Urie,
J.:—This
is
an
appeal
from
a
judgment
of
the
Trial
Division
dismissing
the
appellant's
appeal
from
an
income
tax
reassessment
for
its
1976
to
1979
inclusive,
taxation
years.
Briefly,
the
undisputed
facts
follow.
The
appellant,
which
had
been
incorporated
in
Bermuda
in
1972,
at
all
material
times
was
owned,
to
the
extent
of
50
per
cent
at
a
minimum,
by
MacMillan
Bloedel
Limited.
From
1972
to
1980
it
carried
on
a
shipping
business.
Prior
to
June
15,
1976
it
was
a
non-resident
corporation
for
the
purposes
of
the
Income
Tax
Act
(“the
Act”).
On
June
15,
1976,
it
became
a
corporation
resident
in
Canada
for
the
purposes
of
the
Act
due
to
a
change
in
its
central
management
and
control.
The
appellant
adopted
a
fiscal
period,
as
that
term
is
defined
in
the
Act,
ending
on
December
31
and
on
June
30,
1980,
filed
its
first
T-2
corporation
income
tax
return
in
Canada
for
its
1976
taxation
year
together
with
T-2
returns
for
the
1977,
1978
and
1979
taxation
years.
The
appellant
reported
a
non-capital
loss
for
tax
purposes
for
its
1976
fiscal
period
of
$1,225,295.
In
preparing
its
returns
for
the
1977
to
1979
taxation
years
it
carried
forward
its
1976
non-capital
loss
pursuant
to
paragraph
111(1)(a)
of
the
Act.
In
addition,
it
carried
forward
and
applied
its
accumulated
non-capital
losses
from
the
1972
to
1975
fiscal
periods
in
the
sum
of
$404,118.
The
effect
of
the
application
of
those
losses
was
to
reduce
the
appellant’s
taxable
income
to
nil
in
the
1977,
1978
and
1979
taxation
years.
The
non-capital
losses
from
1972
to
1975
had,
of
course,
been
incurred
during
the
years
when
the
appellant
was
still
resident
in
Bermuda
and
during
which
period
it
carried
on
no
business
in
Canada
the
income
from
which
was
taxable
in
its
hands
as
a
non-resident
corporation.
In
July
1982,
the
Minister
reassessed
the
appellant's
1976
to
1979
taxation
years
to
disallow
in
toto
the
application
of
non-capital
losses
incurred
prior
to
1976.
He
also
disallowed
a
portion
of
the
1976
loss
by
prorating
the
total
loss
in
accordance
with
the
number
of
days
in
1976
before
and
after
June
15,
the
day
upon
which
the
appellant
became
a
resident
in
Canada
for
tax
purposes.
Certain
capital
cost
allowance
claims
were
also
adjusted
but
they
are
not
in
issue
in
this
appeal.
The
appellant's
appeal
from
the
reassessment
was
dismissed
by
Rouleau,
J.
in
the
Trial
Division.
It
is
from
that
judgment
that
this
appeal
has
been
brought.
The
two
issues
before
us
are
said
by
the
appellant
in
its
memorandum
of
fact
and
law
to
be:—
The
appellant
submits
that
the
learned
Trial
Judge
erred
in
holding
that:
(a)
non-capital
losses
incurred
in
a
business
not
carried
on
in
Canada
by
a
corporation
not
resident
in
Canada
at
the
time
the
loss
was
incurred
could
not
be
applied,
pursuant
to
paragraph
111(1)(a)
of
the
Income
Tax
Act,
against
income
earned
by
the
corporation
after
it
became
resident
in
Canada
for
tax
purposes;
(b)
the
non-capital
loss
incurred
by
the
appellant
in
the
fiscal
period
January
1,
1976
to
December
31,
1976
had
to
be
prorated
for
the
purposes
of
paragraph
111(1)(a)
of
the
Income
Tax
Act
so
that
only
the
portion
of
the
loss
thus
considered
to
have
occurred
after
June
15,
1976
could
be
applied
against
income
for
subsequent
taxation
years.
(a)
Deduction
of
non-capital
losses
of
a
non-resident
of
a
business
not
carried
on
in
Canada
The
appellant's
argument
on
this
branch
of
its
appeal
requires
first
that
the
following
definitions
in
the
Act
be
considered.
