CAMERON,
J.:—This
is
an
appeal
by
the
Minister
of
National
Revenue
from
a
decision
of
the
Income
Tax
Appeal
Board
dated
July
3,
1950.
The
respondent
herein
had
appealed
from
an
assessment
dated
June
1,
1949,
in
respect
of
one
item
of
his
income
for
the
taxation
year
1947,
but
the
Board
disallowed
his
appeal
in
so
far
as
that
matter
was
concerned
and
no
further
appeal
has
been
taken
from
that
part
of
the
Board’s
decision.
The
Board,
however,
ex
proprio
motu,
being
of
the
opinion
that
a
taxpayer
in
the
computation
of
‘‘investment
income
‘
‘
was
entitled
to
deduct
not
only
the
then
statutory
exemption
of
$1,800.00,
but
also
the
amount
of
his
personal
exemptions
under
section
5(1)
(in
this
case
$750.00),
reduced
the
assessment
by
a
sum
of
$30.00,
being
4
per
cent
of
$750.00.
From
that
part
of
the
Board’s
decision
the
Minister
of
National
Revenue
now
appeals.
The
amount
involved
is
small,
but
I
understand
that
the
decision
of
the
Board
reverses
the
practice
of
the
Department
over
many
years.
By
virtue
of
the
changes
made
in
the
Income
Tax.
Act,
the
decision
affects
assessments
for
the
taxation
years
1947
and
1948
only.
The
applicable
sections
of
the
Income
War
Tax
Act,
R.S.C.
1927,
c.
97,
as
amended,
were
in
1947
as
follows:
"Sec.
9(1)
There
shall
be
assessed,
levied
and
paid
upon
the
income
during
the
preceding
year
of
every
person,
other
than
a
corporation
or
joint
stock
company,
(a)
residing
or
ordinarily
resident
in
Canada
at
any
time
in
such
year
;
a
tax
computed
at
the
rates
set
forth
in
paragraph
A
and
paragraph
AA
of
the
First
Schedule
to
this
Act."
Paragraph
A
of
the
First
Schedule
:
"Rates
of
tax
applicable
to
income
of
persons,
other
than
corporations
or
Joint
stock
companies
under
subsection
one
of
section
nine.
On
the
first
$250
of
the-
income
or
any
portion
thereof,
22
per
centum
per
annum;
or
i
”
Paragraph
AA
of
the
First
Schedule:
"
"
Rate
of
tax
applicable
to
investment
income
of
persons
other
than
corporations
and
joint
stock
companies,
under
subsection
one
of
section
nine
of
this
Act,
On
investment
income
in
excess
of
$1,
800—four
per
centum.”
"‘Sec.
2(m)—defines
earned
income.
Sec.
2(n)—‘Investment
income’
includes
any
income
not
defined
herein
as
‘earned
income’
and
also
any
amount
deemed
by
this
Act
to
be
a
dividend.
’
“Income”
was
defined
by
section
3(1)
of
the
Act
and
section
5(1)
provided:
“5(1)
‘Income’
as
hereinbefore
defined
shall
for
the
purpose
of
this
Act
be
subject
to
the
following
exemptions
and
deductions
:
(c)
...
Seven
hundred
and
fifty
dollars
in
the
case
of
each
person
not
entitled
to
the
aforesaid
deduction
of
fifteen
hundred
dollars.’’
The
Board’s
decision
was,
in
part,
as
follows:—
“Obviously,
the
word
‘income’
as
used
in
the
opening
words
of
subsection
(1)
of
section
9
refers
only
to
the
income
arrived
at
after
all
the
deductions
and
exemptions
provided
by
sub-
section
(1)
of
section
5
have
been
deducted.
Subsection
(1)
of
section
9
is
the
only
section
which
provides
for
the
imposition
of
the
tax
in
question
in
this
appeal,
and
the
closing
words
of
the
subsection
which
refer
to
paragraphs
A
and
AA
of
the
First
Schedule,
refer
only
to
the
rates
therein
mentioned.
I
am
of
the
opinion
that
the
word
‘income’
and
the
words
‘investment
income’
as
used
in
paragraphs
A
and
AA
above
mentioned,
mean
in
each
case
the
income
arrived
at
after
deducting
all
of
the
exemptions
and
deductions
mentioned
in
5(1)
of
the
Act.
Therefore,
in
determining
the
amount
of
his
investment
income
on
which
a
tax
of
4
per
cent
is
imposed,
the
appellant
benefits
of
the
statutory
exemption
provided
for
in
5(1)
(c)
as
he
does
when
he
determines
his
net
taxable
income
for
the
graduated
tax.
