Glen Capling, Executor of the Estate of the Late Florence Capling v. Minister of National Revenue, [1987] 2 CTC 2003, 87 DTC 344

Taylor, T.C.J.:—This is an appeal against an income tax assessment, for the year 1984, heard on March 4, 1987, in London, Ontario, in which the Minister of National Revenue had adjusted the income tax return of the estate to reflect the disallowance of the benefit calculated to accrue to the estate by virtue of certain "averaging" provisions in the Income Tax Act. The notice of appeal prepared by Famme & Co., Chartered Accountants, of Stratford, Ontario, read:

From the notice of appeal

Our client objects to the Notice of Confirmation recently served by the Minister concerning the 1984 Notice of Assessment.

The Minister is incorrectly assessing the deceased taxpayer by denial of the use of negative taxable income in the forward averaging election for deceased taxpayers (Form T541-E was filed with the taxpayer's 1984 return). Neither the statutes nor the prescribed form preclude the use of negative taxable income. Furthermore, subsection 2(2) of the Income Tax Act defines taxable income — "The taxable income of a taxpayer for a taxation year in his income for the year plus the addition and minus the deductions permitted by Division C." Accordingly, taxable income is the result of mathematical operation of the relevant provisions of the Act; if a negative sum results, its use has not been explicitly precluded by the definition.

In response thereto the Minister asserted in the reply to notice of appeal:

1. The Respondent admits that he assessed the Appellant to deny the use of a negative taxable income amount in the forward averaging election for the Appellant's 1984 taxation year, that a Form T541-E was filed with the Appellant's 1984 tax return and that the Respondent confirmed the assessment, but otherwise does not admit the facts alleged in the Appellant's Notice of Appeal.

2. In computing the amount to be added to the tax payable by the Appellant for the 1984 taxation year by virtue of paragraph 120.1(2)(b) of the Income Tax Act, R.S.C., 1952, c. 148 as amended (the "Act"), the Appellant calculated the aggregate of the taxes that would have been payable by Florence Capling for the three preceding taxation years on the basis that Florence Capling’s taxable income for the 1983 taxation year was a negative amount.

3. By Assessment, Notice of which was mailed October 2, 1985, the Respondent disallowed the negative 1983 taxable income amount used by the Appellant in the forward averaging calculation and determined the amount of taxes payable based on a Nil 1983 taxable income amount in the forward averaging calculation.

4. In assessing the Appellant as aforesaid, the Respondent relied upon the following findings or assumptions of fact:

(a) Florence Capling died on December 25, 1984;

(b) in computing Florence Capling's taxable income for the 1984 taxation year, the Appellant elected to forward average income of $25,000.00. In determining the amount to be added to the taxes payable by Florence Capling for the purposes of subsection 120.1(2) of the Act, the Appellant calculated the aggregate of the taxes that would have been payable by Florence Capling for the three immediately preceding taxation years on the basis that Florence Capling's taxable income for the 1983 taxation year was a negative amount;

(c) in assessing the taxes payable by the Appellant for the 1984 taxation year, the Respondent determined that Florence Capling's taxable income for the 1983 taxation year for the purposes of the calculation in paragraph 120.1(2)(b) of the Act was nil.

5. The Respondent relies upon the provision of sections 3 and 110.4 and subsection 120.1(2) of the Act.

6. The Respondent respectfully submits that in computing the taxes payable by Florence Capling for the 1984 taxation year in accordance with subsection 120.1(2) of the Act, the Appellant is not entitled to use a negative taxable income amount for the 1983 taxation year. Accordingly, the Respondent properly assessed the taxes payable by the Appellant for the 1984 taxation year pursuant to Section 110.4 and subsection 120.1(2) of the Act.

There were no witnesses called, and no evidence provided — the parties argued the point in issue. The position of the agent for the appellant was stated as “I feel that taxable income is a mathematical formula and as such should be calculated with pluses and minuses". In addition Mr. Famme relied upon the recent case of Canterra Energy Ltd. v. The Queen, [1987] 1 C.T.C. 89; 87 D.T.C. 5019 (F.C.A.) and quoted from the headnote as follows:

The Court found that the word "minus" was used in its mathematical or technical sense rather than in its ordinary and grammatical sense and that the subtraction could therefore result in a negative amount.

