A-432-81
The Queen (Appellant)
v.
B & J Music Limited (Respondent)
Court of Appeal, Thurlow C.J., Le Dain J. and
Clement D.J. Toronto, January 20 and 21, 1983.
Income tax Income calculation Deductions
Respondent becoming Canadian-controlled private corporation
("CCPC") in June /974 — Respondent's taxable income for
taxation years 1972-1974 must be included when computing
cumulative deduction account, for purposes of determining
small-business deduction under s. /25(/) in subsequent years
— Purpose of s. /25 is to afford CCPCs special tax treatment
Purpose to be carried out only to extent provided by
section's language — Court not to expand special treatment by
relying on unexpressed intention Decision same even if
"corporation" refers only to CCPC — Appeal from Trial
Division allowed — Assessments restored Income Tax Act,
S.C. 1970-7/-72, c. 63. s. /25(/),(6)(6).
COUNSEL:
W. Lefebvre and M. T. Boris for appellant.
S. D. Paton for respondent.
SOLICITORS:
Deputy Attorney General of Canada for
appellant.
Rosenberg, Smith, Paton, Hyman & Matlow,
Toronto, for respondent.
The following are the reasons for judgment
rendered in English by
THURLOW C.J.: The issue in this appeal is
whether the taxable income of the respondent for
the taxation years 1972, 1973 and 1974, when the
respondent did not qualify for a tax deduction as a
"Canadian-controlled private corporation", must
be brought into account in computing its "cumula-
tive deduction account" for the purposes of subsec
tion 125(1) of the Income Tax Act, R.S.C. 1952,
c. 148, as am. by S.C. 1970-71-72, c. 63, s. 1, for
the taxation years 1975, 1976 and 1977, when the
respondent did qualify as a Canadian-controlled
private corporation.
Section 125 sets up a statutory scheme entitling
Canadian-controlled private corporations to cer
tain tax deductions, subject to the limitations set
out therein. The section has six subsections, the
last of which defines, inter alia, the meaning of
"cumulative deduction account". So far as is rele
vant for present purposes, the definition reads:
125. ...
(6) In this section,
(b) " cumulative deduction account" of a corporation at the
end of any taxation year means the amount, if any, by which
the aggregate of
(i) the corporation's taxable incomes for taxation years
commencing after 1971 and ending not later than the end
of the particular year, and
The learned Trial Judge [B. & J. Music Limited
v. The Queen, Federal Court, T-586-71, judgment
dated June 25, 1981] held that the respondent's
1972, 1973 and 1974 taxable incomes should not
be brought into the computation of the respond
ent's cumulative deduction account. His view was
expressed in the following paragraph from his
reasons [at page 5]:
In my view, section 125 of the Income Tax Act is a special
section affording "Canadian-controlled private corporation"
special tax treatment and it does not in any of its provisions
refer to any other corporations; and further Parliament did not
legislate in this section to deny the so-called small business
deduction to any corporation such as B. & J. Music Limited
which was not in 1971 a "Canadian-controlled private
corporation".
I accept the view that section 125 affords
Canadian-controlled private corporations special
tax treatment. That, to my mind, is its purpose,
but as I see it, the purpose is to be carried out only
to the extent that the language of the section so
provides. It is not open to the Court to extend the
application of what the section provides by reli
ance on some supposed but unexpressed intend-
ment.
Even if the word "corporation", wherever it
appears in the section and in particular in the
definition of "cumulative deduction account", is
read as referring only to a Canadian-controlled
private corporation, it appears to me that when it
is so read and applied as at the end of each of the
taxation years 1975, 1976 and 1977, the definition
requires that the taxable incomes of that corpora
tion for the years 1972, 1973 and 1974 be brought
into the computation. In order to exclude that
income from the computation it would, as I see it,
be necessary to amend the definition by adding,
after the words "corporation's taxable incomes",
wording such as: "while a Canadian-controlled
private corporation". This, in my opinion, the
Court cannot do.
I would allow the appeal with costs here and in
the Trial Division, set aside the judgment of the
Trial Division, and restore the assessments.
LE DAIN J.: I agree.
* * *
The following are the reasons for judgment
rendered in English by
CLEMENT D.J. (dissenting): With respect, I am
in agreement with the interpretation put on section
125 of the Income Tax Act by Mr. Justice Gibson,
and I would dismiss this appeal.
Section 125 is directed solely to companies that
come within the definition of "Canadian-con
trolled private corporation". The respondent,
having been in business in Canada for a number of
years, in June 1974 became such a company by
virtue of sale of its shares of capital stock to
Canadian owners. Prior to that date, section 125
had no application to it.
The issue in appeal is the amount, if any, prop
erly standing to the credit of the respondent's
"cumulative deduction account" for its taxation
year 1975 (being the calendar year). This phrase is
defined by paragraph (6)(b), of which the terms
relevant to the issue in appeal are:
125. (6) ...
(b) "cumulative deduction account" of a corporation at the
end of any taxation year means the amount, if any, by which
the aggregate of
(i) the corporation's taxable incomes for taxation years
commencing after 1971 and ending not later than the end
of the particular year ....
The question is whether this wording brings into
the cumulative deduction account of the respond
ent its taxable income earned in 1974 and earlier
years.
The deductions allowed to the respondent under
section 125 were not available to it until its taxa
tion year 1975, by virtue of the opening words of
subsection (1):
125. (I) There may be deducted from the tax otherwise
payable under this Part for a taxation year by a corporation
that was, throughout the year, a Canadian-controlled private
corporation, an amount ....
Nevertheless, the Minister has imposed on the
opening of the account for the taxation year 1975,
and subsequently, an accumulation of past taxable
income when there was no provision in the Act for
the establishment of such an account in those past
years, and no benefit available to the respondent
could have arisen out of it. It is urged that the use
of the word "corporation" in paragraph (6)(b)
imports "any corporation" and bears on any corpo
rate taxable income after 1971, so that the taxable
income of the respondent before it came under the
provisions of section 125 must be taken into
account. I do not agree. The meaning of the word
"corporation" must be determined by the context
of the whole section in which it is used, and in my
opinion, there is no warrant for extension of its
operation to a period of time in which the section
itself had no operation for the respondent. The
opening words of the paragraph can mean only a
Canadian-controlled private corporation. Subpara-
graph (6)(b)(i) is addressed to "the corporation":
that is to say, the corporation referred to in the
opening words of the paragraph. The respondent's
first "particular year" was 1975 under that provi
sion, since it was not qualified for the deduction in
previous years by virtue of the opening words of
subsection (1).
I am of the opinion that the section can be given
its full and fair operation by applying its terms to a
corporation in the time span in which a corpora
tion has in fact the qualifying status, and that the
wording in question should not be extended back
ward to transactions in the past so as to affect the
fair operation of the provisions of the section, and
diminish their intended benefits, in the present.
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.