22
It
will
be
seen,
therefore,
that
the
Board
was
of
the
opinion
that
in
computing
the
amount
of
taxable
‘‘investment
income”,
à
taxpayer
was
entitled
to
deduct
all
the
deductions
and
exemptions
mentioned
in
section
5(1)
of
the
Act
to
the
same
extent
as
he
undoubtedly
was
in
computing
the
amount
of
his
“income”
which
was
taxed
at
the
rate
set
out
in
paragraph
A
of
the
First
Schedule.
It
is
of
some
interest
to
note
that
in
the
calculation
of
tax
under
the
T.1-General
1947
tax
return
form,
the
calculation
of
surtax
on
investment
income
is
set
up
in
a
manner
which
does
not
permit
certain
deductions
provided
for
in
section
5(1)
—namely,
charitable
donations,
gifts
to
the
Crown
and
certain
medical
expenses;
but
the
form
excludes
from
deduction,
in
such
calculation,
“personal
exemptions”
(marital
and
depen-
'dents)
which
are
also
provided
for
in
section
5(1).
How
ever,
I
am
not
here
concerned
with
the
fact
that
the
Minister
did
in
that
tax
form
allow
exemptions
for
medical
expenses
and
charitable
gifts,
but
only
with
the
question
as
to
there
being
any
statutory
authority
for
allowing
a
claim
for
personal
exemptions
as
a
deduction
in
computing
the
tax
payable
under
paragraph
AA
of
the
First
Schedule.
That
was
the
precise
matter
which
was
before
the
Board
and
I
shall
confine
my
attention
to
that
phase
of
the
matter.
With
great
respect
I
am
unable
to
agree
with
the
decision
of
the
Board.
My
opinion
is
arrived
at
partly
by
the
definition
of
“investment
income’’,
but
in
the
main
by
a
somewhat
lengthy
consideration
of
the
history
of
the
legislation
in
regard
thereto
since
the
surtax
thereon
was
first
levied.
Paragraph
AA
of
the
First
Schedule
not
only
fixes
the
rate
of
tax
to
be
levied,
but
directs
that
the
tax
shall
be
on.“.:invest-
ment
income
‘
‘
and
that
must
mean
investment
income
as
defined
in
the
Act.
In
my
view,
‘‘earned
income
‘‘
was
defined
solely
for
the
purpose
of
then
defining
"
"
investment
income
‘
and,
for
the
purpose
of
this
case,
it
is
sufficient
to
say
that
in
general
terms
investment
income
is
any
income
not
defined
in
the
Act
as
‘‘earned
income’’.
It
seems
to
me
that
in
supplying
these
definitions
Parliament
was
dividing
up
into
two
classes
that
which
it
had
defined
as
“income”
in
section
3(1)—namely,
the
annual
net
profit
or
gain,
a
distinction
being
drawn
between
that
part
of
the
income
which
was
earned
and
that
which
was
unearned.
In
neither
definition
is
anything
said
about
personal
exemptions.
That
particular
matter
is
left
to
be
dealt
with
in
other
parts
of
the
Act
or
the
Schedules.
As
will
be
noted
later,
Parliament
in
its
investment
income
legislation
has
been
careful
to
indicate
that
personal
exemptions
could
not
be
deducted
from
investment
income
except
as
an
alternative
to
the
deduction
of
the
fixed
statutory
exemption,
or
could
not
be
deducted
at
all.
Before
turning
to
the
history
of
the
legislation,
it
may
be
noted
that
in
1947
the
subsection
providing
for
personal
exemptions
formed
part
of
section
5(1),
the
opening
words
of
which
were
“‘income
as
hereinbefore
defined’’.
Clearly,
therefore,
the
personal
exemptions
could
be
deducted
from
the
general
tax
on
income
as
defined
in
section
3(1),
but
it
is
equally
clear
that
on
a
strict
interpretation
of
the
section
the
deduction
was
applicable
only
to
“income”
and
not
to
‘‘investment
income”’.
By
c.
40,
Statutes
of
1935,
there
was
first
levied
a
tax
on
investment
income.
Earned
income
and’investment
income
were
defined
by
subsections
(2)
(m)
and
(n).
A
new
subsection
(4)
was
added
to
section
5
as
follows
:
“5.
(4)
The
following
income
shall
not
be
liable
to
the
additional
rates
of
tax
on
investment
income,
namely,
(a)
all
income
up
to
five
thousand
dollars;
or
(b)
‘earned
income’
up
to
but
not
exceeding
fourteen
thousand
dollars;
or
(c)
income
equal
in
amount
to
the
sum
of
the
exemption
and
allowances
for
dependents
to
which
the
individual
is
actually
entitled
under
the
provisions
of
paragraphs
(c),
(d),
(e)
and
(i)
of
subsection
one
and
of
subsection
two
of
this
section
;
whichever
affords
the
greatest
exemption
to
which
the
taxpayer
is
entitled.’’
