Kerr v. Superintendent of Income Tax for Alberta, [1938-39] CTC 249

Harvey, C.J.A. (dissenting) :—This is an appeal by both parties from the judgment of Ewing, J., reported. ante, p. 241, each being dissatisfied in part with the judgment. The income in question was derived from dividends of a company in the state of Washington, in respect of which cheques were issued by the company in favour of the plaintiff, upon and payable at a Tacoma bank.

Some of these cheques were never sent to the plaintiff in Alberta, but were deposited in banks outside of Alberta, and none of the proceeds brought into Alberta. Other cheques were sent to her in Alberta, where they were endorsed and then, without being cashed, sent to and deposited in banks outside the province, none of the proceeds being available or used in Alberta.

Other cheques again were received by her in Alberta, converted into cash and used in Alberta.

As regards the first two, the judgment holds that they do not constitute income taxable in Alberta under the statute, but that the income represented by the last class does.

The plaintiff contends, however, that the dividends having their situs in Washington cannot be the subject of taxation in the province, and as dividends, that seems to be right, but when they are converted into a form which makes them usable and used income in the province, they become subject to taxation in the province. In my opinion, the learned trial Judge’s view in this respect was the correct one.

As respects the other two classes : The contention for the defence is that the Act properly construed, taking the various sections, does not impose a tax on the income, but instead a tax on the recipient in respect of such income, and, as the person is in the province, it is taxation within the province. The answer made by the plaintiff is that while that is not the proper construction of the Act, yet, if it were, it would not advance the ease, for in any event the subject-matter of the tax is income, and, unless that is within the province, there is no right to impose any tax in respect to it, and in support reference is made to Kerr v. Prov. Treas. of Alta. [1933] A.C. 710, a case in which the present plaintiff was respondent.

This contention opens a wide field for argument and, unless it is necessary for the disposition of this appeal, I prefer to leave it for consideration when it arises of necessity, which, in my opinion, it does not now.

In London County Council v. Atty.-Gen. [1901] A.C. 26, Lord Macnaghten at p. 35 says: "Income tax, if I may be pardoned for saying so, is a tax on income. It is not meant to be anything else,” and he traces the history of the law over a long period. I cannot think that Mignault, J. meant to say anything different when he said in In re McLeod and Minister of Customs and Excise [1926] S.C.R. 457, at 464:

"‘All this is in accord with the general policy of the Act which imposes the income tax on the person and not on the property. In other words, it is the person who is assessed in respect of his income.”

He is referring to the “policy,” not the terms of the Act, and only three lines before he had said ‘‘then the income is taxable.” He certainly was not considering the case from the point of view presented here.

The learned trial Judge pointed out that the words of the taxing section (8) [The Income Tax Act, 1932, ch. 5] are: ‘There shall be assessed, levied and paid upon the income during the preceding year * * * ” But Mr. Gray points out that there are other sections indicating that it is the person and not the income that is taxed, and that one must take the Act as a whole. No doubt there are inconsistencies in the Act, but it is also pointed out that there are other sections indicating that it is the income which is being taxed, e.g., sec. 4 provides. that “‘The following incomes shall not be liable to taxation hereunder,’’ but sees. 23, 24 and 25 leave little room for doubt that the purpose is to tax incomes and not persons, both because it is so stated and because they are incomes of persons. who are non-resident, and, therefore, not subject to taxation, which must be ‘‘within the Province.”

Then in the Kerr case, supra, it is stated (p. 716) :

“The identification of the subject-matter of the tax is naturally to be found in the charging section of the statute, and it will only be in the case of some ambiguity in the terms of the charging section that recourse to the other sections is proper or necessary.”

And in Gresham Life Assur. Soc. v. Bishop [1902] A.C. 287, Lord Chancellor Halsbury at pp. 290-1 said :

“My Lords, the question in this case seems to me to depend upon the actual words, used by the Legislature, and I deprecate a construction which passes by the actual words and seeks to limit the words by what is supposed to be something equivalent to the language used by the Legislature. ‘ ‘

But as already indicated, a recourse to the other sections of the statute seems to weaken rather than strengthen the argument.

If the tax is imposed on income rather than on the recipient of the income, as in my opinion it is, then the income which never reached the province never became liable to the tax.

This leaves only for consideration the question whether the income arising from the dividends which were represented by cheques which were in the province only for the purpose of being. endorsed and sent out, and not for the purpose of use in the province, ever in fact came into the province, so as to become liable to the tax.

