anda dada Gres Gs Oa Crt aha a ea Hats er boerersaat Ee ene ee ae Qoruell Law School Library “at A TREATISE ON THE DOMINION INCOME TAX LAW EMBODYING REFERENCES TO LEADING DECISIONS OF COURTS THROUGHOUT THE BRITISH EMPIRE AND IN THE UNITED STATES OF AMERICA APPLICABLE TO THE INTER- , PRETATION OF THE INCOME TAX ACT OF THE DOMINION OF CANADA, WITH COMMENTARIES AND EXPLANATIONS AND my AN APPENDIX CONTAINING AN OFFICE CONSOLIDATION OF THE INCOME WAR TAX ACT, 1917, AND ITS AMENDING ACTS BY CHARLES PERCY PLAXTON AND FREDERICK PERCY VARCOE BARRISTERS-AT-LAW PRESENTLY OF THE DEPARTMENT OF JUSTICE, OTTAWA TORONTO: THE CARSWELL Company, LIMITED 145-149 Adelaide St. West 1921 Q4er3C CopyrkiGHt, CANADA, 1921, By THE CARSWELL COMPANY, LIMITED, AND CHARLES PERCY, PLAXTON AND FREDERICK PERCY VARCOE. TABLE OF CONTENTS. SPAble GE GiSOS:wiccs sys. o scechls gd atedded anes Gas HOS See FEY eed aE List of Abbreviated References to Reports .........e 0 eee e cease CHAPTER I. History, Nature and Constitutional Aspects of Income Taxation! «4. os sesne sn wind ooeGakia veiwlae see tee eg JI. Construction of Taxing Statutes ............. 00 eee “LIE, Persons: Taxable oss. cscs ceca se dered Waleed Ka ed wee EV2 -INCOiiC sss oe e een nad aes ys We Head uke E se ene NV. TOsemiptions ¢.c. ..0 eea sce sacere sans eae hire aes WU v Wledetimaase od aarke Souda aie aanneeen ewer VII. Rates and Remedies against Evasion ................. VIII. Returns, Assessments, and Appeals ...........-...005 IX. Payment, and Remedies to Recover Payment .......... APPENDIX: Office Consolidation of Income War Tax Act, 1917, and its mmending ACS «set ioos Med bed eee Keo bee eee eRe as Income War Tax Act, 1917 ........ceceeeeeee sees Income War Tax Amendment Act. 1918............... ‘ oy OE : © SVOV9 s 25 wwe nee tee ee e 7 ° POD sic, ec auicg ses due TABLE OF CASKS. A. PAGE Abbott vr. City of St. John, 40 8. C. R. 597......... 0. ee 28, 29 Abel v. State, 90 Ala. 683 1.0... . ccc cee cece cece eevee eee 105, 111 A. By Re 22 Anst. Te IST sees ess Sedeous dik ccae gen see tee 242 2) A, Ee Re 199 oon ee bees eee eins goa Heed saa 147 Adams v. Boston Ry. Co., 1 Holmes (U.S.) 35............025. 105 Addie & Sons, Re (1875), 2 R. 431; 12 Se. L. R. 274; 1 Tax CBS: TD. xri Here Seed Meee 4s Deka ee Hina ee aus’ oom aod Stan 152 Aikin v. Macdonald’s Trustees (1894), 22 R. 88; 32 Se. L. R. Bo? BMA Cas, BOG ie crescence dp ce dreds waiwcad Bis Gime 196, 209 v. Short (1856), 1 H. & N. 210 2... eee ee eee eee 282 Alabama & C. R. Co., Re, 1 Fed. Cas. 271 ........-....02. 105, 113 Alianza Co. v. Bell (1906), A. C.18; 75 L. J. K. B. 44; 93 L. T. 705 ; 54 W. R. 413; 5 Tax Cas. 172 ............. 000, 160, 206 Allen v. Hamilton W. W. Com’rs (1887), 24 Se. L. R. 360; 51 de Pe 27S SB Tae ae 1 nk ind a eee ea8 wees 97 vw. Sharpe (1848), 2 Ex. 352 20... ee eee eee 264 American Net & Twine Co. v. Worthington, 141 U.S. 468 ...... 34 American Thread Co. v. Joyce (1912), 106 L. T. 171; 28 T. L. R. 233; 56 8. J. 308; 6 Tax Cas. 1; (H.L.) (1913), 108 L. T. 353; 29 T. L. R. 266; 57 S. J. 321; 6 Tax Cas. A MGB i bctdeters cra Ratt a atdela elenn tenant 30 eeees ates 64, 74, 76, 79, 84, 85 Ammonia Soda Co. v. Chamberlain (1918), 1 Ch. 266...... 158, 198 Anon., 1915, Tasmania L. R. 145 10... cece 170 Apthorpe v. Peter Schoenhofen Brewing Co. (1899). 80 L. T. 395; 15 T. L. R. 245; 4 Tax Cas. 41....60, 77, 78, 89-91, 93, 94 Archibald Thomson, Black & Co. v. Batty, 56 Se. L. R. 185.... 211 Arizona Copper Co. v. Smiles (1891), 19 R. 150; 29 Se. L. R. 1B4e SB Dax’ Cas; TAO’. tthe ant iene Gratianand maine eawmerer ee 207 Armitage v. Moore (1900), 2 Q. B. 363; 69 L. J. Q. B. 614; 82 L. PT. 618s 4. Tax Cas: 199 sede cea newess aaa aek ley eae BL Ashton Gas Co. v. Att.-Gen. (1904), 2 Ch. 621; (1906) A. C. LOe 7S: Ts. Js Che 1 93: Ta -T G16: 3 cise ccs Saaidecoe cnasenn ys oe 195 Assessment Act, In re (Hon. O. T. Daniels and Town of Bridge- town): 12) THe Th RAD ek gins dees eae ar Sania aces wien va wales 64, 71 Assets Co. v. Forbes (1897), 24 R. 578; 34 Se iL. R. 486; 3 VIS Gals A ag act na elias BUSrtaoshcsik 884 Nenan doveate terse sores Samer aleieoonie 115 Associated Newspapers, Limited v. London (City) Corporation, (1916) 2 A. C. 429; 85 L. J. K. B. 1786...... iataet Nae worded 36 Association for Colored Orphans v. New York, 104 N.Y. 086... 35 Atchison v. O’Connor, 223 U.S. 280 2... . cece eee eee 286 Athlumney, Re (1898), 2 Q. B. 547 2... eee 39 Atlee v. Backhouse (1838), 3 M. & W. 683 ...............0.0. 284 Att.-Gen. rv. Alexander (1874), L. R. 10 Ix. 20; 44 L. J. Ex. 3; 81 L. T. 694; 23 W. R. 255.....0........0000. 75, 83 v1 TABLE OF CASES. PAGE Att.-Gen. for Australia v Colonial Sugar Refining Co. (1914), gC Se (n ORE 1h cor ce cea eo net yey NG yan cue ease DOE RS 29 for B. C. v. Ostrum (1904) A. C. 144 000.000.0006. 145 r. Carlton Bank (1899), 2 K. B. 158 .............. 82 for Canada v. Att.-Gen. for Ontario (Fisheries Case), (VS98) Aes G5, HOO! sates savel apart cebidas ested damn tdeand Guacare 23 for Canada v. Cain, 1906 A. C. 542 ............0... 270 for Canada v. Rec.-Gen. for N.B. (1892), A. C. 542 269 for Canada v. Sydney, 9 D. L. R. 282 ..........00.. 42 vt. Coote (1817), 4 Price, 183; 18 R. R. 692... .63, acts iil onriss Sandan ey esl lati aie age bare. abatantinae eters 64, 65, 67 ——_—— r. Foster (1892), 31 N. B. 153 ..............0006- ~ 31 ———— ;. Leonard (1888), 38 Ch. D: 622; 57 L. J. Ch. 869; 59 L. T. 624; 837 W. R. 24 .................266, 268 t. McCormack (1908), 2 K. B. Ir. 517.......... 256, 263 for New South Wales v. Interstate Estates (1907), KOC DID sens Gomer neh aw owedMewsaare EheEea en 269 for Ontario v. Att.-Gen. for Canada (The Local Pro- hibition Case) (1896), A. C. 348 ........... 28, 270 for Ontario r. Att.-Gen. for Canada (Supreme Court References Case), 1912 A. C. 571 icc ceccaanse oT for Ontario r. Att.-Gen. for Canada (Voluntary As- signments and Preferences Case), 1894 A. C. AME se har ap aeoh alan Gvanddex dls yas baled tanner ea etenoevananeg ones 28, 273 Augusta i. North; oO? ATG. B92 ..4 saducuae ged satan sma dasaawes 279 Auld v. Glasgow, 12 A. C.197 0... 0. . ee ceeeeeneee 58 Automatic Self Cleansing Filter Syndicate Co. v. Cunninghame (1906). 2: Che BF a ocaweu ne here er send cages Satee wees 95 B. Baird's Trustees r. In Rev. (1888), 15 R. 682; 25 Se. L. R. 533 50 Baldwin Locomotive Works v. MeCoach, 221 Fed. 59 .......... 206 Bank of B. N. A. v. Mallory (1870), 17 Grant, 102............ 278 Bank of India r. Wilson (1877), 3 Ex. D. 108 ................ 105 Bank of Toronto v. Lambe, 12 A. C. 575............... 21 SS SY, 28 Barhydt v. Cross, 156 Ohio, 271; 40 L. R. A. (U.S.) 986; Ann. CS: CUOTD JIC COD esieasset eden ug Sean wy soahaition auheniesae ibieuecaere 71 Barney r. Oelrichs, 1388 U.S. 529 0... 0. eee cece eee 63, 65 Barton's Trust, Re, L. R. 5 Bq. 244 200... eee eee 168 Bateman’s Trust, Re, L. R. 15 Eq. 855 2.0.00... ccc eee anid esi A 270 Baxter's Case, 1 O’M. & H. 158 2... ccc ccc cee 62 Baxter r. Commissioners of Taxation (1907), 4 C. L. R. 1087.. 29 Beal rv. Exeter, 20 Q. B. D. 800 2.00. ee ccc cece ccc eee 66 Be TRONS BOSSE RID AGS! ceo 22a a dee peneentarnse Dirt go tore beeia nlcsd dace 66 Bebb vr. Bunny (1854), 1 K. & J. 216: 1 Jur. (N.S.) 208...... 158 Bell +. Gardner (1842), 4 M. & Cid oo. cece cece cee cece 262 v. Gribble; Hudson r. Gribble (1903) 1 K. B. 517; 72 L. J. K. B. 242; 88 L. T. 186; 51 W. R. 457: 4 Tax CaS O22: silage vise tees drannand snivacdeten ens 148, 149, 150, 183 ——r. Kennedy, L. R.1 H. L. Se. BASIS TDS s hsas@ancyanseooay dee, apuaavevanaheritss 63 rv. Wilson (1866), 1 Ch. App. 803 ....... 0.0. cece cece ee. 206 Bentinck v. Bentinck (1897), 1 Ch. 673 ...................... 278 TABLE OF CASES. vil PAGE Bentley v. Craven, 18 Beav. 15 oo... ec ccc eee eee eens ii Benziger:6. U.S. 192) US) 38 esse oc lseneetisas site uehigue a Sa Mende ewer te Bernier v. Proulx,.15 Que. L. R. 8383 00... eee eee AT Bicknell, Re, 46 O. L. R. 416 2.0... eee eee 167, 168 Bilbie v. Lumley, 2 Wast 469 ......... cece eee eee 251, Bize v. Dickason (1786), 1 T. R. 285 2.2... eee eee eee Oe Blackwell v. England, 8 FE. & B. 541 2... ee 62 Blake r. City of London School, 18 Q. B. D. 487; and (C.A.) 19 Q. B. D. 79; 56 L. J. Q..B. 424; 36 W. R. 791; 2 ae 88. QO) i aac coos eee kee ERAS Soe Dar, Ae v. Imperial Brazilian Rail. Co. (1884), 1 T. L. R. 68; QE DAS OMS: OS) sep Secs spain Gard aeons deOacnaa a da earesalaeed Sas 165 v. McClung, 172 U.S. 239 ..............-8.- einsick i 66 Blakiston v. Cooper (1909), A. C. 104; 78 L. J. K.B. 135; 100 Ly T.-51 3-5 "Pax Cas, 347 siamo vasdes tose aeiew ee sees yews s 146 Blott v. Inland Revenue (1920), 36 T. L. R. 575 .......... 167, 169 Bohemian Club r. Commissioner of Taxes, 24 C. L. R. 334.58, 162, 182 Bond v. Barrow Haematite Steel,Co. (1902), 1 Ch. 353 ...... 164 Bonham, Re ex parte Postmaster-General (1879), 10 Ch. D. 595 ; 48 L. J. Bkey, 84; 40 L. T. 16; 27 W. R. 325......272, 273 Bouch r. Sproule, 12 A. C. 885 2.0... ccc cece cee ee ees 167, 168 Boucicault v. Wood, 2 Biss. (U'S.), 89... 0. cece eee ee 65 Bowen ©, Lewis; 9 As ©, 890 occ eee 544 douse ba deoe ven deeesns 186 Bowers v. Harding (1891), 1 Q. B. 560; GO L. J. Q. B. 474; 64 L. T. 201; 389 W. R. 558; 3 Tax Cas. 22........... ans ars 208 “Bradley v. Dilley, 27 Md. 570 ....... ccc cece cece cence neces 211 Brady «. Anderson, 240 Wed. 665. .2. 504 204.046 cnccsedinnn cee 48 Breull, Lx parte, re Bowie (1880), 16 Ch. D. 484............ 62 Brickwood & Co. v. Reynolds (1898), 1 Q. B. 95; 67 L. J. Q. B. 26;77 L. T. 456; 46 W. R. 130; 3 Tax Cas. 600 .......... 192 Brisbane v. Dacres, 5 Taunt. 148 ....... 0... eee ee eee eee S82 Bromley vr. Holland (1802), 7 Ves. 323 22.0.0... 0.00 cece eee 282 Broughton & Plas Power & Coal Co. Ltd. v. Kirkpatrick, 14 \. B. D. 491; 54 L. J. Q. B. 268; 33 W. R. 278; 2 Tax Cas. Brownlie r. Campbell (1885), A. GC. 925 22... 0... eee eee ee 982 ——— r. Russell, 8 A. C. 2385 oo. ec eee 58 Brown v. Burt (1911), 81 L. J. K. B.17; 105 L. T. 420; 5 Tax CaS GOO seis a 3% sided SeseiGted ecco auety a Saladre Sian abe eer 66, 69 Brushaber v. Union Pacific R. R. Co.. 240 U.S. 1 ............ 10 Burnes v, Pennell, 2 H. L. C. 497 2... ee ees d+ Burnley Steamship Co. v. Aikin (1894), 21 R. 965; 31 Se. L. R. 808) 3 Dax Cag: 4200 acc sc os ayite ears Oded ta sneendw esha wee Ne 202 Burt & Co. v. In. Rev. (1919), 2 K. B. 650 .... 0... ee eee 108 Burton rv. Wookey, 6 Madd. 367 ........... cece eee cence fio Butterick Co, # TU 84 240 Ped. 539 ccc evan eesaesserides 45, 60, 114 C. C. & E. Townsites r. Wetaskiwin, 59 S, C. R. 578........ Sosa 219), Cadwalader +. Inland Revenue (1904), 7 F. 146; 42 Se. L. R. IAG 5 Dax Cass LOl xcses cag aden 63, 64, 65, 67. 6S ® Dowell U8 Wood. Th TOS «cece ces enear er darenns 65 Cain, Re, Cain r. Cain (1919), 2 Ch. D. 364 ........0...000.. 195 yilil TABLE OF CASES. PAGE Caleutta Jute Mills Co. «. Nicholson (1876), 1 Ex. D. 428; 45 L. J. Ex. 821; 35 L. T. 275; 25 W. R. 71; 1 Tax Cas. 83.. 100 Caledonia Ry. Co. v. In. Rev., 18 Se. L. R. 85; 8 R. 89; 1 Tax Cas AST bac died Gadus 22 4GR Es eRe bcos hones waeriaiaee 203 Californian Copper Syndicate v. Harris (1904), 6 F. 894; 41 Se. L. R. 691; 5 Tax Cas. 159 1... cece eee eee 116, 117, 155 Calvert, Re (1899), 2 Q. B. 145; 68 L. J. Q. B. 761; 47 W.R. 528; 4 Tax Cas. 19 20... ccc cece cece renee nese ceeeere 275 Camden vr. Allen, 26 N. J. L. 3898....... 00.0. epee ee eee e eee 279 Canadian Oil Fields Co. v. Oil Springs, 13 O. L. R. 405. .256, 263, 264 Carlisle and Silloth Golf Club v. Smith (1912), 2 K B.177; 81 L. J. K. B. 581; 106 L. T. 578; 6 Tax Cas. 48; C. 4. (1918), 3K. B. 75; 82 L. J. K. B. 887; 108 L. T. 785; 6 Tax Cas. TOS! oo neve Pen xed Saucers Poe gs ate lendis 58, 109, 162, 175, 182 Carr tv. Fowle (18938), 1 Q. B. 251 2.0... cee eee eee eee 39 Carron Iron Co. v. Maclaren (1855), 5 H. L. C. 416 .......... 79 Carson, Re (1915); 1. Ir: Ch. B24. nwasic aia caw sawainim ewes 167 Cartwright v. Hinds, 3 O. R. 384 ....... 0. cee eee eee eee: 64 Cause v. Nottingham Lunatic Hospifal (1891), 1 Q. B. 585; 60 L. J. Q. B. 485; 65 L. T. 155; 39 W. R. 461; 3 Tax Cas. SO). we iersuate ‘iva atin eu sasnatn eaitaais © covaees Dackdesls wivoend ds weakens 177, 179 Cesena Sulphur Co. v. Nicholson (1876), 1 Ex. D. 428; 45 L. J. Ex. 821; 85 L. T. 275; 25 W. R. 71; 1 Tax Cas. 88... .62, : Saath dunes eves aap tn cet date vated acer ee hase 72, 74, 75, 80-3, 87 Chadwick v. Pearl Life Insurance Co. (1905), 2 K. B. 507; 74 L. J. K. B. 671; 938 L. T. 25; 54 W. R. 78; 21 T. L. R. 456. 158 Challoner v. Robinson (1908), 1 Ch. 49 ....... ee eee eee eee 58 Chambers & Son v. Commissioner (1916), N. Z. L. R. 617.... 142 Charlton r+. Corke, 27 Se. L. R. 647; 17 R. 785 .............. 220 —— v. Morris (1895), 2 Ir. Rep. 541 .............0.005- 66 Chelsea W. W. Board and Metropolitan W. W. Board, Re, 73 Teg Si: Ks Be Da? envied aie he weg @arsunles Gets t smay seadiea. aes 165 Cheseborough vr. U. S., 192 U.S. 253 .... 2... ec ee 283, 28: Chicago, ete., R. R. v. Missouri, 120 U.S. 569................ 36 Chinese Tax Cases, 14 Fed. 344 ..... 0.00.0. cece eee ee eee 65 Citizens Insurance Co. of Canada v. Parsons, 7 A. C. 96...... 22, O27 City of Dublin Steam Packet Co. v. O’Brien (1912), 6 Tax Cas. PL OU: £2 2 Ps cs eax var ayes gual ea Gulag Gee suite oh canara a dees lobe a Aaato a ake 218 City of Fraserville v. Lebel, 50 Que. S. C. 299.............00. 179 City of Halifax v. McLaughlin Carriage Co., 39 S. C. R. 174.. 113 City of Kingston v. Canada Life Ass. Co., 19 O. R. 453......... 137 City of London Contract Corporation v. Styles (1887), 4 T. L. R. ols Or ax Cass 230) sc genie scx cue’ a's keene ine wines tk tatiges oaths 200 City of Toronto v. Canadian Pac. Ry. Co. (1908), A. C. 54.... 61 Clark (Mary) Home Trustees +. Anderson (1904), 2 K. B. 645; 73 L. J. K. B. 806; 91 L. T. 457: 5 Tax Cas. 48.... 179 Clarkson rv. Attorney-General of Canada, 15 O. R. 632; 16 O. HAL TR 202. swiss woes Pec ise cade ia Sneek ven nel sarees senda tere aes 274 Clayton v. Newcastle-under-Lyme Corporation (1888), 2 Tax MAS ATG! Ge aais shepenn ties SAetnh, calamc aun haere oc wha owas 201 Clerical, Medical and General Life Assurance Society 1. Carter (1899), 22 Q. B. D. 444; 58 L. J. Q. B. 224: 87 W. R. 346; Ge a CAS ABT caer vesuvarevmdns sananbs \saietanero aan n ai, ucts 141, 164 Cohen v. Lowe, 235 Fed. 474 Collector vr, Hubbard, 79 U.S. 272 2. eee cece cece cece cceeee 285 Colquhoun v. Brooks (1889), 14 A. C. 498; 59 L. J. Q. B. 53: 61 L. T. 518; 88 W. R. 289; 2 Tax Cas. 490... .24, 25, 60, 68, 89 TABLE OF CASES. ix PAGE Coltness Iron Co. v. Black (1881); 6 A. C, 815; 51 L. J. Q. B. 626; 45 L. T. 145; 29 W. R. 717; 1 Tax Cas. 287... .34, Sg mE nCeant Lata iehn ck ogee 160, 201, 205, 213 Colville, Re, 144 L. T. J. 827........ aegis Pans 167, 168 Com’r v. Logan, 1 Bibb, (Ky.) 529 0.0... eee eee Bind legit 278 Commissioners for Special Purposes of aeons, Tax v. Pemsel (1891), A. C. 531; 61 L. J. Q. B. 265; 65 L. T. 621; 3 Tax, OB Se DB ieee’ dace a sla sey ike ae ago ween ete ae eve aad 37, 50, 59, 179 Commissioners of Income r. Cooper, + C. L. R. 1304 .......... 29. Commissioners of Income Tax v. Bank of New South. Wales. a (1913), St. R. (Queensland), 93 ...... cece eee eee 20 Commissioner of Public Accounts r. Greenwood, a ‘Desaus. 3D, OSi. GL): 450 ics ch a tlngen aie ¢24 csi eas pe eee ieee ‘278 Commissioners of Taxation r. Kirk (1900), A. C. 588; 69 L. J.- PO. 802 88 i UNA: ais cee wee rteara ste Malte 4d Sumo alk 132-3 Commissioners of Taxation v. Palmer (1907) A.C. 179 ; 76LJI. | P.O; 48 96: Ty, Dy, 218 ne cces scene oed skeet ee Git pica sees 269, 274 Commissioners of Taxes v. Deeps, Ltd., cited in Barnes on In- | come Tax, 1919 ed., p. 200 0.0... . cc cece cece eee eee ee 1BT Commissioners of Taxes v. Melbourne Trust, Limited (1914), A. C. 1001; 84 L. J. P. C. 21; 30 T. L. R. 685........ 117, 157 Commissioners of Taxes for New Zealand r. Eastern, etc., Tele- graph Co. (1906), A. C. 526; 75 L. J. P. C. 84; 95 L. T. BOS = 22) 2D! Ta. Re (OO saci hat wuactdtatenas With acnloned Ae ease 1z4, 183 Commonwealth v. Standard Oil, 101 Pa. 119 ................ 113 —————— v. Ocean Oil Co., 59 Pa. 61 1... eee 160 Compagnie Generale Transatlantique v. Law (1899) A. C. 431. 80. Coniagas Mines, Re, 15 O. L. R. 386 ..... 0. eee ee eee 160, 206 Cook, Ha parte, Mont. 228 ....... ccc ccc cece een eeee 216 He-portée. 2 Po Wits, B00. sce eds s.cgond tae epnie, bse Viens toes ods 275 +. Knott (1887), 4 T. L. R. 164; 2 Tax Cas, 246...... 208, 219 Cvoper v. Cadwalader (1904), 7 F 146; 42 Se. L. R.117; 5 Tax’ Cas. 101; (1904) Se. L. T. R. 449...... 63, 64, 65, 67, 68 v, Ferguson, 113 U. 8. 727 2... eee cee ee eee WL Cork and Bandon Railway v. Goode, 13 C. B. 827 ............ 279 Corke v. Fry (1895), 22 R. 422; 32 Se. L. R. 341; W. N. (1896) £2833 Tax Cas, 380: acycu whe essa BORE eee ae Nees Rew Ades oe 208 County Court Judges, Re, 5 O. W.N. 657 .. 0... oe eee eee 137 Cowan v. Seymour (1920), 1 K. B. 500 .............. 000 eee 147 Cox x, Rabbits, 3 A. Cy 473 a cccccw eed sae cae dace aaa ase ls 33 Credit Mobilier of America v. Commonwealth, 67 Pa. 233 . 60 Crocker v, Malley, 250 Fed. 817; 249 U.S. 223.......... 56, BT, 227 Crookston Bros. v. Furtado (Inland Revenue), (1911), S. C. 217; 48 Se. L. R. 134; 5 Tax Cas. 602. 118, 119, 120, 121, 128-9 Cundy v. Lecoeg, 13 Q. B. D. 207 10... cece eee 253 Cushen v, City of Hamilton, 4 O. L. R. 265 ...............00. 283 Cushing-0; Duguy30 As C. 409 as sex ceca eased hee ee ed ERS DEG Se 28 D. Dails v. Lloyd (1848), 12 Q. B. 581 2... eee ee 282 Daily Register v. Mayor, et., 52 Hun (N.Y.) 542 .........,.. 287 Dalgety v. Commissioner of Taxes, 31 N. Z. L. R. 260 ........ 157 Daimler Co. Ltd. v. Continental Tyre and Rubber Co. (1916), BANC, SOT 2s wae esate res toe ea eee Be aglaw ams 74, 79, 107 Darngavil Coal Co., Ltd. v. Francis (Inland Revenue) (1913), S. C. 602; 50 Se. L. R. 427; 7 Tax Cas. 1 ...........0.. 200 x TABLE OF CASES. PAGE DeBeers Consolidated Mines vr. Howe (1906), A. C. 455; 75 L. J. K. B, 858; 95 L. T. 221; 5 Tax Cas, 198....64, 66, 74, 75, 76, 78, 80, 83-4 Deane v. Wilson (1906), 2 Ir. Rep. 405 «1.0.0... see eee ee teen 102 Delage v. Nuggett Polish Co. (1905), 92 L. T. 682; 2 T. L. R. QS Ags caoseie sataprtecticrs “arches SN ses Seen 9:8 Sy lgiesgdh Hae SEEN AS OO ES 158, 200, 218 Denver Hotel Co. v. Andrews (1895), 11 T. L. R. 238; 43 W. R. 3802 8 Tax Cas. B56 ccs ose cvis ces nitne endow erence n ee eens 80 Denier v. Marks, 18 P. R. (Ont.), 465 .......-..- Neeinelavcopews 62 Dexter, Re, 158 Fed. 788 .......: cee cee eee cece erence teense 102 Dickinson v. N. FE. Ry., 83 L. J. Ex. 91.0.2... 05.0 186 Dillon v. Haverfordwest Corporation (1891), 1 Q. B. 575; 60 L. J. Q. B. 477; 64 L. T. 202; 39 W. R. 478; 3 Tax Cas. BB seve: ses diss waniosestcer'e subsnae co-iaceoabves RCO Owe Plas mueaale Sse ae 97, 110 Dillworth 1. Commissioner (1899), A. C. 99 1.02.2... 0 0 eee 142 Donnelly r. Graham, 24 L. R. Tv. 127 «20... ee eee eee 66 Doyle v. Mitchell, 247 U.S. 1790 0... cece eee wes 188 Dobie v. Temporalities Board, 7 A. C. 136 .............0000- 270 Doe v. Keeling, 1 M. & S. 100 ................. ig Ba ae Fh ai 105, Dow'v: Black, Li R. 6B. Cy 272 vcccces ce ee deere osmee ed syed we 20 Drew rv. Vickery, 19 N. S. W. 245... .... ccc cee eee eee ens 167 Drexel & Co. 1. Commonwealth (1863), 46 Pa. OI vis aie sentosavcete, oe 30 Dublin Corporation v. McAdam (1887), L. R. 20 Ir. Ex. D. 497; 86 W. R. 98; 2 Tax Cas. 387...........-8. 97, 98, 99, 108, 160 Dublin, City of, Steam Packet Co. vr. O’Brien (1912), 6 Tax Cas. TOL: ce sears s dehers een poe eee es See ona Dae meses 218 Dugas v. Macfarlane, 18 W. L. R. 701... 2... ce eee 137 Duke of Norfolk rv. Lamarque, 24 Q. B. D. 485...7............ 216 Dullen v. Wisconsin, 240 U.S. 625 1.0.0... cee eee eee eee 230 Duncan's Executors v. Farmer (Inland Revenue) (1909), S. C. 1212; 46 Se. L. R. 857; 5 Tax Cas. 417............... 147, 150 Durant v. Ecclesiastical Commissioners (1880), 6 Q. B. D. 234 282 Dunlop Pneumatic Tyre Co. rv. Actien-Gesellschaft & Co. (1902), TIS 3. TBS CGA) SoA seeke) ale. Stat teens. aces svar woth Westvandeuep Stent 80 c E. East India Rail. Co. r. Secretary of State in Council of India (1905), 2 IX. B. 418; 74 L. J. K. B. 779; 93 L. T. 220; 54 Wa Rebs co uncay nts decn ia Manatane wl itateland ubiandee oar eeety waeaeee nate ee 158, 164 Edmonds r. Eastwood (1858), 2 H. & N. 811; 27 L. J. Ex. 209; Gi NV Re BOD a8 5 a “eaidctccrsdvmnydoav dies yandies 2 a. sui dea. a aout 158, 170. 218 Edwards v. Keith, 231 Fed. 110 .................... 143, 145, 239 Egyptian Hotels, Limited v. Mitchell (1915), A. C. 1022; 84 L. J. K. B. 1772; 113 L. T. 882; 6 Tax Cas. 542...... sigs Mecsasta tien Gfesnautien weapae tos teeta a tin a aba 60, 88-9, 108, 110, 115 Kisner v. Macomber, 40 8. C. R. (U.S.) 189....... 138, 155, 167, 169 Eliot vr. Freeman, 220 U.S. 178 ....... cece eee eee cee eee dT Eliot National Bank r. Gill, 218 Fed. Rep. 600................ 253 Elliot r. Swartwout, 10 Pet. 187 2... ec ee cece 283 Elmville, The, 91 B.D. 3830 o.5..5: een e eee nes wee cok ahve Rec. ccnnnce 102 England r. Webb (1898), A. C. 758. 02... ccc eee eee ee eee 179 English Crown Spelter Co. vc. Baker (1908), 99 L. T. 353 ; 5 Tax OE EE acts ete acne tae anaes eee cp tebatlaoo e AON Sev ene stake weeps er 199 Equitable Life Assurance Society rv. Bishop (1900), 1 Q. B. 177: 69 L. J. Q. B. 252; 81 L. T. 698; 4 Tax Cas. 147...... 161, 181 Equitable Trust Co. v. Garis (1899), 190 Pa. 544...........00 49 TABLE OF CASES. xi PAGE Erichsen v. Last (1881), 8 Q. B. D. 414; 51 L. J. Q. B. 86; 45 L. T. 703; 30 W. R. 301; 1 Tax Cas. 351, 357; 4 Tax Cas. 422....105, 106, 107, 117, 119, 120, 123-4, 126, 127, 129, 131, 134 Wiskine; Fe, 10 Ly T. Re BY os oes ees oa 4 Hee ven a ee eee wlew ee ane 65 Wovans;.dte: GUSTS) LOH 3 aa. ete bees dresses aheserergea AS RAND ose 167, 168 Exchange Bank v. The Queen, 11 A. C. 157 «0.0... eee eee eee 270 F. Farmer rv. Scottish North America Trust, Ltd. (1912), A. C. 118; 81 L. J. P. C. 81; 105 L. T. 883; 5 Tax Cas. 693......207, 210 Ferguson, Er parte, L. R. 6 Q. B. 280 0.0... eee ce ee 142 -Fergusson v. Noble (1919), 2 Se. L. T. 49.02. eee eee ee eee 149 Fisher v. Fisher, 23 C. L. R. 837 2.0... ec eee cece 167 Fitzmartin, Re (1911), 24 O. L. R. 102.................... 62 Flint v. Stone Tracy Co., 220 U.S. 107; Ann. Cas (1912), B. DTD els cic Seder hnate wien tirs “ote lelcliatet lane aechianira ene heise, aes 10, 61, 106, 112 Foley rv. Fletcher (1858), 3 H. & N. 769; 28 L. J. Ex. 100; 5 Jur. (N.S.) 342; 7 W. R. 141 ....... 0. eee 157, 171, 197 Forbes v. Forbes (1854), Kay 341; 18 Jur. 642 ............ 64, 66 ford o. Drew. 6 Gi, DD. ns cewe paw ee dey pa rug eee sun 66 dé: Hart Do Re 9 CoP: 218 2cscner cesar s sae aces was 66 v. St. Louis & N. W. Ry., 54 Towa, 273 ...........-. *: .. 101 Forder v. Handyside (1876), 1 Ex. D. 233; 45 L. J. Ex. 809; IL. T. 62; 24 wes R. 764; 1 Tax Cas. 65 editsb ec avietante intern as 153, 217 : Fortier v. Lambe, 25 8. C. R. 422 0... eee ee ee at 23, 24 Foss Lumber Co. v. The King, 8 D. L. R. 487 ................ 34 Foster (John) Sons v. Inland Revenue Commissioners (1894), AQ) BONG: ie eek is aba aged tenes a aden s Saee es Meee aes 59 Freeman r. Jefferies, L. R. 4 Ex, 189 ........... fiatseagenak 282 Fry s Election Case, 71 Pa. 302 ........ 0 cece 65 G. Galveston, etc. Ry. v. Gonzales, 151 U.S. 496 ............0... 66 Gardener v. McCutcheon, 4 Beav. 534 2.0.2.0... 0... cece eee ee elo Gauthier r. The King, 56 8S. C. R.176 ......... 00.00.00 cea 27] Gibbons rv. Mahon, 136 U.S. 549 ... 0... ec c eee ee ee 13 Gibson, In re, v. City of Hamilton, 45 O. L. R. 458...... 50, 260, 262 Gilbertson v. Ferguson (1881), 7 Q. B. D. 562; 46 L. T. 10; 1 Dax, Cas: O01, oan exawe ne es somrgsd 4 house Rane wees a Giles 1. Grover, 9 Bing. 156........... ccc cece ce eee ee nes 269 ———- (1882), 1 Cl. & F. 72; 9 Bing. 128; 2 Moo. & S. WOE: fey Sit 5 eptenio o ancetaaiiccod Wacideae Nee wie shade eran winees 6.4 bes pene 268 Gillis v. Gillis (1874), Tr. R. 8 Eq. 597 2... cee 62 Glasgow Gas Com’rs, Re (1875), 13 Se. L. R. 556 «0... ee 97 Glasgow Water Com'rs v. Miller, 23 Se. L. R. 285 ............ 97, 99 Glaser v. Priest (1888), 29 Mo. Appl. 1 ................00.0- 49 Goerz & Co. v. Bell (1904), 2 K. B. 186; 73 L. J. K. B. 448: 90 L. T. 675; 54 W. R. 64 «0.0... ee 25, 76, 79, 84. 100 Gordon v. Jennings, 51 L. J. Q. B. 417 2. eee eee 101 Gould vr. Gould, 245 U.S. 151 2... eee eee 34, 150, ly Grahamston Iron Co. v. ‘Crawford (Inland Revenue) (1915), S.C. 536; 52 Se. L. R. 885; 7 Tax Cas. 25 .............. 197 Grainger v. Aynsley (1880-1), 6 Q. B. D. 188................ 103 Grainger & Son r. Gough (1896), A. C. 825; 65 L. J. Q. B. 410: 74 L. T. 485; 44 W. R. 561; 3 Tax Cas. 462....105, 106. agar sped toiidea Gra casduawerdve 111, 113, 117, 119, 120, 122, 125, 131, 133, 134 Xi TABLE OF CASES. PAGE eclechons and Typewriter Co., Ltd. v. Stanley (1906), 2 K. B. S56; (1908) 2 K. B. 89; 77 LL. J. K. B. 834; 99 L. T. 39; 5. Dax Cas. BbScic. ces iss wanes sive 59, 60, 16, 77, 85, 93, 94-5 Granite Supply Association v. In. Rev. (1905) 8 F. 55; 43 Se. L. R. 65; 5 Tax Cas. 168 0.0... eee ccc ce tee eens 201, 212 Grand Rapids and Indiana Ry. Co. v. Doyle, 245 Fed. 792 .... 201 Grand Trunk Ry. Co. v. Quebec, 30 8. C. R. 73... . eee eee eee 283 Gray v. Wyllie (1904), 41 Se. L. R. 342; 6 F. 448 ............ 254 Greenham v. Child, 24 Q. B. D. 29 2.0... cee ee eee eee eee 72 Gresham Life Assurance Society vy. Styles, 25 Q. B. D.. 351 (1892), a. C. 309; 62 L. J. Q. B. 41; 67 L. T. 479; 41 W. R. 270; 3 Tax Gas, 185........ 8, 14, 109, 163, 174, 192, BR ears natare ai x mei rand puatdia ois eux oats eees 193, 196, 207, 210, 217, 222 Grin, Re (1890), 60 L. J. Q. B. 235 2... ccc cee ee 116 - Griffith Carr v. Griffith (1879), 12 Ch. D. 655............. 165, 226 Grove r. Elliott and Parkinson (1896), 3 Tax Cas. 481........ 80 v. Y.M.C. A. (1908), 88 L. T. 696; 19 T. L. R. 491; 67 | J.P. 279; 4 Tax Cas. 613 svciccccw ess cawwes ve 59, 109, 176, 215 Guest, Keen and Nettlefolds, Ltd. v. Fowler (1910), 1K. B. 713; 79 L. J. K. B. 563; 102 L. T. 361; 26 T. L. R. 337; 5 Tax Cass S11: getin st aeaiaanaeslaca deny sci os eee are omens 105, 197 Gulf Oil Corporation rv. Llewelyn, 248 U.S. 71......... 96-7, 189, 227 Gurewitz, Re, 121 Fed. 98% ............ ee er er 102 H. Yaiku Sugar Co. v. Johnstone, 249 Fed. 103 ..............0.. 54 Halifax v. Sisters of Charity, 40 N.S. R. 481 ............... 35 Hambledon v. Rhind, 84 Md. 456 ........ 0.0... eee ee eee 52 Hancock v. General Investment Co. (1919), 1 K. B. 25; 88 L. J KB: 2483 119) TTB 0 nave oss cate aaa tn naa ead adndarea a 196 Hargreaves, Hx parte, 1 Cox. 440 ........ ee eee eee eee 216 —————. In re (1900), 1 Ch. 347; 69 L. J. Ch. 183; 82 L. T. 132; 48 W. R. 241; 4 Tax Cas. 173 2... cee eee eee 254 Harris v. Amery (1865), L. R.1 C. P. 148 .................. _ 105 v. Corporation of Irvine (1900), 2 F. 1080; 37 Se. L. R. GOO 294 Wax (Cag OT since atca cre sansa seve Sndues bbs searacaauN alae e' 97 Hawley Re, 1 Daly (N.Y.), 588.......0 00.00. cece cee cee 62 Hawaiian Commercial and Sugar Co. v. Tax Assessor, 4 Hawaii CUES 2) GOL: sop sxe eins ox segienn eM ene MexR Ses Sakae Ae 212 Hays v. Gauley Mountain Coal Co., 247 U.S. 189....-. >.143, 198, 239 Henderson v. MeGowan, 53 Sc. L. R. 627; 1916, S. C. 821...... 254 Henley & Co., Re (1878), 9 Ch. D. (C.A.) 469; 39 L. T. 53; 26 W. R. 885; 1 Tax Cas. 209 ...... 0... cee eee 269, 272, 276 Henty 4G. N. Ry, 27 Te. TOi eA. ice eeecew a areas arcs anaes 165 Herbert v. McQuade (1902), 2 K. B. 631; 71 L. J. K. B. 884; 87 L. T. 349; 4 Tax Cas. 489 Hewer r. Coxe, 3 E. & E. 428 72 Higgs v. Scott (1849), 7 C. B. 68... cee eens 282 Highland Rail. Co. v. Balderston (1889), 16 R. 950; 26 Sc. L. R. OCD Wax Cas: ASS) ec sa teiaseacg seasons atau sdunie:4 awa dineardea ovine 201 Hollinshead v. Hazleton (1916), 1 A. GC. 428 ................ 30 Holmes rv. Holmes, 40 Conn. 117 .......... 0... cece eee ees 111 IIome Tel. & Tel. Co. v. Los Angeles, 181 Pac. (Cal.) $15..... 286 Hood (John) & Co., Limited r. Magee (1918), 2 I. R. 34 Ui hiss ictal asa'n10) asSrh are sne ap aeso eonsmnnrns alae see rammed _ 64, T4, 78, 85-6 ITudson’s Bay Co. rv. Stevens, 101 L. T.96........ 115, 114, 116, 155 t. Thew (1919), 2 K. B. 682 ............. 155 TABLE OF CASES. xiii PAGE Hudson rv. Gribble, Bell rv. Gribble (1903), 1 K. B. 517; 72 L. J. K. B. 242; 88 L. T. 186; 51 W. R. 457; 4 Tax Cas. 522. fae G dels bas Gale dees otis Hee ees sede edge 143, 149, 150, 183, 242 Huggins: Re; 22 Ch, D, Sda0 ss csteatee4s cad des saa esti seas 136 Hugh Stevenson & Sons, Ltd. v. Aktien-Gesellschaft (1918) A.C, DBO ec! gece Sse gaes toa teonieas St scael yicees cca BM avo si sca docam Rae ore 55 Humphrey v. Peare (1913), 2 K. B. Ir. 462; 6 Tax Cas. 201. 148 Hunt v. Rousmaniere, 1 Pet. 15 2.0.0.0... cee eee 281 I, Imperial Bank of Canada -. Bank of Hamilton, 1903, A. C. 49.. 281 Imperial Continental Gas Association v. Nicholson (1877), 37 De Oy TACs Le Das iCas. TBS. seca es iawn va ween. baa eae 75, 80 Income Tax Acts, Re; 20 A, Ls Rs B09 wicks oxvain yaw anly aces eis Incorporated Council of Law Reporting for England and Wales v. Inland Revenue (1884), 22 Q. B. D. 279........ 58, 109, 165 India (Sec. of State) v. Scoble (1903), A. C. 299; 72 L. J. K. B. 617 ; 89 L. T. 1; 51 W. R. 675; 4 Tax Cas. 618. .20, 152, 158, 164 Ineilbys Fees Ge RS A4Gea ys winaticn'n ale sqaeds Sn wees eae LSA ahs 66 Ingram v. Barnes, 26 L. J. Q. B. 822 2... ec eens 101 Inland Revenue v. Blott (1920), 36 T. L. R. 575........... 167, 169 vt. Incorporated Council of Law Reporting (1888), 22 Q. B. D. 279; 3 Tax Cas. 105: gia cabs er ventas oe ea wae Baas 58, 109, 163 v. Korean Syndicate Limited (1920), 1 K. B. DOB sn ey Buldigw ed Meleude slaeaas 110, 113, 114, 115 v. Marine Steam Turbine Co. Ltd. (1920), 1 KK Be AOS) ee cs watey ee ete 4 24% 60, 110, 111, 113 v. New University Club, 2 Tax Cas. 279...... 58 (Forbes) v. Scottish Provident Institution (1895) , 23 R. 322; 33 Se. L. R. 228; W.N. (1896) 122; 3 Tax Cas. 44 .............. 156 v. Robbins (1902'), 1 K. B. 51; (1920) 2 K. B. OG 255 ness a diwelsaa sh licen duane csohieeusmen ty OSE Bia none Bie 108 v. Rogers (1879), 6 R. 1109; 16 Sc. L. R. 682; A Dax (Cass 225 2 ncc Geou ve we een Yar 65, 66, 67-S v. Sangster (1920), 1 K. B. 587. .108, 111, 113, Belge ARors Siders Sve Sascha nid? Cog Ree ed A tee 114, 115, 147 v. Strang, 15 Se. L. R. 704; 1 Tax Cas. 207.... 146 v. Von Glehn (1920), 2 K. B. 553.......... musth ata an ose See 8, 55, 108, 163, 211, 216, 222 v. Warnes (1919), 2 K. B. 444 .............. 216 —__——— _ v. Watt, 28 Se. L. R. 408..............0.0.000. 214 Institution of Civil Engineers, Re, 19 Q. B. D. 610............ 17 Isaacs v. Commissioner of Income (1916), S. R. (Queensland), 95. Jardine «. Inland Revenue, 44 Sc. L. R. 136 John Hood & Co., Limited v. Magee (1918), 2 I. R. 34...... 78, 85-6 Jones v. Pope, 1 Wms. Saund. 55.0.0... eee ceca 279 XIV TABLE OF CASES. PAGE Jones +. Inland Rey. (1920), 1 K. B. ow... eee eee eee 158, 200 Re (1891); 2 Q: B. Di 280. seca sae ew earwnns awareas une 136 Jopp v. Wood (1865), 34 L. J. Ch. 212 . 0. cece eee eee eee 1162 K. Kauri Timber Co., Ltd. v. New Zealand Commissioners of Taxes (P.C.) (1918), A. C. 771; 83 L. J. P. C. 6; 109 L. T. 22.. 206 Keir vr. Outram (1913), 51 Se. L. R. 8 oe ee eee 254 Kelly #., Solari, 9 AU & W. 54:00. .aas veaawici sas ase cess se 281, 282 Keokuk & W: R. Co. v. Missouri, 152 U. 8. 301........... Speen 36 Kerrison v. Glynn Mills & Co. (1912), 105 L. T. R. 721...... 281 King 1. Booth (unreported) .........-..cee eee eee tenet eee 253 v. Income Tax Commissioners (1916), 1 K. B. 788....46, 246 —— vr. Lithwick (1921), 20 Ex. C. R. 293 .............. 245, 271 —— tv. North Curry (1825), 4 C. B. (N.S.) 953 ......-.-.. . 62 —— v. Pridgeon (1910), 2 K. B. 543 .........- 0. eee 267 ——— v. Wells, 16 East, 278 2... 0... cece cee ee eee eee 269 Wein, e450: Sole: JOy OCT x assess. wcoarscaewhgoe wuerenees) earaaaer sg 101, 102 Kleinwort v. Dunlop, 97 L. T. R. 2638 1.0... . cee ee ee 281 Klinck v. Heckley, 2 Hill Eq. (S.C.) 250 .................0.- 278 Knowles v. Balarat Trustees, 22 C. L. R. 212 ................ 167 v. MeAdam (1877), 3 Ex. D. 23; 47 L. J. Ex. 139; 37 L. T. 785; 26 W. R. 114; 1 Tax Cas. 161.. 152 Kodak, Ltd. r. Clark (1902), 2 K. B. 450; (1903), 1 K. B. 505; 72 L. J. K. B. 369; 88 L. T. 155: 51 W. R. 459; 4 Wax: Cais: 049 einsaa diets ve ke4 ME ERR OER US 76, TT, 90, 93 Korean Synd. 1. Inland Revenue (1920), 1 K. B. 598.... 110, 113, 114, 115 Kornit Mfg. Co., Re (D.C.) 192 Fed. 892......... jab ae oe 60 L. Lamborn v. Commissioners, OF USeASL owas heba cain elas 283, 285 vt. Dickinson County, 97 U.S. 181 ................06 281 Last v. London Assurance Corporation (1885), 10 App. Cas. 438; 55 L. J. Q. B. 92; 53 L. T. 634; 34 W. R. 233; 2 Tax. Cas. ROO? cise ui kch eianarnciaes ntesdiar tia ei ie weasel hy Depaha ee deatn ass 161, 180, 209 Lauri 2. Renad (1892) 3 Ch. D. 402 .......0... 00. c eee eee 39 Lawless v, Sullivan, 6 A. C. 873 2.2.0.0... cece cece eee 117, 137 Laycock, In re; Laycock +. Special Commissioners of Income Tax (1919), 1 Ch. 241; 88 L. J. Ch. 128; 120 L. T. 473; 63 8. J. DOD. arezsclgeian 2% 5 ARAL BA aides cee se dupsdrn diavadene teas a fioaneat batsneadg eyed Si Lechmere r. Carlisle (Earl) (1733), 3 P. Wms. 211.......... 278 Lee r. Neuchatel Asphalte Co., 41 Ch. D.1............ 153, 160, 198 Leith, Hull and Hamburg Steam Packet Co. r. Musgrave (Inland Revenue), 4 Tax (Cas. 80; (1899) 1 F. 1117; 36 Se. L. SF WO: Sioa teach sects Latta hang depinahubatia esemeivaioars vie pte dha on 2 204 Leprohon v. City of Ottawa (1877-8), 40 U. C. R. 478: 2 0. A. TODD ciara wr ctee nasa. (eed 5555 Sycucboca tem Biss 5 dere cdi a righ eh sted 28 le Seminaire de Quebec +. Limoilou (1899), A.C. 288........ 176 Les Commissaires St. Gabriel r. Montreal, 12 8. C. R. 45... .35, 176 Lewis r. Graham, 20 Q. B.D. 780 20.0... cc cece cece ce eecuce 62 Liquidators of Maritime Bank of Canada +r. Receiver-General of * cs as A. C. 437; affirming 20 8. C. R. 695; 27 N. B, 379 TABLE OF CASEs. XV PAGE Liquidators of the Maritime Bank +. The Queen, 17 8S. C. R. BOE ia sails heccie Seeraay pe Bn hse oyd Riau sow Burana laws Baers aun Meee 270 Listowel Urban District Council :. Gibson (1918), 47 Ir. L. T. 2GU of lg aiicpareie ele aa eae ees sinc oink burs ae we aaa ems 281 Little +. Bowers, Tad. USs SAT aed eck ee kt 04 OV hea Ree eae 285 Lloyd v. Sulley (1884), 11 R. 687; 21 Se. L. R. 482; 2 Tax Cas. BT. i siuthenc srk are Bead As eR. a DE Raitv9 Ae Sula OOE havior de ional ae 65, 68 Lochgelly Iron & Coal Co. r. Crawford (19138), S. C. 810; 50 Be. Ta Be 2082 6 Tax Uae. 267 4s vcru ss eeex eer hueivaas 198, 220 London, City of +. Watt & Son, 22 S. C. R. 300... .113, 256, 2638, 264 London Bank of Mexico, etc. vr. Apthorpe (1891), 2 \. B. 3878; 60 L. J. Q. B. 196, 653; 64 L. T. 416; 65 L. T. 601; 39 W. BR. 56453: Tax Cas: 143) sen ceacdeuaes seas gage caren s 80 London Cemetery Co. rv. Barnes (1917), 2 K. B. 496; 86 L. J. NOB 990! ens naw ga Sauls ow eden aces Deas siete mibwayeeanese areata 200 London Corporation r. Netherlands Steamboat Co. (1906), A. C. 268. London County Council rv. Att.-Gen. (1901), A. C. 26; 70 L. J. K. B. 77; 83 L. T. 605; 49 W. R. 686; 4 Tax Cas. 265 ............ 6, 20 v. Edwards (1909), 100 L. T. 444; 73 J.P. 213; 25 L. R. 319; 5 Tax Cas. 383 .........0.0.. 204, 205 London Mutual Insurance Co. v. City of London, 15 Ont. A. R. scan tck dha act anicindfeord as seid nts PANES es Peaaner bean ema 263, 264 Lovell and Christmas v. Commissioners of Taxes (New Zealand) (1908), A. C. 46; 77 L. J. P. C. 31; 97 L. T. 651; 24 T. L. TR GOs) 2 Gere taadae ev truss d ean oud pensar enevamiet boa baibe 119, 120, 123, 134 Lowe v. The King (1918), 17 Ex. C. JR 2G ois ait Sea tee ware 283 Lucas v. Worswick (1833), 1 Mood. & R. 293 ................ 282 Lynch v. Canada N. W. Land Co., 19 S. C. R. 204 ............ 279 M. Macomber 7. Wisner, 40 8. C. R. (U.S.) 189...... 138, 155, 167, 169 MacGregor r. Clamp & Son (1914), 1 K. B. 288; 83 L. J. (K.B.) 240; 109 L. T. 954; 78 J. P. 125; 30 T. L. R. 128; 58 Sol. SMO BO Gua dandshenaacod bute sehen mun eeahiiaters Sigthaad tac aGothd 265, 266 MacPherson & Co. r. Moore (Inland Revenue) (1912), S. C. 1315; 49 Se. L. R. 979; 6 Tax Cas. 107 ............ 118, 129-3 Malam, Re (1894), 3 Ch. 578 2.0.0... ee cee eee ee 167, 168 Manchester Covnneatinn vy mee van (1896), A. C. 500; 65 L. J. Q. B. 672; 75 L. T. 229; 3 Tax Cas. 491 ..........0000.. 1 Mandell v. Pierce, 3 Cliff. 134; Fed. Cas. No. 9008 Marine Steam Turbine Co., Ltd, r. Inland Revenue (1920), 1 1 Be AOS cae gw seeded aq cntanies. 2 oaede os aes 60, 110, 111, 115 Maritime Bank :. Queen, 17 S.-C. R. 657 .............0000. 274 Mary Clark Home Trustees 1. Anderson (1904), 2 K. B. 645; 73 L. J. K. B. 806; 91 L. T. 457; 5 Tax Cas. 48 Maryland Casualty vr. U. S., 52 Ct. Cls. EL sida pa eee as 148, 239 Maskell +. Horner (1915), 3 K. B. 106; 78 J. P. 167; 30 T. L. R. 343; 58 Sol. Jo. 381, C. A.: reserved and affirmed (1915), 3 K. B. 112; 84 t. J. (K.B. ) 1752; 113 L. T. 126; 79 J. P. 406; 31 T. LR. B82 cece ee 282, 288, 284, 285 Massey-Harris Ltd. r. Toronto, 45 O. L. R. 353 .............. 207 McCoach +. Minehill & S. H. Ry., 228 U. 8. 295....110, 112, 113, 114 McCulloch 7. Maryland, 4 Wheat (U.S.), 316 .............00 28 . MeDonogh r. Murdock, 15 How. (U.S.) 357 xV1 TABLE OF CASES. PAGE McDougall v. Sutwerland, 31 Se. L. R. 680 ...........0. 000 208 McIntyre rv. Connell, 1 Sim. (N.S.) 223 2.0... cc eee eee eee oe Meadows v. Grand Junction Water Works Co. (1905), 3 L. G. R. 910; 69 J. P. 255; 21 T. L. R. 5388 .........2.-...... 281 Meriweather v. Garret, 102 U.S. 472 ....... eee ee eee 279 Merchiston Steamship Co., Limited v. Turner (1910), 2 K.B. 923; 80 L. J. K. B. 145; 102 L. T. 363; 5 Tax Cas. 520.. 215 Merck v. Treat, 202 Fed. 133 0... . cece cece eee eens 283 Mersey Docks v. Lucas (1883), 8 App. Cas. 891; 53 L. J. Q. B. 4;49 L. T. 781; 32 W. R. 34; 2 Tax Uas, 25. .163, 174, 196, 217 Metallic Roofing Co. v. Local Union No. 30,9 0. L. R.171.... 58 Miller v. Glasgow Corporation Water Commissioners (1886), 13 R. 489; 23 Se. L. R. 285; 2 Tax Cas. 1381 ............ 97, 99 Mirams, Re (1891), 1 Q. B. D. 594 ...... ce eee 136 Mitchell v. Egyptian Hotels, Limited (1915), A. C. 1022; 84 L. J. K. B. 1772; 118 L. T. 882; 6 Tax Cas, 542 Sis ach nays fastest ae ated acu mnapeaelacuotane 60, 88-9, 108, 110, 115 ——-v. Koecker, 18 L. J. Ch. 294 «0... cece ccc eee 254 Monroe v. Williams, 37 S. Car. 81 ....... 0... cece ees 64 Mooney v. Commissioners of Taxation (1907), A. C. 342; on appeal from (1905), 3 C. L. R. 221..............20, 117, 154 Moore & (Co. v. Hare (Inland Revenue), (1915) S.C. 91; 52 Se Do Be 39s GO Tax Cas. OTF ccasu cess eadedtaccvavecene 199 Moore v. Mills, 5 App. D. C. 415 2.0.0... ee eee 66 Morant v. Wheal Granville Mining Co. (1894), 71 L. T. 758; bax Cas. 1298) wine sles win ganna wee waa Haase ee sea « 201 Morrison et al. v. Earls, 5 O. R. 484 «02... ee ee ee 52 Morson v. City of Toronto, 37 O. L. R. 369 ...........0.0.... 28 Muir, Re Estate of (1917), 2 W. W. R. 801.................. 59 Mullingar Rural District Council v. Rowles (1918), 2 I. R. 44; Ga OAS ESO: sds Soars: dacecscatacie due Beas aren dls Seeesvane wel 97, 99, 105 Munster, Re (1920), 1 Ch. D. 268; (1920) W.N.8 .......... 51 Mutual Benefit Life v. Herold, 198 Fed. 199 ............... 1438, 239 N. Naef v. Mutter (1862), 12 C. B. (N.S.) 815 ........0......... 62 Nashville, ete., Ry. Co. v. Attalla, 118 Ala. 362.............. £11 Nathan, In re, R. v. Commissioners of Inland Revenue (1884), 12 Q. B. D. 461; 53 L. J. Q. B. 229; 51 L. T. 46; 32 W.R. DAO te sienna ite tonsgayerahiaalia cela etoile wet de 24k ago idea he Merve 281 National Bank v. Allen, 223 Fed. 72 0.0.0.0... ccc cece eee uee 253 Needham v. Bowers (1888), 21 Q. B. D. 436; 59 L. T. 404; 37 WR. 12554 2 Dax Cas: 860 v.55 cases cewren sence cen 59, 177. 179 New South Wales Taxation Commissioners vr. Kirk (1900), A. C. : 588; 69 L. J. P. C. 87: 88 L. T. 4 sede Aeaeg ees 105, 132, 133 v. Palmer (1907), A‘ C. 179; 76 L. J. P. OC. 41; 96 L. TP. 278............ 269, 274 New University Club v. Inland Revenue, 2 Tax Cas. 279...... 58 New York Life Insurance Co. v. Styles (1889), 14 App. Cas. 381; 59 L. J. Q. B. 201; 61 L. T. 201; 2 Tax Cas. 460........ BaD GSE wi sain 4 Gerace sansa eid slope atta tela eS theese seae Seidooas 8 60, 160, 161, 162 New Zealand Commissioners vr. Eastern, etc. Telegraph Co. (1906) A. C. 526; 75 L. J. P. C. 84; 95 L. T. 808; 22 T. PRA TBO sie iene nest dea ste entero ? atoca tea eta cantare aca a 133-4 TABLE OF CASES xvii PAGE New Zealand Shipping Co. v. Stephens, C. A. (1907), 24 T. L. R. 172; 52 8. J. 113; 5 Tax Cas. 553; affirming (1906), 96 1G. ROS Os 23) Wy Ta, R218 ore signe saws keane? esa cet 76, Nickle vr. Douglas, 37 U. C. Q. B. 51 2.00... eee eee 256, 263, 26: Nizam’s State Rail. Co. +. Wyatt (1890), 24 Q. B. D. 548; 59 L. J. Q. B. 480; 62 L. T. 765; 2 Tax Cas. 584.........6.. 171 Nobles County v. Hamline University, 48 N. W. 119........ 174, 176 Northallerton, Re, 1 O.M. & H. 170 ... cc cee ee 66 Northern Assurance Co. v. Russell (Inland Revenue) (1889), 16 R. 464; 26 Se. L. R. 380; 2 Tax Cas. 571 2... eee 156 O. Ogilvie v. Kitton (Inland Revenuc) (1908), S. C. 1008; 45 Se. Ty. Ry C2053 DAR COS. BBB ice idaks see sccvsumanenereangns B35 72, 15, SO O'Grady v. City of Toronto (1916), 37 O. L. R. 189.......... 283 Oriental Bank Corporation, Re (1884), 28 Ch. D. 643; 54 L. J. ‘Chis 327 2:02. P70 eee cee senk ce ameenes sages Ses eee 270 Oriental Bank v. Wright, 5 A. C. 856 coo. cece ccc eee ee 33 Osborne v. The Bank of the United States, 9 Wheat. (U.S.) EB SE i ceetie dre seie Maree oa ape asso te nN Ree OO a ave ralonias Ea paren a Ste 28 Ostrum +. Att.Gen. B. C. (1904), A. C. 144 2.0... eee. 136 Oswald r. Magistrates of Kirkcaldy (1919), 56 Se. L. R. 97; (A9TOY: Se COTA G. cccatt tong ene dtcasaaie dual alanine SS ae ade Memes 200 Ottawa Y.M.C.A. v. Ottawa, 20 O. L. R. 567...........0 0.005 177 Ounsworth v. Vickers, Limited (1915), 3 K. B. 267; S4 L. J. K, B. 2036; 118 L. T. 865; 6 Tax Cas. 6T1...........0.. 201 P; Paddington Burial Board +. Commissioners of Inland Tpeveniy 188+), 18 Q, B.D.9; 53 L. J. Q. B. 224; 50 L. T. 211; 32 W. R. 551; 2 Tax Cas, 46 ...... 0.00005 109, 168, 174, 196, 217 Parker r. Overman, 18 How. (U.S.) 187 ..........-. 0.000005 66 Parson’s Case (Citizens Insurance Co. 7. Parsons), 7 A. C. OG aisle paskids oek eis oe SERS ASRS ¢ ona Bene te we Hed fake 22, 27 Partington vr. Att.-Gen. (1869), L. R. 4 ©. & I. App. H. L. 100. ss) Partridge r. Mallandaine (1886), 18 Q. B..D. 276; 56 L. J. Q. B. 251; 56 L, T. 203: 35 W. RR. 276; 2 Tax Cas. 179...108, 109, 148 Payne rt. Mortimer (1859), De G. & J. 447, C. A. ww. eee. 278 Pells r. Snell, 180 Ill. 379 ...... Sea echt eyed atcheon eecare wa, 65 Pemsel’s Case (R. +. Special Commissioners; Mx parte Pemsel) (1891), A. C. 581; 61 L. J. Q. B. 265; 65 L. T. 621; 3 Tax (AS DB sist Se Sesuae ya aA saaie Sea tih Gliaielsicevnaaiaanns ee Gaae . 87, 50, 59, 179 Penfield 1. Chesapeake, Ohio and 8. W. Ry. Co., 134 (U.S.) OL alice inna canes guia Bide ands tears au stale mw etaianaueen eae ONG 63, 65, 66 People v. Allen, 42 Barb. (N-Y.) 203 2.0.2... cc cece eee ee 237 ba RODEVES, TOT INV GOT crcusied sieve acaaupanerace sue e dale atetsee 163 r, San Francisco Union, 13 Pac. dO8............00. 148, 239 —— rv. Tax Commissioners, 23 N.Y. 243 2.0.0.0... ccc ee eee 105 — cu rel. Platt v. Wemple (1899), 117 N.Y. 136........ 5U v. Tax Commissioners, 16 N.Y. Supp. 835 ............ 62, 65 ‘Perchard r. Heywood, 8 T. R. 468 ....... 0.00. ccc eee 36 Perry «. Washburn, 20 Cal. 318 2.0.0.0... ccc ccc ee eee 279 Peterson r. Chicago R. 1. & P. Ry., 205 U.S. 364....0..0..0..00. 95, 96 Philadelphia +. Collector, 72 U.S. (J. ed.) G14: 5 Wall. 720.. 285 Phillips r. London School Board (1898), 2 Q. B. 447.......... 102 DIT, 3B Wil TABLE OF CASES. PAGE Phenix Fire Insurance Company r. Tennessee, 161 U.S. 174.... 36 Pipestone r. Hunter, 28 Man, L. R. 570 ....... eee eee 279 Pittar v. Richardson (1918), 87 L. J. W. B. 59 2... eee 64 Pole-Carew vr. Craddock (1919), W. N. 129;.355 T. L. R. 445 19199) 2 SS TB). B98 acs in lace care Rie mine cateaen pawn,» 87, 183 Pollock 1. Farmers’ Loan & Trust Co., 157 U.S. 429; 158 U.S. SOO, iv doacaicns ee ay oncaas diane eta Dacian sh ae esaas dnb Avene) Boneeuades Sok wena « 9, 22 Pommery & Greno +. Apthorpe (1886), 56 L. J. Q. B. 155.... 118, 119, 124-5 Pooley wv Driver, 6 (Ch. D. 458) ca4 a beh ae be ee Od Hea he weer 53 Pope v. Williams, 56 Atl. 543; 98 Md. 59 0.0... eee eee 64 Postmaster-General, er parte, Re Bonham (1879), 10 Ch. D. 595; 48 L. J. Bkey. 84; 40 L. T2116; 27 W. RR. 325..... 212, 278 Powell v. Guest (1864), 18 C. B. (N.S.) T2..........000. 62, 65, 66 Pretoria-Pietersburg Rail. Co., Limited rv. Elgwood (1908), 98 i. TN. F403 6 Pax Cas, 508 22.54 g2eaedsccwnes Phae ves's 158 Providence Bank v. Billings, 4 Pet. 514 .................... 36 Pryce vt. Monmouthshire Canal & Rwy. Co., 4 A. GC. 197...... oS Psalms and tymns, Trustees of v. Whitwell (1890), 7 T. L. R. AGEs io: Dax Case G. cc's cs sings beh ened sas aloes 8 oe EERE 50, 109, 176 Pulborough, Re (1894), 1 Q. B. 725 20... eee eee Pea g 39 Pullman’s Palace Car Co. r. Missouri Pac. Ry., 115 U.S. 587. .95, 96 Q. Queen +, Abingdon (1870), L. R. 5 Q. B. 406..............., 65 vy Ayer, 1 Can: Bx, 232 ccc caus seen eee vie cas les 3 ——— +. Bank of Nova Scotia, 11 8. C. Ro 1.......... 269, 270, 276 —— t. Commissioners of Income Tax, 22 Q. B. D. 296..... 38 ——- ¢. Commissioners of Southampton, L. R. 4 H. lL. 43.... 137 —— 1. Postmaster-General (1877-8), 3 Q. B. D. 428........ 103 R. Radcliffe r. Inland Revenue, 89 L. J. K. B. 267 2.0... e eee ee eee 108 Radich v. Hutchins, 95 U.S. 210 20.0... cee cece eee ee ee . 283 Railroad Co. v. Commissioners, 98 U.S. 541 .......0.-022-00 0. 285 Reid vr. Hollinshead (1825), 4 B. & ©. 867 .................. pe Reid’s Brewery Co. v. Male (1891), 2 Q.B.D.1;60L5.Q.B. , 340; 64 L. T. 294; 39 W. R. 459: 8 Tax Cas, 279...... 199, 215 Religious Tract and Boo! Society of Scotland v. Forbes (Inland Revenue) (1896), 23 R. 390; 38 Se. L. R. 289; 3 Tax Cas. cea pis pyite 8 bet aus wp kceunana-wicheaes de Seon 59, 109, 176, 215 Revell rv. Directors of Elworthy Bros., Ltd., 3 Tax Cas. 12.... 220 ae Life Assurance Society (1906), 5 Tax Cas. a sha gigas a bs aie Box eh Ante aces ness ate ee teeeeeee L4], 164 R. vr. Abingdon (1870), L. R. 5 Q: Bs 40Gb cds ines ccna ae 65 — '. Allnut (1807), 16 ast; QTSi sc, ees scoee oe ww ba veces aes 205 — «. Bank of Nova Scotia, 11 S.C. R.1............. 269, 270, 276 — 1. Board of Assessors, 41 N. B. 504 ................ G4. 66, 71 — 1. Commissioners of Inland Revenue (/n re Nathan) * (1884), 12 Q. B. D. 461; 53 L. J. Q, B. 229; 51 L. T. AGS D2 WV WR BIB e teove uth lag a emer in MWe, con ccs 281° — vr, Cotton (1751), Park. AL? $32 WeOS., 2B0! ics ans bose Gace oe wie 268 — v. Cowing (1877) (unreported) ..... 0... ccc eee eee ees 267 — vt. Fermanagh Justices (1897), 2 In. Rep. 563 ..........., 62 — 1. Giles (1820), 8 Bites, PIR. led: 2c corsucug bdtdaos amet eas 268 TABLE OF CASES. XIX PAGE R. v. Iassell’s Estate (1824), 15 Price, 270.0... 6. eee eee 268 — v. Holden (1912), 1 K. B. 483 0.2 ce een ee 73 — rv. London Gas Co., 8 B. & GC. 54 cece cece 36 — v Newmarket Income Tax Commissioners (Hr parte Hux- ley), C. A. (1916), 1 K. B. 788; 85 L. J. K. B. 925; 114 L. UT. 963; 7 Tax Cas. 49......... ccc ee eee 46, 246 — v. Norwood, L. R. 2 Q. B.D. 457 0... eee 62 — v. Postmaster-General (1875-6), 1 Q. B.D. 663...7..... » 102 — vr. Pridgeon (1910), 2K. B. 548 2. eee eee LOT — v, St. Leonard, L. R. 1 Q. B.D. 123..... 0. cee ee eee 62, 65 — v. Sargent (1793), 5 Term Rep. 466 ..............085. 64, 65 — v. Sheriff of Devon (1819), 1 Chit. 643 ..............-08. 268 — vc. Special Commissioners (Hx parte Pemsel) (1891), A. C. 681: 61 L. J. Q. B. 265; 65 L. T. 621; 3 Tax Cas. DB. achloue aucun & oSearouaet a ie kaeie as ae eaae ee 37, 50, 59, 179 — v. Thompson Manufacturing Co., Ltd. 47 O. L. R. 103 .... 249 — v. Tyrone Justices (1901), 2 Ir. 510 20... eee ee eee 62 Rhymney Iron Co. +. Fowler (1896), 2 Q. B. 79; 65 L. J. Q. B. 524; 44 W. R. 651; 3 Tax Cas. 476 22... eee eee 197 Richmond v. Judah, 5 Leigh (Va.) 305 .............-0 000, 283 Riley v. Warden, 18 L. J. Ex. 120 2.2.0.0... 0c eee eee eee 101 Robertson r+. Cease, 97 U. S. 646 1... eee eee 66 Robbins v. Inland Revenue (1902), 1 K B. 51; (1920) 2 K. B. OG. ia shine sehasieee tice Mats RO NEL Re Otago cca diae oy OR REE DENIES 108 Rogers vr. Inland Revenue (1879), 6 R. 1109; 16 Se. L. R. 682; de MX Cass DOD ies da nen oem ara iyav aniline ane areas 65, 66, 67-8 Rolls v. Miller (1884), 27 Ch. D. 71 (C.A.)........0.. 105, 106, 109 Royal Insurance Co..v. Watson (1897), A.C. 1; 66 L. J. Q. B. 1.275 Ly, T8849 3 Tax, Cas): 500) vocucs cc cectnea es certian ie 199, 211 Rundle v. Delaware, etc. Canal Co., 14 How. (U.S.) 79....... 66 Russell +. Aberdeen Town and County Bank (1888), 13 App. Cas. 418; 58 L. J. P. C. 8; 59 L. T. 481; 2 Tax Cas. 321.. aM tte gta Raha sfanbaas: set mtesSer qlee oh Scar teleiehs aR OS Ae OMe oot Se REA Br eNE IO Ta 8, 14, 151 s. St. Andrew's Hospital (Northampton) r. Shearsmith (1887), 19 Q. B. D. 624; 57 L. T. 415; 35 W. R. 811; 2 Tax Cas. QD. oho ete Aeinienes Sob 00d eueltevece ye actnuane wooed ey Oe LOO, TBS, ek VT: DAT St. James Club, Re (1852), 2 DeG. M. & F. 383 .........2.4. 226 St. Louis Breweries Co. v. Apthorpe (1898), 79 L. T. 551; 47 W.R. 334; 4 Tax Cas. 111 .............. 75, 77, TS, 90, 91-2, 93 Sadler », Whiteman (1910), 1K. B. 868 .................00. 73 Salomon «. Salomon & Co. (1897), A. C. 22 2.0.2... eee 59, 85, 90 Salt Lake City v. Hollister, 118 U.S. 256 ..........0......0.0. 163 Saltoun (Lord) ¢. Lord Advocate, 3 Macq. H. 'L. 659; 8 W. R. 004° 6) Jt. (CONESL)\ G12: cc ketene sonis inne dip RET GUE cue tteine debs Samson, Robins, Re v. Alexander (1906), 2 Ch. 584, 1C.A........ 275 Sangster r. Inland Revenue (1920), 1 K. B. 587.108, 111, 113, 115, 147 San Paulo (Brazilian) Rail. Co. v. Carter (1895), 1 Q. B. 580; (1896) A. C. 31; 65 L. J. Q. B. 161; 73 L. T. 538; 44 W. R. 336; 3 Tax Cas. 407 ...........4.. 74, 75, 86-8, 89, 105, 135 _ Sawyers, Re, cr parte Blain (1879), 1z Ch. D, 522 .......... 73 Schlesinger +. United States, 1 Ct. CL (U.S.) 16............ 283 Scottish Investment Trust Co. v. Forbes (Inland Revenue) (1896), 108 W. N.; 21 R. 262; 31 Se. L. R. 219; 3 Tax Cas DBT o5 alate hace wilade are we ey Sik hows owen hee A RE mens em 156 Scottish North American Trust vr, Farmer (1912), A. C. 118. .207, 210 TABLE OF CASES. v « \ a PAGE Scottish Provident Institute v. Allen (1903), A. C. 129; 72 L. J. Pp. C. 70; 88 L. T. 478; 5 F. 10; 40 Se. L. R. 605; 4 Tax Gas: A409) vy ae -aaecutainamenebuneen 157 v. In Rev. (Farmer) (1912), 8. C. 452; 49 Se. L. R. 485; 6 Tax . Cas. SL ......0ee 138, 142, 155, 196 Secretary of State for India v. East India Railway, 74 OL. J~ TS Bs CD) saw arad oe nears erp eile tiene o Caah Greronie Casvaalo dae 158, 164 Secretary of State in Council of India x. Scoble (1903), A. C. 299; 72 L. J. K. B. 617; 89 L. T. 1; 51 W. R. 675; 4 Tax CaS: GUS: ico cecrnssidrnacare ch bent gear ate waders 20, 152, 158, 164 Shaffer v. Gilbert, 73 Md. 69 0.0... 0 cece cee cece ec eee ee eee 62 Shaftesbury (Earl) v. Russell (1823), 1 B. & C. 666 .......... 266 Shaw v. Kay (1904), 12 Se. L. T. R. 495; 5 Tax Cas. T4...... 254 Shepherd v. Hills (1855) 11 Ex. Rep. 55 2.0... . cece eee eee 279 Shiels v. Commissioner of Taxes, 1912, S. A. L. R. 175........ 20 Shine, Re (892); LiQy Bi 522. os.ceventiie iA amas ems ies 101 Sillitoe, He parte, 1 Gl. & J. B82 1.1 ke cece ce ee eee 216 Sion College v. London (1901), 1 K. B. G17 2.0.0... eee eee 36 Simmons v. White (1899), 1 Q. B. 1005 ..........0..0.. ek he 187 Sisters of Notre Dame r. Ottawa, 1D. LL. It. 820 ........00..0.. WW7 Sleeman v. Barrett, 388 L. J. Wx. 103 ok ke cece ee 101 Smelting Co. of Australia +. Inland Revenue (1896), 2 Q. B. PET D) sahce teeta aten adn scviahe Rac capac deaalene mea Renarentaes Oe antiaun cea epsbat eaacavage 37 Smidth & Co. «. Greeenwood (1920), 8 K. B. 275........... Hiatt es Mica laine iach Netuactoies adbank aigcsiareado ans tee 105, 113, 117, 121, 131 Smiles r. Australasian Mortgage and Agency Co. (1888), 15 R. 872; 25 Se. L. R. 645; 2 Tax Cas, 367 ..........-..00-- 115 Smith v. Anderson (1880), 15 Ch. D. 247....52, 53, 55, 56, 57, sou ea teh lenis eye on shar deste ac oalie ioesia h atgnwen aan 106, 110, 111, 115, 226 — v. Law Guarantee & Trust Soc. (1904) 2 Ch. 569; 73 L. J. Ch. 733; 91 L. T. 545; 20 T. L. R. 739........ 157 —— vr. Lion Brewery Co. (1911), A. C. 150; 80 L. J. K. B. 566; 104 L. T. 321; 5 Tax Cas. 568; affirming C. A. (1909): 25, B91? 5 siadelwad sew nes Maan menor satel 215 v. Westinghouse Co., 2 Tax Cas. 357 1.2.0.0... 0 eee cess in Smythe v. Fiske, 90 U. S. 874 2... ccc cela cee ee eee 41 Society of Writers of the Signet v. Inland Revenue, 24 Se. L. R. 27; 14 R. 84; 2 Tax Cas. 257 «2.000000. ave a enemies heuinated 20¢ Southern Pacific ». Lowe, 247 U. 8. 330.............. 95-6, 189, 227 Southwestern R. R. v. Wright, 116 U. S. 231 ............000- 36 Sowrey v. Lynn Mooring Commissioners (1887), 3 T. L. R. 516; RDA AS AZO. casi ceareelaitin ancien hee ist ebs tape ake hm hance hl: en te 110 Spanish Prospecting Co., Ltd., Re (1911), 1 Ch. 92........... 152 Standish r. Ross (1849), 8 Ex. 527 2... cee eens 282 State vr. Camden, 389 N. J. L. 59.1.0... cece ee ec eee eens 65 v. Minick, 15 Ohio R.126 11.0... eee eee 65 tu. Napier, 63 S. Car. GG... . 0. ccc cece cece ee neeees 111 Stephenson rv. Higginson, 3 H. L. C. 688 ....... 0.0 cee eee eee 57 Sterling r. Cumberland Trustees, 49 N.S. RLI25.......0-.000e 3 Stevens v. Bishop, 20 Q. B. D. 442; 57 L. J. (Q). B. 283; 58 L. T. OOO 2 Make Cas 3249. cae sets seas nicecncenenas iar meee he 216 v. Durban Roodeport Gold Mining (o., 100 L. T. 481; DP ELAR CAS. VL) sos. scuaiahduontyoiadguedel cat sakika ieotcah pce gleoun te 40 ———~ rt. Hudson’s Bay Company (1909), 101 L. T. 96.... gl ais ah Rs acdc cb gull RN SPR ste han cctv venivigcincdeder 115, 114, 116, 155 TABLE OF CASES. XX1 PAGE Stewart v. Thames Conservators (1908), 1K B. 893; 77 L. J. / Ik. B. 8962 3 Tax Cas.. 297 sacccccsdaaercavevisdadwesinly USB Stiegleder v. McQuesten, 198 U. 8S. 141 ..............0.000006. G6 Stratton’s {ndependence v. Howbert, 231 U.S. 3uJ......-... 135, 138 Strang v. Inland Revenue, 15 Se. L. R. 704; 1 Tax Cas. 207.... 146 Strong & Company v. Woodifield (1906) A. C, 448;; 75 L. J. K. B. 864; 95 L. T. 241; 5 Tax Cas. 215...... 8, 9, 14, 210, 222 Struthers v. Town of Sudbury, 27 Ont. A. R. 217............ 17 Sturgeon Falls rv. Imperial Land Co., 7 D. L. R. 352.......... 34 Sturmer, Jn ve (1911), 24 0. L. R. 65 2... eee eee 62, 65 Sulley 7. Att.-Gen. (1860), 5 H. & N. 711; 29 L. J. Ex. 464; 6 Jur. (N.S.) 1018; 2 L. T. 439; 8 W. R. 472; 2 Tax Cas. 1493 4 Haw saan Hoe ed ea abe 72, 75, 107, 113, 117, 122-3, 131, 133, 1384 Sun Insurance Office r. Clark (1912), A. C. 443° 81 L. J. K. B. 488; 106 .L. T. 4388; 6 Tax Cas. 59 2... eee eee ee 193 Swan Brewery v. Rex (1914), A. C. 231 ............0.... “107, 160 re Taff Vale Ry. Co. vr. Amalgamated Society, ete. (1901), A. C. DG is ese caus Si sels ates dahea ce ah gre aay oe AeA arte aint fide ts, Rica pipet A oS Tagore v. Tagore (1874), L. R. India App. 397 .............. 65 Talory.v. Jackson (1638), Cro. Car. 513 0.0.0... eee eee 279 Tax Commissioner r. Kirk (1900), A. C. 588.......... 105, 192. 133 Taylov rm. US AL WS: 197 cacoon pea a wane ce oa eas aero a dae 6 41 Tazewell vr. Davenport, 40 Ill, 197; Ann. Cas. (1917), B 726.. 63 Tebrau (Johore) Rubber Syndicate, Limited r. Farmer (1910), $8. C. 906; 47 Sc. L. R. 816; 5 Tax Cas. 658........ 116, 152, 156 Tennant, Bx parte, 6 Ch. D. 808 2.0... cece eee 53 ———— +. Smith (1892), A. C. 150; 61 L. J. P. GC. 11; 66 L. TT. 82%2 3 Dax Cass 1585 3 9 3 geet 14, 34, 137, 148, 208 ——— rr. Union Bank (1894), A. C. 31............0.0.0008 26 Tennessee vr. Whitworth, 117 U.S. 139 ........0.0.....020000. 3G Texas Land and Mortgage (Co. v. Holthman (1894), 63 L.J.Q.B. 496; 10 T. L. R. 387; 3 Tax Cas. 255 ....... 0.0.0.0 0000- 207 Thew r. Hudson’s Bay Company. (1919), 35 T. L. R. 683...... 155. Thomas, Re (1916), 1 Ch. 883 ....... 01 eee ee 167 v. Dakin, 22 Wend. (N.Y.) 104 .................06. 3 Thomas Turner (Leicester) Limited 1. Rickman’ (1898), + Tax (CaS, 2B rsa aioe mean talc igi ascee Sige bbe ca Be 118, 119, 121, 128 Thomson r. Inland Revenue (1918), 56 Se. L. R. 10. .G4, 65, 66, 7, 70 Tide Water Pipe Co. v. State Assessors (1895), 57 N. J. L. 516 (1896) 9 ING Te Ti QOD a acces ow miticce. esis Sei ob g Ranson FS 56 Tindal’s Case, 18 N. S. W. L. R. 378 ....... EAS oe BAIR E 8 Bes 135 Tischler & Co. r. Apthorpe (1885), 52 L. T. 814; 33 W. R. 548: 49 J.P: 802% 2 Vax Cass, 89). ccc c cc ete aes eereen ewan 119, 124 Toronto Railway +. City of Toronto (1904) A. C. 809...... Be naan Sls Otagan semen aca Gaede Seis Wesunes Bir 256, 258. 263, 264 Towne +. Wisner, 245 U.S. 872 00... ccc cece ccc ceeeueee 13, 167 Townsend r. Crowdy, 8 C. B. (N.S.) DCCs suite fara etaweladooaiae a 282 Trust Corporation of Ontario r. City of Toronto, 30 O. R. 209.. 282 Trustees of Psalms and Hymns v. Whitwell (1890), 7 T. L. R. 16453 Tax Cosi € astaue ora noe seeds oe urde bonne 50, 109, 176 Tucker, Hx p., 23 N. B. 311 2... ccc cece 103-4, 108 Turnbull +. Foster (1904), 7 F. 1; 42 Se. L. R. 15: 6 Tax Cas. OG mst anscedhittst sue ce nanan tee tetne ole ie wha each Pu kan A aha 66, 70 Turner v. Cuxon, 22 Q. B. D. 150; 58 L. J. Q. B. 131; 2 Tax Cass Foe: sys. dain ain eta ddi oe cre qoadie-h auaaed cals qanety eae 146, 149 ° xl TABLE OF CASES. PAGE Turner, Thos., Ltd. 1. Rickman (IGS, a Tas (a8, 25.20.2245 ane Lacs cous A tb site ta at i gh eS i dea BGs BOR 118, 119, 121, 125 Turton r. Cooper (1905), 92 L. T. Roo: 21 T, Le BR. 646% 6 Tax Ci sisis ABS seccgess rc euduans cheeticntars veub aes eiakened OCRed eeiNisa ee VRS ES 146 “Dyser vc. Shipowners’ Synd. (1896) 1.Q. B.D. Loo............ et Us Underwood Typewriter Co, r. Chamberlain, 102 Atl. (Conn.) (GOD Drew’ cecce star ossid tssran sheet ce nse A atacraaesisba abcde Unni) BARN LEIS OG 286 Union Hollywood Water r. Carter, DBS Wed), B29 0c ccace ected 61 Union Natural Gas Co. r. Dover, 53 D. L. R. 326.........-201, 213 United States Brewing Co. r. Apthorpe (1898), 4 Tax Cas. 17.. 90 United States c. Coulby, 251 Fed. 982; 258 Fed. 27......... 73, 190 —_— i. Emery; 280 Us8e 28 cae svog geenacavs arace 110, 112, 113; Se = Bodson, 1T Usss 895) «2s seme ee cag eeuuing es 41 2. Indianapolis & St. Louis Ry., 118 U.S. 711.143, 23: — .. Ninety-nine Diamonds, 139 Fed. 961........ Bas —— v. Nipissing Mines Co., 206 Fed. 431 ...... 45, 60, 114 v. “Penelope” Sch’r, 2 Pet. Adm. $50 .......... 65 #:, Perkins; 163) (iS.625. adie cn yee son «arene aciwonsueie 8 219 sae 1 Stowell) 133 CASS secs se arettcewieds cumawe es 41 ———__———. v. Tiffany, 160 Het 408 ass nada se eeGars samy to 3y —___—__—_—_—— 1. Wigglesworth, 2 Story 369 .......5......... Bs University of the South r. Skidmore, 9 S. W. 892.............. 174 Usher's Wiltshire Brewery, Limited v. Bruce (1915), A. C. 433; 84L. J. K. B. 417; 112 L. T. 651; 6 Tax Cas. 399... .8, 193, 215 v. Vagliano, Anthracite Collieries, /?e (1910), 79 L. J. Ch. 769; 103) Tas De 20s aceaeny ew gale ee aad YS ee Oe S SES 73 Vallambrosa Rubber Co. r. Farmer (1910), S. C. 519; 47 Se. L. R. 488; 5 Tax Cas. 529 ................ 194, 199, 200, 203, 217 Valpy vr. Manley, 1 C. B. 594 2.204. bball aking Gust aid elenial ehieta she ie aan 284 Verner v. General and Commercial Trust (1894), 2 Ch. 239. .153, 198 Von Baumach :. Sargent Land Co., 242 U.S. 503....... 112, 118, 133 Von Glehn «. Inland Revenue (1920), 2 K. B. 553 ............ Si aGie TRS EERO AEY waRaS EGER 8, 55, 108, 168, 211, 216. 222 WW Walcot v. Botfield (1854), Kay 534 1.0.0.0... 000000000000. 65, 64 Walker r. Reith (1906), 8 F. 381; 48 Se. L. R. 245........143, 242 Wanzer Lamp Co. v. Woods, 13 P. Ik. (Ont.) 511............ 62, 64 Ward, Re (1897) 1 Q. B. D. 266 «0.0... eee 136 Warnes 7. Inland Revenue (1919), 2 K. B. 444 .............. 216 Watney r. Musgrave (1880), 5 Ex. D. 241; 49 L. J. Ex. 493: 42 L. T. 690; 28 W. R. 491; 1 Tax Cas. 272 ................ 215 Watson c. Sandie and Hull (1898) 1 Q. B. 326; 67 L. J. 2a. B. 319; 77 L. T. 528; 46 W. R. 202; 147. LR. 124; 3 Tax ‘ NGS GL, xe aia ood entrada ies Uses aac sees outs Gens cove 118, 119, 127-8 Watt «. Inland Revenue, 23 Sc. L. R. 408 22.0... cece eee ceees 214 Weaver r. Price (1882), 83 B. & Ad. 409 00.0... 0c cece eee eee 264 Webb r. Australian Deposit and Mortgage Bank, Ltd. (1910) TG Ee DOB sa ca sodssinyaners ceopnchies vo soptedaanaident a 20, 116-17 TABLE OF CASES. XXII PAGE Webb: Outrim (1907), A. CG. 8L fa vncsces yaew ces raed nwa oe 29 Webber. de; ESQ. 5. D0. TLL. ici sceis fete tases oe ebeede ls ate eaomer ete wie 136 Weed ¢. Tucker, 19 NY) 422 cies case ee eae eda eae ee 23 Weiss, Biheller and Brooks, Limited r. Farmer (1918) 2 K. B. G25? 119 DL. WN. 677s 34 T Lie Rib6lin. ceca ee vec anes 118, 130-31 Weller vr. Inland Revenue (1919), ¥ K. B. 407 .............. 218 Werle & Co. r. Colquhoun (1888), 20 Q. B.D. 753; 57 L. J. Q. B. Bens 68 L. T., Tah: OF OW, Re 4; 2 Tax Cas, 402. BY Bie d SAE Banlieue P10 RA eee eta SB tea 107, 119, 122, 125 Wetherell ¢. Bird (1834), 2 Ad. © 1. 161. . 0. cece cer eeceene 105 vey a Salt Deke (ty, 101 Pace, OS), cscs ccna scev swe ewae cen Tit Whitely, Lid. & The Kime (110), 101 Iu T. Telves ees eves 288, 285 Whiterock Estate Co. +. Commissioner of Taxes, 30 N. Z. L. R. Aime Weasel a see feds ectiea eee te ey enin Gat cc ae tudsae Spaalte SS al aan G oa ower Oe 156 AWieks,-Ttey TG Ghd acta ae aaeacnane ar prtwen sierae awn be eae Cae 186 Wilder Steamship Co., In re, 16 Hawaii (U.S.), 567.......... gaa Williams, oe Paiae ad Mie TNS Dy sigan &% Saas b GaN Ys a eed 216, 433 Thisohaed, BRE te el ER GaR eA ORI vem aes 36 . Williams. Re Williams Estate (1872), L. R. 15 Eq. 270 | iy gr pre ecb hia das ae or paheanes eee aS AE ES aca el gle landy BORA o gave Re Akg 278 Williamson, Pennell, Re, r. MeCutcheon, 39 O. L. R. 413.... 278 Wingate & Co. r. Webber (1897), 24 R. 939; 34 Se. L. R. 699; BD EPAN CAS SOY. ca acinsns aveneausnade is. aramid a aenaieue e hands 105, 120, 127 Winans r. Attorney-General (1910), A. C. 27 ...........00085 25 Wright +. Blakeslee, 101 U.S. 174 . 0.0... cee eee eee 285 v. Georgia R. R., 216 U.S., 420 22... eee eee ee 36 Wrigley, Re, 4 Wend. (N.Y.) 602; 8 Wend. 184.............. 63 Writers to the Signet | Rociety of) v. Inland Revenue (SBE 24 Se. Ds Re 27% 2 Dax: Cas. 200 cciicadd asvaed oe caaneds “209 Wyle r. Eecott (191 3 , 8. C. 16; 50 Se. L. R. 26; 6 Tax oe 128 Xs Yazoo « Missouri Valley R. R. v. Thomas, 132 U.S. 174........ 36 Yokohama Specie Bank r. Williams (1915), 85 L. J. K. B. 950; 113 L. T. 860; 6 Tax Cas. 634 2.0... cece eee - 130 Young. Re (1875), 1 Tax Cas. 57; 2 R. 925; 12 Se. L. R. COD wna eavalees WAS as kB AeA SAE VA Ae eed Kies 68, 65, 67 Z. Zonne «. Minneapolis Synd., 220 U.S. 187........ 110, 112, 113, 114 ABBREVIATIONS USED IN CITATION OF AUTHORITIES. A.C. (App. Cas.) ...... Appeal Cases. AG. Ge Lg datas oak aig 08 Adolphus & Ellis. WONG site h oad Su PR ewan Alabama Reports. Boe A ae an ema nag eats 2 Argus Lew Reports (Australia). Ami Case caer a'gaueaarey 4 Annotated Cases (Am. & Eng ). Att Di (ey cescvesscexe Appeals District of Columbia. Bl, saaectieeckea wae Atlantic ‘Reporter. Wish dae Dg kienn ceceas Australian Law Times. Be Qed soseat-acguates Barnewall & Adolphus. B. & Cy vas ainenanea dane Barnewall & Cresswell. Barb: (NY) wc eess oak Barber’s New York Reports. DAG, 2.5 Spang «eek oeaes Geayan. Bibby CRY) wsseacnnwws Bibb’s nentucky Reports. DATION. sans 2s acdigua atin cee Sina Bingham’s Reports. Biss. wows rd ake seaman Bissell’s Reports (U.S.). COL GER Ga honed COE ReE California Reports. aT, Riga. 2 edie e Gone Canadian Exchequer Reports. OE IBS seteditroassoan ema ate Common Bench Reports. 22s CNGS3) - wares Common Bench (New Series). Di. sheaves sv eee eeu a eee Chancery Reports. GU, AD iy, vivid creed ease Chancery Appeals Cbs Ds shad tee eatin twats Chancery Division. Ghats, sade cocoons cons Chitty. Cy eeewiuud PwHk ess OR iifford’s U.S. Reports. Ul ie IP ese ye eseaee sacs Clark and Finnelly. CG, Wig wesin th od abana oniats Commonwealth Law Reports. Conn acetate wes Connecticut Reports. Ch PDs sue yaaa tase awe Common Pleas Division. CrosCary cea ce acend ees Croke’s Reports (Car.). CE GL, ge eat deanna des Court of Claims (U.S.). Daly (N. Y.) .......0.- Daly’s Reports (New York). DeG. & IJ. oe. eee DeGex and Jones. DeG. M. & Gy vasseas nny DeGex, Macnaghten and Gordon. Di, Tay Re « There are certain special de- special deductions which the Minister has a discretionary allowable by power under the Act to allow and which probably could not Minister. : z ‘ be be claimed but for this special provision. He may, for example, allow a reasonable amount for depreciation, and further in determining the income derived from mining and from oil and gas wells and-timber limits he is empowered to make such an allowance for exhaustion as he may deem just and fair. The principal Act originally authorized the Min- ister to allow a deduction from net income of a reasonable amount “for any expenditure of a capital nature for renewals or for the development of a business,” but the amendment Act of 1919 omitted the quoted words from the authorizing provision so that deductions for such expenditures may no longer be permitted. Deductions may be allowed, however, for deficits or losses sustained in transactions entered into for profit but not connected with the taxpayer’s chief busi- ness, trade or profession or occupation. The provision in #9 1892, A. C. 150, 164. 'Gresham Life Assurance Society v. Styles. 1892 A. ©. 309: Russell Vv. Town and County Bank, 13 A. C. 418; Strong & Co. V. Woodifield, 1906, A. C. 448. HISTORY AND NATURE OF INCOME TAXATION. that behalf was enacted as an amendment in 1919. It modi- fies the principle, exemplified by a number of decisions under the English Act, to the effect that a loss incurred by a tax-" payer in one trade or business or department thereof cannot be deducted from a profit made in a separate trade or business or department thereof in arriving at the taxable profits. These items are specially considered in the chapter on Deductions. The rates of income tax are of three descriptions, cor- responding with those prescribed in the United States law, namely, the normal tax and the surtax, in the case of indi- viduals, and the corporation tax, in the case of corporations. The normal tax is a tax of four per centum upon all taxable income of individuals in excess of a personal exemption of $1,000 or $2,000, to which the taxpayer is entitled accordingly as he may be unmarried or a widow or widower without dependents, on the one hand, or a married person or a person with dependents on the other hand; an additional exemption of $200 for each child under eighteen years of age, who is dependent upon the taxpayer for support and of the amount of dividends received by or credited to the taxpayer as a shareholder of a corporation which is itself liable to taxation under the Act. The allowance for depend- ent children was introduced by an amendment in 1918. It was limited then to children under sixteen years, but was extended by amendment in 1919 to children under eighteen years of age. The rates of the normal tax are four per centum upon the net amount of income, after deducting the exemp- tions up to $6,000, and eight per centum upon all income over that amount. The surtax is a tax imposed at graduated pro- gressive rates upon all the taxable income of individuals, exclusive of exemptions, in excess of $5,000. The corpora- tion tax is a flat rate of ten per centum imposed upon all the taxable income of corporations and joint stock companies and, also, in practice, of quasi corporate bodies, exceeding the sum of $2,000 which is exempt. An amendment of the Act, enacted in 1920, requires to be paid an additional special tax of five per centum of any tax payable under the Act with respect to any taxable income of $5,000 or more, for the calendar year 1919 or for accounting periods ending in that year, as the case may be, and for each succeeding calendar year or account- ing period. The rates of the normal tax, surtax and cor- Three classes of rates: normal tax, surtax and corporation tax. The statut- able exemptions. Additional special tax imposed in 1920. 16 DOMINION INCOME TAX LAW. poration tax and the exemptions connected therewith were established in 1919. They differ considerably from those ‘which ‘obtained under the law in 1917 and 1918. The normal tax in 1917 was four per centum upon all income exceeding $1,500 in the case of unmarried persons, etc., and upon all income exceeding $3,000 in the case of all other per- Asummary sons. In addition, a surtax was imposed. It began with a rate Of the ates, Of @ per centum upon the amount by which the income exceeded $6,000, but did not exceed $10,000, and increased at graduated rates until it reached the final rate of 25 per centum upon all income over $100,000. Corporations and joint stock companies were liable to pay the normal tax, but not the supertax, on all income in excess of $3,000. Under the law, as amended in 1918, the normal tax became 2 per centum upon all income between $1,000 and $1,500 in the case of unmarried persons, etc., and between $2,000 and $3,000 in the case of all other persons and 4 per centum upon all income exceeding $1,500 in the case of the former class and upon all income exceeding $3,000 in the case of the latter class of persons. The rates of the supertax were extended so as to make the final rate fifty per centum of the amount by which the income exceeded $1,000,000. On top of these rates a surtax was added. It ° consisted of rates of five, ten, fifteen and thirty-five per cen- tum of the normal tax and supertax payable respectively upot all income between $6,000 and $10,000 ; $10,000 and $100,000 ; $100,000 and $200,000. and over $200,000. Corporations and joint stock companies were required to pay six per cen- tum upon all income exceeding $3,000, but were exempt from - both the supertax and surtax. These different rates and exemp- tions were replaced in 1919 by those which are sum- marized above. ee By an amendment of the Act, enacted in 1919, tax- taxes paid payers became entitled to deduct from the amount of the tax, Wiley Special which would otherwise be payable, the amount paid by them enue Act, for corresponding accounting periods under the provisions of papa eben Part I. of The Special War Revenue Act, 1915, aud The Business Profits War Tax Act, 1916, subject to the stipulation that such taxes cannot be included by the taxpayer in the expenses of his business; and also of the amount of the income tax paid by the taxpayer to Great Britain or any of its self- governing colonies or to any foreign country in respect of income derived from sources therein, if in the case of foreign HISTORY AND NATURE OF INCOME TAXATION. 17 countries, a similar credit is allowed to persons in receipt of income derived from sources within Canada. Taxable persons are enumerated in five classes, but these Classes of may be divided roughly into two, viz.: (1) persons resident in ae Canada or who remain in Canada at one or more times during a taxable year equal in the whole to one hundred and eighty- three days. They are subject to income tax upon the whole of their net income regardless of the locality of its source. (2) non-resident persous who carry on business or exercise some employment or perform services in Canada. ‘hey are assessable, speaking generally, upon the whole of the net income so earned in Canada. A number of individuals and organizations are expressly exempted, some conditionally, others unconditionally, from taxation under the Act. The general policy of the Act is to impose the liability to piapility to pay income tax upon the beneficial recipients of income. To this pay pee rule there is one exception created by an amendment of the recipients Act in 1920: income accumulating in trust for the benefit ate of unascertained persons or of persons with contingent one case. interests is taxable in the hands of the trustees or other fidu- caries as if such income were the income of an unascertained person. The tax is assessed and imposed upon the basis of aceneral general return of the taxpayer’s income. Each taxpayer is dae virtually made his own assessor, for he is required under pain required to of penalty to calculate the tax and remit at least one-quarter P@ 2¢com™ : : : panied by of the tax so estimated with his return. The balance of the instalment tax may be paid thereafter in three equal bi-monthly instal- aL. ments. The taxpayer’s estimate of the tax payable by him may be varied by the official examination of his return, the result of which is communicated to him by notice of assessment. The Dominion Act, differing in this respect from the No payment’ English and the United States law, makes no provision for of tax at the payment or stoppage at the source. A provision in that aoa behalf contained in the original Act was repealed in 1918 without having been put into operation. The various returns required by the Act provide, however, for a system of infor- mation at the source in the case of employers and companies, and the Minister is invested with extensive inquisitorial pow- ers applicable to all taxpayers. The provisions of the Act relating to the taxpayer’s remedy by way of appeal and other- D.I.T.L.—2 18 The Minis- ter of Fin- ance charged with ad- ministration of the Act. The District Inspectors and their functions. Regulations and delega- tion of Minister’s powers to Commis- sioner of Taxation. DOMINION INCOME TAX LAW. wise, and the remedies of the Crown for the recovery of assessed income tax require no special comment here. They are fully discussed in the later chapters of this book. The Minister is charged with the control and management of the collection of income taxes and of all matters incident thereto, and of the officers and persons employed for that purpose and with the administration of the Act generally. Under his authority the Dominion has been divided for pur- poses of administration into eighteen inspectoral districts. For each district there is an office in charge of an officer called a district inspector and a staff of assistants. Hach office, subject to the direction of the Minister of Finance, attends to all matters connected with the administration of the Act within its particular district. These matters consist gener- ally of the issuing of forms of returns, the receiving of com- pleted returns, checking them over and noting manifest errors, transmitting the returns to Ottawa for audit, and receiving payments of taxes. Not the least valuable function fulfilled hy these district offices is the check which they are able to make upon the taxpayer’s return by reason of their personal contact with the taxpayer and access to local sources of information concerning his affairs. The administration of the Income Tax Branch of the Department of Finance is under the general oversight and direction, under the Minister, of an ollicer appointed by the Governor in Council, who is desig- nated “The Commissioner of Taxation.” The Act empowers the Minister to make any regulations deemed necessary for carrying the Act into effect and.it is expressly provided that the Minister may thereby authorize the Commissioner of Tax- ation to exercise such of the powers conferred by the Act upon the Minister as may, in the opinion of the Minister, be conveniently exercised by the Commissioner of Taxation.* By regulations dated August 1, 1919,” the Minister of Finance (then Sir Thomas White) authorized the Commissioner of Taxation to exercise the authority, power and discretion vested in the Minister by sections 3, 8, 9 and 10 of: the principal Act, and sections 2, 3, 5, 6 and 8 of the amending Act of 1919. This measure of delegation was confirmed, ratified and continued by the succeeding Minister of Finance, Sir Henry J. Drayton.§ No other regulations in connection with the . * Sec. ae principal Act. * Published in Canada Gazette of Aug. 1. 1919. ‘This was done by letter published in the Canada Gazette of Oct. 11th, 1919. HISTORY AND NATURE OF INCOME TAXATION, 19 administration of the Act have been made by the Minister, Regulations and this, it must be observed, is a matter of regret. While , dealing | one would not desire to see regulations issued under the cretionary allowances Dominion Act in the same abundance as they have been needful to issued by the United States Commissioner of Internal pacing Revenue for the interpretation of the United States Act, ete. lest by the mistake of being too meticulous the task of inter- pretation should be rendered more difficult and confusing, there is no doubt that regulations dealing in particular with _the discretionary allowances by way of deduction, which the Minister is authorized to make, for depreciation and for the exhaustion of mines, wells and timber limits, should be made under the Dominion Act for the purpose of securing uniform- ity and equality, as opposed to arbitrariness and discrimina- tion, in the administration of the law. The tendency of recent amendments of the Dominion Act have been all in the direction of compelling the taxpayer to make a fuller disclosure of his real income, the aim being that the federal government shall receive its true share of that income as allowed by law. It should be borne in mind, however, that the inquisitorial feature of the tax is, from the point of view of the public, its most objectionable feature,® and if the tax- * As a typical instance of the feeling which such a tax engenders when it is introduced for the first time, the following correspondence, culled from the memoirs of John Horne Tooke, and quoted by David A. Wells in his Theory and Practice of Taxation, p. 527, is given: May 3, 1799. Sir: The Commissioners having under consideration your declaration of income have directed me to acquaint you that they have reason to apprehend your income exceeds sixty pounds a year. They therefore desire that you will reconsider the said declaration and favour me with your answer on or before the 8th inst. I am your obedient servant, W. B. LUTTLEY, Clerk. To this ale, Pooks replied: ir: I have much more reason than the Commissioners can have to be dissatisfied with the smallness of my income. I have never yet. in my life disavowed or had oceasion to re- consider any declaration which I have signed with my name. But the Act of Parliament has removed all the decencies which used to prevail among gentlemen, and has given the Com- missioners (shrouded under the signature of their clerk) a right by law to tell me that they have reason to believe that I am a liar. They have also a right to demand from me upon oath the particular circumstances of my private situation. In obedience to the law, I am ready to attend upon this degrading occasion so novel to an Englishman, and give them every explanation which they may be pleased to require. I am, sir, your humble servant, JOHN HORNE TOOKE. Adam Smith's canon of taxation. Capital not taxable as income under Do- minion Act. DOMINION INCOME TAX LAW. payer is to be expected to be frank and candid with the government, he, on his part, has a right to expect that the government will deal no less frankly with him. One of the famous canons of taxation associated with the name of Adam Smith is that, “ The tax which the individual is bound to pay ought to be certain and not arbitrary. The form of payment, the manner of payment, the quantity to be paid ought all to be clear and plain to the contributor and to every other person.” This rule, though addressed only to considerations of policy, is a safe one to follow, but it will not be fully realized under the Dominion Act until appropriate regulations are made to aequaint the taxpayer with the discretionary deductions which the Minister has power to allow. Income and Capital: A Cardinal Distinction. A cardinal distinction to be borne in mind in determining what is taxable as income under the Dominion Act is the dis- tinction between income and capital. What was said by Lord Halsbury, in speaking of the interpretation of the English Income Tax Act in Secretary of State in Council of India v. Scoble,} would seem, upon a consideration of its provisions, to be equally applicable to the Dominion Act, namely, that “it cannot be doubted, upon the language and the whole purport and meaning of the Income Tax Acts, that it never was intended to tax capital—as income at all events.” The point was further emphasized by Lord Macnaghten in London County Council v. Attorney General,? where he said: “Tncome tax, if I may be pardoned for saying so, is a tax on income. It is not meant to be a tax on anything else.” Constitutional Aspects of the Income Tax Law. The constitutional validity of the Dominion Act rests upon the exclusive authority of the Parliament of Canada under the third enumeration of section 91 of the British North America Act, 1867, to make laws in relation to “The raising of money by any mode or system of taxation.” In Dow v. Black? Sir James Colville, delivering the judgment of the *1903 A. C. 299. *1901 A. C. p. 26. p. 35. See, also, Mooney v. Commissioners of Taxation (1905) 3 C. L. R. 221, 228-9; affirmed 1907 A. C. 342; Webb_v. Australian Deposit and Mortgage Bank. Ltd. (1910) 11 CLL. R. 223, 227; Shiels v. Commissioner of Tawves (1912), S. A. L. R. 175; Commissioners of Income Tax v. Bank of New South Wales, 1918. St. R. Qd. 938 21, R. 6 P.O. 272. CONSTITUTIONAL ASPECTS OF INCOME TAXATION. 21 Judicial Committee, stated that their Lordships conceived Dominion that section 91 (3) of the British North America Act, 1867, a at was to be reconciled with section 92 (2), which reserves to direct as the provinces exclusive authority to make laws in relation Soe to “ direct taxation within the province in order to the raising of a revenue for provincial purposes,” by treating the former as empowering Parliament to raise revenue by any mode or system of taxation, whether direct or indirect, and the latter as confining the legislatures to direct taxation within the provinces for provincial purposes. Any discussion, then, as to the classification of the income tax imposed by the Domin- ion Act, as to whether it is in the nature of direct or indirect taxation, is, so far as concerns the validity of the legislation, largely academical, but it raises a question of some import- ance to the taxpayer, namely, whether he may be under a liability to be taxed twice upon the same income, namely, by the provinces or by the municipalities under authority derived from the provinces or by both, as well as by the Dominion. In considering the meaning to be attributed to the phrase “ direct taxation ” in section 92 of the British North America Act, 1867, the Judicial Committee, in Bank of Toronto v. Lambe,’ said the question was not what was direct or indi- rect, according to the classification of political economists, but in what sense the words were employed by the legislature in the British North America Act. At the same time they adopted the definition of John Stuart Mill as seeming to them to embody with sufficient accuracy the common understanding of the most obvious indicia of direct and indirect taxation which were likely to have been present to the minds of those who passed the federation Act. The definition referred to is in the following terms: “A direct tax is one which is Direct and demanded from the very person who it is desired or intended ee 2 é ‘ PARES should pay it. Indirect taxes are those which are demanded defined. from one person in the expectation and intention that he shal! indemnify himself at the expense of another; such are the excise or customs.” Their Lordships rejected as certainly incorrect “for legal purposes” the view attributed to Mill that “to be strictly direct a tax must be general,” saying, “J/ would deny the character of a direct tax to the income tax of this country, which is always spoken of as such, and is generally looked upon as «direct tax of the most obvious - hind; and al would run counter to the common understanding 412 A. C. 575. ow w Federal income tax a direct tax Provincial income tax laws not overridden. DOMINION INCOME TAX LAW. of men on this subject, which is one main clue to the meaning of the legislature.” In the famous case of Pollock v. The Farmers’ Loan & Trust Co.,° Chief Justice Fuller delivering the judgment of the majority of the Supreme Court of rhe United States, said, “In England we do not understand that an income tax has ever been regarded as other than a - direct tax. In Dowell’s history of Taxation and Taxes in England, admitted to be the leading authority, the evolution of taxation in that country is given and an income tax is invariably classified as a direct tax.° The income taxes levied by Pitt’s, Addington’s, Petty’s, Peel’s and by existing laws, are all classified as direct taxes, and so far as the income tax we are considering is concerned, that view is concurred in by the cyclopedists, the lexicographers and the political economists and generally by the classification of European governments wherever an income tax obtains.” There would seem to be no distinction, as regards classification, between the income tax imposed by the Dominion Act and the tax imposed by the English Income Tax Act. It is undoubtedly a direct tax. Nor does the Dominion income tax law operate to override or suspend provincial enactments purporting to impose or to authorize the imposition of income taxes? The answer must be in the negative. In Parsons’ case.” Sir Mon- tagie Smith, referring to the apparent conflict of power between secs. 91 and 92, by way of illustration of the principle that the powers exclusively assigned to the provincial legisla- tures were not absorbed in those given to the Dominion Par- liament, said: “So the raising of money by any mode or system of taxation is enumerated among the classes of sub- jects in sec. 91, but though the description is sufficiently large and general to include direct taxation within the pro- vince in order to the raising of a revenue for provincial pur- poses, assigned to the provincial legislatures by sec. 92, it obviously could not have been intended that in this instance also the general power should override the particular one.” This dictum was approved by the Judicial Committee in Bank of Toronto v. Lambe.’ The result consequently is that taxpayers may be subject to an inconvenient liability to pay a tax upon the same income to provincial and municipal authorities as well as to the Dominion. In the Fisheries 58 U. S. at 630-1. +4 Dowel (1884) 103, 126. ek Oak bee aes CONSTITUTIONAL ASPECTS OF INCOME TAXATION. 23 Case® where it was held that both the Dominion and _ the An incon- Provinces could exact a tax by way of license as a condition Cues a of the right to fish within the provinces, the Judicial Com- aie mittee said, “Their Lordships are quite sensible’ of the pos- income. sible inconveniences . . . which might arise from the exercise of the right of imposing taxation in respect of the same subject matter and within the same area by different authorities. They have no doubt, however, that these would be obviated in practice by the good sense of the legislatures concerned.” At the present time income tax is imposed in Provinces several provinces—in one, British Columbia, by the pro- ae ee vincial government, as well as the municipalities, and in lect income others by the municipalities alone. In the case of the **¢* municipalities it is a minor source of revenue. Although the Dominion, before the adoption of the Income War Tax Act, had relied chiefly on duties of customs and of excise, postal rates and other miscellaneous sources of revenue, presumably for the reason that it was not expedi- ent, except in case of manifest public necessity, that the federal government should invade the sphere of direct taxa- tion to which the provinces were solely confined for the raising of their revenue, there are cogent reasons why the taxation of income should be left to the federal government.'® The income tax imposed by the Dominion Act, whilst general in its incidence throughout the Dominion, is also discriminative in the sense that certain classes of persons are totally or partially exempted from taxation and that the tax is imposed at varying rates and upon different quantums of income for the purpose of differentiating between differ- ent classes of taxable persons and income derived from dif- ferent sources. The tax does not, however, on that account Discrimina- infringe any constitutional restriction or limitation. In the tt ae case of Fortver v. Lambe,» where it was argued that a pro- constitu- vincial .\ct which imposed an annual license fee or tax upon Hana certain trades doing business in a specified city in the pro- vince was invalid because the tax was not imposed uniformly and equally throughout the province, the Supreme Court of Canada held that the tax, nevertheless, was validly imposed. Taschereau, J., said, “ The contention of the appellant based on the ground that this tax has not been legally apportioned °1898. A. C. 700 at 713-14. See Kennan on Income Taxation, at pp. 319-20. 125.8. C. R. 422. 24 No breach of interna- tional law or comity in taxation of foreigners. A territor- jal limit imposed on DOMINION INCOME TAX LAW. and is null for want of uniformity and equality, is, in my opinion, untenable. Whatever political economists and other writers may say on this subject, I know of no law in the Dominion that in any way puts any restriction, limitation or regulation of that kind on the powers of the federal or pro- vincial authorities in relation to taxation within their respec- tive spheres. In the United States a provision on the subject is to be found in the federal constitution, but there is no similar enactment in the British North America Act.’ A discrimination as to the quantum of income rendered liable to income tax is made between persons who are resident in Canada, or though non-resident, remain in the country at one or more times for a period equal in the whole to one hundred, and eighty-three days, on the one hand, and non- resident persons who merely carry on business or exercise some employment or perform services within the Dominion on the other. The former classes of persons are liable to be assessed upon the whole of their income, whether derived from sources within Canada or elsewhere, whilst the latter are, speaking generally, only liable to be assessed upon that portion of their income earned from the business or employ- ment or services carried on or exercised or performed in Canada. Manifestly, persons of foreign nationality may fall within either of these taxable categories. A question at once arises whether the Dominion Act, in this aspect of its opera- tion, involves any extra-territorial operation or any breach of international law or comity. In the first place, it would seem that what was said by Lord Herschell of the English Income Tax Acts in Colquhoun v. Brooks? may be para- phrased and applied with equal truth and force to the Domin- ion Act, namely, that the Act itself imposes a territorial limit: either that from which the taxable income is derived operations of must be situate within Canada or the person whose income is Dominion let, to be taxed must be resident here. “Tf it can be shown,” said Lord Herschell, in the same case, “that a particular interpretation of a taxing statute would operate unreasonably in the case of a foreigner sojourn- ing in this country, it would afford a reason for adopting some other interpretation if it were possible consistently with the ordinary canons of construction.” * Thid, p. 429; see also. judgment of the Chief Justice, Sir Henry Strong, p. 429, ‘and Lefroy’s Canada’s eeu System. p. 239; Clement's Canadian Constitution, 3rd. ed. p. ‘ . 514 A. (. 