Subsection
248(1)
defines
the
following
relevant
terms:—
"FISCAL
PERIOD"
“fiscal
period"
means
the
period
for
which
the
accounts
of
the
business
of
the
taxpayer
have
been
ordinarily
made
up
and
accepted
for
purposes
of
assessment
under
this
Act
and,
in
the
absence
of
an
established
practice,
the
fiscal
period
is
that
adopted
by
the
taxpayer
(but
no
fiscal
period
may
exceed
(a)
in
the
case
of
a
corporation,
53
weeks,
and
(b)
in
the
case
of
any
other
taxpayer,
12
months,
and
no
change
in
a
usual
and
accepted
fiscal
period
may
be
made
for
the
purposes
of
this
Act
without
the
concurrence
of
the
Minister);
"TAXABLE
INCOME"
“taxable
income"
has
the
meaning
assigned
by
subsection
2(2).
"TAXPAYER"
"taxpayer"
includes
any
person
whether
or
not
liable
to
pay
tax.
Subsection
249(1)
defines
“taxation
year"
as:
249.(1)
For
the
purpose
of
this
Act,
a
"taxation
year"
is
(a)
in
the
case
of
a
corporation,
a
fiscal
period,
and
(b)
in
the
case
of
an
individual,
a
calendar
year,
and
when
a
taxation
year
is
referred
to
by
reference
to
a
calendar
year
the
reference
is
to
the
taxation
year
or
years
coinciding
with,
or
ending
in,
that
year.
To
appreciate
counsel
for
the
appellant’s
ingenious
argument
it
should
be
borne
in
mind
that
Division
A
of
Part
I
of
the
Act
prescribes
who
shall
be
liable
for
tax
thereunder.
At
all
relevant
times,
as
well
as
now,
it
contains
only
one
section,
viz.
section
2,
reading
as
follows:—
2.
(1)
An
income
tax
shall
be
paid
as
hereinafter
required
upon
the
taxable
income
for
each
taxation
year
of
every
person
resident
in
Canada
at
any
time
in
the
year.
(2)
The
taxable
income
of
a
taxpayer
for
a
taxation
year
is
his
income
for
the
year
minus
the
deductions
permitted
by
Division
C.
(3)
Where
a
person
who
is
not
taxable
under
subsection
(1)
for
a
taxation
year
(a)
was
employed
in
Canada,
(b)
carried
on
a
business
in
Canada,
or
(c)
disposed
of
a
taxable
Canadian
property,
at
any
time
in
the
year
or
a
previous
year,
an
income
tax
shall
be
paid
as
hereinafter
required
upon
his
taxable
income
earned
in
Canada
for
the
year
determined
in
accordance
with
Division
D.
Division
B
provides
the
basis
for
the
computation
of
taxable
income
for
a
taxation
year
to
which
section
2
refers.
That
is,
of
course,
accomplished
by
determining
in
accordance
with
Division
B,
the
taxpayer's
income
from
all
sources
for
the
taxation
year
from
which
he
is
then
entitled
to
the
deductions
and
exemptions
permitted
under
Division
C.
Division
D
provides
the
basis
for
the
determination
of
the
taxable
income
of
non-residents.
The
relevant
sections
of
Division
B
and
C
for
the
purposes
of
the
appellant's
argument,
are
sections
3(d)
and
9
and
paragraphs
111(1)(a)
and
111(8)(b).
They
read
as
follows
at
the
material
time,
namely,
1976:—
(From
Division
B)
3.
The
income
of
a
taxpayer
for
a
taxation
year
for
the
purposes
of
this
Part
is
his
income
for
the
year
determined
by
the
following
rules:
(d)
determine
the
amount,
if
any,
by
which
the
remainder
determined
under
paragraph
(c)
exceeds
the
aggregate
of
amounts
each
of
which
is
his
loss
for
the
year
from
an
office,
employment,
business
or
property;
and
the
remainder,
if
any,
obtained
under
paragraph
(e)
is
the
taxpayer's
income
for
the
year
for
the
purposes
of
this
Part.
9.
(1)
Subject
to
this
Part,
a
taxpayer's
income
for
a
taxation
year
from
a
business
or
property
is
his
profit
therefrom
for
the
year.
(2)
Subject
to
section
31,
a
taxpayer’s
loss
for
a
taxation
year
from
a
business
or
property
is
the
amount
of
his
loss,
if
any,
for
the
taxation
year
from
that
source
computed
by
applying
the
provisions
of
this
Act
respecting
computation
of
income
from
that
source
mutatis
mutandis.