In words the tax is on the income of the preceding year, but that is, perhaps, only a matter of words, the substantial matter being that the tax is imposed on the income in the year when it is earned, and therefore exists, but is collected only in the following year, until when the exact amount of the income cannot be known.

It is pointed out that in Atty.-Gen. v. B.C. Sugar Refining Co., 44 B.C.R. 531, the British Columbia Court of Appeal unanimously held that income represented by cheques for interest and dividends accrued outside the province was brought into the province when the cheques were received by the payee in the province, though immediately endorsed and sent out for deposit elsewhere. On the face of it, that looks to be very like the present case, but the facts distinguish the two cases in what would appear to be very material respects. In that case M. A. Macdonald, J.A., at p. 650, says :

‘ All but a comparatively small amount is represented by cheques from the Dominion Government. Cheques of the National Government payable at par anywhere in the Dominion were ‘brought into ‘ the province. ’’

And McPhillips, J.A., at p. 538:

“There has been the utmost frankness upon the part of the respondent as to the modus operandi relative to receiving the income from the Government of Canada and the Steel Company of Canada and that the intention was to legally evade * * * if possible, the incidence of taxation under the Taxation Act, R.S.B.C., 1924, ch. 254, claiming that sec. 42 (d) gave complete immunity. In my opinion, upon the special facts of the present case, and upon a careful consideration of the relevant authorities it would seem to me that the language of the statute, ""brought into,’’ was fully executed when the cheques were received at the city of Vancouver. ‘ ‘

In Gresham Life Assur. Soc. v. Bishop above referred to, the question was whether interest arising from foreign securities, which though not paid by cheque or otherwise in England, was entered in the society’s books and balance sheet, was ‘‘received in the United Kingdom.’’ The Tax Commissioners held that it was and their assessment was upheld by the Q.B. Division and the Court of Appeal, whose judgments, however, were unnani- mously reversed by the House of Lords. Lord Macnaghten said (p. 292) :

"‘The appellants are possessed of foreign securities. The duty to be charged in respect of interest arising from foreign securities is, according to the rule in question, to be computed on a sum not less than the full amount of the sums which have been, or will be, received in the United Kingdom in the current year. I do not understand what is meant by constructive receipt in such a case as this, or how any sums can be said to have been received in the United Kingdom unless they have been brought to the United Kingdom, or unless there has been a remittance ‘payable in the United Kingdom.’ ”

While in the British Columbia case the remittances were at least in the main “payable in the Province” and so might come within Lord Macnaghten ‘s description, such is not the case here. The cheques were payable at Tacoma in the state of Washington. Mr. Gray contends that the position here is the same as if the respondent had cashed the cheques in Oregon, had brought the money into Alberta and then taken it out again to British Columbia, or California. It appears to me that, on the contrary, it is much more like the case of the company notifying the plaintiff by letter that a dividend had been declared and requesting directions as to its disposition. The cheque was a mere order on a bank in Tacoma to pay the plaintiff a certain sum of money. No doubt a bank in Alberta would take it for collection, but there is nothing to suggest that, except on the faith of the depositor, it would take it as a deposit, and it might be dishonoured or payment might be stopped. Unless in reliance on the reputation of the company, and the bank on which the cheques were drawn, no one would be likely to take them and give a receipt for anything but the cheques themselves. This case is so different from the British Columbia case that the latter can have no application, but on the other hand it seems clearly to be excluded by the description of Lord Macnaghten in the Gresham ease.

I am accordingly in agreement with the conclusion reached by the trial Judge on this question as well.

I would, therefore, dismiss both the appeal and the crossappeal.

As the more important considerations were involved in the defendants’ appeal, I would give the plaintiff one-half the costs in this Division, to be taxed as if one appeal, and on the scale of column 5.

CLARKE, J.A. concurs with FORD, J.A.

Ford, J.A.—The relevant facts on this appeal and crossappeal are sufficiently set out in the Judgment appealed from of Ewing, J., reported ante, p. 241.

The argument presented on behalf of the respondent is that The Income Tax Act of Alberta, 1932, ch. 5, and amendments thereto, does not permit of the taking into account of income derived from sources outside the province and that, so far as the Act purports to do so, it is ultra vires of the provincial Legislature.

Counsel for the respondent goes further, and as the basis of his argument, alternatively to that as to the construction of the Act as it now stands, invites us to accept his view, that by no kind of amendment can income tax be imposed by provincial legislation upon persons resident in the province based upon or imposed in respect of income earned outside, because the subject-matter of all provincial taxation must be within the province and, as he argues, the subject-matter of any income tax is the income which as to income earned or gained outside Alberta has a locality othewise than within the province.

