Beaver Lumber Co. Ltd. v. Provincial Tax Commission, [1944] CTC 15

Martin C.J.S.:—The respondent, the Beaver Lumber Co., is a Dominion company incorporated by letters patent and carries on business in several of the. Provinces. In its income tax return for the taxation period May 1, 1940, to April 30, 1941, under the provisions of the provincial Income Tax Act, R.S.S. 1940, c. 54, it claimed an exemption of $17,950.73, which was the amount for which it became liable to the Dominion of Canada for the same tax period under the provisions of the Income War Tax Act, R.S.C. 1927, c. 97. The exemption was claimed under the provisions of clause (m) of s. 5(1) of the provincial Income Tax Act which clause was inserted in s. 5 by amendment contained in s. 4 of 1941, c. 10 and assented to on April 8, 1941. After deducting the exemption claimed the respondent estimated its provincial income tax at $4,088.78 and paid this sum to the Provincial Tax Commission.

The relevant portions of s. 5 of the provincial Income Tax Act are as follows:

"‘5.(1) Income shall for the purposes of this Act be subject to the following exemptions and deductions: . . . .

il (m) the amount of income tax (not including the National Defence Tax) which the taxpayer paid or became liable to pay within the taxation period to the Dominion of Canada under The Income War Tax Act (Canada) and the amount of National Defence Tax which the taxpayer paid within the taxation period to the Dominion of Canada under the said Act; provided that such deductions shall be limited to such proportions of the said amounts as the income of the taxpayer taxable in the province bears to the income of the taxpayer taxable under The Income War Tax Act (Canada)’’.

The Provincial Tax Commission disallowed the exemption claimed by the respondent and allowed instead an exemption of $2,269.11 which was the amount of income tax paid by the respondent to the Dominion of Canada in respect of its Saskatchewan income for the preceding year, namely, from May 1, 1939 to April 30, 1940. The Provincial Tax Commission accordingly fixed the tax payable by the respondent at $4,878, and after crediting the sum of $4,088.78 already paid, claimed a balance of $789.22. An appeal taken by the respondent to the Board of Revenue Commissioners was dismissed and the respondent then appealed to a Judge of the Court of King’s Bench in Chambers. The appeal was heard by Bigelow J. who in a written judgment allowed it. The learned Chamber Judge was of the opinion that under the provisions of clause (m) s. 5(1), the respondent was entitled to an exemption in the sum of $17,950.73, as liability to pay that amount to the Dominion of Canada arose during the taxation period of 1940-41, or as stated in his judgment the liability to pay "‘arose when the income was received”. From this judgment the Provincial Tax Commission has appealed to this Court.

The question involved in the appeal is when did the respondent become liable to pay to the Dominion of Canada the income tax payable by it to the Dominion in respect of its income for the year 1940-41 ? It will be observed that the exemption to which it is entitled under clause (m) is in the following language: "‘the amount of income tax . . . . which the taxpayer paid or became liable to pay within the taxation period to the Dominion of Canada under The Income War Tax Act (Canada).’’

The respondent contends that under the Income War Tax Act (Can.) the liability to pay income tax arises as the income is earned and that it became liable, during the fiscal year 1940-41 to pay to the Dominion of Canada a sum of $17,950.73 and that it is therefore entitled to an exemption for that amount. The appellant, the Provincial Tax Commission, on the other hand argues that the liability to pay income tax under the Federal statute does not arise until after the income tax return has been filed by the taxpayer and assessments have been completed by the minister, and that the only tax for which the respondent became liable within the taxation period in question, namely 1940-41, was the tax for the preceding year of 1939-40.

Section 9 of the Income War Tax Act (Can.) as it was in 1941, provides that the tax levied is upon the income of the preceding year. The relevant portions of s. 9 are as follows:

"‘9.(1) There shall be assessed, levied and paid upon the income during the preceding year of every person:

‘‘(a@) residing or ordinarily resident in Canada during such year; . . .

a tax at the rates applicable to persons other than corporations and joint stock companies set forth in the First Schedule of this Act upon the amount of income in excess of the exemptions provided in this Act : Provided that the said rates shall not apply to corporations and joint stock companies.

(2) Save as herein otherwise provided, corporations and joint stock companies, no matter how created or organized, shall pay a tax upon income at the rate applicable thereto set forth in the First Schedule of this Act. ‘ ‘

Section 9 of the Income War Tax Act is the charging section of the Act and it provides that there shall be assessed, levied and paid on the income during the preceding year of every person, etc. "Person’’ is defined in the Act as including "any body corporate and politic.” Liability to pay depends upon the charging provisions of the statute. The language of s. 9 and particularly the use of the word "preceding’’ makes it plain that assessment, levy and payment are all to be made in the year following the one in which the income is earned and in my opinion there can be no liability to pay until after the assessment and levy. There cannot be liability to pay during the year in which the income is earned except in the sense that if the Act remains unrepealed the taxpayer will be assessed on such income and called upon to pay at some time in the year following that in which the income is earned. Minister of Nat f l Revenue v. Molson, [1938], 2 D.L.R. 481, S.C.R. 218. Duff C.J.C. at pp. 485 and 486. Kerwin J. at p. 498. Kerr v. Sup f t of Income Tax, [1942], 4 D.L.R. 289, S.C.R. 435. Kerwin J., p. 299. Hudson J., at pp. 303-4. In the last referred to case the Supreme Court of Canada had under consideration provisions of the Income Tax Act of the Province of Alberta similar to those contained in the Income War Tax Act (Can.).

Section 33(1) provides that every person liable to taxation under the Act shall on or before the 31st day of March in each year without any notice or demand deliver to the Minister a return on a prescribed form of his total income for the preceding year; and in s. 35(2) it is provided that notwithstanding the provisions of s. 33, a corporation shall make a return within four months from the close of its fiscal period. The fiscal period of the respondent ended on April 30, 1941, and accordingly it had till August 31, 1941, to comply with s. 35 and file its return with respect to its income for the year 1940-41. As a fact the respondent filed its return on August 31, 1941, and until that date while it was liable to be taxed on its income for 1940-41, it cannot be said that it was ""liable to pay”. Section 48, before it was amended by s. 23 of 1942-3 (Can.), c. 28, provided that every person liable to pay any tax under the Act shall estimate the amount of the tax payable by him and shall send with the return not less than one-third of the amount of such tax and shall pay the balance within four months thereafter together with interest at the rate of 5% per annum upon the balance "‘from the last day prescribed for making such return to the time payment is made.’’ The provisions of section 48 in my opinion make it clear that liability to pay arises at the time when the return is required to be made.

I am of the opinion therefore that the respondent company did not become "‘liable to pay within the taxation period’’ any part of the Dominion Tax for the period in question, namely, May 1, 1940 to April 30, 1941, until August 31, 1941, when it made its return according to the provisions of the Dominion Income War Tax Act. That an exemption must be strictly construed is clear from authority. Roenisch v. Minister of Nat y l Revenue, [1931], 2 D.L.R. 90, Ex. C.R. 1. Toronto Gen f l Trusts v. Ottawa, [1935], 4 D.L.R. 337, S.C.R. 531. Lamont J., at p. 5386. Episcopal Corp. of Saskatoon v. City of Saskatoon [1936] 2 W.W.R. 92, at pp. 95 and 99.

The appeal should be allowed with costs, the judgment of the Chamber Judge set aside, and the judgment of the Board of Revenue Commissioners restored.

Appeal allowed.