498 at 504. CONSTITUTIONAL ASPECTS OF INCOME TAXATION, Upon the authority of the judgments of Lord Herschell* and of Lord Macnaghten * in that case, it may be said, how- ever, that the Dominion Act involves no breach of interna- tional law or the comity of nations in taxing a resident, whether a British subject or an alien, on the basis of his income from all sources, both at home and abroad, and whether he chooses to have that income sent home to him or not. The policy of the Dominion Act, in this respect, as well as in respect of the taxation of non-residents upon income earned in Canada, is well explained in the language used by Mr. Jus- tice Channell in Goerz & Co. v. Bell,’ where in alluding to the Folie of t explained said, “The reason for this seems to be that a person who ise Ghee same distinction under Schedule D of the English Act, he resident in the United Kingdom takes the benefit of the government of the country, ue the security afforded to his life and liberty and of the opportunity of conducting his busi- ness in the way in which the government of a settled and civil- ized country enables it to be conducted; he accordingly has to pay, like other residents of the country, his full share towards the expenses of that government. On the other hand, if he does not reside in the country and therefore does not get the full benefit of the expenses incurred in governing the country, he does not have to pay income tax upon his full income like persons resident in the country, but only pays what I may style a toll in respect of the use which he makes of the government of the country by coming into the country and doing business here. That seems to be the policy of the Act and it assists one in understanding how to apply it in the case of individuals.” As was said by Lord Loreburn in Winans v. Attorney- ‘General,’ “the protection of British laws . . . is a constant basis of taxation:” and this principle is made the basis of taxation under the United States Act® as well as under the English and the Dominion Acts. The double taxation of the same income which would Interna- tional ar- result in many cases from the imposition of taxes upon the tive Acts allowing a taxpayer a credit against his tax liability *14 A. C. 508. 5 Thid, p. 511. °1904, 2 K. B. 136 at 145. 71910, A. C. 27 at p. 30. SSee Holmes, Federal Taxes, 1920, p. 30. rangement basis of this principle by different governments is now largely Ve ae ae UL oO avoided, in practice, by reciprocal provisions in their respec- taxation. 26 DOMINION INCOME TAX LAW. of the amount of any tax paid to another government in respect of income derived from sources within its jurisdiction. The Dominion Act contains a provision of that character. Taxable Income, as defined by the Dominion Act, includes by amgomie express mention “the salaries, indemnities or other remun- includes ca salaries and eration of members of the Senate and House of Commons of indemnities Canada and officers thereof, members of the Provincial Legis- of provin- —_ lative Councils and Assemblies, and Municipal Councils, Com- oe asthe’ missions or Boards of Management, any Judge of any Domin- and provin- ion or Provincial Court appointed after the passing of this Act, cial officers, cj " ; ete, and of all persons whatsoever, whether the said salaries, indem- nities or other remuneration are paid out of the revenues of His Majesty in respect of his Government of Canada, or of any province thereof, or by any person,” etc.° This provision raises an important constitutional question as to the power of the Parliament of Canada to authorize taxa- tion of the officers or instruments of provincial governments in respect of income consisting of moneys paid to them out. of provincial revenues for services rendered under or in con- Validity nection with the government of the provinces. There is no ed py decision directly deciding this question but the principles decisions. which have been laid down by the Judicial Committee as well as by the Supreme Court of Canada in regard to the scope and extent of the legislative powers of Parliament of Canada and of the legislatures under the British North America Act, and in particular in regard to the exercise of the provincial tax- ing power, would seem to afford a conclusive answer in favour of the validity of the Dominion legislation. The third enumeration of section 91 invests the Parliament of Can- ada with exclusive legislative authority to make laws in rela- tion to “The raising of money ky any mode or system of taxation.” The power so conferred, exemplifying in this Dominion Tespect one aspect in which the constitution of the Dominion ae is, in the words of the preamble of the British North America plenary. Act, a constitution ‘similar in principle to that of the United Kingdom,’ is an authority as plenary and as ample as the Imperial Parliament possessed in the plenitude of its own freedom before it handed it over to the Dominion in the scheme of distribution which it enacted in 1867.1° dein: See. 5 (1) principal Act, as amended by sec. 2 (1). chap. 55, 10 Sec, Lefroy’s Canada's Federal System, pp. 64-7 and decisions there cited; also Clement’s Canadian Constitution, 8rd ed., pp. 357-8. CONSTITUTIONAL ASPECTS OF INCOME TAXATION, 27 “In the interpretation of a completely self- -governing No constitu- constitution founded upon a written organic instrument such ee as the British North America Act,” said the Judicial Com- ea mittee in the References case, “if the text is explicit the text cial ofticers, is conclusive, alike in what it directs and what it forbids.” ° Nowhere in the British North America Act is there to be found any provision either expressly or impliedly restricting the federal taxing power so as to preclude the extension of a genera] undiscriminating federal income tax to the officers and instruments of provincial governments, or of munici- palities established under provincial authority. It is true, as the Judicial Committee said in. Parsons’ case,? “The two sections (secs. 91 and 92 of the British North America Act) must be read together and the language of one interpreted and, where necessary, modified by “that of the other”; but one looks in vain for any provision in sec. 92 which may rea- sonably be said to involve any limitation or restriction of the federal taxing power such as that suggested above. There Provincial is, for example, no ground for a pretension that the Income ees Tax Act, under the guise of taxing legislation, aims at any Upon. derogation from the provincial power in relation to “The establishment and tenure of provincial offices and the appointment and payment of provincial officers [sec. 92 (4)], for the Act makes no attempt to seize or appropriate the income itself or to anticipate its payment; the liability to pay income tax which it imposes arises only after the tax- payer’s income for a taxable period has been received by him. Doubtless, the Act may be said, in a sense, to affect “ property and civil rights in the province” [sec. 92 (13)] inasmuch as it exacts from the taxpayer a compulsory contribution to the support of the federal Government which has to be met by the taxpayer out of his means or property, but this inter- ference with the taxpayer’s property or civil rights in the provinces is manifestly an inevitable incident of the federal taxing measure. In any event, section 91 of the British North America Act expressly declares that “ Notwithstanding any- thing in this Act,” the exclusive legislative power of the Par- liament of Canada shall extend to all matters coming within the enumerated classes, “which plainly indicates,” the Judicial Committee said, in Tennant v. Union Bank® “that 71912 A. C. O71 at p. 583. *T A C. 96. 51894 A. ©. 381. 28 Power to tax pro- . vincial officers, etc., not im- pugned by publie policy. Leprohon v. City of Ottawa virtually overruled by Abbott vy. St. John. “DOMINION INCOME TAX LAW. the legislation of that Parliament so long as it strictly relates to those matters is to be of paramount authority ‘ The power to legislate conferred by that clause (sec. 91) may be fully exercised, although with the effect of modifying civil rights in the province.”* No other item of sec. 92 can possibly be considered to be within the range of the discussion. The taxation of the incomes of provincial officers and instru- ments in common with other persons within Canada appears, therefore, to be strictly within the scope of the federal taxing power. Nor can the power to impose such a tax be impugned upon any such broad principle of public policy as that elabor- ated by Chief Justice Marshall of the Supreme Court of the United States in the famous case of A/cCulloch v. Alaryland’ and followed in Osborn v. The Bank of the United States® and other decisions of the same court, and, also, in Ontario, in Leprohon v. The City of Ottawa,’ namely “that the national government and the state governments are, as it were, distinct sovereignties; that the means and _ instru- mentalities necessary for the carrying on of either govern- ment are not to be impaired by the other; that as the power to tax involves the power to impair, the exercise of such a power by the one government on the income of the officers of the other is inconsistent with independent sovereignty of the other; and that in such case exemption from taxation, although not expressed in the national con- stitution, exists by necessary implication.”*> In Leprohon v. The City of Ottawa, which was the prevailing authority for many years, the Ontario Court of Appeal held that a provin- cial legislature could not impose a tax upon the official income of an officer of the Dominion Government, or confer such a power upon the municipalities. This decision was virtually overruled in 1908 by the decision of the Supreme Court of Can- ada in Abbott v. The City of St. John, which upheld the power of the provisions to authorize taxation of the incomes of Dominion officers; and this decision was followed by the appellate division of the Supreme Court of Ontario in a recent case involving the same question, namely, JJorson v. City of Toronto.*° “Although Leprohon vy. The City of Ottawa has not +See, also, Cushing v. Dupuy, 5 A.C. 409; The Voluntary Assign- ments Case, 1894, A. C. 189; The Local Prohibition, 1896, A. C. 348. °4 Wheat. 316. °9 Wheat. 738. *1877-8 (40) U. C. R. 478; 2 O. A. R. 522. “See judgment of Harrison, C. J., 40 U. C. R. at p. 499. °40 S.C. R. 597, 37 0. L. R. 369. CONSTITUTIONAL ASPECTS OF INCOME TAXATION, 2 been expressly overruled,” said Duff, J., in the Supreme Court, “the grounds of it have been so thoroughly under- mined by subsequent decisions of the Judicial Committee that it can . . . no longer afford a guide to the inter- pretation of the British North America Act.” The decision in Abbott v. City of St. John was, indeed, the logical result of the application of the principles laid down by the Judicial Committee in the case of Bank of Toronto v. Lambe,’ and Bank of in Webb v. Outrim2 In the former case, the provincial Poronte ¥. Lambe, and power of direct taxation was upheld as valid despite the argu- Webb v. ment that the legislature might lay on taxes so heavy as touame ie crush a bank out of existence, and so nullify the power of decisions. Parliament to erect banks; in the latter, it was held that an officer of the Australian Commonwealth resident’ in Victoria and receiving his official salary in that State, was liable to be assessed in respect thereof for income taxes imposed by an Act of the Victorian legislature. There being no express provision in the Commonwealth Act restricting the power of the Victorian legislature to impose a tax on the salary of an officer of the Commonwealth, no such restriction could be imphed, in their Lordships’ opinion, merely because the imposition of the tax might interfere with the free exercise of the legislative or executive power of the Commonwealth. The Judicial Committee denied the application of the Application decisions of the United States Supreme Court to the inter- Seates ie pretation of the constitution of the Dominion in the one case, cisions and of the Commonwealth in the other, upon the ground Hattie that there was no strict analogy, at all events as regards the question in issue, between these constitutions ‘and that of the United States.? On a subsequent occasion, in Bazter v. Commissioner of Taxation* the High Court of Australia refused to follow the decision in Webb v. Outrim. The Commissioners of Taxation thereupon applied for special ‘leave to appeal from that judgment, but the Privy Council refused to interfere upon the ground that since the decision of Webb v. Outrim the Commonwealth had passed a statute 442 A.C. 575. 21907 A. C. 81. 2See Atty.-Gen. for Australia v. Colonial Sugar Refining Co. 1914, A.C. 237. where the Judicial Committee, speaking by Viscount Haldane, L.C.. at p, 252-3, explained the difference as regards general scheme and features between the constitution of the Dominion of Canada and that of the Commonwealth of Australia. +4 C. L. R. 1087; see, also, Commissioners of Income vy. Cooper, 4C.L. R. 1304. 30 Argument ab incon- venienti without substance. Federal income tax applies retrospect- ively to income of ** preceding year.” DOMINION INCOME TAX LAW. 4 authorizing the States to impose taxation of the kind in question, so that the controversy was at an end. The argument ab inconvenienti, as respects federal taxa- tion of the incomes of provincial officers and instruments, seems to be one singularly destitute of substance. It is, not only weakened by the fact that such persons can find no escape from the burden of the indirect taxes imposed by the federal government, such as duties of customs and of excise, but by the impossibility of finding any principle upon which their relief or exemption from a general undiscriminating income tax bearing upon provincial officers only in the same ratio and proportion as other residents can be intelligibly justified. The recent decision of the House of Lords in Lollinshead v. Hazleton® where it was held that there was no principle of public policy upon which a bankrupt member of Parliament could claim his salary or remuneration as a member to be exempt from appropriation for the benefit of creditors under the provisions of-the Bankruptcy Act, suggests that such an argument as regards members of provincial legis- lative councils and assemblies is likely to receive little con- sideration at their hands. There are, speaking generally, only two periods when the collection of income tax imposed by law is possible, one being at the various times when the income is received, and the other being at a time after the whole taxable year’s income has been ascertained. The latter is the basis of assessment under the Dominion Act, taxpayers being assessable “ upon income during the preceding year.” It is really a retrospec- tive tax collected in one year upon the total income received in the preceding taxable year. As regards the constitution- ality of this method of taxation, it may be said, in the words used by Read, J., in Drerel & Co. v. Commonwealth,’ speaking of the United States Act, that, “It is clearly perfectly constitutional as well as expedient in levying a tax upon profits or income to take as a measure of taxation, the profits or income of a preceding year. To tax is legal and to assume as a standard the transactions immediately prior is certainly not unreasonable.” The late Mr. Lefroy in his book on Canada’s Federal System (p. 238), says, “There is, of course, nothing to prevent the Patliament of Canada, or the provincial legislatures, legislating retro- ®1916 (1) A. C. 428, * (1863) 46 Pa. 31, at p. 40. CONSTITUTIONAL ASPECTS OF INCOME TAXATION, spectively in relation to subject-matters within their respec- tive jurisdictions. And so, in Attorney-General v. Foster," a Dominion Act respecting customs duties, which was only assented to on May 16th, 1890, was nevertheless, held intra vires in providing that it should be held to have come into force on March 28th, 1890, and to have applied to all goods imported or taken out of warehouse for consumption on or after the latter date.” 7 (1892) 31 N. B. 158. 31 Are there CHAPTER II. CONSTRUCTION OF TAXING STATUTES. It is proposed in the present chapter to consider the rules special rules? Which have been laid down for the construction of taxing Acts such as the Dominion Income War Tax Act, or rather the rules of construction of statutes which have particular application to taxing Acts since it is probably improper to say that taxing Acts are to be construed in any different manner than other Acts. Lord Russell, C.J., said in a famous case: “I see no reason why special canons of con- struction should be appled to any Act of Parliament*and I know of no authority for saying that a taxing Act 1s to be construed differently from any other Act. The duty of the Court is, in my opinion, in all cases, the same, whether the Act to be construed relates to taxation or to any other subject, namely, to give effect to the intention of the Legislature The Court must no doubt ascertain the subject matter to which the particular tax is by statute intended to be applied. But when once that is ascertained it is not open to the Court to narrow or whittle down the operation of the act by seeming considerations of hardship or of business convenience or the like.’ Rule of Strict Construction. The proposition Jaid down by Lord Russell, however, is not repugnant to the well-known and _ well-established principle that the charge contained in the taxing Act must be expressed in clear and unambiguous language and that the construction of the Act must generally be resolved in favour of the taxpayer in cases of doubt. Nevertheless, the courts have used language which would appear to indicate that special principles were applicable for the construction of taxing Acts. Lord Cairns said, for example: “ As I under- stand the principle of all fiscal legislation it is this: If the person sought to be taxed comes within the letter of the law he must be taxed however great the hardship may appear to the judicial mind to be. On the other hand, if the Crown, gg ee vy. Carlton Bank (1899), 2 Q. B. 158 at p. 164. CONSTRUCTION OF TAXING STATUTES. seeking to recover the tax, cannot bring the subject within the letter of the law, the subject is free, however apparently within the sphere of the law the case may otherwise appear to be. In other words, if there be admissible in any statute what is called an equitable construction, certainly such a construction is not admissible in a taxing statute where you can simply adhere to the words of the statute.”* And in another case he said: “A taxing Act niust be construed Cox v. strictly ; you must find words to impose the tax and if words Rabbits. are not found which impose the tax it is not to be imposed.”* No General Intendment. Lord ‘Cairns, in a subsequent case, explained the reason for the rule in the following terms: “ The cases which have decided that taxing Acts are to be construed with strictness and that no payment is to be exacted from the subject, which is not clearly and unequivocally required by the Act of Parliament to be made, probably meant little more than this, that inasmuch as there was not any @ priori liability in a subject to pay any particular tax, nor any antecedent rela- tionship between the taxpayer and the taxing authority, no reasoning founded upon any supposed relationship of the tax- payer and the taxing authority could be brought to bear - upon the construction of the Act and therefore the taxpayer had a right to stand upen a literal construction of the words used whatever might be the consequence.’* There are two other English decisions by the highest authority which should be referred to. Lord Blackburn said in a leading case: “ No tax can be imposed on the subject without words in an Act of Parliament clearly showing an intention to lay a burden on him, but when that intention is sufficiently shown it is, I think, vain to speculate on what would be the fairest mode of levying that tax. The object of those framing a taxing act is to grant to Her Majesty a revenue; no doubt they would prefer if it were possible to raise that revenue equally from all, and as that cannot be done to raise it from those on whom the tax falls with as little trouble and annoyance and as equally as can be con- trived; and when any enactments for the purpose can bear two interpretations it is reasonable to put that construction 2 Partington v. The Att.-Gen., L. R. 4 H. L. 100, at p. 122. 2 Cor v. Rabbits, 3 A. C. 473, at p. 478. * Pryce v. Monmouthshire Canal and Railway Company, 4 A. C. 197, at p. 202. Sce also Oriental Bank Vv. Wright, 5 A. C. p. 856. D.I.T.L.—3 34 No intend- moent assumed. DOMINION INCOME TAX LAW. on them which would produce these effects.”* And Lord Halsbury said in a subsequent case: “In a taxing Act it is impossible, I believe, to assume any intention—any governing purpose in the Act—to do more than take such tax as the statute imposes. In various cases the principle of construc- tion of a taxing Act has been referred to in various forms, but I believe they may be all reduced to this—that inasmuch as you have no right to assume that there is any governing object which a taxing Act is intended to attain other than that which it has expressed by making such and such objects the intended subject of taxation, you must see whether a tax is expressly imposed.’ ° Canadian Decisions. % There is a number of Canadian cases in which the prin- ciple in question has been applied. In an early Exchequer Court decision involving the proper construction of the Cus- toms .\ct reliance was placed upon the words of Lord Cairns in Cov v. Rabbits and Partington v. Attorney-General." The former case was relied on in an important Ontario decision of comparatively recent date.* In an important decision of the Supreme Court of Can- ada, Fitzpatrick, ‘C.J., reviewed the cases shortly, adopting the principle that in the imposition of duties the intention must be clearly expressed and in cases of doubt the con- struction resolved in favour of the taxpayer ; furthermore that a taxing act imports nothing of principle or reason but de- pends entirely upon the language of the legislature.° The same principles have been adopted in the United States and it is sufficient to refer to a recent decision of the United States Supreme Court in which it was said: “In the interpretation of statutes levying taxes it is the established rule not to extend their provisions, by implication, beyond the clear import of the language used, or to enlarge their operations so as to embrace matters not specifically pointed out. In the case of doubt they are construed most strongly against the government, and in favour of the citizen.”?° *Coltness Iron Company v. Black, 6 A. C. 315, at p. 330. ° Tennant v. Smith, 1892 A. C. 150. at p. 154. ™The Queen v. Ayer, 1 Can. Ex., 232, at p. 271. 5 Sturgeon Falls v. Imperial Land Conipany, 7 D. L. R. 352, at p. ® Foss Lumber Company v. The King, 8 D. lL. R. 437, at p. 439; and see Sterling v. Cumberland Trustees, 49 N. S. R. 125, at p. 133. ” Gould v. Gould, 245 U. 8. 151, at p. 153; and see Benziger V. U.S. 192 U. S. 88; American Net and Tirine Co. v. Worthington. 141 U. 8. 468; Shallus v. U. S., 162 Fed. 658; U. S. v. Tiffany, 160 Tred. 408; U. S. v. Wigglesworth, 2 Story 369. : CONSTRUCTION OF TAXING STATUTES. Exempting Provisions. The principle however that the doubt must be resolved in favour of the taxpayer is subject to the qualification that where the doubt arises in connection with a provision enact- ing an exemption the doubt is to be resolved in favour of the Crown. This qualification has been well established in Canada by certain Supreme Court decisions. Ritchie, C.J., qe ce said in one case: “I am quite willing to admit that the in- Exemptions. tention to exempt must be expressed in clear unambiguous language; that taxation is the rule and exemption the ex- ception and therefore to be strictly construed,’”* and Tas- chereau, J., expressed practically the same opinion in a pre- vious case.? It should be remarked, however, in this con- nection that the leading case of Coa v. Rabbits, which has been widely relied on for the principle that the taxpayer is entitled to the benefit of any doubt, turned upon the proper construction to be placed upon certain exempting legislation and apparently did not treat such exempting legislation as giving rise to any different construction than that applic- able to charging provisions. In an important Nova Scotia case it was said that where the exemption is in favour of a charitable institution the provision should be liberally con- strued in favour of the institution. Russell, J., said: ‘ It is a good general rule that while a taxing Act is to be con- strued strictly in favour of the taxpayer a statute under which an exemption is claimed from a burden imposed upon the community at large is also to be narrowly construed against the claim to be exempt.” But he proceeded to point out that a charitable institution should be favourably treated and relied in this upon the judgment of Lord O’Hagan in Cox v. Rabbils, in which the learned Lord said that the statute under consideration was “not only a taxing Act but also an Act in relief of charitable institutions,” and he gave the charitable institution the benefit of the doubt. The prin- ciple upon which Russell, J., relied in eusiaining the exemp- tion was that the institution was performing a work of pure charity and taking upon its shoulders a portion of the bur- den which would otherwise fall upon the public.* In the United States the view has been adopted in a great number of cases that exempting provisions should be 1 Wylie v. Jontreal, 12 S.C. R. 384, at p. 386. * Les Commissaires v. Montreal, 12 8S. C. R. 45, at p. 54. ’ Halifax v. Sisters of Charity, 40 N. S. R. 481, at p. 483. * Association for Coloured Orphans v. New York, 104 N. Y. p. 586. Exemption prospective, DOMINION INCOME TAX LAW. strictly construed against ‘the person claiming exemption, the courts having gone so far as to say that there should be “no exemption unless the language used will admit of no other meaning,® and is too plain to be mistaken,® and that no exemption will be inserted by construction.’ Prior Legislation. In connection with this question of the interpretation of exempting provisions, it should be observed that the exemp- tion relied upon may be contained in other legislation than the Act imposing the charge. Where such separate exempting legislation exists and was enacted prior to the Act imposing the charge, it.does not necessarily follow that the exemption is limited to the taxing Acts in force at the date of the ex- empting legislation. This point has until recently been in doubt. Bray, J., said as lately as 1908 in an English case relating to exemptions from income tax: “Now it has been laid down quite clearly that where an Act of Parliament con- tains an exemption from all Parliamentary rates and taxes that means, in the absence of any special words, rates and taxes existing at the time when the Act in question was passed and the exemption does not extend to any rates or taxes subsequently imposed.”* However in 1916 the whole subject was reviewed by the House of Lords and the rule laid down that an exemption must be construed as extending to future as well as existing taxes unless the charging Act contain an explicit or implied repeal of the exemption.® In 1919 the question arose in the English King’s Bench Division in clear cut form. A ferry had been established under an Act of 1790 and was to be exempt from taxation. It was held by Rowlatt, J., that the exemption thus granted extended to income tax although that tax was first imposed > Southwestern R. R. Vv. Wright, 116 U.S. 231. ®Chicago, etc., R. R. v. Missouri, 120 U. 8. 569. 7 Praridence Bank v. Billings, 4 Pet. 514: and see Yazoo & ALis- souri Valley R. Co. v. Thomas, 132 U. 8.174; Tennessee v. Whitworth, 117 U. 8. 189; Keokuk & W. R. Co. v. Missouri, 152 U. 8S. 301; Phoe- nie Fire Ins. Co. v. Tennessee, 161 U. S. 174; Wright v. Georgia R., 216 U.S. 420. 5 Stewart v. Thames Conservators (1908), 1 K. B. 893, at p. 904; and see Sion College v. London (1901), 1 K. B. 617; Rew v. London Gas Company, 8 B. & C. 54; Perchard v. Heywood, 8 T. R. 468; Williams v. Pritchard, 4 T. R. p. 2. ® Associated Newspapers Limited vy. City of London Corporation (1916), 2 A. C. 429, following London Corporation v. Netherlands Steamboat Company, 1906 A. C. 263, and overruling Sion College V. London (supra). CONSTRUCTION OF TAXING STATUTES. subsequently to the passing of the Ferry’s Act,’° following the Associated Newspapers case. Ordinary or Technical Meaning. An important question which has occasionally arisen in the construction of the taxing Acts is whether or not words used therein should be construed in their popular seiise or should be given their strict legal meaning. Pollock, B., sail in one case: “It has been often said by judges of very great ex- perience that in, construing Acts relating to the revenue the popular sense of words rather than strict legal meaning should be looked at and the reason for that is o)vious. The object of a taxing Act has nothing to do with the strict legal meaning of words unless the words used are words of art such as words which describe an estate in real property or technical terms peculiar to English Jaw.” On the other hand, in a case decided before the decision of Pollock, B. was given the House of Lords decided that the words “charitable purposes,” should be construed according to legal and technical meaning given to those words by Eng- lish law, even although this involved giving a meaning to the words in Scotland which they never had had there.? Two pemsel law Lords dissented from that decision and furthermore it ©8*- should be remarked that the word “charitable” has a very definite meaning in the history of English legislation and judicial decision, by which meaning the word is not limited to the relief of wants occasioned by lack of pecuniary means. and Lord Herschell at least doubted that this restricted meaning could be said to be the popular meaning of the word,’ while Lord Watson said the word had no well defined popular meaning anywhere hut took its colour from the con- text.* On the other hand, Lord Macnaghten said frankly that the word “charitable had acquired a technical meaning in England ” and further that “in construing Acts of Parlia- ment it is a general rule not without authority in this House? that words must be taken in a legal sense unless a con- trary intention appears.”® Consequently the decision of % Pole-Carew v. Craddock (1919), 2K. B. 3983. 2 Smelting Company of Australia v. In Rev. (1896), 2 Q. B. 179. at p. 184. > Commissioners of Income Tur Vv. Pemscl, 1891, A. C. 531. ®Tbid., p. 571. *Thid.. p. 538, ° Stephenson v. Higginson, 3 H. L. C. 638 at p. 686. moe of Income Tax v. Pemsel (1891) A. C. 531 at p. ; 2 3S Dominion- wide inter- pretation. DOMINION INCOME TAX LAW. the House of Lords is scarcely an authority for the proposi- tion that a word should be construed in its legal or tech- nical meaning. The question may have an important bearing upon the proper construction of the Dominion Income Tax Act inasmuch as it is applicable equally in the different pro- vinces in which particular words may have acquired widely divergent legal meanings. Closely connected with and possibly depending upon the proposition that a word in a taxing Act must be construed in its popular sense is the principle that where an Act is applicable to a number of provinces having different local law, it should be interpreted so that the incidence of taxation shall be alike in all provinces and this may involve giving to certain words a popular or general meaning differing from a technical or special meaning which the words may have in one or more of the provinces. In an early decision Lord Campbell said with respect to the construction of an Imperial taxation act as applicable to Scotland: “In con- struing the statute on which the case depends we must bear in mind that it applies to the whole of the United Kingdom and that the intention of the legislature must be understood to be that the like interests in property taken by possession should be subjected to the like duties wheresoever the pro- perty may be situated. The technicalities of the laws of England and of Scotland where they differ must be dis- regarded and the language of the legislature must be taken in its popular sense.””” In the subsequent Pemsel case, however, the House of Lords decided that the words “ charitable purposes” in the Imperial Income Tax Act had the meaning as applied to Scotland which it had obtained from the statute of Elizabeth respecting charitable uses and which was possibly a technical as opposed to the popular meaning. This case has however been considered above. Retrospective Legislation. Parliament has seen fit to provide in each Act to amend the Income Tax Act a provision making most of the pro- visions of the amending Act retrospective, and in so far as this retrospective result is effected by clear and unambiguous language it is not open to objection. It should be observed * Lord Saltoun v. Lord Advocate, 3 Macq. 659, and see domicile. tion of this decision in Commissioners of Income Tax Vv. Pemsel, supra; and see Queen v. Commissioners of Income Tas, 22 Q. B. D. 296. CONSTRUCTION OF TAXING STATUTES. 39 however that it is a well established principle of construction No retro- that a statute is presumed to have a prospective rather than Ue a retrospective effect. The reports are full of decisions to this effect and it is sufficient only to refer to one or two. Lindley, L.J., said in 1892: “It is a fundamental rule of English law that no statute shall be construed so as to have a retrospective operation unless its language is such as plainly to require such a construction; and the same rule involves another and subordinate rule to the effect that a statute is not to be construed so as to have a greater retrospective oper- ation than its language renders necessary.”® Lopes, L.J., re- ferring to this rule of interpretation, said: “This principle of construction is especially applicable when the enactment to which a retrospective effect is sought to be given would prejudicially affect vested rights or the legal character of past transactions.”® Wright, J., in a still more recent de- cision stated the principle in the following language: * Per- haps no rule of construction is more firmly established than this—that a retrospective operation is not tobe given to a statute so as to impair an existing right or obligation, other- wise than as regards matter of procedure, unless that effect cannot be avoided without doing violence to the language of the enactment.”!° Double Taxation. It has been well established that Parliament did not intend in the absence of express words, to tax the same in- come twice over or to indulge in what is ordinarily called double taxation. Maxwell, in his work on the construction of statutes, says: “A construction which would have the effect of making a person liable to pay the same tax twice in respect of the game subject matter would not be adopted unless the words were very clear and precise to that effect,” * and relies upon an English decision for this proposition, in which Day, J., said: “It would be a serious injustice that after the owner. had deducted thre land tax the vicar should be obliged to pay it again. for in substance the result would be that he would pay it twice over. Unless the words were very clear and precise I should be unwilling to attribute such an intention to the Legislature.’ 5 Lauri v. Renad (1892), 3 Ch. 402, at pp. 420, 421. °Re Pulborough (1894), 1 Q. B. 725, at p. 737. ” Re Athlumney (1898), 2 Q. B. 547, at p. 551. 1 Rdition, 1912, p. 464. ° Carr v. Fowle (1893). 1 Q. B. 251, at p. 254, and see Gilbertson vy. Fergusson, 7 Q. B. D. 562, at p. 570. 40 Rule in U.S.A. DOMINION INCOME TAX LAW. It should be remarked however that in practice it may be very difficult to distinguish between cases which would and cases which would not involve double taxation of income. If a husband, for example, is obliged to make payments to his wife out of his income pursuant to a separation agreement, the por- tion of his income so disbursed, having already been taxed in his hands, should not be taxed again in the hands of the wife. On the other hand, of course such portions of the husband’s income as are ordinarily disbursed are taxable again in the hands of the recipients. Nearly all income passes from hand to hand and probably a fair criterion to determine whether a particular recipient should be taxed in respect of it is to determine whether any new service of capital or labour has been performed. Double taxation for the purpose of this rule means only the taxation of the same income twice by the same authority. Channell, J., in discussing the subject, said: “ There can be double taxation if the legislature distinctly enacts it, but upon general ‘words of taxation and when you have.to in- terpret a taxing, Act you cannot so interpret it as to tax the subject twice over to the same tax. But it all depends upon it being the same tax and as the Attorney-General has said, there is nothing to prevent either one legislature or two legislatures, if they have jurisdiction over the subject matter, imposing different taxes upon the same subject matter. Double taxation, in one sense, is common enough in the case of these companies which have their head establishments in one country and their business in another, although no doubt there is always a sort of grievance felt in reference to it.” ® The presumption, therefore, is limited to this, that the Dominion did-not intend itself to tax the same income twice ‘over. The economists, of course, use the words “ double taxation” equally to refer to taxation of the same subject matter by two different authorities. Penalty Sections. | -\s has been already observed, it may be said that a taxing Act, inasmuch as it imposes a burden or charge upon the taxpayer, should be construed in very much the same way as an enactment which imposes penaltics. However, in an im- portant line of United States decisions the view has been __ * Stevens vy. Durban Roodeport Gold Mining Company, 100 L. T. 481, at p. 482. CONSTRUCTION OF TAXING STATUTES. adopted that the penalties provided in a revenue Act for the purpose of preventing evasion should not be strictly con- strued in favour of the taxpayer, but should be liberally ’ construed in favour of the prosecuting authority. The lead- ing case decided in 1889 is U. S. v Slowell* Mr. Justice Gray said in delivering the decision of the Supreme Court of the United States: “ By the now settled doctrine of this court statutes to prevent frauds upon the revenue are considered as enacted for the public good and to suppress a public wrong, and therefore, although they impose penalties or forfeitures are not to be construed like penal laws generally, strictly in favour of the defendant; but they are to be fairly and rea- sonably construed so as to carry out the intention of the legislature.” Statutory Rules of Construction. Reference should also be made to a certain number of Dominion the provisions of the Dominion Interpretation Act, which may be particularly applicable to taxing Acts or to the Dom- inion Income Tax Acts. Every Act and provision thereof is deemed to be remedial, and should accordingly “ receive such fair, large and liberal construction and interpretation as will best ensure the attainment of the object of the Act and of such provision or enactment, according to its true intent, mean- ing and spirit.”* The Crown in the right of the Dominion is not bound by any Act or provision thereof unless it is expressly stated therein that His Majesty shall.be bound thereby.* In view of the fact that the Dominion Income Tax Act has passed through a great number of changes by way of repeal and amendment, it should be observed that it is enacted that unless the contrary intention appears repeal shall not revive any such Act; affect the previous operation of any such Act; affect any right, privilege, obligation or liabil- ity acquired, accrued, accruing or incurred under such Act; affect any offence committed against such Act or any penalty, ‘forfeiture or punishment incurred in respect thereof; affect any investigation, legal proceeding or remedy, and such may be instituted, continued or enforced as if the Act had not been repealed.” 4133 TU. S., p. 1: see also Taylor v. U. S., 44 U. 8. 197; Cliquot's Champagne, 70 UT. S 114; U.S. v. Hodson, 77 U. 8. 395; Smythe v. Fiske, 90 U.S. 374. °R. S.C. chap. 1, sec. 15. *Tbid. sec. 16. ™Tbid. sec. 19. tation Act. Subsequent legislation. DOMINION INCOME TAX LAW. Further, it is enacted that the amendment of any Act shall not be deemed to be or to involve a declaration that the law under such Act was different from the law as it has be- come under such Act as so amended, and furthermore that the repeal or amendment of any Act shall not be deemed to be or to involve any declaration whatsoever as to the previous state of the law.’ This rule may be of the greatest import- ance since a large number of amendments which have been enacted have almost certainly been intended to cure defects in the Act. In this connection it should be observed that it is not necessarily improper in construing an Act to look at a subsequent Act dealing with the same subject matter upon the ground that the statutes are in pari materia.® If the time limited by any Act for any proceeding, or the doing of any thing under its provisions, expires or falls upon a holiday, the time so limited is extended by the Interpreta- tion Act to the day next following which is not a holiday.” Words importing the masculine gender include females ;* and words in the singular include the plural, and words in the plural include the singular.? Words directing or empowering a Minister of the Crown to do any act or thing, or otherwise applying to him by his name of office, include a Minister acting for, or, if the office is vacant, in the place of such Minister under the authority of an Order-in-Council, and also his successors in such office, or his or their lawful deputy.* The words “ fiscal year” or “financial year ” mean, as respects taxes, the twelve months ending the thirty-first day of March* apart from any contrary provision in the Income Tax Act. . The word “person” apart from any provision in the Tncome Tax Act, includes any body corporate and _ politic, and the heirs, executors, administrators or other legal repre- sentatives of such person, according to the law of that part of Canada to which the context extends.® . 8 Thid. sec. 21. a ® Attorney-General of Canada v, City of Sydney, 9 D. L. R. p. we. &. C. hap, 1, see, 31 Cha), 'Thid. see, 81 (i). *Thid. sec, 31 (j). "Thid. sec, 31 (1). 'Thid. see, 34 (5). °Thid. sec, 84 (20). CHAPTER III. Persons TAXABLE. Income tax at rates which, in practice, are annually pre- scribed to suit the varying financial exigencies of the govern- ment of the country is required to be “assessed, levied and paid ” under the Act* upon the income “ during the preced- ing year” of every person,— I. Residing or ordinarily resident in Canada; or Five classes II. Who remains in Canada during any calendar year ‘**#!* for a period or periods equal to one hundred and eighty-three days; or TIT. Who is employed in Canada; or IV. Who, not being a resident of Canada, is carrying . on business in Canada; or V. Who, not being a resident of Canada, derives income for services rendered in Canada, to any person resident or carrying on business in Canada, but only upon that portion of the income so earned by such non-resident. Quantum of Income Taxable Varies. It is to be observed, in the first place, that these five different classes of taxable subjects are not all liable under the Act, to be assessed upon the same quantum of income. Persons of the first and second classes are liable to be assessed on the whole of their income, whether derived from sources within Canada or elsewhere, falling within the pur- view of the statutory definition of “income,” subject, of course, to the exceptions, exemptions and deductions which are allowed under the Act. The third class of persons is, on the other hand, treated Standard as assessable only upon what is received directly or indirectly ee in the form of “salary, wages, commissions, fees or other according to : : mys taxable class remuneration derived from sources within Canada for per- sonal services, any part of which is performed in Canada.”? This is the ruling of the Commissioner; but it appears to involve some liberty of interpretation in favour of the tax- 1Section 4, principal Act, as enacted by s, 6, c. 49, 1920. ? Section 2 (7), principal Act, as enacted by s. 1 (4), ¢. 55, 1919. . 44 The class enumerations are in part inclusive and in part exclusive of one another. DOMINION INCOME TAX LAW. payer, for the definition of “persons employed in Canada,” from which the foregoing words are quoted, cannot be regarded as a relieving provision, and it would seem, as a matter of strict construction, that this class is subject to the same measure of taxation as persons of the first and second classes. The fourth class of persons is assessable only upon the net gain or profit arising from business carried on in Canada;? and the fifth class only upon income for services rendered in Canada to a person resident or carrying on business in Canada.* Separate and Independent Liabilities Imposed. Again, these five different classifications impose separate and independent liabilities to pay income tax, and in so far as the circumstances of any person bring him within the ambit of any one of them, he is liable to pay income tax upon the quantum of income in respect of which he is liable to be assessed as a subject of taxation in that particular class. Further, these class enumerations are, as regards the sources of income reached, in part inclusive and in part exclusive of one another. The income liable to be assessed, in the case of persons who are taxable subjects within the first or second class, being the whole of'a person’s taxable income, from whatever source derived, may include the income from employment or business carried on in Canada, or from per- sonal services performed in Canada—that is to say, from any of the sources of income described by the remaining three elass enumerations. On the other hand, the third, fourth. and fifth enumerations are exclusive of one another, because they are apparently intended to bring within the net of the Act income derived from or made in Canada, by persons who are not otherwise liable to be assessed, by the several particu- lar and distinct means or methods thereby described. Con- ceivably the liability to income tax under the third, fourth and fifth enumerations may be cumulative, for it is doubtless possible for a person to be employed in Canada, and at the same time, or at all events in the same calendar year, to carry on a business in Canada or perform services in Canada for a person resident or carrying on business here. All Sources of Income not Reached. Then, again, these five classes do not exhaustively enumer- ate the persons who may be in receipt of income from sources * Section 3 (3), principal Act. *Section 4 (1), principal Act, as enacted by s. 6, c. 49, 1920. PERSONS TAXABLE, within Canada, or, in other words, a non-resident per- son may be in receipt of income from a Canadian source without being subject to income tax. A distinction is to be made, in short, between income derived from what may be called taxable sources and income derived from other sources. It would seem, for instance, that an indivi- Non-resi- BF os ST as casi : : dents may dual or company residing outside of Canada might not be (iors taxable under any one of the five classes and yct be in receipt income from 5 2 : < oe ae some of income from sources within Canada, e.g., dividends on sources shares of stock in a Canadian company,® or the proceeds of a Without being liable share in a Canadian estate of a deceased person or of isolated to income f tax. or occasional investments in Canada. By recent amendmen of the Dominion Act, every agent, trustee, or person who collects or receives, or is in any way in possession or in con- trol, of income for or on behalf of a person who is resident outside of Canada, is required to make a return of such income, and in the event of such non-resident defaulting in the payment of any tax which is payable, may be further required, on notice from the Minister, to deduct the amount of the tax from the income or other assets of the non-resident in his hands and pay the same to the Minister.* This, it is apprehended, is not a charging provision, but one relating to the collection of income tax only, and m this view it affords no authority for assessing income derived by a non- resident from sources within Canada to income tax, except in the case of income in respect of which the non-resident may be liable to be assessed as a subject of taxation in the second, third, fourth or fifth class. Statutory Definition of “ Person’: Individuals, Unincorpor- ated Bodies, Incorporated Bodies, Legal Representatives. “Person,” as defined by sec. 2, par. (d) of the Act, means “any individual or person, and any syndicate, trust, association or other body and any body corporate, and the heirs, executors, administrators, curators and assigns or other legal representatives of such person according to the law of that part of Canada to which the context extends.” The statutory “person,” thus defined, plainly compre- Scope of hends, besides natural persons, the artificial or juristic ee of 5 Butterick Co. v. U. S. 240 Fed. 539; U. S. v. Nipissing lines Co., 206 Fed. 431, which decide that holding companies do not carry on business merely by controlling subsidiaries through stock owner- ship. See, also, cases noted under head of ‘‘ Carrying on business in Canada,” post, p. 104. * Section 7 (11), principal Act. as enacted by s. 10. ¢. 49, 1920. 46 Tnfants, Junaties and married women are taxable. DOMINION INCOME TAX LAW. persons created by law, namely, corporations and joint stock companies, and societies of persons incorporated by royal letters patent or by or under the authority of an Act of the Parliament of Canada, or of a Provincial Legislature or under the laws of any other part of the Empire or of any foreign country,’ and, in addition, such unincorporated bodies as may fairly be held to be within the description of the words “any syndicate, trust, association or other body.” The expression “unincorporated bodies” does not appear in the definition, but it is not doubtful that the words “any, syndicate, trust, association or other body,” having regard to their primary.and natural meaning and to their colloca- tion with the words “any body corporate,” are intended to describe “persons” of that quality as contradistinguished from incorporated bodies. Individuals. The definition, as respects individuals, extends to an infant, with respect at all events to his own earnings ® so, also, to a lunatic.’ It includes,-too, a married woman, ‘in respect of her separate income, but it must be noted that the addi- tional exemption from the normal tax of $200 for each child under eighteen years of age who is dependent on the taxpayer for support, allowed by the Act, cannot be claimed in respect of the same child or children by both a married woman and her husband. Only one of them—manifestly the one upon whom each child is dependent for support—may claim this exemption. ‘This exemption is more particularly discussed in the chapter on “ Exemptions.” Under the Jaws of the Province of Quebec the consorts to a marriage solemnized in the province are presumed by the mere fact of their marriage, in the absence of stipulation , “A corporation duly created under the law of a foreign country is recognized as a corporation by the English Courts, and may sue or be sued in those Courts under its corporate name, or even under a name gained by reputation from its business: see, Halsbury’s Laws of Inng., vol. 5, p. 16; Dicey, Conflict of Laws, 2nd ed., p. 469. There are many conventions between Great Britain and other coun- tries with reference to the recognition by each of the companies formed in the other country: see, Lindley, Law of Companies, 6th ed., pp. 1227-8, S Rex v. Newmarket Income Tar Com’r (1916). 1 K. B. 788. (An infant who earned large sums of money as a jockey was held to be a “person”? within the meaning of the English Income Tax Act, and, therefore, properly assessable to income tax.) ® Thid. ner Cozens-Hardy, M.R., at p. 798. - Sis 3 (1) (0) principal Act, as enacted by sec. 2 (2), chap. . PERSONS TAXABLE. +i by marriage contract to the contrary, to have intended to sub- “Community ject themselves in respect of certain descriptions of property ie tall pies to the legal “community of property.”? of Quebee. The husband alone administers the property of the com- Husband's munity and his powers of disposition over it? are so extensive taco “that they are similar to the powers of a real proprietor,” * tion like or in the words of a French commentator on the Coutume pases a de Paris, of which the Civil Code of Quebec is substantially proprietor. a verbatim reproduction, “The husband is the only seigneur and absolute master of all the property belonging to the com- munity,’* subject, it may be added, to a liability to pay cer- tain enumerated kinds of debts which do not include income tax.’ The wife has no right or interest in the property wife's inter- of the community, but only an eventual, casual, uncertain est Come: ‘a a . gent an right contingent upon her acceptance of the community at incertain. the dissolution thereof,® which may be likened to the expec- tation or hope of children to have a share in the property of their father and mother after they have died.*. The commun- ity of property may be dissolved by several different events and modes expressly mentioned in the ‘Code,’ but, as Cubain observes,” “Until it is dissolved, the community exists, in truth, only in name; adopting the forceful expression of Toullier, it is only a phantom. There is, in reality, only one proprietor, the husband. There is neither a society nor a partnership.” ’ 1 Arts. 1260, 1271, C.C.P.Q. The assets of the community consist, (1) of all the moveable property which the consorts possess on the day when the marriage is solemnized and also of all the moveable property which they acquire during the marriage or which falls to them during that period by succession or by gift, if the donor or testator have not otherwise provided; (2) of all the fruits, revenues, interests and arrears, of whatsoever nature they may be, which fall due or are received during the marriage and arise from property which belonged to the consorts at the time of their marriage, or from property which has accrued to them during the marriage, by any title whatever, and (3) of all the immoveables they acquire during the marriage: Art. 1272, C.C.P.Q. * Art. 1292 C.C.P.Q. ° Mignault, Droit Civil Canadien, vol. 6, p, 215. *See Bernier v. Proul#, 15 Que. L.R. p. 333, at pp. 337-8-9 ; where ‘the Court of Review in Quebec held (1) The husband as head of the community is not merely the administrator of the goods which com- pose it; he is the absolute master and can dispose of them as seems fit to him; and (2) The wife is not to be considered as a partner: ‘as long as the community subsists, her right is formless. It is absorbed totally in the power of the husband and is subordinate to the event of her acceptance 6f the community after its dissolution, * Art. 1280, C.C P.Q. ® See, Arts, 1314A, 1379, C.C.P.Q. Bernier v. Prouly, supra, at p. 337. quoting 3 Ferriére, Grand Cout. p. 209, No. 1, p. 219, No. 14. § Art. 1310, C.C.P.Q. >» Bernicr Y. Proulx, supra, at p. 339. 48 DOMINION INCOME TAX LAW. Husband It is apprehended, therefore, that where persons are mar- peer ried in the Province of Quebec under the regime of com- community. munity of property, the husband as head of the community is liable to make a return of the income arising from, or as part of, the property of the community as well as to be assessed to the income tax assessable in respect of such income. Where, however, it is expressly stipulated by the marriage Consorts tax- contract or is judicially ordered ?*° that the consorts shall be ableasin- “separate as to property,” then they must be regarded, for dividuals if “separate as income tax purposes, as standing in the same position as to property.” married persons in other provinces, namely, as being individu- . ally liable to comply with the provisions of the Income Tax Act in respect of their respective incomes. Taxpayer's It is clearly contemplated by the provisions of the Act pee respecting the making of returns. and the payment of the hisestate tax ** that the death of a taxpayer does not exempt his income aoe from taxation for the current year. His estate in the hands of his executor or administrator or other legal representative is liable for the tax, surtax, interest and penalties which may be assessable in respect of so much of the income of the year as accrued up to the date of his death, and the fact that the taxpayer may have died before the date the Act, by which the tax is imposed, came into force, does not relieve his estate from liability to pay the tax, if he lived after the date from which the law, when enacted, became retroactively effective.” The obligation of an executor or administrator of a deceased taxpayer’s estate, in regard to paying any tax, sur- tax, interest and perltiag which the deceased would have been liable to pay, is fortified by a provision of the Act which requires an executor or administrator, before distributing any assets under his control, to obtain from the Minister of Finance a certificate certifying that no unpaid assessment of income tax, surtax, interest and penalties properly charge- able against the deceased taxpayer remains outstanding; and if the executor or administrator distributes the assets without obaining such a certificate he becomes personally liable for the tax, surtax, interest and penalties which may be due.? Beneficiary A person who becomes a beneficiary of an estate, or under Ms soles a trust, is liable to be taxed in respect of all income accruing Meee See, Art. 1811, C.C.P.Q. ; 1 Section 7 (3). principal Act, as amended by s. 5 (2), ch. 55, 1919 and s. 7 (9) and (10). as enacted by s. 10, c. 49. 1920, * Mandell vy. Pierce, 3 Cliff. 134: Fed: Cas. No. 9008. * Brady Vv. Anderson, 240 Fed. 665. * Section 7 (10), enacted by s. 10, c. 49, 1920. PERSONS TAXABLE. to his credit out of the estate or trust, whether received by him or not during the taxation period.* Further, a person will not, it seems, escape liability to income tax by reason merely of his becoming bankrupt or insolvent; for, though it may appear to be anomalous to speak of a bankrupt or insol- vent person being subject to the income tax, this undoubtedly is contemplated by the Act, which imposes upon trustees in bankruptcy, assignees, receivers and other like persons, the same obligation in regard to making returns and paying the tax properly chargeable against a bankrupt or insolvent person as it does in the case of an executor or administrator in relation to a deceased person’s estate.® Unincorporated “ Persons.” Then, as to the unincorporated “ persons ” denoted by the words, “syndicate, trust, association or other body,” the meaning of the word “ trust” may conveniently be considered first, and the words “ association or other body ” in juxtaposi- tion to the word “ syndicate.” Trust.—A. trust in .the modern and confined sense of the word is a confidence reposed in a person with respect to g property of which he has possession, or over which he can exercise a power to the intent that he may hold the property or exercise the power for the benefit of some other person or object.2 Sometimes the equitable title of the beneficiary, sometimes the obligation of the trustee, and again the right held, is called the trust. But the right of the beneficiary is in the trust; the obligation of the trustee results from the trust and the right held is the subject-matter of the trust. Neither of them is the trust itself. All together they constitute the trust.” Hence, the word “trust,” in its legal sense, describes an equitable relation or obligation, and probably a mere statutory relation as well,’ binding a person to deal with property which may be real or personal in a particular way, rather than @ person so bound to whom the word “trust” is doubtless * Section 4, ¢. 49, 1920. 5 Section 7 (3), ec. 28, 1917; amended by s. 5 (2), c. 55, 1919; s. 7 (9) and (10), enacted by s. 10, c. 49, 1920; and see, post, ch. 8. ®Halsbury’s Laws of Eng., vol. 28, pp. 5-6; Bouvier’s Law Dict. tit. “ Trust.” ™McDonogh v. Murdock, 15 How. (U.S.) 357. 8 Hquitable Trust Co. v. Garis et al. (1899), 190 Pa. 544; see also, Glaser v. Priest (1888), 29 Mo. App. 1; Sear, Trust Company Law, 12, 13. D.I.T.L.—4 “Trust ” efined. 49 50 Meaning of word “ trust ”” in defini- tion. YViduciaries taxed primarily only in one case. DOMINION INCOME TAX LAW. intended to extend the definition. Recently the word “person” itself was said to be broad enough to include trustee.® It is probable the word “ trust ” was inserted in the definition for the purpose of expressly including, out of caution, any individual or group of individuals or associa- tion acting as a trustee, agent, executor, administrator, receiver, liquidator, curator, assignee, tutor, guardian of a minor’s estate, or committee of a lunatic, or in any like fiduciary capacity. It, doubtless, extends, for example, to a charitable * or a religious trust.” It is apprehended, however, that the word “person” as used in the charging section of the Act means, prima facie, a person who is benefi- cially in receipt of income, and that a person who is in receipt of income in a fiduciary capacity is to be regarded as a “ per- son” within the meaning of the charging provision only in so far as the Act expressly provides for the taxation of a fiduciary primarily and not merely secondarily, in respect of income received by him in that capacity. The Act provides, by recent amendment,’ that: “ Income accumulating in trust for the benefit of unascertained persons or of persons with a contingent interest shall be taxable in the hands of the trustee or other like persons acting in a fiduciary capacity, as if such income were the income of an unmarried person.” Although the Act contains a number of provisions which require persons acting in different fiduciary capacities to make returns of the income collected or received by them or under their control as fiduciaries and to pay the tax, surtax, interest and penalties, if any, which may be properly charge- able, the obligation imposed appears to be limited in terms to the discharge of the primary lability in regard to those mat- ters, of a taxpayer, ¢.g., an assignor for the benefit of creditors, a lunatic or a deceased person, who has omitted, or is unable for some reason to comply with the provisions of the Act. These provisions are discussed in a later chapter,” but the point to be noted here is that the provision quoted above is °Re Gibson Vv. City of Hamilton, 45 O. Tu, R. 458, per Clute, J. at pp. 464-5. * Convrs of Inland Rerenue v. Pemsel (1891), A. C. 531. ®» Baird Trustees v. Inland Rerenue (1888), 25 Se... 533; Trustees of Psalms and Hymns v. Whitwell (1890), 7 T.L.R., 164. Section 4. ec. 49, 1920. *Section 7 (8). c. 28. 1917, as amended by s. 5 (2), ¢, 55, 1919: x. T (9), (10), (11), as enacted by s. 10, c. 49, 1920. 2 See post, ch. 8 PERSONS TAXABLE. 51 the only provision in the Act imposing upon a fiduciary a primary and not merely a secondary liability in respect of any income made or received’ by him in that capacity. The Act apparently makes no provision for taxing, for example, an assignee for the benefit of creditors or a receiver or liquidator of a company who carries on the business of the assignor or of the company and makes a profit, as the English Act does.* The policy of the Act in such a case appears to be to tax the distributive shares of income accruing to the credit of the persons beneficially entitled in any taxation ‘period, whether received by them or not in the taxation period. It seems to result from a recent English decision * that Public the profits and gains received by the public custodian eae respect of the property of enemy aliens which has been or is receiver or ‘ ‘ : 4 é trustee of vested in him, in the case of enemy nationals of German enemy nationality, under the provisions of the Consolidated Orders Property. Respecting Trading with the Enemy, dated May 2, 1916, (P. C. 103, 1916)* and of the Treaty of Peace (Germany) ' Order, 1920, (P. C. 755)° and in the case of enemy nationals of Austrian, Hungarian, Bulgarian and Turkish nationality, under the provisions of the said Consolidated Orders Respect- ing Trading with the Enemy, are not received by the custo- dian in any sense as an agent, receiver or trustee for the enemy nationals, and that the custodian is not liable to make a return or to pay any tax in respect of such profits and gains. But it would seem that a sum equal to the amount of the tax which the enemy alien, but for the war, would have been liable to pay in respect of the profits and gains received by the custodian ought to be paid for the reason that the enemy alien could never properly ask to receive back the property except upon the footing that this tax is paid. >See Armitage v. Moore (1900), 2 Q. B. 363. “In Re Munster (1920), 1 Ch. D. 268. *Under the provisions of Order-in-Council of December 20th, 1919 (P.C. 2465). these regulations ceased to be in force as respects enemy nationals of German nationality, on the Ist July, 1920. namely, the last day of the succeeding session of Parliament, but they were continued in force in so far as the same respects enemy debts or property of Austrian, Hungarian, Bulgarian or Turkish nationals by Order-in-Council of July 6th, 1920 (P.C. 1541), “until the exchange of ratifications with these countries respectively.” Ratifica- tions of peace treaties between His Majesty and Austria and Bulgaria were exchanged with Austria on July 16, 1920, and with Bulgaria on August 9, 1920, but no regulations similar to the Treaty of Peace (Germany) Order have been established under these treaties. ° This order was enacted under the authority of c. 30, 1919 (2nd session), entitled “ An Act for Carrying into Effect the Treaties of Peace between His Majesty and certain other Powers.” Cr w “Syndicate” defined. A syndicate is a part- nership, Joint adven- ture and partnership not dis- tinguished, DOMINION INCOME TAX LAW. There are a number of decisions dealing with the dis- tinction between a “ trust’? and an “ association,” but these are more appropriately discussed below im connection with the consideration of the term “ association.” Syndicate——A syndicate is defined to be “an association of individuals formed for the purpose of conducting and carrying out some particular business transaction ordinarily of a financial character in which the members are mutually interested,” or “a combination of a number of merchants for the consummation of a venture beyond the means or inclina- tion of any one of them”; but it does not indicate, according to an English decision, in what way the members are acting -together.® A syndicate is said to be, as respects the persons composing it, a partnership ?° but this, Bouvier suggests, is rather too broadly expressed. It would seem, according to this autho- rity, rather “a joint adventure.” This is a species of unin- corporated commercial combination which seems to have gained recognition in the United States,? and also in Scot- land,? but in English law its incidents apparently cannot be distinguished from those of a partnership. Whatever the importance of the distinction between a partnership and a joint adventure may be, it is said that it is not met with in the English authorities, and Lord Lindley maintains that, by the common law of England, every association of persons formed for the sake of sharing profits is either a partnership or a corporation, and that a company which is neither a cor- poration nor a partnership is a thing unknown to the common law.® 7 Bouvier’s Law Dict., tit. “ Syndicate.” Hambledon v. Rhind, 84 Md. 456: Cyc. vol. 37, p. 661: see, also, Am. & Eng. Encye. of Law, 2nd ed., tit. ‘‘ Syndicate ;” Encyc. of the Laws of Eng., 2nd ed., vol. 138. p. T48. : ’Chambers Journal, 10th May. 1884, p. 289, quoted in Morrison ct al. Vv. Harls, 5 O. R. 484, at p. 476. °Tyser v. Shipowners’ Syndicate (1896), 1 Q. B. D. 185, per Mathew, J., at p. 139. Hambledon Vv. Rhind, supra. *Cye. yol. 23, p. 453. ? Bell's Principles, Art. 392. * Pollock’s Dig. of Partnership Law, 11th ed., pp. 6-7. *Ibid., p. 7, note 1; “Lord Eldon seems to have denied it. 8 Dow., at p. 229: transactions of this kind, when they occur in England, are dealt with, so far as they extend, in the same way as ordinary partnerships: See Reid v. Hollinshead (1825), 4 B. & C. 867 ;” also, Morrison et al. Vv, Earls, supra, where a so-called syndi- cate for the purpose of buying and selling certain land and dividing the expenses and profits rateably amongst its members was held to be a partnership. 5 Tindley on Companies, 6th ed., vol. 1, p. 2, citing MeIntyre_v. Connell, 1 Sim. n.s. 223; see, also, Smith v. Anderson (1880), 15 Ch. D. 247, per Brett, L.J., at p. 277. PERSONS TAXABLE. 53 Association:—*“ Association” is said to be “a word of “Associa- vague meaning used to indicate a collection of persons who have joined together for a certain object.”° A substantially equivalent definition is given by another authority who says that the word signifies “ confederacy or union for particular purposes, good or ill.’* In this sense it is a generic term and may indifferently comprehend a voluntary confederacy, which is a partnership dissoluble by the persons who form it, or a corporate confederacy deriving its existence from or under a statute or a charter emanating from sovereign authority and dissoluble only by law,’ but, having regard to its colloca- tion in the definition of “ person,” “ association ” is not used there in its largest sense. The express mention of “any body corporate” appears, for instance, to exclude the exten- sion of the word to incorporated bodies. Similarly it cannot have been intended to comprehend partnerships which result tion” defined. from the formation of syndicates. Subject to these observa- Both ordi- nary and tions, “association,” as used in the definition, doubtless or incorporated companies. It is said that the word in its proper and etymological sense describes the act of .associat- ing together from which act of association there is formed a company or partnership distinguishable in several import- ant respects from an ordinary partnership ;° but it is appre- hended that the word as used in the definition bears the larger meaning suggested above. A true partnership is a voluntary unincorporated association of persons formed, mainly from personal knowledge of one another, for the pur- pose of carrying out a joint operation or undertaking with the object of making a profit to be shared among them.”° The distinction between unincorporated companies and ¥ ‘ : ~>” large part- includes ordinary partnerships as well as large partnerships nerships compre- hended. partnerships is not now of much practical importance, owing. to the fact that companies are nowadays usually incorpor- ated, but Lord Lindley says’? the fundamental distinction between them was “that a partnership consisted of a few individuals, known to each other and bound together by the ties of friendship and mutual confidence, who, therefore, were ®Sweet’s Law Dict., tit. “‘ Association.” 7™Johnston’s Dict., tit. ‘“‘ Association,” referred to in T'homas v. Dakin, 22 Wend. (N. Y.) 104. Thi bid. ° Smith v. Anderson (1880), 15 Ch. D. 247, per James, L.J., at pp. 273-4; Halsbury’s Law of England, vol. 5, p. 12. 1 Sweet’s ‘Law Dict., tit. “‘ Partnership’; Pooley v. Driver, 5 Ch. D. 458; er p. Tennant, 6 Ch. D. 303. 4 Lindley on Partnership, 8th ed. p. 22-8. 4 An unincor- porated company and an or- dinary part-. nership dis- tinguished. Joint owner- ship does not necessarily ereate a partnership. Partnership formed by corporations to be classi- fiedasa partnership, notasa company. DOMINION INCOME TAX LAW. not at liberty without the consent of all to retire from the firm and substitute other persons in their places; whilst a company consisted of a large number of individuals not neces- sarily nor indeed usually acquainted with each other at all, so that it was a matter of comparative indifference whether changes amongst them were effected or not. Nearly all the differences which existed between ordinary partnerships and unincorporated companies will be found traceable to the above distinction.” It may be added that an unincorporated com- pany is distinguishable from an ordinary partnership, in par- ticular, in the following respects: it is not bound by the acts of the individual partners, but only those of its managers; that shares in it are transferable; that it is not dissolved by the retirement, death, bankruptcy, etc., of its individual mem- bers A partnership is not taxed as such. The _ part- ners are assessable to income tax only in their individual capa- city. The Act provides, however, that a husband and wife carrying on business together “shall not be deemed to be partners ” for any purpose under the Act. The intent of this provision is not very clear, but, upon its present wording, it may be that the effect of it is that there shall be no presump- tion prima facie that husband and wife are partners in a business and are, therefore, entitled to divide the partnership profits, but that if evidence of the existence of a bona fide partnership can be furnished, effect will be given to it. The division of partnership profits would, of course, reduce the burden of the tax. No partnership necessarily subsists among persons to whom property descends or is given jointly or in common; and even though several persons agree to buy property to hold jointly or in common, although by the purchase they become co-owners, they do not become partners unless that also was their intention.’ Where the local law, as in Hawaii, enables corporations to form partnerships, a partnership of which the constituent members are corporations is not to be classified as a joint stock company or association, for income tax purposes, but rather as a partnership.+* * Dicey on Parties to Actions, p. 149; Palmer's Co. Law, 10th ed., p. 6, 315; Burnes v. Pennell, 2 H. L. C. 497. * Section 4 (3), c. 28, 1917; amended by s. 8 (2). c. 55, 1919. * Lindley on Partnership, 7th ed., p. 26. ‘Haiku Sugar Co. v. Johnstone, 249 Fed. 103. This case con- tains a discussion of the distinction between joint stock companies and partnerships. PERSONS TAXABLE. ‘BB Lord Lindley says: “There is no general principle of law which prevents a corporation from being a partner with another corporation or with ordinary individuals except the principle that a cor- poration cannot lawfully employ its funds for purposes not authorized by its constitution. Having regard, however, to this principle, it may be considered as prima facie ultra vires for an incorporated company to enter into partnership with other persons.”* : It does not follow from this, however, that a company Incorporated which enters into a partnership and thereby makes a profit eran be could pretend to escape liability to pay income tax upon the taxed though profit so made upon the ground that the partnership arrange- Soe ment was beyond its corporate powers, and that the profit ultra vires was, therefore, gained illegally. There seems to be no doubt that profits resulting from contracts which are illegal only in the sense that they are not enforceable in law are within the net of the Income Tax Act.® The Act does not appear to make any distinction between No distine- limited,partnership associations, such as may be formed under pnmade the provisions of a statute like the Limited Partnership Act limited | of Ontario,’ which possess some of the characteristics of cor- permuers ues porations, and other kinds of partnerships. Presumably a ‘inds. limited partnership association is to be treated as an ordinary partnership for the purposes of the Act.§ The distinction between an “ association ” and a “ trust ” is elucidated by two leading decisions. In a celebrated English case’ shares in a number of sub-.An ™ associa- marine telegraph companies, of “a large nominal amount, ee were purchased by subscription and vested in trustees. Each ‘istin- subscriber received a certificate for a certain nominal amount peas and also a deferred coupon for a distributive share of the funds. Under the terms of the trust which were declared by deed between the trustees and a covenantee on behalf of the certificate holders, the trustees were to apply ‘the income ‘of the shares in payment of interest at a specified rate on the Smith v. Anderson. *Partnership, 7th ed. p. 93: but see Jlugh Stevenson & Sons, Ltd, v. Aktiengescllschaft Fur Carton-Nagen Industrie (1918), A.C. 239, where a partnership appears to have subsisted between an Ieng- lish company and a German company, and there is no suggestion in the judgment of the IIouse of Lords that the partnership was’ illegal. ®°See Inland Rerenne v. von Giehn (1920), 2 K. B. 553, per Scrutton, L.J.. at p. 572-3. : TR. S. O. 1914, e. 138. ® See Holmes’ Federal Income and Profit Taxes, 1920 ed. p. 107. et seq. * Smith v. Anderson (1880) 15 Ch. D. 247. Trustees of shares for certificate holders. Association implies mutual rights and obligations. Crocker y. Malley. DOMINION INCOME TAX LAW. nominal amounts of the certificates and apply the surplus in redeeming the certificates. The trustees had certain powers with respect to the sale of any of the shares; and the pro- ceeds of every sale were required to be applied in the redemp- tion of certificates unless the trustees by an unanimous resolu- tion, confirmed by a meeting of the certificate holders, deter- mined to re-invest in submarine telegraph shares. Meetings of certificate holders were to be held for the purpose of receiv- ing reports from the trustees on the affairs of the trust, of appointing auditors, and of appointing new trustees in place of trustees who should die, retire or become incapable to act. After all the certificates had been redeemed, the funds in hand were to be divided among the holders of the deferred coupons. The holders of the certificates were more than twenty in number. The question was whether this was an association of more than twenty persons formed for the purpose of carrying on a business having for its object the acquisition of gain, within the meaning of the English Companies Act, 1862, s. 4, and it was held by the 'Court of Appeal, reversing the Master of the Rolls, that the certificate holders did not form an asso- ciation within the meaning of the said Act for the reason that they had. never come into any arrangement creating any mutual rights and obligations as between themselves; that the object of the deed of settlement was not to authorize the carrying on of a business but to provide for the management of a trust fund; and that, supposing the deed did authorize the carrying on of a business, such business was carried on only by the trustees in the capacity of trustees, and not as agents or directors, and that as they were fewer than twenty the case was not within the Act. Lord Justice James said :'° “ Persons who have no mutual rights and obligations do not, according to my view, consti- tute an association because they happen to have a common interest in something which is to be divided between them.” In a recent important case in the United States} it was » Tbid, p. 275. "™ Crocker v. Malley, 249 U.S. 223. See, also, Tide Water Pipe Co. v. State Assessors (1895) 57 N.J.L. 516, aff'd (1896) 59 N.J.L. 269, where “ partnership associations ” organized under a Pennsylvania Statute were held to be taxable under the New Jersey Corporation Tax Act; and People ex. rel. Platt v. Wemple (1889), 117, N.Y. 186, where a company which was organized under no statutory authority but simply by a number of individuals signing articles of agreement was held to be either a “ corporation. joint stock company or associa- tion’ within the meaning of a New York State taxing statute. PERSONS TAXABLE. sought to tax as an “association . . organized in the United States, no matter how created or organized,” under the federal Income Tax Act, 1913, in respect of income received from a corporation that itself was taxable upon its 57 net income, a common law trust in respect of real estate, under A common which the trustees were to collect rents and income of the trust property and pay over to the holders of trustees’ receipt certificates what they should determine to be fairly distribut- able net income, with power, however, to apply any funds in their hands for the repair or development of the property held by them or the acquisition of other property, pending conversion and distribution. The receipt holders had no interest in any specific property but only a right to a certain fraction of the income and of the net proceeds of the property when converted into cash and no control whatever other than in respect of granting an increase of the compensation of the trustees, of filling a vacancy among the trustees and of modi- fying the terms of the trust. The trustees paid the tax assessed. against them under protest, afterwards bringing action to recover the same back upon the ground that they were not an association but simply trustees, and as such were entitled to the exemption, provided by the Act, from taxation upon dividends of a corporation that itself pays an income tax. The Supreme Court of the United States, reversing the decision of the Circuit Court of Appeals, upheld this conten- tion. The ‘Court, speaking by Mr. Justice Holmes, said ;” “The trust that has been described would not fall under any familiar conception of a joint stock association, whether formed under a statute or not. Smith v. Anderson;* Eliot v. Freeman.* If we assume that the words ‘no matter how created or organized’ apply to ‘association’ and not only to ‘insurance company” still it would be a wide departure from normal usage to call the beneficiaries here a joint stock association when they are admitted not to be partners in any no control over the fund. On the other hand, the trustees the meaning of the Act unless all trustees with discretionary powers are such . . . We perceive no ground for grouping lezal con- the two—beneficiaries and trustees—together in order to 2 Tbid, pp. 233-4. 6 Supra. 44220, U.S., 186. estate trust. ae a : Neither trus- sense, and when they have no joint action or interest and tees nor beneficiaries ae tas o>” separately or by themselves cannot be a, joint stock association within both com- association. 58 Special kinds of associations which are not part- nerships. DOMINION INCOME TAX LAW. turn them into an association by uniting their contrasted functions and powers, although they are in no proper sense associated. It-seems to be an unnatural perversion of a well- known institution of the law. We do not see, either, that the result is affected by any technical analysis of the indi- vidual receipt holder’s rights in the income received by the trustees. The description most in accord with what has been the practice would be that, as the receipts declare, the holders, until distribution of the capital, were entitled to the income of the fund, subject to an unexercised power in the trustees, in their reasonable discretion, to divert it to the improvement of the capital. But even if it were said that the receipt holders were not entitled to the income as such until they got it, we do not discern how that would turn them into a joint stock company. Moreover, the receipt hold- ers did get it and the question is what portion it was the duty of the trustees to withhold.” Words “ Association or Other Body ” Extend to Many Kinds of Voluntary Associations. There are, however, many kinds of voluntary associations which, not being partnerships, may nevertheless, it is appre- hended, be regarded as an “ association or other body ” in the sense of the definition. Of this class are members,’ or pro- prietary clubs,? benefit building societies,? which are societies of a special kind, unincorporated co-operative associations or societies * and trade unions which, in England, are quasi- corporate bodies if registered in accordance with certain special legislation,® but are, apart from such legislation, merely voluntary associations, as, for instance, in Ontario®; also, unin- corporated bodies, such as the managing committee of a hos- *€arlisle, Silloth Golf Club v. Smith (1912), 2 K. B. 177; The Bohemian Club v. Acting Federal Comm’r of Taxation (1918), 24 Big R. 384; Inland Revenue v. New University Club, 2 Tax Cas. * Carlisle, Silloth Golf Club v. Smith. supra, per Buckley. L.J., at p. 81; Challoner v. Robinson (1908), 1 Ch, 49 (C.A.) ; see, Halsbury, tit. “ Clubs.” > Brownlie v. Russell, 8 A. C. 235, per Earl Selborne, p. 248; Auld v. Glasgow, 12 A, C. 197, per Lord Halsbury, L.C., at p. 201; Lindley on Partnerships. 8th ed., p. 15. *Incorporated Council of Law Rep. v. Inland Revenue, 22 Q. B. D. 291; see judgment of Coleridge, C.J., at p. 294. ’ Taff Vale Ry. Co. v, Amalgamated Society of Ry. Servants (1901), A. C, 426. ° Metallic Roofing Co. of Can. \. Local Union No. 30,90. L. R. (C.A.) 171, at p. 178, PERSONS TAXABLE. 59° pital,” and societies formed for philanthropic or charitable objects.* Parliament has provided expressly * for the exemption of Exempted the incomes of certain organizations which, it is apprehended, rh eo would otherwise be taxable as associations or other bodies, viz., incomes of “any religious, charitable, agricultural and educational institutions, Boards of Trade and Chambers of Commerce,” and of “labour organizations and societies and of benevolent and fraternal societies and orders” and “of clubs, societies and associations organized solely for social welfare, etc.,” and of certain “ insurance, mortgage and loan associations operated entirely for the benefit of farmers,’ though if there were any doubt as to the application of the words “association or other body” to such organizations, their special exemption is not, it must be admitted, an argu- ment of much weight * for construing the words “ association or other body ” in their largest sense. Incorporated Bodies. In these days, when business enterprises are so largely Incorporated carried on by companies the legal notion of a body corporate Pody dis” as a distinct entity or persona is a familiar one. individual The cardinal distinction to be borne in mind is that an SParebolders. incorporated body is a totally different person or thing or entity from the individuals comprising it,* even if an indivi- dual holds the whole of the shares of the corporation.® The rights and obligations of these individuals are not the rights and obligations of the fictitious person composed of those individuals; nor are the rights and obligations of the body corporate exercisable by or enforceable against the ™St. Andrews Hospital, Northampton, v. A eat 419 Q. B. D. 624; Needham v. Bowers (1888), 21 Q. B. 436. ’ Religious Tract and vege Soc. of Scotland v. ote (1896), 33 Se. L. R. 289: Grove v. Y. M. CG. A. le 88 L. T, 696; Re state of Robert Muir ane. 2 W. W. R. 801 * Section 5 principal Act. >See Comm’rs for Special Purposes of Income Tar v. Pemsel (1891), A. C. 531, at p. 574, where Lord Herschel] said: ‘I think that an argument derived from the specific mention of certain subjects in the exemptions found in a taxing Act is of little weight. Such specific exemptions are often introduced ex majori cautela to quiet the fears of those whose interests are engaged or sympathies aroused in favour of some particular institution, and who are apprehensive that it may not be held to fall within a general exemption.” *Foster (John) & Sons v. Inland Rev. Com’rs (1894), 1 Q). B. 516, 528, 580 (C.A.) ; Salomon v. Salomon & Co, (1897), A. C. 29 42, 51. ® Gramophone and Typewriter, Ltd. v. Stanley (1908), 2 K. B. 89 (C.A.), per Fletcher Moulton, L.J., at p. 99. * 60 Holding companies not neces- sarily exempt from taxation. Wealthy individuals or estates cannot reduce burden of taxation by incorporat- ing sham companies. DOMINION INCOME TAX LAW. individual members thereof, either jointly or separately, but only collectively, as one fictitious whole.* These principles do not apply in one notable instance, namely, in the case of an incorporated company which is organized upon the mutual society plan.’ A company which is not actively engaged in business or which is merely a holding company is not by reason of that fact necessarily exempt from taxation. If the company be resident in Canada, it would seem to be liable to be assessed to income tax in respect of any taxable income which it receives; but if the company be non-resident it would not appear to be subject to taxation merely by reason of receiving dividends from a Canadian company.® Under the Act, corporations and joint stock companies, no matter how created or organized, are liable to pay, no matter how great their taxable income may be, only ten per centum upon income exceeding two thousand dollars, whereas the individual taxpayer whose income exceeds five thousand dollars, is subject to an increasingly heavy surtax. It might, therefore, occur to wealthy individuals or estates to reduce the burden of their taxes by the simple expedient of incor- porating themselves, but there are decisions in the United States to the effect that individuals cannot escape liability under the law, whether for taxes or in respect to other matters, by forming a corporation which they absolutely con- trol, and which is their mere alter ego, so that, while the corporation is nominally an independent entity, they are its “mind, hands and pockets,” or by pretending that the profit and earnings on which the government seeks to lay a tax belong to a corporation which is really no more than a shadow of themselves, a mere sham or simulacrum.? °Lindley on Partnership, 7th ed., p. 21. "New York Life Insurance Co. v. Styles, L. R. 14 A. C. 381, per Lord Watson, at p. 393. © Colquhoun v. Brooks (1889), 14 App. Cas. 493; Mitchell v. Egyptian Hotels (1915), App. Cas, 1022; Commissioners of Inland Rev. v. Marine Steam Turbine Co., Ltd. (1920), 1 K. B. 193; Com- missioners of Inland Revenue v. Korean Syndicate, Ltd. (1920), 1 K. B. 598 ; and see, also, Butterick Co. v. U. 8., 240 Fed. 539; U. 8. v. Nipissing Mines Co., 206 Fed. 431, which decide that holding com- panies do not carry on business merely by controlling subsidiaries through stock ownership. : °In re Kornit Mfg. Co., (D.C.) 192 Fed. 392: Credit Mobilier of America Vv. Commonwealth, 67 Pa. 233; see, also, Apthorpe V. Peter Schoenhofen Brewing Co., 80 1. T. 399; Gramophone and Type- writer, Ltd. v. Stanley (1908), 2 K. B. 89. PERSONS RESIDENT IN CANADA. 61 Public service corporations, except in so far as they may Public be exempted from taxation under the provisions of the Act, pel te would seem to be taxable. ee ae In the United States a claim to exemption from taxation was put forward on behalf of such corporations, on the ground that they exercised a delegated authority from the State which created them and bore such a relation to the general public as to make their functions quasi-governmental in character, -but this contention was denied by the Supreme Court of the United States and other federal courts.?° Subject to the provisions of the Act with respect to A corpora- exemptions of income, a corporation would not appear to be ae relieved of liability to pay the income tax by reason merely taxable, is 7 . Fz . ~ not exempt of all or a portion of its stock being owned by a corporation hecause its or association or institution whose income is exempted by the a Act from liability to income tax; in other words, the liability persons of a corporation to the income tax is not contingent upon the ve ia character of the ownership of its stock. It should be observed exempted. also that although a particular corporation may be exempt from the income tax, it does not follow that salaries which it pays to its officers or employees are equally exempt. They would seem on the contrary to be taxable. The definition extends, it is apprehended, to non-trading corporations such, for example, as municipal corporations.” Other special applications of the statutory definition of “person” will be more appropriately noticed in connection with the consideration of the several classes of persons required to be taxed. The practical application of the defini- tion is, of course, affected by certain exemptions of income subsequently discussed.” It is proposed to consider now the precise scope and appli- cation of the several class enumerations of taxable persons. 1.—Persons “ Residing or Ordinarily Resident in Canada.” The question is: When is a person to be treated as “ resid- ing or ordinarily resident in Canada?” Individuals—It is said that “residence” is a word of Residence flexible import of which an exhaustive definition cannot be {Word ot given, and that it must be construed in each case according import. Flint v. Stone Tracy Co., 220 U.S. 107: Ann. Cas. 1912 B. 1312; Union Hollywood Water Co. v, Carter, 238 Fed, 329. 