Donald a Gillis v. Her Majesty the Queen, [1977] CTC 343, 77 DTC 5227

Gibson, J:—This is an appeal from assessments for the taxpayer plaintiff’s taxation years 1972, 1973 and 1974.

The income of the plaintiff's spouse was from dividends from Canadian corporations in those years as follows:

The said assessments are predicated upon the following:

(1) The actual dividend income of the plaintiff’s spouse was grossed- up one-third from the dividends actually received (see paragraph 12(1 )(j) and subsection 82(1) of the Income Tax Act).

(2) There were added to the plaintiff’s income from other sources all amounts of his spouse’s grossed-up dividend income as permitted by subsection 82(3) so that pursuant to that subsection that income was ‘‘deemed to have been so received by the taxpayer and not by his spouse”. In doing so, the “taxable income” of the taxpayer less the deductions permitted by Division C of the Act was computed (see subsection 2(2) of the Income Tax Act).

(3) There were then deducted under Division C the deductions under section 109 of the Act namely $1,600 under subparagraph 109(1 )(a)(i) and $1,400 under subparagraph 109(1 )(a)(ii). (No deduction was made from this $1,400 because the spouse’s income was deemed by subsection 82(3) to have been the income of the plaintiff husband because of his election under that subsection.) (The figures $1,600 and $1,400 were less in 1972—and the correct figures were used.)

(4) There was then deducted the 20% dividend credit on the grossed- up amount of the dividends pursuant to section 121 of the Act.

The taxpayer submitted that he was entitled to deduct under section 109 of the Act part of the dividend income of his spouse before electing and adding the balance of such income to his taxable income under subsection 82(3). In this he is in error. Section 109 only comes into operation after the taxpayer’s taxable income has been computed, and subsection 82(3) makes it mandatory in computing his taxable income that all of such dividend income be added if any is added at all.

The appeal is dismissed with costs, if demanded.