Date: 19991110
Docket: 98-2103-IT-I
BETWEEN:
DAVID M. SHERMAN,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasons for Judgment
Hamlyn, J.T.C.C.
[1] This is an appeal for the 1995 taxation year.
[2] In his return of income for the 1995 taxation year, the
Appellant reported taxable income in the amount of $59,180.00. In
computing regular tax payable, the Appellant deducted total
non-refundable tax credits in the amount of $3,766.50. In
computing minimum tax payable, the Appellant claimed total
non-refundable tax credits in the amount of $13,615.16 as basic
minimum tax credit.
[3] In assessing the Appellant by Notice of Assessment dated
March 26, 1999 the Minister of National Revenue (the
"Minister") assessed taxable income, allowed total
non-refundable tax credits in the amount of $3,766.00 and
assessed minimum tax in the amount of $11,010.91.
PARTIAL STATEMENT OF AGREED FACTS
[4] The following facts were agreed to by the Appellant and
the Respondent. The parties reserved their right to lead evidence
not inconsistent with the facts agreed herein:
Statutory references herein are to the Income Tax Act
(Canada) (the "Act"). References to "AMT" are
to the Alternative Minimum Tax. References to the
"Minister" are to the Minister of National Revenue.
1. The Appellant filed his return for the 1995 taxation year
on June 4, 1996.
...
2. The Appellant reported net income of $254,304.06 and
taxable income of $59,180.00 on his return.
3. The Appellant reported total non-refundable credits on page
3 of his return (line 350) of $3,766.50. These
non-refundable credits were composed of the basic personal
amount, CPP contribution, and $8,289 of charitable donations.
...
4. The Appellant made total charitable donations of $41,515
and paid total medical expenses of $2,868, all evidenced by the
necessary receipts, for the 1995 taxation year.
5. The Appellant did not claim the charitable donations in
excess of $8,289, or the medical expenses, on page 3 of his
return (line 350).
6. The Appellant filed a separate Page 3 of his return, marked
"FOR MINIMUM TAX T691 ONLY", showing total credits of
$13,615.16, which credits were composed of the basic personal
amount, CPP contribution, $41,515 of charitable donations and
$2,868 of medical expenses.
...
7. On the Appellant's T691 as filed with his return, he
used the figure of $13,615.16, rather than $3,766.50, for
"total non-refundable tax credits", and flagged this
line with "SEE ATTACHED LETTER (NOTE)".
...
8. The Appellant attached a note to his return requesting that
the higher figure on the separate Page 3 should be used for
purposes of calculating his AMT.
...
9. In assessing the Appellant for the 1995 taxation year, the
Minister computed AMT for the Appellant and allowed a basic
minimum tax credit of $3,766.
...
10. The Appellant filed a Notice of Objection on August 9,
1996. The assessment was confirmed by the Minister on July 16,
1998. The Appellant appealed to the Court on August 13, 1998.
11. The Minister reassessed the Appellant's 1995 taxation
year, issuing a Notice of Reassessment dated March 26, 1999. The
reassessment was on unrelated grounds and does not affect the
substance of this appeal.
...
ISSUE TO BE DECIDED
[5] The sole issue is whether the Appellant is entitled to
include amounts for charitable donations and medical expenses
which were not deducted for regular tax purposes under sections
118.1 and 118.2 as basic minimum tax credit for alternative
minimum tax ("AMT") purposes under section 127.531.
THE APPELLANT'S ARGUMENT
[6] Section 127.531 of the Act states:
An individual's basic minimum tax credit for a taxation
year is the total of amounts that may be deducted in
computing the individual's tax payable for the year under
this Part under any of subsections 118(1) and (2), sections 118.1
and 118.2, subsection 118.3(1) and sections 118.5 to 118.7.
(emphasis added)
[7] The word "may" is permissive: Interpretation
Act, R.S.C. 1985, c. I-21, section 11.
[8] Therefore, the words "may be deducted" in
section 127.531 of the Act mean "may be
deducted". They do not mean "has been
deducted".
[9] Nothing in section 127.531 requires that the basic minimum
tax credit as calculated under that section be the same as the
total credits calculated for regular tax purposes.
THE MINISTER'S POSITION
[10] He submits that the Appellant was not entitled to include
amounts for charitable donations and medical expenses that were
not deducted for regular tax purposes under sections 118.1 and
118.2 of the Act as basic minimum tax credit for minimum
tax purposes under section 127.531 of the Act for the 1995
taxation year and, accordingly, the Minister properly assessed
minimum tax payable by the Appellant for that year in accordance
with section 127.5 of the Act.
[11] The Minister says that the Appellant's interpretation
of section 127.531 is contrary to the plain meaning of the words
used in sections 118.1, 118.2 and 127.531 of the Act and
that the Appellant renders meaningless the Act’s
intended comparison between the AMT tax liability and the regular
tax liability.
[12] The Minister also says that:
1) The Appellant is seeking to utilize his charitable
donations and medical expenses for AMT purposes only and at the
same time retain the use of the donations to reduce his tax
payable in future years.