1 City of Toronto v. Canadian Pacific Railway Co. (1908), A. C. 4+; see, also cases cited post. ? See post, ch. 5. DOMINION INCOME TAX LAW. to the object and intent of the statute in which it is used.* Many courts and judges have attempted to define “ resi- dence ”*; but, for the most part, these definitions describe rather than define “residence” and generally require further definitions to make their meaning clear and certain. The consequence is that it is almost impossible to deduce from the cases a rule of law by which it can be determined, in any par- ticular case, whether upon the facts proved a person is or is not a resident.’ In the Income War Tax Act “ residence” in 3’ Lewis v. Graham, 20 Q. B. D. 780, at p. 781, per Lord Cole- ridge, C.J. (approving dictum of James, L.J., in He parte Breull, In re Bowie (1880), 16 Ch. D. 484, at p. 487, and per Cotton, L.J., at p. 487-8; Naef v. Mutter (1862), 12 C. B. (N.S.) 815, per Ierle, J., at p. 821: Powell v. Guest (1864), 18-C. B. (N.S.) 72, per Inrle, C.J., at _p. 80; Blackwell v. England, 8 Ellis & Bl. 541, per Tord Campbell, at pp. 543-4, per Coleridge, L.J., at p. 545; per Wightman, J., at p. 546; per Exle, J., at p, 547; R. v. Fermanagh Jus. (1897), 2 Ir. Rep. 563; approved by Holmes. L.J., in R. v. Tyrone Jus. (1901), 2 Ir. 510, 511. Re Sturmer (1911), 24 O. L. R. 65, per Boyd, C., at p. T4; Re Fitzmartin ibid. p. 102; per Middle- ton, J., at p. 104; Shaeffer v. Gilbert, 73 Md. 69; Am. & Eng. Ency. of Law, vol. 24, at p. 696. *The following are a number of the leading judicial definitions of “ residence ” :-— “A man’s abode or continuance in a place.” (Cowel, “ Resiance,” cited in Stroud’s Judicial Dict. tit. ‘ Reside’’). “A person’s habitual presence in a place or country which may or may not be his home.” (Dicey, Conflict of Laws. 2nd ed.. p. 83, note 1, citing Jopp v. Wood (1865), 34 L. J. Ch. 212, 218: Gillis v. Gillis (1874), Ir. R. 8 Equity 597; see, also, Denier v. Marks, 18 P. R. (Ont.) 465; Dicey says ibid., pp. 83. 110, 111: “The word ‘habitual’ in this definition of residence does not mean presence in a place cither for a long or for a short time, but presence for the greater part of the period whatever that period may be (whether ten years or ten days), referred to in each particular case.” “A man’s residence is the place where his family - dwells, or which he makes the chief seat of his affairs and interests” (fatter of Iawley, 1 Daly (N.Y.) 533, This definition is said to be deduced from Roman law. (Dig. 50, tit. 1, 16, 20, 27, 203; ‘Code; tit. 39, 7). ; “The place where an individual cats. drinks and sleeps. or where his family or his servants eat. drink and sleep.’ (Per Bayley, J., in the King v. North Curry (1825), 4 C. B. N. 8. 953. at 959). “A man’s residence is where he habitually sleeps.” (Per Black- burn, J.. Barter’s Case. 1 O'M. & H. 158, citing R. v. Norwood, L. R. 2 Q. B. 457; followed in Wanzer Lamp Co: v. Woods, 13 P. R. (Ont.) 511, 513. “A man may fairly be said to reside where he is to be found daily.” (Per James, L.J., in Er parte Breull, 16 Ch. D. 487). “ A man resides where, to use the common expression, he lives” (per Cockburn, C.J., in R. v. St. Leonard (1866), L.R. 1 Q. B. 123). “The place where an individual ‘sleeps and lives’.”” (Per Hud- dleston, B., in Cesena Sulphur Co. v. Nicholson, 1 Tax Cas. 83, at p. 103). “The dwelling and home where a man is supposed usually to live and sleep . . . a man's business abode. the place where he is to he found daily”? (per Gibson, J.. in R. v. Fermanagh Jus. (1897), 2 Ir. Rep. 563, approved by Holmes, J.J., in R, v. Tyrone Jus. (1901), 2 Ir. Rep. 510, 511). . ° People v. Tar Commissioners (Supm. Ct. Spec. T.), 16 N. Y. Supp. 835. PERSONS RESIDENT IN CANADA. - 63 the sense of the words used, “ residing or ordinarily resident What in Canada,” which are not defined by the statute, is considered oie to be the fact of a person’s abiding or dwelling in a place for income within Canada for some continuance of time, of having ic” settled fixed abode, or an intention to remain permanently at least for a time, for business or other purposes, as contra- distinguished from a mere temporary locality of existence.* No. distinction as to the kind or manner of residence contem- plated by the statute turns upon the use of the two expressions “residing ” and “ordinarily resident.” These words appear to be used interchangeably to describe the same concept— ordinary residence. What was said in a Scotch case in connection with the Legal or interpretation of the words “residing in Great Britain,” in ate a the English Income Tax Act, seems to be equally applicable to contra- the ‘Denied Act. In that case the Lord President said: ae a “The meaning of residence in this statute is ordinary resi- Layee dence, an ordinary residence, the continuity of which may be.the law. broken by persons going elsewhere and having an occasional residence there, but who though they are held, while occasion- ally residing abroad, to be temporarily absent, are nevertheless held to be actually residing in Great Britain . . . I do not entertain the least doubt, in short, that the ordinary residence of a party in this country fixes his liability to this taxation, although his absence from that residence may be during any year, of a very prolonged description, although B not being of a necessarily prolonged description, that is to say, not fixed in such a determinate way that his presence or resi- dence in some other country is not more enduring than his residence in this.’””* The question of residence is entirely distinct from domi- ee cile, which is often wholly independent of actual residence.* ciel domicile. *Am. & Eng, Ency, of Law. vol. 24. p. 693, tit. ‘“ Residence”; Barney v. Oelrichs, 188 U. S. 529: Penfield v. Chesapeake, Ohio & S. W. Ry. Co., 134 U.S. 351: In re Wrigley, 4 Wend. 602; 8 Wend. 134; see, also, Tazewell v. Davenport, 40 Ill. 197, and Ann. Cases 1917 B., p. 726, TIn re Y oung (1875), 1 Tax Cas. 57, Lord President, at p. 60. 5 Walcot v. Botfield (1854), Kay 534, per Sir W. Page- ‘Wood, V.C., pp. 548-4; Bell v. Nennedy, L. R., 1 H. L. 3807 Se. App.. per Lord Westbury at pp. 320. 321; Atty.- Gen. v. Coote (1817), 4 Price 183; also Cvoper V. Cadwalader (1904) ; 12 Se. ty, ST Ths A495 per Lord President, p. 451: Bouv. Law Dict. tit; “Residence”: Dicey, Conflict of Laws. 2nd ed.. p. 82. regards residence as, one ingredient of domicil. He says: “Domicil involves a connection or relation between two facts, one a physical fact and the other a mental fact. The physical fact is the person’s ‘habitual physical presence.’ or, to use a shorter and more ordinary term, ‘residence’ within the 64 Compound of fact and intention, A mixed question of fact and law. DOMINION INCOME TAX LAW. Hence, a person may have a residence in Canada which renders him liable to income tax, although his domicile is out- side of Canada. Moreover, a person may have more than one residence,® but, as a general rule, he cannot have two domi- ciles.*° The question of residence, which is said to be compounded of fact and intention,’ depends mainly, perhaps altogether, upon the acts of a person.2 “ Where it is that a man is ordin- arily resident is,” says Dicey,? “a matter with which legal rules have nothing to do and which must be ascertained in the same way as any other physical fact.” Each case, conse- - quently, depends on its own circumstances. The question is said to be a question of pure fact*; but an eminent judge has qualified this proposition, observing that the question is not one of pure fact because it depends on what in the eye of the law is sufficient and necessary to constitute residence whether the acts or presence relied on in the particular case establish the fact of residence.® In a United States case and also in a recent Irish decision residence was treated as a mixed ques- tion of law and fact.® Ordinary residence, in the sense of the statute, implies, in order to its establishment, personal presence in the country at some period or other’; but this may be of the shortest dura- limits of a particular place or country. The mental fact is the person’s ‘ present intention to reside permanently or for an indefinite period’ within the limits of such place or country, or more accurately, the absence of any present intention on his part to remove his dwelling permanently or for an indefinite period, from such place or country.” : ° Walcot v. Botfeld, supra; The King v. Sargent (1793), 5 Term R. 466; per Lord Kenyon, C. J., at p. 468; Atty.-Gen. v. Coote, supra; Inland Rev. v. Cadwalader, supra; Thomson v. Inland Rev. (1918), 56 Se. L. R. 10; Pitter v. Richardson (1918), 87 L.J.K.B. 59. © Forbes v. Forbes (1854), Kay 341: 18 Jur. 642, followed in Cartwright v. Hinds, 3 O. R. 384, per Wilson, C.J., at p. 395; see, also, Wanzer Lamp Co. v. Woods, supra. a Cas. 1917 B., p. 728; Pope v. Williams, 56 Atl. 543; 98 Md. 59. 2? Rer v. Board of Ass’rs, 41 N. B. 564, per Barker, C.J., at p. 572. 3 Conflict of Laws, p. 230. *DeBeers Consolidated Mines v. Howe (1906), A. C. 455, per Lord Loreburn,’ at p. 458. : 5 American Thread Co. v. Joyce, 6 Tax Cas. 1, per Fletcher Moulton, L.J., at p. 30. 5 Monroe Vv. Williams, 87 S. C. 81; see, also. In re Assessment Act (Hon. O. T. Daniels and Town of Bridgetown), 12 EB. L. R. 157. per Pelton, Co.C.J., at p. 162; Hood & Oo, v, Magee (1918), Irish R. 2 K. B. 34, per Madden, J., at p. 46. 7 Walcot v. Botfield, supra, at pp. 543-44, PERSONS RESIDENT IN CANADA. 65 tion. “ It can never be contended,” said Lord Kenyon, in Personal Rex v. Sargent,® where residence was a necessary qualification ae a for the office of bailiff of a borough, “that in order to consti- necessary, tute a residence in any place it is necessary to reside any given ee ie number of days or even any great part of the year. It hap-est duration. pens perpetually that persons have different places of abode, in some of which they reside more or less, as suits their conveni- ence,” and in a United States case it was said: “ This ques- tion of residence is not to be determined by the length of time that a person may remain in a particular place. For example, a man may go into a place and take up his abode there with the intention of remaining, and if so he becomes a resident there, although he may afterwards change his mind and within a short time remove.”?° Nevertheless, a mere tem- Tyansient porary sojourn in the country for transient objects whether a of business or pleasure or otherwise as in the case of a traveller but tempor- or a visitor, will not constitute residence’; nor conversely will a a person cease to be a resident in Canada merely by reason of resident, do his temporary absence from the country for such objects,? even as though such absence should endure for the entire taxation period,® if he has both the liberty and the intention to return when these objects have been answered or attained.* 8 Atty.-Gen. v. Coote (1817), 4 Price 183; also Cooper v. Cad- walader, supra; Boucicault v. Wood, 2 Biss. (U.S.) 39; The King v. Sargent (1793), 5 Term Rep. 466; quoted with tacit approval by the Judicial Committee in Tagore v. Tagore (1874), L. R. 1 Indian Rep. 397. * Supra, ” Boucicault v. Wood, supra; see, also, State v. Minick, 15 Ohio 126; People v. Tax Com’rs, supra. 1 Reg. v. St. Leonard, supra; Re Erskine, 10 T. L. R. 32; U.S. v. Schooner “ Penelope.” 2 Pet. Adm. 450; Chinese Tar Cas., 14 Fed. Rep. 344; Barney v. Oelrichs, supra; Pells v. Snell, 130 Il. 379; Cadwalader v. Howell, 18 N. J. L. 138: State v. Camden, 389 N. J. L. 59; Fry’s Hlection Case, T1 Pa. St. Rep. 302. 2In re Young (supra); Rogers v. Inland Rev. (1879), 16 Se. L. R. 682; Lloyd v, Sulley (1884), 21 Se. L. R. 482; Thomson v. Inland Rev. (supra) ; Barney Vv. Oelrichs, supra; Penfield v. Chesa- peake, etc., Ry. Co., supra. ’ Rogers Vv. Inland Rev., supra. *Thus, the residence contemplated by the Income War Tax Act is the same sort of residence usually required under electoral franchise laws, viz., constructive as contra-distinguished from actual resi- flence; see Wlliott on Registration, 2nd ed., p, 204, for definition of constructive residence approved by Erle, C.J., in Powell v. Guest, supra, at p. 164, and followed by Middleton, J.. in Re Sturmer, supra. In Queen v. Abingdon (1870), L. R. 5 Q. B. 406, at p. 409, Blackburn. L.J., said: “I do not like the phrase ‘ constructive resi- dence’; when a person is physically absent from his place of resi- dence for a time, if he has an animus revertendi, his residence con- tinues; and the question in such a case is whether he continues to be resident or has ceased to be resident by taking up his permanent D.L.T.L.—5 66 Married man resides prima facie with wife and family. Residence may be tortious and place of abode need not bea fixture, Nationality not a criterion of taxability. DOMINION INCOME TAX LAW. A married man’s residence is presumed to be prima facie at the place where he locates his wife and family in anything like a fixed and permanent residence, for ubt uxor 1bt domus,' but this presumption is not conclusive and may be rebutted by other circumstances; if, for instance, the husband is living apart from his wife and family or if some particular state of health requires his wife or himself to reside in a warm climate not agreeable to the other, he might have a residence of his own apart from that of his wife and family.® A residence, if actual, is not less a residence because it is tortious.’ Nor is fixity of place of abode or a structure that is incapable of being moved—a house on land—essential, e.g., a person may reside in the country though he lives continuously on board a vessel which is kept ready for sea. The test of liability is “residing,” not “ having a residence,” in Canada.® Again, citizenship and residence are not synonymous terms,” and although citizenship implies the right of residence the ‘latter by no means implies citizenship. Therefore, a person of foreign nationality may be a resident of Canada for the purpose of the Income War Tax Act.? residence elsewhere.” The phrase “ constructive residence’ is never- theless currently used by judges as a convenient expression. A person ceases to be constructively resident in a place if he deprives himself of the liberty of returning to it, as by committing a criminal offence for which he is imprisoned (Powell v. Guest, supra; Donnelly Vv. Graham, 24 Law Rep. Ir. 127), though not by mere imprison- ment pending a trial (Charlton v. Morris (1895), 2 Ir. Rep. 541), or by being prevented by duty from residing at such place, e.g., a soldier away on duty (Ford v. Hart, L. R. 9 C. P. 273), or a clerk or servant whose engagement compels him to live away (Ford v. Drew, 5 C. P. D. 59; Beal v. Ezeter, 20 Q. B. D. 300) ; secus if sent away for only one night (Beal v. Ford, 3 C. P. D. 73). ° Rogers Vv. Inland Rev., supra; Thomson v. Inland Rev., supra, per Clerk, L.J., at p. 12; Forbes v. Forbes (1854), Kay 341, per Sir W. Page-Wood,. V.C.. at pp. 364-5; Northallerton, 1 O’M. & H. 170-71, cited by Chitty, J., in Re Ingilby, 6 T. R. 446; Am. & Eng. Eney. of Law, vol. 24, p .699. * Turnbull Vv. Foster, 42 Se. L. R. 15; Forbes v. Forbes, supra. at p, 366; Penfield v. Chesapeake, ctc., Ry. Co. supra; Rer v, Board of Ass’rs cr parte Howe (supra). * Brown v. Burt (1911), 105 L. T. 420; Beal v. Ford, supra. 5 Brown v. Burt, supra, per Hamilton, J., at p. 421; affirmed on appeal by the Master of the Rolls and Farwell and Kennedy, supra. "Turnbull v. Foster, supra. * Fneye, U. 8. Sup. Ct. Reps. vol. 3, p. 795; Parker v. Overman, 18 How. 187, 141; Galveston, etc.. Ry. v. Gonzales, 151 U. S. 496, 501: Ntiegleder v. MceQuesten, 198 U. 8.-141; Robertson v. Cease, 97 U. S. 646. G48. and dissenting opinion of Brewer, J., in Blake v. MeClung, 172 U.S. 239, 263, * Rundle v. Delatrare, ete, Canal Co., 14 How. 79, per Daniel, J., at p. 101, ? DeBeers Cons. Mines, Ltd. v. Ilowe (1906) A. C. 455, per Lord Loreburn, at p. 458; Brown v. Burt, supra; see, also, Moore vy. Wills, 5 App. D. CG. 413. PERSONS RESIDENT IN CANADA. 67 It is not necessary, moreover, that the trade or business Sources of or other sources of income of the resident person sought to be esi Oh charged should be carried on or exercised in Canada,? nor Canada, a : @ - o 4 ae. nor 1s coin- is it essential that there should be coincidence in point of time cidence in : . : Y time between between actual residence and the earning of the income sought sal vesi. to be charged—that is to say, the chargeable income is not dence and o 8 é ‘i earning of limited to income earned during the actual presence of the tax- jncome. payer in Canada,* essential. DECISIONS. ENGLISH AND SCOTCH. A person domiciled in Ireland, where he had a place of resi- Atty--Gen. dence, bought and furnished a dwelling-house in London, and, v. Coote after residing in it for ten weeks, returned to Ireland with his (1817), 4 establishment and resided there for the remainder of the year, !’rice 183. leaving behind him a woman servant to take care of his London home. He was held to be “ residing in Great Britain” and liable to be assessed to income tax under the provisions of 46 Geo. III, chap. 65, and not to be exempt as a person coming to reside “ for some temporary purpose only and not with any view or intent of establishing a residence therein and who shall not have actually resided in Great Britain for the period of six successive calendar months.” Richards, C. B.—‘ The fact of the defendant’s domicile has nothing to do with the question, nor has the time of his resi- dence any effect on the construction of the words of the Act, for if the defendant came here for the purpose of establishing a residence, it were enough although he should reside here only two weeks.” Graham, B.—“If a man dies two days after forming his establishment, is he not within the Act? Or may any man come here and stop till within a week of the six months and then go to Ireland for the purpose of avoiding the duty. Under the cir- cumstances I think it is quite impossible to say that the resi- dence of the defendant in England was occasional or for a tem- porary purpose.” Wood, B.—‘‘ It is no uncommon thing for a gentleman to have two residences at the same time in either of which he may estab- lish his abode at any period and for any length of time. This is just such a case: the defendant has two residences and they are equally permanent.” A master mariner, who was the tenant of a house in Glasgow, Jy ye Young occupied by his wife and family, where he himself resided when (1875), 12 not at sea, was held to be liable to income tax as a person resid- Se. L. R. 602. ing in the United Kingdom, notwithstanding that he was abroad with his ship for all but eighty-eight days of the year of assess- ment. A master mariner, who was absent from the United King- Rogers v. dom, where his wife and family resided, during the whole of Inland Rev, > Cooper v. Cadwalader, (1904) 12 Se. L. T. R. 449, 451 *Thomson v. Inland Revenue, supra, per Clerk, L.J., at p. 12, per Lord Dundas and Lord Salvesen, at p. 13. , Lloyd v. Sulley (1884), 21 Sc. L.R. 482. Cooper v. Cadwalader, 42 Sc LR. 117. DOMINION INCOME TAX LAW. the year of assessment, was nevertheless held liable to income tax as a resident in the United Kingdom. The Lord President.—‘‘ Every sailor has a residence on land, and the question is, where is this man’s residence? The answer, undoubtedly, is that his residence is in Great Britain. He has no other residence, and a man must have a residence some where. . . . He is not a bit the less a resident in Great Britain because the exigencies of his business have happened to carry him away for a somewhat longer time than usual.” A merchant who was the proprietor of an estate in Scotland, where he and his family resided for several months during the year of assessment, had been settled with his family at Leghorn, Italy, for many years, where he had a town house and a country house, maintained and kept open and ready for his return, and where he carried on business, was held to be a person residing in the United Kingdom and liable to income tax in respect of the profits from his Italian business. The Lord President.—‘‘‘ Residing in the United Kingdom’ are the only words we have to guide us. Now, if a man could only be resident in one place in any particular year there might be a great difficulty, but surely there is nothing more familiar to one’s mind than that a man has, during a particular year or during a course of years, residence in particular places existing at the same time. A man cannot have two domiciles at the same time, but he certainly can have two residences; he can have a residence in the country and a residence in town, or he may have three or more residences. That is to say, they are places to which it is quite easy for the person to resort as his dwelling place whenever he thinks fit, and to settle himself down there with his family and establishment. That is a place of residence, and if he occupies that place of residence for a portion of a year, he then is within the meaning of this clause.” In so far as this case held a resident in the United Kingdom chargeable with duty in respect of the profits of a trade carried on exclusively abroad and not received in the United Kingdom, it was overruled by the decision in Colquhoun v. Brooks (1889), 14 A. C. 498, but this decision does not affect its authority for determining the question of residence: per Lord President, in Cooper v. Cadwalader, 12 Se. L. T. R. 499. An American citizen, practising as a barrister in New York, where he ordinarily resided, rented a shooting lodge in Scotland, where he spent about two months continuously in each year. He was held liable to income tax as a person “residing in the United Kingdom.” The Lord President —“ Domicile has no bearing on the ques- tion, and where a person has in fact a residence in the United Kingdom he is chargeable as a person residing there, although he may also have a residence or residences out of the United Kingdom. . . . A person may have more than one residence if he maintains an establishment at each. Further, it is not necessary that the trade or business or other source of income of the person sought to be charged should be carried on or exercised in this country.” Lord Adam.—‘ Now I confess I cannot draw a distinction between the ten weeks in Coote’s case and the three and a half months in Lloyd’s case; and in those cases there is residence in PERSONS RESIDENT IN CANADA. | each country and it is not a question of principal residence at all; it is simply a question of residence in this country—is the person residing in this country? In my humble opinion, Mr. Cadwalader was residing in this country and was liable to assessment.” An American citizen, during the year of assessment and for Brown v. twenty years previously had lived on board his yacht, which was Burt, 105 moored in the river Colne, within the port of Colchester, in the L. T. 420. county of Essex, England, obtaining provisions and necessaries from the nearest village. The yacht, which flew the American flag, was kept ready to go to sea, but had not, in fact, left its anchorage during the twenty years. Held, that he was liable to income tax as a person residing in the United Kingdom. Hamilton, J—‘‘ The point argued here is that fixity is so much of the essence of residence that you cannot have a residence except in some structure that is incapable of being moved. Hence, it is said that, as long as this vessel floats and can be shifted about, it cannot be a residence. No authority, no literary refer- ence, and no reason has been adduced for this construction. I am unable to understand myself why a man who personally lives on board a yacht for twenty years anchored a few hundred yards off the shore at Brightlingsea, does not reside there.” On appeal, the Master of the Rolls said: “The only question for us is this: Was there evidence upon which the Commissioners could reasonably and properly come to the conclusion that Mr. Brown was residing in the County of Essex—has he in fact lived within the county of Essex for more than six months? The conclusion that the Commissioners have arrived at is one which I agree with Mr. Justice Ham- ilton in thinking is one which I myself should unhesitatingly have arrived at, but after all residence is a question of fact. I may reside in a place although I am quite well aware that I have no real business to be there, I am a trespasser, and I am well aware that if the true owner comes he may make me move, but none the less I am residing there. It is not necessary that I should reside there with an indefeasible title. I will assume in the present case that it is no part of the argument of the Crown that the Harbour Master could not order this yacht, if the Harbour Master thought proper, to move out of this particu- lar place. But what has that to do with the only question that we have to consider? Aye or no, was Mr. Brown residing for more than six months in this yacht? “Then it is said that you cannot reside in an anchored vessel, and support for that proposition is sought from a decision of a very learned Judge. the Lord President, in the Scotch case of In re Young, reported in 1 Tax Cases, at page 57. In that case the only point for decision was this: A master mariner had a house at Glasgow where his family lived, and when he was at Glasgow he lived there too, but in the course of his busi- ness he sailed from Glasgow to the Mediterranean backwards and forwards several times during the year; and the argument was boldly put forward: ‘I am not residing at Glasgow because I am residing on board a ship sailing between Glasgow and the Mediterranean.’ The answer to that obviously was, as I should have thought, that in a case like that a man cannot be fairly said, for the purposes of Income Tax, to be residing elsewhere than in Glasgow, because he is, during a portion of the year, going backwards and forwards in a ship between Glasgow and 69 Thomson v. Inland Rev. (1918) , 56 Se. L. R. 10. Turnbull v. Foster (1904), 42 Se. L. R.15. DOMINION INCOME TAX LAW. the Mediterranean. But to say that that is a proposition involv- ing this statement, that there can be no residence within the meaning of the Income Tax Act in a vessel anchored within the body of the country for twenty years, is, I venture to submit, to put upon the words used by the learned Judge a meaning which they certainly do not bear. “Then it is said that the yacht flies the American flag. I daresay it does. I really do not see what that has to do with the matter.” A person employed by an English company as agent in Southern Nigeria under an agreement which provided that his remuneration should cease on the day he left Africa, owned a residence in Hawick, England, where his wife and family resided and where he spent four months of the year of assessment, subse- quently leaving for Southern Nigeria. He was held liable to be assessed to income tax as a person residing in the United King- dom in respect of the salary paid by the company in the United Kingdom either to himself or to his wife under his instructions, notwithstanding that the whole of his income, whether salary or commission, was earned abroad. Per Lord Justice Clerk.— I think in the sense of the Income Tax Acts a man may reside in more than one place at the same time. . . Even therefore if it were conceded that for eight months of the year in question the appellant resided in West Africa, where he actually was, and which was the place of his employment under the agreement so long as the agreement was in force, that would not preclude him from being also held to reside during these eight months where his wife and family lived in the house which he had provided for them as a place of resi- dence. In my opinion the appellant did reside during the whole year in the sense of the said Acts where that house was. I think it makes no difference that he might also be held to have resided for these eight months in Africa. So far as this part of the section is concerned I do not find any distinction taken between the ordinary or principal residence and any other place of residence. But on this stated case I am of opinion that, assuming that the appellant had for part of the year two resi- dences, his ordinary or principal residence was all the time where his wife and family were. “Tt was contended for the appellant that to make income assessable it must be earned during the time when the appellant resided in this country. I find no such provision expressed in the statute, and I can find no justification for implying any such provision.” A British merchant carried on business and usually resided at Madras, India. In nearly every year prior to the year of assessment he had visited the United Kingdom, occupying latterly with his wife and family a house purchased in his wife’s name out of moneys belonging to her and himself. During the year of assessment he did not visit the United Kingdom although his children resided in the house there. Held, that he was not liable to assessment to income tax as he was not a person “ residing in the United Kingdom.” Per Lord Justice Clerk.—‘ This gentleman has a usual resi- dence in Madras—a usual residence—and he was in that usual residence for the whole of the year of the assessment. It seems to me, in those circumstances, that it is not according to sound PERSONS RESIDENT IN CANADA. V1 reading of the statute to hold that his usual residence during the whole of that year was here.” Per Lord Trayner.— It is admitted that this gentleman has a residence and place of business in Madras where he usually resides. I take it, and it was conceded at the bar, that when you talk of a man’s usual residence you talk of his ordinary residence. If that is so, then section 39 covers the case—‘ any subject of Her Majesty whose ordinary residence shall have been in Great Britain’ shall be liable, but this gentleman had not his ordinary residence in Great Britain, for ex confesso his ordinary residence was in Madras. Section 2, which is the charging sec- tion, says he will be liable ‘for and in respect of the full profits or gains arising or accruing to any person residing in the United Kingdom.’ ‘It is not having a residence in the United Kingdom. He is to reside in the United Kingdom. I think to suggest that he was residing is contrary to the plain meaning of the admission to which I have already referred and is contrary to the fact that for the whole year of assessment he was residing in Madras and not in Great Britain at all.” CANADIAN. A high sheriff was by law required to be a resident of the poxy, shire town of his county, and he in fact spent the greater part of Board of his time there in the discharge of his duties, boarding at the jail. Assessors, He was held to be a resident of that town and as such liable to ax parte local income tax, though his wife and family continued to reside pene 42 at his former home outside the town. i ck 510 The appellant who, at the time of his appointment to they) ye Ag. office of Attorney-General of the Province of Nova Scotia, resided soxement and practised law in Bridgetown, N.S., disposed of his law Act (Hon. practice and removed his family to Halifax, where the duties 0. T. Daniels of his office required him to live. Held, that he was not liable to aed ee be assessed for income tax under section 15 of the Assessment aah oO Act, R. S. N. S. 1900, chap. 73, as a resident of Bridgetown, not-}5. 7,’R 157. withstanding that he retained his dwelling-house at Bridgetown with the intention of visiting and occupying it from time to time. UNITED STATES. In a late case in Ohio it was held that one who, after living Barhyat vy. continuously for many years in the same house, starts on a tour Cross, 156 of the world leaving the house in charge of a caretaker, remains Ohio 271 ; a resident of the state‘and city where his house is, for purposes 40 L. R.A. of taxation, during his absence from the country, even though he eee may intend, on his return, to remove to another state. 1915 C. 792. In the United States, the Treasury Department has made a ruling that “residence” is “that place where a man has his true, fixed and permanent home and principal establishment, and to which, whenever he is absent, he has the intention of returning, and indicates permanency of occupation as distin- guished from lodging or boarding or temporary occupation,” see, Black’s Income Tax Law, p. 105. Residence of a Partnership. Partnerships —A partnership, if it can be recognized with propricty as an entity capable of having a residence distinct 72 Partners taxable in individual capacity. DOMINION INCOME TAX LAW. from the residence of its individual members, doubtless resides at the place where the partnership business is carried on—that is to say, the place at which the central management and control of the business abides ;° but partnerships, as already noted, are not taxed as such under the Dominion Act, partners being liable to be assessed only in their individual capacity." Resident partners, whether the partnership firm be domestic or foreign, are liable to be assessed upon the whole of their distributive shares of the net profit or gain of the business whether derived from sources within Canada or elsewhere. But the Act makes no distinction between domestic and foreign partnerships as regards the quan- tum of the annual net gain or profit of the partner- ship business upon which a non-resident partner is liable to be assessed. There would seem to be no reason, in Non-resident principle, why a non-resident partner in a partnership partner in Canadian firm taxable only on share of profits of business in Canada. Firm not an entity dis- tinct from its members. firm resident in Canada and carrying on an extensive business here, as well as abroad, should stand upon a different footing as regards the extent of his liability to be assessed to income tax in respect of the profits of such business or of his aliquot share of such profits than resident partners in such a firm, because in such a case the non-resi- dent derives as much benefit as the resident partner from the protection and advantages afforded to the commercial enter- prise by the government, laws and institutions of the country. But, however reasonable it might be in such a case to treat the partnership business as the source of the income for the purpose of assessing the non-resident partner upon the whole of his distributive share of the partnership profits, wherever earned, the Act makes no provision.in that behalf; and, independently of express enactment, the legal notion of a partnership does not admit of any construction in favour of such a result. Although the mercantile notion of a firm is that of a body distinct from the members composing it and having rights and obligations distinct from those of its members, and although in some respects, more particularly for the purposes of legal procedure and the bankruptcy laws its quasi-corporate nature is recognized,’ a firm is not, in ° Ogilvie v. Kitton, 45 Se. L. R. 725; Sully v. Attorney-General (1860) 5 H. & N. 711, discussed in Cesena Sulphur Co. v. Nicholson (1876), 1 Ex. D. 428; Hewer v. Cov, 8 E. & I. 428; followed in Greenham v. Child, 24 Q. B. D. p. 29 at p. 31. Bs a 4, s.-s. 3, principal Act. as amended by section 3 (2), ¢. o, 1919, ®See Sweet’s Law Dict. tit. “ Firm.” PERSONS RESIDENT IN CANADA. English law, a persona,® so that it cannot be regarded as interposing a separate entity between the partners and the income derived from the partnership business. “The fallacy,” said Farwell, L.J., in an English case,'° “is to say that-a partner does not, but the firm does, carry on business. In English law a firm as such has no existence: partners carry on business both as principals and as agents for each other within the scope of the partnership business; the firm name is a mere expression, not a legal entity, although for convenience . . . it may be used for the sake of suing and being sued . . .. It is not correct to say that a firm carries on business; the members of a firm carry on business in partnership under the name or style of the firm.” In a case+ arising under the United States Income Tax U.S. v. Law (1913) which provided for the taxation of partners only in their individual capacity, in the same manner as the Dominion Act, the Court-said :— “This law, therefore, ignores for taxing purposes the existence of a partnership. The law is so framed as to deal with the gains and profits of a partnership as if they were the gains and profits of the individual partner . . . The law looks through the fiction of a partnership and treats its profits and earnings as those of the individual taxpayer. Un- like a corporation, a partnership has no legal existence aside from the members who compose it. The ‘Congress, conse- quently, it would seem, ignored, for taxing purposes, a part- nership’s existence, and that placed ‘the individual partner on the same footing as if his income had been received directly by him without the intervention of a partnership name.”? A non-resident partner in a resident firm is, therefore, liable to be assessed to income tax only in respect of his dis- tributive share of the net gain or profit arising from the firm’s Canadian business. * Re Sawers, ex. p. Blain (1879), 12 Ch. D. 522, per James L. J. at p. 5383; Re Vagliano Anthracite Collieries, Ltd. (1910), 79 L. J. (ch.) 769; 103 L. T. 211. ® Sadler v. Whiteman (1910) 1 K. B. 868, 889; cited with approval R. v. Holden (1912) 1 K. B. 488 (C, A.). 10. 8. v. Coulby, 251 Fed. Rep. 982. ?This judgment was affirmed on appeal by the. Circuit Court of Appeals: see, 258 Fed. Rep. 27. where the Court said: ‘‘ We concur in and adopt the conclusion. However, the statement made in this opinion that a partnership has no legal existence aside from the mem- bers who compose it is too broad, as, for instance, in view of the Bankruptcy Act, yet as applied to the particular portion of the statute and the question in hand it is correct and with this explanation we approve the reasoning of the opinion.” 6 3 Locality of central manage- ment and control the test of a company’s residence. English decisions applicable. DOMINION INCOME TAX LAW. Residence of Trading Companies. Trading Companies—A trading company does not, in a natural sense, reside anywhere, but in applying the conception of residence to a company the courts proceed as nearly as possible upon the analogy of an individual. A company does not necessarily reside at its place of registration or incorporation, or at the place where its head office is form- ally situated, or even where the bulk of its business is trans- acted. All these are important factors to be taken into considera- tion, but in the case of an artificial person the analogue to the residence of an individual is to be found in “ control,” the (lecisive test being, Where does the central management and control of the company actually abide ?—for that is the place where it really ‘‘ keeps house and carries on its real business ;° or, as the French term adopted from Saugne expresses it, is “Te centre de Ventreprise” ;* or, in Lord Halsbury’s words, the place where “ the head and brain of the trading adventure are situated ”;? or, in the expression commonly used by the English Income Tax Commissioners, “the head and seat and directing power of the affairs of the company.’ This, again, is said to be a question of pure fact to be determined, not according to the construction of this or that regulation or by-law, but upon a scrutiny of the course of business and trading.* The residence of companies for the purpose of income tax has been largely discussed by the courts in the United King- *DeBeers Cons. Mines, Ltd. v. Howe (1906), A. C. 455, per Lord Loreburn. L.C., at p. 458: see, also, Daimler Co.. Ltd. v. Con- tinental Tyre € Rubber Co. (1916), 2 A. C. 307, per Lord Parker of Waddington, at p. 339. ® Cesena Sulphur Co. v. Nicholson; Caleutta Jute Mills v. Nichol- son (supra), at pp. 450-51: DeBeers Cons. Mines, Ltd. v. Hove, supra, ° DeBeers Cons. Mines, Ltd. v. Howe, supra; Daimler Co., Ltd. Vv. Continentul Tyre Co & Rubber Co. (Great Britain) Ltd. (1916). 2 A. C. 807, per Lord Atkinson, at p. 319; per Lord Parker of Wad- dington at pp. 339-40. *Cesena Sulphur Co. v. Nicholson, supra, per Huddleston, B., at pp. 452, 454. as San Paulo (Brazilian) Ry, Co. v. Carter (1896), A. C. 31, at Dp. ood. * American Thread Co., Ltd. v. Joyce, 104 L. T. 217, per Hamilton J., at p. 219. *DeBeers Cons. Mines, Ltd. v. Howe, supra, per Lord Loreburn, L.C.. at p. 458; sed quare, see American Thread Co. v. Joyce. 106 L. T. 171. per Fletcher Moulton, L.J., at p. 175, where it is argued that the question is not a pure question of fact; also. Hood & Co. V. Jfagee (1918), Ir. R. 2 K. B. at p. 46, where it is said to bé a mixed question of law and of fact. PERSONS RESIDENT IN CANADA. q dom in connection with cases turning upon the liability of British and foreign companies to be assessed to income tax under the provisions of Schedule “ D ” of the English Income Tax Act.® Under the Dominion Act the question of residence arises in relation to companies of two classes, namely, (1) “domestic” companies, (t.e., companies incorporated in Canada) which carry on business abroad, and (2) “ foreign ” companies, (1.¢., companies incorporated in other parts of the Empire or in foreign countries which carry on business in Canada. It seems to result from the decisions under the English Residence Act, applying them in so far as they may be applied to the at ee interpretation of the Dominion Act, that a company incor- companies. porated in Canada must be held to reside in Canada for pur- pose of income tax if its affairs are directed, managed and controlled in and from Canada, and this will be so, even though the control exercised here over business operations ‘abroad does not go beyond mere passive oversight and tacit control regularly exercised, intervention never becoming necessary, everything abroad going smoothly without it,® and notwithstanding that its entire business is otherwise transacted and the whole of its property is situated outside of Canada." Such a company cannot be divided in two parts, Canadian and foreign *® like a partnership;® but if the company be also registered in a foreign country it is said that it is thereby made into two corporations, cach being a distinct entity.*° The principle of “ control ” as the test of residence appliest esidence also to foreign companics.t| Where the chief seat of a foreign im ioesen, corporation (Imperial Ottoman Bank) was fixed hy the conces- companies. sion and the statutes which constituted it at Constantinople, the corporation was held to be resident there and not at a mere branch or agency in London ;* but the mere fact of a company’s being incorporated and registered, or even having 58 & 9 Geo. V, ec. 40 (Imp.). ° Ogilvie v. Kitton, 45 Sc. L. R. 725. “Cesena Sulphur Co. v. Nicholson: Calcutta Jute Mills Co. v. Nicholson, supra: Imperial Continental Gas Ass'n v. Nicholson, supra; Ogilvie v. Nitton, supra, and San Paulo (Brazilian) Ry. Co. v. Carter, supra. S(fesena Sulphur Co, Vv. Nicholson (1876). 1 Ex. Div. 425. at pp. ae ‘veer Continental Gas Ass'n v. Nicholson (1877), 37 ; ® Sully v. Atty.-Gen., 5 H. & N. T11:; Cesena Sulphur Co. v. Nicholson, supra, per Kelly, C.B.. at p. 451. 0 St. Louis Breweries, Ltd. v. Apthorpe (1898), 79 L. T. 551, per Wills, J., at p. 1 DeBeers Cons. Mines, Ltd. v, Howe. supra. 7 Itty.-Gen. v. Alewander, L. R. 10 Ex. Cas, 20. 76 An exemp- tion that fails. A resident company may be assessed in respect of the profits of a foreign company. DOMINION INCOME TAX LAW. its head office * in a foreign country does not preclude it from having a residence in this country, at least for the purposes of income tax.* Sec. 5, par. (k) of oe Income War Tax Act® exempts from liability to income tax “the income of incorpor- ated companies whose business and assets are carried on and situate entirely outside of Canada.” It was, doubtless, intended by this provision to exempt any company which is controlled in and from Canada but whose entire business is otherwise carried on and whose assets are wholly situated, outside of Canada; but it would seem to be doubtful, to say the least, whether, if this was the real purpose of Parliament, the purpose has been accomplished. The benefit of this exemption seems to depend upon the co-existence of two condi- tions, viz.: (1) the company’s business must be carried on entirely outside of Canada, and (2) its assets must be situated, entirely outside of Canada. If this construction be right, then it follows from the decision of the House of Lords in the San Paulo Case,> where it was held that a company carries on business in a place in and from which the active direction and control of the company are exercised, that no company carrying on a business outside of Canada, even though its assets may be wholly situated outside of Canada, will be entitled to claim the benefit of the exemption if its undertaking be actually directed, managed and controlled in and from Canada. When a company resident in Canada owns either itself or by trustees the entirety or the great bulk of the shares in a company resident abroad, a question of some difficulty arises, viz.: whether the business of the foreign company is in reality the business of the company resident in Canada in such sense as to render the whole of the profits of the foreign company assessable to income tax as profits of the Canadian company. In such a case the real question is whether the foreign com- pany is in fact the agent or trustee of the company in Canada to carry on the foreign business.’ If it is, then the business ® New Zealand Shipping Co., Ltd., vy. Stephens (1906) L. T. 50; (1907), 24 T. L. R. 172 (C.A.) * DeReers Cons. Mines, Ltd. v. Howe, supra; Goerz & Co.'v. Bell (1904), 2 K. B. 136. * Section 5, c. 28, 1917, as amended by s. 4, e. 25, 1918. *See. also, American Thread Co. vy. Joyce, 106 L. T, 171, per Fletcher Moulton, L.J.. at p. 175. oe Ltd. v. Clark (1902), 2 K.B. 450, per Phillimore, J., at p. 465; The Gramophone & Typewriter, Ltd. v. Stanley (1906), 2 x ‘RB. 856, per Walton, J., at p, S71; (1908), 2 K. B., per Buckley, L.J., at p. 105. PERSONS RESIDENT IN CANADA. “ee is, in point of law, the business of the company in Canada, and the whole of the profits are assessable as part of the profits of the company in Canada. The governing principle may be put in simple form: A Gontrol person in Canada (in the term “person” is included, of os by course, a company) may be the owner of a commercial under- company taking in another country. Such person in Canada may carry 0v°t foreign on the foreign business by means of an agent abroad. The must be ‘ at of agent may be a company, and the owner in Canada of the master or business abroad may be a shareholder in that company. But Principal. in order to show that the foreign company is not carrying on business as a distinct independent corporate entity and that in reality it is a sham company, a mere simtilacrum or cloak for ° the company in Canada or the agent or trustee of the Cana- dian company, there must be evidence of control exercised by the company in Canada as master or principal over the foreign business by, or in some such way, as by a board of direc- tors in Canada * and not merely the control which is obtained by a company resident in Canada having, in its capacity of large ‘or exclusive shareholder in the foreign company, a pre- pendereae influence over the operations of the foreign com- pany. If there be a body of independent shareholders, however Uxistence of small, then the company in Canada does not exercise such Baa control as to bring the foreign company’s profits within the shareholders ambit of the Income War Tax het, The foreign company must ¢ uate be- be the agent or trustee of the Canadian company as principal Ln ae in carrying on the foreign business. Nothing short of that will suffice. Said Cozens-Hardy, M.R., in the Gramophone and Type- writer case: “The fact that an individual by himself or his nominees hold practically all the shares in a company may give him the control of the company in the sense that it may enable. him by exercising his voting powers to turn out the directors and to enforce his own views as to policy, but it does not in Soon any way diminish the rights or powers of the directors, erie oo make the property or assets of the company his, as distinct s Geiaes from the corporation’s. Nor does it make any difference if he Dang acquires not practically the whole, but absolutely the whole, 5 Apthorpe v. Peter Schoenhofen Brewing Co., Ltd. (1899), 80 L. T. 395; St. Louis Breweries, Ltd. v. Apthorpe, supra. °Kodak, Ltd. v. Clark, supra; Gramophone & Typewriter, Ltd. v. Stanley, supra, A company incorporated in Canada conceivably may reside abroad. Not easy to disaffirm residence in Canada in case of domestic «companies, DOMINION INCOME TAN LAW. of the shares. The business of the company docs not thereby become his business. He is still entitled to receive dividends on his shares, but no more. I do not doubt that a person in that position may cause such an arrangement to be entered into between himself and the company as will suffice to con- stitute the company his agent for the purpose of carrying on the business, and thereupon the business will become, for all taxing purposes, his business. Whether this consequence follows is in each case a matter of fact.” In determining the true relation between a Canadian com- pany and a foreign company, attention must be paid to matters of substance rather than to matters of form and machinery.?° Is it possible that a company incorporated in Canada may, notwithstanding the fact of its incorporation here, he held, as regards liability to income tax in Canada, to be resident abroad? While there appears to be no reported decision which furnishes a direct answer to this question, it would seem that the question ought, in principle, to be answered in the affirma- tive. It is to be observed that nothing was said by the House of Lords in the DeBeers Case which would exclude the applica- tion of the test of residence there formulated to a home incor- porated company for the purpose of the Income Tax Act, and in a recent Irish case—Hood ¢& Co. v. lagee\—where the question was squarely raised in regard to the liability of a company incorporated and registered in Ireland but managed and controlled from New York by its sole director, John Hood, an American citizen, the relevance of the principle of control was not denied, but indeed recognized and accepted as the governing principle. The company was held, however, upon the facts of the case, to be resident in the United King- dom. Mr. Justice Gibson, who delivered the leading judgment, said: “In the case of foreign companies operating from or in connection with an English base, it is obviously easier to infer residence from the use of such base and the powers there exercised than to disaffirm residence in the ‘case of a home company trading in part here. No case has been cited, and perhaps none exists, where in such instance the home company has been held not to be resident.” St. Louis Breweries, Ltd. Vv. Apthorpe, T9 L. T. 551, per Wills, J., at p. 555; Apthorpe v. Peter Schoenhofen Brewing Co., Ltd., 80 I. T., per Romer, L.J., at p. 400, * (1918), Ir. R. 2 K. B. 34. PERSONS RESIDENT IN CANADA. Nevertheless, the possibility of a company becoming resi- dent elsewhere than, and either instead of or as well as, at the place of its incorporation, was undoubtedly suggested by Mr. Justice Channel in Georz & Co. v. Bell,’? and some authority for this view is to be found in the recent decision of the House of Lords in the case of Daimler Co., Lid. v. Continental Tyre and Rubber Co., Ltd., where at least two of the law lords who heard that case — Lord Atkinson and Lord Parker of Waddington— appear to have held that the control exercised by alien enemy directors and shareholders over the operations of a company incorporated in Great Britain determined its place of residence and consequently gave it alien enemy character.” It would seem also, though the point does not appear to, company have been expressly deciied, that a company may have two ved ae esi- residences. This, again, was suggested by Mr. Justice Chan-¢ dees, nell in Goerz & C'o. v. Bell, hers in speaking of a South African company, he said: “I can see nothing to prevent it, after incorporation, from residing elsewhere either instead of or as well as in the South African Republic, and I think the company lid reside elsewhere.” Lord Justice Buckley (now Lord Wrenbury) in the American Thread Co. case, said: “A corporation, like an individual, may have more than one place of residence. The place which immediately occurs to one as presumably its place of residence is the place of incorpora- tion. That has been spoken of in some of the cases as the place of its birth ; it is the place of its birth, but it is more than that; it is the place whose laws determine its status, it is according to the law of that place that it is a corporation; and, therefore, it is not only its birth but its status which depends upon the place in which its incorporation takes place, and it would be difficult, I think, to say under any circumstances the place of incorporation may not, for some purposes at any rate, as for instance with regard to jurisdiction, be always the place of residence. But that is not necessarily its only place of resi- dence. There is a place of residence for the purpose of income tax,’”# % (1904), 2 K. B. 186, at p. 150. *(1916), 2 A. C. 307. € (1916). 2A. C., per Lott Atkinson, pp. 319-20: per Lord Parker of Waddington. pp. 339-40 * (1904), 2 K. B. 136. #106 L. T. at p. 175; compare Carron Tron Co. v. Jfaclaren (1855), 5 H. L. Cas. 416, per Lord St. Leonards, at p. 449. 80 A residence for purposes of jurisdic- tion of courts not necessarily sufficient for purpose of Income Tax Act. Cesena Sulphur Company v. Nicholson ; Co. v. Nich- DOMINION INCOME TAX LAW. A residence which is sufficient for the purposes of the juris- diction of the courts is not necessarily sufficient to bring a for- eign corporation within the operation of the Income War Tax Act.> Where, for instance, a foreign corporation conducts its business through its own servant at some place within the jurisdiction of the courts of this country, it may be held to reside in this country for the purposes of service of process,* though not for the purposes of the Income Tax Act. DECISIONS. J. As to REsIpDENCE oF DoMESTIC COMPANIES CARRYING ON Business ABROAD. A line of cases, of which the first and leading one is Cesena Sulphur Company v. Nicholson; Calcutta Jute Mills Co. v. Nichol- son ’*—two cases which were tried together—exemplifies the ap- plication of the doctrine of ‘‘control” as the test of residence, finally approved by the House of Lords in the De Beers case, to companies incorporated and registered in the United Kingdom. olson (1876),The facts of the Cesena Sulphur Co. and the Calcutta Jute 1 Ex. D, 428. Mills Co. cases are typical of this class of cases.® The Calcutta Company, which was incorporated and regis- tered in England, carried on the business of manufacturers of jute in India. The company had no office or other place of business in the United Kingdom, although, for the purpose of registration, it had an address at the office of one of the English directors in London, and the English shareholders and directors, when they held meetings, met there. The company was managed, so far as its affairs in the United Kingdom were concerned, by a board of directors, who had power to appoint, and did appoint, a Calcutta director. The buying of raw materials, the manufac- ture and sale of the same, as well as all the operations connected with the business of the company in all its branches, were wholly and exclusively carried on in India under the Calcutta director and certain managing agents. The profits of the concern, if any, were entirely earned in India and nothing came to the hands of the English directors except what was sent from India to pay necessary expenses in England and except such proportion of the profits as was divisible among the English shareholders. Only about one-third of the profits was payable to the share- ° DeBeers Cons, Mines, Ltd. v. Howe (1906), A. C., per Lord Loreburn, at p. 459. °*Compagnie Generale Transatlantique v. Law (1899), A. C. 431; Dunlop Pneumatic Tyre Co. v. Actien-Gesellschaft, &c., (1902), 1K. B. (C.A.) 342. 7 (1876), 1 Ex. D. 428, “See, also, Imperial Continental Gas Ass'n v. Nicholson (1817), 37 L, T. 717 (an English company carrying on gas works on the continent of Europe) ; London Bank of Mexico and South America v. Apthorpe (1891), 2 Q. B. D. 878 (C.A.), (an English company carrying on the business of bankers in London, with branches at Mexico and Lima) ; Denver Hotel Oo., Ltd. v. Andrews (1895), 43 W. R. 339 (an Eng- lish company operating a hotel at Denver, U.S.A.) ; Grove v. Elliott & Parkinson (1896), 3 Tax Cas. 481 (an English company operating oil wells and carrying on the business of miners and mineral oil merchants in Galicia). PERSONS RESIDENT IN CANADA. holders in the United Kingdom. The whole of the company’s capital was invested in India. The Cesena Sulphur Company was incorporated in England and afterwards registered for all purposes in Italy, where it worked sulphur mines. The working and disposal of the mines and the general business of the company were wholly under the management of a board of directors who held their meetings at the company’s registered office in England, subject, in certain respects, to the control of general meetings of shareholders which were held in London. There was an Italian delegation, consist- ing of two or three members of the board resident in Italy, to whom the practical management of the company’s property and affairs in Italy was entrusted. All the operations connected with the manufacture and sale of sulphur were exclusively carried on in Italy, where the company’s profits, if any, were earned, and the dividends required by the English shareholders were the only part of its profits sent to the United Kingdom. Of the shares about one-third were held in England and the rest in foreign countries. Both companies contended that they were liable to income tax only upon the proportion of the profits actually received in the United Kingdom. The Exchequer Division found that the directing and controlling power was vested, in the case of each company, in the English board of directors, and accordingly held that each company was liable, as residing in the United King- dom, in respect of the whole of the profits wherever made. Kelly, C.B., said: “What is the meaning of the word ‘residing,’ as applied to a joint stock company, and to this case? The answer is—whether there may or may not be more than one place at which the same joint stock company can reside. I can express no opinion at present—a joint stock company resides where its place of incor- poration is, where the meetings of the whole company, or those who represent it, are held, and where its governing body meets in bodily presence for the purposes of the company, and exercises the powers conferred upon it by statute and by the articles of association. That acts of the highest importance, affecting the. well-being of the company, the operation of its business, the realizing and disposing of its funds, are done in India, is per- fectly true; but they are all done by mere agents—whether they be directors or not—appointed under the sole authority of the: governing body in this country. If a company can be said to reside anywhere—and we must suppose that it can, in order to give any effect to the statute as applied to joint stock companies— this company undoubtedly resides at the office in St. Helen’s place, where the meetings are held. . . But the appellants say that the whole business of the company is transacted in India alone. . . . All that is true, but every act done, the working of the mills, the realizing of the profits, the transmission of the proportion of the profits in question to England, and the distribution of the rest of the profits in the form of dividends to the different shareholders—all that, if not done by the com- pany directly in India, is done by them indirectly because it is done by the person appointed by them, whom they may recall at their pleasure and who has no authority to interfere in any way in the affairs of the company except the authority conferred upon him by the governing body at home. . . Though the whole D.I.T.L.—6 81 82 DOMINION INCOME TAX LAW. property and produce of the property is in India and the whole capital is invested in India, and though the whole of the moneys which the company is ever entitled to receive, whether as profits or in any other shape, is earned in India, yet it all belongs to the company who might at any moment virtually take possession of it. If, without their consent, any one were to take possession of any one of the jute mills the company might immediately bring ejectment and recover it. It is the company located in England which can alone deal with, or authorize the dealing with, the property in any way. When we look at the memoran- dum and articles of association there can be no doubt that all this property and these powers belong to the company. It is, no doubt, true, as was urged by the counsel for the com- pany, that one great principle of the law of England is that taxa- tion shall be imposed only upon persons or things actually within this country; whereas this tax is imposed upon the whole earnings of the company, two-thirds of which—except what may be set aside as a reserve fund, which is not in question here— belong to persons not within this country, and not subject to the taxation and laws of this country. That is undoubtedly an infringe- ment upon one of the principles on which taxation is levied by the laws of every country. The answer to that may be—and it is not for me to decide whether it is a sufficient answer—that if a foreigner residing abroad and having no property or interest in or connection with this country, thinks fit to invest his money in this country, and so to obtain the protection of our law to his money, he must take it with the burden belonging to it and pay the tax imposed upon his income. . . . You cannot divide a company, aS was suggested by Mr. Matthews, into parts as you can a’ partnership consisting of several partners. You cannot say that £4,000 of this money belongs to the Cesena shareholders and £500 to French shareholders, and £500 only to English share- holders, and say, ‘Let the company be assessed only in respect of the £500 belonging to the English shareholders.’ There is no instance of such a thing being attempted. The whole of the gains come into the hands of the company, and have to be divided among the whole of the shareholders. But until they are divided they are the property of the company, and only pass into the hands of the shareholders when the dividends have been declared under the authority of the company, and according to the articles of their constitution.” ° Huddleston, B., said: “The whole question turns on the interpretation of ‘resi- dence’ as applicable to a company. The tax is only imposed upon a ‘person residing within the United Kingdom,’ and a cor- poration for the purpose of paying income tax is a ‘person.’ The use of the word ‘residence’ is founded upon the habits of a natural man, and is therefore inapplicable to the artificial and legal person whom we call a corporation. But for the purpose of giving effect to the words of the legislature an artificial residence must be assigned to this artificial person, and one formed on the analogy of natural persons. ‘ Mr. Matthews argues, therefore, that when you deal with a trad- ing corporation it means the place not where the form or shadow of business, but where the real trade and business is carried on, and that definition seems to be almost conceded by all the counsel. There is a German expression applicable to it which is * (1875-6), 1 Ex. Div., pp. 445, 446, 447, 449, 450, 451. PERSONS RESIDENT IN CANADA. well known to foreign jurists—der Mittelpunkt der Geschiafte; and the French term is ‘le centre de l’entreprise,’ the central point of the business. . . . In the present argument the Attor- ney-General advanced a proposition to which I cannot assent. He suggested that the registration of a company was conclusive of its residence, that if a company was registered in England it must be held to reside in England. I think the answer which was given during the argument is a good one. It is this:— Registration, like the birth of an individual, is a fact which must be taken into consideration in determining the question of residence. It may be a strong circumstance, but it is only a circumstance. It would be idle to say that in the case of an indi- vidual the birth was conclusive of the residence. So drawing an analogy between a natural and an artificial person, you may say that in the case of a corporation the place of its registration is the place of its birth, and is a fact to be considered with all the others. If you find that a company which is registered in a particular country, acts in that country, has its office and receives dividends in that country, you may say that those facts, coupled with the registration, lead you to the conclusion that its residence is in that country. . . The difficulty is in applying that principle to the facts of each case. I admit that the onus of proving the residence lies upon the Crown, as my brother Cleasby said in Attorney-General v. Alexander, and if the Crown fails to satisfy the Court that the place of residence is within the area of taxation, the company ought not to be taxed. Then I have to ask myself where was the place where the real and sub- stantial business was carried on—where was le centre de l’enter- prise, the central point? Looking at the facts I can only answer that question by saying that in both these cases it was in England.’ ? II. As to RestpENcCE oF ForREIGN COMPANIES CARRYING ON BUSINESS IN CANADA, The De Beers case, decided in 1906, definitely extended the peBeers doctrine of “control” to foreign companies. That was theConsolidated case of a company incorporated and registered in South Africa. Mines, Ltd. Its head office was formally situated at Kimberley and the gen-Vv- oe eral meetings of shareholders had always been held there; also, Ge Oe. the profits of the company were made out of the sale of diamonds mined in South Africa. Some of the directors’ and life governors lived in South Africa, but the majority of them lived in England, and it was clearly established that the directors’ meetings, which were held at the company’s office in London, always exercised the , real control in practically all the important business of the com- pany except mining operations. Said Lord Loreburn, L-C., upon this question of control: “London has always controlled the negotiations of the con- tracts with the diamond syndicates, has determined policy in the disposal of diamonds and other assets, the working and develop- _ment of mines, the application of profits and the appointment of directors. London has always controlled matters that require to be determined by the majority of all the directors, which include all questions of expenditure, except wages, materials, and such 10 Tex.. at p. 32, + (1875-6) 1 Exch. Div., pp. 452, 453, 454. Goerz & Co. v. Be (1904), 2 K. B. 136. New Zealand Shipping Co., Ltd. v. Stephens (1906) , 96 L.T. 50; affd. (1907) 24 T. L. R. 172. -The Ameri- can Thread ©o. v. Joyce, 106 L. T. 171: 108 L. FE. 353 L DOMINION INCOME TAX LAW. like at the mines, and a limited sum which may be spent by the directors at Kimberley. The Commissioners, after sifting the evidence, arrived at the two following conclusions, viz.:— (1) That the trade or business of the appellant company con- stituted one trade or business, and was carried on and exercised by the appellant company within the United Kingdom at their London office. (2) That the head and seat and directing power of the affairs of the appellant company were at the office in London, from whence the chief operations of the company, both in the United Kingdom and elsewhere, were, in fact, controlled, managed and directed. These conclusions of fact cannot be im- pugned, and it follows that this company was resident within the United Kingdom for purposes of income tax, and must be assessed on that footing.’” Previously, in 1904, the same conclusion had been reached upon substantially similar facts by Channel, J., in Goere € Co. v. Bell. In that case a company registered as a joint stock com- pany in Pretoria, when it was within the South African Republic, which was formed to carry on financial operations and to acquire mining and other properties in South Africa and elsewhere and turn them to account, and to form subsidiary companies, was held to reside‘in the United Kingdom and to be liable to income tax on all the annual profits of its trade whether carried on in the United Kingdom or elsewhere, for its head office was in fact in London where almost every transaction of importance affect- ing the management, control, and direction of the company was dealt with and decided at board meetings of the directors, although there was a director in South Africa and there were others in different countries. In New Zealand Shipping Co., Lid. v. Stephens, decided shortly after the De Beers case, a company registered in New Zealand which had a registered office and board of directors there and a separate board in London, was held to be resident in the United Kingdom for income tax purposes on the ground that “all the main and real business of the company, the real management and the real control” were vested in the London board of directors, the New Zealand board being, in fact, man- agers for their district under the control of the London board. The American Thread Co. v. Joyce is a recent case which went to the House of Lords. The company was incorporated and registered in the United States, where it owned cotton mills for the manufacture of cotton thread, none of which was sold in the United Kingdom. Under the by-laws of the company it was provided’ that there should be seven directors, three of whom should reside in the United States and constitute an executive committee to direct the current business of the company. The board of directors held its regular meetings in the United States, but its extraordinary meetings in London, at the office of the company there, and certain powers, namely, those of dealing with the purchase or lease of any business or plant, the sale or lease of real estate, the borrowing of money, the payment of audi- tors, the selection of the executive committee of directors and the fixing of their remuneration, the filling of casual vacancies among directors, and making of agreements for periods exceeding one year and the appointment of higher officials were reserved to the board of directors convened in extraordinary meetings. In prac- 71906, A. C., p. 459. PERSONS RESIDENT IN CANADA. tice the board also, at its extraordinary meetings, decided upon the dividend to be declared on the company’s common stock and exercised supervision over the company’s accounts and over the process of manufacture in use in the company’s works in the United States. The District Commissioner of Taxes came to the conclusion that the control and management of the affairs of the company rested with, and was constantly exercised by, the directors resident in England in extraordinary session, and they dccordingly determined that the company was residing in the United Kingdom and liable to be assessed on the whole of its profits. It was held by the Court of Appeal, whose judgment was affirmed in the House of Lords, that this finding was con- clusive because there was evidence to justify it. Hood v. Magee is a recent decision by the King’s Bench Divi- Hood v. sion, Ireland. The company, which was incorporated in Ireland Magee BD or as a company limited by shares, and had a registered office in (1918), Ir. Belfast, was formed to take over the business of the firm of R.. 2 K.B. John Hood & Co., of New York, who were merchants and com-”* mission agents dealing in linen, cambric, cotton, lace and articles of a similar character. The capital stock of the company was held by six preference and seven ordinary shareholders. John Hood was the largest shareholder and the company was in reality an unusually perfect specimen of the “one-man” type. The company’s principal business consisted of sales in the United States of linen goods, mainly damask, which were pur- chased in Ireland and Scotland, subsequently bleached and finished by other firms, folded by hand in the company’s Belfast warehouse, and then exported to America, where they were sold under the direction of Mr. Hood. The company had an office and secretary at Belfast. Its minute books were kept there, and one of its banks was Irish. The general management of the com- pany was vested, under its articles of association, in the board of directors. The powers of the board were vested, during the period in question, in Mr. Hood, as sole director. The general meetings of the company had invariably been held in Belfast and the dividends had been declared at these meetings. Latterly, these dividends were paid directly from New York to each indi- vidual shareholder. It was contended that the company was controlled, managed and directed by its sole director from New York, therefore, resided as regards liability to income tax in the United Kingdom, not in Ireland but at New York. It was held, however, that the company was liable to pay income tax as a resident in the United Kingdom. Said Gibson, J.: “Though the brain of Mr. Hood as a human being directed the company’s operations, and though an external observer might not notice much difference in the way the business was carried on by him after he had legally ceased to own it, he was, as director, acting under special delegated authority from the company, a distinct legal person; it matters not in law that the company was John Hood disguised in limited liability attire: Salomon & Co. v. Salomon (1897), A. C. 22; The Gramophone Case (1908), 2 K. B. 89. The company in its visible responsible operations, contracts, staff, ownership, distribution of profits, etc., was an Irish company, though its executive dealings were in the hands of Mr. Hood as agent. The residence of the com- pany cannot be determined by Mr. Hood’s choice of his own residence. No doubt wherever he went he carried his functions DOMINION INCOME TAX LAW. with him. He might have gone for health to Davos or Colorado for two years and equally controlled the business from his new home either personally or through managers in New York and the agents appointed by him. All the same he was nox the com- pany, but it owned his brain and capacity as well as the business. The tap root of the fruit-bearing tree was at Belfast. The trade was exercised in Ireland by the owning company which for its own profit sold in America by its agent. For the time being, such representative might be free from risk of rémoval for each year and might, on behalf of the company, possess un- limited powers, but his position, however secure, and his auth- ority, however widé, did not vest in him separate personality. He did not control the company as if he were an extraordinary power. It is through the company that, as director, he lives and has his being. All his connections must be referred to their originating delegation.” Madden, J. said: “John Hood, in whom the powers of the directorate are vested, is at the present moment resident in New York, but his residence there does not result from anything in the constitution of the company or necessarily follow from the nature of the business carried on by it. . .. The shareholders, by re-electing Mr. Hood, have acted on the belief that it is in the interests of the company that the managing director should reside where the goods in which they trade are sold rather than where they are manufactured and bought. But this arrangement might be departed from. In my opinion, the residence of the sole director, John Hood, in New York, is not the kind of residence of a directorate which can be relied on as determining the residence of the company for the purpose of taxation, and here lies the essential difference between the present case and the De Beers case. . . In my opinion, the central management and con- trol of this company abides with the general meeting of share- holders in Belfast, where the registered office of the company is situated and where the general meetings of the company are held. . . . If the shareholders, in general meeting, were to consider it more in the interests of the company that the manag- ing director should reside where the goods in which they deal are manufactured and bought, they might refuse to re-elect him except on the terms of his residing in Belfast.” Kenny, J., said: “Tt is a mere accident that Mr. Hood resides in New York. The business is carried on in the two countries as a single entity, and Mr. Hood is no more than the servant or agent of the company temporarily and accidentally resident in the United States. The company in general meeting could supersede him at any time and appoint a board, any one or more of whom might reside in the United Kingdom. If he died or became bankrupt, a new board would have to be appointed.” III. Conrroy or a Company CoNSTITUTES IN ITSELF CARRYING ON or BUSINESS. The decision of the House of Lords in the San Paulo case is the leading authority. In that case a company incorporated in England owned and operated a railway in Brazil. The rail- way was worked and the business of the company controlled, ¢ PERSONS RESIDENT IN CANADA. 87. directed and managed by a board of directors in the United San Paulo Kingdom through a superintendent in Brazil appointed by them ( Brazilian ) and a staff of servants in Brazil who were under his supervision. Ry. Co. v. The receipts of the company from which the profits made by it Carter, were derived, were earned and paid in Brazil. Meetings of direc-5 31. A.C. tors and shareholders were held in the United Kingdom, where” the dividends were declared. The company contended that it was assessable to income tax only upon the actual sums annually received in the United Kingdom. It was apparently admitted that the company was resident in the United Kingdom,’ and the question debated was whether the company carried on its busi ness either wholly or partly in the United Kingdom. Lord Halsbury, L.C., after pointing out that “trade” was a word which might be understood in two different senses, viz.: (1) as meaning the locality “where the goods in respect of which trade is carried on are conveyed, made, bought or sold; or, speaking of land, where it is cultivated or used for any other purpose of profit”; or (2) as meaning the place where “the con- duct and management, the head and brain of the trading adven- ture are situated ” when these are in a different place from that in which the corporeal subjects of trading are found, said:— “Tf it were a mine, as in the Cesena case (I Ex. D. 428), ora jute mill, equally with a railway, the person who governs the whole commercial adventure, the person who decides what shall be done in respect of the adventure, what capital shall be invested in the adventure, on what terms the adventure shall be carried on, in short, the person who, in the strictest sense, makes the profits by his skill or industry, however distant may be the. field of his adventure, is the person who is trading. That per- son appears to me, in this case, to be the appellant company. Every one of the tests I have applied are applicable to its pro- ceedings. A ship owner, or indeed a ship broker, may not have any one of the ships or the charter parties which he negotiates in England; but by correspondence or by agency he may have both charter parties and ships, not necessarily British ships, all over the globe. But if he lives in London, and by his direction governs the whole of this commercial adventure, could it be said that he is not carrying on his trade in London? So it appears to me that this appellant company is carrying on the trade in London, from which it issues its orders, and so governs and directs the whole commercial adventure that is under its superin- tendence.”* In the same case, Lord Watson, after reviewing the facts, said: ; “The only persons who can with propriety be described as carrying on the trade of the company, are its directors, who, for all purposes of administration and management, are the com- pany itself. I do not think that, in such circumstances, the particular localities in which debts are incurred to the com- pany, or are paid to its agents, are of any consequence in ascer- taining by whom its trade is carried on.’” Again, Lord Davey, after recounting the facts, said: “The business is therefore in very truth carried on, in and from the United Kingdom, although the actual operations of the * (1896), A. C., at p. 33. : *Tbid, at pp. 38-9. ° Tbid., p. 42. 88 a v. igyptian Hotels, Ltd., DOMINION INCOME TAX LAW. ‘company are in Brazil, and in that sense the business is also carried on in that country.’ It may, however, be a question of some difficulty whether the control exercised by a board of directors resident in Canada over the operations of a foreign business is a sufficient measure of control to constitute carrying on of business in Canada. Upon this point it is useful to contrast with the San Paulo case the more recent decision of the House of Lords in Mitchell'v. Egyp- tian Hotels Limited. The company owned certain hotels in Egypt. Under amended articles of association the Egyptian busi- ness of the company was to be carried on and managed by a local poard to the exclusion of any board of directors other than the local board. The local board were to meet annually in Egypt, were to be affected by resolutions of general meetings held in Egypt only, and were to exercise all the powers of the company requisite for the Egyptian business. They were to retain the profits in Egypt and remit to England what might be necessary to pay dividends to shareholders resident in England and for expenses incurred by the London board. The London board were to keep accounts, recommend dividends and control the capital. The only business carried on by the company was the Egyptian hotel business. The London board had, since the alter- ation of the articles, recommended a dividend and authorized the borrowing of a sum of money for that purpose. The Commissioners of Income Tax, in these circumstances, held that the controlling power remained with the London board. Their determination was affirmed by Horridge, J. He was re- versed by the Court of Appeal as the House of Lords were equally divided. Accordingly, the judgment of the Court of Appeal stands. Cozens-Hardy, M.R., said: “The only profits which are taxable are such profits as are remitted from Egypt to this country. It makes no difference that the London board are the persons to recommend the amount of the dividend which is payable as a result of trading. That is not the control or brain of the company in the sense in which those, words are used.” Buckley, L.J., after referring to the alteration of the com- pany’s articles of association, said: “The result, in my judgment, is that, as regards ‘the com- pany’s affairs and business whatsoever in Egypt,’ the carrying on and management is confided to persons out of the United Kingdom, and there is no power of control whatever over what is called ‘all the company’s affairs and business whatsoever in Egypt and the Soudan’ exercised in this country. Stopping there, the result is that management, control and administra- tion are not in this country but elsewhere. . . The whole question is whether the control and management of the trade is here. . . . There is a board of directors here and they have certain powers. . . . It is still left to the London directors to recommend what the dividends shall be. It is said that that is in some way carrying on or exercising the trade. To my mind that is not so. The purpose of the accounts is to show what is the result of the trade that has been carried on; the clauses as to dividends are clauses relating to the’ disposition of the profits ° Tbid., p. 48. PERSONS RESIDENT IN CANADA. arising from the trade that has been carried on. Then it is said that if the directors do not, in their recommendation as to dividends, exhaust the fund, there will be a surplus which will be left in the business. That is true, but irrelevant. The pro- fits which in the past have been earned in carrying on the trade are dealt with by dividing so much amongst the shareholders and leaving so much of them alone. That is not carrying on the trade.” Channel, J., said: “Tt is obvious that the spending of the profits, if any, of a business is not a carrying on of the business, nor is any other way of dealing with the profits other than spending any more a mode of carrying on the business. The matters relied on by the respondent are merely powers to deal with the profits of the business.” The judgment of the Court of Appeal was supported in the House of Lords by Lord Parker of Waddington and Lord Sumner (Earl Loreburn and Lord Parmour dissenting). The reasons upon which the judgments of Lord Parker of Waddington and Lord Sumner proceed are neatly summed up in the following passage from the judgment of the latter: “Control exercised here over business operations abroad, though they are far greater in volume or magnitude, will suffice for case 1: (San Paulo Brazilian Rail. Co. v. Carter (1896), A. C. 31). So, too, will mere oversight regularly exercised, even though intervention never becomes necessary, everything abroad going smoothly without it: (Ogilvie v. Kitton (1908), S. C. 1003; 5 Tax Cas. 338). Some actual participation in carrying on the trade is necessary, though it may not go beyond passive over- sight and tacit control. It is not enough that the proprietor merely has the legal right to intervene; otherwise Colquhoun v. Brooks would have been otherwise decided, for there the respond- ent was entitled to intervene at any time, though in fact he never did so, but took his share of the profits just as they happened to be earned by those in control abroad. . . . I am of opinion that what the board of directors actually did fell short of taking any part in or exercising any control over the carrying on of the business in Egypt, and that where the directors forebore to exercise their powers, the bare possession of those powers was not equivalent to taking part in or controlling the trading.” IV. As to Domestic COMPANIES CONTROLLING FoREIGN COMPANIES: AcTuaL ADMINISTRATIVE ConTROL DISTINGUISHED FROM ConTRoL MERELY AS SHAREHOLDER. The leading case is Apthorpe v. Peter Schoenhofen Brewing aythorpe v. Co., which went to the Court of Appeal. The facts were these: Peter An English company (managed from its registered office in Schoenhofen London, England), was formed for the purpose of acquiring the Brewing . QT) shares in an American brewing company and of carrying on a Co., SO-L. T. brewing business. All the shares in the American company,” 2 except three, were sold to the English company, and all the personal property of the American company was transferred to the English company. In order to avoid certain difficulties with regard to the American laws of real property, the American company was kept on foot for the purpose of keeping up the fiction that the American property still belonged to the Ameri- can company. The English company found the capital for carry- 90 DOMINION INCOME TAX LAW. ing on the brewing business, "which was wholly carried on in America. The directors of the English company had the entire right of control of the affairs of the American company and of the staff and business in America, with full power to appoint or dismiss any of the managers or officials of the business in America. In fact the directors of the English company delegated these powers to the managers of the brewery in America, who were also the directors of the American company and appointed them managers of the business in America. A portion of the profits earned was transmitted to England for the expenses in- curred in England and for distribution amongst the English shareholders. The rest of the profits were retained in America and distributed among American shareholders. It was held that the American business was carried on by the English company in England and that the company was liable to pay income tax upon the whole of the profits earned by the business and not merely upon that part of the profits which was transmitted to England. The ratio decidendi are admirably summed up in the judgment of Romer, L.J. He said: “Jt has been contended, on behalf of the company, that the company is merely a shareholder, owning all the shares or sub- stantially all the shares, in the American company; that the American company really carries on the business, and that the English company merely influences matters by reason of its position of holder of practically all the shares in the American company by which it is able to elect all the officers of that com- pany. I do not think that is the true view. The matter is to be treated as one of substance, not of form. The conclusion which I have come to on the facts is that the intention from the commencement was that the English company should take over the business, the assets, and the management of the American company, and that it should carry on that business by its agents appointed and governed by itself. I think that intention was carried out. The business was taken over by the English com- pany, and has since been managed under the direction of the English company which acted in Chicago by its agents there, although no doubt the American company was kept on foot for the purpose of holding real estate in Chicago for the English company, and otherwise preventing American law from inter- fering with the carrying on of the business by the English com- pany in America. I may add that there is nothing to show that by the American law, the existence of the American company for these purposes was in any way inconsistent with or antago- nistic to the fact of the English company really owning the business, and really carrying it on by its agents.” ? Collins, L.J., in the same case, said: It was urged that this company is only a shareholder in the American company and that, without ignoring the principle of the decision of the House of Lords in Salomon vy. Salomon & Co.,? the court could not hold that the shareholders in a com- pany, however large their interest in it may be, carry on the 180 L. T., p. 400; see observations upon this case and St. Louis Brewerics, Lid. Vv. Apthorpe, of Phillimore, J., in Kodak, Ltd, v. Clark (1902), 2 K, B., at. pp. 461-463; see, also, U. 8S. Brewing Co. V. Apthorpe (1898), 4 Tax Cas. 17, where the facts were substantially similar and the case was held ‘to be governed by the decision in . Apthorpe v. Peter Schoenhofen Brewing Co. °?75 L. T. Rep. 426; (1897), A. C. 22. PERSONS RESIDENT IN CANADA. business of the company; that the business is the business of the company, although a particular shareholder may, by his influence, have control of it. I do not feel perplexed in this case by any such difficulty as that, because, in my judgment, there is no incompatibility between a company holding shares in another company and at the same time carrying on a business analogous to that carried on by the other company. Among the objects for which the English company was formed, mentioned in paragraph 3 of the memorandum of association, are not only ‘to acquire all or any of the shares of the Peter Schoenhofen Brewing Company,’ but also ‘to carry on business as brewers, distillers,’ and so on. There is a finding in the case that the English company carries on business as brewers at Chicago, and they also carry on business in England. Then comes the ques- tion whether this business is not one and the same business, carried on partly in England and partly in Chicago. The finding in paragraph 7 of the case seems to me to be absolutely conclu- sive on this point. It is that ‘all the books of account and other documents relating to the working and carrying on of the brewery, as well as the cash locally required, are kept, received, and dealt with at Chicago; but reports, letters, papers, and other documents sufficient to enable the respondent company to judge of the manner in which the managers at the brewery carry out and undertake the necessary control and direction, are from time to time transmitted to and received in England by the respondent company’s directors.’ Then it is also stated: ‘The board of directors meet in England and have power to dismiss any or all -of the managers, officials, and others carrying on the business’ in Chicago.’ The company therefore resides in England, has its office in England, carries on business by its directors in England, deals with the routine of the company so far as it has to be dealt with in England, and directs, as in terms it has been found to do, through a committee of management ap- pointed by it, or for it, a large trade in Chicago. Do they or do they not come within the principle laid down in the case of The San Paulo Brazilian Railway Company v. Carter? It is not a question of degree, but a question of fact, whether the business is partly carried on in England. No doubt in one sense the facts may show that the larger degree of control is exercised in England over the business carried on abroad than will appear from the facts of another case, but the broad question is one of fact. One central factor in this question is whether or not the ultimate tribunal of appeal, the ultimate controlling power, is in England. If it is in England, as in the present case, can it be said that a company whose business abroad is carried on under its paramount control and supervision in England is not partly carried on in England? In my judgment it cannot. On the facts of this case it seems to me absolutely clear that the business of the company is carried on partly in England and partly in America, and the company is therefore liable to pay income tax on the larger amount.” 91 St. Louis Breweries, Ltd. v. Apthorpe was the case of an St. Louis English company which acquired all but fourteen of the shares Breweries, of an American brewing company. Of these fourteen shares thir- Ltd. v. teen were held by the directors (13 in number) out in America, who held one each. The brewing business, from which the whole of the profits was derived, was carried on exclusively at St. Louis, in America, under the immediate management of the directors of the American corporation who were referred to in the printed Apthorpe (1898), 79 551. DOMINION INCOME TAX LAW. reports of the English company as “the board of management in St. Louis.” All the books were kept in America, but were audited by an accountant sent out from England. The English directors received annual statements from the American corporation show- ing the result of the brewing business in the preceding year and decided what dividends should be declared by the American directors. The portion of the dividends required for American shareholders was retained in America by the American com- pany and distributed there directly. It was held that the Ameri- can business was carried on by the English company in and from England, and that it was therefore liable to pay income tax on the whole of the profits. Wills, J., who delivered the leading judgment, said: “T assume that the American company is a separate entity or corporation to be looked at, and to be dealt with, upon the same principles as if it were incorporated under English Acts of Parliament. I am perfectly well aware that . . theoretically and actually the business of the American company will be carried on by the American directors, and that the English com- pany have no legal or direct control, that is to say, no power to order them in the sense that they could give an order which they could enforce in a court of law to these directors to do or not to do anything that they like. . . . There is a perfectly well recognized way of carrying on the business which must be of importance, and which may be very profitable, namely, by man- aging the affairs of an external company by the machinery of taking pretty nearly the whole of the shares into which their company is divided, and in that way, although not theoretically and not in such a sense as to make their orders legally binding, they can and do practicaily control the business carried on by the American company. As it seems to me, the business which the English company is carrying on is that which is very well expressed in their memorandum, namely, the business of manag- ing the American company in the interests of the English share holders by means of this controlling agency, the effect of which is perfectly certain to be felt, and not only felt but to be operative in the management of the American concern. Now, if that is the nature of their business—if that may fairly be described as a business—it is a business which certainly is carried on by the English company. All the things that are necessary to give effect to it are done in London. . . I wish to make it per- fectly clear that my decision does not depend upon the very nar- row ground of this description of their business appearing in the memorandum of association, because, if I said that, it would be an immediate suggestion that the obligations of an English com- pany could be avoided by altering the memorandum of associa- tion. . . . All I would wish to observe is that in matters of this kind, especially in revenue matters, it seems to me that one ought to look at the substance and not merely at matters of machinery and form.’® While these cases are doubtless valuable as illustrating the principles to be applied in the cases of businesses carried on in foreign countries in which companies resident in Canada are interested, it is well to bear in mind the cautionary observation of Lord Justice Fletcher Moulton, that “there is a danger in regarding them as mainly turning upon abstract principles or laying down general rules. In almost all the cases special facts 779 L. T., at pp. 554-5. PERSONS RESIDENT IN CANADA. 9 are to be found which greatly influence the decisions of the courts, and as they are confessedly cases that are near the porder line, it was impossible to say that the ultimate decision of the court was not arrived at by reason of these special facts.’ The decisions above noticed were in fact distinguished in two later cases: Kodak, Ltd. v. Clark® and Gramophone and Type- writer, Ltd. v. Stanley.® In the first case (Kodak Ltd. v. Clark) an English company xcodak, Ltd. carrying on business in the United Kingdom owned 98 per. cent. y, Clark of the shares in an American company which gave it a prepon- (1902),2 derating influence in the control, election of directors, etc., of K. B. 450: the American company. The remaining shares in the American (1903), 1 . K. B. 505 company were held by independent persons and there was no (G.A.) evidence that the English company had ever attempted to control ‘~~ *** or interfere with the management of the foreign company or had any power to do so otherwise than by voting as a shareholder. Phillimore, J., after examining the decisions in St. Louis Breweries Ltd. v. Apthorpe, and Apthorpe v. Peter Schoenhofen Brewing Co. Ltd., and drawing attention to the point that there was not in either of those cases any finding or suggestion that the holders of the outstanding shares had any real interest in their shares, said: “The facts before me show . . . that the number of share- holders holding 2 per cent. of the whole shares are independent people, or most of them are independent people, having their own interest in the Eastman Kodak Limited, to which they adhere, and in respect to which they must be considered. Now, that being the case, I do not think it can possibly be said that Kodak, Limited, though controlling and managing the Eastman Kodak Company, is, when the Eastman Kodak Company carry on busi- ness under its control, thereby itself carrying on the business. The Eastman Kodak Company carries on business for its 100 per cent. of shareholders; 98 per cent. of those are the English company, and it has to carry on its business, as far as it lawfully can, under the control of, and in obedience to, the English com- pany and its nominees; but it does not carry on the business for the English company, but for the English company plus the 2 per cent. in America; and when one comes to consider what the relations between the two companies are, one sees that it is very important to keep that provision in view. The American com- pany are manufacturers and vendors, and the English company are buyers. Obviously, if the business of the American company was the business of the English company it would not matter, except as a matter of book-keeping and account, at what rates the goods transferred from the Eastman Kodak Company: to Kodak, Limited, were debited and credited. It matters exceed- ingly to the 2 per cent. of the American shareholders that those goods should be debited and credited at the highest possible value which could be obtained for them in the market. There- fore, I think, though the English company controls the American company, the business which the American company carries on is not the business of the English company.’” * Gramophone & Typewriter, Ltd. v. Stanley (1908), 2 K. B., p. “5 (1902), 2 IK. B. 450; (1903), 1 K. B. 505 (C.A.). ® (1906), 2 K. B. D. 856: (1908), 2 K. B. 89 (C.A.). * (1902), 2 K. B., pp. 463-4. 101 94 Gramophone & Type- writer, Limited v. Stanley DOMINION INCOME TAX LAW. Vaughan Williams, L.J., who delivered the judgment of the Court of Appeal, said: “The argument on behalf of the company is—that whatever may have been true in other cases, the fact is that in this case there is a body of shareholders, holding 2 per cent. of the shares of the American company, in contradistinction to the 98 per cent. of the shares held by Kodak, Limited. That they appear upon the face of the case to be a body of independent share- holders, and that under these circumstances it is impossible for the holders of the 98 per cent. of the shares to claim 98 per cent. or any proportion of the profits. Their right is said to be a right only to receive dividends, and whatever amount of control they may exercise it is the control of shareholders and of share- holders only, and they have no control either as masters or as principals. I think I may say, and that I ought to say, to save time, that this view is that which the Court thinks to be the right view.’ In Gramophone & Typewriter Limited v. Stanley, an English company carrying on business in the United Kingdom owned all the shares in a German company; and it was held that that fact alone did not make the business of the German company the business of the English company so as to render the English company liable to income tax upon the full amount of the profits , made by the German company. The English company was held \ to be liable to pay income tax only upon such profits of the Ger- man company as had been received in the United Kingdom. Cozens-Hardy, M.R., following the passage from his judgment which has already been quoted,° said: “In the present case I am unable to discover anything in addition to the holding of the shares which in any way supports this conclusion. The German company was not at first, and there is no evidence that it has ever become, a sham company or a mere cloak for the English company. . . The Crown can, in my opinion, only succeed by making out that the German company was merely the agent of the English company as princi- pal in carrying ont the business. Nothing short of this would suffice, and I can sée nothing to justify such a conclusion. We have been greatly pressed by the case of Apthorpe v. Peter Schoenhofen Brewing Co., Ltd. (4 Tax Cas. 41). But when the facts of that case are looked into it is apparent that the Chicago company was a mere form, kept up to satisfy the American law, and that the three Amrican directors accepted the position of delegates of the English company. The officers and servants of the American company were appointed and dismissed by the English company, and the working capital required for carrying on the business was provided by the English company. In other words, the relation of principal and agent did exist in that case.” Fletcher Moulton, L.J., in discussing the position of a share- holder in a company carrying on business abroad, said: “This legal proposition that the legal corporator cannot be held to be wholly or partly carrying on the business of the cor- poration is not weakened by the fact that the extent of his interest in it entitles him to exercise a greater or less amount of control over the manner in which that business is carried on. § (1903), 1K. B., p. 518. ® See, ante, pp . 778, + (1908), 2 2K. B., pp. v5, 96, 97. PERSONS RESIDENT IN CANADA. Such control is inseparable from his position as a corporator and is a wholly different thing both in fact and in law from carrying on the business himself. The directors and employees of the corporation are not his agents, and he has no power of giving directions to them which they must obey. It has been decided by this Court in the case of Automatic Self-Cleansing Filter Syndi- cate Co., Ltd. v. Cunninghame (1906), 2 Ch. 34, that in an Eng- lish company, by whose articles of association certain powers are placed in the hands of the directors, shareholders cannot interfere withthe exercise of those powers by the directors, even by a majority at a general meeting. Their course is to obtain the requisite majority to remove the directors and put persons in their place who agree to their policy. This shows that the con- trol of individual corporators is something wholly different from the management of the business itself.” * . Two recent decisions of the Supreme Court of the United Southern States are worthy of notice. In one case the Southern Pacific Pagilic Co: Company v. Lowe, the suit was by the plaintiff company to recover 547 US income tax assessed against it and paid under protest on certainjsg dividends of stock in form received by the plaintiff from another corporation. The facts were that the Southern Pacific owned all the capital stock of the Central Pacific, including the stock regis- ‘tered in the names of the directors. The Southern Pacific, besides being sole stockholder, was in the actual physical possession of the railways and ail other assets of the Central Pacific and in charge of its operations, which were conducted in accordance with the terms of a lease. The Southern Pacific acted as cashier and panker for the entire system; the Central Pacific kept no bank account, its earnings being deposited with the bank account of the Southern Pacific; and if the Central Pacific needed money for additions or betterments or for making up a deficit of current earnings, the necessary funds were advanced by the Southern Pacific. As a result of these operations and of the conversion of certain capital assets of the Central Pacific Company, that com- pany showed upon its books a large surplus accumulated prior to January 1, 1913, principally in the form of a debit against the Southern Pacific which, at the same time, as sole stockholder, was entitled to any and all dividends that might be declared, and, being in control of the board of directors, was able and did control the dividend policy. The dividends were declared and paid during 1914 out of this surplus of the Central Pacific, but the payment was only constructive, being carried into effect by bookkeeping entries which simply reduced the apparent sur- plus of the Central Pacific and reduced the apparent indebtedness of the Central Pacific to the Southern Pacific by precisely the amount of the dividends. The question was whether the divi- dends received under these circumstances and in this manner by the Southern Pacific were taxable as income of that company under the Income Tax Act of 1913. The Court, speaking by Mr. Justice Pitney, said: “We base our conclusion in the present case upon the view that it was the purpose and intent of Congress while taxing “ the entire net income arising or accruing from all sources” during each year, commencing the 1st day of March, 1913, to refrain from taxing that which, in mere form only, bore the appearance of 2 (1908), 2 K. B., p: 98; see, also, Peterson v. Chicago, R. I. & P. Ry. Co., 205, U. 8S. 364. 391, 392; Pullman’s Palace Car Co. y. Mis- sourt: Pacific Ry. Co., 115, U. S. 587, 596. 96 Gulf Oil Corporation v. Lewellyn, 248 U.S. 71. DOMINION INCOME TAX LAW. income accruing after that date, while in truth and in substance it accrued before; and upon the fact that the Central Pacific and the Southern Pacific were in substance identical because of the complete ownership and control which the latter possessed over the former, as stockholder and in other capacities. While the two companies were separate legal entities, yet, in fact, and for all practical purposes, they were merged, the former being but a part of the latter, acting merely as its agent, and subject in all things to its power, direction and control. And, besides, the funds represented by the dividends were in the actual pos- session and control of the Southern Pacific as well, before as after the declaration of the dividends. The fact that the books were kept in accordance with the provisions of the lease, so that these funds appeared upon the accounts as an indebtedness of the lessee to the lessor, cannot be controlling, in view of the practical identity between lessor and lessee . . . Under the circumstances, the entire matter of the declaration and payment of the dividends was a paper transaction to bring the books into accord with the acknowledged rights of the Southern Pacific; and so far as the dividends represented the surplus of the Central Pacific that accumulated prior to January Ist, 1913, they were not taxable as income of the Southern Pacific within the true intent and meaning of the Act of 1913. The case turns upon its very peculiar facts and is distinguishable from others in which the identity of a controlling stockholder with his corporation has been raised.’ In another case, Gulf Oil Corporation v. Lewellyn, the peti- tioner company brought action to recover back an income tax which had been levied under the Income Tax Act, 1913, upon certain dividends which had been declared and paid to it by a subsidiary company, on the ground that the dividends were dividends only in form and that they resulted only in bookkeeping entries with no gain or profit to the petitioner. The facts were that the petitioner was a holding company owning all the stock in certain other corporations except qualifying shares held by directors. These companies with others constituted a single en- terprise, carried on by the petitioner, of producing, buying, trans- porting, refining and selling oil. The subsidiary companies had retained their earnings, although making some loans inter se. and all their funds were invested in properties or actually re- quired to carry on the business, so that the debtor companies had no money available to pay their debts. In January, 1913, the peti- tioner decided to take over the previously accumulated earnings and surplus and did so in that year by votes of the companies that it controlled. But, disregarding the forms gone through, the result was merely that the petitioner became the holder of the debts previously due from one of its companies to another. It was no richer than before, but its property now was represented by stock in and debts due from its subsidiaries, whereas formerly it was represented by the stock alone, the change being effected by entries upon the respective companies’: books. Mr. Justice Holmes, who delivered the opinion of the court, said: “It is true that the petitioner and its subsidiaries were dis- tinct beings in contemplation of law, but the facts that they were related as parts of one enterprise, all owned by the peti- * Referring to Pullman’s Palace Car Co. v. Afissouri P. R. Co., 115 U.S. 587, 596; and Peterson v. Chicago, R. I. & P. R. Co., 205 U.S. 364, 391. . PERSONS RESIDENT IN CANADA. tioner, that the debts were all enterprise debts due to members, and that the dividends represented earnings that had been made in former years and that practically had been converted into capital, unite to convince us that the transaction should be regarded as bookkeeping rather than as dividends declared and paid in the ordinary course by a corporation . . . The peti- tioner did not itself do the business of its subsidiaries and have possession of their property, as in Southern Pacific Co., but the principle of that case must be taken to cover this.” Residence of Non-Trading Corporations. Non-trading Corporations ——The residence of a non-tracl- Residence of non-trad- ing corpora- ing corporation is, in most cases, fixed by its obvious connec- on tion with some special district, as, for instance, in the case of tions usually an incorporated town, collége, or hospital formed for the dis- charge of functions in a particular place or such corporations sole as bishops, rectors, ete.* The Incorporated Council of Law Reporting for England and Wales is cited by Halsbury * as an instance of a non-trading corporation carrying on busi- ness as by printing and selling law reports and other publica- tions at a profit though the profits could not be taken by the members; but perhaps a more common and withal striking instance of the taxation of a non-trading corporation is to be found in the case of municipal corporations which, under the English Act, are held to be assessable to income tax under Schedule “ D ” in respect of the profits derived from the trade or business of manufacturing and selling gas;° or of supplying water.® Sec. 5, par. (c) of the Dominion Act exempts from taxa- tion “the income of any company, commission or association not less than ninety per cent. of the stock or capital of which is owned by the province or municipality ”; but no provision has been made in the Act for the exemption of municipal cor- porations themselves, and as the Act stands they appear to be liable to be assessed to income tax. The liability of a muni- cipal corporation to be assessed to income tax in respect of any surplus revenue derived from the sale of water or gas appears ’ Dicey. Conflict of Laws, 2nd ed., p. 163; Halsbury’s Laws of Eng.. vol, 5, p. 15. *Vol. 5, p. 15, note (c). 5In re Glasgow Gas Comm’rs (1876), 13 Se. Tl. R. 556; Dillon v. Corp’n of Haverford West (1891), 1 Q. B. 575. ®Glasgow Corporation Water Comm’rs v. Miller (1886), 23 Se. L. R. 285; Allan v. Hamilton Water Works Comm'rs (1887), 24 Sc. L. R. 360; Dublin Corp’n v. M’Adam (1887), 20 L. R. (Ir.) Ex. Div. 497: Harris v. Corp’n of Irvine (1900), 87 Sc. L. R. 799; Afullingar Rural District Council v. Roicles (1913), 2 Ir. R. 44. D.LLT.L.—T corporations not exempt 98 Profits resulting from trans- actions as vendor taxable. There must be two parties separate and distinct. DOMINION INCOME TAX LAW. to turn upon a distinction between a case in which the rate- payers of a municipal corporation, through the corporation as their representative, assesses themselves to a compulsory rate for the purpose of obtaining the supply of such commv- dity, and a case in which a municipal corporation in the voluntary exercise of statutory powers, or in the execution of a statutory obligation in that behalf, undertakes to supply the commodity to persons who are willing to take it and pay the prescribed rate. In the former case the relation between the ratepayers and the corporation is that of principal and ageuit —the corporation cannot be treated as in any sense a body distinct from its inhabitants, and any surplus resulting from the compulsory rate cannot be regarded as the profits of a trade or business; in the latter case, on the other hand, the relation between the corporation and the persons to whom it supplies the water or gas is rather that of vendor and vendee —-in other words, the persons to whom the commodity is sup- plied are not a class identical with the corporation, but rather a separate and distinct class. The principle underlying this distinction cannot be more simply stated than in the language used by the late Lord Chief Baron Palles, in Dublin Corpora- tion v. McAdam, where he said: “ There must be at least two parties—one supplying water and the other to whom it should be supplied and who should pay for it. If these two parties are identical, in my opinion, there can be no trading. No man, in my opinion, can trade with himself; he cannot, in my opinion, make, in what is in its true sense and meaning, taxable ‘profits by dealing with himself ; and in every case of this description it appears to be a question on the construction of the Act whether the two bodies—the body that supplies and the body or class that has to pay—were either identical, or, upon the true construction’ of the Act, must have been held by the legislature to be iden- tical and so legislated for upon that basis.’ This distinction is well illustrated by that case. The corporation was held to be exempt from taxation in respect of any surplus derived from a compulsory rate which the rate- payers within the municipality were required to pay for the purpose of meeting the necessary expenses of the supply of water, but it was held liable to be assessed to income tax in respect of the profits derived from the supply of water to certain persons outside the municipal district. PERSONS RESIDENT IN CANADA. D9 “T think the true ground of decision,” said Palles, C.B., “is that the body to pay is a distinct and separate body from the body to receive; that the relation between the two bodies is that of vendor and purchaser of water, as in the case of the municipal inhabitants it is that of principal and agent in respect of that supply.” whe profits so derived are the profits of “ trade” or “ busi- Profits of ness.” Said the Lord President, in Glasgow Water Commis-« trade "oF, stoners v. Miller: “In so far as the Commissioners sell water are the either by measure or for a consideration fixed by supply agree- ee ment or in return for a non-compulsory rate as the price of water, they are in every sense of the term trading or traffick- ing in water and their surplus revenue thus derived is a profit or gain resulting from this trade.” And the trade is not Jess a trade because, to quote the language of Palles, C.B., in Mullingar Rural District Council v. Rowles, “there is a limited class who alone are permitted to purchase the water should they so desire, and notwithstanding that the price is one fixed by Parliament or otherwise or that the rate is one that has been fixed by one of the parties only, because the other party need not apply for the water unless he is wiling to pay that price. I think that the essence of trading in this sense is buying and selling—that the property in a subject- matter passes from one person to another in consideration of a price to be paid by that other.” Nor does it make any difference that the revenue derived from such trading is by Act of Parliament required to be paid into a particular fund or is dedicated to a particular purpose.’ II.—Persons who Remain in Canada During any Calendar Year for a Period or Periods Equal to One Hundred and Eighty-three Days. This class is intended to bring within the net of the Act Temporary the income of any person who comes into the country, whether oe for business or pleasure or any other purpose, and sojourns 183 days here at one or more times during the year of assessment equal asseeped in the whole to the period of one hundred eighty-three days, basis as t.e., half a year, although not under such circumstances as pe will render him taxable as a person “ residing or ordinarily resident in Canada.” The policy of the Act is to treat such a person as virtually a resident of the country, for reasons which 7 Dublin Corp’n v. M’Adam, supra. 100 Statutory definition of this class. “ Salary ” defined. DOMINION INCOME TAX LAW. may be well expressed in the language of Mr. Justice Chan- nell,’ viz., that he “ takes the benefit of the government of the country, of the security afforded to his life and liberty and of the opportunity of conducting his business in the way in which the government of a settled and civilized country enables it to be conducted; he accordingly has to pay, like other inhabitants of the country, his full share towards the expenses of that government.” In computing the period of one hundred and eighty-three days, the practice of the Commissioner is not to take account of parts of days spent in Canada but only of whole days. III.—Persons who are ‘‘ Employed in Canada.” This class, which is intended to reach the income of per- sons who are not taxable under either of the first two classes, is the subject of express definition. “ Persons employed in Canada,” as defined by sec. 2 (7) of the Act® means “all persons who receive directly or indirectly salary, wages, com- missions, fees, or other remuneration derived from sources within Canada for personal services any part of which is per- formed in Canada.” The application of the definition appears, in terms, to be limited to persons of whose employ- ment these three conditions may be predicated, viz., (1) the receipt directly or indirectly of salary, wages, commissions, fees, or other remuneration, (2) derived from sources within Canada, and (3) for personal services at least partly per- formed in Canada. The words “salary, wages, commissions, fees, or other remuneration,” seeing that they serve to point out the various kinds of emiplownient within the limits of the definition, require to be specially considered. Salary.—By an old authority?° “salary” is defined as follows: “Salarie is a word often used in our books and it signifies a recompence or consideration given unto any man for his pains bestowed upon another man’s business.” Bouvier defines “ salary ” as “a reward of recompense for service performed”; and Throop on Public Officers? says: “The term salary of itself imports a compensatio. for per- sonal services.” * (1902), 2K. B., at p. 145; see, also, Calcutta Jute Mills, Ltd. v. Nicholson, 1 Tax Cas., per Kelly, C.B.. at p. ate ° Section 2. c. 28, 1917, as amended by s, 1, e. 55, 1919. Termes de la Ley; see, also, Jacob’s Law Dict. and Stroud’s Jud. Dict. *P, 428, PERSONS EMPLOYED IN CANADA. bp Salary seems to denote a higher degree of employ ment re re is suggestive of a larger compensation for more ‘important Gzhe: of services, as for official and other services, than wages, whieh, gpey mune indicates inconsiderable pay, the compensation. for iabour.? Sead. In Re Shine,? Fry, L.J., endeavoured to give a defini- tion of “salary ” which he admitted was not complete. He said: ‘“ Whenever a sum of money has these four characteris- tics—first, that it is paid for services rendered; secondly, that it is paid under some contract or appointment; thirdly, that it is computed by time; and fourthly, that it is payable at a fixed time—I am inclined to think that it is a salary and not the less so because it is liable to determination at the will of the payer or that it is hable to deductions.” In an English bankruptcy case it was held that wages or salary might be partly by fixed periodical pos and partly by commissions.* Wages.“ Though this word,” said Grove, J.,in Gordon V. Wages are | Jennings,® “ might be said to include payment for any services, Personal ‘ ‘ ‘ earnings yet, in general, ‘salary’ is used for payment of services of a of labourers higher class, and ‘wages’ is confined to the earnings of oe labourers and artisans.” In Ingram v. Barnes, Bramwell, B., said: “ Whatever definition one gives of the term ‘ wages,’ a portion of what the plaintiff here gets is ‘ profits’ made and makeable by the employment of other people under him. If a portion is that, the whole is not wages.” It would, therefore, seem that wages are the personal earnings of labourers and artisans. In a United States case ° it was held that wages were to be mterpreted as compensation paid to a hired person for his services. This compensation to the.labourer might be a speci- fied sum for a given time of service or a fixed sum for a specified work, t.¢e., payment made by the job. The word ‘wages’ does not imply that the compensation is to be deter- mined solely upon the basis of time spent in service; it may be determined by the work done. It means compensation estimated in either way.” ?Bouv. Law Dict. (Rawle’s 3rd Rev.) tit. “Salary.” 38 (1892), 1 Q. B. 522, 531; referred to (1916) 1 A. C., per Lord Atkinson at p. 449. ‘Re Klein, 50 8S. J. 577. ° '51 L, J. ‘'B. 417: see, also, Riley v. Warden, 18 L. J. Bx, 120; Sleeman v. Barrett, 33 L. J. Ex. 153, and Ingram v. Barnes, 26 L. J. Q. B. 322. ® Ford v. St. Louis € N. W. Ry., 54 Iowa 273; cited 1 Hudson on Building Contracts, p. 146. 102 Psyments by hour, day, week, month, job or year. Bonuses, victualling allowances and com- missions. * Commis- sions ” de- fined. “ Fees” defined. “ Other remunera- tion ” de- fined: Larger expression than “ salary.” DOMINION INCOME TAX LAW. In another United States case,” wages were described as “the agreed compensation for services by workmen, clerks or servants—those who have served an employer in a subordi- nate or mental capacity and who are supposed to be dependent upon their earnings to pay for their present support, whether they are to be paid by the hour, the day, the week, the month, the job, or the piece.” Under the Merchants’ Shipping Act a bonus which a master had earned from the owners of a ship under an arrange- ment with them, was held to be wages * and so was victualling money or allowances.® In another case *® commissions paid to a travelling sales- man for his services were held to be wages within the meaning of the Bankruptcy Act. Commissions.—Bouvier defines this expression as “ com- pensation allowed to agents, factors, executors, trustees, receivers, and other persons who manage the affairs of others, in recompense for their services.” , It is said further, upon the authority of English decisions, that “the right to such allowances may either be the subject of a special contract, may rest upon implied contract to pay quantum meruit or may depend upon statutory provisions. Fees.—A fee is defined by Bouvier (citing Cowell), as “ a reward or wages given to one for the execution of his office, or for professional services, as those of a counsellor or physician.” Other Remuneration.—Mr. Justice Blackburn, in R. v. Postmaster-General,? said: “‘ Remuneration’ ‘is a larger word than ‘salary.’? Remuneration means quid pro quo. Whatever consideration a person gets for his services seems to me a remuneration for them. Consequently, if a person was in. receipt of a payment or of a percentage or of any kind of payment which would not be an actual money payment, the amount he would receive annually in respect of this would be remuneration.” In Phillips v. London School Board * the words “ salary or remuneration ” were held to include contributions required to be made by school teachers to a superannuation fund. "In re Gurewitz, 121 Fed. 982; cited Bouv, Law Dict., tit. “ Wages.” ” the president of the Eastern Insurance Company—a company a a doing marine insurance and having an office in the City of St. John, N.B.—was liable to income tax under the St. John City Assessment Act of 1882. Mr. Tucker resided outside of the city, but usually attended the office of the company each day for a short time to do such business as the company assigned to him, which was principally signing policies. There was no salary attached to the office for his services but at the end of the year the eompany gave him, by a vote, the sum of $500.00. *The Queen v. Postmaster-General (1877-S), 3 Q. B. D. 428. " (1880-1) 6 Q. B. D. 188. *23 N. B. Rep. 311. 104 An officer of a company. exercises an employment. “ Trade ” defined. DOMINION INCOME TAX LAW. It was held that he was liable to be assessed as a person having an “employment ” within the city. Allen, C.J., who delivered the judgment of the court, said: “ We think it clear Mr. Tucker was not a person “ carrying on business’ in St. John, as that must mean carrying on busi- ness for himself, and not as a mere clerk or agent of another ; nor has he any office or place of business there; the office was not his, it was the company’s; and they, and not he, should — be taxed for that. But we think he had an occupation or employment. The fact that there was no agreement to pay him does not affect this question ; it would make no difference if one clerk in an establishment was employed to do certain. services, and was paid a salary, and another undertook to do and did the same work for nothing; each would have been employed in doing the work. To say that a man who accepts an office which makes it his duty to attend daily at another person’s office, and sign policies, or do other work, and who does such work, has not been employed there, would be going directly against the plain words of the statute, which we do not think we are at liberty to do, even if we thought the statute operated harshly on the applicant. These terms, * occupation,’ and ‘ employment,’ in the section. may bear, we think, different’ meanings. The first means where a-person does some business for himself; and ‘employment’ means the doing some busi- ness for another, implying not only: the doing. of the business, but the employment to do it; one of the definitions of which is, to intrust with the management of it. Mr. Tucker was intrusted with the management of the business he did for this insurance company in their office in Saint John, therefore he was employed to do it, and he did it in pursuance of such employment, and the doing it was, therefore, an employment: and such business was not an isolated act, but continued through the year.” IV.—Persons, not Being Resident, who are “Carrying on Business in Canada.” The question of what constitutes carrying on business. in Canada is, on the authorities, one of considerable nicety and difficulty. Under Schedule D of the English Income Tax Act every individual or corporation, though non-resident, is, notwithstanding, chargeable in Teapeen ob the annual profits or gains arising or accruing from “any . . . trade exercised PERSONS CARRYING ON BUSINESS IN CANADA. 105 in the United Kingdom.” “ Trade, in its largest sense,” said Lord Davey, in Grainger & Son v. Gough,” the leading case under this part of the Schedule, “is the business of selling with a view to profit goods which the trader las either manufactured or himself purchased.”$ The integral elements of trading in this, the primary meaning of the term, are buying ” and selling,’° but they may also include manufac- tures. In a secondary sense, however, trade means any busi- Its second- ness carried on with a view to profit, whether manual or mer- ate ‘e cantile, as distinguished from the liberal arts or learned pro- fessions and from agriculture;? and it is evident, having regard to the various decisions under Schedule D, that the word “ trade ” is used there in this larger sense.* “ Business,” on the other hand, is a wider expression, not « Business” » synonymous with “trade.”* In its larger sense “‘ husiness ” Bk embraces everything about which a person can be employed,° “ trade.” or, as a United States decision puts it, “ nearly all the affairs in which either an individual. or a corporation can be actors.”® “ Indulgence in: pleasure, participation in domestic enjoyment, and engagement in the offices of merely personal religion,” it was said in the same case, “ may be exceptions, in the case of an individual. But the employment of means to secure or provide for these would, to him, be business; and, to a corpora- tion, these exceptions can have no application. The conduct of any and all of the affairs of a corporation is business.” A definition, perhaps less generally expressed, but conveying the same broad meaning, was given by Lord Lindley in an Eng- 71896, A.C. 325. ‘ Tbid., at pp. 345-46; see, also, Smidth ¢ Co. v. Greenwood (1920) 3K. B. 275, per Rowlatt, J., at p. 286. ®* San Paulo Ry, Co. v. Carter, 1895,.1 Q. B. 580, per Lord Esher; M.R.. at p. 587, 0, ‘Guest, Keen & Nettlefolds, Ltd. v. Fowler, 5 Tax Cas. 511, per Bray, J., at b. 518; see; also, Mullingar Rural’ ‘District Council v. Rowles "(1913), 2 Ir. Rep. 44, per Palles. C.B., at p. 54. ‘Tar Comm'rs v. Kirk, 1900, A. C. 588. 592, aoe of India v. Wilson (1877), 3 Ex. D. 108, per Pollock, B., at p 2 Tbid.. per Kelley, C.B., at p. 113; per Pollock, B., at p. 120; and see, also, ae v. ‘Last (1881 2),8 Q. B.D. 414: Wingate 'v. Webber. 34 Se. L. R. 699. 4Halsbury. vol. 27, citing Doe d. Wetherell v. Bird (1834), 2 Ad. & El. 161, per Denman, ©.J.. at pnp, 166: Harris v. Amery rena L. R. 16. P. 148, at p. 154; Rolls v. Miller (1884), 27 Ch. D. 71, C.A.; see, also, Doe v. Keeling, 1 1M. & S. 100, and Adams V. Boston. ete., Ry. Co. 1 Holmes (U.S.) 35. 5 Am. & Eng. Encye. of Law, vol, 5, p. 72; People vy. Tax Com’rs, 23 N. Y. 243. . *In re Alabama &€ C. R. Co., 1 Fed. Cas. 271, per Woodruff, J., at p. 274; see, also, Corpus Juris, vol. 9, p. 1104. 106 DOMINION INCOME TAX LAW. lish decision.* “The word,” said Lord Lindley, “means almost anything which is any occupation as distinguished from a pleasure—anything which is an occupation or duty which requires attention is business.” In a more ordinary and Meaning of, confined sense, however—and it is this meaning which the word esimess” appears to bear in the Income War Tax Act—* business” is Tax Act. that which occupies the time, attention and labour of a man for the purpose of a livelihood or profit.8 This is Bouvier’s definition which was adopted by the Supreme Court of the United States in Flint v. Stone Tracy Co.,® and in substantially identic terms is the definition which was formulated by Sir George Jessel, M.R., in the celebrated case of Smith v. Anderson.” The Lord Morris, in Grainger’s Case, said the words “ exercis- prcnee ing a trade ” were only another mode of expressing “ carrying ecm on a business.”! It may be that the analogy is too widely siated, D. but there is, nevertheless, sufficient similarity in substance between the two expressions to render the decisions under Schedule D for the most part useful and authoritative as to the principles to be applied to the interpretation of the Dominion Act in determining the incidence of the tax under the fourth class of taxable persons. divoteros The main difficulty presented by cases arising under this thecases. limb of the charging section of the Act, which relate largely to businesses which are carried on in different places and countries, and often in a complicated manner, as, for example, when they are carried on by the intervention of agents and the contracts are made in one place and the goods are in another, perhaps the principal in another, and the goods may be delivered in some other place—is to draw a line of demarca- tion or distinction in principle between facts and circum- stances which will, and facts and circumstances which will not, establish a carrying on of business in Canada within the meaning of the Income Tax Act; and a perplexing question, which goes to the root of the difficulty, naturally arises as to what constitutes the legal incidents or indicia of the carrying on of business in Canada. t "Rolls v. Miller, supra, at p. 88. = Am. Eng. Encye. of Law, vol. 5, p. 72, citing Abel v. State, 90 Ala, 633, and other cases; see, also, Corpus Juris, vol. 9, p. 1101. §220 U. S, 107. * (1880), 15 Ch. D. 247, at 258. 11896, A. C. at p. 343; see, also, Hrichsen v. Last, supra. PERSONS CARRYING ON BUSINESS IN CANADA. 107 The Master of the Rolls, in Hrichsen v. Last,? made a statement, bearing upon this subject, which has been widely acknowledged by the judges as an authoritative pronounce- ment of the law. He said: “T do not think there is any principle of law which lays‘ Carrying down what carrying on of trade is. There are a multitude of on oor hee incidents which together make the carrying on of trade, but 7 ae I now of no one distinguishing incident which makes one incident, practice a carrying on of trade and another practice not a carrying on of trade. If I may use the expression, it is a com- pound fact made up of a variety of incidents.” Then, in Werle v. Colquhoun,? Lord Esher, M.R., said: “T agree with the opinion expressed by the late Chief A question Justice Cockburn in Sulley v. Attorney-General that it ist iact™ probably a question of faet where the trade is carried on. That question is divisible into two—is there a trade carried on, and, if so, is it carried on in England? If it is a question of fact in each case, it will be impossible to make an exhaustive definition of what constitutes carrying on a trade. The ques- tion in each case must be whether the facts shown to exist in . that particular case establish that a trade is carried on, and that it is carried on in England.” It follows, manifestly, that it would be inexpedient to No general attempt here what the judges have considered to be at least teen impracticable, if not indeed impossible, to do, namely, to lay down. down a general comprehensive definition of what constitutes carrying on of business in Canada—to attempt to collect in the form of a compendious principle, a legal touchstone, all the incidents or ingredients in law of the carrying on of busi- ness in the Dominion in the sense of the Income Tax Act. The question, in truth, is, as Lord Esher has indicated, one Some guiding proper to be considered only upon and for the particular facts aay a agi of each case. Towards reaching a proper solution of the— difficulty in any particular case, there are, however, a number of guiding fundamental principles, deducible from the decided cases, to which it will be useful to attend. 1. Trade or business requires two distinct contracting Two distinct parties,® the one to supply and the other to take and pay for a the supply,—for, as the late Lord Chief Baron Palles pithily necessary. 78 Q. B. D. 414, at 415. *L. R. 20 Q. B. D. 758, at 758. ‘5 H. & N. 711. * Daimler Co., Ltd. v. Continental T'yre & Rubber Co. (1916), 2 A. C. 307, per Lord Shaw of Dunfermline, at p. 330. 108 Business must be carried on by a person for himself, not as clerk or servant of another. Business must be one from which profit can arise, but Act recognizes only lawful businesses and busi- nesses earried on in lawful manner. DOMINION INCOME TAX LAW. observed, “ No man can trade with himself; he cannot, in my opinion, make in what is its true sense or meaning a taxable profit by dealing with himself.”° The cases relating to the. taxability of municipal corporations and mutual assurance societies, which illustrate this proposition, are elsewhere dis- cussed.” 2. A person is not “carrying on business in Canada” within the meaning of the Dominion Act unless he is carrying on business for himself, and not merely as the clerk or servant of another. A person may, however, habitually act as an’ agent for other persons, for example, as an agent for the sale of,goods on behalf of foreign traders on a commission basis,° or as a manager for several shipping companies on commis- sion,?° and be held, nevertheless, to. be carrying on an inde- pendent business. 3. Business, in the sense of the Income Tax Act, means: business from which profits can arise;! but it would seem that only lawful businesses and businesses carried on in a lawful manner are within the purview of the Act. A contrary view. would almost appear to have been suggested by Denman, J., in Partridge v. Mallandaine,? a case relating ‘to the assess- ment to income tax under the English Act of a professional bookmaker, where this learned judge expressed the opinion that “if a man were to make a systematic business of receiv- ing stolen goods and to do nothing else, and he thereby system- atically carried on a business and made a profit,” he would be properly assessable to income tax in respect of such profit. In a recent decision, Inland Revenue Commissioners v. von Glehn,? Scrutton, L.J., has, however, raised a question as to the intended application of the foregoing dictum and expressed the opinion, though with reservation, that the English Income Tax Act does not extend recognition to unlawful businesses or to businesses carried on in an unlawful manner. “T am inclined to think,” says the learned judge, “ though I. do not wish finally to decide it, that the Income Tax Acts are * Dublin Corporation v. M’Adam, L, R. (Ir.) 20 Ex. D. 497. ™See ante, 97-99 ; post, ch. 4. 5 He parte Tucker, 23 N. B. 311; see, also, Robbins v. Inland Revenue (1920), 1 K. B. .51; (1920), 2K. B. 677 C. A. and Inland Rev. v. Sangster (1920), 1K. B. 587, at 595. * Burt & Co. v. Inland Revenue (1919), 2 K. B. 650. * Radcliffe v. Inland Revenue, 89 LL. J..(K. B.) 267. * Mitchell v. Egyptian Hotels. Ltd. (1915), A. GC. 1022, per Lord Parker of Waddington, at p. 1038. ? (1887), 18 Q. B. D. 276. 7 (1920) 2 K. B. 558. t PERSONS CARRYING ON BUSINESS IN CANADA. 109 to be confined to lawful businesses and to businesses carried on in a Jawful manner. I do not think that Denman, J., in Partridge v. Mallandaine, meant to say anything contrary to that. He was there dealing with a betting case, and since some betting is not illegal, but is invalid in the sense that the courts will not enforce betting contracts, whilst other betting is illegal in the sense that it is punishable, I rather think that his language is used with reference to a case of betting which was invalid or unenforceable, not illegal. If he means to say that the Income Tax Acts recognize illegal businesses in the sense of businesses which it was not legal to carry on because they were punishable, I at present very much. doubt whether any such extension of the Acts is possible.* The latter seems to be the sounder view of the matter. 4. An intent to make a profit is not an essential part qutent to of the definition of business for income tax purposes. Hence, fede eae a corporation or: an unincorporated society, or other body though avowedly incorporated or formed for non-trading objects, is nevertheless liable to be assessed to income tax if in carrying out its charter objects it incidentally carries on a trade or business from which taxable profits arise.» In such cases, to quote the dictum of Lord Wrenbury (then Buckley, L.J.), in Carlisle & Silloth Golf Club v. Smith,’ “it is not the character of the person who carries on but the character of the concern which is carried on that has to be regarded.” The profits, in such cases, are, moreover, not the less tay- able profits because they may be applied or devoted to char- itable purposes’ or dedicated to a public or quasi-public purpose.* Neither, on the other hand, does the mere existence of an Tntent to intent or charter object to carry on business for profit neces- ;Aei) Qe sarily predicate a liability to income tax. more easily It is said that an intent to carry on business is more easily eee case of inferred in the case of a company than in that of an Intdliei: ¥--!?- He received inquiries for machinery, such as the firm could sup- ply, sent to Denmark particulars of the work which the machin- ery was required to do, including samples of materials to be dealt with, and when the machinery was supplied he was available to give the English purchaser the benefit of his experience in erecting it. The contracts between the firm and their customers were made in Copenhagen and the goods were shipped f.o.b. Copenhagen. The Commissioners held that the firm exercised a trade within the United Kingdom and were assessable to income tax, but it was held, on appeal (per Rowlatt, J.) that the place where the trade was exercised was the place where the transac- tions forming the alleged business were closed, in the case of a selling business by the sale of the commodity, and the profit thereby realized, and that therefore the firm, exercising their trade in Denmark, could not, in respect of the same profits and gains, exercise their trade elsewhere. Rowlatt, J., said: “It seems to me that in these cases the ‘question is whether the trade which it is sought to tax is exer- cised in the United Kingdom or outside of it in the sense that it is supposed to have a single situation, and the question is what that situation is. I do not think the exercise of a trade as men- ‘tioned in Sch. D can be said to be in the United Kingdom with the reservation that it may also take place outside of it. The scheme of this part of the income tax is to tax a foreign resident “in respect of a source of income in the United Kingdom. The exercise of a trade produces a profit once but not twice, and if that exercise takes place in the United Kingdom it cannot, as the source of the same profits and gains, also take place else- ~where. “T cannot read the judgments in those cases (Sulley v. Attor- ney-General; Erichsen vy. Last, and Grainger v. Gough), without being driven to the conclusion, notwithstanding some remarks of the Master of the Rolls in Hrichsen v. Last, that the real place where the trade is exercised is the place where the transactions forming the alleged business are closed, in the case of a selling business, by the sale of the commodity and the profit thereby realized. It seems to me that is a clear and definite principle. Until the sale is effected the trade is incomplete. Trading is ‘buying or making and selling, and if I am right in supposing that -one ringle place has to be treated as the place where the trade Commission- ers of Tax- ation y. Kirk, 1900. A.C, OSS, DOMINION INCOME TAX LAW. is exercised it seems to me that it must be where the profit- bearing transactions are closed. After all, this is a much more satisfactory principle than to leave it as a question of fact in each case whether there has been a sufficient volume of activity in connection with the business in any particular place to afford evidence to support a finding that the trade was exercised there.” Two joint stock companies, the Broken Hill Proprietory Company, Limited, and the Broken Hill Proprietory Block 10 Company, Limited, formed and incorporated in the colony of Victoria and having their head offices with boards of directors in that colony, carried on the business of mining on leasehold land held from the Crown at Broken Hill in the colony of New South Wales, where each company had an office and a manager of a mine. A certain portion of the crude ore was sold in that state, but the greater part was treated by the company’s con- centrating plant at Broken Hill. In the case of the Broken Hill Proprietory Company certain parts were treated at the tom- pany’s works at Port Pirie in South Australia. Neither company made any contracts for sale in New South Wales. The sales of the Block 10 Company were made in Mel- bourne except as to 1,031 tons of tailings consigned to Europe. The sales of the Broken Hill Company’s product were madé and purchase money was received either in London or in Melbourne. Both companies made net profits to a large amount from these business operations. The question was whether these companies had any income which was assessable to income tax under the New South Wales Land and Income Tax Assessment. Act of 1895. Under that Act, an income tax was payable in respect of “all incomes exceeding £200 per annum: (1) arising or accruing to any person wheresoever residing from any .. . trade earried on in New South Wales by such person, or on his behalf wholly or in part by any other person . . (8) derived from lands of the Crown held under lease or license issued by or on behalf of the Crown; (4) arising or accruing to any person where- soever residing . from any other source whatsoever in New South Wales, not included in the preceding sub-sections ” but it was expressly provided no tax was payable in respect of income earned outside the colony of New South Wales. The Supreme Court of New South Wales held that the income was not earned in New South Wales because the finished products were sold exclusively outside the colony. The real question, therefore, was whether any part of these profits were earned or produced in the colony. This was treated by the Privy Council as a question of fact. Lord Davey, who delivered the judgment of the ‘Board, said: “The word ‘trade’ no doubt primarily means traffic by way of sale or exchange or commercial dealing, but may have a larger meaning so as to include manufactures. But if you confine trade to its literal meaning, one may ask why is not this income derived (mediately or immediately) from lands of the Crown held on lease under section 15, sub-section 3. or from some other source in New South Wales under sub-section 4. Their Lordships attach no special meaning to the word ‘derived’ which they treat as synonymous with arising or accruing. It appears to their Lordships that there are four processes in the earning or production of this income: (1) The extraction of the ore from the soil; (2) the conversion of the crude ore into a merchantable PERSONS CARRYING ON BUSINESS IN CANADA, 153- Gi product, which is a manufacturing process; (3) the sale of the merchantable product; (4) the receipt of the moneys arising from the sale. All these processes are necessary stages which termin- ate in money and the income is the money resulting less the expenses attendant on all the stages. The first process seems to their Lordships clearly within sub-section 3, and the second or manufacturing process, if not within the meaning of ‘trade’ in subsection 1, is certainly included in the words “any other source whatever in: sub-section 4. So tar as relates to these two processes, therefore, their Lordships think that the income was earned and arising and accruing in New South Wales. The fallacy of the judgment of the Supreme Court in this and in Tindals’ Case (18 N. 8. W., L. R. 378) is in leaving out of sight the initial stages and fastening their attention exclusively on the final stage in the production of the income.” And after referring to Sulley’s case and Grainger's case, they said: “Tn such cases the place where the profits come home to the trader may be a very good test as to the place where the trade is carried on. But these cases do not appear to their Lord- ships to have much to do with a case such as the one before them, where a business is admittedly carried on in this country.” “In the San Paulo Railway Company \. Carter, all that the House of Lords had to decide was whether a company with a head office in London, from which the board of directors gov- erned the operations of the company in Brazil, did not exercise a business in England. It would have been difficult to say in that case that the profits or income were not to some extent at any rate earned in Brazil.” “In Stratton’s Independence v. Howbert, the Supreme Court tratton's of the United States held that the proceeds of ores mined Indepen- by. a corporation from its own premises was income within dence v. the meaning of the Corporation Tax Act, and it was not Howhert, ' correct to say that a mining corporation was not engaged in 31.U.S. 399. business, but was merely occupied in converting its capital assets from one form to another, and that while a sale outright of mining property might be fairly described as a conversion of capital from land into money, the process of mining is in a sense equivalent to a manufacturing process, and, however the opera- tion shall be described, the transaction is undoubtedly business within the meaning of the said Act, and the gains derived from it are properly the gains of business derived from capital, from labor, or from both combined. The principle of this decision was applied to rents and royalties paid by mining corporations under a lease to the cor- porate owners of the mineral lands in Von Baumach v. Sargent Land Co., 242 U.S. 503. Under section 59 of the New Zealand Land and Assessment Commis- Act, 1900, taxable income derived from business includes “ profits sioners of derived from New Zealand as well as profits received in Tew. gazes tar Zealand.” pe Rees The respondent company, with its head office in London, Pagtern carried on the business of international telegraphy in New Zea- Extension land, Australia and elsewhere. The Government owned the tele Telegraph graphs in New Zealand and received the entire charges for Co., 1906 messages, deducting the cost of transmission over its own lines * 0.526. and of transmission to New South Wales, the balance being paid 134 Lovell & Christmas, Lid. % Commis- sioners of Taxes (New Zealand), 1908 A.C. 46. DOMINION INCOME TAX LAW. to the Government of New South Wales. The messages then travelled by stages to the place whence they were dispatched by the respondent company’s cable. The company received the balance after deduction of the various charges. There was no evidence of any contractual relation express or implied having been established in New Zealand either with the New Zealand Government or with the senders of the telegrams, to carry the telegrams to their ultimate destination. Held, that. the company’s profits for the transmission of messages over its own cables were not taxable, not being “ derived from New Zealand or received in New Zealand.” An English company’s profits consisted of a commission. deducted from moneys received in London, under agency con- tracts of sale, effected in London, of goods brought from New. Zealand as a result of transactions made by the company in New Zealand, Held, by the Judicial Committee of the Privy Council, that the profit was actually made in London and that the earlier transactions in New Zealand were insufficient to render these profits taxable under the New Zealand Land‘and Income Assess- ment Act, 1900, as profits derived from business carried on in New Zealand. Sir Arthur Wilson, who delivered judgment of the Board, after referring tu Erichsen v. Last; Grainger v. Gough; Sulley v. Attorney-General, seid: “In the present case their Lordships are of an opinion that the business which yields. the profit, is the business of selling goods on commission in Loudon. The commission is the consid- eration for effecting such sales. The moneys received by the appellants, out of which they deduct their commission and from which, therefore, their profits come, are paid to them under the contracts of sale effected in London. ‘The earlier arrangements entered into in New Zealand appear to their Lordships to be transactions the object and effect of which is‘to bring goods from New Zealand within the net of the business which is to yield a profit. To make those transactions a ground for taxing, in New Zealand, the profits actually realized in London would, in their Lordships’ opinion, be to extend the area of taxation further than the authorities warrant.” V.—Persons who, not Being Residents of Canada, Derive Income for Services Rendered in Canada, to any Person Resident or Carrying on Business in Canada. This limb of the charging section is understood to have been inserted for the purpose particularly of bringing within the net of the Act the adventitious earnings in Canada of non- resident professional men, for example, consulting counsel or consulting engineers, who are retained to perform profes- sional services in Canada for persons who are residing or carrying on business in Canada. If this was its intended application, it is difficult to percéive any real necessity for the enumeration at all, seeing that such persons are appar- PERSONS WHO PERFORM SERVICES IN CANADA. 155 ently embraced by the definition of “persons employed in Canada” appertaining to the third limb of the charging section and that the latter enumeration, moreover, is wider in its application than the fifth inasmuch as the income chargeable to income tax under that enumeration is not lim- ited, as under the fifth, to income derived *‘ for services ren- dered in Canada,” but extends to income “ for personal ser- vices, any part of which is performed in Canada,” that is to say, the services in respect of which the income is received may be partly performed outside of Canada. In this view, it would seem that the fifth limb is entirely redundant. There is, however, possibly one class of persons, not within the pur- view of the third limb, to which the fifth limb may apply, namely, non-resident persons who are engaged merely under contracts of work and labour to execute some work in ‘Can- ada, though there is some doubt whether the wording of the clause is entirely apt to authorize this application of the limb. Worps or EXCEPTION IN CHARGING SECTION. There appear, in the charging section of the Act immedi- Effect of ately following, the five enumerations of taxable persons ieee which are discussed above the words “ except corporations and corpora- joint stock companies.” The grammatical effect of these tae oe words, so situated, would appear at first glance to he to oe ee exclude the application of any of the five preceding enumera- in charging tions to corporations and joint stock companies; but this, it Seton. is apprehended, is not the intended nor the real effect of those words. The second sub-section of the charging provision - requires corporations and joint stock companies to pay a — special tax marginally denominated a “corporation tax,” and it is suggested, therefore, that the real purpose and intent of the words of exception in the first sub-section are only to make it clear, out of caution, that corporations and joint stock companies shall not be required to pay, in addition, the normal tax and the surtax prescribed by that sub-section. That is to say, the words of exception relate to the rates pre- scribed rather than to the classes of taxable persons. The contrary construction is inadmissible because it is only by looking at the five enumerations and determining under which of them a corporation or joint stock company, in a particular case, is taxable, that any conclusion can be reached as to the quantum of income in respect of which it is assess- able to income tax. Income has extensive meaning. CHAPTER IV. INCOME. Ordinary Meaning of “ Income.” The Income War Tax Act imposes a charge upon “income” of which a comprehensive definition is provided by section 3 of the principal Act, but before examining this statutory definition, it is necessary to consider the meaning of income. Income in its ordinary sense means that which comes in to a person as payment for labour or services ren- dered in some office or as gain from lands, business or the investment of capital; receipts or emoluments regularly accruing either in a given time or when unqualified, annu- ally; the annual receipts or revenue.t It has been said that it is as large a word as can be used to denote a person’s receipts.” Judicial Definition of Income. The word income as used in a variety of statutes has received judicial interpretation in a number of cases. As used in the Bankruptcy Act in England, it has been held to include the retired pension of a colonial judge, although voted annually,* and the retired pay of an army officer,> and the stipend of a workhouse chaplain,® but not a voluntary allow- ance,° even though paid out of public funds,” and the wages of a workman have been held not to come within the word “income” as used in the English Bankruptcy Act.§ It should be noted, however, that it has been expressly laid down by Lord Macnaghten that though the wages of work- men are not income for the purpose of the Bankruptcy Act, nevertheless, that wages are income for the purposes of an income tax act, owing to the different’ purpose of the enact- ment.’ The salaries of judges have been held to be income *Century Dictionary. ? Re ITuggins, 21 Ch. D. 85, per Jessell, M.R., p. 92. *Re ITuggins, (supra). 4Re Ward, 1897, 1 Q. B. D. 266. °Re Mirams, 1891, 1 Q. B. D. 594. °Re Wicks, 17 Ch. D. 70. “Re Webber, 18 Q. B. D. 111. *Re Joncs, 1891, 2 Q. B. D. 231. ° Ostrum v, Atty.-Gen. B. C., 1904, A. C. 144. > INCOME. under provincial statutes,’° but not the living allowance of judges in the Yukon.? Gross or Net. There has been some difference of judicial opinion upon Means whether the word income means gross income without deduc- a tion of outgoings and losses, or whether it means net income. The Supreme Court of Canada held in one case that the income of a bank for the purposes of taxation meant gross income, i.¢., the whole income as opposed to net profits or net income.” This decision, however, was reversed by the Privy Council, and the word was construed in its natural and ac- cepted sense as the balance of gain over loss,? and subse- quently in an Ontario case, Chancellor Boyd speaking of this decision stated: “The judgment is definitely and con- clusively upon this point that income as commercially used means the balance of gain over loss in the fiscal year.”* But it should be noted that there are decisions upon certain special statutes that the word income means total or gross incomings,® and the Supreme Court of Canada followed such a decision in the case cited above, but this decision was dis- tinguished by the Privy Council. Income in its ordinary sense includes only that which is received as money or which may be turned into money. It includes “that which goes into the pocket, but not that which saves the pocket.”* It has been conclusively estab- lished under the English income tax acts that income or profits means the excess of receipts over the expenses neces- sary to earn such receipts.” It is also noteworthy that Chancellor Boyd suggested in the decision referred to above that income was not an appro- priate word to apply to corporations, but was necessarily used for purposes of convenience.® Gain from Capital and Labour. In a recent important Segue of the Supreme Court of U.S. Supreme the United States “income” was discussed in the following Re County Court Judges, 5 O. W. N. 657. + Dugas v. Macfarlane, 18 W. L. R. 701. 2 Lawless vy. Sullivan, 3 8. C. R. 117. 7 Tbid, 6 A. C. 373. ae ‘City of Kingston v. Canada Life Ass. Co., 19 O. R. 453, at p. 58. 5 Queen v. Commissioners of Southampton, L. R. 4 H. L., p. 45. 5 Tennant v. Smith, 1892, A. C. 150. " Post chapter 6 on Deductions. 5 City of Kingston v. Canada Life Ass. Co. (supra). in 13 definition. Character- istics of income, DOMINION INCOME TAX LAW. terms: “After examining dictionaries in common use, we find little to add to the succinct definition adopted in two cases arising under the Corporation Tax Act of 1909.° “Income may be defined as the gain derived from capital, from labour, or from both combined.’ Brief as it is, it indi- cates the characteristic and distinguishing attribute of in- come essential for a correct solution of the present contro- versy. The Government, although basing its argument upon a definition as quoted, placed chief emphasis upon the word ‘gain’ which was extended to include a variety of mean- ings; while the significance of the next three words was either overlooked or misconceived. ‘Derived from capital.” Here we have the essential matter: not a gain accruing to. capital, not a growth or increment of value in the invest- ment; but a gain, a profit, something of exchangeable value proceeding from the property, severed from the capital how- ever invested or employed, and coming in, being ‘ derived,’ that is, received or drawn by the recipient, the taxpayer for a separate use, benefit and disposal ;—that is income derived from property. Nothing else answers the description.”?° Analysis of ‘ Income.” Income would appear to be therefore: (1) That which comes in, i.e, is realized, thus excluding unrealized gains, which if realized, would be taxable; (2) in the form of money or which may be converted into money—thus excluding a right to living quarters or other such advantage, if such right cannot be turned to pecuniary account; (3) as a reward for services or capital—thus excluding gifts or certain other adventitious gains; (4) after proper deductions have been made; (5) and which accrues “annually,” i.e. with some regularity, e.g. in the course of business, thus excluding capi- tal gains growing out of the ownership of property. The use of this word “annually” in the English Act has been held to mean that the tax is imposed “ upon income and not upon capital.” and gains made in the value of capital assets or in casual transaction are not properly taxable as income. Statutory Definition of Income. This analysis must, however, be read subject to any quali- fications resulting from the comprehensive definition of ° Stratton’s Independence v. Howbert, 231 U. S. 399, p. 415; Doyle v. Mitchell, 247 U. 8. 179, p. 185. 1 Hisner V. Macomber, 40 8S. C. R. (U.S.) 189. 1 Scottish Provident Institution v. Farmer, 1912, S. C. 452, per Lord President,, p. 457. INCOME, income provided hy the Act. Section 3 (1) of the principal Act, as amended, provides a definition of income which, how- ever, must also be read subject. to the exceptions and relief pro- vided by the Act, and to the deductions allowable by the Act or otherwise.? The following effort has been made to present this definition in a form in which it may be more readily analyzed :— “Income means the annual net profit or gain or gratuity, directly or indirectly received by a person from any office or employment or from any profession or calling, or from any trade, manufacture or business, as the case may be, whether derived from sources within Canada or elsewhere; 139 (1) Whether ascertained and capable of computation Personal being wages, salary or other fixed amount, or unascertained “°° as being fees or emoluments; or 2 3 (2) As being profits from a trade or commercial or Trading financial or other business or calling. “ And shall include :— profits. “ (8) The interest, dividends, or profits directly or indi- Interest, without security, or from stocks or from any other invest- ment, and whether such gains or profits are divided or dis- tributed or not; i pneu - é < . , Dividends, rectly received from money at interest upon any security, or ¢ c. (4) And also the profit or gain from any other source ; Other “(5) Including the income from, but not the value of pion property acquired by gift, bequest, devise or descent; Gifts. “ (6) And including the income from, but not the pro- msurance ‘ceeds of life insurance policies paid upon the death of the per- Policies. son insured, or payments made or credited to the insured on life insurance endowment or annuity contracts upon the maturity of the term mentioned in the contract, or upon the surrender of the contract; “ (7) And including the salaries, indemnities or other Certain remuneration of members of the Senate and House of Com- salaries. | indemnities, mons of Canada and officers thereof ; &e. (8) Members of Provincial Legislative Councils, and Assemblies ; “(9) And Municipal Councils, Commissions or Boards of Management ; “ (10) Any Judge of any Dominion or Provincial Court appointed after the passing of this Act; 2? Vide post, chapters 5 and 6. 140 Schedule system. DOMINION INCOME TAX LAW. (11) And of all persons whatsoever, whether the said salaries, indemnities or other remuneration are paid out of the revenues of His Majesty in respect of His Government of Canada or of any province thereof, or by any person except as provided in section five of this Act.” Income under United Kingdom Act. . A short comparison of this definition with income as tax- able under the Income Tax Acts in the United Kingdom and the United States is necessary. The English Act contains no definition in the form provided by section 3 above, but pro- vides for the charging of the tax in respect of all property, profits or gains, described or comprised in the schedule to the Act. Under schedule A and B the tax is charged in respect of the property and occupation thereof respectively, upon the annual value thereof, Under schedule C the tax is charged in respect of all profits arising from interest, annui- ties, dividends and shares of annuities payable out of any public revenue. Schedule C is limited in its application to income from securities from the British Government, and all colonial and foreign governments. , Under schedule D the tax is charged in respect of :— _ (a) The annual profits or gains arising or accruing; (7) to any person residing in the United Kingdom from any kind of property whatever, whether situate in the United Kingdom or elsewhere, and (ii) to any person residing in the United Kingdom from any trade, profession, employment or vocation whether the same be carried on in the United Kingdom or elsewhere, and (ii) to any person whether a- British subject or not, although not resident in the United Kingdom from any property whatever in the United Kingdom or from any trade, profession; employment or vocation exercised within the United Kingdom, and (b) All interest of money, annuities and other annual profits or gains not charged under A, B, C or E, and not specially exempted from tax. Under schedule E, the tax is charged in respect of every public office or employment of profit, and in respect of every annuity, pension or stipend payable by the Crown or out of the public revenue of the United Kingdom other than the annuities charged under schedule C. Chief Differences. Until some jurisprudence is established in Canada by judicial interpretation it will be difficult to determine the INCOME. application of decisions in the United Kingdom to the defini- tion of income in the Dominion Act. The substantial differ- ence between the English and Dominion Acts lies in the fact that the English Act imposes the charge upon the several kinds of income from sources specified in the schedule,® 1.¢. each form of income is treated separately. The Dominion Act, on the other hand, regards income as a whole, and the charge is imposed upon the total income as a lump sum. The Income result of the English system, which may be described as the lumped. schedule system, is that revenue from a particular source may be charged with the tax although thé taxpayer’s opera- tions when taken as a whole have not yielded any net profit or gain. Interest, e.g. is specifically charged with the tax, and the tax is payable in respect thereof, although the whole or a portion of the interest is expended in carrying on the business. Such interest under the Dominion Act is regarded as an item of gross income against which the expenses and losses of the business may be set off. Furthermore under the Dominion Act the taxpayer is entitled to deduct losses sus- tained in one business from income derived from another business or source, except in so far as such deduction is pro- hibited by the provision that deficits or losses sustained in transactions not connected with the chief business shall not be deducted from income derived from the chief business.® Income under the United States Act. The definition in the United States Act provides that gross income includes gains, profits and income derived froin salaries, wages or compensation for personal services of what- ever kind and in whatever form paid, or from professions, vocations, trades, businesses, commerce or sales or dealings in property, whether real or personal, growing out of the owner- ship or use in such property; also from interest, rent, divi- dends, securities or the transaction of any business carried on for gain or profit, or gains or profits, and income derived from any source whatever.® Gains in Property not Taxed in Dominion. There are two important differences between this defini- tion and the.definition contained in the Dominion Act, The 3 Bastable Public Finance. 2nd ed., pp. 448-9. * Clerical Medical and General Life Assurance Soc. v. Carter, 22 Q. B. D. 444; Revell v. Edinburgh Life Insurance Co., 5 Tax Cas, 221. 5 Amend. 1919, s. 2 (2) and amend. 1920, s. 2. Vide post ch. 6 under ‘“* Losses.” * Revenue Act 1918, s. 213 (a). 141 142 DOMINION INCOME TAX LAW. Income United States definition is of gross income, and it is speci- Cacnda ically provided in a subsequent section of their Act what deductions may be made in order to determine net or tax- able income. Under the Dominion Act, on the other hand, no énumeration of the proper deductions to be made is pro- vided by the statute, the definition being of net income. Another important distinction lies in the fact that the United States definition includes profits made from dealings in prop- erty growing out of the ownership or use of such property. Such gains are not properly taxable under the Dominion Act. Exclusive Effect of Definition. In considering the definition of “income” provided by section 3 of the Dominion statute it should be noted in the first place that income “ means” annual net profit or gain or gratuity, and it is arguable that the use of this word excludes all meanings of income not falling within the definition. In the United States statute the word “ includes ” is used, which has the effect ka enlarging rather than prescribing the ordin- aur meaning.’ It should be noted, however, that the word “include ” is also used in subsequent parts of the Dominion definition. “ Annual.” The use of the word “ sna * in the definition to qualify profit, gain or gratuity does not connote necessarily the idea of nothing being chargeable which is not within the year of assessment, but it is there to indicate that the charge is upon the current profit rather than upon capital. 7 “Directly or Indirectly Received.” The provision of the definition that income means the annual net profit or gain “directly or indirectly received” requires some comment. These words relate probably to the method by which the income is received rather than to the form in which the income is received, and are intended to dispose of any doubt in cases in which income is received through the medium of an agent, and is never actually remitted to the taxpayer. Income which is credited to the account of or set apart for a taxpayer, and which may be drawn upon by him is taxable, although never reduced to ‘He parte Ferguson. l. R. 6 Q. B. 280; and see Dillworth v. Commissioner, 1899, A. C. 99, at pp. 105-6, and Chambers & Son V. Commissioner, 1916, N. Z. L. R. 617, at pp. 629-30. * Scottish Provident Institution V. Farmer, 1912, 8. C. 452, per Lord President, p. 457. INCOME. 145 possession. However, there must be no substantial restriction Unrestricted upon his right to reduce to possession, and in England where ieee a portion of the profits of a business was credited to employees, but could not be disposed of by them, and did not vest in them until a condition was fulfilled, it was held that such profits did not constitute income of the employees.® On the other hand it has been held that where payment of a portion of an ‘employee’s salary was deferred under his contract of service, such sum was income.’? The crediting of a sum to the account of the taxpayer would constitute indirect or constructive receipt. Accrued or Received. The important question whether income includes that which has accrued, but has not been received, or only that which has been received, is left somewhat in dowbt. With respect to the income of persons whose profits are determined by means of statements of assets and Jiabilities, including bills and accounts receivable and inventories, “income ” must necessarily include accrued income. Furthermore the statute itself provides that the income of a beneficiary from any estate or trust shall be deemed to include income accrued to his credit whether received by him or not.1! The income must, however, have been received by the fiduciary. The view estab- lished by a line of decisions in the United States is that income includes only receipts, and there appears to be no reason why it should not be the proper view under the Do- minion Act.?? Received Abroad. Where income ig received by an agent of the taxpayer or credited to him abroad, it is nevertheless taxable since it falls within the ‘provision “whether derived from sources within Canada or elsewhere.” There is no limitation in favour of the taxpayer who refrains or is restrained by obliga- tions from bringing his income to Canada, and the question of the method by or the form in which income is received has no special application to income derived from sources abroad, ‘There are English decisions that certain gains received abroad ° Walker v. Reith. 43 Se. LL. R. 245. ” TIudson Vv. Gribble, 1903, 1 K. B. 517; but see Amend, 1918. s. ). *1920 Amend. s. 4. " Wdwards v. Keith, 231 Fed. 110; Maryland Casualty Co. v. U. 8., 52 Ct. Cls. 201; People v. San Francisco Union, 13 Pac. 498; U. 8. v. Indianapolis & St. Louis Ry., 118 U.S. 711; Mutual Benefit v. Herold, 198 Fed. 199: Hays v.Gauley Mountain Coal Co., 247 U.S. 189, and see under Returns, post, ch. 8. ie) 144 Not enlarging. Three classes of receipts. DOMINION INCOME TAX LAW. are not chargeable, but these depend upon the words “ re- ceived in Great Britain,’ and apparently have no applica- tion.*% “ Annual Profit of Gain from any other Source.” An element of doubt has been introduced into the defini- tion of income by the general provision that income shall include “also the annual profit or gain from any other source.” In order to determine the effect of these words it should be noted that the definition may be divided in two parts, viz.: First, a general definition of income as being the annual net profit, gain or gratuity from certain sources, and secondly, an enumeration of specific receipts. The pur- pose of this latter part of the definition was evidently largely precautionary since most of the receipts enumerated would undoubtedly be regarded as income apart from the enumera- tion. It may be, however, that in part it has an enlarging effect and certainly all receipts therein enumerated must be regarded as taxable income, whether they are ordinarily regarded as income or not. However, the inclusion in this enlarging or precautionary part of the words “the annual profit or gain from any other source,” does not necessarily bring within the definition of income receipts which would not otherwise be regarded as income. It seems probable that the words relate back to the general part of the definition, and that they do not have the effect of enlarging the definition. They probably have no larger effect than if the words used were “and also the income from any other source.” Classification of Incomes. It is proposed in so far as it is possible to classify all receipts for the purpose of determining whether they come within the definition under three’ main heads, 1.e. to deal first with income derived from personal exertions; secondly, with income derived from the carrying on of business; and thirdly, with income derived from the investment of capital. It should be noted, however, that this classification of the sub- ject does not involve the division of all receipts in the nature of income into three separate groups, but is simply a method of considering income from three chief points of view, for it is evident that a receipt which is income may be classi- fied under more than one of these main heads, e.g. the income of professional men may be regarded as compensation for per- % See Dowell’s Income Tax Laws, 8th ed., pp. 589 e¢ seq. INCOME. sonal exertions, but may also in certain circumstances be regarded as a profit from carrying on business. Furthermore there may be receipts which do not strictly fall under any of the three heads. A. Prersonay, SERVICES. Compensation for personal services is one of the most Wages, 145 important sources of income and the definition to include 82vies, ete. “wages, salary, fees or emoluments received from any office or employment, or from any profession or calling as the case may be, whether derived from sources within Canada or else- where,” is intended to comprehend all compensation received for personal exertions, whether as wages, salary, fees or emol- uments of office, and whether payment is made annually or at shorter intervals or irregularly and includes not only ordinary earnings or receipts, but also all that accrues to the taxpayer as a result of service performed or of the office held. Income in a taxing-act is a very broad word, and includes without definition such compensation for personal services. Under the British Columbia Assessment Act, which contained no definition of income, it was held that the receipts of a loco- motive engineer constituted income, although calculated on the basis of mileage. Lord Macnaghten said: “ The expres- sion (income) was intended to include, and does include, all gains and profits derived from personal exertions, whether such gains and profits are fixed or fluctuating, certain or pre- carious, whatever may be the principle or basis of calcula- tion.” In the United States all insurance agents’ commis- sions on renewal premiums have been held to be taxable income.* Certain Personal Receipts not Taxable. The definition of income to include receipts from per- sonal exertions must, however, be considered subject to the following observations. A receipt purely in the nature of a gift, and not received in virtue of office or employment is not within its terms, and the Act expressly excludes from the definition of income property acquired by gift, bequest, devise or descent.? It has been suggested that the associa- tion of the word gift with the words bequest, devise or descent indicates an intention that only property acquired 1 Att.-Gen. of B. C. v. Ostrum, 1904, A. C. 144. at p. 147. * Hdwards y. Keith, 231 Fed. 110. * Principal Act, s. 3 D.I.T.L.—10 All gifts excluded. 146 Distribu- tion of assets. DOMINION INCOME TAX LAW. as a result of the death of the donor is excluded from the definition of income, but it appears to be more probable that the intention was to exclude all property acquired by dona- tion whether inter vivos or otherwise, and so to adopt the principle well established in England that a gift is not income. Gifts Honoris Causa, Under the English Act it has been held that a grant made to a curate by the Curates’ Augmentation Fund in recogni- tion of faithful services for more than fifteen years was not assessable because it was a donation honoris causa, and not arising from the curate’s vocation;* and so distinguishable from a voluntary contribution made by parishioners to a curate in respect of the discharge of his duties.° A grant made to a clergyman by a corporation whose purpose was to provide adequate remuneration to the clergy was held to be assessable because the payments were made by rea- son of his office.* Similarly the Easter offerings made to the incumbent of a benefice for his personal use were held to arise by reason of his office and to be assessable ;* but in another case an Easter offering was held not to be assessable when made to an incumbent because he was poorly off.* There may be a number of motives actuating the payment, and it is necessary to discover the substantial reason. ° Purpose to be Ascertained. Lord Ashburne said in one case” referring to the sugges- tion that the offerings were personal gifts to the vicar as marks of esteem and respect “such reasons, no doubt, played their part in obtaining and increasing the amount of the offerings, but I cannot doubt that they were given to the vicar as vicar.” In the most recent case on the subject the secretary of a company who had undertaken his duties without remuneration was appointed liquidator, and on the conclusion of the winding-up a moiety of the surplus of the assets was granted him. It was held that the payment was voluntarily made as a tribute or testimonial for his services, and not as payment for those services, and that it could not be said to 4Turner v. Curon, 22 Q. B. D. 150. 5 Inland Revenue v. Strang, 15 Sc. L. R. 704. * Herbert v. McQuade ety 2K. B. 681. * Blakiston v. Cooper, 1909, C. 104. 5 Turton Vv. Cooper, 92 L. T. $63. " Blakiston Vv. Cooper, 1909, A. C. 104. INCOME. be made in respect of an office or employment since the secre- tary had undertaken to do the work without remuneration or expectation of remuneration, and the office had actually terminated. Consequently the payment was held not to be taxable income.’® In another case in which an annuity was granted to a minister on retiring through ill health, the principle applicable was stated by the Court as follows: “I have never been able to see how it could be said to be in respect of his office when the whole reason it was given to him was that he was no longer in the office.”11_ However, the annuity was held to be chargeable under another provision than that relating to emoluments of office. Gratuity to Widow. It has been ruled in the United States that where the monthly salary of an officer or employee is paid for a limited period after his death to his widow in recognition of the services rendered by her husband, but without the perform- ance of any services by the widow, such payment is a gratuity and exempt from income tax. The word gratuity is not used in the American definition of income. It has also been held under an Australian statute, that a voluntary payment by an employer to the widow of a deceased employee was not taxable, and that such a casual gift, having no relation to services rendered, and to which the recipient “has no legal or equitable claim which he could enforce,” could not be re- garded as income.’