T-3571-78
Moses Ketz (Plaintiff)
v.
The Queen (Defendant)
Trial Division, Dubé J.—Montreal, February 13;
Ottawa, February 28, 1979.
Income tax — Income calculation — Non-residents —
Rental income from Canadian property — Non-resident tax
payer elected to be taxed as if he were a resident for purpose
of using general averaging provision under s. 118(1) — Minis
ter disallowed claim for tax savings — Appeal from Minister's
decision — Income Tax Act, S.C. 1970-71-72, c. 63, ss. 61,
118(1), 216(1),(3),(7).
Plaintiff, a non-resident, was the owner of real property
located in Canada from which he earned rental income and for
which he claimed capital cost allowance which was recaptured
when he sold the property in 1976. During the period in which
he owned the property, plaintiff elected to be taxed as if he
were a resident under the provisions of section 216 of the
Income Tax Act. In computing his income for the taxation year
1976 he purported to avail himself of the general averaging
provision under subsection 118(1), but his claim for tax savings
under the provision was disallowed by the Minister. This is an
appeal from that decision.
Held, the appeal is dismissed. In order to transform subsec
tion 118(1) so as to have it apply to a non-resident, changes
have to be brought about which would go to the very substance
of the provision. In the construction of statutes, words must be
interpreted in their ordinary grammatical sense, in harmony
with the scheme of the Act and the intention of Parliament,
unless there be something in the context to show otherwise.
Subsection 118(1) clearly applies to an individual who was a
resident in Canada throughout the taxation year immediately
preceding a particular taxation year. Plaintiff was not a resi
dent of Canada in 1975; he merely had elected to file a return
of income for that year under Part I as if he were a resident. If
it had been the intention of Parliament to open the general
averaging provision of subsection 118(1) to non-residents, that
intention would have been clearly spelled out in the statute.
INCOME tax appeal.
COUNSEL:
Robert Litvack for plaintiff.
J. P. Fortin, Q.C. and P. Bernard for
defendant.
SOLICITORS:
Chait, Salomon, Gelber, Reis, Bronstein,
Litvack, Echenberg & Lipper, Montreal, for
plaintiff.
Deputy Attorney General of Canada for
defendant.
The following are the reasons for judgment
rendered in English by
DuBÉ J.: Both parties are in agreement as to the
facts. The sole issue is a question of law, namely
whether the plaintiff, a non-resident of Canada in
the year 1976 who had elected under section 216
of the Income Tax Act, S.C. 1970-71-72, c. 63, to
pay taxes as if he were resident in Canada in that
year, was entitled to avail himself of the general
averaging provisions of subsection 118(1) of the
Act. The relevant subsections read:
216. (1) Where an amount has been paid during a taxation
year to a non-resident person, or to a partnership of which he
was a member, as, on account or in lieu of payment of, or in
satisfaction of, rent on real property in Canada or a timber
royalty, he may, within 2 years from the end of the taxation
year, file a return of income under Part I in the form prescribed
for a person resident in Canada for that taxation year and he
shall, without affecting his liability for tax otherwise payable
under Part I, thereupon be liable, in lieu of paying tax under
this Part on that amount, to pay tax under Part I for that
taxation year as though
(a) he were a person resident in Canada and were not
exempt from tax under section 149,
(b) his income from his interest in real property in Canada,
timber resource properties and timber limits in Canada and
his share of the income of a partnership of which he was a
member from its interest in real property in Canada, timber
resource properties and timber limits in Canada were his
only income, and
(c) he were not entitled to any deduction from income for
the purpose of computing taxable income.
118. (1) Notwithstanding section 117, where, in the case of
an individual who was resident in Canada throughout the
taxation year immediately preceding a particular taxation year
(which particular taxation year is hereafter in this section
referred to as the "year of averaging"), any excess remains
when
(a) the greater of 110% of his income for the immediately
preceding taxation year and 120% of the quotient obtained
when
(i) the aggregate of all amounts each of which is the
individual's income for a taxation year in the period of
such of the consecutive taxation years (not exceeding 4)
immediately preceding the year of averaging as were years
throughout which he was resident in Canada
is divided by
(ii) the number of years in the period described in sub-
paragraph (i)
is deducted from
The plaintiff was the owner of real property
located in the City of Montreal from which he
earned rental income and for which he claimed
capital cost allowance which was recaptured when
he sold the said property in 1976. During the
period in which he owned the property the plaintiff
elected to be taxed under the provisions of section
216 of the Income Tax Act and filed returns of
income under Part I in the form prescribed for a
person resident in Canada. In computing his
income for the taxation year 1976 he purported to
avail himself of the general averaging clause under
the provisions of subsection 118(1), but his claim
for tax savings under the clause was disallowed by
the Minister. This is an appeal from that decision.
It is common ground that for his 1976 taxation
year the plaintiff does not qualify for general
averaging under subsection 118(2) applicable to
non-resident individuals. He alleges that since sub
section 216(1) allows a non-resident to file a
return under Part I, then all the provisions of Part
I are available to him, with the necessary changes
in detail. He points to subsection 216(3) in support
of his contention. It reads:
216... .
(3) Part I is applicable mutatis mutandis to payment of tax
under this section.