2) The words "tax payable for the year under this
Part" in section 127.531 mean that a taxpayer can only claim
one amount for charitable donations and medical expenses in
computing tax payable for the year. If Parliament had intended to
authorize the deduction of different tax credits for Divisions E
and E.1, it would have said "Division E" rather than
"Part" in subsection 127.531.
3) The words in subsection 118.1(3) "there may be
deducted such amount as the individual claims" define the
term "may be deducted" as the amount actually claimed
for regular tax purposes.
4) The addition of section 127.531 added to the Act in
1988 did not change the plain meaning of the original scheme of
the AMT enacted in 1985 which clearly stated that only the
amounts deducted for charitable donations in determining regular
tax could be deducted for charitable donations in determining
AMT.
ANALYSIS
[13] In determining his 1995 Division E tax payable (regular
tax payable), Mr. Sherman claimed tax credits for $8,289 in
charitable donations. He had available for tax credits charitable
donations of $41,515 and medical expenses of $2,868. In his 1995
taxation year, the AMT was triggered and Mr. Sherman, in
determining his Division E.1 minimum tax payable, claimed tax
credits for all of the charitable donations and medical expenses
he had available. Mr. Sherman disagrees with the Minister that in
determining his minimum tax payable, he must claim only the same
tax credits that he claimed in determining his regular tax
payable.
[14] Parliament's choice of the words "may be
deducted" is clear and precise; "may" is
permissible and not mandatory. The words do not lend themselves
to an interpretation "may be deducted and were
deducted".
[15] The words refer to categories of eligible deductions for
tax credits but do not refer to categories of only deductions
actually used for tax credits in the computation of regular
tax.
[16] As the Appellant ably pointed out, the words "may be
deducted in computing the individual's tax payable for the
year under this Part" in section 127.531 does not
assist the Respondent's argument that only a single amount
may be deducted for both regular tax and AMT. The argument
ignores, in referring to "tax payable for the year under
this Part", that the Act in many instances
distinguishes between amounts that "may be deducted"
and amounts that "have been deducted". In his written
submissions, the Appellant cited 17 examples in the Act
were an amount "may be deducted" or is
"deductible" in computing tax payable "under this
Part" and 27 examples of an amount that "was
deductible" or "has been deducted" in computing
tax payable "under this Part".
CONCLUSION
[17] In my view, the words in section 127.531 are clear and
unambiguous and they should simply be applied. This is consistent
with the propositions recently applied by Madam Justice McLachlin
in Shell Canada Ltd. v. Canada, S.C.C., file number 26596,
October 15, 1999 at paragraphs 40 and 45:
40 Second, it is well established in this Court's tax
jurisprudence that a searching inquiry for either the
"economic realities" of a particular transaction or the
general object and spirit of the provision at issue can never
supplant a court's duty to apply an unambiguous provision of
the Act to a taxpayer's transaction. Where the provision
at issue is clear and unambiguous, its terms must simply be
applied: Continental Bank, supra, at para. 51,
per Bastarache J.; Tennant, supra, at para. 16,
per Iacobucci J.; Canada v. Antosko,
[1994] 2 S.C.R. 312, at pp. 326-27 and 330, per
Iacobucci J.; Friesen v. Canada, [1995] 3 S.C.R.
103, at para. 11, per Major J.; Alberta
(Treasury Branches) v. M.N.R., [1996] 1 S.C.R. 963, at
para. 15, per Cory J.
...
45 However, this Court has made it clear in more recent
decisions that, absent a specific provision to the contrary, it
is not the court's role to prevent taxpayers from relying on
the sophisticated structure of their transactions, arranged in
such a way that the particular provisions of the Act are met, on
the basis that it would be inequitable to those taxpayers who
have not chosen to structure their transactions that way. This
issue was specifically addressed by this Court in Duha
Printers (Western) Ltd. v. Canada, [1998] 1
S.C.R. 795, at para. 88, per Iacobucci J. See
also Newman v. M.N.R., [1998] 1 S.C.R. 770,
at para. 63, per Iacobucci J. The court's role is to
interpret and apply the Act as it was adopted by Parliament.
Obiter statements in earlier cases that might be said to
support a broader and less certain interpretive principle have
therefore been overtaken by our developing tax jurisprudence.
Unless the Act provides otherwise, a taxpayer is entitled to be
taxed based on what it actually did, not based on what it could
have done, and certainly not based on what a less sophisticated
taxpayer might have done.
(emphasis added)
[18] The words "may be deducted" in section 127.531
contemplate that a taxpayer may have expenses available for
determining minimum tax credits that he did not use, for whatever
reason, in determining regular tax credits. If Parliament
intended that the tax credits should be the same in determining
regular tax payable and minimum tax payable, the words at issue
in section 127.531 should be more specific.
DECISION
[19] The appeal is allowed and the assessment for the 1995
taxation year is referred back to the Minister for
reconsideration and reassessment on the basis that the Appellant
is entitled to include charitable donations and medical expenses,
which were not deducted for regular tax purposes under sections
118.1 and 118.2, as basic minimum tax credit for determining
minimum tax purposes under section 127.531.
Signed at Ottawa, Canada, this 10th day of November 1999.
"D. Hamlyn"
J.T.C.C.
Email this Content