* Casual Receipts. Furthermore it should be observed that there may be gale of 147 casual receipts other than gifts which do not accrue to the a taxpayer as proceeds of office, employment, profession or call- ~~ ing. A casual receipt accruing from an isolated act, as for example, the writing of a single literary article, may possibly not constitute taxable income, although on the other hand, the labour of preparing a book might ‘properly be regarded as constituting a profession or calling. If an artist or inventor sells the product of his ability, in many cases inquiry would have to be made whether he does so habitually so as to be carrying on a business.t There are practically no auth- Cowan V. Seymour, 1920, 1 K. B. 500. 1 Duncan’s Bxrecutors v. Farmer, 46 Se. L. R. 857. YRe A.B. 2 A. Ll. R. 199. 1Inland Revenue v. Sangster, 1920, 1 K. B. 587, at p. 597. 148 Living allowances. DOMINION INCOME TAX LAW. orities that a receipt obtained for a casual or isolated service distinct from the taxpayer's ordinary calling is income. If the receipt is derived from the sale of an invention or work of art, the view may be taken that such receipt is not taxable any more than the receipt from the sale of any other property of the taxpayer apart from sales in the course of carrying on business. It has been held that betting if carried on system- atically constitutes a calling.* Denman, J., said: “The word vocation is analogous to calling, a word of wide signifi- cation, meaning the way in which a man passes his life.” An agent for the negotiation of the sale of estates claimed that a portion only of the fees, viz., a sum equal to one-half per cent. of the purchase price, was payment for work done as negotiator, and that any amount received in excess of that sum was compensation for loss of employment as agent, but it was held that the whole of the fees was taxable as being paid as commission incident to services performed. What Saves the Pocket not Income. Finally it should be observed that income inclides ordin- arily only that which comes into the pocket and not that which saves the pocket. So it was held ia England that the occupation of bank premises by an employee was not a profit or emolument of office.© Some limitation, however, appears to have been intended to be placed upon th» application of this principle by the amendment of 1919, that “in cages in which personal and living expenses form part cf the profit, gain or remuneration of the taxpayer, the sanie shall he assessed as income for the purposes of this Act.’* There may, however be conceivable cases where personal and living expenses are not assessable. It is not sufficient that such expenses be received hy the taxpayer; but it is essential that they constitute a part of his profit or gain. .\ person for example who is obliged in the course of his employment to travel should not be assessed in respect of his expenses if they are paid as an indemnity, but if they form part of the taxpayer’s remuneration they should be assessed.’ Where an institution pays obligations of its en:ployees, as e.g. their taxes, the principle may apply that that which saves the pocket is not income, wnless within the definition by rea- 5 Partridge v. Mallundaine, 18 Q. B. D. 276. * Humphreys v. Peare (1913), 2 K. B. Ir. 462. * Tennant v. Smith, 1892; A. C. 150. °1919 Amend, s. 2 (2). "Isaacs v. Commissioner of Income, 1916, S. R. (Queensland) 98. INCOME. son of the expressions “indirectly reccived”’ or “ annual profit or gain from any other source ” contained therein. It has been held that additions to an employee’s salary which . . ) . he was obliged to pay to an insurance company for certain benefits were nevertheless assessalile,s and that an allowance paid to detectives for clothing constituted taxable income." Products Consumed by Farmers. As will be seen the form of return for farmers or ranchers requires a return of the value of products of the farm con- sumed thereon.*°, The practice is to treat such products as income, apparently under the authority of ‘the provision referred to in the preceding paragraph. It is clearly arguable, however, that the provision in question does not extend to such products. Pensions, &c. It was apparently the intention of Parliament that pensions should be regarded as taxable income, in view of the fact tha it was thought necessary expressly to except from taxation pensions granted to members of any of His Majesty’s forces, disabled in the European War, and to dependents of any per- son killed or disabled while serving in such forces.1! It is also provided that any payment to an employee out of any sup- erannuation or pension fund or plan to which the taxpayer has contributed a part of his remuneration shall be included as taxable income.’? This provision ix obscurely worded inas- much as, generally speaking, at any rate, a person in receipt of such payments has ceased to be an employee. Pensions are not specifically included in the definition of income and apart from the provisions referred to ahove are not otherwise mentioned, and it is no doubt arguable that a pension payable upon retirement from office, and not falling within the precise terms of the provision just referred to, is not a profit, gain or gratuity from any office or employment since the pensioner has ceased to be an officer or employee. It has heen held in England that an annuity paid to a clergy- man by reason of ill health out of a certain fund did not accrue to him as a payment in respect of office or employ- ment since “the whole reason it was given to him was that he was no longer in the office,” and in another case than a ° Bell v. Gribble, 1908, 1 K. B. 517. ® Ferguson v. Noble (1919). 2 Sc. L. T. 49. “Vide post, c. 8 on Returns. * Amend., 1919, s. 4. * Amend., 1919, s. 2 (3). Turner v. Cuvon, 22 Q. B. D. 150. Certain t pensions exempt. 149 Annual cifts. DOMINION INCOME TAX LAW. grant to a clergyman renewable annually at the discretion of the grantors was not an annual profit or gain arising from ‘property, profession, employment or calling.’”? However in both these cases the receipts in question were held taxable on other grounds, and a pension probably falls within the words “annual profit or gain from any other source.” The word “ovratuity ” in the definition may catch such pensions. Where any part of the remuneration of a taxpayer is re- tained by his employer in connection with a superannuation or pension fund or plan, it is provided that such a part retained shall be allowed as an exemption or deduction from the income of the employee.* This statutory provision does away with the contrary principle laid down in an important English case.* Bonuses. Any payment made to an employee or officer in addition to his ordinary compensation, e.g. in the form of a bonus, whether as a reward for past endeavours or a stimulus to the better discharge of his duties in the future is undoubtedly income in the hands of such employee or officer. Workmen’s Compensation. Payments made to an injured workman pursuant to Work- men’s Compensation Acts are not specifically included in or excluded from the definition of income. Probably such pay- ments cannot be said to fall within the words annual net profit or gain or gratuity, directly or indirectly received from employment, calling or trade, and this is particularly true where payments are made to dependents on account of the death of the wage earner, but on the other hand such pay- ments may be regarded as “ an annual profit or gain from any other source.” In the United States Act such payments are specifically excluded from the definition, probably because the word compensation is included in the definition of “ income.” Alimony not Income. Alimony paid to a wife is not income, but is regarded rather as a portion of the husband’s income to which the wife is equitably entitled, than as strictly a debt. This is * Duncan's Exrecutors v. Farmer, 46 Sc. L. R. 857. ; *Amend., 1919, s. 2 (3) ‘Hudson v. Gribble, 1903, 1 K. B. 517. ° Gould Vv. Gould, 245 U. 8. 151. INCOME. the result of an American decision based upon the definition of income in the United States law, which for the purpose of this question may be regarded as similar to the Dominion Act. B. Prorrrs From Business. Charge upon Profit. The second heading under which income requires to be considered in determining what receipts are taxable is the profit from business or trade. The definition provides that income means “the annual net profit or gain . . . as being profits from a trade or other business or calling directly or indirectly received by a person . . . from any trade, manufacture or business, as the case may be, whether derived from sources within Canada or elsewhere.” The effect of this provision is to impose a charge primarily upon profit, and the legal idea of profit is as near the ordinary commercial meaning as it can be brought, i.e. gross income less the ex- penses of earning the same.° However a substantial difficulty is at once confronted inas- much as many business men no doubt determine their profits by comparing their total assets and habilities at the beginning and end of each accounting period. An eminent English judge has described this method of arriving at profits as the proper method, in a case which however was not an income tax case, as follows: “If the total assets at two dates be compared the increase which they show at the later date as compared with the earlier date (due allowance of course being made for any capital introduced into or taken out of the business in the meanwhile), represent in all strictness the profits of the business during the period in question.”” Such a method contemplates that every appreciation or depre- ciation of capital or fixed assets shall be shown in the balance of profit. Revenue Account only Considered. On the other hand, another method may be employed by which consideration is given only to the revenue account, and the balance of receipts over expenditures taken as the proper measure of taxable profits. ® Russell v. Aberdecn Town and County Bank, 18 A. C. 418, per Lord Herschell, p. 424. *Re Spanish Prospecting Co., Ltd. (1911), 1 Ch. 92, per Fletcher Moulton, L.J., p. 99. 151 Method to determine profits. 152 Tixed capital not regarded. Gain in the course of business. s DOMINION INCOME TAX LAW. Under the English Act it has been clearly laid down that the condition of the capital account is not to be considered for the purpose of the income tax,® and that any gain,® or loss of capital whether by depreciation or exhaustion, is not to be considered.?® Otherwise the Act would impose a charge upon capital, and this was never intended.” This view of the method to determine profits for the pur- pose of income tax in England has only been departed from in, one case, which was later overruled.? It should be noticed, however, that it has been suggested by Palmer in his Company Law Precedents, that to ascertain profits without reference to the capital account is a peculiar method depending upon the particular rules provided by the English Income Tax Acts, and more particularly, it may be supposed, upon the rule which prohibits any deduction in respect of capital employed or intended to be employed in the business.* Charge on Revenue only. However, in expressing such a view the author failed pos- sibly to take into account the fundamental principle of the English Acts, viz.: That the charge is imposed on revenue or income and not upon capital, and consequently the condi- tion of the capital account is not to be looked at (except in so far as it is permitted by the statutory provision for depre- ciation and exhaustion). Similarly, in the definition of income in the Dominion Act, the word profits must be taken to mean such profits as constitute income. The tax is a charge upon receipts or profits which are realized, or at any rate, may be expected to be realized in the ordinary course of business rather than by an extraordinary conversion of capital assets. Circulating Capital Kept up. There is an important line of English decisions dealing with the determination of profits in which it has been laid down “that fixed capital may be sunk and lost and yet the oo Tron Co. v. Black, 1 Tax. Cas. 287, per Lord President, p. 308. °Tebran Rubber Syndicate. Limited Vv. Farmer, 47 Se. Tl. R. 816. “In re Addie & Sons, 12 Se. L. R. 274; Forder v. Handyside, 1 Ex. D. 233; Coltness Tron Co. v. Black, 6 A. C. 315. — "Sec. of State for India v. Scoble, 1903, A. C. 299, per Lord Halsbury, p. 302. 1 Knoicles Vv. MeAdam, 3 Tex. D, 28. ? Coltness Tron Co. v. Black, 6 A. GC. 315. *1902 ed., p. 743. ‘Imp. Act 8 & 9 Geo. V., e. 40, Sch. D., Rule 8, Cases 1 and 2. * INCOME, excess of receipts over current payments may be divided, but that floating or circulating capital must be kept up.”*> These cases had to do with the vexed question of the fund out of which dividends may legally be paid, and depend largely upon the statutory provisions prohibiting the payment of dividends out of capital, and it is unnecessary to pursue them further. The view, however, that circulating capital must be kept up or replaced before profits are determined or divided has never been doubted, and the distinction, it may be suggested, between fixed and circulating capital may have an important bearing upon income. tax law, although no occasion has arisen in England to apply these cases because the principle has been well established from the first by statutory rule that capital gains do not constitute taxable income. Circulating Capital Defined. Circulating capital has heen said to be that which is con- sumed by a single use.° Nevertheless it has been said that: “ What is circulating and what is fixed capital is a question which in many cases may well embarrass the business man and the accountant as well as the lawyer." Such assets as houses and land if purchased for resale may be circulating capital, but if bought with a view to retention as a permanent investment are fixed capital, The purpose to which the tax- payer puts the particular asset in question is more important than the character of the asset. The proper view to be taken with respect to the determina- Poss of tion of profits under the Dominion Act is therefore to have cirewating eapital regard only to the revenue account and to charge thereout deductible. only expenses of earning the revenue and the losses, if any, in circulating capital (apart, of course, from the special provi- sion of the Act for the allowance of depreciation and exhaus- tion). The circulating capital must he kept up and any losses sustained therein during the year deducted from gross profits in determining the annual net profit or gain. Received and Accrued. The Dominion .Act imposes the charge simply upon the “annual net profit or gain directly or indirectly received,” ® Verner y. General and Commercial Trust, 1894, 2 Ch. 239, per Lindley, L.J., 266; Lee v. Neuchatel Asphalte Co., 41 Ch. D. 1; Ammonia Soda Co. v. Chamberlain, 1918, 1 Ch. 266. *Bonamy Price, Practical Political Economy; and see Palmer Company Law Precedents, p. 746 (1902 edition). eens Soda Co. v. Chamberlain (supra), per Peterson, J., p. 274. 154 DOMINION INCOME *TAX LAW. and this provision contemplates the determination of profits by the best accounting system applicable to the particular business in question; and the word “received” must be interpreted to mean “ received ” in a sense in which it would be used by a business man in referring to the profits of the year of assessment, and in many cases means “ accrued” so that profits earned, but not actually received or paid, should be regarded as “received” for the purposes of assessment. Where profits are determined by inventories which must be the case where stocks of goods are carried in the course of manufacture or trade, such inventories should be prepared on the basis of cost unless by the character of the business or a particular and well established custom a lower valuation should be accepted. In any event, the temporary fluctuations of the market should not be regarded, and the practice is to insist on a cost valuation, but in special cases the Commis- sioner may conclude that such a method would be unfair and that market value should be adopted. Capital or Income. The question whether gain is income or an appreciation of capital must be determined by reference to the facts in each particular case, but the test which is applicable to deter- mine the question is whether or not the gain was made in the course of carrying on of a business or trade. It has been said by the Privy Council “that a change in the form of property by a person who does not traffic in that kind of property cannot be regarded as producing income.”® Carrying on It has been found necessary in the preceding chapter to business. consider minutely the cases in which the question whether a business or trade has been carried on has been decided, and in order to avoid repetition only thoses cases will be considered here in which the question whether a gain constituted income or capital has been decided. It may be said, however, generally that where a gain has been made in an isolated transaction, it is regarded as an appreciation of capital rather than as income. That this view is correct is considerably strength- ened by the use of the word “annnal” in the definition, which is there to indicate that the charge is made upon receipts which accrue with some regularity, as e.g. in the course of business. It has been said in England that: “While the Act is full of the expression ‘annual profits and ® ooncy Vv. Commissioners of Taxation, 1907, A. C. 350. INCOME. gain,’ the presence of that word (annual) does not seem to me to connote necessarily the idea of nothing being charge- able which is not earned within the year of assessment, but it is there for the purpose of showing that the tax which is being levied is a tax upon income, or in other words, upon annual profits and not upon capital.’ Relation of Capital to Income. It has recently heen said by the United States Supreme Court that “the fundamental relation of capital to income has been discussed by economists, the former being likened to the tree or the vine, the latter to the fruit or the grape; the former depicted as a reservoir supplied from springs, the lat- ter as the outlet stream to be measured by its flow during a period of time.”*° Sale of Lands by H. B. Co. There is a number of important English decisions in which the question, whether a particular gain was an appre- ciation of capital or a profit, has been considered, It has been held that gains made by the Hudson’s Bay Company in disposing of its lands from time to time as occasion offered, was a capital gain, and not assessable, since this was not a case in which lands were purchased from time to time with a view to resale. It was said that where a man sells his land, Gains in pictures or jewels and makes a gain thereby by reason of the Property. enhancement in value thereof, the same is not chargeable as income.? Sale of Mineral Properties. In the second case to be considered, however, it appeared that a company was formed for the purpose inter alia of acquiring and reselling mining properties, and it was held that where properties had been acquired, worked and resold, the vendor company receiving payment in shares of the pur- chasing company, the enhancement in price was taxable income.* In this important case it was said: “ What is the ® Scottish Provident Institution v. Farmer, 1911-12 S. C. 452, per Lord President, p. 457. ” Wisner v. Macomber, 40 S. C. R. (U.S.) 189. 1 Hudson’s Bay Co. v. Stevens, 101 L. T. 96; and see Hudson’s Bay Co. v. Thew, 1919, 2 K. B. 632, respecting interest on unpaid purchase money. an ee Bay Co. vy. Stevens, 101 L. T. 96, per Farwell, J., p. 97. * Californian Copper Syndicate v. Harris, 6 FF. SO-t. * Qe ut 156 Corporate power to sell. DOMINION INCOME TAX LAW. line which separates the two classes of cases may be difficult to define, and each case must be considered according to its facts, the question to be determined being ‘ is the sum of gain that has been made a mere enhancement of value by re- selling a security; or is it a gain made in the operation of business in carrying out a scheme for a profit making ’,”! and another judge said: “I am satisfied that the appellant company was formed in order to acquire certain mineral fields —not to work the same themselves for the benefit of the com- pany, but solely with the view and purpose of reselling the same at a profit.”* The fact that the company had very little capital available for working the property after buying the same was considered important evidence to support the decision. Tebrau Rubber Case. On the other hand where a company disposed of its assets because its capital was insufficient to develop the property, it was held that the gain made hy the sale of the assets was not taxable income.* With respect to the fact that this com- pany had the corporate power to dispose of its assets in this way, it was said: “J am unable to infer from this fact taken along with the ultimate sale of the entire assets to a new company, that it was part of the trade of the syndicate to purchase and sell lands.’ The Californian ‘Copper case was distinguished on the ground that in that case the company’s business was to purchase and sell mineral fields at a profit. Conversion of Investments. There are other cases in which the question has been con- sidered. It has been held that a corporation whose business it ix to deal in investments is taxable in respect cf profits earned by the conversion of such investments,’ ard similarly a company which is by law required to maintain a reserve of certain investments or actually does so, is taxable in respect of profits made from transactions in such investments.® Where a company was formed to hold and nurse the assets of certain banks in liquidation and to sell the assets when opportunity *Tbid., per Lord Justice Clerk, p. 898. “fhid., per Lord Trayner, p. 899. Tebrau Rubber Syndicate v. Farmer, 47 Se. U. R. 816, and see Whiterock Estate Co. v. Commissioner of Tazres, 30 N. Z. L. R. 405. ‘Tebrau Rubber Syndicate Vv. Farmer, 47 Se. L. R. 816, per Lord Salvesen, p. 819 * Ncottish In restment Trust Co. v. Forbes, 31 Se. . R. 219. “Northern Assurance v. Russell, 26 Se, L. R. 330. INCOME. offered the profits made in such transactions were held to be liable to income tax,’® but if the object of the company had been the realization of the assets solely, the result might have been otherwise, and where upon the foreclosure of a trust deed a sum remained in the hands of the trustees for distribution among bond holders, and there was both interest and principal owing, the final distribution was treated as a payment on account of principal and not taxable, rather than as a payment of interest. Sale of Stock in Trade. Where a manufacturing company makes a sale of its entire assets, the question whether the profit made upon the sale of so much of its stock-in-trade as is marketable in the ordinary course of the company’s business at the time of the transaction is taxable, is open to doubt. Such a sale is not made in the course of carrying on the business, and there appears to be little reason to divide in two the transaction by which assets are sold en bloc and to treat the gain made in the stock-in- trade on a different basis from the gain in other assets. This view appears to have been adopted in a South African case.’ It should be noted, however, that the mere description in the accounts of a taxpayer of a sum received, as capital cannot defeat the right of the Crown to have the tax levied upon that which in truth is profit nor can the applying of it for capital purposes.? Payment by Instalments. The difficulty in determining whether the transaction is a conversion of capital or an operation in the course of carry- ing out a scheme of profit making is considerably increased where the purchase price is payable by instalments. If the transaction, however, is a conversion of capital, the fact that there ig an agreement to pay for the assets by instalments does not necessarily render any part of the purchase price taxable as income,’ In the case of an agreement to pay the purchase price of a railway by means of an annuity, the ‘iti. Commissioner of Tares Vv. Melbourne Trust Co.. 1914, A. C. “Smith v. Law Guarantee & Trust Soc., 1904, 2 Ch. 569. 1Commissioner of Taxes v. Deeps Ltd., cited in Barnes on Income Tax, 1919 Ed., p. 200, and see Dalgety v. Commissioner of Taxes, 31 N. Z. L. R. 260. 2 Scottish Provident Institution v. Allan, 1908, A. C. 129, per Lord Halsbury, p. 135. * Foley v. Fletcher, 3 WH. & N. 769. Conversion of assets. Annuities. 158 DOMINION INCOME TAX LAW. interest to be calculated at a certain rate, it was held that income tax was payable only in respect of the interest on the unpaid purchase money,* and in a similar case that in esti- mating the tax payable the proportion of the capital in each annual payment should be regarded as continuously increas- ing.® On the other hand where a railway was expropriated by the British Government, which agreed to pay certain arrears of interest in a lump sum, it was held that such inter- est was not received by the company as capital, but should be treated as gross income earned by the company during the period for which the interest was owing, and therefore tax- able after proper deductions,° and where interest is expressly provided for in such an agreement of sale it is taxable.” It has been held that where the lessee of certain clay fields agreed to pay in addition to rent, royalties on bricks produced, such royalties did not constitute the sale price of a part of the land, but represented income.® Instalments of Purchase Price. Ascertain- There are cases in which it is difficult to distinguish ee ae between an agreement to pay a debt by instalments and an agreement to pay an annuity or annual payments which would constitute chargeable income. The question whether the gross amount of the debt has been ascertained at the time of the agreement,® may be of importance in determining the ques- tion. It has been held that where a secret process was sold under an agreement by which the purchaser was to pay eight per cent. of gross receipts for forty years to the seller, pay- ments made pursuant thereto did not constitute payments of purchase price by instalments, but were income.’? In a recent English case,? the subject has been fully discussed as follows :— Instalments may be Capital or Income. “There is no law of nature or any invariable principle that because it can be said that a certain payment is con- 4 Sec. of State for India v. Scoble, 1908, A. UC. 299. ® Sec. of State for India v. East India Railway, 74 L. J. K. B. T79. ° Pretoria Pietersburg Railway v. Elgwood, 98 ¥.. T. 741. ™ Bebb v. Bunny, 1 K. & J. 216. ® Hdmonds v. Eastwood, 2 H. & N. 811. : ® Chadwick v. Pearl Life Ins. Co., 1905, 2 IK. B. 507, per Walton. J.. p. 514; Jones v. In, Rer., 1920, 1 K. B. 711, per Rowlatt, J., p. 715. ” Delage v. Nugget Polish Co., Ltd., 92 L. T. 682. 1 Jones vy. In Rev. (supra), per Rowlatt, J., p. 714. INCOME. sideration for the transfer of property it must be looked upon as a price in the character of principal. In each case regard must be had to what the sum is. A mani sells his property for a sum which is to be paid in instalments, and when that is the case the payments to him are not income. Or a man may sell his property for an annuity. In that case the Income Tax Act applies. Again, a man may sell his property for what looks like an annuity, but which can be seen to be not a transmutation of a principal sum into an annuity, but is in fact a principal sum, payment of which is being spread over a period and is being paid with interest calculated in a way: familiar to actuaries—in such a case income tax is not pay- 159 able on what is really capital. On the other hand, a man Most recent may sell his property nakedly for a share of the profits of Vie™- the business. In that case the share of the profits of the busi- ness would be the price, but it would bear the character of income in the vendor’s hands. Jn such a case the man bar- gains to have, not a capital sum, but an income secured to him, namely an income corresponding to the rent which he had before. I think, therefore, that what I have to do is to see what the sum in this case really is, The ascertainment of an antecedent debt is not the only thing that governs, although in many cases it is a very valuable guide. In this case there is no difficulty in seeing what was intended. The property was sold for a certain sum, and in addition the vendor took an annual sum which was dependent upon the volume of business done; that is to say, he took something which rose or fell with the chances of the business. When a man does that he takes an income; it is in the nature of income, and on that ground I decide this case.” Finally it should be noted that the mere fact that pay- ments are called an annuity is not conclusive, but the real nature of the transaction should be looked at.* Wasting Assets. Attempts have been made to establish that minerals, timber and other assets, which are depleted in the course of the business, form part of the capital of the owner, and that the profits of the business of owners whose assets are of a wasting character should be regarded in part at least as a return or repayment of capital, and therefore, not taxable income. If this view ever had any acceptance, it is no longer ? Thid. 160 DOMINION INCOME TAN LAW. Profits from tenable ;* and it is well established that the decaying character mines, ete. New York Life v. Styles. of the property does not render it the less subject to be taxed according to the profit obtainéd by using it.* In an American case it was contended that in the case of an oil company there could be no taxable net income until all the capital invested jn the undertaking was repaid, but it was held that all the revenue, less operating expenses, was taxable income ;° and in an English case it was decided that the payment of a divi- dend was not to be regarded as a return of capital, merely on the ground that no provision had been made for keeping the assets up to the nominal amount of the capital.® 2 Deduction for Depletion. It has been provided, however, in the Dominion Act that in determining the income derived from mining and from oil and gas wells and timber limits, the Minister shall make such an allowance for the exhaustion of the mines, wells and timber limits as he may deem just and fair.’ Where property is expropriated or compulsorily purchased for public purposes or under statutory authority the compen- sation payable therefor is not income of the owner, but should generally be treated wholly as replacement of capital. Co-operative or Mutual Undertakings. The Dominion Act contains a provision to except from taxation the “income of mutual corporations not having a capital represented by shares, no part of the income of which inures to the profit of any member thereof.”* This provision must be regarded as largely declaratory of the well estab- lished principle that where several persons contribute sums toward a common purpose, and there is a surplus over and above the requirements of that purpose, such surplus. is not a profit since no person can make a profit out of himself.® The principle has been established in an important line of English cases in which the business of mutual life insurance companies has been in question. In the case of the Vew York Life Assurance Company vy. Styles,*° the corporation 3 (Coltness Iron Co. v. Black, 6 A. C. 315; Alianza Co., Ltd. v. Bell, 1906, A. C. 18; Re Coniagas Mines Co., 15 O. L. R. 386. 4 (oltness Iron Co. v. Black, 6 A. C. 315, per Lord Cairns, p. 327. ®>Commonicealth v. Ocean Oil Co., 59 Pa. 61. ° Lee v. Neuchatel Asphalte Co., 41 Ch. D. 1. *Amend., 1919, s. 2 (2). “Principal Act, s. 5 (f). See ec, 5 on Exemptions. ®* Dublin Corp. v. MeAdam, 2 Tax Cas. 387. wq14 A. C. 381. INCOME. had no members other than the holders of participating policies to whom all the assets belonged, and who were entitled to surplus or profits in the form of reductions in future premiums or in additions of insurance. The surplus sought to be assessed consisted partly of the excess of premiums paid by the participating policyholders over the cost of their insurances, and partly of profits arising from non-participat- ing policies and other business, Only the first mentioned surplus was in question, it being admitted that the profits earned from non-participating policies and other business were assessable. It was held that so much of the surplus as arose from the premiums of the participating policyholders was not a profit, since the individuals insured and those associated for the purpose of receiving dividends were identi- cal. Lord Watson stated that: “ When a number of individ- uals agree to contribute funds for common purpose and stipulate that their contributions so far as not required for that purpose, shall be repaid to them, I cannot conceive that they should be regarded as traders or that the contributions returned to them should be regarded as profits ;”* and Lord Bramwell said with respect to the mutual insurance business of the company, “the appellants do not carry on a profes- sion, trade, employment or vocation from which profits or gains accrue within the meaning of the Income Tax Act.’ This case was distinguished from Last v. London Assurance Last v. Corporation,®? in which a corporation having shares and eae ee shareholders agreed to distribute two-thirds of its profits among participating policyholders, who were distinct from the shareholders. There was no question of the policy- holders and the corporation being identical. Company of Small Capital. 161 In the subsequent case of the Equitable Life Assurance ponitayte Society v. Bishop,* it was decided that the surplus returnable Life v. to the policyholders was assessable following the decision of Piho?- Last v. London Assurance Corporation, the company being a distinct entity and having shareholders distinct from the participating policyholders, although in this case the partici- pating policyholders were entitled to dividends only at the rate of 7 per cent., and the share capital was comparatively very small. 1Tbid., per Lord Watson, p. 394. ?JTbid., per Lord Bramwell, p. 394. 10 A. C. 488. +1900, 1 Q. B. 177. D.LT.L.—11 in 162 Co-operative societies, * DOMINION INCOME TAX LAW. It should be noted that the Dominion Act defines “ per- son” to include associations, and it may be suggested that hy reason of this provision a mutual association is distinct from the individuals who comprise it, but this suggestion is disposed of by the fact that in the Vew York Life Assurance Company v. Styles, the associated policyholders were incor- porated, and Lord Watson expressly decided that the com- plete identity of the policyholders and the company was not destroyed by their incorporation.® Co-operative Surplus not Income. The result appears to be that where a number of persons, for example a co-operative society or association, become the joint owners of property or goods, there is no taxable profit arising from the division or distribution of such property among themselves, even though such a distribution represents a surplus over and above the requirements of the society or association. The profits derived from trading with non-mem- bers are, however, taxable. The subscriptions of members to clubs have been held not to constitute income on account of the identity of the club and the members thereof.’ Sales Below Market Value. It should be observed here that the Act contains the following provision, that “where an incorporated company conducts its business, whether under agreement or other- wise, in such manner as either directly or indirectly to benefit its shareholders, or any of them, or any persons directly. or indirectly interested in such company, by selling its product or the goods and commodities in which it deals, at less than the fair price which might be obtained therefor, the Minister may, for the purposes of this Act, -determine the amount which shall be deemed to be the income of such company for the year, and in determining such amount, the Minister shall have regard to the fair price which, but for any agreement, arrangement or understanding, might be or could have been obtained for such product, goods and commodities.’ It is not to be supposed that by this provision the Minister may charge with the tax the co-operative or mutual surplus. 5 Per Lord Watson, p. 393. ; * Re Carlisle and Silloth Golf Club, 1918, 3 K. B. 75; Bohemian Club v. Commissioner of Taxes, 24 C. L. R. 334. ‘Principal Act, s. 8 (2). INCOME. 163 The provision can only relate to transactions the profits from which, if any, would be taxable. Destination of Profits. It is of importance to note that neither the destination nor Charitable the application of profits, nor the motive with which the busi- ects. ness is carried on, is of effect in determining whether the same are taxable except in so far as the statute provides that certain incomes are not liable to taxation. The fact that such profits are destined for public benefit does not render them exempt. Lord Halsbury stated the principle as follows: “When once an individual or a company has in that proper sense ascertained what are the profits of his business or his trade, the destination of those profits or the charge which has been made on those profits by previous agreement or other- wise, is perfectly immaterial ;” and in another case Coleridge, C.J., similarly stated: “It is not essential to the carrying on of a trade that the persons engaged in it should make or desire to make profit by it.’’2° By express provision,’! however, it is enacted that certain incomes are not liable to taxation. “By this section a great variety of undertakings are excepted from taxation. Generally speaking they are undertakings which are not designed for profit-making, and which have as a chief object some matter of public benefit. They are discussed in detail in the follow- ing chapter on exceptions and relief from taxation. Unauthorized or Illegal Business. There are authorities in the United States for the view that profits of a corporation are nevertheless taxable, although derived from transactions which are unauthorized or ultra vires.” On the other hand it is probable that profits from illegal transactions do not fall within the purview of income tax Acts. In a recent English case it was said: “I am inclined to think, though I do not wish finally to decide it, that income tax Acts are to be confined to lawful businesses carried on in a lawful manner.”?8 ® VWersey Docks v. Lucas, 8 A. C. 891: Paddington Burial Board v. In. Rev., 13 Q. B. D. 9; St. Andrews Hospital v. Shearsmith, 19 Q. B. D. 624. ° Gresham Life Assurance Society v. Styles, 1892, A. C. 309, at p. 815, and Jn. Rev. v, Incorporated Council of Law Reporting, 22 Q. B. D. 279 at 293. 1 Principal Act, s. 5. » People v. Roberts, 157 N. Y. 677; Salt Lake City v. Hollister, 118 U. 8S. 256. * Inland Revenue v. Von Glehn, 1920, 2 K, B. 553, per Scrutton, T..7., p. 572. 164 Repayment of capital. DOMINION INCOME TAX LAW. C. Return FRoM INVESTMENTS. Interest. The third heading under which receipts require to be con- sidered to determine what is income, is the return from invest- ments and interest is the first mentioned in the definition. Although interest is not a profit in the ordinary commercial meaning of the word,’ and it is not quite accurately applied to the share of the profits of trading,’ it is within the meaning of the definition which includes interest directly or indirectly received from money upon any security or without security or from any other investment. The definition is sufficiently wide to include all forms of interest on money including bank interest, but it is expressly provided by the Act, that the interest derived from any bonds or other securities of the Dominion of Canada issued exempt from any income tax is not liable to taxation.® However, it should be noted that where the interest forms part of the receipts derived from the carrying on of business, jt is not chargeable separately, but is chargeable only in so far as it forms part of a portion of the net profits of the undertaking. Under the English Act, on the other hand, all interest on money is taxable as a distinct subject of charge rather than as an item of gross profits against which the expenses and losses of the business may be set off.* The payment of interest must be distinguished from the repayment of capital, payments on account of which do not ordinarily constitute taxable income and where the purchase price of a railway was to be paid by annual instalments, the interest to be calculated at a certain rate, it ‘was held that income tax was payable only in respect of the interest,® and in another similar case that in estimating the tax the proportion of the capital in each annual payment must be taken as con- tinuously increasing.® In an important English decision a company contracted to construct a railway and issue debentures therefor, and 1 Revell v. Edinburgh Ins. Co., 5 Tax Cas. 221. 2? Bond v. Barrow Haematite Steel Co., 1902, 1 Ch. 353, per Far- well, J., p. 363. 3 Principal Act, s.5 (1). * Clerical, Medical and General Life Assurance Association V. es 22.Q. B. D. 444; Revell v. Edinburgh Life Ins. Co., 5 Tax Cas 7 * Secretary of State for India v. Scoble, 1903, 1 K. B. 494. = °Seerctary of State for India v. Hast India Ry., a L. J. K. B. 79. INCOME, the Government agreed to pay seven per cent. thereon to the company. It was argued that the difference between the interest paid by the Government to the company and the interest paid by the company to debenture holders was a contribution of capital towards the construction of the rail- way and not assessable, but Brett, M.R., held that the payment to the company was made to them for finding the money and putting it out of their own power to deal with as they liked, and that it was therefore interest.’ Dividends. Dividends directly or indirectly received from stocks or from any other investment, and whether divided or dis- tributed or not, constitute taxable income. Dividend in its ordinary meaning is the aliquot share of the stockholder in the profits,’ and need not necessarily be payable at regular intervals.° The word is also used to mean the division of capital among owners, but to determine the meaning of the word it is necessary to consider the purpose of the legislation,’” and undoubtedly the word in the Income Tax Act refers only to profits. It is provided by the definition that such profits are taxable in the hands of the shareholder “whether such gains or profits are divided or distributed or not,” but it should be noted that such profits do not belong to the share- holder, and do not constitute a dividend until the dividend has been declared. Furthermore, it is expressly provided that undivided or undistributed profits shall not be deemed Ibo to be taxable income of the shareholder unless the Min- Accumula- ister is of the opinion that an accumulation of profits is i being made for the purpose of evading the tax, and is in excess of what is reasonably required for the purposes of the business. The effect of these provisions is doubtful. The intention apparently was that the Minister should be enabled to assess the shareholder to income tax in respect of the undivided profits of the corporation, but it remains doubt- ful that the language used is sufficiently clear to authorize the imposition of the tax upon a taxpayer in respect of incoine which he has not received and is not entitled to receive. 7 Blake v. Imperial Brazilian Ry., 1 T. L. R. 68. *Re Chelsea W. W. Board and Metropolitan W. W. Board, 73 L. J. K. B. 532, per Fry. L.J., p. 535. "Re Griffith, 12 Ch. D. 655. © Henry Vv. GN. Ry., 27 L. J. Ch. 1. per Knight Bruce, L.J. 1Amend., 1919, s. 2 (3). 166 l)ividends after Jan. 1, 4921. DOMINION INCOME TAX LAW. What Dividends Taxable. With respect to dividends declared or shareholders’ bonuses voted it was provided prior to the most recent amend- ment of the Act, that if they were paid or created exclusively out of a surplus, or accumulated profits on hand prior to January 1st, 1917, the same were not taxable as income of the shareholders,? but the section of the Act contained an express provision that such dividends or bonuses should not be deemed to be paid or credited out of such surplus or accumulated profits if the earnings of the corporation since the beginning of the accounting period, which ended in the year 1917, were sufficient to provide for the dividend and other dividends paid or credited since that date. This provision was recently repealed and it is now provided that dividends declared or shareholders’ bonuses voted after . December 31st, 1919, shall be taxable income of the taxpayer in the year in which they are paid or distributed. The amending Act, however, contains a further provision that the section just referred to shall not come into force until Jan- uary ist, 1921.4 The strict effect of this is simply that after January Ist, 1921, all dividends declared or voted after December 31st, 1919, shall be taxable. The intention pro- bably was to give corporations until January 1st, 1921, to get rid of accumulated profits earned prior to January 1st, 1917, and this apparently is the effect that is being given to the legislation. Dividends since they constitute profits which have already been taxed as income of the corporation are not subject to the normal tax in the hands of shareholders, but are liable to the surtax provisions of the Act.® Stock Dividends. Apart from special statutory provision, certain stock divi- dends, at least, should properly be regarded as accretions to capital rather than as income and consequently not charge- able with income tax. By an amendment to the Dominion Act in 1920, however, it is expressly provided that “ dividends shall include stock dividends.”* It is probable, no doubt, that the purpose of Parliament was to render all stock divi- 7 Amend., 1919, s. 2 (38). ® Amend., 1920, s. 3. 41920 Amend., s. 16 (4). * Vide, post, ¢. 5, on Exemptions. ° Amend., 1920, s. 1. INCOME. 167 dends taxable, but there remains some doubt that the purpose has been fully accomplished. If it can be established that “ stock dividends ” may be divided into two classes, viz.: such Two classes 2 és 5 . . of stock as are ordinarily regarded as accretions to capital and such gividenas. as are ordinarily regarded as income, it is arguable that only the latter class is within the amendment, since to impose a charge upon stock dividends which constitute an accretion to capital is to tax capital as income and should not be pre- sumed in the absence of a clear and unambiguous expression of such intent, Cases Reviewed. The question whether stock dividends or bonuses con- stitute capital or income has been frequently raised in income tax cases, and in contests between life tenants and remainder- men. It is not possible here to review these cases minutely, but it is probably sufficient to state the points shortly which have been established :— (1) Apart from any statutory provision it has been decided in certain cases that stock dividends constitute capi- tal,’ and in certain other cases that stock dividends constituté income.® (2) The question whether a stock dividend constitutes capital or income depends upon the facts in each particular case. The substance of the transaction between the company and the shareholders must be looked at.° Intent of Company Governs. (3) The question must be determined by reference to Evidence the intention of the company, that is whether the company ° tert. intended to make a disposition of profits among its share- holders or to capitalize its profits. The payment of a dividend to the shareholders in cash with the option to subscribe for new shares to the amount of the dividend would, it has been said, be a distribution of profits and constitute income.%° The *Bouch v. Sproule, 12 A. C. 385; Re Evans, 1913, 1 Ch. 23; Re Carson, 1915, 1 Ir. Ch. 821; In. Rev. v. Blott (1920), 36 T. L. R. 575; Towne v. Hisner, 245, U.S. 418; Jfacomber v. Eisner, 40 8S. C. R. (U.S.) 189; Knowles v. Ballarat Trustees, 22 C. L. R. 212; Misher v. Fisher, 23 C. L. R. 337. ®Re Malam, 1894, 3 Ch. 578; Re Colvile, 144 L. T. J. 8327; Re Bicknell, 46 O. L. R. 416, and see Re Thomas, 1916, 1 Ch. 383; oun Brewery v. Rex, 1914, A. C. 231; Drew v. Vickery, 19 N. S. W. *Bouch v. Sproule, supra, per Lord Herschell, 898; Re Malan, supra, at p. 585; Re Bicknel, supra, at p. 419. * Swan Brewery Co. v. Rex, supra, at p. 236. . 168 DOMINION INCOME TAX LAW. intention of the company as indicated by the substance and the form of the transaction must be regarded as conclusive, and it has been said, “when a company meet and say that they are not declaring a dividend, but will carry over some portion of the year’s earnings to capital account, and turn it into capital, it is competent for them, I apprehend, to do so, and when this is done, everybody is bound by it, and the tenant for life of these shares cannot complain.”?? Option Important. (4) Nevertheless although the intention of the company must govern, the fact of the shareholders being given the option to accept or refuse the shares is the best evidence of the true intention of the company. If there is a genuine option given the shareholders, the stock dividend should be regarded as income,’ but if there is no option or if the so- called option is of such a character that no shareholder could conceivably refuse to accept the shares, it should be treated as capital. The question in each case to be decided is whether the company desire and intend “by the best means available to make it a transfer to new capital and not a distribution to he spent by the shareholders.”* Capilaliza- (5) The employment of the profits which are in question, tion in fact. f5» a considerable period, as floating capital, or the invest- ment of such profits in fixed assets or their transfer to reserve prior to the declaration of the stock dividend, is not a material indication of an intention of the company to capitalize such profits,t but on the other hand the fact that assets were avail- able in the form of cash sufficient to pay the dividend has been said to be an indication of the intention of the company to regard the stock dividend as income rather than as capital.* Income or Capital. The gist of the question, therefore, appears to be that where the stock dividend involves a genuine option given by the company to the shareholders to accept cash or to sub- scribe for new shares, the stock dividend is income, but if in “Re Barton's Trust, L. R. 5 Eq. 244, approved in Bouch v. Nproule, supra, p. 402. *Re Malam, supra; Re Colvile, supra; Re Bicknell, supra. ? Bouch Vv. Sproule, supra. *Re Evans, supra, per Neville, J., p. 33. *Bouch v. Sproule, supra, per Lord Watson, p. 402, and per Lord Bramwell, p. 405. 5 Bouch v. Sproule, supra, per Lord Watson, p. 404; Re Malam, supra, at p. 586, INCOME. declaring the stock dividend the company indicates an inten- tion that the shareholders shall take the stock or nothing, it is to be regarded as an accretion to capital. It is proper to note, however, that in a recent decision of the United States Supreme Court, Mr. Justice Pitney said upon the question of the meaning of “stock dividends”: “ An actual cash divi- dend with a real option to the stockholder either to keep the money for his own use or to re-invest it in new shares would be as far removed as possible from a true stock divi- dend,” but in the same case Mr. Justice Brandeis said refer- ring to this question: “ It thus appears that among financiers and investors the distribution of the stock by whichever method effected is called a stock dividend; that the two methods by which accumulated profits are legally retained for corporate purposes, and at the same time distributed as dividends are recognized by them to be equivalents,”® In a still more recent English decision the Court of Appeal seems to have con- sidered the question of there being or not being an option to be of the greatest importance." 169 In a decision of the Privy Council in an Australian case, Australian the question involved was whether.a stock dividend came within the statutory definition of dividend to include: “ Every dividend, profit, advantage or gain intended to be paid or credited to or distributed among any member, ete.” It was held that the stock dividend was taxable.® It does not appear whether or not any option was given the shareholders to accept shares or stock, and the Court of Appeal in England has since indicated that the decision was possibly in conflict with Bouch v. Sproule, but might possibly be distinguished by the use of the word “advantage” in the definition.? Effect of Legislation Doubtful. Finally it should be. observed that there may be cases where a stock dividend does not represent accumulated earn- ings, but-represents solely an accretion to capital assets, but unless some limitation along the lines suggested is placed upon the words “ stock dividends” such accretions to capital will be taxable, which was clearly not intended. The result of the legislation is doubtful and should be treated as impos- ® Macomber vy. Hisner, 40 S. C. R. (U.S.) 189. ‘In, Rev. v. Blott, supra, particularly the judgment of Scrutton, LJ. : . ® Swan Brewery Co. v. Rea, supra. °In. Rev. vy. Blott, supra, per the Master of the Rolls, p. 577. 170 No statutory relief, DOMINION INCOME TAX LAW. ing a charge only upon such stock dividends as upon refer- ence to the authorities cited, represent income. Dividends to Corporation Shareholders. Dividends are exempt from the normal tax in the hands of shareholders, but there is no relieving provision where the divi- dends are payable to a corporation. There may be cases, how- ever, when the corporation shareholder is not taxable in respect of income in the form of dividends representing profits already taxed.?° “ Rights ” not Income. The right of shareholders to subscribe to new shares which right has a marketable value, is an advantage or gain arising out of the ownership of property and would appear not to constitute taxable income. Rents and Royalties. Although rents are not expressly mentioned in the defini- tion there can be no doubt that such receipts are taxable income as being annual profits from investments. Similarly royalties constitute income and have been held not to con- stitute annual payments on account of purchase price of the property.** It has been held in Australia that a premium received for the grant of a lease was taxable income.* Insurance Policies. It is expressly provided by the definition that income shall include the income from, but not the proceeds of, life insur- ance policies paid upon the death of the person’insured or payments made or credited to the insured on life insurance endowment or annuity contracts upon the maturity of the term mentioned in the contract or upon the surrender of the contract.” Life and Endowment Insurance. The effect of this provision appears to be that payments made upon the death of the insured or made or credited to the insured on life or endowment policies upon the maturity of the term mentioned in the contract or upon the surrender of the contract are excluded from the definition of income " Vide post, ec, 5, on Exemptions. " Hdmonds v. Eastwood, 2 H. & N. 811. *Anon., 1915, Tasmania L. R. 145. ? Principal Act, s. 3 (1). INCOME. although such payments may include profits. On the other hand profits paid or credited otherwise than upon death, or maturity or surrender, are no doubt to be treated as income and should be returned as such. Annuities. 71 In the case of annuity contracts the difficulty of interpre- Definition tation is greater. An annuity means where an income is of annuity. purchased with a sum of money and the capital has gone and ceased to exist having been converted into an annuity.’ Furthermore it should be noticed that the fact that an annual payment is called an annuity is not conclusive. The provi- sion of the definition with respect to annuity contracts ap- parently should be read as follows: “ Including the income from but not payments made or credited to the insured on annuity contracts upon the maturity of the term mentioned in the contract or upon the surrender of the contract.” Upon this reading of the provision the annual payments made to the annuitant are chargeable, but payments made upon the surrender of an annuity contract or in conclusion of the com- pany’s obligations to the annuitant are to be regarded as a return of capital and not income. Payments received on account of fire or marine insurance contracts should be treated as constituting capital and not income. 8 Foley Vv. Fletcher, 3 H. & N. 769, per Watson, B., p. 784. 4 Nisam State Ry. v. Wyatt, 24 Q. B. D. 548. Excepted Incomes. CHAPTER V. EXEMPTIONS. The observations made in the preceding chapter respecting the determination of what is taxable income must be con- sidered, subject first to the provisions of the Act with respect to the exception and exemption from taxation of certain incomes, and second with respect to the deductions from gross receipts which the taxpayer is entitled to make in order to arrive at the income chargeable within the meaning of the Act. It is proposed in the present chapter to deal with the statutory provisions with respect to exceptions and relief, and in the following chapter with deductions. Incomes Excepted by Statute—By section 5 of the principal Act as amended, it is enacted that certain incomes shall not be liable to taxation. The first of these is the income of the Governor-General of Canada. This exception from taxation is not expressly limited to official income and upon a liberal interpretation in favour of the taxpayer, no doubt, the view should be adopted that it was intended to except from taxation the whole of the income of the person occupying the office, whether derived from his office or otherwise. It has already been noted, however, that provisions for excepting income from taxation should be construed in favour of the taxing authority.2. The incomes of Consuls and Consuls Gen- eral are also excepted if they are citizens (or subjects) of the country they represent, and are not engaged in any other busi- ness or profession.* Apparently they are not entitled to have any part of their income excepted from taxation if they do engage in any other business or profession. Provincial and Municipal Undertakings.—The income of any company, commission or association not less than ninety per cent. of the stock or capital of which is owned by a pro- vince or municipality, is excepted from taxation.* It is note- worthy that the incomes of municipalities are not expressly ? Principal Act, s.5 (a). ? Vide. ante, c. 2 * Principal Act, s. 5 (D). ‘Thid, s. 5. (¢). EXEMPTIONS. 173 excepted. The result appears to be that a municipality, which Exceptea engages in business or trade through the agency of a company, "°°™** commission or association, is not taxable in respect of the income or profits earned, but if on the other hand such muni- cipality engages in the business or trade directly, without the intervention of such agent, the profits earned are taxable. Furthermore, it should be noted that only the incomes of the companies, commissions or associations are excepted, and any profits carned by such bodies paid or credited to the munici= pality or other person entitled, are not excepted and consti- tute taxable income of such municipality or person. Religious, Charitable Institutions, ete —It is not the policy of the Act to tax the income of undertakings and institutions organized for any purpose of public welfare and which have no purpose of profit making. By this excepting clause it is provided that the income of religious, charitable, agricultural and educational institutions shall not be liable to taxation.® The most substantial difficulty in ascertaining the effect of this provision is to determine whether the entire income of such institutions is excepted or whether the relief is limited to income which is derived by the institution in the course of carrying out the objects for which it claims relief. A corpora- tion, e.g., may he chiefly concerned in maintaining a religious institution and be sustained largely by subscriptions or endow- ment, but may also carry on a book-selling business from which a profit is derived. There is a question whether such profit is excepted from taxation. Rules of Construction.—It has already been noted that, generally speaking, a taxing Act should be liberally construed in favour of the taxpayer, but that this general principle is not applicable to the construction of a relieving provision which should be strictly construed against the taxpayer.* On the other hand, it has also been noticed that there is authority that this latter rule of construction against the taxpayer should not be applied, possibly, where the relieving provision in question is in favour of a charitable institution, inasmuch as such an institution assumes certain obligations which would otherwise fall upon the community at large.’ Application of Profits to Excepted Object.—It must be borne in mind in dealing with this question of exception from 5 Ibid, s. 5 (d). ® Ante, c. 2. 7 Tbid. 174 Excepted incomes. DOMINION INCOME TAX LAW. taxation that the mere application of profits to a religious, charitable or other similar purpose does not render such profits exempt from taxation. When once the income has been ascertained the destination of that income or the charge which has been made thereon is perfectly immaterial. No Limitation of the Relief Enacted.—In most taxing Acts, provisions for the relief of religious, charitable, educa- tional or other similar institutions expressly limit the property or income which is to be exempted, and the fact that Parlia- ment has omitted in this sub-section to do so suggests that the entire income is to be exempt no matter from what source derived, and colour is lent to this argument by the fact that some limitation has been provided in the subsequent provisions of this section of the Act with respect to certain other institu- tions. In certain American decisions it has been held that an exemption of “all corporate property belonging ” to an edu- cational institution includes all the property which it may lawfully acquire and hold, and is not limited to property actually used and occupied by it,’ and that provision exempt- ing land “ so long as said land belongs to the college ” applies regardless of the use made of the property,’ and that a pro- vision exempting all property “held ” by a board of education means all property “owned” by the board and not merely such as is used for school purposes,? and that a provision exempting “all property- of whatever kind or description belonging to or owned by the corporation ” extended to all property owned by the university, including that from which an income is derived.? Whether Entire Income Exempt.—To the extent that these cases are applicable and acceptable as authorities they support the view that the entire income of the institutions described in this clause is exempt from taxation. On the other hand, in an important English case, relating to the exemption of literary institutions from income tax it was said that the 8 Mersey Docks v. Lucas, 8 A. C. 891; St. Andrew’s Hospital V. Shearsmith. 19 Q. B. ID. 624; Paddington Burial Board v. In. PRerenue, 18 Q. B,D. 9. i Gresham Life Assurance Society v. Styles, 1892, A. C. 309, at p. ol. 1° Nobles County v. Hamline University, 48 N. W. 1119. 1Tiniversity of the South v. Skidmore. 9 8. W. 892. ° Wey v. Salt Lake City, 101 Pac. 881. *Vorth Western University v. People, 99 U. S. 309. EXEMPTIONS. 175 expression “ the property of ” was employed to describe “ pro- Excepted perty appropriated to’ the purposes of the institution,’ and "°°" in another case, which did. not, however, involve a question of exemption but rather the question whether a trade had been carried on, it was. said that “it is not the character of the person who carries on but the character of the concern which is carried on that has to be regarded.”* The taxing authority may to some extent rely. upon these decisions for the view that the entire income of an institution of the character in question is not excepted. Furthermore, it should be remarked that the word “institution,” a word of flexible import, has been said to be “a word employed to express several different ideas. It is sometimes used in a sense in which the institu- tion cannot be said to consist.of any persons or body of per- sons who could, strictly speaking, own property. The essential idea conveyed by it in connection with such adjectives as literary and scientific is often no more than a system, scheme or arrangement by which literature or science is promoted with- out reference to the persons with whom the management may ~ rest, or in whom the property appropriated for these purposes may be vested, save in so far as these may be regarded as a part of such system, scheme or arrangement.’”* Meaning of “Institution.’—The word “institution,” it may be suggested, as used in the clause in question, is not coterminous or co-extensive with the persons, trustees, associa- tion or corporation that own the property or carry on the operations. Where, ¢.g., an association carries on a charitable undertaking and in addition owns land from which an income is derived, or carries on a business from which a profit is obtained, it is arguable that the income or profit derived from such land or business is not the income of the institution but of the association which operates the institution, and that, therefore, the income is taxable. The argument, of course, depends upon the proposition that once a taxable profit is ascertained to have been made it is of no consequence that it is expended to maintain a charitable institution. This argument appears to have been advanced in one of the American cases referred to above to establish that land held for other than * Mayor of Manchester vy. McAdam, 1896, A. C. 500, per Lord Herschell, p. 507. ° Carlisle and Silloth Golf Club v. Smith (1918), 3 K. B. 75, per Buckley, L.J., p. 81. ° Mayor of Manchester v. McAdam (supra), per Lord Herschell, pp. 507-8, 176 DOMINION INCOME TAX LAW. Excepted the prescribed purpose of the corporation was not exempt AONE from taxation,’ and was held to be untenable but apparently by reason of the particular terms of the statute which was in question. The English decisions are of little assistance in determin- ing this question since the English Income Tax Act defines clearly what income of the charitable institutions is exempt and any income received from other sources is, therefore, tax- able.§ Reference, however, should ¥ made to certain cases. It has been held that the Y. M. C. A. was taxable with respect to profits made from a restaurant and could not deduct other losses from such profits,® and that a religious tract and book society could not deduct losses sustained in its religious activi- ties from the profits made from the sale of books,?° and that the profits made by trustees from the publication of a hymn book were chargeable although the profits were distributed among certain widows and orphans, in accordance with the direction of the trust deed.’ In the first two of these cases the institution or “ scheme ” was treated as distinct from the business operations carried on by the association or corporation which carried on the institu- tion. Strict ConstructionUpon a strict construction, there- fore, against the institution claiming to be excepted, it is arguable that the excepting provision does not extend to the income of the persons, trustees, association or corporation who carry on the institution from property or operations other than those which give to the institution the character entitling it to exemption. On the other hand the relationship between the operations of the institution and other operations which result in the income in question need not probably be very close to entitle the institution to claim that the entire income is exempt, though in a case emanating from Quebec it was held that a farm operated by an educational institution for profit and to supply the needs of the institution was not “property occupied by them for the objects for which they were instituted.” * State v. Hamline Cn 48 N. W, 1119. , imp. Act, 8-9 Geo. V. ec. 40, s. 37. °Y. M. CO. A. v. Grove, 88 L. T. 696, Religious Tract and Book Socicty of Scotland v. Forbes, 33 Se, L. R. 289. * Psalms and Hymns, 7 'T. L. R. 164. Zs * Les Commissaires at Gabriel v. Montreal, 12 S, C. R. 45; see, also, Le Seminaire de Quebec ¥. Limoilou, 1899, A. C. 288. EXEMPTIONS. Chief Object of Institution Profit-making.— Whether or not Excepted incomes. the view is adopted that income derived otherwise than in car- rying ou the objects of the institution by reason of which the institution falls within. the excepted class, is taxable, there are some definite limitations placed upon the exception of the in- come of these institutions. In the first place if the carrying on of a trade or business for profit appears to be the chief object of the institution it will clearly not be regarded as a charitable or religious institution, even though the profits are devoted to a religious or charitable purpose, and consequently a hospital carried on for profit but incidentally taking charity: patients, would not be relieved from taxation, although on the other hand the charitable character of the institution would not be lost by the fact that it takes paying patients. . Further- more, the application of the income to purposes other than the purpose for which exeniption is claimed may indicate that the institution is outside the excepting provision. However, the fact that profits are earned and inure to the benefit of the owners or proprietors of the institution does not neces- sarily mean that the institution loses its right to have its income excepted. It has been held in Ontario that the exemption of “ public hospitals” included a hospital carried on for profit, and that the whole of the property of the Y.M.C.A. was exempt although part of it was used for income earning purposes,® and it has been held that the provisions of a Quebec statute exempting buildings set apart for purposes of education entitled the proprietor of a private school oper- ated for profit to exemption.® Object Must be Within Canada.—Finally it should be observed that the exception in favour of these institutions is only applicable where the excepted object is pursued within Canada, and an institution carrying out its objects outside of Canada but deriving income from within Canada is not entitled to exemption. It has been said in an Australian case: “Yt can hardly be that the Parliament of Victoria has such 3 Cause v. Noleuhew Lunatic Asylum (1891), 1 Q. B. 585: Blake v. London, 18 Q. B. 487: but see Needham v. pees, 21 fe B. D. 437, and St. Andrew's Hospital v. Shearsmith, 19 Q. B 524, * Struthers v. Town of Sudbury, 27 A. R.-217. ° Ottawa Y. M. C. A, v. Ottawa. 20 0. L. R. 567; and see Sisters 6f Notre Dame v. Ottawa. 1D. L. R. 329. * Wylie v. Montreal, 1 S. Gy Fi, B84, D..T.L.—12 177 178 DOMINION INCOME TAX LAW. Excepted great regard for social and industrial combinations and efforts meomes. all over the world that it should offer to the Jesuits’ Society in Rome, etc., exemption from income tax if they chose to invest their funds in Victorian land or in mortgages upon it, or it would seem in the purchase of the Government stock. It would require a.much clearer expression than can be found in the general words of these heads of exemption to induce their Lordships to infer any such intentions on the part of the Victorian legislation.” Religious Institutions—The words “religious institu- tions” as used apparently should be taken in a very wide sense to mean any religious institution having for its object the dissemination of religious teaching, and there is no reason to suppose that there is any limitation in favour of the Christian religion, except,.of course, that Parliament cannot have intended to except institutions whose object is to teach a religion whose moral concepts are opposed to Christianity. It is probably not requisite that the sole purpose of the institution should be the maintenance of public worship, but the exemption is broad enough to include institutions falling within the general sense of the word “religious” as distin- guished from private or secular institutions.® Charitable Institutions—It is arguable that the words “charitable institutions ” as used in this section should have the wide meaning of the statute of Elizabeth respecting charitable uses. In this view “charitable” means (1) for the relief of poverty; (2) for the advancement of religion; (3) for the advancement of education, and (4) for other pur- poses beneficial to the community. It has been held in Eng- land in a very important case that “charitable ” as used in the English Income Tax Act enjoys this wide meaning.? How- ever, it is probable that the word as used in the Dominion Act means only for the relief of poverty, since the other three, meanings of the word have been otherwise specifically dealt with in the section. Adopting the narrower meaning there may be difficulty in determining whether an institution is charitable. It must be supposed that the objects rather than the results should be looked at. It has been held in England that a hospital which ‘England v. Webb, 1898 A. C. 758, at p. 762, “Cye. Title Taxation, vol. 37. p. 941. °Com’rs of Income Tar Vv. Pemsel, 1891, A. C. 5381. : EXEMPTIONS. 179 was largely supported by charity was exempt, although some Beceotell of the patients paid fees and there was a surplus in some . years over expenses, ?° but that a hospital which had no charit- able endowment and was wholly supported by the patients was not exempt although some charity patients were accommo- dated.t It has also been held that a home for ladies in reduced circumstances was charitable although the inmates were not entirely destitute.? Agricultural Institutions—The exception in favour of agricultural institutions probably refers only to such institu- tions as have not primarily, at any rate, any profit-making object, and none of whose income inures to the benefit of individuals. Where the object of the institution is educational or instructive, aiming at the betterment of any branch of agriculture, the institution is within the exception even though a profit is made, as, ¢.g., in the case of a,fair or exhibition. Educational Institutions——The exception in favour of educational institutions is not probably limited to such insti- tutions as have no object or profit-making or the profits of which do not inure to the proprietor or other individuals. It should be observed, however, that the institution and the pro- prietors are not to be regarded as identical, and the proprietor of an educational ‘institution is possibly taxable in respect of the profits received by him therefrom. ‘It has been held by the Supreme Court of Canada that the provision of a Quebec statute exempting buildings set apart for education entitled the proprietor of a private school operated for profit to exemp- tion,® and it has been held in England that a school at which fees were charged for instruction was within the exemption of “public schools.” The school, however, was partly main- tained by charitable endowment.* The word “educational” as used in a somewhat similar provision in England has been held to mean “ general educa- tion,” and not to include professional or other special training to enable certain persons to earn a living in a particular way.® ” Cause Vv, Nottingham Hospital, 1891. 1 Q. B. 585. 1Necdham Vv. Bowers, 21 Q. B. D. 436. > Mary Clark Home v. Anderson (1904), 2 K. B. 645. * Wylie v. Montreal, 12 8. C. R. 584; and also City of Fraser- ville v. Lebe’, 50 Que. S. C. 299. * Blake v. City of London School, 18 Q. B. D. 437. * Re Institution of Ciril Hngineers, 19 Q. B. D. 610. 1s0 Excepted | incomes. DOMINION INCOME TAX LAW. _ Boards of Trade, etc.—The incomes of Boards of Trade and Chambers of Commerce are excepted from taxation.® Labour Fraternal Societies, ete.—So, also, are the incomes of labour organizations and societies and of benevolent and fraternal beneficiary societies and orders.” Mutual Corporations.—The incomes’ of mutual corpora- tions not having a capital represented by shares, no part of the income of which inures to the profit, of any member thereof, are excepted from taxation.’ | This provision appears to be intended as a declaration of the principle well established in England that where a number of individuals agree to con- tribute to a common purpose, and such contributions are in excess of the requirements of that purpose, such excess or surplus is not a profit and does not constitute taxable income, upon the principle that the corporation and the persons interested are identical, and that the apparent profit is merely a surplus belonging to the members, of the corporation. ‘This principle has been discussed in the preceding chapter on “Income. Even apart from this exempting provision the surplus of a mutual corporation derived from its mutual business would not be taxable since it does not constitute tax- able income, but on the other hand any profit which the cor- poration may earn from non-mutual business would constitute taxable income.?? It is necessary to consider, therefore, whether this excep*iug provision makes any alteration in the law as it would have been without it. The enactment would appear to have this effect that it excepts from taxation. not only the surplus derived from mutual business, but also the profits from non-mutual business. No definition of “ mutual corporation ” is afforded by the Act, but it can hardly be said that a corporation which engages primarily in a mutual busi- ness ceases to be a mutual corporation by reason of the fact that it also engages in non-mutual business, and. in any event a mutual corporation frequently enjoys an income from investments or other sources which does not form part of the surplus over and above the requirements of the mutual busi- ness and which, but for this provision, would constitute tax- able inéome. * Principal Act, s. 5 (&. ‘Thid., 8.0 (e). STbid.. s. 5 (f). ® Ante. c. 4. ” Last v. London Assurance Canweraitati 10 A. c. 438. EXEMPTIONS. “Tnures to the Profit.’”—However, it must be noted that Excepted a limitation has been placed upon the exception by the words, “no part of the income of which inures to the profit of any member thereof.” The word “income” as used here should be treated as meaning taxable.income, and therefore does not include the surplus from the mutual business, 7.¢., a corpora- tion whose entire surplus is derived from mutual business may distribute such surplus without losing the benefit of the excepting provision since such “mutual surplus.” does not constitute income whether distributed or not, but if the mutual corporation has an income from non-mutual busi- ness it is not excepted from taxation’ in respect of such non- mutual profit if any portion of such profits inures to the benefit of any member. Life Insurance Companies.—It is provided that the incomes of life insurance companies shall not be liable to taxation except such amount as is credited’to shareholders’ account.’ This provision refers to life insurance companies having’a capital represented by shares since other companies fall to be excepted as being mutual corporations. The profits of such a company are derived from participating policies, non-participating policies and investments, and apart from this provision, all such profits would be taxable, including the profits from participating policiés, since the identity of such policyholders and the company does not exist where the com- pany’s capital is represented by shares:? However, it is pro- vided by the Dominion Insurance Act that in the case of Canadian companies participating policyholders shall be entitled to ninety per cent. of the profits derived from partici- pating policies which are distributed.?, Such profits are by this provision excepted from taxation as are also the remain- ing profits from the participating policies and the profits from the non-participating policies, and investments, except such amount as is credited to shareholders’ account. The amount of such profits as is credited to shareholders’ account constitutes taxable income of the corporation. Clubs, Associations and Societies ——The incomes of clubs, societies and associations organized aud operated solely for social welfare, civic improvement, pleasure,. recreation or ' Principal Act. s. 5 (f). * Hiquitable Life Assurance Society \. Bishop (1900). 1 Q. B. 177. * Statutes of Canada, 7-8 Geo, V. ec. 29, s. 104. % incomes. 181 182 Excepted incomes. ' DOMINION INCOME TAX LAW. other non-profitable purposes, no part of the inceme of which inures to the benefit of any stockholder or member, are excepted from taxation.* If the club, society or association engages in any operations outside those enumerated it is not entitled to be excepted from taxation, but it should be remarked that contributions by members do not in any case constitute income, but are contributions of capital and not taxable. By the latter part of the clause it was evidently intended to exclude’ proprietory clubs from the benefit of the exemption. Farmers’ Loan Associations.—The incomes of such insur- ance, mortgage and loan associations operated entirely for the benefit of farmers as are approved by the Minister are excepted from taxation.° The Minister has not, so far, approved of any such associations. Tax Free Bonds.—The Act expressly provides for the exemption of income derived from bonds or other securities of the Dominion of Canada issued exempt from income tax.* The provisions to exempt military and naval pay of per- sons who have been on active service overseas* has been repealed.° The income of incorporated companies whose business and assets are carried on and situate entirely outside of Canada is not liable to taxation.’° This provision is considered at length in the chapter on persons taxable.’ Military Pensions—It is provided that any pension granted to any member of His Majesty’s military, naval or air forces for any disability suffered by the pensioner while serv- ing in any of His Majesty’s Forces during the European War and any pension granted to any dependent relative of any person who was killed or suffered any disability while serving, shall not be liable to taxation.? It should be remarked that the exemption does not extend to pensions in respect of service in the forces of His Majesty’s Allies or Associated Powers. ‘Principal Act. s. 5 (q). * Carlisle and Silloth Golf Club v. Smith (1918), 3 K. B. 75; Bohemian Club v. Commissioner of Taxation, 24 C. L. R. 334. ° Principal Act, s. 5 (h). Thid.. s. 5 (i). ‘Principal Act. s. 5 (i). * Amendment 1920. s. 9 (1). *” Amendment 1918, s. 4. 1 Ante, @ 3. 71919 amendment, s. 4. and 1920 amendment, s. 9 (2). EXEMPTIONS. 183 Pension Funds, etc.—It is also expressly provided that ane “any part of the remuneration of a taxpayer retained by his employer in connection with an employee’s superannuation or pension fund or plan shall be allowed.as an exemption or deduction from the income of the taxpayer.”* The effect of this provision is to avoid the contrary result established by a leading case in England.* ‘Exemptions by Other Statutes—In addition to the exemp- tions provided by the Income Tax Act it may be that exemp- tion from the income tax may be claimed ‘in virtue of other legislation, and it is proper to observe that where Parliament hhas created a statutory exemption from taxation, the taxpayer is entitled to the benefit of the same even although that statu- tory exemption was enacted prior to the enactment of the Income Tax Acts. It was at one time thought in England that a statutory exemption, in the absence of any special words, applied, only to the rates and taxes existing at the time the exempting Act was passed.* A different view, however, must be adopted since the decision of the House of Lords in Associated Newspapers v. City of London,’ which case was considered and explained in a more recent case.’ An exempt- ing enactment should be held to be applicable to future taxcs as well as to existing taxes. Judges’ Salaries.—Prior to the amendment of the Income Tax Act in 1919 judges’ salaries and retiring allowances or annuities were free of taxes imposed under any Act of the Parliament of Canada, including the Income Tax Act.S By the amendment in question it was provided that income for the purposes of the Act should include “ the salaries, indemni- ties or other remuneration . . . of any judge of any Dominion or Provincial court appointed after the passing of this Act.” That legislation was assented to on the th July, 1919, and it was expressly provided that it should be deemed and construed to have come into operation on and from the Ist January, 1917.° A question arose thereunder as to *Amend, 1919. s. 2 (3). *Iludson v. Gribble, 1903, 1 IK. B. 517, = “a v. Thames Conservators, 1908, 1 K. B. 893. per Bray t eo * (1916), 2 A. C. 429. * Pole- Carew v. Craddock, 1919, 2 Ik. B. 393. "RS. C. 1906, a 138. 8.27 (3). °1919 Amend., s. 2 (1). Thid., s. 10. 184 Excepted incomes. DOMINION INCOME TAX LAW. whether the date on which the amending Act’ became law, viz., 7th July, 1919, or the date on which the principal Act came into force; viz., Ist January, 1917, was. intended to be referred to by the words “ after the passing of this Act.”. Con- sidered in relation to their context and apart altogether from the provision by which the amendment was made retrospec- tive it seems that the words “ after the passing of this Act ” referred to the passing of the principal Act and consequently, if this view be correct, any judge appoinited after that date became taxable in respect of inicome received after the passing of the amendment. Thé provision that the amendment should be retrospective “is consistent with this construction and to that extent supports the argument in favour of the suggested result. But in addition, it should be noted, this retrospective provision had the effect of imposing a “charge on judges appointed after January 1st, 1917; in respect of income received before the 7th July, 1919, the date of the amendment, : which despite the amendment, would, it is apprehended, have otherwise escaped taxation. Certain amendments to the Judges’ Act? in 1919 and 1920 require consideration.? They provide in effect that the exemption provided by the. Judges’ Act® shall not apply to any judge whose salary was increased by those amending Acts, or who accepts or has accepted such increase. The latter amendment provides that “the salaries and.retiring allow- ances and annuities of judges appointed after the 7th day of July,.1919, and of all judges accepting any increase of salary,” under this amendment or that of 1919, “shall be taxable and subject to the taxes imposed by the Income War Tax Act, 191%, and the amendments thereto.”* This provision, there- fore, establishes that the salaries of judges appointed after the 7th July, 1919, shall be taxable and consequently it is repugnant to the amendment to, the Income Tax Act of 1919 as construed above, inasmuch as it fixes a later date after which appointments of judges are to be regarded as charge- able to income tax. . The result is, no doubt, that, the amend- ment to the Income Tax Act of 1919 is repealed by implica- tion. It should be observed, however, that judges appointed after January ist, 1917, and before July 7th, 1919, strictly *R. 8S. C. 1906, ¢. 188. : ae Geo. V. c. 59, and 10-11 Geo. V. ¢, 56. S.C, 1906. ¢, 198, s. 27 (3). ; . tO Geo. V. ec. 56, s. 11 (1). EXEMPTIONS. 185 speaking, remain liable in respect of income received between Excepted. those dates.* sad The present situation is, perhaps, not entirely free from doubt, but it would appear that the net result of the legisla- tion is to divide judges into three groups: (1) judges whose appointment dates after the 7th July, 1919; (2) judges who accept or have accepted increases under the amendments to the Judges’: Act of 1919 and 1920, and (3) all other judges. Those falling in the first two:classes are apparently taxable, while those. falling in the third class are not taxable. Personal Exemptions—The Act contains several provi- Personal sions for the purpose of relieving persons from the ful] exemptions. burden of taxation on account of dependents. These provisions are complicated and require careful examination. The charg- ing section of the Act® provides for the assessment of the normal tax “upon all income exceeding one thousand dollars but not exceeding six thousand dollars in the case of unmarried persons and widows or widowers without depen- ‘dent children, and persons who are not supporting dependent brothers .or sisters under the age of eighteen years, or a dependent parent or parents, grandparent or grandparents, and exceeding two thousand dollars but not Pac eine six thousand. dollars in the case of all other persons.” This provision requires to be considered along with the provisions of the amending Act of 19197 that a Aaiapon may be made “ for the purposes of the normal tax only of two hundred dollars for each child under eighteen years of age who is dependent upon the taxpayer for support,” and with the interpretation clause * which provides that “‘dependent child’ means a child under twenty-one years of age and dependent on his parent for support, or over twenty-one years of age and depen- dent on his parents for support on account, of physical or mental incapacity.” Persons Classified—tIn order to determine the effect of these provisions it is most convenient to divide the individuals taxable into two classes, viz., those who are entitled to exemp- tion of one thousand dollars, and those who are entitled to exemption of two thousand dollars. In the first class there are: pres TOO ete ae * Amend. 1919, s. 3 ne and amend. 1920, s. 6. 71919 amend., s. 2 (2) 5 Amend. 1918, s. 1 (2). 186 Personal exemptions. DOMINION INCOME TAX LAW. (a) Unmarried persons who are not supporting depend- ent brothers or sisters under the age of eighteen years, or a dependent parent or parents, grandparent or grandparents. (b) Widows or widowers without dependent children and who are not supporting dependent brothers or sisters under the age of eighteen years or a dependent parent or parents, grandparent or grandparents. The expression “dependent brothers or, sisters,” and “dependent children,” although couched in the plural, should be taken to include the singular,’ and consequently one dependent brother or sister or one dependent child, as the case may be, is sufficient to take the taxpayer out of this class. The words “dependent children” used in this connec- tion must be interpreted’ by reference to the interpretation section, which defines dependent child as a child under twenty-one years of age and dependent on his parent for support, or over twenty-one years of age and dependent on his parent for support on account of physical or mental inca- pacity. “Children” here is taken to refer only to children. who stand in the relationship of sons and daughters to the taxpayer; and this view does not appear incorrect.1° The word child, furthermore, when used in an Act of Parliament, ‘refers exclusively to legitimate children.* In the second class there are: (a) Married persons. (6) Unmarried persons who are supporting one or more dependent brothers or sisters under the age of eighteen years, or a dependent parent or parents, grandparent or grand- parents. (c) Widows or widowers with one or more dependent children. (d) Widows or widowers without dependent children who are supporting dependent brothers or sisters under the age of eighteen years, or a dependent parent or parents, grandparent or grandparents. Persons who fall in the second class are also entitled to an additional exemption of two hundred dollars for each dependent child under the age of eighteen years who is dependent upon the taxpayer for support. This exempéion of two hundred dollars in respect of dependents relates to the °R. S.C. 1906, c. 1, 8. 31 (7). ” Bowen V. Lewis, 9 A, CG, 890. per Lord Blackburn. 