The argument of counsel for the Minister consisted almost entirely of a review of the "scheme of the Act", the "concept of income”, and the "concept of taxable income". In addition counsel noted that it appeared the general construction of the Act provided for the word "loss" to be used where there was a possibility of a "negative number”. In contrast thereto counsel pointed out that one of the particularly critical sections of the Act, relevant to this appeal (subsection 2(2)) read:

The taxable income of a taxpayer for a taxation year is his income for the year plus the additions and minus the deductions permitted by Division C.

That lead counsel to conclude that:

. . . if the calculation of taxable income ordinarily admitted the possibility of arriving at a negative number, one would expect that the provisions for calculating the tax payable would also accommodate that possibility and for example reflect the payment of negative income tax, some kind of reimbursement from Revenue to the taxpayer when a negative number is arrived at.

With regard to jurisprudence, counsel noted that while the case of Richard

A. McEnaney v. M.N.R., 19 Tax ABC 156; 58 D.T.C. 260, looked at the question from a slightly different angle, it did provide some support for the view that taxable income could only be reduced to “nil”. With regard to Canterra (supra) counsel concluded that as she read it, it did provide assistance to the Minister regarding the "minus" point which arises in this appeal as a "nontechnical" term. Counsel also stated for the Court that it was her understanding the Minister would not be appealing that judgment to the Supreme Court of Canada.

Analysis

The Canterra judgment (supra) is so recent that its sage observations may require some time for adequate review and comment by the Courts. In this matter I can only hope to apply it as I see the principle therein, in the most modest way. In my opinion one of the most enlightened and enlightening statements is to be found on page 94 (D.T.C. 5022) of that judgment:

The difficulty arises in determining, as here, whether the Governor in Council intended to use the word “minus” in its ordinary or technical sense. Counsel for the appellant argues that the ordinary meaning of "minus" is a technical one, i.e., they are synonymous. Respondent's counsel disagrees. He argues that only if the context supports the contention can a technical meaning be given a word in a statute in preference to its ordinary and grammatical meaning. I agree with this view, and, thus, it becomes necessary to examine the word in its context not only with the other words of the paragraph of the regulation but in the context of the statute as a whole.

The learned justices then find that the context of the regulation dictated the exception which the appellant in Canterra (supra) read into it — that "minus" should be interpreted in its technical or mathematical sense for purposes of that appeal.

However, while the judgment in Canterra (supra) could give momentary comfort to this appellant, in order for this Court to apply it favourably, the "exception" to the general rule must be seen not only by a review of the context of the specific application at issue — to be found in section 110.4 and subsection 120.1(2) of the Act, — but also “in the context of the statute as a whole" (see Canterra (supra)). Or put the other way, if either the specific context, or the general context does not support the “mathematical” interpretation, then the "ordinary" or "grammatical" meaning should apply.

This appellant seems to be relying exclusively on a favourable interpretation of the "context of the statute as a whole”, since only reference to subsection 2(2) is given as support for the "mathematical" interpretation asserted. But in my view, since that section is one of the very basic sections of the Act, it served to set up "the context of the statute as a whole”, which must be interpreted to give to the statute in general an "ordinary and grammatical meaning”. As I read Canterra (supra) therefore, the specific context of “mathematical” interpretation does not apply to the general "grammatical" context defined for taxable income in subsection 2(2) of the Act.

Since subsection 2(2) of the Act follows the calculations arising out of section 3 of the Act, it would probably not be helpful to this appellant even if some "exception" could be read into section 3. But no such "exception" can even be read into section 3, in my view, because the entirety of section 3 consists of simply a process of reduction from one amount to a lesser amount, until — "and the remainder, if any, obtained under paragraph (e) is the taxpayer's income for the year for purposes of this Act" (last phrase from section 3 of the Act). I am prepared to find that in the determination of "income" as required under section 3 of the Act, the words “remainder, if any" mandate a positive number.

The basic contention of the agent for the appellant — “taxable income is a mathematical formula and as such should be calculated by pluses and minuses" does not fit within the framework of the distinctions made between “mathematical”, and "grammatical" as outlined in Canterra (supra). "Taxable income" for any purposes under the Income Tax Act cannot be a negative number.

The appeal is dismissed.

Appeal dismissed.