Words and Phrases - "may deduct"

The taxpayer (Dr. Zhang) was a dentist who had $52,040 in tuition and education tax credits available to be carried forward to her 2014 taxation year. She earned dividend income in 2014 and claimed a dividend tax credit for 2014, and did not claim any of her unused tuition and education tax credits. When she instead claimed them in her 2015 return, they were denied on the basis that they had been applied by the Minister for Dr. Zhang’s 2014 taxation year.

The Crown argued that the words “may deduct” in element “D” of the formula mean “is permitted to deduct,” so that her credits carried forward from 2014 were reduced whether she actually deducted that amount or not. Dr. Zhang argued that the words “may deduct” in D “acknowledge the fact that the taxpayer has a choice whether to deduct the amount or not and thus refer to the choice that the taxpayer has actually made” (para. 7). Since she did not choose to deduct any amount under s. 118.61(2) in 2014, Dr. Zhang argued that the value of element “D” was nil in that year.

In rejecting Dr. Zhang’s position, Graham J found (at paras 9, 10-11, 13-14):

If Parliament had intended Dr. Zhang’s interpretation, it could have simply changed the tense of the word “deduct” to “deducted”. …

A contextual analysis of subsection 118.61(1) supports Dr. Zhang’s position … [as] unlike element “B”, which uses the phrase “which may be deducted”, element “D” uses the phrase “that the individual may deduct”. …

The purposive analysis supports the Respondent’s position … [as in the] Department of Finance Technical Note … “amount of the tuition and education tax credits carryforward that is deductible for the current year” is used to describe element “D”. Note that the word “deductible” is used rather than the word “deducted”.

Graham J concluded (at para 18):

… I am satisfied from the purposive analysis that the contextual problem is simply a result of poor drafting. I find that element “D” in subsection 118.61(1) should be read as if it said:

D is the amount which may be deducted under subsection (2) for the year; and