That
subsection
seems
to
establish
beyond
question
that
Parliament
did
not
consider
that
investment
income
meant
‘investment
income’’
less
the
personal
exemptions
provided
in
section
5(1).
It
did
give
a
right
to
deduct
personal
exemptions,
but
only
as
an
alternative
to
deducting
the
fixed
exemption
in
(a)
or
the
other
exemption
in
(b).
If
a
taxpayer
chose
the
exemption
of
$5,000.00
he
could
not
also
deduct
his
personal
exemptions.
It
may
be
noted,
also,
that
following
the
amendments
in
1935
there
was
a
marked
distinction
between
paragraph
A
and
paragraph
AA
of
the
First
Schedule.
In
paragraph
A
the
first
rate
is
stated
to
be
‘‘on
the
first
one
thousand
dollars
of
net
income
or
any
portion
thereof
in
excess
of
exemptions,
3
per
centum
or
.
.
.”
In
paragraph
AA
nothing
is
said
about
exemptions,
the
first
rate
being
levied
‘‘on
investment
income
included
in
any
income
exceeding
$5,000.00
.
.
.”’
By
the
amending
Act
of
1935
subsection
(3)
was
added
to
section
9
as
follows:
“(3)
The
total
income
of
each
taxpayer
other
than
a
corporation
or
a
joint
stock
company
shall
be
compiled
by
having
the
earned
income
form
the
base,
above
which
shall
be
placed
the
investment
income,
and
according
thereto
the
appropriate
additional
rates
of
tax
on
investment
income
as
provided
by
paragraph
A
A
of
the
First
Schedule
of
this
Act
shall
be
applied.
‘
‘
The
purpose
of
that
subsection
is
explained
in
Dominion
of
Canada.
Tax
Service,
vol.
1,
at
9-451,
and
need
not
here
be
considered.
But
it
is
important
to
note
that
the
total
income
(not
the:
income
less
exemptions)
is
comprised
of
‘‘earned
income”
and
‘‘investment
income’’.
That
subsection
was
still
in
the
Act
in
1947.
Further
changes
were
made
by
c.
18,
Statutes
of
1941.
Thereby
‘‘earned
income’’
and
‘‘investment
income”
were
re-defined,
the
latter
being
in
the
same
form
as
it
was
in
1947
(supra).
The
new
subsection
(4)
of
section
5
was
as
follows:
“
(4)
The
following
income
shall
not
be
liable
to
the
additional
rate
of
tax
on
investment
income,
namely:
(a)
investment
income
up
to
fifteen
hundred
dollars;
or
(b)
investment
income
equal
in
amount
to
the
sum
of
the
exemptions
to
which
the
individual
is
entitled
under
the
provisions
of
paragraphs
(c),
(d),
(e)
and
(i)
of
subsection
one
and
of
subsection
two
of
this
section;
whichever
amount
is
the
greater.
’
‘
A
new
paragraph
AA
was
provided
as
follows:
"AA.
Rate
of
tax
applicable
to
all
persons
other
than
corporations
and
joint
stock
companies,
in
respect
of
‘investment
income’
as
provided
for
in
this
Act.
On
investment
income
in
excess
of
the
exemption
provided
therefor
in
subsection
four
of
section
five
of
this
Act
.
..
4
per
centum.”
By
these
amendments
of
1941,
therefore,
there
was
dropped
the
former
provision
that
all
income
over
$14,000.00
was
deemed
to
be
investment
income;
and
the
surtax
was
levied
on
that
which
was,
in
fact,
investment
income.
The
exemption
in
this
section
was
limited
to
the
fixed
sum
of
$1,500.00,
or
the
total
of
the
taxpayer’s
personal
exemptions,
whichever
was
greater.
A
taxpayer
could
not
deduct
both.
Further
important
amendments
were
made
by
c.
28,
Statutes
of
1942.
Those
parts
of
section
5(1)
which
had
provided
the
personal
exemptions
were
repealed
and
also
section
5(4).
Paragraphs
A
and
AA
of
the
First
Schedule
were
repealed
and
new
paragraphs
substituted.
Paragraph
A
was
entitled
‘‘Rules
for
Computation
of
Income
Tax
under
Subsection
One
of
Section
Nine.’’
For
the
first
time
the
general
income
tax
was
divided
into
normal
tax
and
graduated
tax
and
the
rules
set
up
under
paragraph
A
contained
the
only
provisions
in
regard
to
personal
exemptions.
They
were
therefore
inapplicable
to
paragraph
AA
and
from
1942
to
1946
personal
exemptions
were
entirely
excluded
from
the
computation
of
investment
income.
For
the
first
time
the
taxpayer
was
deprived
of
the
alternative
to
deduct
his
personal
exemptions
and
could
deduct
only
the
fixed
amount
provided
by
the
new
paragraph
AA,
which
was
as
follows:
“AA.
