T-1232-78
Moses Deitcher (Plaintiff)
v.
The Queen (Defendant)
Trial Division, Marceau J.—Montreal, September
6; Ottawa, September 24, 1979.
Income tax — Capital cost allowance — Recapture —
Residency — Plaintiff while a Canadian resident acquired a
building and deducted capital cost allowance for several taxa
tion years — Plaintiff after becoming a resident of the
Bahamas, continued to deduct depreciation as authorized —
The following year plaintiff sold building and incurred recap
ture — Plaintiff as a non-resident, claimed to be able to limit
amount of recapture to amount of deduction claimed by him in
his capacity as a non-resident the year before — Minister
included total amount of recapture in plaintiff's income —
Appeal from Tax Review Board's decision upholding the
Minister's reassessment — Income Tax Act, R.S.C. 1952, c.
148, s. 110(1),(5) [S.C. 1970-71-72, c. 63, s. 2161 as amended
by S.C. 1974-75-76, c. 26, s. 121(5).
Minister of National Revenue v. Bessemer Trust Co.
[1972] F.C. 1398, followed.
INCOME tax appeal.
COUNSEL:
François Tremblay for plaintiff.
Roger Roy for defendant.
SOLICITORS:
Verchère & Gauthier, Montreal, for plaintiff.
Deputy Attorney General of Canada for
defendant.
The following is the English version of the
reasons for judgment rendered by
MARCEAU J.: This action—which was appealed
from a decision of the Tax Review Board uphold
ing a reassessment dated November 7, 1974, made
against plaintiff by the Minister for the 1971
taxation year—concerns the interpretation and
application of two provisions of the Income Tax
Act, R.S.C. 1952, c. 148 as they stood in 1971,
namely the provisions of subsections (1) and (5) of
the old section 110 (now section 216 in the new
Act), which then read as follows:
110. (1) Where an amount has been paid during a taxation
year to a non-resident person 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 62,
(b) his interest in real property in Canada or timber limits in
Canada were his only source of income, and
(c) he were not entitled to any deduction from income to
determine taxable income.
(5) Where a non-resident person has filed a return of income
under Part I for a taxation year as permitted by this section
and has, in computing his income under Part I for that year,
deducted an amount under paragraph (a) of subsection (1) of
section 11 in respect of real property in Canada or a timber
limit in Canada, he shall, within the time prescribed by section
44 for filing a return of income under Part I, file a return of
income under Part I, in the form prescribed for a person
resident in Canada, for any subsequent taxation year in which
that real property or timber limit or any interest therein is
disposed of, within the meaning of section 20, by him, 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 any amount paid to him or deemed by this Part to
have been paid to him in that subsequent taxation year in
respect of any interest of that person in real property in Canada
or timber limits in Canada, to pay tax under Part I for that
subsequent taxation year as though
(a) he were a person resident in Canada,
(b) his interest in real property in Canada or timber limits in
Canada were his only source of income, and
(c) he were not entitled to any deduction from income in
computing his taxable income.
' Subsection (1) is reproduced in subsection (1) of section
216 of the present Act, but subsection (5), after being repro
duced in full in subsection (5) of 216, was amended in 1974,
and I will return to this.
The facts are straightforward and not in dispute;
they may be summarized as follows. In 1961 and
1962 plaintiff, who was then a Canadian citizen
and resident, acquired a joint half of an apartment
building located in Laval, in the Province of
Quebec. Until 1970, in reporting income from this
building annually for tax purposes, plaintiff
claimed, as he was entitled to do under section
11(1) (a) of the Act, a capital cost allowance, and
benefited accordingly from depreciation deduc
tions amounting to a total of $30,580.35. In 1970,
the undepreciated balance of the capital cost
amounted to $60,382.71.
On May 18, 1970 plaintiff became a resident of
the Bahamas. In submitting his tax return for
1970, he again claimed a deduction for capital cost
depreciation on his building relying on the option
authorized by section 110(1), reproduced above.
The following year, however, plaintiff disposed of
his share in the building for a price considerably
greater than its purchase price. By the terms of
section 110(5), which I also reproduced above, he
was required to make a return accordingly, and
include in his income the recovery of depreciation
which he had just realized. This is what he did, but
relying on his status as a non-resident he claimed
to be able to limit the amount of this recovery to
the deduction claimed by him in this capacity, that
is, only that for the preceding year, amounting to
$2,262.43. In his reassessment, the Minister chal
lenged this procedure and included in plaintiffs
taxable income the total amount of the deductions
claimed by him since 1962. Plaintiff naturally
objected, but in vain, and as his arguments were
dismissed by the Tax Review Board, he submitted
his procedure to the Court.
Through his counsel, plaintiff maintained that
the actual wording of subsections (1) and (5) of
section 110, as they stood in 1971, supports his
arguments that the amount of recovery which he is
required to account for should be limited to the
deduction claimed by him in the preceding year,
and he further argued that the changes which
Parliament saw fit to make subsequently to these
provisions in Part III of the Act only confirmed
the interpretation supported by him. More precise
ly, his argument was as follows.