1 Dickinson v. N. EB. Ry. 33 L. J. Ex. 91. per Pollock, C.B., and eases cited in Stroud’s Dictionary under “ child.” EXEMPTIONS. normal tax only; thus a married person is ‘entitled to two Personal nt exemptions, hundred dollars fur each of his children, but only one pare is treated as entitled to the deduction on account of each child. Unmarried persons who are supporting one or more brothers or sisters under the age of eighteen years are entitled, in addition to the two thousand dollars exemption, to a ‘deduction of two hundred dollars for each dependent brother or sister under eighteeen years. Finally a taxpayer of which ever class is entitled to deduct two hundred dollars for each child who is dependent upon him, no matter what relationship exists. Dependent not Defined—What degree of dependence must exist to entitle the taxpayer to claim exemption in respect of brothers, sisters or children is not defined as in the English Act or determined by regulation. It may be said, however, on the one hand, that the support afforded by the taxpayer to the dependent must be substantial, but on the other hand, that the whole burden of supporting the depend- ent need not necessarily be borne by the taxpayer. Parlia- ment has not used such an expression as “ wholly dependent.” Where the taxpayer claims an exemption on account of dependents other than those falling within the enumeration of relations, he should be prepared to establish that such dependents have some moral, legal or equitable claim upon him. The mere exercise by him of a charitable impulse should not entitle him to exemption. Furthermore, a person is not dependent who merely derives some benefit from the income of the taxpayer.? Corporations.— All corporations and joint stock companies, no matter how created or organized, are entitled to an exemp- tion of two thousand dollars.* 187 Dividends.—It is provided by the Act that “ dividends Relief from received by or credited to shareholders of a corporation which is liable to taxation shall not be liable to the normal tax in the hands of the shareholders, but shall be liable to the super- tax and surtax,’® indicating the policy of the Act to avoid double taxation upon small incomes. The principle of inter- pretation that a taxing Act is to be construed so as to avoid 2? Simmons v. White, 1899, 1 Q. B. 1005, per Romer, L.J. 21 Amend. 1919, s. 3 (1). > Amend, 1919, s. 2 (2). tion. double taxa- 1ss Relief from double tax- ation. = DOMINION INCOME TAX LAW. double taxation has already been considered.‘ It is not neces- sary that the corporation should have been taxed, but it is sufficient that the corporation be liable to taxation. The provisions of the Act respecting supertax were omitted from the Act of 1919 and consequently the exemption of dividends provided by the section quoted: above relates only to the sur- tax provisions. The surtax provisions impose a charge upon income in excess of five thousand dollars in addition to the normal tax. The result is that-a taxpayer, e.g., who has an income of twenty thousand dollars, of which ten thousand dollars is made up of dividends, and who is married and has four children, is chargeable under the normal tax provisions upon ten thousand dollars less an exernption' of tw6 thousand dollars by reason of being married, and two hundred dollars each for the four children. He is, therefore, chargeable under the normal tax on seven thousand two hundred dollars and assessable to surtax on the whole of his income in extess of five thousand dollars, é.e., fifteen thousand dollars. It is further provided that the amount of the exemption from the normal tax to the shareholder shall not exceed the net amount of the dividend after the deduction of the interest or carrying charges, if any, in respect of such dividends. The effect of this provision’ is that the taxpayer may not set off the carrying charges of shares from which he receives divi- dends against income from debentures or other sources which is not exempt from the normal tax. Corporation Shareholders. Speeds however, are exempt from the normal tax only by virtue of the exempting provisions referred to, which is applicable only to dividends received by individual shareholders and does not’ extend to dividends received by corporations. Consequently, upon a strict interpretation of the Act where one corporation owns shares in another corporation, which is liable to taxation, and receives dividends from that corporation, such dividends although already taxed, are subject to be taxed again as part of the profits of the corporation shareholder. However, in practice it- appears that such corporation shareholders have. in some cases, heen permitted to treat such dividends as exempted income. Holding Companies——An important and.special difficulty arises in this connection in the case of holding companies 4 Ante, ce. 2. . EXEMPTIONS. - 189 whose income is derived entirely or largely in the form of Relief from dividends from subsidiaries. Such holding company ig eels esd properly chargeable in respect of such dividends received, unless it can be established as a fact that the holding com- pany and the subsidiary are in reality one person and only can be regarded as separate corporate entities by insisting on a highly technical view being taken. In an important American decision it was held that the Southern Pacific Railway and the Central Pacific Railway constituted one person for the purposes of income tax. The facts were that the Southern Pacific owned the entire stock of ‘the Central Pacific and operated that railway under a lease from the Central Pacific, deposited the receipts in its own name and had complete possession of the assets of the subsidiary. It was held that the Southern Pacific and the subsidiary were in substance identical because of the complete ownership and control which the former exercised over the latter as stock- holder and in other capacities; that while the two companies were separate legal entities yet in fact and for all practical purposes they were merged, the subsidiary being but a part of the holding company, acting merely as its agent and sub- ject in all things to its control. In another United States decision the facts were that the holding company owned practically all the stock of the subsidiary companies and with them constituted a single enterprise of producing, buying, transporting, refining and selling oil. It was held that the subsidiaries and the holding company were iglentical, and that the payment of the dividend by the subsidiary to the holding company was a mere bookkeeping matter and should be so regarded rather than as a dividend declared and paid in the ordinary course by the corporation. These cases are authorities for the proposition that the income of a holding company in the forin of dividends from subsidiaries is not subject to the corporation tax where the holding company and the subsidiary in fact constitute one person. Dividends Received by Partnerships—Partners are taxed as individuals and in effect the partnership as a legal entity is ignored, and consequently income received by the partnership, which is exempt from taxation, passes through the partnership unchanged in its character and the partners are not taxable in respect thereof. Where partner- ® Southern Pacific v. Lowe, 247 U. 8S. 330. ® Gulf Oil Company v. Llewelyn, 248 U. S. 71. 190 DOMINION INCOME TAX LAW. . . . . . ‘ . * . tel’ef from ship capital is invested in shares of a corporation liable to double tax- ation. taxation the dividends, from such corporation are received exempt from normal tax and this character is not altered by the dividends forming part of the partnership profits. The same view, it may be said, applies to income from Victory Bonds or other investments free of income tax. In a recent American case the very question was in issue and the view expressed above prevailed upon the ground that the statute ignored for taxing purposes the existence of the partnership.” Profits Otherwise Taxed.—Finally it should he observed. that the Act provides for relief where income has already heen taxed under some other Act or by certain other taxing authorities; so the taxpayer is entitled to deduct from the amount which would otherwise be payable by him for income tax any amount which has been paid for corresponding account- ing periods under the provisions of Part 1 of the Special War Revenue Act, 1915, or the Business Profit War Tax Act, 1916.8 Part 1 of the Special War Revenue Act imposes a tax on banks, trust and loan companies and certain insurance premiumis, and taxes paid thereunder may be deducted from income tax which would otherwise be payable. In computing income under the Income Tax Act, however, neither the taxes paid under the Special War Revenue Act nor under the Business Profits Act may be deducted as expenses of the tax- paver’s business. Furthermore, it is provided that the Minis- ter shall have power to determine any questions that may arise in conséquence of any difference in the several periods for which the taxes under the Act referred to, and under the Income Tax Act respectively, are payable, and the decision of the Minister is final and conclusive.® It was probably contemplated by Parliament that the business profits assessment would be made first and separately from the income tax assessment and that the income tax assessment would be made upon the entire income including business profits according to the graduated scale of surtax: that from this assessment the business profits assessment would be deducted. In practice, however, it appears that the business profits assessment is made and to that is added the assessment on income from other sources than business profits. The taxpayer receives only this single assessment 70, S. v. Coulby, 251 Fed. 982. and 258 Fed. 27. ® Amend, 1919, s. 3 (8). * Ibid. EXEMPTIONS. 194 and consequently gains thereby since his income other than Relief from : Zoe ; * Z double tax- business profits is subjected to a lower rate of surtax than ation. would be the case if the scheme outlined above were followed. In the case of a partnership each partner is entitled to deduct such portion of the tax paid by the partnership under the Business Profit War Tax Act as may correspond to his share in the income of the partnership. This deduction, how- ever, may not be made so as to reduce the liability of the tax- payer in respect of income which does not form part of the « profits assessed under the Business Profits Act. It is specific- ally provided that income which does not form part of the profits assessed under the Business Profits Acts shall he assessed for income tax purposes in the same manner as if it were the only income of the taxpayer. ty Income from Abroad.—The Act also provides for relief where income tax has been paid on account of income derived from abroad. It is provided that the amount paid to Great Britain or any of its self-governing colonies or dependencies for income tax in respect of the income of the taxpayer derived from sources therein may be deducted from the tax which would otherwise be payable to the Dominion; and furthermore the taxpayer may deduct the amount paid to any foreign country for income tax in respect of income derived from sources therein if and only if such foreign country allows a similar credit to persons in receipt of income derived within Canada.1° However, ft should be observed that whether the deduction is made in respect of income tax paid to Great Britain or British colonies or to amy foreign country, the deduction shall not at any time exceed the amount of the tax which would otherwise be payable under the provisions of the Dominion income tax law. In determin- ing what the tax would be under the Dominion law the total income of the taxpayer from sources within Canada and from abroad are totalled and the tax determined according to the graduated scale of surtax. In this respect the practice is differ- ent from that which is employed to determine the deduction to be made on account of tax payable under the Business Profits Act. The taxpayer must furnish evidence satisfactory to the Minister showing the amount of the tax paid and the particu- lars of income derived from sources abroad. 7°1919 amend. s. 3 (3). Deductions chiefly expenses. ‘CHAPTER VI. DEDUCTIONS. Deductions Defined. In order to arrive at the income which is chargeable under the Income War Tax.Act, it must. be determined what deductions the taxpayer is entitled to make. As has already been noted, the word “‘ deductions” is used herein as refer- able only to those items which the taxpayer may or may not deduct from his receipts in order to determine the annual net profit or gain. In the statute the word deductions has been used with reference to such expenses of business, and also to exceptions and exemptions in the nature of relief ‘which Parliament has thought should properly be allowed. Such exceptions and exemptions have been dealt with in the preced- ing chapter: : : What Expenses Deductible. ‘The charge imposed by the statute is primarily upon the annual net profit or gain, and. the most difficult questions with respect to deductions have to do with the determination of profits. Before you can get at the profits, it has been said that you must look at the whole that precedes the making of the profits, which is*connected with the business or occupa-. tion in question, as in the case of manufacturing, the expense of producing and distributing the article, the keeping of accounts and other processes necessary for the manufacture,’ and in another case that the balance of profits upon which the charge is made is the difference between the receipts which are obtained from the trade and the expenditure neces- sary in order to obtain these receipts.2 The question what is a profit or gain must primarily be one of fact to be ascer- tained by the tests applied in ordinary business. Questions of law can only arise when some express statutory direction applies and excludes the ordinary commercial practice, or where, by reason of its being impracticable to ascertain the facts sufficiently, some presumption has to be invoked. to fill 1Brickwood & Co. v. Reynolds, 3 Tax Cas. 600, per Pollock, B., p. 604. 7 - 4 2 Gresham Life Assurance Society v. Styles, L. R. 25 Q. B. D. 351, per Esher, M.R., p. 354. * DEDUCTIONS. 193 the gap.* The word profits is to be understood in its natural Commercial . : : ractice. and proper sense—in a sense which no commercial man would ?”*° misunderstand.* Scheme of English Act. Before proceeding, however, with the consideration of deductions which may properly be made, it is desirable to con- sider shortly the schemes provided by the English and Ameri- can law in order to determine the application generally of judicial decisions in Great Britain, and.in the United States. Under the: English Act it has recently been said that for the purposes of the Income Tax Act there must be something in the nature of a credit and debit account in which the receipts appear on the one side and the costs and expenditures necessary for earning those receipts on the other side.® The English Act provides that in arriving at the amount of profits or gains no other deductions shall be made than such as are expressly enumerated in the Act. Nowhere in the Act, however, is there any express enumeration of deductfons. It was said in a recent important English case “The paradox of it is that there are-no allowable deductions enumerated at all unless indirectly, . . . The effect of this struc- ture, I think is this, that the direction to compute the full amount of profits must be read as subject to certain allow- ances and to certain prohibitions of deductions, but that a deduction, if there be such, which is neither within the terms of the prohibition nor such that the expressed. allowance ~ must be taken as the exclusive definition of its area, is to be made or not to be made according as it is or is not on the facts of the case a proper debit item to be charged against incomings of the trade when computing the balance of profits of it.’¢ The ‘chief enumeration of deductions which may not be made is contained in schedule D.’ Application of English Decisions. It is not necessary here to consider the deductions which are expressly prohibited, but it is proper to observe that, while pnelish practice 2 Sun Assurance Office v. Clark, 1912 A. C. 448, per Lord Hal- applicable. dane, p. 455. *Gresham Life Assurance Society v. Styles, 1892, A. C. 309, per Lord Halsbury, p. 315. ° Usher's Wiltshire Brewery Ltd. v. Bruce, 1915, A. C. 433, per Lord Parker, p. 458. °Usher’s Wiltshire Brewery Ltd. v. Bruce (supra), per Lord .~ Sumner, p. 467. "Imp. Act, 8-9 Geo. V., cv. 40, Schedule D, Rule 3, Cases 1 and 2. D.LLT.L.—13 194 Three statutory provisions. DOMINION INCOME TAX LAW. these prohibitions form part of the Act they must be regarded primarily as guides to determine what deductions commercial practice dictates should not be made,® and therefore, probably, it is correct to say that generally the deductions which have been allowed under the English Act should be allowed under the Dominion Act, and that the deductions which have been disallowed under the English Act should be disallowed under the Dominion Act, unless it appears that these deductions would have been allowed under the English Act, but for a prohibition contained therein. American Act Enumerates Deductions. The American Act provides expressly that in computing the net income there shall be allowed as deductions “all the ordinary and necessary expenses paid or incurred in carry- ing on any trade or business.” There follows an enumeration of particular deductions allowable,® and provision prohibiting certain other deductions.’° Deductiofts not Enumerated in Dominion Act. There are only three provisions in the Dominion statute which relate to deductions properly so-called. It is provided that deductions may be made of such reasonable amount as the Minister in his discretion may allow for depreciation, and further that the Minister in determining the income from mining’ and from oil and gas wells and timber limits shall make such an allowance for the exhaustion of the mines, wells and timber limits as he may deem just and fair It is further provided that in determining the income no deduction shall be allowed in respect of personal and living expenses, and in cases in which personal and living expenses form part of the profit, gain or remuneration of the taxpayer the same shall be assessed as income for the purposes of the Act.2. Finally it is provided that deficits or losses sustained in transactions entered into for profit, but not connected with the chief business, trade or occupation of the taxpayer shall not be deducted from income derived from the chief busi- ness, trade, profession or occupation of the taxpayer in determining his taxable income.* These three provisions of 8 Vallambrosa Rubber Co. Ltd. v. Farmer, 47 Se, L. R. 488, per Lord President, p. 491. "U.S. A. Statutes, 1918, ss. 214, 234. wr, S. A. Statutes, 1918, ss. 215, 235. 11919, Amend, s. 2 (2). 2 [bid., s. 2 (2). 2 Tbid., s. 2 (2) and 1920 Amend,, s. 2. DEDUCTIONS. 195 the statute will be considered more closely in subsequent paragraphs. Commercial Practice to Determine Deductions, In view of the fact that there are only these three pro- No regula- visions in the Dominion Act relating to deductions, it must "> be assumed that, apart from the effect produced by these provisions, the ordinary commercial practice of business men must be wholly relied on in determining net profits. Furthermore the provisions to impose the charge upon the “annual net profit or gain directly or indirectly received ” clearly contemplates the determination of profits by the method of business men best suited to the particular business in question. No regulations have been promulgated by the Commissioner to establish accounting methods, and the sys- tem adopted by the taxpayer for his own purposes is accepted except in so far as he departs from good commercial practice. Consequently where the taxpayer determines his profits by inventories he is permitted to make his return on that basis, and to include profits accrued, but not actually received, and expenses incurred, but not actually paid. As has already been noticed in the chapter on “ Income” the charge is imposed on the gains made in the course of carrying on the business, and is not imposed upon gains made in capital. Similarly expenditures and losses properly charge- able to capital account are not properly deductible. Tax a Part of Profits. Before proceeding with the consideration of the particular deductions which may or may not be made it should be noted that income tax is a payment out of profits, that is, it is the share of the profits which Parliament has provided should belong to the taxing authority, and it has been held that where a company’s dividends were limited by statute the company could not increase in effect its dividend rate by making a distribution exclusive of income tax.* Furthermore the Government is entitled to receive its share when the profit is realized even though it may have been earned pre- viously. It has been said in England that “although the Act is full of the expression annual profits and gain, the presence of that word (annual) does not seem to me to connote neces- sarily the idea of nothing being chargeable which is not * Ashton v. Attorney-General, 1906, A. C. 10; Cain v. Cain, 1919, 2 Ch. 364, at 370. 196 Husband’s income, Capital transmuted into income. DOMINION INCOME TAX LAW. within the year of assessment, but it is there for the pur- pose of showing that the tax which is being levied is a tax upon income, or in other words, upon annual profits and not upon capital.” Alphabetical Arrangement. Ii is proposed to deal with the particular deductions in alphabetical order for purposes of convenience. In addition to such deductions as relate to the determination of the net profits of business, reference will also be made to such other deductions as have been allowed or disallowed. ALIMONY. Alimony not Deductible. Where a husband is required to make payments on account of alimony or separation agreements, such are not deductible by him to determine his chargeable income upon the princi- ple that personal or domestic expenses are not deductible,® or in any event, upon the principle that once income is directly or indirectly received it is chargeable at that moment no matter what disposition is made of it.7 Alimony is treated as a part of the husband’s income to which the wife is entitled.* Furthermore there is no provision in the Act to entitle the husband to deduct from such payments the tax he may he required to pay thereon. ANNUITIES. Where the business of a company is to sell annuities the annual payments made by the company constitute its chief expenses of business, and such are deductible. In England it has been held that the amounts paid on account of such annuities constitute the cost of the article in which the com- pany is engaged in selling.® Where an annuity has been purchased, the proper view to be taken is that an income has been purchased and the 5 Scottish Provident Institution v. Farmer, 1911-12 S. C. 452, per Lord President, p. 457. ° Aiken v. Macdonald's Trustees, 32 Se. L. R. 85. ™ Mersey Docks v. Lucas, 8 A.C. 891; Paddington Burial Board v. Inland Revenue, 13 Q. B. D. 9; Gresham Life Assurance Society Vv. Styles, 1892, A. C. 309, at p. 315. S Gould v. Gould, 245 U. S. 151. ®*Gresham Life Assurance Society v. Styles ( supra) ; Hancock v. General Investment Co., 1919, 1 K. B. 25. DEDUCTIONS. capital has gone and ceased to exist.1? Consequently the annuitant is chargeable in respect of the whole of the annuity and may not deduct a portion of each payment as-a return of capital. ASSOCIATION MEMBERSHIP EXPENSES. Certain Expenses not Allowed. The expenses deductible must be made to earn receipts and no deduction will be allowed of expenses which are in the nature of a luxury, and which could be omitted without affecting the revenue directly or indirectly. Where a colliery company was a member of a coal owners’ association to which a subscription was paid for the purpose of providing a fund for indemnifying members in case of strikes, it was held that such a subscription was not deductible, since it did not con- stitute an expense of carrying on business, but was an expense incurred in case of the company ceasing to carry on busi- ness.11_ This decision, however, is difficult to understand as the payments were in the nature of premiums to provide insurance against loss, and in a subsequent case it was held that a subscription by a company to an association, the pur- pose of which was mainly to keep up prices, and thus earn larger profits, was deductible.? 197 In another case a company claimed to deduct contribu- Conciliation tions made to an association which were expended: (1) In boards., defraying costs of a conciliation board; (2) in paying subscrip- tions to the Mining Association of Great Britain, and (3) in making experiments in coal dust. With respect to the expenses of the conciliation board, the Court held them deductible since the Board was machinery by which disputes between workmen and employer might be settled, and by that means expenses kept down and more profits earned. With respect to the payments to the Mining Association of Great Britain it was said that the purpose of the association was to keep a watchful eye on proceedings in the interests of mine owners generally, but was without that character of particular service provided by the conciliation board. With respect to the experiments, it appeared that the same were instigated by the Government for the purpose of guiding legislation, and ” Foley v. Fletcher, 3 H. & N., per Watson, B., p. 785. Rhymney Iron Co., Ltd. v. Fowlcr, 1896, 2 Q. B. 79. 1 Guest, Keen & Nettlefolds Ltd. vy, Fowler, 1910, 1 K. B. 713: see also Grahamston Iron Co. v. Crawford, 52 Sc. L. R. 385. No statu- tory provision. L DOMINION INCOME TAX LAW. that the expense was not undertaken primarily at any rate for the purpose of earning more profits.” Bap Dests. Certain Bad Debts Deductible. The taxpayer is entitled to deduct bad debts, although there is no statutory provision in that behalf. The deduction is properly made because the taxpayer must maintain his circulating capital and make allowances for losses thereof before he can determine what profit has been earned.* A loss which occurs before the taxable year in question should not be deducted, but this, of course, does not mean necessarily that the debt should have been contracted within that year, In practice no deduction is generally allowed for debts con- tracted before the Income Tax Act came into force, namely, January Ist, 1917. This practice is based upon the view that such a debt, representing for example goods sold before the Act came into force, was never charged with the tax as con- stituting a part of the profits, and therefore should not be deducted subsequently. Profits accrued before the Act came into force, but realized since, are not properly taxable, and consequently no deduction should be allowed for debts con- tracted before the Act, which have become bad since.* Reserves for Bad Debts Deductible. Amounts credited to reserves for bad debts are not strictly speaking deductible, but in practice it appears that the Min- ister will permit the deduction provided that the amount credited to such reserve is established by reference to the experience of the particular business in question not to be in excess of requirements. Capital Losses not Deductible. The deduction of bad debts is allowable, however, only in respect of debts incurred in the course of the trade or business in question, and no deduction is allowable in respect of losses of capital invested. So in one case it was held that where a company made a loan.to another company formed for the purpose of increasing the supply of a certain product 2 Lochgelly Iron & Coal Co. Ltd. v. Crawford, 50 Se. L. R. 597. 2 Verner v. General Commercial Trust, 1894, 2 Ch. 239; Lee v. Neuchatel Asphalte Co., 41 Ch. 1; Ammonia Soda Co. v. Chambertain, 1918, 1 Ch. 266. * Hays v. Gauley Mountain Coal Co., 247 U. S. 189. DEDUCTIONS. required, and the amount so loaned was lost, no deduction was allowed in respect of the same, the conclusion being that this was an employment of capital in a separate concern rather than a trade debt.2 On the other hand where a brew- Tied f houses. ing company made loans to its customers on the security o public houses, it was held that losses incurred in connection with such loans constituted expenses of the trade and were deductible as bad debts.* CAPITAL. Capital Expenditure not Deductible. An expenditure which is properly described as being on account of capital is not deductible as an expense. It may be difficult in certain cases to distinguish between those expen- ditures which are made on account of capital and those which are incurred as expenses to earn the receipts for the taxable period. But it has been said that a criterion of capital dis- tinguished from income expenditure is to say that capital expenditure is a thing that is going to be spent once and for all, and that income expenditure is going to recur every year.” Generally it may be said that capital for income tax purposes does not differ from capital for commercial purposes. A loan made to another company to increase. the supply of a pro- duct required was held not to be an advance against goods to be delivered, but an investment of capital.§ Commencing Business. Expenditures made upon commencing business should be treated generally as capital expenditures and so not deduc- tible, and where upon the purchase of a business, the pur- chaser agreed with the seller to retain the services of the manager of the selling company at a certain annual salary which might be commuted by the payment of a lump sum to the manager, it was held that such sum constituted part of the purchase price and could not be deducted.® Where a com- pany expended money to promote legislation for the construc- tion of a railway, it was held that such expenditures were on account of capital,*® but this case was evidently close to the 5 English Crown Spelter Co. v. Baker, 99 L. T. 353. ° Reid’s Brewery Co. v. Male, 1891, 2 Q. B. 1. Vallambrosa Rubber Co. Ltd. v. Farmer, 47 Se. L. R. 488, per Lord President, p. 492. 8 Bnglish Crown Spelter Co. v. Baker (supra). ° Royal Insurance Co. v. Watson, 1897, A. C. 1. 4. G. Moore & Co. v. Hare, 52 Se. L. R. 59. 199 200 Vallambrosa Rubber Case. DOMINION INCOME TAX LAW. : line, and one judge dissenting said that the money was laid out wholly for the purpose of the business and not as capital in the trade. In the case of a rubber company claim- ing deductions for weeding and superintending a portion of its estate, which was not yet in bearing, it was held that such were income expenses, and not capital expenses.t A corpora- tion claiming to deduct a sum in respect of the price paid for unexecuted contracts as an expense was not permitted to make such deduction.? In this case an illuminating remark was made by Bowen, L.J., viz.: That you do not use it (the expenditure in question) for the purpose of carrying on your concern, but you use it to acquire the concern.* Where a purchaser of a secret process agreed to pay annually for forty years a sum equal to eight per cent. on sales it was said that such sums constituted a part payment in the way of capital expenditure rather than a deductible expense,* and in the case of a hire purchase agreement covering wagons, a colliery company was only permitted to deduct such part of the annual payments as represented hire and not that which con- stituted purchase price.® Annual Instalments. Where annual payments are in question, however, regard must be had to what the sum is in each particular case, 1.e. whether it is a part of the purchase price or an annually recurring expense of business.* Where a company receives lump sums and undertakes some duty in perpetuity, e.g. the maintenance of graves, it has been held that it is entitled to deduct. from such revenue the capitalized value of the whole expenditure estimated to he incurred in discharging its obliga- tions in perpetuity.’ Extensions and Improvements Out of Capital. Any expenditure made for the purpose of extending or improving the premises or plant of the taxpayer must be regarded as capital expenditure. So where a sum was set aside annually to be expended in future years on restoring plant 1Vallambrosa Rubber Co. Ltd. v. Farmer, supra. 2ity of London Contract Corporation vy. Styles, 2 Tax Cas. 239, 2 Tbid, 4 Delage v. Nugget Polish Co., 92 L. T. 682, per Phillimore, J., p. 683. 5 Darnragil Coal Co. Ltd. v. Francis, 50 Se. L. R. 427. °Oswald v. Kircaldy Magistrates, 1919, S. C. 147, and Jones Vv. fa. Her, YO20, 1 1K. B. 711, * London Cemctery Co. v. Barnes, 1917, 2 K. B. 496. DEDUCTIONS. 1 and apparatus of a gas works, purchased in a defective struc- tural condition, such sums could not be deducted,*® and sums. expended by a railway in the improvement of a section of its line to bring it up to the standard of the main line were not deductible.® In the United States it has been held that where old rails were replaced by new and heavier rails, the railway company was entitled to deduct an amount equal to replac- ing the old rails with similar rails, but not the excess result- 01 ing from using heavier -material.1? Where a company in Eng- Ounsworth land was obliged to make a deep water channel to facilitate its ¥-, Vickers: shipbuilding business, and particularly to facilitate the con- struction and delivery of one vessel, it: was decided that this was not deductible as. an expense, but was a capital investment.* In the case of a company which moved to new premises and defrayed the expenses of moving and setting up its plant on a new site out of revenue, such expenses were regarded as im- provements in the nature of capital expenditure.? Where a mining company was compelled to sink new shafts by rea- son of the exhaustion of minerals, it was held that the ex- penditure was on account of capital,? and this view was recently adopted by the Supreme Court of Canada.* Neverthe- less the question whether such shaft represents capital or ordinary expenditure is one of fact, and where the ore lies in shallow beds the expenses of sinking shafts probably do not represent capital.® DEPRECIATION AND EXHAUSTION. Statutory Provision for. For income tax purposes, speaking in general terms, income is the surplus of receipts over the current expenditure necessary to earn those receipts not including any appro- priation of any part of the receipts or surplus for the purpose of writing off or amortizing the capital value of any assets that depreciate or waste in the process of producing the income. Without a special relieving provision therefore it is improbable that the taxpayer would be entitled to make any 5S Olayton v. Newcastle-under-Lyme Corp., 2 Tax Cas. 416. ® Highland Railway Co. vy. Balderston, 26 Se. L. R. 657. Grand Rapids & Indiana Ry. Co. v. Doyle. 245 Fed. 792. 1Ounsicorth v. Vickers Ltd., 1915, 3 K. B. 267. 2 Granite Supply Assoc. Ltd. v. In. Rev., 43 Se. L. R. 65. 3 Coltness Iron Co. v. Black, 6 A. C. 315. *Union Natural Gas Co. v. Dover, 53 D. Tu. R. 326. 5 Morant v. Wheal Granville Mining Co., T1 Th. T. 758. Diminishing capital. DOMINION INCOME TAX LAW. deduction on account of depreciation or exhaustion. The Act, however, provides for the deduction of such reasonable amount as the Minister in his discretion may allow for depreciation, and further that in determining the income derived from mining and from oil and gas wells and timber limits the Minister shall make such an allowance for the exhaustion of the mines, wells and timber limits as he may deem just and fair.® A distinction is here made between depreciation which may be due to wear and tear, obsolescence or other causes and exhaustion or wastage of assets. In respect of deprecia- tion the allowance is permissive in the discretion of the Minister, and in respect of exhaustion the allowance is imper- ative, the discretion of the Minister being limited to the amount. It is proposed to deal first with depreciation. Depreciation Allowed. The deduction for depreciation is allowed only by virtue of the statutory provision. It was said in an English deci- sion that: “No deduction can be made upon that head (depreciation) because the assessment is not made upon capi- tal, but upon income, and the principle of the Act is that you pay income tax upon a subject which may be continually diminishing in value, and when it is exhausted you have no longer any tax to pay because the income ceases.” Depreciation Defined. Depreciation does not appear to have been judicially defined, but has been defined by economists as the “ reduc- tion in value that takes place in the machinery and plant of a factory or other undertaking in which industrial opera- tions are carried on, which reduction in value must be pro- vided for in the account of profit and loss.”§ Depreciation may result from wear and tear or from obsolescence, or it may result from some extraordinary event, as e.g, a partial destruction by fire or a change in the character of neighbouring property. The depreciation contemplated by the Act is no doubt that which may ordinarily be expected to occur in any business and as such is wide enough to include wear and tear and obsolescence, since all property may be expected to wear out or become obsolete. If, however, prop- ®4919 Amend., s. 2 (2). 7 Burnley Steamship Co. v. Aiken, 81 Se. L. R. 808, per Lord MeLaren, p. 804. 8 Palgrave’s Dictionary of Political Economy (1915 ed.). DEDUCTIONS. erty, ¢.g. an apartment house is depreciated by a change in the neighbourhood, such depreciation should probably not be deducted.® Repairs and Renewals. Expenditures made on account of repairs and renewals are deductible apart from the provision for the allowance of depreciation inasmuch as such are expenses of business, i.e. expenses made necessary to earn receipts. It was suggested at one time that no such expenditure should be charged in any year unless the expenditure could be shown to have been made as relating wholly to the earnings of that year, but it has since been said that this proposition needs only to be stated to reveal its absurdity.1? However, although the allow- ance for depreciation constitutes a statutory relief from the hard principle that only expenses are deductible, it is improb- able that the taxpayer is entitled to depreciation in addition to expenses on account of repairs and renewals if the Minister is satisfied that, by such expenditures the property has been maintained in as good condition at the end as at the beginning of the year.. It has been held under the English Act that a company could not get a deduction for depreciation twice for one item, first by deducting the actual sums expended for repairs and then by deducting an additional estimated sum for the same thing." Discretion of the Minister. The allowance for depreciation is made in the discretion of the Minister having regard for what is reasonable in the light of commercial practice, and it has been held in England under a similar provision,? that a finding of fact in the wide (liscretion vested in the commissioners that no wear and tear has taken place, is not reviewable unless the commissioners had misread the statute and failed to apply their minds to the question.” Method to Determine Depreciation. It will always be a matter of the greatest difficulty to determine what allowance for depreciation is reasonable. In ® Cohen v. Lowe, 235 Fed. 474. % Vallambrosa Rubber Co., Ltd. v. Farmer, 47 Sc. L. R. 488, per Lord President, p. 491. y 4 Caledonian Ry. Co. Vv. In. Rev., 18 Se. L. R. 85, per Lord Gifford, p. 91. 1Imp. Act, 8-9 Geo. V., c. 40, Schedule D, Case 1, Rule 6. a Caledonian Ry, Co. v. In. Rev. (supra), per Lord Justice Clerk, p. 89. 203 Same item not deduct- ible twice. 204 New property. DOMINION INCOME TAX LAW. determining this the capacity of the property to earn income only should be considered, and a fall in the merchantable or marketable value of the property should not be taken into account “ because,” as was said in a Scotch case relating to the depreciation of rolling stock of a railway company, “ the capacity to earn income constitutes its sole value to the rail- way company, and is the only quality contemplated under the statutes relating to the taxation of income.”* Consequently it may, no doubt, in particular cases, be open to the Minister to determine whether the property is in as good a condition at the end as at the beginning of the year, and that in the case, e.g. of comparatively new property no depreciation should be allowed. However, it should be noted that an English judge has taken the view that he did not quite agree that a new thing cannot be depreciated by wear and tear; that as long as the thing in question is fit to do its work, and does not require replacing there is no diminution in value,* entitling the owner to an allowance on account of deprecia- tion. English Method. Under the English Act it has been said that to take the average life of machinery or plant, and over that period to spread the original cost, is a just and reasonable way of as- certaining the amount of the deduction for wear and tear.° But it appears that the percentage deductible each year in England is calculated on the written down value of the asset at the beginning of the year so that the full original value of the asset is never entirely deducted.° The plan adopted by the Minister in Canada, however, is simply to permit the deduction upon the basis of the original cost. Obsolescence. Under the English Act the deductions on account of depreciation only relate to “ diminished value by reason of wear and tear” and no deduction was allowable on account of obsolescence, prior to the Act of 1918.7 The American Act allows a reasonable deduction for obsolescence. The 2 Tbid., p. 89. + London County Council v. Edwards, 5 Tax Cas. 383, per Chan- nell, B., p. 394. 8 Leith Hull and Hamburg Steam Packet Co. vy. Alusgrave, 4 Tax Cas. 80, per Lord Trayner, p. 90. * Sanders’ Income Tax (1916 ed., p. 165). ‘Imp. Act. 8-9 Geo. V. c. 40, Sch. D, Cases 1 and 2, Rule 7. SU. 8. A. Statutes, 1918, s. 214 (8). DEDUCTIONS. word “ depreciation ” as used in the Dominion Act, is prob- ably wide enough to include an allowance on account of obsolescence,® but where such an allowance is made it must relate only to the capacity of the property to earn income, and should not be allowed in respect of a reduction in the market value of the assets. w The allowance for obsolescence under the English Act Method to may only be made of so much of any amount expended in replacing any plant or machinery which has become obsolete as. is equivalent to the cost of the plant or machinery replaced after deducting from that cost the total amount of any allowances which have at any time been made on account of wear and tear, and any sum realized by the sale of that machinery or plant, and this appears to be a proper method to be adopted under the Dominion Act. Exhaustion or Depletion Allowed. The Act expressly provides that the Minister in determin- ing the income derived from mining and from oil and gas wells and timber limits shall make such an allowance for the exhaustion of the mines, wells and timber limits as he may deem just and fair.?° This provision constitutes a departure from the principle established in England that the taxpayer, who has invested in assets of a wasting character, is not entitled to make any deduction on account of the exhaustion of such assets. In the leading case on the subject it was held that no deduction could be allowed on account of the exhaustion of a mine. It was said: “It could not, I think, be intended that for the ‘purpose of calculating the annual value (profit) of a mine. the original cost of the mine itself, or any part of it, should be first deducted. On the contrary the words ‘ profits received oo therefrom’ mean, I think, the entire profit derived from the Gase. mine, deducting the cost of working it, but not the cost of making it.” This decision was recently applied to the New Zealand Act by the Privy Council. It was said: “The general prin- ciples as to the impropriety of treating a quota of invested ° London County Council v. Edwards, 5 Tax Cas., per Channel, B., p. 390. ©1919 Amend, s. 2 (2). 1Coltness Iron Company v. Black, 6 A. C. 315, per Lord Pen- zance, at page 326. By report of Royal Commission on Income Tax, 1920, a change has been recommended in favour of making some allowance for exhaustion. or 206 Twenty-five per cent. of dividends. DOMINION INCOME TAX LAW. capital or of the corpus-of the subject acquired as a proper item of debit from annual profits received can no longer be considered to be in doubt.’”? The property in question in that case was a timber limit for the exhaustion of which no deduction was allowed. The one has been adopted in an Ontario decision.® Practice of Commissioner. Up to the present the method of determining what allow- ance shall be made for exhaustion as being just and fair has been to treat twenty-five per cent. of the dividends paid in the year of taxation as a return of capital and not taxable in the hands of the shareholders. When the deductions so made equal the market value of the property on the 1st of January, 1917, or the purchase price of the property if acquired after that date, no further deductions are allowable in practice on account of exhaustion, Mines Given Wide Meaning. A mine, ordinarily speaking, is an underground excava- tion made for the purpose of getting minerals,* and as used in some statutes clearly does not include open workings. However, in practice the Minister gives the widest pos- sible meaning to the word to include quarries, clay, gravel and sand pits. Discount oF Bonps axpD DEBENTURES. Discount not an Expense. Where bonds or debentures are sold at a discount, it has been held in the United States that it is not permissible to deduct the difference between the amount received therefrom and the nominal or par value of the bonds.® It was pointed out that the issue of bonds at a discount might be treated as the borrowing of a sum of money for the use of which the borrower agrees to pav the discount and interest there- after until repayment; or as a borrowing of the discounted value of the bonds for which the borrower agrees to pay in- terest on the nominal value annually, and the discount when the loan matures; or as the sale of bonds valued by the > Kauri Timber Company Ltd. v. Commissioner of Taxes, 1918, A.C. p. 771, per Lord Shaw of Dunfermline, p. 777; see also Alianza Company V. Bell, 1906, A. C. 18. 2 Re Coniagas Mines Co., 15 O. L. R. 386. *Bell v. Wilson (1866), 1 Ch. App. 308. * Baldwin Locomotive Works v. McCoach, 221 Fed. 59. DEDUCTIONS. borrower at the nominal value and sold at the discounted value; or finally as a service transaction in which the borrower employs an underwriter to sell the bonds and pays the amount of the discount for the service. No matter which conception is accepted it was held that the discount was not a deductible expense. Similarly where a company borrowed we money, agreeing to repay the same with a bonus of ten per Bonus on cent., it was held in Scotland that such bonus could not debentures. be treated as an expense.° “It appears to me,” said the Lord President, “as a sum paid in return for a loan of capital, to be entirely heterogeneous to those outlays, the deduction of which is permitted as being necessarily inci- dental to the earning of profit.” In a recent Ontario case it was held that in ascertaining the amount of assessable income from bonds deductions should not be made for discount for payment in cash, carrying charges, or loss on resale.* Expenses of Raising Money. It has also been held in England that the expenses of raising money by the sale of debentures cannot be deducted from profits. It was said that the amount paid to raise the money on debentures comes off the amount advanced upon the debentures, and therefore, is so much paid for the cost of getting it, but that there cannot be one law for a company having sufficient money to carry on all its operations, and another for a company which is content to pay for the accom- modation,® and the observation of Lord Halsbury with refer- ence to a claim to deduct interest on debentures appears to be applicable. He said “It was a claim to deduct the com- pany’s debts for borrowed capital and diminish the profits of the trading.” The position of the taxpayer incurring expenses to raise short loans in the nature of bank advances is necessarily different since the borrowing of money in such a manner from time to time is part of the ordinary course of business,” and consequently the discount of commercial paper is deductible. ® Arizona Copper Co. v. Smiles, 19 R. 150. * Massey-Harris Co., Ltd. v. Toronto, 45 O. L. R. 353. ® Teras Land and Mortgage Company V. Holtham, 3 Tax Cas. 255, per Mathew, J., at p. 260: Gresham Life Assurance Society v. Styles, 1892, A. C. 309, at p. 315. ® Scottish North American Trust vy. Farmer, 1912, A. C. 118. > Personal DOMINION INCOME TAX LAW. DomEsTIc AND PERSONAL EXPENSES. The Act expressly provides that in determining the income expenses not no deduction shall be allowed in respect of personal and living deductible. Adminis- tration and probate. expenses.‘° Thus the taxpayer is not entitled to make a deduc- tion for the repairs of the house he lives in, or the interest or taxes he may pay in respect thereof, It has been held in England that the wages of a domestic servant are not de- ductible.** Where a public officer chose to reside elsewhere than at the place of his office, he was not permitted to deduct the travelling expenses incurred.1. Where a taxpayer let her house furnished and sought to deduct rent which she was obliged to pay elsewhere, it was held that such deduction was not admissible.? As the tax is not chargeable in respect of any profits that the taxpayer may make from transactions apart from the course of his business so the expenses incurred thereby are not deductible, except in so far as they may relate to the income only, as ¢.g., the necessary expenses of collecting interest, dividends or rents, which he may derive from his investments. Furthermore the Act provides that in cases in which personal and living expenses form part of the profit, gain or remuneration of the taxpayer, the same shall be assessed as income for the purposes of the Act. This provision was prob- ably intended to overcome the principle established in a number of cases in England that the value of living quarters does not constitute taxable income.* ESTATES. It has been held under the English law that the expenses of the administration of an estate are not deductible from the taxable income, but that only such expenses could be deducted as relate to the earning of the income. The view taken was that such expenses were private or domestic. A parallel was drawn between the trustees of an estate and an individual having numerous interests, who employed a pri- vate secretary to see to the collection and expenditure of his #1919 Amend., s. 2 (2). 4 Bowers Vv. Harding, 1891, 1 Q. B. 560. 1 Cook v. Knott, 4 T. L. R. 164. * Wylie v. Eccott, 50 Se. L. R. anes 3See Tennant v. Smith, 1892, A. C. 150; WeDougall v. Suther- land, 31 Se. L. R. 630; Corke v. Fry, 32 "Se, L. R. 341. DEDUCTIONS. income, whose salary should be regarded as a personal expense not incurred in order to earn the income in question. The analogy of a partnership was suggested in which a deceased partner left his share to be administered by trustees. In such a case it was said that the beneficiaries could clearly not deduct the expense of administering the revenue through the trustees. With respect to succession and estates duties see “ Taxes.” ‘ INSURANCE, Premiums paid on account of fire insurance policies on premises and property used for the purposes of the business in question constitute expenses of business which are properly deductible,* but probably no deduction may be made of amounts credited to reserve for insurance where the owner provides for the insurance of his own property by such means. Life Premiums not Deductible. Life insurance premiums are not deductible by the individ- ual taxpayer as in England, and in practice the Commissioner does not permit the deduction of premiums by companies or firms for insurance against loss resulting from the death of their officers, the same not being regarded as a necessary expense to earn profits. It has been held in England that mutual insurance com- panies may not deduct as expenses the profits which are paid to policy holders.* INTEREST. 09 There is considerable doubt under the Dominion Act that Interest on interest of money borrowed by means of bonds or debentures capital. or otherwise, and invested in fixed assets of an undertaking, is properly regarded as a deductible expense to determine the net profits chargeable. Bond Interest not an Expense. The result of the English decisions appears to be that such annual interest is not properly deductible, the view being that such interest constitutes a charge upon profits or is payable out of profits. In one case, it was said: “There + Aiken v. Macdonald’s Trustees, 32 Se. L. R. 85. 5 Society of Writers of the Signet v. In. Rev., 24 Se. L. R. 27. ® Last v. London Assurance Corporation, 10 A. C. 438. D.I.T.L.—14 210 Strong v. Woodifield. DOMINION INCOME TAX LAW. was no more reason why interest on the debenture capital should be deducted from the profits than interest on the share capital. Supposing the whole capital had been raised by shares, there would have been no pretence for making such deduction,”’ and in another important decision it was said: ‘When does borrowed money become for the pur- poses of the Income Tax Acts, capital of the concern in re- spect of which there is to be no deduction in the name of interest, and when is it not capital in such a sense so that interest paid for its use is a disbursement or expense? Money loaned to a business on a contract of future time is capital invested in it which should be treated as sharing in the profits to the extent of the interest payable upon it.”$ However, it is expressly provided in the English Act that in such a case no assessment shall be made upon the person entitled to such interest so that double taxation is avoided, and in actual practice under the Dominion Act it appears that the deduction of such interest charges is permitted’ in order to avoid the double taxation which would result from the assessment of such interest as part of the net profits of the borrower. . Bank Interest. Bank interest on the other hand, under the English Act, is treated as an expense of the undertaking and not as a share of the profits attributable to capital.° JUDGMENTS. Cause of Action Must be Looked at. Whether an amount paid on account of a judgment obtained against a taxpayer is properly deductible must be determined in each particular case hy reference to the cause of action. If, for example, the judgment is based upon a contract entered into by the taxpayer in the ordinary course of busi- ness, there may be good grounds for deduction. But in one case it was held that damages paid to a guest at an inn in consequence of a chimney falling on him were not deductible.”° It was said: “I think only such losses can be deducted as *Gresham Life Ass. Soc. v. Styles, 1892, A. C. 309, per lord Herschell, p. 825; see also per Lord Halsbury, p. 315. S Scottish North American Trust v. Farmer, 47 Sc. L, R. 832, per Lord Johnston, p. 836. ® Thid. “Strong & Co. v. Woodifield, 1906, A. C. 448. DEDUCTIONS. are connected with it in the same sense that they are really incidental to the trade itself. They cannot be deducted if they are mainly incidental to some other vocation, or fall’on the trader in some character other than that of trader. Losses sustained by a railway company in compensating pas- sengers for accident in travelling might be deducted. On the other hand, if a man kept a grocer’s shop, for keeping which a house is necessary, and one of the window shutters fell upon and injured a man in the street, the loss arising thereby to the grocer ought not to be deducted.” In a recent important decision the English Court of Appeal left undecided the question whether damages paid in proceedings in respect of carrying on business in a negligent manner can be deducted. Damages to Employee. It has also been said that if an employer is required to pay damages for a wrongful dismissal of an employee or com- mutes the claim of an employee by the payment of a capital sum, such payments may be deducted.* Lrcar EXPENSEs. Where expenses have been incurred in the course of busi- ness for legal advice or for the preparation of legal documents, such expenses are deductible,? and similarly expenses incurred for the recovery of bad debts or for the defence of claims are deductible®. But the legal expenses of incorporation or of acquiring title are probably chargeable to capital rather than to income, and it has been held that legal expenses incurred in proceedings to reduce capital stock were. not deductible,* and in a more recent decision that the costs incurred in pro- ceedings for a breach of war-time regulation of trade were not deductible.’ Losses, ‘Capital Losses. Certain losses which oceur in the carrying on of any. busi- Moving ness must be deducted before profits for the trading period “SP°™S** Tuland Revenue Vv. Von Glehn, 1920, 2 K. B. 553, per Scrutton, TL. Dex p. 572. Royal Insurance Co. v. Watson, 1897, A. C. 1, per Lord Shand, p 9. * Bradley v. Dilley, 27 Ma. 570. 3 Scofield v. Moore, 58 Hun. 101. * Archibald Thomson, Black & Co. v. Batty, 56 Se. L. R. 185, 5 Inland Revenue V. Von Glehn, 1920, 2K. B. 652, Only losses within the year. DOMINION INCOME TAX LAW. can be ascertained. For income tax purposes only such ap- parently may be deducted as occur in circulating capital, and where fixed capital has been withdrawn or lost no deduction is allowable therefor from the profits. It was said in one case: “Suppose a person does not insure premises . . and they are burned down he cannot be allowed to charge the new building against income of the year.”* Where a company established a factory which was subsequently closed and re- opened on a small scale, it was: not permitted to deduct a sum in regard to the loss arising from a portion of the original cost of plant and machinery being lost, It was held that the same was a loss of capital and not of profits. It was said: “You cannot bring in either depreciation or exhausted expenditure as a debit against assets;”’ and that this was not an income loss but a capital loss. Provision re Depreciation. The provision of the Dominion Act that an, allowance for depreciation may be made,® may result in a different view being taken in Canada in particular cases, but it cannot be supposed that depreciation means any other loss of capital than such as results from the ordinary use of the assets in the course of the business, and where the loss results from some extraordinary event as destruction by fire or the recon- struction of the business it would seem improper to make any allowance for such loss under the guise of depreciation. It has been held in the United States that the value of sugar mills abandoned on account of the erection of a larger mill was not a loss incurred in trade, and could not be deducted,® and the cost of replacing a steamship which had become unserviceable on account of condemnation by federal inspectors, was not a loss which could be deducted.?° Previous Losses. The tax is imposed upon annual profits, and losses -sus- tained prior to the year of taxation may not be deducted. It was said in one case: “Supposing a mine having existed for ten years without making a profit, in the eleventh year °Granite Supply Assoc., Ltd. v. In. Rev., 43 Se. L. R. 65, per Lord McLaren, p. 67. TSmith v. Westinghouse Co., 2 Tax Cas. 357, per Huddleston, B., p. 359. *Amend., 1919, s. 2 (2). : * ® Hawaiian Commercial and Sugar Co. v. Tax Assessor, 4 Hawaii 601. “In re Wilder Steamship Co., 16 Hawaii 567. DEDUCTIONS. makes a surplus profit over its expenditure, you cannot set off against that profit all the incidental expenses or losses which the mine owner may have sustained from the very inception of the undertaking. It would be perfectly imprac- ticable,’’!?. and in another case: “ You can only look at the profits for that particular year.”!? In a recent Canadian case arising under the Ontario Assessment Act it was decided by the Supreme Court of Canada that “an adverse difference between receipts arid expenditures in one. year should not he taken into account and deducted from earnings of a succeed- ing year in order to arrive at the income for the latter year.”? Losses in Other Transactions. It provided by the Act that “ deficits or losses sustained in transactions entered into for profit, but not connected with the chief business, trade, profession or occupation of the taxpayer shall not be deducted from income derived from the chief business, trade, profession or occupation of the taxpayer in determining his taxable income, and the Minister shall have power to determine what deficits or losses sustained in trans- actions entered into for profit are connected with the chief business, trade, profession or occupation of the taxpayer and his decision shall be final and conclusive.’ The scheme of the Dominion Act as has been remarked . in the chapter on Income is to treat the total net profit or gain of the taxpayer from whatever sources derived as a whole, and the taxpayer may deduct losses sustained in con- nection with one business, trade, profession or occupation from revenue derived from other sources, except in so far as such deduction is prohibited by the provision just quoted. The inclusion of this provision dispels any doubt that there might be that the scheme of the Act is to permit losses to be set off against gains from other sources since otherwise the provision would be unnecessary. If losses could not be set off against gains it would be unnecessary to prohibit the deduction of certain losses from certain gains. “Chief” is Key Word. 213 The use of the word “ chief,” a word of comparison, is Income in treated in practice as the key to the interpretation of this eee " Broughton and Plas Power and Coal Co., Ltd. v. Kirkpatrick, 14 Q. B. D. 491, per Grove, J., p. 496. rie Coltness Iron Co. Vv. Black, 6 A. C. 315, per Blackburn, J.. ie Te . et ae Natural Gas Co. v. Dover, 53 D. L. R. 326, per Anglin, a f 271919, Amend., s. 2 (2), and 1920, Amend., s. 2. 214 Separate businesses, DOMINION INCOME TAX LAW. provision. The income of every taxpayer who has more than one source of income is divided into classes “A” and “B,” class “ A” being that which is derived from his chief business, trade, profession or occupation, and class “B” that which is derived from other sources. Accordingly no deduction is allowed of deficits or losses in class “B” from income in class “ A,” but on the other hand a deficit or loss in class “A” may be deducted from income in class “B,’ and a deficit or loss in class “B” may be deducted from income from another source falling in class “ B.” Concrete examples may be of assistance. A professional man who is also a partner in a retail business may not deduct losses sustained in the retail business from his professional earnings in order to determine his taxable income, but on the other hand if he has sustained a loss in his profession he may deduct such loss from a profit from the retail business. Furthermore if he is also engaged as a partner in a real estate business he may set off a loss sustained therein against profit made from the retail business, There may be considerable difficulty in determining in particular cases what is the chief business, trade, profession or calling of the taxpayer, and the amount of the income derived should be of less importance than the time and effort devoted to the earning of the income in determining the question. It should be remarked that this section has no application to casual transactions which are not entered upon in the course of carrying on a business. Gain from such transactions is regarded as appreciation of capital and not taxable. Con- sequently losses sustained in such casual transactions are not deductible. The Discretion of the Minister. A further difficulty arises in determining when more than one business has been carried on. It is provided that the Minister shall have power to determine this question con- clusively, but he must, however, have regard for the prin- ciples of law established for the determination of similar questions. It has been held under the English Act that a seed merchant taking a farm and working it in connection with his seed business cannot claim any deduction from his profits as a seed merchant in respect of losses on the farm,’ 5In. Rev. vy. Watt, 23 Se. L. R. 403. DEDUCTIONS. but a different view might have been taken on a different set of facts. Where a company carried on business with one ship which was lost and then purchased another and resumed the trade, it was held that one business only had been carried on.* Loans to Customers. Under the English Act only the deduction is allowed of money “wholly or exclusively laid out or expended for the purposes of such trade.’ Under this provision it has been held that a brewery company which carried on a banking business by making loans to its customers on the security of public houses was entitled to deduct losses incurred by such loans. That is to say, it was held that the banking and brewing operations constituted one business,® and the case was distinguished from one where it was sought to deduct sums expended or invested in leases of public houses. In a recent important decision it was held that a brewer whose tenants were his customers, was entitled to deduct expendi- tures on account of repairs, taxes, insurance premiums and legal expenses incurred for the renewal of the licenses, although these expenses should properly have been made by the tenants. The view taken was that the breweyr’s profits were increased by means of these tied houses.” It has also been held under the English Act that a Y.M.C.A. 215 society founded for the diffusion of religious literature, which S™\""4t also conducted shops for the sale of Bibles, etc., could not deduct the losses incurred in the missionary work from the profits gained in its shops,® and that a Y.M.C.A. could not deduct losses from its profits earned in carrying on a restaurant.? Transactions by Partners. There are cases under the law of partnership where the question what is a separate trade or business had been raised, as where one partner has made a profit from transactions which he claims to have been distinct and separate from the trade of the partnership,?? and as where one partner seeks 4 VWerchiston Steamship Co., Ltd. v. Turner, 1910, 2 K. B. 923. 5 Reid’s Brewery Co. Ltd. Vv. Male, 1891, 2 Q. B. a 6 Watney v. Musgrave, 5 Ex. D, 241. 7 Usher's Wiltshire Brewery Ltd. v. Bruce, 1915, A. C. 483, and see Smith v. Lion Brewery Co., 1911, A. C. 150. 8 Religious Tract and Book Society of Scotland v. Forbes, 33 Se. L. R. 289. °yY. M. C. A. v. Grove, 88 L. T. 696. 1° Bentley vy. Craven, 18 Beav. 75; Burton v. Wookey, 6 Madd. 367: Gardener v. McCutcheon, 4 Beav. 534, and cases cited Lindley on Partnership, 7th ed., p. 349, note (e). 216 Bar fees. DOMINION INCOME TAX LAW. to rank against the estate of the firm in bankruptcy in com- petition with his own creditors on account of transactions between himself as a separate trade and the firm.*? Practice of Commissioner. The practice apparently has been to apply the prohibition leniently and to permit the taxpayer to treat several trades as one business where they are carried on jointly, and appar- ently depend closely, one upon another. The view taken has been apparently that the prohibition in question relates only to cases where the taxpayer carries on two businesses quite independently of one another. PENALTIES. In a recent important English case it was held that a penalty in the nature of a fine imposed on a trading company for the breach of some trade regulation could not be deducted as an expense. It was decided that the penalty was not paid for the purpose of earning the profits, but was an unfortunate incident that followed after the profits had been earned.?? In a similar case it was held that the loss to be deductible must be within commercial contemplation.’ PROFESSIONAL EXPENSES. a Bar and law society fees are allowed as necessary annual expenses of the practice of law as well as subscriptions for necessary law reports, but not the cost of law books which is treated as a capital expenditure. Similarly medical practi- tioners are allowed the expenses for medical journals but not the cost of medical books or instruments. The cost of operat- ing a motor car used for professional purposes and a reason- able deduction for depreciation are allowed. Furthermore a professional man who uses his residence for the purposes of his business is entitled to deduct a reasonable allowance for rent. Renta, EXPENSES. Collection of Rents. Expenses incurred by a taxpayer in order to collect rentals which represent income are not necessarily deductible. It “Ee parte Cook, Mont. 228; Hx parte Hargreaves, 1 Cox. 440; Ex parte Sillitoe, 1 Gl. & J. 882; Ea parte Williams, 3 M. D. & D. 2 Inland Revenue v. Von Glchn, 1920, 2 K. B. 553, per Scrutton, L.J.. p, 572. ; , tInland Revenue v. Warnes, 1919, 2 K. B. 444. DEDUCTIONS. was said in one case: “I should tbe dispcsed to think that in all cases where, in the ordinary course of things a collector would be employed, the deduction for the expenses of collec- tion ought to be allowed,’”? and in another case that: “If this. were a case in which the rents could not be got in any shape or way without expenditure, and the parties were com- pelled to expend money in order to get them, it would be a different matter,” that is the expenditure would be deduct- ible.* RESERVES. Reserves not Deductible. Amounts credited to reserve accounts are not, strictly speaking, deductible. It was said in one important case: “It would be a prudent thing to do, but none the less if that sum is carried to reserve fund out of profit, it is still profit and on that income tax must be paid,’* and this is-so even when the articles of association of a company require such sums to be annually set aside,®> and in practice.no amounts credited to reserves for any special contingency are admitted, but in particular cases, as has been noted, reserves for bad debts are allowed in practice as a convenient method of ascertaining the amount properly deductible, Where insurance companies are required by law to appropriate a proportion of their profits to a reserve for special conflagrations or catastrophies, it has been ruled that they may not deduct profits so appropriated.® Rovyatti£s. No general rule can be laid down with respect to royalties Nugget we tt paid by thé taxpayer for the use of patents, copyrights, etc. Polish Case. In some cases such royalties constitute a capital expenditure and in others they constitute a payment out of profits, and in either of these cases are not deductible, but there may be 2 Stevens v. Bishop, 20 Q. B. D. 442, per-Esher, M.R., 448. aq of Norfolk v. Lamarque, 24 Q. B, D. 485, per Pollock, B., p. 4 *Vallambrosa Rubber Co. Ltd. v. Farmer, 47 Se. L. R. 488. ° Forder V. Iandyside, L. R., 1 Ex, 238. *See Aferscy Docks v. Lucas, 8 A. C. 891; Paddington Burial Board V. In. Rev., 13 Q. B. D. 9; St. Andrews Hospital v. Shearsmith, 19 Q. B. D. 624; Gresham Life Assurance Society vy. Styles, - 1892, A, C. 309, at p. 315. Royalties as capital expense, DOMINION INCOME TAX LAW. conceivable cases in which such payments constitute deduct- ible expenses. Each case must be considered on its own facts, but it should be remarked that it has been held in England that such payments calculated on the basis of a percentage of gross earnings were to be regarded as capital expenditures and not deductible, although the same payments were income rather than capital in the hands of the person receiving the payments.’ It has been held in England that royalties paid by the lessee of clay property on bricks produced were income in the hands of the lessor rather than purchase money of the property. Such payments would probably be regarded as similar in character to rent and deductible as a proper expense.® SaLaries, Etc. Generally speaking the salaries and other payments made to employees are deductible as being expenses necessary to earn receipts. It has been held in England, however, that where employees were paid a share of the profits the employer could only deduct such part of the profits so paid as represented a reasonable allowance for the services rendered.? SINKING FunD. No allowance may be made in respect of amounts credited to a sinking fund for the purpose of retiring capital or other- wise. Where a company was empowered by statute to raise money upon a mortgage for the purpose of carrying on a government contract, and was required by the statute to establish a sinking fund for the extinction of a mortgage debt by means of sums set aside out of each quarterly pay- ment received under the contract, the sums so set aside were not allowed as a deduction.?° TAXES. Certain Taxes are Expenses of Business. Payments required to be made on account of municipal and provincial taxes may generally be deducted in- order to 7 Delage v. Nugget Polish Co., 92 L. T. 682, and see Re Income Tar Acts, 21 A. L. R. 359. ° Edmonds V. Kastwood, 2 H. & N. 811. ® Weller v. Inland Revenue, 1919, 2 K. B. 407. City of Dublin Steam Packet Co. v. O’Brien, 6 Tax Cas. 101. “ DEDUCTIONS. 219 determine the net profits of a trade, and this is certainly true where the taxes in question are levied on the property of the taxpayer, There may be some doubt, however, in the case of income or profit taxes levied by another taxing authority since such taxes may be regarded as a share of the profits of the taxpayer payable to such taxing authority in the same way as Dominion income tax is a share of such profits pay- able to the Dominion. Local Improvements. In addition it should be noted that the proper view appears to be that only such taxes are deductible as are levied for public welfare at a rate against all property or taxpayers in the territory over which the taxing authority has jurisdiction. Special assessments for local improvements are not treated as deductible apparently on the ground that they are payments in the nature of capital outlays for improvements. Further- more ‘payments on account of income tax are not deductible as expenses of the year in which payment is made as is specially provided in the Business Profits Act. Income tax is payable out of the profits of the year of taxation, and not as an expense of the year in which the assessment is made. The personal taxes of the taxpayer, e.g. on his dwelling house, are not deductible by him in order to determine his taxable income, but are treated like any other personal or domestic expenses. Succession Duties. Succession and estates duties are regarded as capital Death quties expenditures generally and not deductible.’ Taxes paid upon out of | 2 capital. goods purchased such as the luxury tax, should be regarded as expenses of the person paying and deductible if paid in the course of carrying on a business, but not if paid as a dom- estic or personal expense. TRAVELLING EXPENSES. It has been held under the English law that expenses of travelling undertaken for the advantage and expansion of a business may be deducted,’ but where a public officer chooses to reside elsewhere than at the place of his office, he cannot deduct travelling expenses incurred,’ and travelling expenses “See U. S. v. Perkins, 163 U. 8. 625. 1 Jardine v. In. Rev. 44 Se. L. R. 136. * Cook v. Knott, 4 T. L. iR. 164, ww DOMINION INCOME TAX LAW. of directors to attend directors’ meetings have been held not to be deductible,® but a minister has been allowed to deduct expenses incurred in the performance of his duties,* and com- mercial travellers who pay their own expenses should be allowed a reasonable deduction. WorRKMEN’S COMPENSATION. Contributions made by employers to a workman’s com- pensation fund, or payments made as compensation: as re- quired by statute, should be treated as expenses of business and properly deductible.* 2 Revell v. Directors of Elworthy Br oe Ltd., 3 Tax Cas. 12. * Charlton v. Corke, 27 Se. L. R. 647 ® Loclegelly Tron and Coal Co. Tid. v. Crawford, 50 Se. L. R. 597. CHAPTER VII. Raves AND REMEDIES AGAINSt Hivasion. The income tax is imposed by the Dominion Act! in the Three classes form of three classes of rates called (1) the normal tax; (2) -t™ates the surtax; and (3) the corporation tax. The discrimination artificial we ‘ : . ‘ - , distinctions. which these different rates involve between incomes which are subject, in ove case, to the normal tax, and, in another, to the normal tax plus the surtax and, in still another, to the corporation tax, is purely artificial and necessary only for the purpose of granting certain partial exemptions or taxing various kinds of income and the income of various taxable subjects at different rates. The scheme of the Dominion Act, in this respect, is similar to that of the United States income tax law.’ Normal Tax.—The normal tax is a tax imposed upon all The inci- the taxable income of the subject in excess of: ae (a) The personal exemption of $1,000.00 or $2,000.00 defined. to which the taxpayer is entitled, as the case may be*®; and (b) An additional exemption of $200.00 for each child under eighteen years of age who is dependent upon the tax- payer for support*; and excepting— (c) Dividends received by or credited to the taxpayer as a shareholder of a corporation which is liable to taxation under the Act, but not exceeding the net amount of such dividends after the deduction of interest or carrying charges, if any, in respect thereof.® These statutable exemptions are to be distinguished from Statutable those deductions which a taxable subject may make in arriv- ae ing at his taxable income in this important. respect, that tions allowed they are exemptions from the net or taxable income, which oe the taxpayer would not be entitled to claim except for the distin- statutory provisions in that behalf, and so are distinguishable 8"*"- from the deductions which the taxpayer is entitled, in law, to 1 Sec. 4 of principal Act, as enacted by sec. 5 (10) chap. 55, 1919, * Holmes Federal Taxes, 1920, p. 13, note 5 3 Sec. 4 (1) principal Act, as enacted by sec. ’ (1) chap. a 1919, 4Sec. 3 (1), (b) of principal Act, as enacted by sec. 2 (2), chap. 55, 1919. 5 Sec. 3 (1), (d) principal Act, as enacted by sec. 2 (2) chap. 55, 1919. Rates of normal tax are gradu- ated and crudely pro- gressive. DOMINION INCOME TAX LAW. make from his gross receipts in order to arrive at his net or taxable income because they are in the nature of expendi- tures necessarily made for the purpose of earning the in- come.® The personal exemptions, for example, may be said to be arbitrary amounts allowed for personal or family ex- penses, the actual amount of such expenses not being de- ductible in ascertaining taxable income unter the Act.” But it is to be noted, in the case of the exemption of dividends from normal tax, that the exemption cannot be claimed un- less the corporation which paid the dividends be itself lable to taxation under the Act. If the corporation be not a taxable subject under the Act, then the dividends paid by it consti- tute part of the normal taxable income of resident share- holding taxpayers, subject to the deduction allowed by the Act under certain prescribed conditions * from the tax which would otherwise be payable, of the amount of the tax, if any, paid by the taxpayer in respect of such dividends in the country from which they were derived. These statutable exemptions are fully discussed in the chapter on “ Exemp- tions,” but it is proper to repeat here that they are exemp- tions for the purposes of the normal tax only. Rates of the Normal Tax and Their Application—The rates of the normal tax are graduated, and, in a crude sense of the term, progressive.® They are as follows: (1) 4% upon all income— (a) exceeding $1,000.00, but not exceeding $6,- 000.00 in the case of unmarried persons, and widows or widowers without dependent children, and persons who are not supporting dependent brothers or sisters under the age of eighteen years, or a dependent parent or parents, grand- parent or grandparents; and, ° Gresham Life Ass, Society v. Styles. (1892) A. C. 309, per Lord Herschell, at p. 323: Strong & Co. v. Woodifield, (1906) A. C. 448, per Lord Davey at p 453; Inland Rev. v. Von Glehn, (1920) 2 K. B. 503, per Serutton, L. J. at p. 572. 7 See sec. 3 (1), (e) principal Act, as enacted by sec. 2 (2) chap. no, 1919. 5 Sec. 4 (5) (0), principal Act, as enacted by sec. 3 (3), chap. 55, 9 °Kennan “Income Taxation” p. 10. “ Progressive income taxes are such as are based upon higher rates as the amount of the income increases. . . A progressive tax in the most accurate sense would be one which increased at a geometrical ratio.” RATES AND REMEDIES AGAINST EVASION. ce ee ww (b) exceeding $2,000.00, but not exceeding $6,- 000.00 in the case of all other parents, and, (2) 8% upon all income of taxable persons exceeding $6,000.00. It will be observed that the statute looks to the status and Personal ex- domestic obligations of the individual in discriminating be- tee tween persons who are entitled to a personal exemption, in payer's the one case, of $1,000.00 and, in the other, of $2,000.00, epatiaand though in so far as the eligibility of a taxpayer to claim the oblisations. larger exemption is made contingent upon the dependency of children, it involves some illogical distinctions. In the chapter on “ Exemptions,” taxpayers are exhaustively classi- fied with relation to their eligibility to claim the one or the other of these personal exemptions. The normal tax, and the surtax which (as will be later Noymal tax observed) is but an arbitrary description for the rates pre- a7C Say scribed by way of super-imposition to the normal tax, appear to voluntary upon a strict construction .of the Act to be applicable to all bt a taxpayers other than corporations and joint stock companies, re but it will be noted that the provisions which define the inci- ; dence of these rates are framed in terms that suggest an in- tended limitation of the application of the rates to individuals. The consequence of this limitation would be to leave taxable subjects which are neither individuals nor corporations or joint stock companies in a class for which no rates of income tax are prescribed, but this undesirable result is avoided by the Commissioner, in practice, by taxing such subjects on the footing of corporations and joint stock companies. Some justi- fication for this practice is perhaps afforded by the fact that the class of taxpayers affected consists in the main of volun- tary associations of various kinds and specially constituted bodies whose characteristics are more in common with cor- porations and joint stock companies than with individ- uals; moreover, this practice has the advantage, from an administrative viewpoint, of meeting with the approval of the taxpayers concerned who would rather pay the flat ten per centum rate than be subject to the application of the graduated scale of surtax rates on top of the normal tax rates. Surtax and Its Application.—The surtax is an additional Surtax tax imposed at graduated progressive rates upon the income dpenell of all taxable persons (other than corporations and joint stock roa ww Hes Rate in- ereases at a geometrical ratio. DOMINION INCOME TAX LAW. companies, and also, in practice, voluntary associations and quasi-corporate bodies) in excess of $5,000.00.. The persona] and other exemptions, which are allowed by the Act to be deducted for the purposes of the normal tax, are not allowed to be taken into account in arriving at a person’s surtaxable income. Beginning with one per centum upon the amount by which the income exceeds $5,000.00, but does not exceed $6,000.00, the rates prescribed by the Act continue to rise one per centum for each additional $2,000.00 of income until the rate of forty-eight per centum is applied to the excess of income between $98,000.00 and $100,000.00. Above that amount, the rates increase irregularly until they reach the final rate of sixty-five per centum upon the amount by which the income exceeds $1,000,000.00. Table of Surtax Rates—The following table sets forth the rates applied to each successive increment of income, the resulting surtax payable in respect of such increment and the cumulation of these taxes :— RATES AND REMEDIES AGAINST EVASION. Increments Surtax Rates Amount of ee Net of Income Applicable Surtax Tae Income Subject to to Specified Payable qa Specified Increments on each + 5 Bb Rates. of Income. Increment. SB $ 5,000 6,000 $5,000 to $6,000 1% $ 10 $ 10 8,000 6,000to 8,000 2% 40 50 10,000 8,000to 10,000 38% 60 110 12,000 10,000to 12,000 4% 80 190 14,000 12,000to 14,000 5% 100 290 16,000 14,000 to 16,000 6% 120 410 18,000 16,000to 18,000 1% 140 550 20,000 18,000 to 8% 160 710 22,000 20,000 to 22,000 9% 180 890 24,000 22,000 to 24,000 10% 200 1,090 26,000 24,000 to 26,000 11% 220 1,310. 28,000 26,000 to 28,000 12% 240 so 30,000 28,000 to 30,000 13% 260 1,810 32,000 30,000 to 32,000 14% 280 2,090 34,000 32,000to 34, 15% 300 2,390 36,000 34,000 to 36,000 16% 320 2,710 38,000 36,000 to 38,000 17% 340 3,050 40,000 38,000 to i 18%. 360 3,410 42, 40,000 to 42,000 19% 380 3,790 44,000 42,000to 444,000 20% 400 4,190 46.000 44,000 to 46,000 21% 420 4,610 48,000 46,000 to 48,000 22% 440 5,050 50,000 48,000 to 50,000 23% 460° 5,510 52,000 50,000 to 52,000 24% 480 5,990 54,000 52,000 to 54,000 25% 500 6,490 56,000 54,000 to 56,000 26% 520 7,010 58,000 56,000 to 58,000 27% 540 7,550 60,000 58,000 to 60,000 28% 560 8,110 62,000 60,000to 62,000 29% 580 8,690 64,000 62,000 to 64,000 80% 600 9,290 66,000 64,000 to 66,000 31% 620 9,910 68,000 66,000 to 68, 32% 640 10,550 70,000 68,000 to 70,000 33% 660 11,210 72,000 70,000to 72,000 34% 680 11,890 74,000 72.000to 74,000 35% 700 12,590 76,000 74,000 to 76,000 30% 720 13,810 78,000 76,000 to 78, 37% 740 14,050 000 78,000 to ,000 38% 760 14,810 82,000 80,000 to $2,000 39% 780 15,580 84,000 82,000 to 84,000 40% 800 16,390 86,000 84,000to 86,000 41% 820 17,210 88.000 86,000 to 88.000 42% 840 18,050 90,000 88,000 to 90,000 43% 860 18,910 92.000 90,000 to 92,000 44% 880 19,790 94,000 92,000 to 94,000 45% 900 20,690 96,000 94,000 to 96,000 46% 920 21,610 98,000 96,000 to 98,000 47% 940 22,550 100,000 98,000 to 100,000 48% 960 23,510 150,000 100.000 to 150,000 52% 26,000 49,510 200,000 150,000 to 200,000 56% ; 77,510 300,000 200,000 to 300,000 60% 60,000 187,510 500,000 300,000 to 500,000 63% 126,000 263,510 1,000.000 500,000 to1,000.000 64% 320,000 583,510 over 1,000,000 G5%- aslo! tae ian D.L.T.E.—15 225 226 Corporation and joint stock com- pany defined. The phrase “no matter how created or organ- ized” is borrowed from United States legislation. DOMINION INCOME TAX LAW. Corporation, Tax.—‘‘ Corporations and joint-stock com- panies, no matter how created or organized,” are required to pay a flat rate of ten per centum upon all income exceeding $2,000.00. In the chapter on “ Taxable Persons ”?° the dis- tinguishing characteristics of a corporation and a joint stock company respectively have been briefly described. It is suf- ficient to say here that a “ corporation ” implies the existence of a juristic entity or persona separate and distinct from the members comprising it, whilst, on the other hand, a ‘joint stock company,” though nowadays usually incorpor- ated,! may, at common law, be unincorporated.” The phrase “no matter how created or organized” calls for special observations. It appears to have been borrowed from the United States Income Tax Acts of 1913 and 1916, in which it appears to have been inserted to remedy a defect which certain judicial decisions had exposed in the corpora- tion excise tax Act of 1909. Under the latter statute every corporation, joint stock company or association organized for profit and having a capital stock represented by shares “ now or thereafter organized under the laws of the United States or of any state or territory,” etc., was made subject, if en- gaged in business in any state, etc., to pay annually a pre- scribed excise tax with respect to the carrying on or doing of business by it. In Hliot v. Freeman*® the Supreme Court of the United States held, with regard to two Massachusetts real estate trusts, that they were not within the provisions of the Act nor Hable to the excise tax thereby imposed, because they were formed in a state where statutory joint stock com- panies were unknown and did not, therefore, derive, either from the laws of the United States or of any state or terri- ‘tory, etc., any quality or benefit not existing at common law. The intention of Congress was held to have been to embrace within the statute only such corporations and joint stock 1 See, chap. 3, ante, sub-nom. “ Association” and “ Incorporated Bodies.” For a definition of a “ corporation ’’ and a statement of the various modes by which it may be created, see Halsbury’s Laws of Ingland, vol. 8, pp. 803-318. For a definition w a “ Joint Stock Com- pany” see, Smith v. Anderson, (1880) 15 Ch, D. 247, per James, L. J., 273-4; also,.Halsbury’s Laws of England, aL 5, pp. 12-14, where joint, stock companies are exhaustively classified. 1 The Saskatchewan, Alberta. and British Columbia: Companies Acts contain a provision prohibiting commercial partnerships which exceed twenty persons, unless incorporated, (Mitchell, Canadian Com- mercial Corporations, p. 90). e St. James Club (1852), 2 De G. & G. 383, 389; Re Griffith, ey v. Griffith (1879) 12 “Ch. D. eon. 3920 U.S. 178. RATES AND REMEDIES AGAINST EVASION. 227 companies as were organized under some statute or did de- Lorvars ens : : a pee and Jo rive from that source some quality or benefit not existing at gtock com- common law.* It would seem, then, that the intended pur- Pe pose and effect of the words “no matter how created or or- phe taxable ganized” are to render the corporation tax applicable to a itespective corporation or joint stock company, irrespective of the pecu- mode of their . . é . . rs ti * liar method or mode by which it is called into existence, or of the source of the source from which its corporate faculties are derived. — of their : xe powers. The Act contains no provision, analogous to that ex- empting dividends received by or credited to individual share- holders of a taxable corporation,® for exempting dividends received by or credited to corporation shareholders from the corporation tax; and it is apprehended, seeing that “income ” as defined by the Act includes “the interest dividends or profits directly or indirectly received . . . from stocks, or from any other investment,” that a corporation share- Dividends holder is, generally speaking, assessable to the corporation ee tax in respect of dividends, notwithstanding that the corpora- shareholders tion which declares the dividend is itself taxable under Bien. Act. Possibly the one exception to this principle is to be sibly in case ; ‘ 3 of some hold- found in the case where one corporation is controlled by an- ing com- other in such manner and sense that its business is, in reality, Panies. the business of the corporation shareholders.° It would hardly be just or reasonable in such a case to exact the corporation tax upon the dividends paid to the shareholding corpora- tion. Subject, however, to this possible exception, the gen- eral principle of liability above stated would seem to apply. The policy of the United States Act, in this respect, is sug- gested in a recent decision’ of the Supreme Court of the United States, where the Court, in speaking of the liability of corporation shareholders to taxation in respect of dividends under the United States Income Tax Act, said: “ We pre- sume that the taxation of corporations and joint stock companies upon dividends of corporations that themselves pay income tax was for the purpose of discouraging com- binations of the kind now in disfavour by which a cor- poration holds controlling interests in other corporations * See, also, Crocker v. Malley, 250 Fed. 817, 819. : ® Sec. 3 (1) (d) as amended by Sec, 2 (2) chap. 55, 1919. § Southern Pacific v. Lowe. 247, U. 8. 3830: Gulf Oil Co. v. Liewel- dyn, 248, U. S. 71: see, also, English decisions under title “ Trading Companies.” chap. 3. ante. * Crocker v. Malley, 249 U. 8S. 223, at 233. 