This argument is, in my opinion. based upon a misconception of what was said by Lord Thankerton in Kerr v. Prov. Treas. of Alta. [1933] A.C. 710, particularly at p. 718.

The decision of the Judicial Committee in that case, as is clearly set out at p. 721, was based upon the view that as in Rex v. Lovitt [1912] A.C. 212, the subject-matter of the tax then in question was the corpus of the property passing on death. Indeed the reference made by Lord Thankerton at p. 718, to a poll tax which he gives as an example of ‘‘taxation imposed on persons, the nature and amount of the liability being determined by individual units’’ leads me to think that if he were dealing with ‘‘income tax’’ he would have treated the "subject-matter” of such taxation as the person or the person ‘s ability to contribute to the revenues of the state.

By reason of clause 2 of see. 92 of the British North America Act, 1867, ch. 3, the subject of any provincial tax must be within the province. The clause reads:

"2. Direct taxation within the province in order to the raising of a revenue for provincial purposes.”

There is no presumption of ultra vires even in respect of a taxation statute. In the one in question it is clear that a tax is intended to be imposed, and that every source of income is to be regarded in finding the amount of the contribution of the taxable person. It is doing no violence to any canon of construction to give the Act an interpretation which makes for validity rather than for invalidity in this respect.

As late as the decision of the Judicial Committee last year in In re Constitutional Questions Act; In re Income Tax Act, 1932; Judges v. Atty.-Gen. for Sask. [1937] 1 W.W.R. 508, Sir Sidney Rowlatt referring to the judgment delivered by Martin, J.A. [1936] 2 W.W.R. 443, said, at p. 512 [1937] 1 W.W.R. :

"‘It was pointed out that the Judges of the courts in question, being persons residing in Saskatchewan and in receipt of salaries out of the revenues of the Dominion, were prima facie subject to taxation by the province in respect of their Incomes just as other residents.’’

See also Atty.-Gen. for Man. v. Forbes [1937] A.C. 260, and Rex v. National Trust Co. [1933] S.C.R. 670, at 673.

In my opinion, the language of Maclennan, J., in Abbott v. St. John (1908) 40 S.C.R. 597, whose reasoning was adopted by Lord Phillimore in Caron v. Reg. [1924] A.C. 999, is peculiarly appropriate to the decision of the case at bar. In dealing with an income tax imposed by the city of St. John under the authority of legislation in New Brunswick, by language which, in my view, is just as capable of being considered as imposing a tax on property as the "‘subject-matter’’ of the tax as the language of sec. 8 of the Act here in question, he said at p. 616 :

“ “ From all this it is apparent that the tax to be levied in any year is not a part of the income, as such, of the inhabitant, but a sum of money to be measured by, or in proportion to the amount of his income during the preceding year. It is the inhabitant who is taxed for his fair and reasonable share of the expenses incurred by the municipality on his behalf, and on behalf of all the other inhabitants, and his income of the preceding year is referred to solely for the purpose of what it is just and reasonable that he should be required to pay. No attempt is made to seize or appropriate the income itself, or to anticipate its payment. He receives it, and applies it as he thinks fit, in discharge of his obligations * * * ‘ ‘

So also the language of Lord Phillimore in Caron v. Reg., supra, is equally appropriate. In that case in dealing with the Dominion Income Tax Acts, from which the present provincial Act is copied, as applicable to the taking into account of the salaries of provincial Ministers of the Crown in Quebec he said at p. 442:

• 1 They are statutes for imposing on all citizens contributions according to their annual means, regardless of, or it may be said not having regard to, the source from which their annual means are derived.’’

Sec. 4 of the Act there in question is substantially the same as sec. 8 of the Act in question here, which is the section imposing the taxation.

A great deal of stress has been laid on the words 1 ‘‘upon the income’’ in the first part of sec. 8 but, with respect, I think sufficient attention has not been given to what follows in the section.

The section reads in part as follows:

‘8—(1) There shail be assessed, levied and paid upon the income during the preceding year of every person—

li (a) residing or ordinarily resident in the Province of Alberta during such year;

" " a tax at the rates applicable to persons * * * set forth in the first schedule of this Act upon the amount of income in excess of the exemptions * * * ”

So also Mignault, J., in dealing with similar wording, said in In re McLeod and Minster of Customs and Excise [1926] S.C.R. 457, at 464:

‘All this is in accord with the general policy of the Act which imposes the income tax on the person and not on the property. In other words, it is the person who is assessed in respect of his income.”

