kronick from an income tax assessment dated April 17, 1974 in respect of the 1972 taxation year. Pursuant to subsection 165(1) of the Income Tax Act, SC 1970–71–72, c 63, and amendments thereto, the appellant served on the Minister a notice of objection in the prescribed form dated July 12, 1974, in which, in conformity with paragraph 165(3)(b) of the said Act he indicated to the Minister that he wished to appeal immediately to the Tax Review Board and that he waived reconsideration and assessment by the Minister. The said notice of objection is therefore deemed by the Board to be a notice of appeal.
2 The issue in this appeal is the interpretation and the application of subsection 23(3) of the Income Tax Application Rules, and more particularly the purport of paragraph 23(3)(c).
3 The appellant is a medical doctor practising his profession in the City of Ottawa, and prior to 1972 was on a cash system of accounting.
4 In computing his income from his professional practice, the appellant made the following calculations:
Net Income per Financial Statement $161,571.38
Add: Pursuant to section 23(3)(c) the amount
deducted under section 23(3)(a) in computing
income from the profession for the immediately
preceding taxation year Nil
Deduct: Pursuant to section 23(3)(a) the lesser of
(i) the amount deducted under section 23(3)
(a) in computing income from the business
for the immediately preceding year; and $36,026.00
(ii) his investment interest in the business at
the end of the year $57,216.53
Therefore deduct (36,026.00)
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Net income for income tax purposes from
professional business $125,545.38
5 The appellant in so computing his income for the 1972 taxation year contends that he has applied the provisions of subsection 23(3) of the Income Tax Application Rules.
6 Counsel for the respondent contends that subsection 23(3) should have been applied as follows:
Net income per financial statement $161,571.38
Add: Pursuant to section 23(3)(c) the amount
deducted under section 23(3(a) in computing
income from the business for the immediately
preceding tax year $36,026.00
Deduct:
Pursuant to section 23(3)(a) the lesser of
(i) the amount deducted under section 23(3)
(a) in computing income from the business
for the immediately preceding taxation year $36,026.00
(ii) his investment interest in the business
at the end of the year $57,216.53
Therefore deduct (36,026.00)
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Net income from professional business $161,571.38
7 The real issue in this appeal is the interpretation to be given to paragraph (c) of subsection 23(3) of the Income Tax Application Rules. ITAR 23(3) reads in part as follows:
23. (3) For the purposes of computing the income of a taxpayer for a taxation year ending after 1971 from a business that is a profession, the following rules apply:- (a) there may be deducted such amount as he may claim, not exceeding the lesser of
(i) the amount deducted under this paragraph in computing the taxpayer's income from the business for the immediately preceding taxation year, and
(ii) the taxpayer's investment interest in the business at the end of the year;
(b) where the taxation year is the taxpayer's 1972 taxation year, the amount deducted under paragraph (a) in computing the taxpayer's income for the immediately preceding taxation year from the business shall be deemed to be an amount equal to the taxpayer's 1971 receivables in respect of the business;
(c) there shall be included the amount deducted under paragraph (a) in computing the taxpayer's income for the immediately preceding taxation year from the business; and
8 In my view the interpretation and the application of subsection 23(3) of ITAR and the methods of calculation found therein, including paragraph 23(3)(c) which is the paragraph in dispute, is predicted upon the existence, the wording and the intent of subsection 34(1) of the new Income Tax Act which compels a professional business utilizing the cash system of accounting to convert to a modified accrual method for taxation years ending after 1971 and, in the process of effecting that conversion, subsection 23(3) of the Income Tax Application Rules is one of the statutory rules to be applied in computing the income of such taxpayers for the immediately preceding taxation year.
9 I also believe that the interpretation of the various subsections and subparagraphs of a statute must be in keeping with the wording and the meaning of the whole section and in conformity with other related and pertinent sections of the Act.
10 In applying paragraph 23(3)(c) in the computation of his 1972 income, the appellant added a nil amount to his income on the basis that subsection 23(3) of the Income Tax Application Rules was not in force in 1971, and that the appellant had therefore made no deduction under paragraph (a) in computing his income for the immediately preceding taxation year, namely, 1971.
11 However, paragraph 23(3)(b) of the Income Tax Application Rules dealing with the taxpayer's 1972 taxation year states that the amount to be deducted under paragraph 23(3)(a) in computing the taxpayer's income for the immediately preceding year shall be deemed to be an amount equal to the taxpayer's 1971 receivables in respect of his business.
12 In my view, the only logical conclusion to be drawn from reading the entire subsection 23(3) of the Income Tax Application Rules is that, notwithstanding that no amount was in fact deducted from the appellant's income in the 1971 taxation year, the amount to be deducted under paragraph 23(3)(a) of the Income Tax Application Rules is the lesser of: the amount equal to the appellant's 1971 receivables and the taxpayer's investment in the business at the end of the year. The amount of the appellant's 1971 receivables was $36,026 and since it was less than the appellant's investment interest in the business at the end of the year, an amount of $36,026 was deductible under paragraph 23(3)(a).
13 The appellant apparently has no difficulty in accepting the wording, reasoning and the calculations of paragraph 23(3)(a) which provide in the computation of his 1972 income for the deduction of $36,026 on the basis of the wording of paragraph 23(3)(b), and the appellant did in fact deduct that amount in the computation of his income for the 1972 taxation year.
14 However, in interpreting and applying paragraph 23(3)(c) of the Rules, the appellant disregards the wording of paragraph 23(3)(b) on the basis of which he calculated, and rightly claimed, a deduction of $36,026 pursuant to paragraph 23(3)(a), and contends that no amount was deducted in 1971, and claims that no amount can rightly be included in computing his income for the immediately preceding taxation year.
15 The words “the amount deducted under paragraph (a) in computing the taxpayer's income for the immediately preceding taxation year from the business” which appear in paragraph (c) of subsection 23(3), are also to be found in their entirety in both paragraph (a) and paragraph (b) of that section.
16 Paragraph 23(3)(a) deals with the method of calculating the deduction in reporting the appellant's 1972 income, whereas paragraph 23(3)(c) simply deals with the amount to be included in the taxpayer's 1972 income. Both of these paragraphs, in my view, must be read in the light of the provisions of paragraph 23(3)(b) of the Rules. However, the opening words of paragraph 23(3)(c) are—“there shall be included the amount deducted under paragraph (a)”. In my opinion there is no ambiguity whatever in the wording of paragraph 23(3)(c) of the Rules. The amount deducted by the appellant himself under paragraph 23(3)(a) in computing his income for the immediately preceding taxation year was deemed to be, by virtue of paragraph 23(3)(b) of the Rules $36,026, an amount equal to his 1971 receivables, and it is the amount that was deducted under paragraph 23(3)(a) which has to be included again in calculating his income for the 1972 taxation year pursuant to what I consider to be the only consistent interpretation that can be placed on the wording of paragraph 23(3)(c).
17 The appeal is therefore dismissed.
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