228 DOMINION INCOME TAX LAW. which, in their turn, may control others and so on, and in this way concentrates a power that is disapproved.” Additional Additional Special Tax.—By a recent amendment to the a Dominion Act® an additional tax of five per centum of the upon the amount of each of the taxes above mentioned is payable with ee respect to any taxable income of five thousand dollars or ject ‘to allow- more for the calender year 1919 or for the accounting periods ate a re. ending in that year, and for each succeeding calendar year ses erent or accounting period. It is to be noted that the tax upon other taxes. Which this additional tax is to be computed is the “ tax payable” with respect to any income of five thousand dollars or more, and this is considered by the Commissioner of Taxa- tion to mean the net tax payable after subtracting deduc- tions which are allowable under the Act, in respect of any tax paid by the taxpayer during the same accounting period under the Special War Revenue Act, 1915, as amended, or the Busi- ness Profits War Tax Act, 1916, as amended; and in respect, also, of the amount, if any, paid to Great Britain or any of its self-governing colonies or dependencies other than Canada, or to any foreign country for income tax in re- spect of the income of a taxpayer derived from sources in any of these countries, subject, of course, to the conditions pre- scribed hy the statutory provisions in that behalf. In practice a case of an income tax return in which a tax paid under the Business Profits War Tax Act is claimed as a deduction rarely occurs, for the reason that that Act ccutains a reciprocal provision for allowing income tax paid by the taxpayer as a deduction from the business profits tax which would otherwise be payable, and since under the existing legislation the business profits tax is the heavier of the two, the Commissioner’s practice is to make one assess- ment under the Business Profits War Tax Act. A taxpayer is, of course, nevertheless liable to pay income tax in respect Pe ee of any income which he receives from sources other than taxispay- business. The statute does not stipulate whether this addi- able as part tional five per centum tax shall be paid in one lump sum of tax other- , ae: a : wise imposed or by instalments, but it is apprehended, seeing that this a special tax is in the nature of an increase of taxes otherwise ij ‘Section 4, ss. 2A. principal Act as enacted by sec. 7, chap. 49. 1920 2 Section 4 (5) (a) & (b) principal Act as enacted by see. 3 (3) chap. 55, 191 : RATES AND REMEDIES AGAINST EVASION. 229 payable under the Act, that it is intended to be made payable as part of such taxes, and, therefore, by instalments. Computation of the Tax.—The following illustration of the computation of income tax may serve to exemplify in a general way the observations which have been made above with regard to the application of the normal and surtax rates. Individual taxpayer (unmarried) Application Net: Income ages ccs eciie peas aaiea en nee é $15,000.00 of normal Deductions for purpose of and surtux Normal tax: rates to in- come of un- Personal exemption .......... $1,000.00 married tax- payers with- Dividends received from com- out depend- pany liable to taxation under ents illus- Mets nieaw anton wien ceneae cen 5,000.00 6,000.00 trated. Normal taxable income ............0.0000 000s $ 9,000.00 oe Computation of tax: $5,000.00 at 4% ..... $200.00 $4,000 at 8% ....... 320.00 Total normal tax .......... $520.00 fee $520.00 Surtaxable income: $15.000.00—$5,000 (exempt)=$10,000.00 Computation of tax: 1,000.00 at 1% ..... $ 10.00 2,000.00 at 2% ..... 40.00 2,000.00 at 3% ..... 60.00 2,000.00 at 4% °..... 80.00 2,000.00 at 5% ..... 100.00 1,000.00 at 6% ..... 60.00. Total surtax cas ccsacnauwes $350.00 $350.00 Gross: tax: payable. i xcecesscand eowsdea aaa dneeeews tesa $870.00 Less tax paid in United States upon income derived from sources therein, Say ..........e eee eee eee 120.00 $750.00 Add special 69%: tax yissc co weecangik ane dale sue 37.50 DAS PAPAS sigs GAS ok AUR OKA ROE eee AGRO $787.50 The tax will be computed in the same way in the case computa- of unmarried persons who are supporting dependent brothers tion, - the 2 . a = x 1s the or sisters under the age of eighteen years, and widows or same in the widowers with dependent children, and married persons, ex- pico pad cept that such persons will be entitled to claim the personal sons with 230 dependents and of mar- ried persons except for differences in exemptions, The Minister has general, as well as certain special, powers to prevent evasion of the tax. Provisions against the withholding of profits by a corpora- tion from distribu- tion. DOMINION INCOME TAX LAW. exemption of $2,000.00 for the purpose of the normal tax, and, in addition, an exemption of two hundred dollars for each child under eighteen years of age who is dependent upon the taxpayer for support. Remedies to Prevent Evasion of Income Tax.—Besides investing the Minister with certain general inquisitorial powers’? for the purpose of ascertaining the true amount of any taxpayer’s taxable income, to the intent that the oppor- tunity for evasion, which is said to be the most objectionable incident of the direct taxation of income, may be at least restricted, if not entirely eliminated, the Act provides—or at all events purports to provide—the Minister with power to prevent the employment of certain specific.and more or less palpable methods or devices for the evasion of the taxes imposed by the Act, and, in particular, of the graduated surtax rates. Taxation of Shareholders in Respect of Undistributed Profits of Corporations—Although “income” is defined by the Act to include, inter alia, “ the interest, dividends or pro- fits directly or indirectly received . . . from stocks, or from any other investment, and whether such gains and profits are divided or distributed or not,’ it is expressly pro- vided in another clause of the Act, that, “The share of a taxpayer in the undivided or undistributed gains and profits of a corporation shall not be deemed to be taxable income of the taxpayer, unless the Minister is of opinion that the accumulation of such undivided and undistributed gains and profits is made for the purpose of evading the tax and is in excess of what is reasonably required for the purpose of the business.”? This Jast provision was enacted in 1919, in sub- stitution for a provision contained in the principal Act, which read as follows :— * See sec. 8, principal Act, as amended. *In Dullen v. Wisconsin, 240 U. S. 625. 630-31. Mr. Justice Holmes of the Supreme Court of the United States said: ‘“ We do not speak of evasion, because, when the law draws a line, a case is on one side of it or the other, and if on the safe side is none the worse legally that a party has availed himself to the full of what the law permits. When an act is condemned as an evasion, what is meant is that it is on the wrong side of the line indicated by the policy if net by the mere letter of the law.” *Sece. 3 (1), principal Act. n Sec. 3 (4), principal Act, as amended by sec. 2 (3). chap. 55, RATES AND REMEDIES AGAINST EVASION. ak: “For the purpose of the surtax' only, the income of a taxpayer shall include the share to which he would be en- titled of the undivided or undistributed gains and_ profits made by any syndicate, trust, association, corporation or other body, or any partnership, if such gains and profits were divided or distributed, unless the Minister is of opinion that the accumulation of such undivided and undistributed gains and profits is not made for the purpose of evading the tay and is not in excess of what is reasonably required for the purposes of the business.” This repealed provision serves to illumine, to a degree, the Shareholders impelling design of the 1919 amendment. First, the statu- ae tory definition of “income,” in so fat as it may be effective to trust, associ- attribute to a taxpayer, as part of his taxable income, his itmersnig” distributive share of the undivided or undistributed gaing are taxable and profits of “any syndicate, trust, association . . Jee or partnership,” is left unqualifiedly to its operation. ed profits. Then, with regard to corporations, the 1919 amendment is apparently enacted on the assumption that, but for that pro- vision, the share of a taxpayer in the undivided or undis- tributed gains and profits of a corporation would be deemed part of the taxpayer’s taxable income. The assumption pro- ceeds, of course, from the supposed effect of the definition of “income.” It is not, however, easy to perceive how this as- sumption, which is, perhaps, from a legal viewpoint, intel- ligible enough in relation to the undivided gains or profits of an unincorporated body, such as a partnership, trust or asso- ciation, can derive support from the definition, upon its pres- Lec ene i ent general wording, in the case of a corporation which inter- case of cor- poses the proprietary interest of a separate juristic person Leet oF between the shareholding taxpayer and the corporation’s un- effect. divided gains and profits. The amendment itself appears to fall short of curing this possible defect, for, though it was doubtless intended that the Minister might require a tax- payer to include his distributive share of the undivided gains and profits of a corperation in his personal return of income, if the Minister should be of the opinion that the accumula- tion of such gains and profits is made for the purposes impugned by the statute, the said provision does not affirma- “The “supertax” was the description applied by the 1918 amending Act to a certain portion of the rates prescribed by way of addition. or superimposition, to the normal tax rates; but it was abolished by the 1919 Act, all such rates being denominated by the word “ surtax ” instead of by the two descriptions. ®> See. 3 (4), principal Act. 232 DOMINION INCOME TAX LAW. tively authorize such action and it is at least doubtful whether, consistently with established rules of construction,® such authority may legitimately be implied. If this conclusion be wrong, however, and if the true view be that the Minister is invested by the Act with such authority, then it would seem that the effect of this provision _is somewhat as follows :— Effect of statutory provisions on an assum- ed construc- tion in favour of power of Minister to tax share- holders in respect of a corporation’s undistributed profits. Minister's opinion @on- tingent upon finding co- existence of two facts. A shareholder of a corporation is not prima facie to be deemed to be taxable in respect of his undivided or undis- tributed share of the accumulated gains and profits of a corporation and is consequently under no duty or obliga- tion to make any inquiry as to the undistributed income of the corporation, or concern himself with what might be his distributive share of such income in making a return of his personal income, but if the Minister be of the opinion that the accumulation of undistributed gains and profits of a cor- poration is made “for the purpose of evading the tax and is in excess of what is reasonably required for the purposes of the business,” then he may require each shareholder to in-~ clude his distributive share of such accumulated profits in his personal return of income. The Act does not indicate how the Minister is to communicate his opinion to the share- holders, but doubtless he would do so by written notice to each shareholder, and as well, possibly, by notice published in the Canada Gazette. The mischief aimed at is, of course, the circumvention of the statute by corporations by the device of withholding gains and profits from distribution with the object of thereby enabling large shareholders to escape the payment of the graduated surtax rates in respect of dividends. The Minister's opinion obviously is contingent upon his finding a co-existence of two facts, viz.: (a) a purpose to evade the tax; (b) an accumulation of gains and profits in excess.of what is reasonably required for the purpose of the business. The Minister would seem to have an unqualified discretion in forming his opinion, but it is not doubtful that his judgment, in such a matter, would he influenced and guided by sound principles of business. Purpose to Evade Surtax.—Under the United States Act, which contains a provision similar to the one under discus- sion, it is said that prima facie evidence of a purpose to evade ®See chap. 2, ante. ee w Qe RATES AND REMEDIES AGAINST EVASION. the surtax exists where a company has practically no business Cireum- except holding stocks, securities or other property, and col- Se ine lecting the income therefrom, or, where a corporation other apurpose to . i wh : . evade surtax. than a mere holding company, permits its gains and profits to accumulate beyond the reasonable needs of the business. The business of a company is not limited to that which it has pre- viously carried on, but in general includes any line of business which it may legitimately. undertake. However, a radical change of business when a considerable surplus has been accumulated may afford evidence of a purpose to escape the surtax. When one corporation owns the stock of another corporation in the same or a related line of business and in effect operates the other corporation, the business of the lat- ter may be considered in substance the business of the first corporation.” Gains and profits of the first corporation put into the second through the purchase of stock or otherwise may, therefore, if a subsidiary relationship is established, constitute employment of the income in its own business. To establish that the business of one corporation can be regarded as including the business of another, it is ordinarily essential that the first corporation own.substautially all the stock of the second. Investment by- a corporation of its income in stock and securities of another corporation is not of itself to be regarded as employment of the income in its business. ° Unreasonable Accumulation of Profits—An accumula- majr require- tion of gains and profits is held to be unreasonable, if it is ments of not required for the purpose of the business, considering all Zeaae the circumstances of the case. No attempt can be made, it test of what : : : : : ‘i constitutes is said, to enumerate all the ways in which the gains and unreasonable profits of a corporation may be accumulated for the reason- a ooee able needs of the business. Undistributed income is properly profits. accumulated if invested in increased inventories or additions to plant. reasonably needed by the business. It is properly accumulated if retained for working capital required by the business, or in accordance with contract obligations placed to the credit of a sinking fund for the purpose of retiring bonds issued by the corporation. In the case of a banking institution, the business of which is to receive and loan money, using capital, surplus, and deposits for that purpose, undistributed income actually represented by loans or reason- ably retained for future loans, is not accumulated beyond “See chap. 3. ante, relating to taxation of resident companies. ‘Holmes. Federal Taxes (1920). p. 27-8. 234 Income tax revenue not to be preju- diced by special price arrange- ments be- tween a cor- poration and its share- holders. DOMINION INCOME TAX LAW. the reasonable needs of the business. The nature of the in- vestment of gains and profits is immaterial if they are not in fact needed in the business. ? Companies may be Taxed on Basis of Fair Price of Pro- duct.—The Act provides that: ‘‘ Where an incorporated com- pany conducts its business whether under agreement or other- wise, in such manner as either directly or indirectly to benefit its shareholders or any of them, or any person directly or indirectly interested in such company. by selling its pro- duct, goods or commodities in which it deals, at less than the fair price which might be obtained therefor, the Minister may for the purposes of this Act determine the amount which shall be deemed to be the income of such company for the year, and in determining such amount the Minister shall have regard to the fair price, which, but for any agreement, arrangement, or understanding, might be or could have been obtained for such product, goods and commodities.” The mischief aimed at by this provision was explained by the Minister of Finance (then Sir Thomas White) in the House of Commons, as follows: “Tf a company owns all the stock of another company, there is no reason why it should not take the product of that second company at any price that may be agreed upon irre- spective of whether it is a fair market price or not, because the first-named company owns all the shares of the second. There might be an international case in which a company in the United States would own all the shares of a company in Canada. The Canadian company might be doing a highly profitable business if it was carrying on its affairs in the usual course, but by reason of a contract which it might have with the United States company to sell its products at a very low rate, it might show no profits at all. I may say this section is the same as the one in the Business Profits War Tax Act, inserted for the purpose of making such companies contribute reasonably under that measure of taxation.” Perhaps no substantial loss of income would usually result from an arrangement between companies, such as that re- ferred to, where the companies are all taxable as resident in Canada, for in such a case the additional profit arising from the purchase of goods at less than the market price and their re-sale at that price, would be taxed in the hands of the com- “Tbid., p. 28. “Sec, 3 (2), principal Act. RATES AND REMEDIES AGAINST EVASION. 235 panies which got the goods and ultimately disposed of thei Foreign con- in the course of trade, but it is conceivable, as the Minister ade aa of Finance has suggested, that an arrangement of this kind camoanies might be employed to the prejudice of the revenue in the js mischief case of a company in Canada which was required, by virtue #med at. of a controlling interest outside of Canada, to sell its goods to a foreign company at less than the market price. The case of a hola ine company controlling a subsidiary is perhaps not the only case within the purview of the foregoing provision. It doubtless applies, as well, to any case where a company, with the object of benefiting even its individual shareholders or persons directly or indirectly interested in its operations, sells its product, goods or commodities at less than the fair market price. A familiar example of this is the case of a corporation organized and operated upon the co-operative principle. Transfers or Assignments of Property to Reduce Income may be Disregarded—The Act provides, further, that, “A person who, after the first day of August, 1917, has reduced his income by the transfer or assignment of any real or per- sonal, movable or immovable property, to such person’s wife or husband, as the case may be, or to any member of the family of such person, shall nevertheless be liable to be taxed as if such transfer or assignment had not been made, unless the Minister is satisfied that such transfer or assignment was not made for the purpose of evading the taxes imposed under this Act or any part thereof.” A taxpayer’s family relationships naturally lend them- Taxpayer selves to collusive arrangements, and the foregoing provision, ok therefore, requires any transfer or assignment of any part of a by transfer taxpayer’s income-producing property to a member of his @i Property family to be regarded, prima facie, as having been made with his family. intent {o evade the income tax either wholly or in part, and the taxpayer is to be taxed upon the income arising from such property, as if no transfer or assignment had been made, unless evidence be furnished which satisfies the Minister that the transfer or assignment was made without such intent. One incidental effect of this provision is to prevent a taxpayer from obtaining more than one personal exemption in respect of his income. 1Sec. 4 (4), principal Act. CHAPTER VIII. Returns, ASSESSMENTS AND APPEALS. Voluntary Voluntary Returns.—It is proposed to discuss in the VEDUES» present chapter the means by which the amount of the liability \ of the taxpayer is determined. The Income Tax Act depends for its administration upon returns of income and of any other information required to be made and furnished by tax- payers or other persons. It is necessary to consider, there- fore, the returns which taxpayers and others are obliged to. make, and the penalties which are imposed for failure to make such returns. Furthermore, it is necessary to consider the provisions of the Act relating to the assessment of the tax, and the means by which the taxpayer may have the assessment reviewed by appeals. Returns by Individuals—The Act requires that “ every person liable to taxation under this Act shall on or before the thirtieth day of April in each year, without any notice or demand . . . deliver to the Minister a return in such form as the Minister may prescribe of his total income during - the last preceding year.” Form T-1 is prescribed for the return by individuals. The onus is placed upon the taxpayer by this provision of the Act to determine whether he is legally taxable in respect of any part of his income, and if he has received income that is taxable, but has failed to make a return before the date mentioned, he is subject to a penalty of twenty-five per centum of the amount of the tax payable.’ Such penalty is imposed automatically by the statute, and it is to be recovered as a Crown debt in the same way as the tax itself. There appears to be no means by which the penalty may be waived by the Minister to avoid hardship in particular circumstances, except, however, that the Minister may at any time enlarge the time for making any return.’ It is improb- able that this relieving power may be exercised after default, This latter provision extends to all returns.. The view has been advanced that the Minister exhausts his power under ‘Amend., 1919. s. 5 (1). *Tbid., s. 5 (4). * Principal Act,'s. 7 (5). RETURNS, ASSESSMENTS AND APPEALS. 237 this provision by making one enlargement.* It would appear, Voluntary however, that the worls are wide enough to authorize an as enlargement at any time, ie., after a previous enlargement. Furthermore, it is always open to the Government to remit the penalty imposed under this section or under any other section of the Act, in accordance with the authority afforded by section 92 of the Audit Act,® or by section 1084 of the Criminal Code. The individual, therefore, must on pain of this penalty, assume the responsibility of determining whether, in the first place, he has received income in the preceding year over and above expenses, which is taxable. That is to say, he is obliged to determine whether his income is specially excepted from taxa- tion or if not, whether after taking into account deductions or exemptions to which he is entitled, he is nevertheless personally liable to taxation.® It should be noted, however, that it is not an offence punishable by criminal proceedings to omit to make a return as required by this provision of the Act. Form for Individuals——The form T-1 prescribed for individuals. other than farmers and ranchers, provides. for showing gross income and expenses claimed as deductions from income. Furthermore, all persons engaged in business, including members of trading partnerships, are required to attach to the return a certified financial statement of the business, including assets and. liabilities, trading and profit and «loss accounts. It should be observed that the return required to be made by the statute is of total income in the preceding year which, however, does not mean gross income since the - word “income ” is defined by the Act to mean “ annual net profit or gain.” Consequently a question may arise whether the taxpayer is obliged to make his return in the form prescribed, since this form requires a return of gross receipts as well as of income or “annual net profit or gain.” The Minister may not extend the effect of the Act by providing a form other than that authorized. It should be observed that the Minister ‘may make regulations deemed necessary for carrying this Act into effect,?’? but it is doubtful that even under this pro- vision the Minister may prescribe by way of regulation, such “See Weed v. Tucker, 19 N. Y. 422: People v. Allen, 42 Barb. 203; Daily arenes v. Mayor, eit 02 Hun 542, S.C. 1906, ¢. 24. oie chapters 4.5 and 6. “Amend., 1919. s, 9. 238 DOMINION INCOME TAX LAW. Voluntary 4 form requiring a return of gross receipts. In any event this BSEEES, does not appear to have been done. Failure, however, by the taxpayer to make a return in the form prescribed would result in the required information being demanded by the Minister under other provisions of the Act, but if the form T-1 now in use be not authorized by the statute the penalty for failure to make a return in accordance with the requirements of that form should not be recoverable since the obligation of the taxpayer is to make a return of income as specially defined. Income Accrued or Actually Received.—A most import- ant question requires to be determined as to whether the return of the taxpayer should include income accrued or income actually received in the sense of having been reduced to posses- sion. The Act defines income as that which is “ directly or indirectly received.” This provision has already been consid- ered, the best view appearing to be that the words “ directly or indirectly ” only refer to the method by which the income is. received, as e.g., by an agent of the taxpayer, and do not extend the meaning of the definition to include income which has. become due, but has not been received. The question is of considerable importance where income as, ¢.g., interest has become due and payable to the taxpayer during the taxable year, but has not been paid, or where fees have been charged or accounts rendered within the taxable year, but remain unpaid at the end of the year. Form T-1 presently pre- scribed for individuals apparently contemplates the return of accrued income in at least two cases. Where the return is of income from professional fees, it is provided in the form that the taxpayer must “state whether cash receipts and accounts charged or cash receipts only,” the taxpayer being, therefore, permitted to make a return of income accrued or income received. Furthermore, in the case of income of persons engaged in business, 7.¢., manufacturers and merchants, the taxpayer is required to show bills and accounts receivable and other accrued income.° United States, Decisions.—In the United States the ques- tion has been raised in a number of cases, and it has been said that the tax is not imposed upon “ unpaid charges for services rendered and which for aught anyone can tell may never be * Vide, ante, ec. 4, "Vide. post, p. 240. RETURNS, ASSESSMENTS AND APPEALS. paid” ;1° that income means the receipt of actual cash as opposed to contemplated revenue but unpaid,’ that interest accrued but not payable, and interest accrued but not paid are not surplus profits of a corporation ;? that a tax to be levied on all interest did not cover interest earned during the year, but payable after,’ and that “it seems almost to border upon absurdity to speak of income as including that which -has not been received and what in the ordinary uncertainties of business may never be received. How can it be affirmed of unpaid interest, that it will ever be paid, or if so, when ?””* In a comparatively recent case Mr. Justice Pitney of the United States Supreme Court said, “The expression ‘income received during said year’ looks to the time of realization rather than to the period of accruement.”® Income Accrued Prior to 1917.—It should be observed, however, that income accrued prior to the coming into force of the Act, but realized subsequent to that date, need not be returned apparently. This view is consistent with the prac- tice not to allow any deduction on account of debts accrued before the Act came into force but ascertained to be bad sub- sequent to that date. Mr. Justice Pitney took this view in the case referred to above. Rule Adopted in Dominion.—There appears to be no reason why the rule should not be applicable also under the Dominion Act that the taxpayer is only bound to make a return of income received, and it appears that the view taken in practice has been to permit the taxpayer to elect whether he will make a return of income accrued or actually received, except in the case of persons engaged in carrying on a mer- chandising or manufacturing business, but it is insisted on that when one method of returning income is adopted, no change may be made subsequently without the consent of the Commissioner. Furthermore, if actual receipts only are shown the taxpayer may not include in his return any deduction on account of bad debts. Consequently, where, ¢.g., interest has heen deferred and is finally paid in a lump sum, the taxpayer is obliged to make a return of the lump sum in the vear in ” Rdward Vv. Keith, 231 Fed. 110. 1 Maryland Casualty v. U. S., 52 Ct. Cl. 201, ? People v. San Francisco Union, 13 Pac. 498. SU, 8. v. Indianapolis & St. Lowis Ry.. 113 U. S. 711. * Mutual Benefit Life v.. Herold, 198 Fed. 199. ° Hays v. Gauley Mountain Coal Co., 247 U. S. 189, at p. 192. we nah 240 - Inventories and ac- counts receivable, DOMINION INCOME TAX LAW. which it is received unless he has made a return of the interest- as it accrued. Returns by Traders.—As has already been stated above, persons who arc engaged in business as manufacturers or wholesale or retail merchants, must include accounts and bills receivable in their return of income, i.e., the return must include accrued income. Where the taxpayer in the course of his business carries stocks of merchandise no other satisfac- tory method of making a return is available since it is impos- sible to allocate expenses to receipts except by means of statements of assets and liabilities including. inventories and accounts and bills receivable aforesaid. Consequently the practice is to insist on such a return as being the only accept- able method to determine “income” or annual net profit or gain. Calendar or Fiscal Year.—It is provided by the Act that “year ” means calendar year,® and the return, therefore, must be made of the income received in the calendar year except where it is otherwise provided. Where an individual is the proprietor of a business whose fiscal year is other than the calendar year, he is required to make a return of income from the business for the fiscal year ending within the calendar year, but his return of income derived from other sources than such business must be made for the calendar year.’ Transfer for Evasion.—It is provided by the Act that any person who has reduced his income by the transfer of pro- perty to members of his family after August 1st, 1917, is nevertheless liable to taxation and to the penalty for failure to make a return in respect of the full income as if such transfer had not been made, unless the Minister is satisfied that the transfer was not made for the purpose of evasion.® Partners.—It is provided by the Act that “any persons carrying on business in partnership shall be liable. for the income tax only in their individual capacity.”® The result of this provision is that a partnership as a legal entity is not required to make a return of its income, but the individual members thereof must each make a return of his share of ~ ° Principal Act, s. 2 (9g). 71919, Amend., s. 3 , and 1920, Amend., s. 8. ). (2 ‘Principal Act, s, 4 ( ©1919, Amend., s, 3 (2), and 1920, Amend., s. 8. ~ pe RETURNS, ASSESSMENTS AND APPEALS. 241 the profits of the trade whether distributed or not. Partners, voluntary as individuals, must if their fiscal year is other than the returns. calendar year, make the return for the fiscal year ending within the calendar year for which the return is made.*° Husband and Wife.—The Act treats husband and wife as individual taxpayers and each is obliged to make a return of his or her separate income. Furthermore, it is enacted that “a husband and wife carrying on business together shall not be deemed to be partners for any purpose under this Act.”? This provision was evidently intended to prevent a husband and wife from reducing the amount of the taxable income from the business by dividing it between them. The effect, however, is evidently obscure since the provision can scarcely have the effect of rendering the husband liable to taxation in respect of the income of the wife, or vice versa. It should be observed that the provision reads “ shall not be deemed to be partners ” although, perhaps, what was intended was “ shall be deemed not to be partners.” The result, it may be sug- gested, is that there shall be no presumption that husband and wife are partners and, therefore, entitled to divide the partner- ship profits, but if they can supply some evidence that a partnership exists effect shall be given to it. Farmers and Ranchers.—A special form is prescribed for the return of income by farmers and ranchers, viz., T-1a. This form, which primarily is a statement of receipts and expenses, requires no comment except that the requirement contained therein by which the farmer must show the value of products of the farm consumed on the farm, is of doubtful validity. The-item, if it has any statutory warrant at all, would seem to be based upon the provision of the Act that where “personal and living expenses form part of the profit, gain or remuneration of the taxpayer, the same shall be assessed as income.’ The principle is well established, however, that no person can make a profit or gain by dealing with himself,? which is, no doubt, what a farmer does when he consumes his own products. Consequently, such products consumed cannot be said to form part of the profit ” Ibid. + Ibid. 21919, Amend., s. 2 (2). * Vide, ante, pp. 97 et seq., and p. 160. D.1.T.L.—16 242 Voluntary returns. DOMINION INCOME TAN LAW. or gain of the farmer or rancher, and this view is not seriously impaired by the addition of the word “remuneration ” to the words “ profit and gain” in the provision in question. Returns by Beneficiaries Under Trusts, Ete—The Form T-1 to be used by individuals includes a provision for showing income from fiduciaries who are described in the form as “trustees, executors, administrators, guardians or financial agents”? and persons who receive income from estates, or otherwise as beneficiaries, are obliged to make a return show- ing the income received. Towever, it appears that the obliga- tion of the beneficiary is not satisfied merely by showing income actually received by him. By recent amendment to the statute it is enacted that “the income for any taxation period, of a beneficiary of any estate or trust of whatever nature shall be deemed to include all income accruing to the credit of the taxpayer, whether received by him or not during such taxation period.’* The word “accruing ” may possibly mean “accrued.” The intention of Parliament apparently was to oblige the beneficiary, to make a return of income received by the estate or trust, but not distributed, which, however, could be said to have accrued to the credit of the beneficiary. Considerable difficulty may be encountered in particular cases in determining when income, which has been received by an executor or trustee, has accrued to the credit of the beneficiary. Ordinarily, no doubt, the test of liability is whether the taxpayer could have reduced to possession the income in question by legal action in the year of taxation,° but this test is obviously not applicable in this case since if the income undoubtedly belonged to the beneficiary in the year of taxation he must make a return of it under this pro- vision even though his enjoyment or possession of the income is postponed. oe Unascertained Beneficiaries—The section further pro- vides, it should be noted, that “income accumulating in trust for the benefit of unascertained persons, or of persons with contingent interests, shall be taxable in the hands of the trus- tees or other like persons acting in a fiduciary capacity, as if such income were the income of an unmarried person.” Examining this provision with that referred to above it may 41920, Amend.. s. 4. 5 Walker v. Reith, 43 Se, lL. R. 245, and see Hudson v. Gribble. 1903, 1 K. B. 517; but see Re A. B., 22 Aust. L. T.-187. RETURNS, ASSESSMENTS AND APLTEALS. 245 be suggested that tle intention was that all income of estates Voluntary or trusts should be divided into two classes, viz., (1) that’ which accrues to credit of ascertained beneficiaries, and (2) that which accumulates in trust for the benefit of unascer- tained persons or persons with contingent interests. The object of this legislation is, it may be suggested, to charge the beneficiary, wherever possible, with the obligation of making the return. Fiduciaries——The position of persons who stand in a fiduciary relationship as trustees, executors, administrators, liquidators and others is obscure under the legislation. Such persons, probably without exception, fall within the definition of “person” as has already been noted in the chapter on persons taxable. But as observed in the preceding paragraph, the obligation of making a return is placed upon the benc- ficlary not only in respect of income which he receives from the fiduciary, but also in respect of income which accrued to his credit. The fiduciary, on the other hand, is obliged to make the return in respect of income accumulating in trust for the benefit of unascertained persons or persons with contingent interests. In order to determine the obligation placed upon fiduci- aries, however, other provisions of the legislation require con- sideration. It is enacted that “if a person is unable for any reason to make the return required by this section, such return shall be made by the guardian, curator, tutor or other legal representative of such person, or if there is no such legal representative, by some one acting as agent for such person, and in the case of the estate of any deceased person, by the executor, administrator or heir of such deceased per- : son, and if there is no person to make a return under the pro- visions of this sub-section, then such person as may be required by the Minister to make such return.”® This provision indi- cates a clear intention that the beneficiary rather than the fiduciary is contemplated as being liable in the first instance to fulfil the obligations of making the return. A further provision contained in a recent amendment to the Act is that, “In cases wherein trustees in bankruptcy, assignees, liquidators, curators, receivers, administrators, heirs, executors and such other like persons or legal repre- sentatives are administering, managing, winding-up, control- * Principal Act, s. 7 (8) as amended by Act of 1919, s. 5 (2). 244 DOMINION INCOME TAX LAW. Voluntary ling, or otherwise dealing with the property, business or nee estate of any person who has not made a return for any taxable period or for any portion of a taxable period for which such person was required to make a return in accordance with the provisions of the Act, they shall make such return and shall pay any tax and surtax and interest and penalties assessed and Jevied with respect thereto before making any distribution of the said property, business or estate.” Finally it should be observed that the Act contains a pro- vision that, “Trustees in bankruptcy, assignees, administra- tors, executors and other like persons, before distributing any assets under their control, shall obtain a certificate from the Minister certifying that no unpaid assessment of income tax, surtax, interest and penalties properly chargeable against the person, property, business or estate, as the- case may be, remains outstanding. Distribution without such certificate shall render the trustees and other like persons personally liable for the tax, surtax, interest and penalties.”* Returns by Fiduciaries——The intention of Parliament as indicated by these provisions as to the duty of persons acting in a fiduciary capacity to make income tax returns is certainly obscure. No distinction apparently was intended between various persons who stand in a fiduciary relationship whether as the representative of a deceased person or of an insolvent person or otherwise. The legislation quoted which indicates the obligations placed upon fiduciaries is open to the construc- tion that the fiduciary is bound to make the return, (1) where the person otherwise liable to make the return, 7.e., the beneficiary, or the person whom the fiduciary represents, is 3 unable for any reason to do so;® or, (2) where there is income accumulating in trust for the benefit of unascer- tained persons or persons with contingent interests ;!° or (3) where the persons whose estate is in the hands of such fidu- ciary has not made a return as required by law." This analysis of the obligation of the fiduciary, even if acceptable, does not dispose of all the difficulties. The effect of the words “is unable for any reason to make the return required ” is not clear. Inability to make the return does not necessarily mean legal incapacity, resulting, e.g., from 7Amend., 1920, s.-10 (1). “Tbid. * Principal Act, s, wu ass as amended by Act of 1919, s. 5 (2). *” Amend., 1920, + Amend.,- 1920, s. “ (1). RETURNS, ASSESSMENTS AND APPEALS. On infancy. An infant may, as will appear, be able and obliged Voluntary to make a return. Whether the inability is such as to impose HSER the obligation on the fiduciary to make the return is in each case a question of fact to be determined presumably by the fiduciary. A further difficulty may arise from the use of the words “accumulating in trust for the benefit of unascer- tained persons or. persons with contingent interests.” Otherwise than as is indicated, fiduciaries do not appear to be under an obligation to make a return of the income of the trust or estate and this construction is not seriously impaired by the provision that such fiduciaries shall obtain a certificate before distributing the assets, since such provision is intended merely to protect the revenue against conceal- ment or evasion by the persons in the first instance required to make the return, and is not to be construed as a provision charging the fiduciaries with the obligation to make the return or pay the tax.1# Penalties—The penalty in the case of persons liable to taxation for failure to make the return, within the time limited therefor, is, as has been noted, twenty-five per centum of the amount of the tax payable. This penalty is applicable to omissions by beneficiaries in all cases in which they are required to make returns. Furthermore, this penalty is applicable in the case of returns required to be made bv fiduciaries of income accumulating in trust for the benefit of unascertained persons or persons with contingent interests since the fiduciary in such case is a person liable to taxation in respect of such income as “an unmarried person.” Fur- thermore, where the return is required to be made by the fiduciary because the person whose estate is in his hands has not done so, the penalty of twenty-five per centum per annum is probably applicable since the fiduciary is a person liable to taxation,* and it should be observed that if the fiduciary in this case distributes the assets without obtaining a certificate from the Minister as required by the Act, he is personally liable to the penalty as well as to the tax. But where the return is to be made by the fiduciary because the person liable is unable for any reason to make the return, the penalty of twenty-five per centum of the tax payable is not apparently applicable, but a * But see Ning v. Lithiick, 20 Can. Ex. 298 * See 1920 Amend., s. 4, and 1919 Amend., s. 5 (1). $1920, Amend., s. 10. 246 Voluntary returns, DOMINION INCOME TAX LAW. penalty of ten dollars per day is imposed.* An examination of section seven of the principal Act as amended indicates this result. A series of forms has been prescribed each year by the Minister for use in making returns required by the statute. These forms are subject to change from year to year, but it is probable that they will remain substantially as prescribed for 1919 income except in so far as the last amendment enacted in 1920 necessitates change. Infants Must Make Returns.—A question of some diffi- culty arises in the case of infants, who are in receipt or control of their own earnings or business. The provision of the Act already referred to, viz., that if a person is unable for any reason to make a return, the same shall be made by the guardian, tutor or other legal representative,® does not relieve necessarily a person under the legal incapacity of infancy from the obligation to make the return, but applies only where the incapacity is actual -rather than legal or constructive. The question of the liability of an infant to make returns and to be assessed in respect of such income was squarely raised in a recent English case, which, of course, depended largely on the particular provisions of the English Act. It was held by the Court of Appeal that the infant was assessable,* and it was expressly determined that an infant was a person for purposes of the Act.‘ The decision appears to lay down the principle that it is in each case a question of fact whether the infant has the discretion and capacity to make a return. Referring to the argument that an infant is not supposed by law to be capable of doing such business matters, Phillimore. L.J., said: “I think the answer is that in most, if not quite all, of the rare cases in which an infant becomes chargeable, it would be because of his exceptional and precocious skill; that such an infant may be presumed to be capable of either making a return or of instructing and paying some competent adviser.”8 The provision of the Dominion Act that if a person is unable for any reason to make the return, the same shall be made by the guardian, already referred to, does not refer necessarily to persons under legal-incapacity only, but *See principal Act, s. 7 (3), and s. 7 (6), as enacted by 1919 Amend., s. 5 (4). ° Principal Act, s. 7 (8) as amended, 1919, s. 5 (2). * King Vv. Income Tax Commissioners. 1916, 1 K.B. 788. *Tbid., per Phillimore, I..J., p. 801. 8 Tbid, p. 802. RETURNS, ASSESSMENTS AND APPEALS. 247 is open to the construction that it refers to persons who are Voluntary returns. as a matter of fact unable for any reason to make the return. This view is strongly supported by the English decision referred to, and it would appear that an infant is generally under obligation to make a return in respect of his earnings or profits. ‘ Where, on the other hand, the infant is in receipt of income, other than carnings or profits, as, ¢.g., from an estate, he may as a matter of fact, be able to make the return, but there is no presumption that he has such capacity as when the income represents earnings or profits. It is probable that in every such case the guardian or trustee is available to make the return, and it was, no doubt, intended that the guardian or trustee should be obliged to determine the ques- tion of fact whether the infant is unable to make the return or to enquire whether he has done so. Lunatics, ete——The observations upon the liability of ‘infants apply also to lunatics and other’persons under legal or actual incapacity. Persons Resident Abroad.—A recent amendment provides that “every agent, trustee or person who collects or receives or is in any way in possession or control of income for or on behalf of a person who is resident outside of Canada, shall make a return of such income.’ ~ Corporations and Other Bodies.—Fvery body corporate is a person within the meaning of the Act, and is obliged, if liable to taxation, to make a return of income by the same provision of the Act applicable to individuals. If, however, the corporation be not in receipt of taxable income or if its income be excepted from taxation it is not obliged to make a return of income.’® The return in the case of a corporation must be made and signed by the president, secretary, treasurer or chief agent having a personal knowledge of the affairs of the corporation.*. The Minister may require the return to be made by any other person or persons employed in the business liable or believed to be liable to taxation. Failure by the cor- poration to make the return within the time limited, viz., on or before the thirtieth April in each year, results in an auto~ £1920 amend., s. 10, #1919 amend., s. 5 (J). * Principal Act, s. 7 (2). 248 DOMINION INCOME TAX LAW. Voluntary matic penalty of twenty-five per centum of the amount of the Senne tax payable.? It is arguable that in addition a penalty of ten dollars for each day of default is incurred by the. officers enumerated as being required to make the return for the corporation. Section seven of the Act as amended in 1919 ° provides for these penalties by sub-section six, which provides that every person required to make a return by sub-section one thereof is liable to the penalty of twenty-five per centum, and that every other person required by the section to make a return is liable to a penalty of ten dollars for each day of default. The return by corporations is required by sub-sec- tion one rather than by sub-section two, which merely specifies how the return is to be made. Consequently, the penalty of ten dollars per day does not apply to the corporation, but may apply to its officers personally. A special form T-2 is pre- seribed for the return of income by corporations. Associations and Other Bodies.—The provisions of the Act respecting returns by corporations are also applicable to associations and other bodies, but no special form is prescribed and such associations or other bodies are ordinarily treated as corporations and should, no doubt, make use of the form prescribed for corporations, T-2, unless that prescribed for individuals, T-1, appears more suitable. Returnson | Returns on Demand.—In addition to the obligation upon demand, every person lable to taxation to make a return without notice or demand, there are a number of provisions whereby the Minister is enabled to compel returns or to require further or other returns from taxpayers and other persons. It is especially provided that “any person, whether liable to taxa- tion hereunder or not, upon receipt of a notice or demand in writing from the Commissioner of Taxation or any officer authorized to make such demand, shall deliver to the Minister a return, in such form as the Minister may prescribe, of his total income during the last preceding vear.”* The failure to comply with this demand results in an automatic penalty of twenty-five per centum of the amount of the tax payable, but if it appears that the person is not liable to taxation there is no penalty for failure to make a return upon demand under this section. °1919 amend., s. 5 (4). 3 Thid. ' *1919 amendment, s. 5 (1). RETURNS, ASSESSMENTS AND APPEALS. atu Demand by Registered Mail.—However, in addition to Returns on this provision it is enacted that “if the Minister, in order to enable him to make an assessment or for any other purpose, desires any information or additional information or a return from any person who has not made a return, or a complete return, he may by registered letter demand from such person such information, additional information or return, and such person shall deliver to the Minister such information, addi- tional information or return within thirty days from the date of mailing of such registered letter,’ and for every default in supplying the information or return pursuant to this provi- sion, such person is liable to a penalty of one hundred dollars for each day during which the default continues.® It was probably the intention of Parliament that failure to make a return as required should be treated as a continuing offence and consequently that it is not barred by the lapse of six months, as in the case of offences generally punishable upon summary conviction. It has been held under this provision that where default for a certain number of days is proved, the magistrate is obliged to impose a penalty of one hundred dollars for each day of default and has no discretion in the matter.’ Provisions Respecting Proof.—For the purpose of any proceedings. to convict for failure to make a return upon demand it is specifically provided that “the facts necessary to establish compliance on the part of the Minister with the provisions of this section, as well as default hereunder, shall be sufficiently proved in any court of law by the affidavit of demand. the Commissioner of Taxation or any other responsible officer, of the Department of Finance.”* Such affidavit shall have attached thereto as an exhibit a copy or duplicate of the letter of demand. Other Returns—In addition to the provisions already referred to by which persons liable to taxation generally are required to make returns of income, there are several provi- sions by which information required hy the Minister for the purposes of the administration of the Act must be supplied. Returns by Employers.—It is provided that “all empl ers shall make a return of all persons in their employ receiving prevent ®> Amend. 1920, s. 11. ° Principal Act, s, 9 (1), as amended 1919, s. 7, and 1920, s. 13. "Rea v. Thompson Manufacturing Co., Ltd., 47 O. Tu. R. 1038. ’ Amend. 1920, s, 8. evasion. O’- Returns to 250 Returns to prevent evasion. DOMINION INCOME TAX LAW. any salary or other remuneration in excess of such an amount as the Minister may prescribe.”® Such returns must-be delivered to the Minister on or before the thirty-first day of March without notice or demand, and in such form as the Minister may prescribe.° Pursuant to this provision the Minister has prescribed a form T-4 according to which the return must include particulars of salaries, wages, commis- sions, fees, bonuses, and other remuneration of all directors, officials, agents, employees, professional men or other persons who received five hundred dollars or more during the calendar year, and who were paid at a rate of wage or salary equal to one thousand dollars or more per annum. Furthermore, the form prescribed requires a return to be made of the actual amounts paid the employees, including the amount of taxes paid on behalf of employeés and the value of rent, board, free accommodation or other allowances made to employees. Other information is required as to whether the employee is married or single or widow or widower, and details as to any superan- nuation or pension fund or plan are demanded. Strictly speaking, it is arguable that_the employer is not obliged to make any return other than a lst of employees whose remuneration exceeds the amount, prescribed, since the Act requires only ‘“‘a return of all persons receiving any salary or other remuneration,” and the Minister may not enlarge the effect of this provision by prescribing a form not authorized by the provisions requiring the return. However, refusal to make the return voluntarily in the form prescribed would, no doubt, result in a demand by the Minister under other provi- sions of the Act. Employers must, of course, make the return whether they themselves are taxable or not, and the penalty for failure to make the return is ten dollars for each day during which the default continues, which penalty is auto- matically imposed by the Act, and is recoverable as a Crown debt. . Another provision requires that “all persons ‘in whatever capacity acting, having the control, receipt, disposal. or pay- ment of fixed or determinable annual or periodical gains, profits or income of any taxpayer, shall make and render a separate and distinct return to the Minister of such gains, profits or income containing the name and address ao each taxpayer.’ ® Principal Act, s. 7 (4), as amended 1919, s. 5 (3). ” Toid. 1Amend. 1919, s. 5 (4). ? Amend. 1918, s. 6. RETURNS, ASSESSMENTS AND APPEALS. 251 Dividends and Bonuses.—It is also provided that “ all Returns to prevent corporations, associations and syndicates shall make a return eyasion of all dividends and bonuses paid to shareholders and mem- bers.”? This return must he made before the thirty-first day of March in each year,‘ and the penalty for failure to make it is ten dollars for each day of default, to be automatically imposed and recoverable as a Crown debt. The form T-5 prescribed for this return requires a list of shareholders in Canada to whom payments were made in shares or cash during the fiscal year. Production of Books, ete.—There are other provisions also which enable the Minister to secure adequate information to administer the Act and to prevent evasion. It is provided that “the Minister may require and demand the production, or the production on oath, by any person, or by his agent, or officer, of any letters, accounts, invoices, statements, financial or otherwise, books or other documents, held by such person, agent or officer, for the purpose of arriving at the tax believed to be payable by any other person, and the same shall be produced within thirty days from the date of mailing of such a demand.”® ‘There appears to be no specific penalty for failure to comply with the demand. It is also provided that “every person who, in whatever capacity acting, is in receipt of any money, thing of value, or of profits, or gains arising from any source, of or belonging to any other person shall, when required to do so by notice from the Minister, prepare and deliver to the Minister any information required, within thirty days from the date of the mailing of such notice.”* There appears to be no specific penalty for failure to comply with this demand. Sr ies Af Inquiry by Commissioner.—The Minister may authorize an officer to make an inquiry to ascertain the income of any taxpayer and for the purpose of such inquiry the officer shall have all the powers of a commissioner under the Inquiries Act.7 Keeping Books.—If a taxpayer fails or refuses to keep adequate books or accounts for income tax purposes, the a Act, s. 7 (4), as amended 1919, s. 5 (8). ®* Amend, 1920, s. 12. ° Tbid. ‘Principal Act, s. 8 (3). ew ct ow Talse returns. Is mens rea necessary 7 DOMINION INCOME TAX LAW. Minister may require such taxpayer to keep such books or accounts as he may prescribe. There appears to be no specific penalty to enforce this provision. These numerous provisions apparently give to the Minister very considerable power to obtain information for the purpose of the administration of the Act. False Returns.—Finally with respect to returns it should be remarked that in order to enforce the observance of the laws it is provided that “any person making a false state- ment in any return or in any information required by the Minister, shall be liable on summary conviction to a penalty not exceeding ten thousand dollars or to six months imprison- ment, or to both fine and imprisonment.’® As proceedings under this section are by way of summary conviction under Part XV. of the Criminal Code, they must be commenced within six months of the making of the false statement as provided by the Criminal Code.*® Reference should, however, be made to a provision of the Inland Revenue Act, which permits the institution of proceedings under any law respect- ing Inland Revenue within two years,’ which provision may be applicable to prosecutions under the Income Tax Act. An important question arises as to whether the prosecutor is bound to establish that the alleged false statement was made with a knowledge that it was false or whether a convic- tion should be made merely upon proof that the statement was untrue. The use of the word “ false” in the provision suggests possibly that there must be an intention on the part of the defendant to deceivé, and upon this view a genuine mistake made upon reasonable grounds and without negli- gence would constitute a defence. However, the proof of untruth undoubtedly shifts the onus to the defendant to show that the untrue statement was made without an intention to defraud the revenue and without negligence. It is not practic- able to discuss the doctrine of mens rea at any length, but it should be remarked that offences against revenue Acts which may be described as quasi crimes are to be distinguished from offences against criminal law inasmuch as the purpose * Amend. 1919, s, 6. ® Principal Act. s.9 (2). * Criminal Code, s. 1142. *R.S. C. 1906, c. 51, 8. 135, RETURNS, ASSESSMENTS AND APPEALS, 253 of the punitive provisions of a revenue Act is to protect the False revenue and consequently the intention of the offender is of """* little importance. Russell on Crimes says: “In some cases enactments by their form seem to constitute the prohibited acts into crimes even in the absence of the knowledge and intention necessary to constitute a mens rea. Few, if any, such enactments relate to indictable offences and usually they prohibit certain acts in the interests of the public revenue.” It is necessary to look at the object of each act to see whether and how far knowledge is of the essence of the offence created. In the United States there are decisions that “false ” means incorrect but in good faith ** and on the other hand incorrect with fraudulent intent.*” It should be observed in this connection that in a recent prosecution for making a false return a Division Court Judge in Ontario held on appeal that the words “a false statement in any return or in any information required by the Minister ” as used in section 9 (2) of the Act of 1917, did not relate to a false statement in the ordinary voluntary return but were limited in their application to a false statement made in a return required by the Minister. Furthermore it was held that the subsection did not define any offence and that the words “shall be liable on summary conviction” did not give to the magistrate jurisdiction. Furthermore, it is to be observed that ignorance of the law constitutes no defence * and the omission by the taxpayer to include in his return receipts which he honestly but erroneously believes did not constitute income within the meaning of the Act, possibly renders him liable to the penalty for making a false return. Other Penalties for Untrue Returns.—A further argument ttre in favour of the view that “false ” connotes an intention to returns. defraud is to be found in the recent amendment which pro- vides heavy penalties for mistakes in returns of income which are recoverable by assessment as Crown debts.° It is provided that upon any statement of income less than the true amount 21st Canadian edition. ye 102, and cases cited there. ® Cundy v. Lecocq, 18 Q. B.D. 207, per Stephen. J.. at p. 209. 3a National Bank vy. Allen, 223 Ped. 472; Eliot National Bank v. Gill, ee Fed. 600. SN. v. Ninety-Nine Diamonds, 139 Fed. 961. Se Phe King v. Booth decided on appeal by Judge Gunn, Division Court Judge, County of Carleton. Province of Ontario. ‘Criminal Code, s. 22, °1920 amend., s. 10. Rot Untrue returns. Assessment. DOMINION INCOME TAX LAW. the taxpayer shall pay in addition to the proper tax, surtax and penalties, interest at ten per cent. from the last day pre- scribed for making the return until the same is paid. Further- more, if the amount of the income omitted from his return exceeds ten per centum of the correct income, but is under twenty per centum, such person shall pay in addition one-halt of the amount of the deficiency, and if the deficiency amounts to twenty per centum, he shall pay the whole amount of the deficiency. These penalties are additional, and not in lieu of the -penalty enforceable by summary conviction for making a false statement. Returns, Secret and Confidential—tIn order to protect the taxpayer from any ill results from the obligation to make a return of income and other information, it is provided that “no person employed in the service of His Majesty shall communicate or allow to be communicated to any person not legally entitled thereto, any information obtained under the provisions of this Act, or allow any such person to inspect or have access to any written statement furnished under the provisions of this Act. Any person violating any of ths provisions of this section shall be liable on summary convic- tion to a penalty not exceeding two hundred dollars.’ Income tax returns are official documents, and generally speaking the Crown cannot be compelled to produce them in Court if the responsible officer of the Department states upon oath that their production would be contrary to the public interest.* Upon an application made by the liquidator of a company for the production of returns the court in the exer- cise of its discretion refused the application on an affidavit being filed that in the opinion of the Board of Inland Revenue such production would be prejudicial to the public interest.® In an action for damages for slander it was held that the defender was not entitled to the production of the pursuer’s income tax returns.° Assessment,—The tatpaycr’s return is required to be made to the district inspector and upon receipt is examined and a notice of assessment sent to him verifying or altering the ° Principal Act, s. 11. * Witchell v. Koecker, 18 L. J. Ch. 294. *In re Hargreaves. 1900, 1 Ch. 347. °Gray v. Wyllie. 41 Se. L, R. 342. and see Shaw v. Kay, 12 Se. L. T. R. 495% Keir v. Outram, 51 Se. L. R., p. 8; Henderson v. McGowan, 53 Se. L. R. 627. RETURNS, ASSESSMENTS AND APPEALS. we amount of the tax as estimated in his return.’? This con- Assessment. stitutes the assessment of the tax, but it should be observed that the Minister is not bound by any return or information supplied by or on behalf of a taxpayer, and notwithstanding such return or information, or if no return has been made, the Minister may determine the amount of the tax to be paid by any person, that is, make an assessment based on information obtained from other sources.t And finally it should be noted that in case any person liable to taxation fails to make a return or makes an incorrect or false return the Minister may at any time assess such person for the tax and may prescribe the time within which any appeals may be made.? Appeals—It is provided that “any person objecting to Appeals. the amount at which he is assessed, or as having been wrong- fully assessed, may, personally or by his agent, within twenty days after the date of mailing of the notice of assessment, as provided in section 10 of this Act, give notice in writing to the Minister in Form II. of the Schedule to this Act that he considers himself aggrieved for either of the causes aforesaid, otherwise such person’s right to appeal shall cease, and the assessment made shall stand and be valid and binding upon all parties concerned, notwithstanding any defect, error or omission that may have been made therein, or in any pro- ceeding required by this Act or any regulation hereunder.”* The result of this provision is that every person who recelves an assessment notice should, if he intends to contest the same, enter an appeal as provided. It is scarcely probable, _ however, that Parliament intended that all assessments should be validated by this provision, whether validly made in the first instance or not. The proper view appears to be that if the person assessed and the income of such person fall within, the statutory jurisdiction of the Minister, then no remedy is available to the taxpayer to have the assessment reviewed other than by appeal as provided by the section quoted. On the other hand, if the person assessed is not a person taxable within the Act, or if the income assessed is outside the juris- diction of the Minister as having been excepted from taxation or otherwise, then the assessment is not valid, but is void ab initio. In an important Ontario decision it was held that 191920 amend., s, 14. 1 Principal Act, s. 10 (2). ? Principal Act, s, 10 (8). * Principal Act, s. 14. 256 Appeals. DOMINION INCOME TAX LAW. once the illegality of an assessment had been established, a court of law had jurisdiction to deal with the matter apart entirely from the machinery provided by the Assessment Act for dealing with appeals. In order that the assessment should be rendered valid and binding by the provisions in question ‘it must appear that there was jurisdiction to make an assessment.’ Furthermore, it has been held under the Eng- lish Act that, while for many purposes an assessment made in the exercise of jurisdiction is conclusive, the absence of jurisdiction may be shown and that the extent to which the defendant is bound depends upon the evidence of .a valid assessment. It was held that the defendant might plead the general issue in an action to recover the amount of the assess- ment which had not been appealed against.° Furthermore, it would appear that the taxpayer by entering an appeal under the section quoted, is not estopped from seeking other legal remedy, as by resisting payment, where the assessment is invalid, even though the appeal is heard and decided against him.* ‘ This provision quoted is open to the argument that the assessment is binding upon the Crown as well as the taxpayer at the expiration of the twenty days. It is unlikely, however, that this was intended. It can hardly be supposed that Parlia- ment intended that the taxpayer should be able to take advan- tage of his own error or fraud. In any event, there appears to be no reason why the Minister may not in the plenitude of the powers bestowed upon him make a new or second assess- ment. Extension of Time——The Minister either before or after — the expiry of the said twenty days may give a taxpayer further time in which to appeal.® Court of Revision.—Appeals from the assessment of the Minister are to be heard by a Board of Referees appointed by the Governor-in-Council, the members of which shall have the powers jointly or severally of a commissioner appointed under the Inquiries Act. The Board shall act as a Court of “Canadian Oil Fields Company V. Oil Springs, 13 O. L. R. 405. °> Toronto Railway v. Toronto, 1904, A. C. 809; Nickle v. Douglas, 387 U. C. Q. B. 51; London v. Watt & Son, 22 8. C. R. 300. ° Attorney-General Vv. McCormack, 1903, 2 K. B. Tr, 517. * Toronto Railay v. Toronto, 1904, A. C. 809. “Principal Act, s. 14 ®Tbid., s. 12 (1). RETURNS, ASSESSMENTS AND APPEALS. Revision and shall hear and determine any appeal made by Appeals. a taxpayer in such place in Canada as the Minister may direct.1° The Board ‘shall confirm or amend the assessment and may increase the assessment and shall send a copy of its decision by registered mail to the taxpayer or his agent or otficer,! but no assessment shall be set aside by the Board upon ‘the ground that there has heen an error or omission in connec- tion with any proceedings required to be taken under the Act or any regulation.?. The taxpayer is entitled to have the pro- ceedings of the Board held in cumera.® If the tapxayer fails to appear the Board may proceed ex parte or may defer the hearing.* Costs.—In any case where the appeal is unsuccessful, the Board may direct that the appellant pay the costs or part of the costs, and if such an appeal is success!ul, the Board may recommend that the costs or any part thereof be paid by the Crown. The tariff of fees shall be as preseribed hy the Board.’ If the taxpayer is dissatisfied with the decision of a Board he may within twenty days after the mailing of the decision, give a written notice to the Minister in a form prescribed by the Act that he desires to appeal from such decision.® If the taxpayer gives such notice, or if the Minister is dissatisfied with the decision, the Minister shall refer the matter to the Exchequer Court of Canada for hearing and determination, and such reference is to be made in Form IV. of the Schedule to the Act, and the Minister shall notify the taxpayer by régistered letter that he has made such reference. On any such reference the court shall hear and consider such matter upon the papers and evidence referred and upon any further evidence which the taxpayer or the Crown produces under the direction ‘of the Court, and the decision of the Exchequer Court thereon is final and conclu- sive.’ There is consequently no appeal beyond this court ” Thid., s. 13. 1Thid., s. 15 (1). 2 Thid.. s. 19 (1). SJbid.. s. 19 (2). *Tbid., s. 16. *Tbid,. & 16 (2). ° Tbid., s, 17. * Thid. D.1.P.L.—17 ee => 208 Appeals. DOMINION INCOME TAX LAW. where proceedings have been instituted hy way of appeal from the assessment of the Minister. However, as has been noted, it is probable that a decision of the Board or of the Exchequer Court sitting as an appellant tribunal from such Board does not estop the taxpayer from questioning the validity of the assessment upon an action by the Crown to recover the tax or otherwise.® Toronto Railway \. Torania, 1904. A. C, 809. CHAPTER IX. PAYMENT AND REMEDIES TO RECOVER PAYMENT. Under the Dominion Act, the obligation to pay income Beneficial tax is imposed, as a general rule, primarily upon the beneficial oe recipient of income, and to this general rule there is but one primarily exception, namely, that of a person in whose hands income ecleig Sa is accumulating in trust for the benefit of unascertained except in one persons or of persons with contingent interests, the trustee ae being assessable in respect of such income as if it were the in- come of an unmarried person.t. A liability to pay income tax A secondary which arises contingently and may be described as being eee secondary to the primary liability of the taxpayer is imposed in the following cases :— : (1) Where a taxpayer’s property, business or estate is being administered, managed, wound-up, controlled or other- wise dealt with by any person within the category of “ trustees iy jeer in bankruptcy, assignees, liquidators, curators, receivers, ad- puptey, ps- ministrators, heirs, executors and such other like persons or ee legal representatives,” such person, besides being required to fiduciaries. make a return of the taxpayer's income for any taxable period or portion thereof for which the taxpayer was required to make, but had not made, a return, is obliged to pay the tax, surtax, interest and penalties, if any, thereupom assessed and levied,? or which was previously outstanding,® before distri- buting the taxpayers’ property, business or estate. For the purpose of securing compliance with the provision as to paying an outstanding assessment, the Act requires the fiduciary to obtain a certificate from the Minister of Finance certifying that no unpaid assessment to income tax, ete., properly chargeable against the taxpayer remains outstand- ing, before distributing any of the assets under his control, and if distribution is made without such certificate being obtained, the fiduciary becomes personally liable to pay the income tax, interest and penalties which may be due.* Sec. 3 (6), principal Act, as enacted by sec. 4, chap. 49, 1920. *Sec. 7 (9), principal Act, as enacted by sec. 10, chap. 49, 1920. oe 7 (10), principal Act, as enacted by sec. 10, chap. 49, 1920. *Thid. 260 (bv) Onan agent, trus- tee or collec- tor who re- ceives in- come for a taxable non- resident. Unascer- tained per- sons are not non-resi- dents. General policy of the Act is to tax the beneficiary, not the trus- tee, of a trust or estate. DOMINION INCOME TAX LAW. (2) In the case of a person who resides outside of Can- ada, every agent, trustee or person who -collects or receives or is in any way in possession or control of income, for or on behalf of the non-resident, besides being required as noted in the chapter on “Returns” to make a return of such income, may be required, on notice from the Minister, in the event of the non-resident failing to pay any tax which may be pay- able by him, to pay the tax out of the income or other assets of the non-resident in his hands.° In a recent case in Ontario,® it was argued that trustees, under a will cf a deceased person, who were in receipt of in- ‘come for the benefit of persons who were not ascertained and would not be ascertained until a future period, were liable to be assessed to income tax under a provision of the Ontario Assessment Act (R.S.O. Chap. 195, sec. 13) which provides that “ Every agent, trustee or person who collects or receives or is in any way in possession or control of income for or on behalf of a person who is resident out of Ontario shall be assessed in respect of such income,” but Mulock, C.J.,Ex., whose judgment was concurred in by Riddell, J.A., said: “To bring the case within that section it must appear that the trustees are collecting or receiving the income for or on behalf of a person and also that such person is resident out- side of Ontario. It may be that the person who ultimately becomes entitled to the income in question is yet unborn. Such a person does not come within the class of persons mentioned in section 13, namely, persons resident out of Ontario. This implies a person living at the present time and residing out of the Province.” Subject to the foregoing exceptions, the general policy of the Act appears to be to tax the beneficiary of a trust or estate, rather than the trustee, in respect of the income of the trust or the estate received by the trustee, for the Act expressly provides that, “The imcome, for any taxation period, of a beneficiary of any estate cr trust of whatsoever nature shall be deemed to include all income accruing to the credit of the taxpayer whether received hy him or not during the taxation period.”? , Income Tax Payable by Instalments.—Recent amend- ments of the Act, which are applicable to the 1920 taxation "See, 7 (11). principal Act. as enacted by oo 10, chap. 49, 1920. * Re Gibson and City of Hamilton, 45 O. . 458. “Sec. 8 (6). principal Act. as enacted oe — “4, chap. 49, 1920. PAYMENT AND REMEDIES TO RECOVER PAYMENT. 261 period and thereafter, have effected important changes in the law respecting the time and manner of paying assessments to income tax. Every person who is liable to pay a tax under y, 4 qosg than the Act is now required, when he prepares a return of his one-quarter taxable income, to compute the amount of the tax which he js 0, fx must liable to pay and to deliver to the Minister with his return with tax- not less than one quarter of this amount. Doubtless the tax- Nera payer may, if he so desires, pay the whole instead of one quarter of the tax payable by him when he sends in his re- turn, but if he prefers to do no more than comply with the letter of the Jaw, he is at liberty to pay the balance of such tax in not more than three equal bi-monthly instalments following the last date prescribed for making returns, namely, April 30th in each year, or such later date as the Minister may name, together with interest at the rate of six per centum upon each instalment computed from the date last mentioned to the time of payment.s Unless the provisions of the Act, Penalty for in this respect, be strictly observed the taxpayer becomes Siena liable to pay certain penalties. It is provided that if the tax- instalment payer pays an instalment of less than one quarter of the tax fee 1 “as estimated by him,” or fails to make any payment at the prescribed. time of filing his return or at the time when any instalment should be paid, he shall pay, in addition to all other penalties, a penalty of five dollars or one quarter of the amount of the tax unpaid, whichever be the greater.® After examination of the taxpayer’s return, the Minister Notice of shall, the Act provides, send a notice of assessment to the ee taxpayer, verifying or altering the amount of the tax as alters computed hy him in his return. Any additional tax over and oo . above the amount computed by the taxpayer required by the puted by tax- notice to be paid, must be paid by the taxpayer within thirty "3°" days from the date of the mailing of such notice of assess- ment, and if he fails to pay the additional tax within this period, he becomes liable to a penalty of five dollars or one quarter of the amount unpaid, whichever be the greater.?° “There can be no taxation of income without previous Notice of assessment of some person in respect of such income,” said *scsemynt “Sec. 7 (7). of principal Act as enacted by sec. 10, chap. 49, 1920, ° Sec. 10 (1), principal Act as amended by sec. 14, chap. 49, 1920. The words “as estimated by him” appear to be a careless slip in the drafting for it was no doubt really desired that a taxpayer should be penalized for paying less than one-quarter of the tax actually assessable against him and therefore “as estimated by the Minister.” 5). Sec. 10 (1), principal Act, as enacted by see. 14, chap. 49, 262 Statutes of Limitation do not run in favour of delinquent taxpayers. Tax may be paid in eash or by cheque, draft or money order to Inspec- tors of Taxa- tion or to Department of Finance, or through a chartered bank, Action may be instituted in Exchequer Court or in any other court of com- petent uris- diction, ct ft DOMINION INCOME TAX LAW. Mulock, C.J., Ex., in a recent case + dealing with the taxation of income by a city under the provisions of the Ontario Assess- ment Act.? Liability to Pay Tax Continues——The Act provides that any person liable to pay income tax shall continue to be lable, and if any such person fails to make a return as required by the Act or makes an incorrect or false return, and does not pay the tax in whole or in part, the Minister may at any time assess such person for the tax or such portion thereof as he may be liable to pay, and may prescribe the time within which any appeals may be made under the provisions of the Act from the assessment, or from the decision of the Board of Referees, and may moreover fix the date for the payment of the tax.8 The probable effect of this provision is to exclude the opera- tion of any of the provincial statutes of limitation in favour of a delinquent taxpayer. Medium of Payment.—In practice, the tax is paid in cash or by cheque, draft or money order, through the offices of the various district Inspectors of Taxation or directly to the De- partment of Finance at Ottawa. The tax may also be paid by cheque delivered to any branch of a chartered bank of Canada, for, in this behalf, the Act provides that, “ Any chartered bank of Canada shall receive for deposit, without any charge for discount or commission, any cheque made payable to the Receiver-General of Canada in payment of tax or penalty imposed by this Act, whether drawn on the bank receiving the cheque or any other chartered bank in Can- ada.”# Action of Debt Ordinary Remedy for Recovery of Tax. —The ordinary remedy for the recovery of the tax provided by the statute is an action of debt against the delinquent tax- payer. The Act provides in one section’ that, “The taxes and all interest and costs assessed or imposed under the pro- visions of this Act shall he recoverable as a debt due to His Majesty from the person on whom it is assessed or imposed,” 1Re Gibson and City of ITamilton, 45 O. Tu. R. 458. *7R. 8S. O. 1914, chap. 195. ® Sec. 10 (3). principal Act. a 10 (5), principal Act, as enacted by sec. 8 (2), chap ® See. 20, principal Act. PAYMENT AND REMEDIES [0 RECOVER PAYMENT. 203 and in another,® that “ Any tax, interest, costs or penalty that may be assessed, recovered or imposed under this Act may, at the option of the Minister, be recovered and imposed in the Exchequer Court of Canada, or in any other court of competent jurisdiction in the name of his Majesty.” * All suits on behalf of His Majesty in the interest of the Dominion, brought in the Exchequer Court, are instituted by the Attorney-General of Canada by way of information in which the plaintiff is described as “ His Majesty the King on the information of the Attorney-General of Canara.” In practice informations are always filed in the Exchequer: a ttorney- Court, but there seems to be no reason why the Attorney-Gen- ee Le eral should not lay his information in any of the provincial sue by in- courts, if he so chooses ;* but if, in the case of the provincial este t ce courts, he elects to adopt the procedure of the forum, as it forum. is conceived he may, the suit will be instituted in the name of “The Attorney General of Canada on behalf of His Majesty the King ” as plaintiff. The particular class of information appropriate for the recovery of assessed income taxes is the information of debt,$ and it would seem to be open to a defendant taxpayer to plead, in answer to the Crown’s information, the old general Paced issue of nil debet and nunquam indebitulus, and thus re-issue may quire the Crown to prove a lawful assessment.? To what ce extent the defendant will be bound will depend.on the evi- information. dence of a valid assessment.?° In order to establish the validity of an assessment to in-Cyown must come tax, the Crown must shew (1) that the defendant is a a person liable to be assessed to income tax under the Act and both as re- (2) that the income sought to be charged is within the pw- eee ate view of the statutory definition of income. If there be no sought to be “power conferred by the statute to make the assessment, in “!""ged. respect of both these matters, then the assessment will be wholly illegal and void ab initio? saving that where there is e. 21, principal Act. e Robertson on Civil Proceedings by and against the Crown, Tr 2O 6 p. 171. ae Robertson, Civil Proceedings by and against the Crown, p. 172. : °Att-Gen. Vv. McCormack (1903), 2 Ir, L. R. (KK. B.) 517: Robertson, Civil Proceedings by and. against the Crown, p. 2h. * Atty.-General v. McCormack, supra at p. 521. * Toronto Railway Co. v. City of Toronto, (1904) A. C. 809. 815: City of London v. Watt & Sons, 22 8 .C. R. 300, 302; Canadian Oil Fields Co. v. Village of Oil Springs, 13 O. Th. R. 405: Niekle vy. Douglas. 37 U. C. (Q. B.) 51; London Mutual Insurance Co. ¥. City of London, 15 Ont. A. R. 629. . 264 Unlawful assessment ab initioa nullity and cannot be validated. In-such ease decision of court on appeal under act is not res judicata. No objection relating merely to computation of lawfully assessed tax can be raised in defence. DOMINION INCOME TAX LAW. jurisdiction to make the assessment as regards the person, and the only question is as to the income upon which he is liable to be axsessed, the assessment may perhaps be invalid only as to that part of the alleged income wrongfully assessed. The Act* purports to make an assessment from which no itotice of appeal is lodged by the taxpayer, with the Minister, witlin twenty days after the date of the mailing of the notice of assessment ‘‘ valid and binding upon all parties concerned,” but where an assessment is ab initio a nullity, this provision, it is conceived, does not. operate, nor, where a taxpayer ap- peals against the assessment, does a Board, acting as a ‘Court of Revision to hear and determine the appeal, or the Evx- chequer Court exercising the statutory jurisdiction of appeal from the Court of Revision, have jurisdiction, to confirm the assessment or give it validity. In such a case, the decision of the Court of Revision or of the Exchequer Court, in appeal therefrom, is not res judicata and cannot be pleaded as an estoppel.* Where, however, the Crown successfully establishes juris- diction or power, under the Act, to assess the defendant in respect of the income sought to be charged or of some portion thereof, that will conclude the case against the defendant, as regards the income lawfully assessed, for no court would consider itself entitled to entertain any objection relating merely to the computation of an assessable tax, the proper and only remedy of the taxpayer in respect of such a matter being the remedy by way of appeal from the assessment pro- vided by the statute.® Summary Remedy by Distress Where Taxpayer Suspected to be Leaving Canada. summary process for the recovery of assessed income tax from a taxpayer who is suspected to be leaving Canada is provided by a recent amendment of the Act ® which reads as follows:—‘ The Minister, if he suspects that the taxpayer is about to leave Canada, mav, for that or anv other reason, by registered letter addressed to the tax- ?Sec. 14. principal Act. * Toronto Railway Co. v. City of Toronto, supra, and other cases cited in the same note; also, Wooney v. Comm'rs of Tar (1905). 3 C. L. R. 221, at 235-6, ‘bid. 5 Nickle v Douglas, supra; Canadian Oil Fields Co. v. The Village of Oil Springs, supra; Allen v. Sharp (1848), 2 Ex. 352, Wearer v. Price (1832), 3 B. & Ad. 409. °See. 10 (2), principal Act, as enacted by sec. 14, chap. 49, 1920. PAYMENT AND REMEDIES TO RECOVER PAYMENT. payer, demand payment of all taxes, penalties and accrued interest for which the taxpayer is liable, and the same shall be paid within ten days from the date of mailing of such registered letter, notwithstanding any other provisions in this Act contained. Non-payment of the said tax within the Failure to comply with specified time shall render the goods of the taxpayer liable to Minister's seizure by the sheriff of the city, county or district in which compliance with any such demand, signed by the Commis- sioner of Taxation, setting forth the particulars of the demand and placed in the hands of the sheriff, shall be sufficient authority for him to seize sufficient of the goods of the tax- payer to meet the said demand. The sale of such goods and the disposition of the moneys realized shall be conducted in the manner prescribed by the law of the province in which the goods are situate as if the seizure were made under a writ of execution issued out of the Superior Court of the said- pro- vince.” “ Taxpayer ” as defined by section 2 (f) of the Act means “any person paying, liable to pay, or believed by the Minister to be liable to pay any tax imposed by this Act.” As the foregoing provision in terms suggests, the remedy thereby provided is available to the Crown only where the Minister suspects that a taxpayer is leaving Canada, although the Minister's demand for payment of the Crown’s debt against the taxpayer, for income tax, penalties and accrued interest may be made, not only for that reason, but, as the subsection provides, for “ any other reason.” The power to require a sheriff to make seizure of sufficient goods of the taxpayer situate within his bailiwick to satisfy the Crown’s claim, in the event of the taxpayer’s failure to comply with the Minister’s demand, is in the nature of a power of distress by way of execution 7 and it seems to be the purpose and intent of the last sentence of the subsection above quoted to assimilate the procedure for the sale of goods so distrained and the disposal of the realized proceeds to that prescribed under the various provincial laws in relation to the levying of a writ of execution. Whether a taxpayer whose Quuere, é whether tax- > payer is goods are distrained is entitled, by virtue of this provision demand jren- ‘ : ders goods the goods of the taxpayer are situate. A certificate of non- of delin- quent tax- payer dis- trainable. to claim the benefit of the “exemptions ” from seizure pro- entitled to vided under the provincial Execution Acts seems to be doubt- ‘MacGregor v. Clamp & Son (1914). 1 K. B. 288. ; : tions ” from ful, though doubtless these exemptions would in practice he distress. 266 DOMINION INCOME TAX LAW. Provincial allowed.* It is considered, however, that the said provision, Tie though equivocally worded, does not render the provincial not applic Creditors’ Relief Acts applicable in regard to the disposition yore of moncys realized under a distress for income tax. Crown's dis- The income tax, being solely a personal tax, only the goods tress takes of the taxpayer may be distrained upon.” The Crown’s dis- precedence 3 * ? : } over subject’s tress will take precedence of a prior distress by the subject not niet ie completed by sale.?° sale. Extraordinary Remedies: Writs of Extent and Diem Clausit Extremum.