Plaintiff contended, first, that Parts I and III of
the Act should be treated as separate, each being
independent of the other and constituting autono
mous legislation in itself. Section 110 (like its
successor in the present Act) refers to Part I, but
merely by "reference" and solely in order to avoid
a repetition of certain provisions already stated
elsewhere. The reference sections should accord
ingly be read as if they were reproduced in the
section referring to them, and the scope of the
latter should not be extended beyond the context
in which it must apply. In 1970, section 110
concerned only a non-resident, with the result that
the deduction which it permitted initially (subsec-
tion (1)) and the recovery which it then authorized
(subsection (5)) could only relate to a non-resi
dent. This was his situation. In 1970, so to speak,
he moved out of Part I into Part III, and his
obligation to include the depreciation recovery in
his income in 1971 resulted solely from the provi
sions in Part III, that is only those of subsection
(5) of section 110, which could only apply to
depreciation deductions previously claimed by him
under subsection (1).
The result, plaintiff went on, is questionable in
terms of equity, but equity is not the basis for
interpreting a fiscal statute, and indeed it was to
alter this result that Parliament intervened in
1974, amending subsection (5) of section 216 (for-
merly 110) and requiring that in future a taxpayer
should account at the time he disposes of his
property for the recovery covering both the
depreciation deductions he might have obtained
under Part I and those obtained by him under Part
III.
That, as I understand it, is plaintiff's argument.
Unfortunately, it was not an argument which suc
ceeded in persuading me.
To begin with, in my opinion the interpretative
analysis suggested by plaintiff does not take into
account the wording actually used by the legislator
in subsection (1) of section 110. Thus, the subsec
tion does not refer strictly to certain specific provi-
sions of Part I; it speaks of a tax return "under
Part I", and it authorizes the non-resident to be
treated "as though he were a resident in Canada".
Accordingly, with regard to the subject in question
and for these purposes, the entire scheme of Part I
is incorporated and the taxpayer is treated like a
Canadian resident. I cannot read M.N.R. v. Bes-
semer Trust Company [1972] F.C. 1398 reversing
[1972] F.C. 1176 in any other way. In my opinion,
the result is that as a consequence of his option in
1970, plaintiff with respect to his real property
remained subject to the same scheme as before,
and he continued to be treated in this regard as if
he had remained a Canadian resident. In 1971, by
the application of subsection (5), he was required
to be subject to the same scheme and to be treated
as if he had still been a Canadian resident.
Then, to the extent that legislative changes sub
sequent to 1971 are relevant, I do not interpret
them the same way as plaintiff. The wording of
subsection (5) of section 216 (formerly 110),
amended in 1974 by S.C. 1974-75-76, c. 26, sec
tion 121(5), reads as follows:
121... .
(5) Where a person or a trust of which that person is a
beneficiary has filed a return of income under Part I for a
taxation year as permitted by this section or as required by
section 150 and, in computing the amount of his income under
Part I an amount has been deducted under paragraph 20(1)(a),
or is deemed by subsection 107(2) to have been allowed under
that paragraph, in respect of real property in Canada, a timber
resource property or a timber limit in Canada, he shall, within
the time prescribed by section 150 for filing a return of income
under Part I, file a return of income under Part I, in the form
prescribed for a person resident in Canada, for any subsequent
taxation year in which he was a non-resident person and in
which that real property, timber resource property or timber
limit or any interest therein is disposed of, within the meaning
of section 13, by him or by a partnership of which he is a
member, 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 any amount paid, or deemed by
this Part to have been paid to him or to a partnership of which
he is a member in that subsequent taxation year in respect of
any interest in real property, timber resource property or
timber limit in Canada, to pay tax under Part I for that
subsequent taxation year as though
(a) he were a person resident in Canada and not exempt
from tax under section 149;
(b) his income from his interest in real property, timber
resource property or 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, timber resource property or
timber limits in Canada were his only income; and
(c) he were not entitled to any deduction from income for
the purpose of computing his taxable income.
In my opinion, the amendments made to the old
legislation did not have the effect of covering in
future a case like that of plaintiff; rather, they
applied to a taxpayer who, having benefited from
depreciation deductions while he was a Canadian
resident, became a foreign resident and did not
exercise the option authorized by subsection (1).
I am of the opinion that the Minister's interpre
tation was correct and the Tax Review Board
correctly upheld it; by exercising in 1970 the
option allowed him by subsection (1) of section
110, plaintiff remained subject with respect to his
real property to the scheme of Part I, and there
upon had to be treated as though he were still
resident in Canada.
The action will accordingly be dismissed with
costs.
At the request of the parties, nevertheless, I will
return the case to the Minister for him to make an
assessment taking into account the undertaking
given by him to fix the amount of the recovery at
$30,588.35 instead of $31,159.05, as set forth in
paragraph 11 of the joint statement of facts.
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.