Plaintiff's learned counsel provided the Court
with some definitions of mutatis mutandis which
were quite acceptable to counsel for the Minister
and to the Court.
Housman v. Waterhouse 182 N.Y.S. 249, 251, 191 App. Div.
850.
The words "mutatis mutandis" mean with the necessary
changes in detail to conform to a single vital change.
Copeland v. Eaton 95 N.E. 291, 209 Mass. 139, Ann. Cas.
1212B, 521.
Where profits are defined by a certain article, all the
provisions of which are to apply to the relations between the
parties springing into existence after the expiration of the
contract "mutatis mutandis," these latter words mean neces
sary changes in details to conform to a single vital alteration,
and suggest a reversal of the relative positions of the parties
under the contract, which was to continue the same in other
respects.
Re Kipnes and Attorney-General for Alberta [1966] 4 C.C.C.
387 (C.A.).
Earl Jowitt's Dictionary of English Law defines mutatis
mutandis as "with the necessary changes in points of detail",
and Black's Law Dictionary, 4th ed., "With the necessary
changes in points of detail, meaning that matters or things
are generally the same, but to be altered when necessary, as
to names, offices, and the like. Housman v. Waterhouse, 191
App. Div. 850, 182 N.Y.S. 249, 251."
Petit Larousse, 1976.
"mutatis mutandis: en changeant ce qui doit être changé; en
faisant les changements nécessaires."
Plaintiff proposed a draft of subsection 118(1)
which would include the added words necessary to
obtain the desired results. The proposed "changes
in detail" appear in italics. For brevity's sake, the
paragraphs and subparagraphs of 118(1) are not
reproduced.
118. (1) Notwithstanding section 117, where, in the case of
an individual who was not resident in Canada throughout the
taxation year immediately preceding a particular taxation year
(which particular taxation year is hereafter in this section
referred to as the "year of averaging"), but had, during the
year immediately preceding the year of averaging, elected to
file a return of income under this Part in the form prescribed
for a person resident in Canada for that taxation year, any
excess remains ...
In his argument counsel for the Minister avers
that the general scheme of the Income Tax Act
allows non-resident persons to pay an income tax
of 25%, or such other rate as may be prescribed by
treaty, on their Canadian rental income. The Act
provides that a non-resident person can elect to
pay tax under Part I of the Income Tax Act, if
that person receives rental income from real prop
erty in Canada and files a return of income under
Part I in the form prescribed for persons resident
in Canada for that taxation year, as if that person
was resident in Canada and as if that property
income was his only income. The Income Tax Act
provides that Part I is applicable mutatis mutan-
dis to a person paying tax under subsection
216(1), that is with the necessary changes in
detail, not with changes of substance.
But, whereas subsection 216(1) applies to a
non-resident person, subsection 118(1) applies to
an individual who was a resident in Canada
throughout the preceding year: it is common
ground that the plaintiff was not a resident of
Canada during his 1975 taxation year.
Therefore, the defendant submits, subsection
216(3) is of no assistance to the plaintiff since
residence for the previous year is an essential
condition for the application of subsection 118(1),
not merely a point of detail.
The defendant further submits that plaintiff's
construction of subsections 118 (1) and 216(1)
would lead to a perverse conclusion: a non-resident
would benefit from a more favourable tax treat
ment than a resident.
In my view, in order to so transform subsection
118 (1) as to have it apply to a non-resident,
changes have to be brought about which would
indeed go to the very substance of the provision. In
the construction of statutes, words must be inter
preted in their ordinary grammatical sense, in
harmony with the scheme of the Act and the
intention of Parliament, unless there be something
in the context to show otherwise. Subsection
118(1) clearly applies to an individual who was a
resident in Canada throughout the taxation year
immediately preceding a particular taxation year.
Plaintiff was not a resident of Canada in 1975; he
merely had elected to file a return of income for
that year under Part I as if he were a resident. If it
had been the intention of Parliament to open the
general averaging provisions of subsection 118(1)
to non-residents, that intention would have been
clearly spelled out in the statute.
Plaintiff's counsel advances a second argument.
He points out that subsection 216(7) provides that
section 61 is not applicable where a non-resident
person is liable to pay under Part I. Section 61 is
the section dealing with income averaging annuity.
Subsection 216(7) reads as follows:
216....
(7) Where, by virtue of subsection (5), a non-resident is
liable to pay tax under Part I for a taxation year, for greater
certainty section 61 is not applicable in computing his income
for the year.
Counsel argues that since annuity income aver
aging is specifically excluded, and the Act is silent
on the exclusion of income averaging, therefore by
virtue of the rule exclusio unius inclusio alterius,
income averaging would be permissible for a non
resident filing income tax under Part I as a
Canadian resident.
The doctrine may not be invoked in this
instance. Section 61 is specifically made not appli
cable to a non-resident person who has elected to
pay tax as a resident under Part I because it would
otherwise have been available to him. The situa
tion with reference to subsection 118 (1) is mani
festly different: it is apparent on the face of it that
it applies only to an individual who was a resident
in Canada throughout the preceding year.
The appeal therefore is dismissed with costs.
You are being directed to the most recent version of the statute which may not be the version considered at the time of the judgment.