See also Atty.-Gen. for B.C. v. Kingcome Navigation Co., 47 B.C.R. 114, Macdonald, J.A., at p. 133, and In re Taxation of Judges‘ Salaries [1924] Ex. C.R. 151, Audette, J., at p. 156.

I recognize that in none of the cases cited by me did the exact point which arises here come up for decision.

There is, however, express authority for the proposition that for certain purposes, analogous to those now arising for decision, foreign property may be regarded and taken into account in relation to provincial taxation.

As stated by Street, J., in In re Renfrew (1898) 29 O.R. 565:

“There is no doubt that it was within the powers of our Legislature to have enacted that the property of a deceased person situate outside the Province should be considered in arriving at the aggregate value, ‘ ‘

i.e., for purposes of ascertaining the rate of succession duty. This statement was referred to by Martin, J.A., now Chief Justice of British Columbia, in a passage in In re Succession Duty Act; In re Van Horne Estate 27 B.C.R. 269, at 271, which was ap- proved of by the Judicial Committee sub nom Royal Trust Co. v. Minister of Finance for B.C. [1922] 1 A.C. 87, at 93.

See also Bank of Toronto v. Lambe (1887) 12 App. Cas. 575.

It is also, I think, useful to refer to the views of certain economists as to the nature of income taxation.

In Seligman ’s Essays on Taxation, 4th ed., at p. 18, the following appears:

" * * * Just as a man’s ability to support himself or his family is seen in his income or revenue, so, in the same way, it is recognized that the test of a man’s ability to support the state is to be found in this same income or revenue. From the modern point of view, it is the duty of the citizen to support the government according to his capacity to support himself. Income or revenue may not, indeed, be an ideal test; for there is no absolute test which can exactly gauge all the varying personal circumstances of each individual. But it is the best workable test that governments can secure, and it is in harmony with the test imposed on the individual by the force of social opinion in regard to his duty to his own family. For this reason modern states are everywhere changing their revenue systems, so that the taxes shall correspond, as nearly as possible, to the revenues of the citizens. This is the last step in the evolution. But precisely because it is a personal tax, rather than a tax on things, it involves administrative difficulties and presupposes a definite stage of social morality and political probity * * * ”

The same author in vol. 58 of Annals of the American Academy of Political and Social Science, p. 1, says as follows:

41 If we regard our fiscal development in the light of what is taking place abroad at present and what has occurred in the past, we have to signalize several marked tendencies now visible in the United States.

"‘The first point is the relation between personal taxes and real or specific taxes, or, as our legal brethren say, between taxes in personam and taxes in rem. All taxes are ultimately paid by some person, but the tax may be in the first instance imposed upon a specific thing, irrespective of the person. A tax upon a man’s entire income or entire property, intangible as well as tangible, is a personal tax. A tax upon a particular piece of property or upon a particular business which affords a revenue is a real tax or a specific tax or a tax on the thing apart from the person. It is significant that taxation has generally begun as a specific or real tax and that it developed into a personal tax * * * ‘‘

I desire also to refer to Plaxton and Varcoe f s Dominion Income Tax Law, 2nd ed., at p. 3, where the following appears:

"‘The tax is thus a retrospective tax on the total ‘income’ received by the person charged during the year previous to the year of assessment. Moreover, the scheme of the tax is such that it is immaterial whether or not the taxpayer has any income or source of income in the year of assessment. A person without any income and without any source of income during the year of assessment, even an adjudicated bankrupt, may thus be liable to the tax. This is one of the inconveniences of retrospective taxation. Another feature of the tax is that it does not fall upon the ‘income,’ as such, of the taxpayer. The ‘Income’ is used merely as a just standard for computing the amount of the tax. The tax is, consequently, a personal tax as contradistinguished from real or specific taxes—" a charge, ’ as was said by Audette, J., in the case of In re Taxation of Judges’ Salaries [supra] ‘imposed, by the legislature, upon the person.’ ”

I think neither appellants nor respondents can derive any assistance from secs. 23, 24 and 25 of the Act, which, under certain circumstances, purport to tax certain income earned in the province of persons resident outside Alberta, and I express no opinion as to the constitutionality of such attempt. Those parts of the Act are clearly divisible for all relevant questions of legislative power from that presently dealt with.

For these reasons I would allow the appeal, dismiss the crossappeal and dismiss the action, all with costs to the appellants.

Appeal allowed.