Rate
of
tax
applicable
to
all
persons
other
than
corporations
and
joint
stock
companies,
in
respect
of
‘investment
income’
as
provided
for
in
this
Act.
On
investment
income
in
excess
of
$1,500—four
per
centum.’’
The
next
amendments
bearing
on
this
problem
were
made
by
ce.
55,
Statutes
of
1946,
and
were
in
effect
from
January
1,
1947.
It
seems
to
me
that
up
to
that
date
the
legislation
made
it
quite
clear
that
investment
income
meant
that
part
of
the
net
annual
profit
or
gain
whick
was
other
than
earned
income,
and
not
that,
less
the
personal
exemption.
From
1935
to
1942
the
right
to
deduct
personal
exemptions
existed
only
as
an
alternative
to
the
other
fixed
exemptions
and
from
1942
to
1946
that
right
no
longer
existed.
By
the
1946
amendments,
substantial
changes
were
made.
The
whole
of
the
First
Schedule,
including
the
rules
for
computation
of
income
tax
in
determining
the
normal
and
graduated
tax,
were
dropped.
The
personal
exemption
sections
were
reinstated
as
subsections
(c),
(d)
and
(e)
of
section
5(1),
thereby
making
them
applicable
to
the
general
tax
on
income
as
they
had
been
throughout.
The
opening
words
of
paragraph
AA
as
then
re-enacted
were
as
I
have
set
out
above
and
although
the
wording
is
somewhat
different
from
what
it
was
prior
to
the
amendment,
I
do
not
think
the
change
is
here
of
any
importance.
The
operational
part
of
paragraph
AA,
however,
remained
precisely
as
it
had
been
except
that
the
fixed
exemption
was
increased
from
$1,500.00
to
$1,800.00.
No
provision
was
made
for
the
alternative
deduction
of
personal
exemptions.
It
seems
to
me,
therefore,
that
by
the
1946
amendment,
Parliament
intended
to
make
no
change
in
the
computation
of
investment
income
except
by
slightly
increasing
the
exemption.
The
replacement
in
section
5(1)
of
the
subsections
providing
for
personal
exemptions
was
occasioned
by
the
elimination
of
the
rules
formerly
in
paragraph
A
where
the
personal
exemptions
from
the
general
income
tax
had
previously
been.
Personal
exemptions
involve
very
substantial
amounts
and
had
it
been
the
intention
to
go
beyond
anything
that
had
previously
been
in
effect
and
allow
both
the
fixed
exemptions
and
personal
exemptions,
that
intention,
I
think,
would
have
been
clearly
expressed.
It
seems
reasonable
to
assume
in
setting
a
fixed
exemption
from
investment
inccme
as
has
been
done
throughout,
Parliament
fixed
upon
an
amount
which
might
fairly
represent
for
the
time
being
an
average
and
reasonable
exemption
available
for
all
taxpayers;
and
that
on
those
occasions
when
personal
exemptions
were
available
as
an
alternative
deduction
(as
has
been
the
case
throughout
except
for
the
period
1942-1948),
the
alternative
was
provided
merely
to
meet
the
particular
needs
of
a
taxpayer
who
might
have
more
than
the
average
number
of
dependents.
If
that
be
so,
the
deductions
of
both
fixed
and
personal
exemptions
would
result
in
double
exemptions
for
the
same
purpose.
I
do
not
think
that
was
ever
intended
and
I
can
find
nothing
in
the
Income
War
Tax
Act
as
it
was
in
1947,
or
at
any
time
prior
thereto,
which
warrants
such
a
conclusion.
To
complete
the
history
of
the
legislation
on
this
matter,
it
may
be
noted
that
for
the
taxation
year
1949
and
subsequent
years,
the
Income
Tax
Act
makes
provision
by
section
31(3)
whereby
the
taxpayer
in
computing
the
surtax
on
an
investment
income
may
deduct
the
greater
of
$2,400.00,
or
the
aggre-
gate
of
the
deductions
from
income
to
which
he
is
entitled
under
s.
25
(1.e.,
personal
exemptions).
For
these
reasons
the
appeal
of
the
Minister
of
National
Revenue
will
be
allowed,
the
decision
of
the
Tax
Appeal
Board
in
so
far
as
it
varied
the
assessment
of
June
1,
1949,
will
be
set
aside,
and
that
assessment
affirmed.
At
the
time
the
motion
was
made
to
set
down
the
appeal
for
hearing,
the
respondent
herein
indicated
that
he
was
not
further
interested.
The
order
then
made
did
not
require
service
to
be
made
upon
him
and
consequently
he
was
not
represented
at
the
hearing
of
the
appeal.
Under
these
circumstances,
counsel
for
the
appellant
does
not
ask
for
costs
and
therefore
no
order
will
be
made
in
regard
thereto.
Judgment
accordingly.
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