Maurice P. Fisher v. Minister of National Revenue, [1988] 1 CTC 2054, [1988] DTC 1027

Bonner, T.C.J.:—The issue in this appeal from an assessment of income tax for the appellant's 1980 taxation year is whether an election under subsection 26(7) of the Income Tax Application Rules was filed on time.

The appellant owned shares in the capital stock of Bay Investments Limited and Grove Investments Limited both at December 31, 1971, and during 1980. Both of those corporations were wound up during 1980. The appellant filed his return of income for the 1980 taxation year early in 1982. He attached to his return a Form 12076 election [1] under ITAR 26(7) whereby he elected to establish the cost of all capital property owned by him on December 31, 1971, to be the fair market value thereof on Valuation Day. On the basis of the cost figure thus established he claimed an allowance business investment loss with respect to the disposition of the shares of the two corporations. It the appellant's election was effective, the disposition of the shares resulted in a business investment loss with the result that the appellant was not liable to pay tax for the 1980 taxation year.

The assessment now under appeal was made on the basis that the election was late-filed, that it was therefore ineffective and that in consequence ITAR 26(3), the "median rule”, applied to fix the cost to the appellant of the shares.

ITAR 26(7) reads in part as follows:

26(7) Where, but for this subsection, the cost to an individual of any property actually owned by him on December 31, 1971 would be determined under subsection (3) or (4) otherwise than by virtue of subsection (5) and the individual has so elected, in prescribed manner and not later than the day on or before which he is required by Part I of the amended Act to file a return of his income for his first taxation year in which he disposes of all or any part of such property, other than

the cost to him of each capital property (other than depreciable property, an interest in a partnership or any property described in any of paragraphs (a) to (e) that was disposed of by him before that taxation year) actually owned by him on December 31, 1971 shall be deemed to be its fair market value on valuation day.

The day on or before which an individual is required by Part I of the Income Tax Act to file a return of his income for a taxation year is fixed by section 150 of the Act which at the relevant time read in part as follows:

150(1) A return of income . . . for each taxation year for which a tax is payable in the case of an individual shall, without notice or demand therefor, be filed with the Minister in prescribed form and containing prescribed information,

(a) in the case of a corporation . . .

(b) in the case of a person who has died . . .

(c) in the case of an estate or trust. . .

(d) in the case of any other person, on or before April 30, in the next year, by that person . . .

The appellant submitted that the effect of section 150 is that:

. . . a return for a taxation year need only be filed by an individual taxpayer on or before April 30 of the year following a particular taxation year for which tax is payable after all relevant calculations have been made. Where no tax is payable for a particular taxation year by an individual then a return need not be filed by the individual.

The respondent's counsel took the position that:

. . . the only reasonable interpretation to be given to the words of ITAR 26(7), is that a taxpayer must file an election by April 30th of the year following "the year in which the first such disposition occurs" . . . regardless of whether a return must be filed under section 150(1) of the Income Tax Act.

He went on to submit that:

. . . in the presence of two possible interpretations of the words of a statute, the interpretation which best accords with the scheme and intent of the provision and which is more reasonable, taking into account the context, should be chosen.

In his argument counsel for the respondent failed to identify the statutory words said to give rise to two possible interpretations. He did not explain why a deadline of April 30 in the following year must be selected "regardless" of section 150 of the Act. ITAR 26(7) clearly expresses an intention to incorporate by reference the filing requirements of the Act. Those requirements are to be found in section 150. Counsel submitted that the words of ITAR 26(7) must be taken to refer to dates. I agree. They do. Those dates can be ascertained by reference to section 150 without any difficulty at all.

Counsel argued further that an interpretation of the requirements of ITAR 26(7) in the manner urged by the appellant would permit a taxpayer to indefinitely postpone the making of an election under that provision. Plainly it would, at least until April 30 of the year following the first year in which, (a) tax is payable by the appellant, and (b) there is a disposition of property owned by him on December 31, 1971. What counsel failed to explain, however, is why such an interpretation was unintended by Parliament and contrary to the rationale of ITAR 26(7). He did suggest that such an interpretation would impose a "strict requirement with potentially serious consequences" on certain taxpayers but not on others on the basis of the existence or non-existence of taxability, a condition which he described as foreign to the scheme of the election provision. I can see no force in this argument. There is nothing inherently illogical in permitting the deferral of an election until the time when the making of the election will, of necessity, have a practical consequence in the fixation of tax liability.

Two statements made by Lord Warrington of Clyffe in Canadian Performing Right Society, Limited v. Famous Players Canadian Corporation, Limited, [1929] A.C. 456, are pertinent: (a) at page 461:

Of course, if it could be established that the provision in question is capable of two meanings, one of which would produce a reasonable and the other an unreasonable and unjust result, much might be said in favour of adopting the former.

and (b) at page 460:

Strenuous efforts, however, have been made by counsel for the appellants to induce their Lordships to accept a construction other than the literal one, and it is necessary therefore to consider whether such a construction is the correct one. Great stress is laid by the appellants on the extreme inconvenience of a literal construction. It may, it is said, be practically impossible, when occasion arises to register an assignment, to obtain a duplicate without which, as it would appear, registration is impossible.

One answer to this argument is that it ought to be addressed to the legislature and not to the tribunal of construction, whose duty it is to say what the words mean, not what they should be made to mean in order to avoid inconvenience or hardship.

No rule of statutory construction supports the result for which the respondent contends.

For the foregoing reasons the appeal will be allowed with costs and the assessment will be referred back to the respondent for reassessment on the basis that the disputed election was filed on time.

Appeal allowed.