—One important consequence of the statu- tory provision making “the taxes and all interest and costs assessed or imposed under the Act recoverable as a debt due to His Majesty ” from the taxpayer is to render available to the Crown for this purpose remedies of an extraordinary nature in the form of writs of extent and diem clausit extremum which are prerogative processes by which the Crown can seize Summary i : ‘ 5 prerogative summarily the body (except in the case of the latter writ), Dinca uae lands, goods and debts or other choses in action of its debtor for faction ofa the purpose of obtaining satisfaction of debts due to it. It is oe proposed to sketch briefly the nature of these different writs and the existing practice and procedure of the Exchequer Court of Canada in regard to them, in so far as it is of prac- tical importance for the purposes of this work. These writs, at the present time not of common utility, doubtless are issuable cut of the superior courts of the several provinces as well as the Exchequer Court, but the regulating practice and pro- cedure must be the subject of special inquiry in the case of each province. Extents in Writs of extent are at common law of two kinds,—extents chiefand in chief issucd on behalf of the Crown against its debtor aid; latter (extents in chief in the first degree), or against its debtor's obsolete. = ee debtor and so on without limit as to the number of degrees ;:* and writs of extent in aid, issued to a Crown debtor, at his instance, to enable him to recover a debt from his debtor in aid of the Crown’s claim. Extents in aid may be said to be practically obsolete * and, therefore, they need not he further considered here. 5 Tbid. which holds that the common law exemption from dis- tress of a tenant’s implements of trade does not apply as against the Crown's right of distress for taxes: see judgment of Lush. J. at p. 292. *Shaftsbury (Harl) v. Russell (1823), 1B. & C. 666. %” Attorney-General Vv. Leonard, (1888), 38 Ch. D. 622; see also TIalsbury’s Laws of England. Vol. IT, pp. 174-5. * Robertson, Civil Proceedings by and against the Crown, p. 203. ? They were practically abolished in England by the Extents in Aid Act, IS17 (57 Geo. IIT, chap. 117): see Halsbury’s Laws of England, Vol. 10. p. 14: Robertson on Civil Proceedings by and ugninst the Crown, pp. 190, 204-206. PAYMENT AND REMEDIES TO RECOVER PAYMENT. ~ 267 Writs of extent in chief, again, are of two species, namely, een ordinary writs of extent, by way of execution on judgment (einde— as obtained by the Crown or other debt of record due to the eae ae Crown, and writs of immediate extent which are issued on an affidavit that the Crown’s debt is in danger of being lost, and without any antecedent judgement or record. On a judgment for assessed taxes, interest and costs, the Crown has an extent as of right without any other formality than the praecipe for the writ. The affidavit which is indispensable to the issue of a writ Affidavit of of immediate extent, commonly referred to as the affidavit ae of debt and danger, states the existence of the Crown debt tial to obtain and that it will be lost unless a method more speedy than eeneege the ordinary method be taken for its recovery. A mere allega- extent. tion that the debt is in danger is not, however, sufficient. The affidavit will be defective if it does not allege or state facts from which the court may infer that the debt is in danger of being lost.* The writ directs the sheriff to seize the body and all and Immediate singular the goods and chattels, lands and tenements, debts, (ten eredits, specialties and sums of money of the debtor in the eae sheriff’s county or bailiwick, and apparently they can all be poay, goods seized at once whatever the amount of the debt. Though the and chattels, captas is always inserted in the writ, it is usually accompanied tenements, by an intimation to the sheriff that he is not to seize the body °* of the debtor unless he receives special directions to do so, the Crown thus retaining the means of arresting the debtor if necessity arises.” The writ of diem cliusit extremum is the equivalent of a Writ of diem writ of extent tested after the death of a Crown debtor. ena dig Formerly a commission to find the debt and the death was necessary before the issue of the writ, but now by rule 13 of the Exchequer Court Rules, such a commission is no longer required, and the writ is issued, on an affidavit of debt and Issued on death, and on the fiat of the judge. This rule appears to *fidavitot dispose in the negative of the query whether it was necessary death. *This appears to be the practice in the High Court of Justice in England, which in the absence of any special provision on the subject in the rules of the Exchequer Court, is the practice of the Exchequer Court by virtue of rule 1 of the said rules; see Robertson, Civil Proceedings by and against the Crown. p. 203. *The King v. Pridgeon, (1910), 2 K. B. 543; see, also, West on Extents, p. 53. ° Robertson, Civil Proceedings by and against the Crown, p. 194. where the unreported case of R. v. Cowing, (1877) is referred to, the last instance in which a debtor's body wis seized. Rules of Ex- chequer Court relat- ing to writs of immediate extent and diem clausit ertremune DOMINION INCOME TAX LAW. to allege danger as well as death in the affidavit. It also appears to abolish the effect of the cases which rested on the distinction between debts of the deceased to the Crown which were of record in his lifetime and those which were not.’ Subject to these observations, the practice follows generally that on an immediate extent in chief. The practice of the Exchequer Court, in regard to the writs of immediate extent and diem clausit extremum, is governed by Exchequer Court rules 13 and 14 which read as follows: “13. A commission to find a debt due to the Crown shall not be necessary for authorizing the issue of an imme- diate extent, or a writ of diem clausit exlremum; and an im- mediate extent may be issued on an affidavit of debt and danger or a writ of diem clausit extremum may be issued on_an affidavit of debt and death, and, in either case on * the fiat of the judge of the Exchequer Court.” N ecessity for inquisi- tion by sheriff abolished. Ixtent takes pre- cedence of subject's writ of execution if distress not completed by sale before teste of extent. Forms of precedents, “14, The sheriff, in executing a writ of immediate ex- tent or a writ of diem clausit extremum, need not inquire by the oaths of good and lawful men in his bailiwick but shall execute the said writ or writs in the same manner as 1s provided for the execution of writs of fieri facias against goods and lands or of sequestration.” The effect of rule 14 is to abolish the necessity which existed under the ancient form of writ for an inquisition by. a jury summoned hy the sheriff for the purpose of finding the property of the debtor in his bailiwick. -\n extent tested after the delivery of a fi. fa. to the sheriff hy a subject, or even after the distress, but before the sale, prevails against the distress.$ The following references to forms of precedents may be useful: (1) affidavit of debt and danger: see, Robertson, Civil Proceedings by and against the Crown, p. 271; Audette’s Practice of the Exchequer Court, Schedule D; (2) Fiat of the judge for issue of immediate extent in chief or diem clausit extremum: Robertson, tbid., p. 272; Audette, ibid., p. 538; (3) immediate extent in chief, Robertson, oer PAYMENT AND REMEDIES TO RECOVER PAYMENT. the separate estate it is to be dealt with as part of the joint estate; and conversely, if there is a surplus of. the joint estate, it is to be dealt with as part of the respective separate estates in proportion to the right and interest of cach partner in the joint estate.’° Under the Income Tax Act, partners are lable, ax pointed Priority of out in the chapter on “ Persons Taxable,” to be assessed to peta ig income tax only in their individual capacity. It is, therefore, partners con- conceived that assessed income tax is in the nature of a separ- partner's ate, as contra-distinguished from a joint, debt of a taxpayer ome res who is a member of a partnership, and that in the administra- ~ tion of a partner’s assets under the Bankruptcy Act the Crown’s claim for assessed income tax will be entitled. to preference only over the claims of creditors of equal degree against a partner’s separate property. Where a claim for income tax is filed in a bankruptey or under an assignment the court will not go behind the assessment to income tax to determine what amount is prov- able.* It is expressly provided by the Act that an order of dis- As to release charge shall not release a bankrupt or assignor “from any ob dete due debt with which the bankrupt or assignor may be chargeable Crown. at the suit of the Crown. unless an Order-in-Council proceeding from the Crown in the proper right is filed in court consenting to his being discharged therefrom.” It was held in a recent case,* under the English Bank- gankruptey ruptey Act, 1914, that the provisions of the Bankruptcy fice Aes tees not did not apply to the private administration of a deceased in- ydministra- solvent’s estate out of court, and that in such a case the tion of insol- Crown’s debt against the deceased for income tax was entitled ae aa to priority in accordance with the rules of the common law.* Under the Winding-up Act—Under the Winding-up Act® a company that is put into liquidation is required, from Sec. 51 (3) Bankruptey Act. This provision embodies the rule as to the administration and distribution of joint and separ- ate estates laid down by Lord King in Ex p: Cook. 2 I. Wis. 500. The rule of administration is analogous where only one partner of the firm is adjudged bankrupt or makes'an authorized assignment: see sec. 37 (4): see, also, sec. 28 (2), which lays down the general ale governing the ranking of claims against a debtor's different estates. Re Calrert. (1899). 2 Q. B. 145. 2? Sec. 61 (1) (a) of the Act. ’In re Laycock v. Npecial Comm'rs for Income Tar, (1919), 1 Ch. 241. : : *See post, where these rules are set out. *R. S. C. chap. 144. a ~> o DOMINION INCOME TAX LAW. the time of the making of the winding-up order, to cease to carry on its business (except in so far as is, in the opinion of the liquidator, required for the beneficial winding up of the company),° and the liquidator upon his appointment, is required to take into his custody or under his control all the property, effects and choses in action to which the company is or appears to be entitled;’ but the winding-up order does not operate as a cessio bonorum, the assets and property of Priority of the company continuing to remain vested in it until the com- See tiated pany is finally dissolved. Furthermore, with the exception exceptin of one provision which gives clerks or other persons who are ae or have been in the employment of the company in or about salary and its business or trade a special privilege over other creditors coer for three months’ arrears of salary and wages due and unpaid The Wind- to them at the time of the making of the winding-up order, ing-up Act the Act does not deal with the subject of priorities. The re a Act is not expressed to be, nor is it by implication, binding Crown. on the Crown, being in this respect similar to the former statute 45 Vic. chap. 43, which was considered in The Queen Remedies y. Bank of Nova Scotia.’ Hence, two distinct prerogatives iaateairedy not- are available to the Crown (Dominion) in respect of a debt H ooetereeg for income tax against a company being wound up under the orelaimsto said Act: The Crown, not being bound by the statute, can priority of pursue its remedies against the company and its property not- payment é ; ee eee a : . ; made in withstanding the liquidation proceedings, or, instead of doing winding UP- this, it may file its claim in the liquidation and claim the right to be paid out of the assets of the company in priority to all other creditors of equal degree.® In the winding up of a bank, the Crown’s claim for assessed income tax will rank as a second charge against the assets of the bank by virtue of the provisions of sec. 131 of the Bank Act,?° which regulates the order in which debts of an insolvent bank shall be paid and makes the claims of note-holders a first charge. Assessed] ine In Administration Under Provincial Laws.—Where a tax- sa Hee payer’s assets or estate are being administered under the ferred unless laws of a province, it is apprehended that the Crown (Do- minion) may file its claim in respect of assessed income tax ° Thid., see, 20. * Thid., see. 33. 511 8. C. R. 1. °’Re ITenley & Co., supra. “Chap. 9, Statutes of Canada, 1913. PAYMENT AND REMEDIES TO RECOVER PAYMENT. against the taxpayer in the administration of the taxpayer's assets or estate and rely on the prerogative right to have its debt paid in priority to all other debts of equal degree (sub- ject, of course, to any question which may arise as to whether or not the prerogative has been abridged or impaired by ante- Confederation provincial legislation in force in the Province), and notwithstanding that the provincial law may be expressed to be binding on the Crown, for, as stated above, such a declaration cannot take away or abridge any right of the Crown as represented by the Dominion. Where the Crown (Dominion) is entitled to assert its pre- rogative right to be paid in priority to other creditors, the question of the priority of the Crown’s debt (though not, of course, of other creditors infer se whose rights are now gener- 20% prerogative affected by ante-Con- federation legislation. Priority of assessed in-' come tax must be de- termined ac- cording to ally and specially regulated by provincial legislation) will degrees of be determined according to the degrees of priority created by the common law and to the particular rank or degree of the debt for income tax in relation to that of the other debts respectively. ‘The following are the degrees of priority at common Jaw :— (1) Funeral and testamentary expenses ;” ' (2) Debts due to the King by matter of record or by specialty? which have priority over all other debts whether prior or subsequent in date ;* (3) Next in degree, apart from debts with statutory pri- orities’ are debts of record, which are of two sorts, namely -(a@) judgments in courts of record, and (b) recognizances and statutes, and rank in the order named. 1¥ormerly, a distinction had to be made between legal assets and equitable assets. If the assets were legal, the rules of priority enum- erated above governed their administration ; but if they were equitable assets, then, although the precedence in payment of debts to legacies had to be respected, yet among creditors the assets had to be applied in satisfaction of all claims pari passw without regard to the priority in rank of one debt to another. the principle of this distine- tion being that in natural justice and conscience and in contemplation of a court of equity all debts are equal and the debtor is equally bound to satisfy them all, whether by specialty or simple contract; see Williams on Exeecutors, 10th ed., vol. 2. pp. 1298-9. The importance of this distinction was greatly diminished by the Administration of Estates Act, 1833 (Hinde Palmer’s Act), which abolished the dis- tinction between specialty and simple contract debts in the adminis- tration of the estates of deceased persons. This Act has been assim- ilated into the laws of most, if not all, of the Provinces of the Dominion. 2? Williams on Executors. 10th ed., vol. 1, p. 751. °By Statute 43 Hen. VIII., chap. 39. it was enacted that all obligations and specialties taken to the use of the King should be of the same nature as a statute staple. 1 Went. Off. Ex. 14th ed. p. 261. * See B1. Com. Book II, p. 511; Williams on Executors, 10th ed., p. 757; Halsbury’s Laws of England, vol. 14, pp. 248, 249, 250. priority at common Jaw. Degrees of debts at :com- > mon law. 275 Crown's debt entitled to preference only over other debts of equal degree. Ilinde Palmev’s Act: its effect in re- lation to Crown's pre- rogative. DOMINION INCOME TAN LAW. (4) Specialty debts. i.c., debts due on special contracts, ax on bonds, covenants, and other instruments under the seal of the party ;° (5) Simple contract debts, as on bills or notes not under seal, and verbal promises or such as are implied in law.’ Of debts of this nature, those due to the King should, it seems, be satisfied before debts due to subjects.* (6) Voluntary bonds, unless assigned for value in the testator’s life time, when they stand on the same footing as other specialty debts.® The preference appertaining to debts due to the Crown is confined, as the foregoing enumeration suggests, to a pre- ference over other debts of equal degrec, and so a debt due to a subject by specialty was preferred to a simple contract debt due to the Crown ;?® but the effect of the Administration of Estates Act (Hinde Palmer’s Act),’ which has been assimi- lated into the statutory law of most of the provinces of the Dominion,? was to abolish the distinction as to priority of payment between specialty and simple contract debts in the administration of the estates of deceased persons.? It is accordingly conceived that in any province where legislation similar in effect to Hinde Palmer’s Act is in force, simple contract debts due to the Crown will, in the administra- tion of the estate ofa deceased person, have priority over both specialty and simple contract debts due to a subject on the same principle as that on which a simple contract ered- itor who has obtained a judgment against an executor is en- titled to priority over both specialty and simple contract - creditors.* °Bac. Abr. tit. “ Executors & Administrators” vol. 2 (LL. 2) Bl. jun Book IT, p. 511; Williams on Executors, 10th ed.. vol. 1 p. 771. ; ae Abr.. supra; Williams on Executors, 10th ed.. p. T76. bid, ® Lechmere Vv. Carlisle (Earl) (1733). 3 P. Wms. 211, 222: Payne Vv. Mortimer, (1859) DeG. & J. 447 CL. AL * Comr VY, Logan, 1 Bibb, (Ky.) 529; Nlinck v. HWeckley, 2 Till Ey. (8. CG.) 2502 Comurrs of Public Accounts Vv Greenwood, 1 Desaus. (S. C.) 450. "32 & 83 Vict. chap. 46 (ITinde Palmer's Act. 1869). *See, for example, Trustee Act. R. S. O., 1914. chap. 121, sec. Gh. Bank of BLN. A. Vv. Mallory, (A870). 17 Grant 102; Re William- son, Pennell Vv. MeCutcheon, 39 O. L. R. 418. *Re Samson, Robbins vy. Alerander, (1906). 2 Ch. 584 CL A. _ Sec Re Williams Estate, Williams vy. Williams, (1872). L. R. 15 Eq, 270, The practice of forming two funds adopted in Re Ben- tinck, Bentinck V. Bentinck, (1897), 1 Ch. 673, has been disapproved hy the Court of Appeal in Re Samson, Robbins v. Alerander, supra: per Fletcher Moulton, L. J., p. 592; Halsbury's Laws of England, vol. 14. pp. 247-8. PAYMENT AND REMEDIES TO RECOVER PAYMENT. 279 What is the degree or rank of the Crown’s claim [or in- Of the par- come tax? The Dominion Act provides simply that the bested a taxes, and all interest and costs assessed or imposed there- eat a under, “shall be recoverable as a debt due to His Majesty ” moare (a. from the taxpayer.® In determining the effect of this pro- vision, it is important to bear in mind the distinction between taxes and debts. This distinction was stated with clearness by Mr. Justive Field of the Supreme Court of the United States, in Meriweather v. Gurret.® “ Taxes,” this Taxes‘are “Jearned Judge said, “are not debts 4 Debts are abli- 2b det. gations for the payment of money founded upon contract, express or implied. Taxes are imposts levied for the support of the government or for some special purpose authorized by it. The consent of the taxpayer is not necessary to their enforcement. They operate in invitum. Nor is their nature affected by the fact that in some Ntates . . an action of debt may be instituted for their recovery. The form of the procedure cannot change their character.’™ The income tax, in its essential characteristics, is, there- Assessed in- fore, not a debt; nor is it made so by the provision of the sh i . . £ . a Dominion .\ct above quoted, the purpose and effect of this specialty provision being rather tu assimilate the procedure, remedies es and rights of the Crown applicable and incident to the recov- ery of debts, properly so-called, to the recovery of income tax. The income tax is, however, assessed and levied and the liabil- ity to pay it arises under and by virtue of the provisions of the statute, and it would seem, therefore, upon authority, to be on the footing of a specialty debt.* Refund of Overpayments of Taxes.—In all cases where Over pay- . & i screens Niece ments dis- the official examination of a taxpayer’s return discloses that q0G9 ne an overpayment has been made by the taxpayer, “the Min- official ex- ; Se 168 amination ister,” the Act provides, “ shall make a refund of the amount ese ie so overpaid by such taxpayer except in cases where any in- return te be : ; so . refunded un- stalment or instalments are either due or falling due by such jess instal- taxpayer, when the amount of the overpayment shall be Fleas OE: a g due, ® See. 20, principal Act. 102 U.S. 472, 513. ‘Citing Augusta v. North, 57 Me. 392; Camden v. Allen, 26 .N, J. L. 398, and Perry v. Washburn, 20 Cal. 318; referred to with approval by Ritchie, C. J.. in Lynch v. Canada N. W. Land Co., 19 S.C. R. 204, at p. 208; see, also, (. & BH. Townsites vy. Wetaskiwin, 59 S.C. R. at 603: Pipestone v. ITunter, 28 Man. L. R. 570, 572. ° Pipestone Vv. ‘Hunter, supra; The Cork and Bandon Railway v. Goode, 13 (. B. 827; Talory v. Jackson (1638), Cro. Car. 513: Jones v. Pope, 1 Wms. Saund. 55; Shepherd v. Ifills, (1855) 11 Ex. Rep. 55. 280 Overpay- ment may be due to mis- take of fact must be prior to ex- amination of return. Payment made by non-taxable person not covered ‘yy statutory provision. Tracts requi- site to\estab- lish right to recover over- payment. DOMINION INCOME TAX LAW. . applied on such instalment or instalments and notice of said action given such taxpayer accompanied by the payment of the balance, if any, of the amount overpaid.’”’® Manifestly the kind of overpayment contemplated by this provision is an overpayment of the assessable tax or of an instalment thereof on the occasion of the payment either of the whole of the tax, if the taxpayer chooses to pay it in a lump sum rather than -by instalments, or ot one or more instalments, made and whether, pre- sumably, the mistake is a mistake of fact or of law,—prior to the official examination of the taxpayer’s return. “Taxpayer,” as defined by the Act,?° includes, amongst others, “any person . . ._ believed ‘by the ‘Minister to be liable to pay any tax imposed by this Act”; but the word is evidently used in the provision above quoted in the sense of a “person liable to pay” income tax, for the provision being one merely as to “ overpayments ” necessarily predicates a liability on the part of the taxpayer to make some payment of income tax. And if this be so, the provision does not touch the case of a payment of income tax made by mistake by a person who is not liable to be assessed to income tax at all. Payments in this category are, the subject of special considerations below. It would seem that no right to recover an overpayment of income tax would be acquired by a taxpayer, under and by virtue of the provision in question, except where he could establish (1) that the official examination of his return had disclosed an overpayment of the assessable tax or of an instal- ment thereof, and (2) that at the time the official examina- tion of his return was made no instalment of the assessable tax was due or tnlling due against which the Minister, in the exercise of his statutory authority, could apply such overpay- ment, or that the alleged overpayment represented a balance remaining in the Minister’s hands after the instalment or in- stalments of the tax then due or falling due had been satis- fied. It is hardly conceivable that the Minister would refuse to refund an overpayment of income tax to which a taxpayer would be entitled according to the official examination of his return, and, therefore, any discussion as to the nature of a taxpayer’s remedy, in the event of a refusal on the part of the Minister to refund an acknowledged overpayment, is per- Sec. 7 12) principal Act. as enacted by sec. “10, chap. 49, 1920. Soe. 2 (f) principal Act. PAYMENT AND REMEDIES TO RECOVER PAYMENT. 281 haps purely academical. It may be shortly stated, however, Taxpayer's that overpayments of income tax are not moneys paid to the ee a Minister in his own right, either officially or individually, puna boy but rather moneys paid to the Crown and for the use of the . Crown through the Minister merely as its servant or agent, and that the statute consequently raises no relation between the tax- payer and the Minister which would support an application by the taxpayer for mandamus to compel the Minister to refund an alleged overpayment, the proper and only remedy of the taxpayer, in such a case, being by petition of right.’ Recovery of Taxes Paid Voluntarily Under a Mistake. (1) Of taxes paid voluntarily under a mistake of fact. Conceivably a taxpayer may pay an assessed income tax Mistake of which he is not liable to pay and yet under such circumstances £2**- that it will not be disclosed as an overpayment by the official examination of his return, as where, for example, he pays the tax under mistake or ignorance on his part of a material fact, e.g., making a return of income which he thought he had received but which in reality he had not received, or, in the case of a non-resident, making a return of his income as a person who has been one hundred and eighty-three days in the country when the fact is that his sojourn here was less than one hundred and eighty-three days. In such a case a question arises whether the taxpayer can recover moneys so paid to. the Crown. The general rule is, that money which is paid phe general voluntarily under a mistake on the part of the payer as to Tule as se re- a material fact may be recovered in an action for money had TBE paid and received to the use of the: plaintiff;? and it is conceived Voluntarily cas ‘ . . under mis- that a petition of right will lie for the recovery of moneys take of fact. paid to the Crown as taxes under a genuine mistake of fact.? Tf the Minister be not aware of the mistake under which the claim arises, it is probably necessary to give the Minister In re Nathan, R. v. Inland Revenue Comm'rs (1884), 12 Q. B. TI). 461. * Kelly v. Solari. 9 M. & W. 54: approved in Imperial Bank of Canada V. Bank of Hamilton, 1903, A. C. 49. 56 P. C.; Meadows v. Grand Junction Water Works Co. (1905), 3 lL. G. R. 910 (where overpayments of water rates made under a mistake of fact were held to be recoverable) ; Listowel Urban District Council v. Gibson (1913), 47 Iv. L. T. 261; Kleinwort v. Dunlop, 97 L. T. R. 263; Kerrison v. Glynn, Mills & Co. (1912), 105 L. T. R. 721; Lamborn v. Dickinson County, 97 U. 8. 181; Hunt v. Rowsmaniere, 1 Pct. 15; Bilbie v. Lumley, 2 Hast, 469; and see other cases referred to in Halsbury's Taws of England, vol. 21, p. 29, note (h). °' *See Petition of Right Act, R. 8. C. 1906, chap. 142. see 2 (ec); Walsbury's Laws of England, vol. 10, p. 27, and cases referred to in note (c). 252 DOMINION INCOME TAX LAW. Notice to : notice of the mistake and to demand the money, in order to euct’me. Maintain a petition of right to recover it, because without alleged mis : } ; 9 take prob- — such notice and demand the Crown is probably under no duty ably neces- Men ip sary condi- to repay it. aot DEES The mistake must be a mistake as to a material fact, i.c., es it must relate to a fact which if true would have rendered the Mistake : 3 2H . 1 f must beas to party under the mistake liable to pay the money and no oe merely as to a fact which if true would have rendered it desir- act. See i able that he should pay it.° Ignorance or The mistake may consist in the payer never having known forgetful- _ the real facts or in his forgetfulness of facts of which he once ness of facts - may account had full knowledge. The possession of the means of know- for mistake. Jedoe of which the plaintiff does not avail himself does not Posse of prevent the application of the rule if the money was in fact means 0 knowledge paid under a real mistake ;* for there is no conclusive rule of ae not — law that because a party has the means of knowledge he has ude gen ral rule, the knowledge itself ;* and accordingly possession of means of knowledge by the party who paid the money can be regarded only as affording a strong observation to induce the Court to believe that he had actual knowledge of the cireum- stances.” i ae If, however, money be paid voluntarily with full know- facts at ledge of the facts it cannot, in the absence of male fides, be time of pay- ,. raved 10 ment bar to recovered. recovery. (2) Of taves paid voluntarily under a mistake of law. Mistake of Money paid voluntarily and with full knowledge of all Tvs the facts and circumstances cannot be recovered back merely Money paid upon the ground that it was paid under a mistake as to the eae law or in ignorance as to the legal effect of the circumstances take of law under which it was paid.? irrecoyer- wble. 1 Pp % a = : Freeman V. Jefferies. L. R. 4 TEx. 189. a ° Bize V. Dickason (1786), 1 T. R. 285, per Lord Mansfield, C. J.. at p. 287: Standish v. Ross (1849), 3 Ex. 527; Aiken v. Short (1856). 1 H. & N. 210, per Bramwell, B. at p. 215; The Trust Cor- poration of Ontario v. City of Toronto, 30 O. R. 209. aoe y. Solari, supra; Lucas V. Worswick (1835), I Mood. & Ry 203: “Kelly v. Solari, supra; Tow nr Vv. Crowdy, 8 -C. B. CN. S.) 477: Dails v. Lloyd (1848), 12 Q. B. 531. “Bell v. Gardner (1842) 4 M. re G. 11, per Tindal, C.J., p. 24; and see Townsend vy, cnn di. supra; Durant vl ‘Ecelesiastiral Comurrs (1880), 6. B.D. 234. 4 *Bell v. Gardner, supra; Durant v. Eeclesiastical Comm'rs, supra; Brownlie v. Canipbell (1880), 0 A.C. 925, 052. ae. ‘Tiggs Vv. Neott (1849), 7 C. B. 63: and see Bromley vy. Tolland (1802), 7 Ves. "3. Dy, ‘Brisbane N. Dacres, 5 Taunt. 143, and other cases referred to in Ualsbury’s Laws of England, vol. 21, p. 33, note (e) ; see, also, Aaskell ¥. Horner (1915), 3 Ik. B. 106. per Lord Reading, C. J. at PAYMENT AND REMEDIES TO RECOVER PAYMENT. 283 The rule, as regards the recovery of taxes so paid, is laid ‘down by Dillon on Corporations,? with precision and clear- ness, in the following passage :— “Money voluntarily paid to a corporation under a claim The general of right, without fraud or imposition, for an illegal tax stated by cannot, without statutory aid—there being no cocr- oe cion, no ignorance or mistake of facts, but only ignorance tions. or pure mistake of the law—be recovered back from the cor- poration either at law or in equity even though such tax could not have been legally demanded and enforced.” Recovery of Illegally Exacted Taxes.—.A petition of right to recover back money upon the ground of the illegality of the income tax or assessment is, upon principle and the weight of authority, maintainable when, and in general only when (in the absence of provision in the Dominion Act enlarging the liability), the following requisites co-exist :— 1. The authority to levy the tax must be wholly wanting Requisite in- or the tax itself wholly unauthorized, in which cases the Cre ei assessment is not simply irregular but absolutely void. cover illeg- 2. The money claimed to be recovered back must have he Na been actually received by and for the use of the Crown. 3. The payment by the petitioner must have been made upon compulsion, as, for example, to prevent the immediate seizure of his goods, and nol voluntarily. Unless these conditions concur, paying under protest will Protest alone not in itself, without statutory aid—and the Dominion Act 20%," itself affords none—give a right of recovery;? the payment will be considered, notwithstanding the protest, to have been made voluntarily to close the transaction.* Dillon on Municipal Corporations ’ says :— “The coercion or duress which will render a payment of Coercion or taxes involuntary must, in general, consist of some actual ns ile: or threatened exercise of power possessed or assumed to be p. 118; Whitely, Ltd. v. The King (1910), 101 T.. T. R. 7412 Cushen v. City of Hamilton, 4 O. Ta. R. 265 (citing Dillon on Municipal Corporations, sec, 1621 and Richmond v. Judah, 5 Leigh (Va.) 305) ; O'Grady Vv. City of Toronto (1916), 357 O. L. R. 139: Lowe v. The King (1918). 17 Ex. C. R. 126 (citing Schlesinger v. United States. I Court_of Claims. 16) ; Grand Trunk Ry. Co. v. Quebec, 30-8. C. R. 3 per Strong, C. J. at p. 79; Elliot Vv. Sirarticout. 10 Pet. 137, 153. * Sth ed. sec. 1621, quoted with approval by Osler, J. A. in Cushen v. City of Mamilton, supra, *Tbid. sec. 1617; Maskell v. Horner (1915), 3 K. B. 106: Chese- borough v. U.S. (1904). 192 UT. 8. 253. *Lamborn v. Comnacrs, 97 UL S. 181; Merck v. Treat. 202 Fed. 135. ; “Sth ed. see. 1620: Radich Vv. Tutchins, 95 U.S. 210. 284 DOMINION INCOME TAX LAW. possessed hy the party exacting or receiving the payment over the person or property of another, from which the latter has no other means or reasonable means of immediate relief except by making payment.” Maskell v. A concise statement of the effect of the English decisions, ern upon this subject, is to be found in the judgment of Lord Reading, in a comparatively recent case, Maskell v. Horner,’ relating to the recovery of illegally exacted market tolls, where he said :— “Tf a person pays money which he is not bound to pay under compulsion of urgent and pressing necessity or of seizure, actual or threatened, of his goods, he can recover it The common 3 & : law as to as money had and received. The money is not paid under alee duress of the strict sense of the term, as that implies duress under duress. of the person, but under the pressure of seizure or reten- tion of goods which is analogous to that of duress. Payment under such pressure establishes that the payment is not made voluntarily to close the transaction (Atlee v. Backhouse.)* The payment is made for the purpose of averting a threatened evil and is not made with the intention of giving up aright but under immediate necessity and with the inten- tion of preserving the right to dispute the legality of the demand (Valpy v. Manley.)§® Chese- The law was tersely and clearly stated, also, by Chief ue Vv. Justice Fuller of the Supreme Court of the United States, States. in a leading case upon the subject of payments under duress, Cheseborough v. United States, in the following passage of his judgment :— “The rule is firmly established that taxes voluntarily . paid cannot be recovered back and payments with knowledge A statement 224 without compulsion are voluntary. At the same time of the law when taxes are paid under protest that they are being ille- cee vethe “ally exacted or with notice that the payer contends that they aries are illegal and intends to institute suit to compel their re- « payment, a recovery in such suit may, on occasion, be had, . although generally speaking even a protest or notice will not avail if the payment be made voluntarily with full knowledge of’ all the circumstances and without any coercion by the actual or threatened exercise of power possessed or supposed ® Supra, at p. 118. ; asi M. & W. 633, per Lord Abinger, C. J. p. 646; per Parke, B. 81 C. B. 594. per Tindal, C. J. 602, 603. ®©192 U. 8. 253. PAYMENT AND REMEDIES TO RECOVER PAYMENT. 289 to be possessed, by the party exacting or receiving the pay- ment, over the person.or property of the party making the payment from which the latter has no other means of imme- diate relief than such payment.” Although nothing in the shape of an express notice or Without pro- declaration on the part of a person paying illegal taxes of an ee form, money intention to keep alive his claim to recover is required,’® he au be vol- % : . untarily must, nevertheless, pay under protest in some form or his paja. payment will be deemed voluntary.* “Tt is clear, and indeed was admitted at the bar,” said No express Lord Reading, C.J., in Maskell v. LLlorner, “that no express eae words are necessary and that the circumstances attending inferred the payments and the conduct of the plaintiff when making ines re them may be a sufficient indication to the defendant that the payments were not made with the intention of closing the transaction.’ Again, although the mere fact of a payment under pro- test would not be sufficient to entitle the party paying the illegal taxes to recover, as noted above, it affords some evi- dence, when accompanied by other circumstances, that the pay- ment was not voluntarily made to end the matter.* A protest against paying a tax has been held by the a protest Supreme ‘Court wf the United States to include the penalties ag hee without specific mention of them.* penalties. Payment of illegal taxes merely upon a demand threat- payment ening legal proceedings to recover penalties will not, it seems, toe de- constitute a payment under compulsion,* but a different rule th ficautentue may possibly apply under the Dominion Act in the case of fe payments made in consequence of a demand, giving notice of penalties liability to a penalty, where self-executing or Saito miatia pro- aie fice visions for the collection of the penalty may be invoked. A compulsion ; provision of this kind, for example, is the one which provides }" Teaee . summary remedy by way of distress for the collection of are exigible “all taxes, penalties and accrued interest ” for which a tax- hata payer, who is suspected by the ‘Minister to be about to leave Canada, may be liable, in the event of his failure to make 10 Maskell ¥ Iforner, supra, at pp. 119-20; see, also, Little v. Bowers, 134 U. 547; Wright v. Blakeslee, 101 U. S. 174; Railroad Co. v. Comm’rs, 580. S. 541; Lamborn v. Comm’rs, supra. 1 Wright v. Blakeslee, supra; see, also, Philadelphia v. Collector, 72 U. 8. 614; Collector v. Hubbard, 79 U. 8. 272. ? (1915) "3K. B. at pp. 119-20. 3 bid. j * Wright v. Blakeslee, supra. wae re Ltd. v. The King, 101 L.°T. R. 741, per Walton, J. p. 745. 286 DOMINION INCOME TAX LAW. payment within ten days after the Minixter’s demand.* Pay- ment, upon such a demand, may perhaps be a payment under compulsion. : In a comparatively recent decision; the Supreme Court of the United States said :— Dictum of “When, as is common, the state has a more summary aia remedy ” (i. ec. other than by action), “such as distress, and United. the party indicates by protest that he is yielding to what he to im. Cannot prevent, courts sometimes, perhaps, have been a little plied duress. too slow to recognize the implied duress under which pay- ment is made.” A liberal case upon the question of duress ix a Connecticut decision which holds that a payment of a tax made to avoid the onerous penaltics automatically added to the assessment under the Act imposing the tax, in the event of its non-payment, is not a voluntary payment, but a pay- ment under duress of the penalties of the Act. The Act contains a provision which purports to make an assessment not appealed against by “any person objecting to the amount at which he is assessed or as having been wrongfully assessed,” by notice to the Minister, within twenty days after the date of the mailing of the notice-of assessment Income Tax © yalid and binding upon all parties concerned.”" But if this prio ate provision can operate to conclude and confirm only an assess- confirm aud ment which ix authorized by the statute, both as regards the conclude as- : sessment not Person and the income sought to be charged, as we have os already suggested in another place,” then it would seem to cept where follow that it cannot operate nor be pleaded as an estoppel oe Sa to an action on the part of a taxpayer, who has not exercised mike assess- the right of appeal thereby provided, for the re-payment of ee an illegally exacted tax. However, if the tax sought to be recovered was collected upon an assessment which was not ‘illegal or void but merely irregular as to the mode of assess- ment or otherwise, and the taxpayer did not’ appeal against the assessment in the manner provided by the statute, then it is conceived that the said provision will be held to operate to conclude and confirm the assessment, upon the principle that the taxpayer’s remedy by way of appeal provided by the statute was intended to be exclusive. Where a taxpayer, ® See. 10 (2) principal Act. as amended by sec. 14. chap. 49. 1920. * Atchison Vv. O'Connor, 223 U. 8. 280. “Underwood Typewriter Co. V. Chamberlain (Conn.) 102 Atl. Jag ae also, Tome Tel. & Tel. Co. v. Tos Angeles (Cal.) 18t ’ac. S15. * See. 14. principal Act. * Inte, p. 264. PAYMENT AND REMEDIES TO RECOVER PAYMENT. 2st alter unsuccessfully appealing against his assessment in the Decision of manner provided by the statute or after unsuccessfully apply- ee ing toa court of competent jurisdiction for a writ of cerfiorart eas to quash the assessment, pays an illegally assessed tax, even forcertio- though under protest, the decision of the Court of Revision, eee or of the Exchequer Court in appeal therefrom, or of the payment, court refusing the writ of certiorari, ax the case may be, will "es /udieata be res judicata, which may be pleaded ax an estoppel to a sub- sequent action on the part of the taxpayer for re-payment of the moneys so exacted.* An Illegally Exacted Tax or Penalty May be Refunded.— ee The Act provides that: ‘“ The Minister may refund any tax tionary or penalty wrongfully or illegally assessed and collected, but Powr inlegally no refund shall be allowed because of an alleged error in the assessed assessment, unless application therefor is made within twelve jay, a months of the date of the payment of the tax or penalty.”? tions. The authority of the Minister under this provision, doubtless, extends to making refunds of taxes which are paid voluntar- ily under mistake cf Jaw or of fact, going to the jurisdiction of the Minister to make the assessment, either as regards the person or the income sought to be charged, as well as to making refunds of taxes which are illegally exacted under compulsion, but the limitation of twelve months mentioned in this provi- sion appears to be a limitation only upon the discretionary power of the Minister to make such refunds and probably does not operate in bar of a petition of right deposited in the Ex- chequer Court for the recovery of an illegally exacted or imposed tax or penalty alter the expiration of the said period from the date of payment. 1 Jones v. City of St. John, 31 8. C. R. 820. * Sec. 10 (4), principal Act, as amended by sec. 8 (2) chap. 55, 1919. : APPENDIX THE INCOME WAR TAX ACT. Nore: The year dates shown in the margin represent the different taxation years to which the provisions respectively were first made applicable by Parliament retrospectively or otherwise. (Office Consolidation) (Being 7-8 Geo. V., c. 28, as amended by 8-9 Geo. V., c. 25; 9-10 Geo. V., c. 55; and 10-11 Geo. V., c. 49.) An Act to authorize the levying of a war tax on certain incomes. (Assented to 20th September, 1917.) JIS MAJESTY, by and with the advice and consent of the Senate and House of Commons of Canada, enacts as follows :— 1917—1. This Act may be cited as the Income War Taz Short title Act, 1917. 2. In this Act, and in any regulations made under Definitions. this Act, unless the context otherwise requires,— 1917—(a) “Board” means a Board of Referees appointed “ Board.” under section twelve hereof [1917, Sec. 2 (a)]; 1917—(b) “Minister” means the Minister of Finance“ Minister.” [1917, Sec. 2 (b)]; 1917—(c) “normal tax” means the tax authorized by para-*« Normal graph (a) of sub-section one of section four of this Act *-” [1917, Sec. 2 (c)]; 1917—(d) “person” means any individual or person and “ Person.” any syndicate, trust, association or other body and any body corporate, and the heirs, executors, administrators, curators and assigns or other legal representatives of such person, according to the law of that part of Canada to which the context extends [1917, Sec. 2 (d)]; 1919—(e) “surtax” means the taxes authorized by para-“ Surtax.” graph (6) of sub-section one of section four of this Act [1919, Sec. 1 (2)]3 D.LT.L.—19 290 DOMINION INCOME TAX LAW. “Paxpayer.” 1917—(f) “taxpayer” means any person paying, liable to pay, or believed by the Minister to Oe liable to pay, any tax imposed by this Act [1917, Sec. 2 (f)]; “Year.” 1917—(g) “year” means the calendar year [1917, Sec. 2 (g))3 (h) repealed, 1919; “Dependent 1919—(t) “dependent child” means a child under twenty- ahd.” one years of age and dependent on his parent for support, or over twenty-one years of age and dependent on his parent for ee on account of physical or mental incapacity [1918, Sec. 1 (2) ]. “Persons 1918—(j) “ Persons employed in Canada ” means all persons es 2 who receive, directly or indirectly, salary, wages, com- missions, fees or other remuneration derived from sources within Canada for personal services, any part of which is performed in Canada [1919, Sec. 1, (4) ]. “Commis- 1918—(k) “ Commissioner of Taxation’ means the officer oe appointed hy the Governor-in-Council pursuant to the provisions of this Act, having such powers and perform- ing such duties as are assigned to him by the Governor- in-Council or by the Minister under the provisions of this Act [7919, Sec. 1 (4)]; “ Dividends.” 1917—(1) “ dividends ” shall include stock dividends [1920, Nee. Dh “Income.” {917—8, (1) For the purposes of this Act, “income ” means the annual net profit or gain or gratuity, whether ascer- tained and capable of coer putation as being wages, salary, or other fixed amount, or unascertained as being fees or emoluments, or as being profits from a trade or commer- cial or financial or other business or calling, directly or indirectly received by a person from any office or employ- ment, or from any profession or calling, or from any trade, manufacture or business, as the case may be, whether derived from sources within Canada or elsewhere, and shall include the interest, dividends or profits directly or indirectly received from money at interest upon any security or without security, or from stocks, or from any other investment, and, whether such gains or profits are divided or distributed or not, and also the annual profit Excepted or gain from any other source; including the income timers from, but not the value of property acquired by gift, bequest, devise or descent: and including the income from, but not the proceeds of life insurance policies paid CONSOLIDATION OF INCOME. TAX ACTS. 291. upon the death of the person insured, or payments made or credited to the insured on life insurance endowment or annuity contracts upon the maturity of the term men- tioned in the contract, or upon the surrender of the con- tract, and including the salaries, indemnities or other remuneration of members of the Senate and Ilouse of Commons of Canada and officers thereof, members of Provincial Legislative Councils and Assemblies and Municipal Councils, Commissions or Boards of Manage- ment, any Judge of any Dominion or Provincial Court appointed after the passing of this Act, and of all per- sons whatsoever, whether the said salaries, indemnitics or other remuneration are paid out of the revenues of His Majesty in respect of His Government of Canada, or of any province thereof, or by any person, except as provided in section five of this Act, with the following exemptions, and deductions [1917, Sec. 3 (1), and 1919, See, 2 (1)]:— 191%7—(«) Such reasonable amount as the Minister, in his Allowance discretion, may allow for depreciation, and the Minister {on ahd for in determining the income derived from mining and exhaustion from oil and gas wells and timber limits shall roaike such oa Oa wieiig an allowance for the exhaustion of the mines, wells and 42d timber timber limits as he may deem just and fair [1919, Sec. , 2 (2)]; 1918—(b) for the purposes of the normal tax only, two hun- Exemption dred dollars for each child under eighteen years of age in sespedt of who is dependent upon the taxpayer for support [1919, Nee. 2 (2)]; (c) repealed, by 1920, Sec. 5. 1917—(d) dividends received hy or credited to shareholders pividends of a corporation which is liable to taxation under the from cor- orations provisions of this Act shall not be liable to the normal liable to tax. tax in the hands of the shareholders, but shall be liable to the supertax and surtax provisions of this Act, or any’ amendment thereto. The amount of the exemption from the normal tax to the shareholder shall not exceed the net amount of such dividends after the deduction of the interest, or carrying charges, if any, in respect of such dividends [1979, Sec. 2 (2)]; 191%—(e) in determining the income no deduction shall be Personal and allowed in respect of persona! and living expenses, and in es cases In which personal and living expenses form part of 292 DOMINION INCOME TAX LAW. the profit, gain or remuneration of the taxpayer, the same shall be assessed as income for the purposes of this Act [1919, Sec. 2 (2)]; Losses. 1917—(f) deficits or losses sustained in transactions eutered into for profit, but not connected with the chief business, trade, profession or occupation of the taxpayer shall not be deducted from income derived from the chief business, trade, profession or occupation of the taxpayer in deter- mining his taxable income, and the Minister shall have Determina- power to determine what deficits or losses sustained in eee aul transactions entered:into for profit are connected with losses. the chief business, trade, profession or occupation of the taxpayer, and his decision shall be final and conclusive [1919, Sec. 2 (2), and 1920, Sec. 2]. Holding 1917—(2) Where an incorporated company conducts its busi- eee ness, whether under agreement or otherwise, in such manner as either directly or indirectly to benefit its shareholders or any of them, or any persons directly or indirectly interested in such company, by selling its pro- duct or the goods and commodities in which it deals at less than the fair price which might be obtained there- for, the Minister may, for the purposes of this Act, determine the amount which shall be deemed to be the income of such company for the year, and in determin- ing such amount the Minister shall have regard to the fair price which, but for any agreement, arrangement or understanding, might be or could have been obtained for such product, goods and commodities [1917, Sec. 3 (2)]. Non-resi- 1917—(38) In the case of the income of persons residing dente: or having their head office or principal place of busi- ness outside of Canada, but carrying on business in ‘Canada, either directly or through or in the name of any other person, the income shall be the net profit or gain arising from the business of such person in Can- ada [1917, Sec. 3 (3)]. Undistrii | 1917—(4) The share of a taxpayer in the undivided or Lene nae undistributed gains and profits of a corporation shall not tions. be deemed to he taxable income of the taxpayer, unless the Minister is of opinion that the accumulation of such undivided and undistributed gains and profits is made for the purpose of evading the tax, and is in excess of what is reasonably required for the purposes of the busi- ness [1919, Sec. 2 (3)]. CONSOLIDATION OF INCOME TAX ACTS. 293 1921—January 1—(5) Dividends declared or shareholders’ Dividends or . bonuses voted after the thirty-first day of December, one S2areholders thousand nine hundred and nineteen, shall be taxable ‘income of the taxpayer in the year in which they are paid or distributed [1920, Sec. 3]. 1917—(6) The income, for any taxation period, of a bene-Income from ficiary of any estate or trust of whatsoever nature shall ae be deemed to include all income accruing to the credit of in trust. the taxpayer whether received by him or not during such taxation period. Income accumulating in trust for the benefit of unascertained persons, or of persons with con- tingent interests, shall be taxable in the hands of the trustees or other like persons acting in a fiduciary capa- city, as if such income were the income of an unmarried person [1920, Sec. 4]. 1917—(7) Any part of the remuneration’ of a taxpayer Money retained by his employer in connection with anretained by ; i" : employer for employee’s superannuation or pension fund or plan shall pension, ete. be allowed as an exemption or deduction from the income of the taxpayer for income tax pvrposes, and any pay- ment to an employee out of such fund or plan shall be included as taxable income of the employee [1919, Sec. 2 (8)]. 1919—4, (1) There shall be assessed, levied and paid upon Income tax the income during the preceding year of every person,— ee (1) residing or ordinarily resident in Canada; or, (ii) who remains in Canada during any calendar year for a period or periods equal to one hundred and eighty-three days; or, (iii) who is employed in Canada; or, (iv) who, not being a resident of Canada, is carry- ing on business in Canada; or, (v) who, not being a resident of Canada, derives income for services rendered in Canada, to any person resident or carrying on business in Canada, but only upon that portion of the income so earned by such non-resident [1920, Sec. 6]; except corporations and joint stock companies, the fol- lowing taxes: (a) Four per centum upon all income exceeding one thousand dollars but not nommal tax. exceeding six thousand dollars in the case of unmarried persons and widows or widowers without dependent 20+ Surtax. DOMINION INCOME TAX LAW. children, and persons who are not supporting dependent brothers or sisters under the age of eighteen years, or a dependent parent or parents, grandparent or grandpar- ents, and exceeding two thousand dollars but not exceed- ing six thousand dollars in the case of all other persons, and Eight per centum upon all income exceeding six thousand dollars. And in addition thereto the following surtax: (b) One per centum upon the amount by which the income exceeds five thousand dollars and does not exceed six thousand dollars: Two per centum upon the amount by which the income exceeds six thousand dollars and does not exceed eight thousand dollars ; Three per centum upon the amount by which the income exceeds eight thousand dollars and does not vxceed ten thousand dollars; Four per centum upon the amount by which the income exceeds ten. thousand dollars and does not ex- ceed twelve thousand dollars; Five per centum upon the amount by which the income exceeds twelve thousand dollars and does not exceed fourteen thousand dollars ; Six per centum upon the amount by which the income exceeds fourteen thousand dollars and does not exceed sixteen thousand dollars; Seven per centum upon the amount by which the income exceeds sixteen thousand dollars and does not exceed eighteen thousand dollars; Eight per centum upon the amount by which the income exceeds eighteen thousand dollars and does not exceed twenty thousand dollars; Nine per centum upon the amount by which the income exceeds twenty thousand dollars and does not exceed twenty-two thousand dollars; Ten per centum upon the amount by which the income exceeds twenty-two thousand dollars and does not. exceed twenty-four thousand dollars; Eleven per centum upon the amount by which the income exceeds twenty-four thousand dollars and does not exceed twenty-six thousand dollars; CONSOLIDATION OF INCOME TAX ACTS. Twelve per centum upon the amount by which the income exceeds twenty-six thousand dollars and does not excced twenty-eight thousand dollars ; Thirteen per centum upon the amount by which the income exceds twenty-eight thousand dollars and does not exceed thirty thousand dollars; Fourteen per centum upon the amount by which the income exceeds thirty thousand dollars and does not exceed thirty-two thousand dollars ; Fifteen per centum upon the amount by which the income exceeds thirty-two thousand dollars and does not exceed thirty-four thousand dollars ; Sixteen per centum upon the amount by which the income exceeds thirty-four thousand dollars and does not exceed thirty-six thousand dollars; Seventeen per centum upon the amount by which the income exceeds thirty-six thousand dollars and does not exceed thirty-eight thousand dollars; Eighteen per centum upon the smount by which the income exceeds thirty-eight thousand dollars and do:s not exceed forty thousand dollars ; Nineteen per centum upon the amount by which the income exceeds forty thousand dollars and does not exceed forty-two thousand dollars ; ~ Twenty per centum upon the amount by which the income exceeds forty-two thousand dollars and does not exceed forty-four thousand dollars ; Twenty-one per centum upon the amount by which the income exceeds forty-four thousand dollars and does not exceed forty-six thousand dollars ; Twenty-two per centum upon the amount by which ‘the income exceeds forty-six thousand dollars and does not exceed forty-eight thousand dollars ; Twenty-three per centum upon the amount by which the income exceeds forty-eight thousand dollars and does not exceed fifty thousand dollars; Twenty-four per centum upon the amount by which the income exceeds fifty thousand dollars and does not exceed fifty-two thousand dollars; Twenty-five per centum upon the amount by which the income exceeds fifty-two thousand dollars and does not exceed fifty-four thousand dollars; 296 DOMINION INCOME TAX LAW. Twenty-six per centum upon the amount by which the income exceeds fifty-four thousand dollars and does not exceed fifty-six thousand dollars; Twenty-seven per centum upon the amount by which the income exceeds fifty-six thousand dollars and docs not exceed fifty-eight thousand dollars; Twenty-eight per centum upon the amount by which the income exceeds fifty-eight thousand dollars and does not exceed sixty thousand dollars; Twenty-nine per centum upon the amount by which the income exceeds sixty thousand dollars and does not exceed sixty-two thousand dollars ; Thirty per centum upon the amount by which the income exceeds sixty-two thousand dollars and does not exceed sixty-four thousand dollars; - Thirty-one per centum upon the amount by which the income exceeds sixty-four thousand dollars and does not exceed sixty-six thousand dollars ; ~ Thirty-two per centum upon the amount by which the income exceeds sixty-six thousand dollars.and does not exceed sixty-eight thousand dollars ; Thirty-three per centum upon the amount by which the income exceeds sixty-eight thousand dollars and does not exceed seventy thousand dollars; Thirty-four per centum upon the amount by which the income exceeds seventy thousand dollars and does not exceed seventy-two thousand dollars; Thirty-five per centum upon the amount by which the income exceeds seventy-two thousand dollars and does not exceed seventy-four thousand dollars; Thirty-six per centum upon the amount by which the income exceeds seventy-four thousand dollars and does not exceed seventy-six thousand dollars; Thirty-seven per centum upon the amount by which the income exceeds seventy-six thousand dollars and does not exceed seventy-elght thousand dollars: Thirty-eight per centum upon the amount by which the income exceeds seventy-eight thousand dollars and does not exceed eighty thousand dollars ; Thirty-nine per centum upon the amount by which the income exceeds cighty thousand dollars and does not exceed eighty-two thousand dollars: CONSOLIDATION OF INCOME TAX ACTS. Forty per centum upon the amount by which the .income exceeds eighty-two thousand dollars and does not exceed eighty-four thousand dollars; Forty-one per centum upon the amount by which the, income exceeds eighty-four thousand dollars and does not exceed eighty-six thousand dollars ; , Forty-two per centum upon the amount by which the income exceeds eighty-six thousand dollars and does not exceed eighty-eight thousand dollars ; Forty-three per centum upon the amount by which the income exceeds eighty-eight thousand dollars and does not exceed ninety thousand dollars ; Forty-four per centum upon the amount by which the income exceeds ninety thousand dollars and does not exceed ninety-two thousand dollars ; Forty-five per centum upon the amount by which the income exceeds ninety-two thousand dollars and does not exceed ninety-four thousand dollars; Forty-six per centum upon the amount by which the income exceeds ninety-four thousand dollars and does not exceed ninety-six thousand dollars; Forty-seven per centum upon the amount by which the income exceeds ninety-six thousand dollars and does not exceed ninety-eight thousand dollars. Forty-eight per centum upon the amount by which the income exceeds ninety-eight thousand dollars and does not exceed one hundred thousand dollars; Fifty-two per centum upon the amount by which the income excceds one hundred thousand dolJars and does not exceed one hundred and fifty thousand dollars; Fifty-six per centum upon the amount by which the income exceeds one hundred and fifty thousand dollars and does not exceed two hundred thousand dollars; Sixty per centum upon the amount by which the income exceeds two hundred thousand dollars and does not exceed three hundred thousand dollars: Sixty-three per centum upon the amount by which the income exceeds three hundred thousand dollars and does not exceed five hundred thousand dollars ; Sixty-four per centum upon the amount by which the income exceeds five hundred thousand dollars and does not exceed one million dollars; eG 298 Corporation tax. J Five per cent, added to tax and surtax on incomes of $5,000 or more. Partner- ships. Transfer of property to evade taxation. DOMINION INCOME TAX LAW. Sixty-five per centum upon the amount by which the income exceeds one million dollars. [1919, Sec. 3 (1)]. 1919—(2) Corporations and joint stock companies, no mat- ter how created or organized, shall pay ten per centum upon income exceeding two thousand dollars. Any cor- ‘poration or joint stock company the fiscal year of which is not the calendar year, shall make a return and have the tax payable by it computed upon its income for its fiscal vear ending within the calendar year for which the return is being made [1919, Sec. 3 (1)]. 1919—(2a) The several taxes and surtaxes prescribed by sub- sections one and two of this section are hereby increased by the addition of five per centum of the amount of each of the said taxes and surtaxes payable with respect to any taxable income of five thousand dollars or more for the calendar year one thousand nine hundred and nineteen, or any taxable income of five thousand dollars or more for accounting periods ending in the year nineteen hun- dred and nineteen, as the case may be, and for each cal- endar year or accounting period thereafter [1920, Sec. 7]. 1917—(8) Any persons carrying on business in partnership , shall be liable for the income tax only in their individual capacity; provided, however, that a husband and wife carrying on business together shall not be deemed to be partners for any purpose under this Act. A member of: a partnership or the proprietor of a business whose fiscal year is other than the calendar year shall make a return and have the tax computed upon the income from the business, for the fiscal period ending within the calendar year for which the return is being made, but his return of income derived from sources other than his business shall be made for the calendar year [1919, Sec. 3-(2), and 1920, Sec. 8]. 1917—(4) A person who, after the first day of August, 1917, has reduced his income by the transfer or assignment of any real or personal, movable or immovable property, to such person’s wife or husband, as the case may be, or to any member of the family of such person, shall, never- theless, be liable to be taxed as if such transfer or assign- ment had not been made, unless the Minister is satisfied that such transfer or assignment was not made for the purpose of evading ihe taxes imposed under this Act or any part thereof [7917, Sec. 4 (4)]. CONSOLIDATION OF INCOME TAX ACTS. 299 1918—(5) Taxpayers shall be entitled to the following Deductions deductions from the amount that would otherwise pele en payable by them for taxes under the provisions of this Act :— , (a) The amount paid by such taxpayer for corres- Payments ponding accounting periods under the provisions of Part eth tae I. of the Special War Revenue Aci, 1915, and any aoe Act, amendments thereto, or the Business Profits War Tax Act, 1916, and any amendments thereto: Provided, ate ee in computing the taxable income hereunder the taxpayer eee shall not include any taxes paid under the said Acts in the expenses of his business, and the Minister shal] have power to determine any questions that may arise in consequence of any difference in the several periods for which the taxes under the said Acts and under this Act, respectively, are payable, and the decision of the Minister shall be final and conclusive. In the case of a partnership, each partner shall be entitled to deduct such portion of the tax paid hy the partnership under the Business Profits War Tax Act, 1916, and any amend- * ments thereto, as may correspond to his interest in the income of the partnership: Provided that such deduc- tion shall not affect the liability of the taxpayer to tax hereunder in respect of any income which does not form part of the profits assessed under the Business Profits War Tax Act, 1916, but such income shall be assessed for income tax purposes in the same manner as if it were the only income of the taxpayer [1919, Sec. 3 (3)]. (b) The amount paid to Great Britain or any of its Income tax paid in any self -governing colonies or dependencies for income tax other portion in respect of the income of the taxpayer derived from - ae sources therein, and the amount paid to any foreign coun- foreign try for income tax in respect of the income of the tax- ia payer derived from sources therein, if and only if, such foreign country in imposing such tax allows a similar credit to persons in receipt of income derived from sources within Canada: Provided, that such deduction shall not at any time exceed the amount of tax which would other- wise be payable under the provisions of section three of chapter twenty-five of the statutes of 1918, or of any amending Act, in respect of the said income derived from sources within Great Britain or any of its self- governing colonies or dependencies or any foreign coun- 300 DOMINION INCOME TAX LAW. try; and further provided, that the said deduction shall be allowed only if the taxpayer furnishes evidence satis- factory to the Minister showing the amount of tax paid aud the particulars of income derived from sources within Great Britain or any of its self-governing colonies or dependencies or any foreign country [1919, Sec. 8 (3) ]. Incomes not 1917—5. The following incomes shall not be liable to: taxa- edi tion hereunder,— tax. 2 (a) the income of the Governor-General of Canada [1917, Sec. 5 (a)]; (6) the incomes of Consuls and Consuls-General who are citizens of the country they represent and who are not engaged in any other business or profession [1917, Sec. & (b)]; (c) the income of any company, commission or asso- ciation not less than ninety per cent of the stock or capital of which is owned by a province or a munici- pality [1917, Sec. 5 (c)]; (d) the income of any religious, charitable, agrieul- tural and educational institutions, Boards of Trade and Chambers of Commerce [1917, Sec. 5 (d)]; (e) the incomes of labour organizations and societies and of benevolent and fraternal beneficiary societies and orders [1917, Sec. 5 (e)]; (f) the incomes of mutual corporations not having a capital represented by shares, no part of the income of which inures to the profit of any member thereof, and of life insurance companies except such amount as is credited to shareholders’ account [1917, Sec. 5 (f)]; (g) the incomes of clubs, societies and associations organized and operated solely for social welfare, civic improvement, pleasure, recreation or other non-profit- able purposes, no part of the income of which inures to the benefit of any stockholder or member [1917, Sec. 5 (g)]; (i) the incomes of ‘such insurance, mortgage and loan associations operated entirely for the benefit of farmers as are approved hy the Minister [1977, Sec. 5 (hy); (7) the income derived from any bonds or other securities of the Dominion of Canada issued exempt CONSOLIDATION OF INCOME TAX ACTS. 301 from apy income tax imposed in pursuance of any legis- lation enacted by the Parliament of Canada; and [1917, Sec. 5 (t)]3 (j) repealed, 1920, Sec. 9 (1); 1918—May 24—(k) the income of incorporated companies whose business and assets are carried on and situate entirely outside of Canada [1918, Sec. 4]; 1917—(1) any pension granted to any member of His Income from Majesty’s military, naval or air forces for any disability Eecoene a suffered by the pensioner while serving in any of His Majesty’s forces during the war that began in August, one thousand nine hundred and fourteen, and any pen- sion granted to any dependent relative of any person who was killed or suffered any disability while serving in the said forces in the said war” [1919, Sec. 4 as amended 1920, Sec. 9 (2).] 6. Repealed, 1918, Sec. 5. 1919—%. (1) Every person liable to taxation under this Annual Act shall, on or before the thirtieth day of April in each ™™S year, without any notice or demand, and any person whether liable to taxation hereunder or not, upon receipt of a notice or demand in writing from the Commissioner of Taxation or any officer authorized to make such demand, deliver to the Minister a return, in such form as the Minister may prescribe, of his total income dur- ing the last preceding year. In such return the tax- payer shall state an address in Canada to which all notices and other documents to be mailed or served under this Act may be mailed or sent [1919, Sec. 5 (1) J. 1917—(2) The return in the case of a corporation, asso- Returns of ciation or other body, shall be made and signed by the eo reranione president, secretary, treasurer or chief agent having a personal knowledge of the affairs of such corporation, association or other body, or, m any case, by such other person or persons employed in the business liable, or believed to be liable to taxation, as the Minister may require [1917, Sec. 7 (2)]. *1917—(3) Ifa person is unable for any reason to make the Return by return required by this section, such return shall be guardian, . legal repre- made by the guardian, curator, tutor or other legal sentative, ete | * Except as to the amendment of. 1919, which applies to 1919 period et seq. 302 DOMINION INCOME TAX LAW. representative of such person, or if there is no such legal representative, by some one acting as agent for such person, and in the case of the estate of any deceased person, by the executor, administrator or heir of such deceased person, and if there is uo person to make a return under the provisions of this sub-section, then such person as may be required by the Minister to make such return [1917, Sec. 7 (3), and 1919, Sec. 5 (2)]. Returns by *1917—-(4) All employers shall make such a return of all sone persons in their employ ‘receiving any salary or other. by companies remuneration, in excess of such an amount as the Min- of dividends, 3 é : Bee ate. ister may prescribe, and all corporations, associations and syndicates shall make a return of all dividends and bonuses paid to shareholders and members, and all per- sons in whatever capacity acting, having the control, receipt, disposal or payment of fixed or determinable annual or periodical gains, profits or income of any tax- payer, shall make and render a separate and distinct return to the Minister of such gains, profits or income, containing the name and address of each taxpayer. Such returns shall be delivered to the Minister on or before the thirty-first day of March in each year, without any notice or demand being made therefor, and in such form as the Minister may prescribe [1917, Sec. 7 (4) and 1918, Sec. 6, and 1919, Sec. 5 (3)]. J altanne 1917—(5) The Minister may at any time enlarge the time ratnens, for making any return [1917, Sec. 7 (5)]. Penalty for 1919—(6) Every person required to make a return under ee Enns sub-section one of this section who fails to make a return within the time limited therefor shall be subject to a penalty of twenty-five per centum of the amount of the tax payable, and every other person who is required to make a return under the provisions of this section who fails to do so within the time limited therefor, will be subject to a penalty of ten dollars for cach day dur- ing which the default continues, and all such penalties shall be assessed and collected from the person liable to make the return in the same manner in which taxes are assessed and collected [1919, Sec. 5 (4)]. 1920—(7) Every person liable to pay any tax or surtax under this Act shall send with the return of the income upon * except as to the amendment of 1919, which applies to 1919 period et seq. CONSOLIDATION OF INCOME TAX ACTS. 303 which such tax and surtax is payable not Jess than one-One-quarter quarter of the amount of such tax and surtax, and may a pay the balance, if any, of such tax and surtax in not ees more than three equal bi-monthly instalments thereafter, be paid by together with interest at the rate of six per centum per eatoentome annum upon each instalment from the last day prescribed for making such return to the time payment is made [ 1920, Sec. 10]. 1920—(8) Any person liable to pay any tax or surtax under penalties this Act who, in the return of the income liable to taxa- for under- tion, makes a return in which he states the income to be amouneot less than the true amount, shall pay to His Majesty 7°" the additional amount of tax and surtax due on the income omitted from his return and, in addition, interest at the rate of ten per centum per annum upon such amount from the last day prescribed for making such return until the same is paid. If the amount of the income omitted from his return From 16 to exceeds ten per centum of the correct income, but is under pee aut per twenty per centum of the same, such person shall pay to His Majesty an additional amount equal to one-half of the amount of such deficiency, and, if the deficiency amounts to twenty per centum or more of the correct From and income, such person shall pay to His Majesty an addi- Sh per tional amount equal to the amount of such deficiency. Penalties herein are additional penalties and not in Penalties are lieu of any penalty that may be imposed under sub- *4@itional. section two of section nine of the said Act [19.20, Sec. 10]. 1918—(9) In cases wherein trustees in bankruptcy, assignees, Trustees, liquidators, curators, receivers, administrators, heirs, Sate executors and such other like persons or legal representa- eS tives are administering, managing, winding-up, controll- taxes, ete, ing, or otherwise dealing with the property, business or pcfore.dis- estate of any person who has not made a return for any taxable period or for any portion of a taxable period for which such person was required to make a return in accordance with the provisions of the Act, they shall make such return and shall pay any tax and surtax and interest and penalties assessed and levied with respect thereto before making any distribution of the said pro- perty, business or estate [7920, Sec. 10]. tribution. 304 DOMINION INCOME TAX LAW. Trustees, 1918—(10) Trustees in bankruptcy, assignees, administra- PeRcbNe tors, executors and other like persons, before distributing ee pp eos any assets under their control shall obtain a certificate that all from the Minister certifying that no unpaid assessment Seabee of income tax, surtax, interest and penalties properly distribution. chargeable against the person, property, business or estate, as the case may be, remains outstanding. Distribution without such certificate shall render the trustees in bank- ruptcy, assignees, administrators, executors and other like persons personally liable for the tax, surtax, interest and penalties [1920, Sec. 10]. Agent. trus-) 1918—(11) Every agent, trustee or person who collects or ae for receives, or is in any way in possession or control of non-resident income for or on behalf of a person who is resident out- side of Canada, shall make a return of'such income, and, in case of default by such non-resident of the payment of any tax payable, shall, on being so notified by the Min- ister, deduct the amount of such tax from either the income or other assets of such non-resident in his hands and pay the same to the Minister [1920, Sec. 10]. Refundot 1920—(12) The returns received by the Minister shall be i pe with all due despatch checked and examined, and in all cases where such examination discloses that an overpay- ment has been made by a taxpayer the Minister shall make a refund of the amount so overpaid by such ‘tax- payer, except in cases where any instalment or instal- ments are either due or falling due by such taxpayer, when the amount of the overpayment shall be applied on such instalment or instalments and notice of said action given such taxpayer accompanied by the payment of the balance, if any, of the amount overpaid [1920, Sec. 10]. Demand for 1917—8. (1) 1f the Minister, in order to enable him to Seatac make an assessment or for any other purpose, desires any ' information or additional information or a return from- any person who has not made a return, or a complete return, he may by registered letter demand from such person such information, additional information or return, and such person shall deliver to the Minister such information, additional information or return with- in thirty days. from the date of mailing of such regis- tered letter. For the purpose of any proceedings taken under this Act, the facts necessary to establish CONSOLIDATION OF INCOME ‘TAN “ACTS. 305 compliance on the part of the Minister with the pro- Compliance visions of this section as well as default hereunder aia be sufficiently proved in any Court of Jaw by the allidavit be proved by of the Commissioner of Taxation or any other respon- : sible officer of the Department of Finance. Such affi- davit shall have attached thereto as an exhibit a copy or duplicate of the said letter [1920, Sec. 11). 1917—(2) (uw) The Minister may require the production, or Production the producti th, by the taxpayer or by his agent 21jctrers he production on oath, by the taxpayer or hy hix agentaccounts, ete. or officer, or by any person or partnership holding, or paying, or lable to pay any portion of the income of any taxpayer, of any letters, accounts, invoices, state- ments and other documents [1917, Sec. 8 (2)]. 917— iniste ire i Pn A = 1911 (b) The Minister may require and demand the pro- p.auetion duction, or the production on oath, by any person, or by of dettets, : . . OOKS, Cle., his agent, or officer, of any letters, accounts, invoices, py rigueur Ou statements financial or otherwise, books or other docu- ers ments, held by such person, agent or officer, for the pur- prove tax pose of arriving at the tax believed to be payable by any payarle by other person, and the same shall be produced within thirty days from the date of mailing of such demand [7920, Sec. 12). Pt 7 {\y7, e @ - 7} rhe A AN ae 7 1N1i—(e) Every person who, in whatever capacity acting, Persons in is In receipt of any money, thing of value, or of profits, receipt of Ei a a . money. ete., or gains arising from any source, of or belonging to any of another, other person shall, when required to do so by notice from f¢Preduce ay : Ae te information the Minister, prepare and deliver to the Minister any required. information required, within thirty days from the date of the mailing of such notice [1920, Sec. 12]. 191i—(8) Any officer authorized thereto hy the Minister Le ee ee make such inquiry as he may deem necessary for asccr- to income taining the income of any taxpayer, and for the purposes of such inquiry such officer shall have all the powers and authority of a commissioner appointed under Part I. of the Inquiries Act, Revised Statutes of Canada, 1906, chapter one hundred and four [1917, Sec. § (3)]. 1917—(4) If a taxpaver fails or refuses to keep adequate pooks of books. or accounts for Income Tax purposes, the Minister es may require the taxpayer to keep such records and kept. accounts as he may prescribe [1919, Sec. 6]. D.L.T.L.—20 306 DOMINION INCOME TAX LAW. Penalty. 1917*—9, (1) For every default in complying with the pro- Default visions of the next preceding section, the persons in ares default shall each be able on summary conviction to a penalty of one hundred dollars for each day during which the default continues [1917, Sec. 9 (1), and 1919, See. 7, and 1920, Sec. 13]. Valse 19 1i—(2) Any person making a false statement in any return pia tementss or in any information required by the Minister, shall he liable on summary conviction to a penalty not exceeding ten thousand dollars or to six months’ imprisonment, or to both fine and imprisonment [1917, Sec. 9 (2)]. Penalty. Penalties 1920—10. (1) If the taxpayer pays as any instalment less oe than one-quarter of the tax as estimated by him, or or not mak- should he fail to make any payment at the time of fil- ing pay- ing his return or at the time when any instalment should ments, be paid, he shall pay in addition to all other penalties a penalty of five dollars or one-quarter of the amount of the tax unpaid, whichever is the greater. Notice of After examination of the taxpayer’s return, the Min- assessnicnt: ister shal] send a notice of assessment to the taxpayer, verifying or altering the amount of the tax as estimated : by him in his return. Any additional tax found due Payment of additional over the estimated amount shall be paid within thirty Stee he days from the date of the mailing of the notice of assess- due. ment. If the additional amount is not paid within thre said thirty days, then the taxpayer shall pay a penalty of five dollars or one-quarter of the amount unpaid, whichever is the greater [1920, Sec. 14}. Demand for 1919—(2) The Minister, if he suspects the taxpayer is about ek to leave Canada, may, for that or any other reason, by pene registered letter addressed to the taxpayer, demand pay- : : ment of all taxes, penalties and accrued interest for which the taxpayer is liable, and the same shall be paid within ten days from the date of mailing of such registered letter, notwithstanding any other provisions in this Act contained. Non-payment of the said tax within the speci- Orci fied time shall render the goods of the taxpayer liable goods upon to seizure by the sheriff of the city, county or district eee in which the goods of the taxpayer are situate. A cer- tificate of non-compliance with any such demand, signed *Texcept-as to the amendment of 1919, which applies to 1919 period, et seq. CONSOLIDATION OF INCOME TAX ACTS. 307 by the Commissioner of Taxation, setting forth the par- Certificate ticulars of the demand and placed in the hands of the Aga sheriff, shall be sufficient authority for him to seize suffi- © cient of the goods of the taxpayer to mect the said demand. The sale of such goods and the disposition of the Sale. monies realized shall be conducted in the manner pre- scribed by the law of the province in which the goods are situate as if the seizure were made under a writ of execution issued out of the Superior Court of the said province [1920, Sec. 14]. 1917—(2) The Minister shall not be bound by any return Minister not or information supplied by or on behalf of a taxpayer, bonne and notwithstanding such return or information, or if no return has been mude, the Minister may determine the amount of the tax to be paid by any person [1917, Sec. 10 (2) ]. 1917—(3) Any person liable to pay the tax shall continue Continua- to be liable, and in case any person so liable shall fail Hetty to make a return as required by this Act, or shall make for tax an incorrect or false return, and does not pay the tax in whole or in part, the Minister may at any time assess ‘such person for the tax, or such portion thereof as he may be liable to pay, and may prescribe the time within which any appeals may be made under the provisions of this Act from the assessment, or from the decision of the Board, and may fix the date of payment of the tax [1917, Sec. 10 (3) ]. 191%—(4) The Minister may refund any tax or penalty Refunds, wrongfully or illegally assessed and collected, but no refund shall be allowed because of any alleged error in the. assessment unless application therefor is made within twelve months of the date of the payment of the tax or penalty [1919, Sec. 8 (2)]. 1917—(5) Any chartered bank of Canada shall receive for No bank deposit without any charge for discount or commission, 9f278¢s f°" wep y 8 » discount, any cheque made payable to the Receiver-General of Can- ete., on > : ‘ cheques for ada in payment of tax or penalty imposed by this Act, income tax whether drawn on the bank receiving the cheque or on % Penalty. any other chartered bank in Canada [1919, Sec. 8 (2)]. 191%7—11, No person employed in the service of His Majesty gecrecy, shall communicate or allow to be communicated to any 308 Board of Referees. Oath. Court of Revision. Notice of appeal. DOMINION INCOME TAX LAW. person not legally entitled thereto, any information obtained under the provisions of this Act, or allow any such person to inspect or have access to any written state- ment furnished under the provisions of this Act. Any person violating any of the provisions of this section shall be liable on summary conviction to a penalty not exceeding two hundred dollars [1917, See. 11]. 191i7—12. (1) The Governor-in-Council thay appoint a Board or Boards of Referees, and may prescribe the ter- ritory or district within which a Board shall exercise jurisdiction. A Board shall consist of not more than three members, and the members of a Board shall jointly and severally have all the powers and authority of a com- missioner appointed under Part I. of the Inquiries Act, Revised Statutes of Canada, 1906, chapter one hundred and four [1917, Sec. 12 (1)]. (2) Every member of the Board shall take an oath of office in form I. of the Schedule to this Act before per- forming any duty under this Act. All affidavits made in pursuance of this sub-section shall be filed with the Minister [1917, Sec. 12 (2)]. 1917—18. A Board shall act as a Court of Revision, and shall hear and determine any appeal made by a taxpayer under this Act in such place in Canada as the Minister may direct [1917, Sec. 13]. 1917—14, Any person objecting to the amount at which he is assessed, or as having been wrongfully assessed, may, personally or by his agent, within twenty days after the date of mailing of the notice of assessment, as provided in section 10 of this Act, give notice in writing to the Minister in form II. of the Schedule to this Act that he considers himself aggrieved for either of the causes aforesaid, otherwise such person’s right to appeal shall cease, and the assessment made shall stand and be valid and binding upon all parties concerned, notwithstand- ing any defect, error or omission that may have been made therein, or in any proceeding required by this Act or any regulation hereunder: Provided, however, that the Minister, either before or after the expiry of the said twenty days, may give a taxpayer further time in which to appeal [7917, Sec. 14]. CONSOLIDATION OF INCOME TAX ACTS. 309 1917—15. (1) A Board, after hearing any evidence adduced, Iecaring and and upon such other inquiry as it considers advisable, ee" PY shall determine the matter and confirm or amend the assessment accordingly. A Board may increase the assessment in any case before it. The Board shall send a copy of its decision by registered mail to the taxpayer or his agent or officer | 1917, Sec. 15 (1)]. (2) In any case where the appeal is unsuccessful, the Costs. Board may direct that the person who appealed shall pay the costs or part of the costs of such appeal; and if such appeal is successful, a Board may recommend that the costs or any part thereof be paid by the Crown. The tariff of fees shall be as prescribed hy the Board [ 1917, Sec. 15 (2)]. 1917—16. If the taxpayer fails to appear, either in person proceeding or by agent, the Board may proceed ex parte or may defer &* parte. * the hearing [1917, Sec. 16]. 191717. If the taxpayer is dissatisfied with the decision of Appeal to a Board he may, within twenty days after the mailing ee of the decision, give a written notice to the Minister in form IIT. of the Schedule to this Act that he desires to appeal from such decision. If the taxpayer gives such notice, or if the Minister is dissatisfied with the decision, the Minister shall refer the matter to the Exchequer Court of Canada for hearing and determination, and such reference may be made in form IV. of the Schedule to this Act, and he shall notify the taxpayer by registered letter that he has made such reference. On any such reference the court shall hear and consider such matter upon the papers and evidence referred, and upon any further evidence which the taxpayer or the Crown produces under the direction of the Court, and the decision of the Exchequer Court thereon shall be final and conclusive [1917, Sec. 17]. 191i—18. Except as hereinafter expressly provided, the Tx- Exclusive chequer Court shall have exclusive jurisdiction to hear Eee and determine all questions that may arise in connection Court. with any proceeding taken under this Act, and may award costs in connection therewith [1917, Sec. 18]. 1917—19, (1) No assessment shall he set aside by a Board or by the Court upon the ground that there has been any 310 DOMINION INCOME TAX LAW. No ies error or omission in connection with any proceedings ment to be : E 3 . set aside for required to be taken under this Act or any regulation eeieal hereunder, but such Board or Court in any case that may reasons. come before it may determine the true and _ proper amount of the tax to be paid hereunder [1917, Sec. 19 (1)]. Proceedings (2) m2 8. SALARY, deductible as expense, 218. taxable income, is. 139, 145, 290, SALE, proceeds of, not income, 156-7. except in course of business, 116-7, 154. INDEX. 307 SCITOOL. See EpucatTIoNnaL INSTITUTIONS. SECRECY, appeals may be heard in camera, 257, 310. Crown may refuse to produce, 254. information confidential, 254. statutory obligation to maintain, 254. 307-8. SECURITIES, gain by conversion of, not taxable, 156-7. SEIZURE, taxpayer, goods, of, for non-payment of tax, when, 264-5, 306. priority of Crown in case of. 266. SERVANT, wages of, not deductible, 20S. SINKING FUND. See Depvucrions. SOCIETY, persons, of, within statutory definition of “person,” 58, 289. SOJOURN, temporary, of, non-resident, creates no liability, 63. for 183 days, effect of, 99-100. SOURCE, all sources of income not reached, 44-5 STATEMENT, of assets and liabilities required, 237. STATUTES. Nee Construction or TaxtnG Acts. STATUTE OF ELIZABETH, as to charitable uses, 178. STOCK, in trade, gain in sale of, 157. STOPPAGE, at the source, provision for. in original Act. repealed, 17, 316, 824. SUBSCRIPTION, to clubs, not income of, 181-2, SUPERANNUATION, fund, payments to, deductible. 183, 293. SUPER TAX. provision for, repealed. 322, 328. 325. 327. I T. TAXPAYER, definition of. 290. See PERSONS TAXABLE. TIMBER LAND. Nee DeprecraTioN aNp EXHAUSTION. TIME, = returns on 30th April. 247, 301. dividends, return of, by corporation on 30th April, 251. 302. employers’ return on 31st March, 250, 302. farmer’s and rancher’s return on 30th April. 236. fiduciary’s return on 30th April, 23 individual’s return on 30th April. limitation falling on holiday, 42. partner’s return for fiscal year, 241, 298. TRADE UNION, exempt from taxation, 59, 180. 300. TRADING COMPANIES, when resident in Canada, 74-97. Nee CORPORATIONS AND PERSONS TAXABLE. 368 INDEX. TRANSFERS TO EVADE TAX, 233, 240, 298. TRAVELLIN G EXPENSES, not always deductible, 219. TRUST. Scé FrpuctanieEs ; PERSONS TAXABLE. TRUSTEES, persons with contingent interest, for, liable, 50, 51, 293. unascertained persons, for, liable, 50, 51, 293. See FIDUCIARIES AND PERSONS TAXABLE. TUTOR. See Fvuctaries. U. ULTRA VIRES, transaction, income from. taxable, 55, 163. UNIFORMITY, of construction throughout Dominion, 38. taxation, of, constitutional requirement of, no, 23-4. UNINCORPORATED ASSOCIATION, taxable in same class as corporations and joint stock companies, 223, 226. UNITED KINGDOM ACT. See Britisu Income Tax Act. UNITED STATES OF AMERICA, uct enumerates deductions, 11, 194. charges property gains, 11, 141. compared with Dominion Act, 13-15, 141. decisions that accrued income not taxable, 238-9. Vv. VERIFICATION, of tax as computed by taxpayer, 261, 306. VOCATION, gambling may be, 148. way man passes his life, is. 148. ; W. WAGES, no matter how computed, 145, 290. taxable income, are, 136, 290. WEAR AND TEAR. See DEPRECIATION AND EXHAUSTION. WIDOW, dependent children, with, exemption of, 186-7, 222, 290, 293. gratuity to, held not taxable, 147. WIDOWER, dependent children, with, exemption in case of, 186-7. 222, 290, 293. WIFE, taxalle as individual, except under ‘ community of property,” ma, 46-7. : WINDING-UP, priority of tax on, 275-6. WITITHOLDING, of tax, at source, none under Dominion Act, 17, 316, 324, Y.. YEAR, meaning of, in Dominion Act, 42, 290. ye osetia Awe PEE St Pay thar es