Hugessen,
J:—The
issue
in
this
appeal
is
very
narrow.
Do
the
words
“taxable
income
earned
in
the
year”
as
they
appeared
in
paragraph
124(2)(b)
of
the
Income
Tax
Act
as
it
was
in
force
in
1974*
allow
the
taxpayer!
to
exclude
from
the
calculation
of
the
credit
permitted
by
subsection
124(2)
the
loss
carry-back
from
a
subsequent
taxation
year?
The
learned
trial
judge
held
that
it
did
not.
In
my
view,
he
was
right.
The
matter
arises
in
this
way.
The
taxpayer’s
taxable
income
for
1974
was
a
little
over
$1.4
million.
Included
in
the
calculation
of
that
amount
was
the
deduction
of
a
loss
carry-back
from
1975
of
about
$2.5
million.
Since
subsection
124(2)
allowed
a
credit
based
in
part
on
a
percentage
of
the
taxpayer’s
“taxable
income
earned
in
the
year”
it
was
in
the
taxpayer’s
interest
that
that
amount
should
be
as
large
as
possible.
Accordingly
in
the
calculation
of
the
credit
(but
not,
of
course,
of
its
tax
payable)
it
added
back
the
loss
carry-back
into
its
taxable
income,
thus
arriving
at
a
“taxable
income
earned
in
the
year”
of
over
$3.9
million.
The
Minister’s
assessment
based
on
a
credit
calculated
on
the
original
taxable
income
of
$1.4
million
was
upheld
on
appeal
to
the
Trial
Division.
“Taxable
income”
as
such
is
not
defined.
Instead,
subsection
248(1)
says
it
“has
the
meaning
assigned
by
subsection
2(2)”.
Subsection
2(2)
in
its
turn
speaks
of
the
taxable
income:
.
.
.
of
a
taxpayer
for
a
taxation
year
and
defines
that
as
being
his
income
for
the
year
minus
the
deductions
permitted
by
Division
C.
[Emphasis
added.]
Amongst
the
deductions
permitted
by
Division
C
“for
a
taxation
year”,
section
111
allows
losses
carried
forward
from
prior
years
and
back
from
subsequent
years.
The
appellant
argues
that
the
addition
of
the
words
“earned
in
the
year”
in
paragraph
124(2)(b)
had
the
effect
of
excluding
from
the
calculation
any
deductions
permitted
by
Division
C,
or
at
the
least,
any
which
are
not
directly
related
to
that
taxation
year.
It
is
difficult
to
follow
the
argument.
By
subsection
2(2),
taxable
income
for
a
year
is
that
portion
of
income
for
the
year
in
excess
of
permitted
deductions
for
the
year.
If
the
words
of
subsection
2(2)
are
simply
transposed
into
paragraph
124(2)(b)
“taxable
income
earned
in
the
year”
becomes
“income
.
.
.
minus
the
deductions
permitted
by
Division
C
earned
in
the
year”.
Grammatically,
the
word
“earned”
may
be
said
to
qualify
“income”
alone
or
both
“income”
and
“deductions”.
Common
sense
would
seem
to
indicate
the
former
since
it
is
an
odd
use
of
language
to
speak
of
deductions
being
“earned”
in
the
same
sense
as
income
is.
But
even
if
the
latter
interpretation
is
adopted,
and
the
deductions,
too,
are
said
to
be
“earned”,
they
surely
must
be
so
in
the
year
in
which
the
same
law
which
created
them
permits
them
to
be
deducted.
If
deductions
are
to
be
excluded
from
the
concept
of
“taxable
income
earned
in
the
year”
the
result
would
not
be
“taxable
income”
but
simply
“income”.
The
original
text
of
paragraph
124(2)(b)
spoke
of
“taxable
income
in
the
year
in
a
province”.
Appellant
sought
to
make
much
of
the
1974
amendment
which
eliminated
the
words
“in
a
province”.
The
argument
was
advanced
that
since
the
previous
wording
did
require
that
all
deductions
permitted
by
Division
C
be
taken
into
account
in
calculating
the
credit,
the
only
meaning
that
could
be
attributed
to
the
amendment
was
that
it
was
intended
to
change
that
result.
The
argument
is
self-defeating.
The
deletion
of
the
words
“in
a
province”
has
its
full
effect
by
bringing
into
the
calculation
taxable
income
earned
outside
a
province
(eg
in
the
Northwest
Territories)
but
otherwise,
in
my
view,
leaves
the
meaning
unchanged.
I
would
dismiss
the
appeal
with
costs.
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