The Credit Protectors (Alberta) Limited v. Minister of National Revenue, [1946] CTC 276

CAMERON, J.: This is an appeal in respect to the assessment under the Excess Profits Tax Act for the taxation year 1942. On June 24th, 1943, the appellant filed his income tax return, including his return under the Excess Profits Tax Act. Under date July 6th, 1945, notice of assessment was forwarded to the appellant, the latter being assessed in the sum of $923.64 for Excess Profits Tax instead of the sum of $253.97, as computed by the appellant at the time of filing his return. The appellant duly gave notice of appeal from the assessment on August 3rd, 1945, and on November 26th, 1945, the Minister gave his decision affirming the assessment as made. On December 17th, 1945, the appellant gave notice of dissatisfaction and by the reply of the Minister, dated May 17th, 1946, the assessment was affirmed. The matter now comes before this Court for ‘decision.

No evidence was submitted at the hearing, the parties having agreed on a statement of facts, filed as Exhibit 1. From this statement it appears that the appellant is an incorporated company under the provisions of the Companies Act of the Province of Alberta, carrying on business as a collection agency with offices in the City of Edmonton. The share capital at all relevant times consisted of 100 shares, which, in the year 1942, were owned by the following shareholders:

From the statement of facts it appears also that the shareholder Roy E. Towns, and the holder of 1 share, was during the year 1942, in the employ of the appellant company and for that year was paid by the appellant corporation the sum of $2,216. 89, in Salar and commission, the said R. E. Towns acting as secretary of the appellant. The said R. E. Towns during the said year was exclusively employed by the appellant company and had no other means of livelihood. The said moneys so paid to him by the appellant were paid to him by way of salary for services rendered, and were not paid to him or intended to be a payment to him by virtue of his shareownership in the company. It was further agreed by paragraph 12 of the statement of facts that the sole question in issue between the parties is whether the said R. E. Towns is a shareholder within the meaning of that term as used in See. 7A of the Excess Profits Tax Act, as it was in 1942, so as to disentitle the appellant corporation to exemption from taxation under that section.

The general charging section under the Excess Profits Tax Act is See. 3, and it applied to all persons (including corporations) résident or ordinarily resident in Canada, or who are carrying on business in Canada.

The appellant, therefore, claims to be entitled to exemption under the Excess Profits Tax Act by reason of the provisions of Section 7A as it then stood, the said section 7A then reading as follows:

"‘7A. The following profits shall not be liable to taxation under Section Three of this Act in accordance with the rates set out in the First and Second Parts of the Second Schedule to this Act:

The profits of a corporation or joint stock company which, in the taxation year, do not exceed the sum of five thousand dollars, or, where the taxation year of any corporation or joint stock company is less than twelve months, do not exceed the proportion of five thousand which the number of days in the taxation year of such corporation or joint stock company, bears to three hundred and sixty-five days, before providing for any payments to shareholders by way of salary, interest, dividends or otherwise.’’

Briefly, the appellant alleges that the payment of salary and commission to its secretary, R. E. Towns, in the year 1942 was not a payment to shareholders by. way of salary, interest, dividends or otherwise, and that as its net profits for the year were less than $5,000, it is entitled to the exemption provided for in Section 7A.

The respondent, on the other hand, takes the attitude that after including salary and commission paid to the said R. E. Towns in 1942, in the profits of the company, that the said profits for the taxation year exceeded $5,000, and that, therefore, the appellant is not entitled to the exemption provided for in Section 7A.

The appellant says that the wording of See. 7A must be construed strictly, and that as it is not shown that more than one payment was made to R.E. Towns by way of salary and that the said payment was made to only one shareholder, that therefore there were no payments to shareholders, as required by the Section. This matter, however, is disposed of by the provisions of the Interpretation Act, R.S.C. 1927, c. 1, s. 31 (j) reading as follows :

"‘In every Act unless the contrary intention appears words in the singular inelude the plural and words in the plural include the singular.”

Again the appellant takes the position that the general intent of Section 7A is that no company whose profits in a taxation year are less than $5,000, should be subject to the tax in accordance with the rates set out in the first and second parts of the Second Schedule. With this contention I cannot agree. In my view, the intention of this sub-section is to exempt from certain schedules a particular type of company, namely a corporation or joint stock company whose profits in the taxation year do not exceed $5,000 ‘‘before providing for any payments to shareholders by way of salary, interest, dividends or otherwise ‘ The meaning of the section is, in my view, quite clear and unambiguous, and inasmuch as it has admitted that after adding to the net profits of $4,198.38, as shown on the appellant’s return, and as accepted by the Department, the sum of $2,216.85, being the salary and commission paid to the said R. E. Towns, the profit of the corporation on that basis in the taxation year does exceed $5,000, and it follows, therefore, that the appellant is not entitled to the exemption.

Again the appellant urges that the said section should be interpreted in as generous a fashion as possible in order to give the benefit of the exempting section to the appellant. With this contention, I cannot agree. The onus is on the appellant to prove that it clearly comes within the provisions of the exempting section 7A. It seeks the benefit of an exceptional provision in the Act and must comply with its context. The principles of construction to be applied are well-established. In Wylie v. City of Montreal (1885) 12 8.C.R. 384 at p. 386, Sir W. J. Ritchie C.J. said :

“I am quite willing to admit that the intention to exempt must be expressed in clear, unambiguous language; that taxation is the rule and exemption the exception, and therefore to be strictly construed.’’

Reference may also be made to Lumbers v. Minister of National Revenue [1944] C.T.C. 67, where it is stated that the rule to be applied is as follows :

"‘In respect of what would otherwise be taxable income in his hands, a taxpayer cannot sueceed in claiming an exemption from income tax unless his claim comes clearly within the provisions oof some exempting section of the Income War Tax Act. He must show that every constituent element necessary to the exemption is present in his ease, and that every condition required by the exempting section has been complied with. ‘ ‘

Reference may also be made to Trapp v. Minister of National Revenue [1946] C.T.C. 30 and [1946] Ex. C.R. 246 at p. 263; and to City of Montreal v. College St. Marie [1921] 1 A.C. 288 at p. 290, where Duff J. said:

‘Their Lordships are not disposed to differ from the view pressed upon them that an agreement in order to receive effect under the statute must be very clearly made out; such an agreement, if effective, establishes a privilege in respect of taxation, and the principle is not only well settled, but rests upon obvious considerations, that those who advance a claim to special treatment in such matters must show that the privilege invoked has unquestionably been created.”

I must find, therefore, on the agreed statement of facts that the profits of the appellant in the year 1942, before providing for any payment to shareholders by way of salary, interest, dividends or otherwise, did in fact exceed the sum of $5,000, and that therefore the appellant is not entitled to the exemption provided for in See. 7A;-and that for the year in question the appellant was not such a corporation, exemption for which is provided for in the said section.

It was agreed by counsel that if the contention of the Income Tax Department were correct, and that the appellant was not entitled to the benefit of Sec. 7A that the computation of the excess profits tax as shown in the assessment for warded to the appellant, was correct.

It follows from what I have said, therefore, that the assessment as made, should be affirmed and the appeal will, therefore, be dismissed with costs.

Appeal dismissed.