(3)
In
this
Act,
“income
from
a
property"
does
not
include
any
capital
gain
from
the
disposition
of
that
property
and
“loss
from
a
property"
does
not
include
any
capital
loss
from
the
disposition
of
that
property.
(From
Division
C)
111.
(1)
For
the
purpose
of
computing
the
taxable
income
of
a
taxpayer
for
a
taxation
year,
there
may
be
deducted
from
the
income
for
the
year
such
of
the
following
amounts
as
are
applicable:
(a)
non-capital
losses
for
the
5
taxation
years
immediately
preceding
and
the
taxation
year
immediately
following
the
taxation
year,
but
no
amount
is
deductible
in
respect
of
non-capital
losses
from
the
income
of
any
year
except
to
the
extent
of
the
taxpayer’s
income
for
the
year
minus
all
deductions
permitted
by
the
provisions
of
this
Division
other
than
this
paragraph,
paragraph
(b)
or
section
109;
111.
(8)
In
this
section,
(b)
“non-capital
loss”
of
a
taxpayer
for
a
taxation
year
means
the
amount,
if
any,
by
which
(i)
the
aggregate
of
all
amounts
each
of
which
is
the
taxpayer's
loss
for
the
year
from
an
office,
employment,
business
or
property
and
all
amounts
deductible
under
section
112
or
subsection
113(1)
from
the
taxpayer's
income
for
the
year
exceeds
(ii)
the
amount
determined
under
paragraph
3(c).
Paragraph
115(1)(c)
is
the
only
portion
of
Division
D
to
which
reference
will
be
made.
In
1976
it
read
as
follows:
115.
(1)
For
the
purposes
of
this
Act,
a
non-resident
person's
taxable
income
earned
in
Canada
for
a
taxation
year
is
the
amount
of
his
income
for
the
year
that
would
be
determined
under
section
3
if
(c)
the
only
losses
referred
to
in
paragraph
3(d)
were
losses
from
businesses
carried
on
by
him
in
Canada,
minus
the
aggregate
of
such
of
the
deductions
from
income
permitted
for
the
purpose
of
computing
taxable
income
as
may
reasonably
be
considered
wholly
applicable
and
of
such
part
of
any
other
of
the
said
deductions
as
may
reasonably
be
considered
applicable.
The
appellant’s
submissions
shortly
put
are
these.
The
appellant,
although
not
liable
to
pay
tax,
was
a
“taxpayer”
within
the
broad
definition
of
the
word,
when
its
losses
were
incurred
in
1972
to
1976.
They
were
"non-capital
losses”
as
that
term
is
defined
by
paragraph
111(8)(b).
In
those
years
it
had
a
“taxation
year”
for
the
purposes
of
the
Act
because
it
had
a
“fiscal
period”.
That
was
the
calendar
year.
By
virtue
of
paragraph
249(1)(a)
its
"taxation
year”
was
the
calendar
year
in
1972
to
1976
inclusive.
Therefore,
since
"non-capital
loss”
is
defined
in
paragraph
111(8)(b)
to
include
business
losses
of
a
"taxpayer”
(which
be
definition
included
the
appellant)
for
a
“taxation
year”
which
for
the
appellant
was
its
calendar
year,
it
was
entitled,
in
computing
its
taxable
income
for
the
taxation
years
1976,
1977
and
1978,
after
it
became
a
resident
corporation,
to
deduct
its
non-capital
losses
for
the
years
1972
to
1976
inclusive
notwithstanding
that
it
was
not
a
resident
corporation
during
those
years.
The
Act
during
those
years,
counsel
said,
did
not
contain
any
qualification
on
the
origin
or
source
of
the
tax
loss
which
a
resident
corporation
was
entitled
to
deduct
nor
upon
the
tax
status
of
the
taxpayer.
I
do
not
agree.
To
show
why
I
disagree
it
is
necessary
to
revert
to
first
principles
as
disclosed
by
the
scheme
of
Divisions
A
to
D
inclusive,
of
the
Act,
the
most
basic
one
of
which
is
that
both
residents
and
non-residents
are
liable
to
pay
tax
on
income
earned
from
a
source
inside
Canada.
A
non-resident
who
has
no
income
from
any
source
in
Canada
is
not
liable
to
pay
tax
in
Canada.
Both
residents
and
non-residents
who
derive
income
from
Canadian
sources
are
included,
by
definition,
in
the
term
"taxpayer”,
whether
liable
to
pay
tax
or
not.
Their
income
is
computed
in
accordance
with
Division
B.
By
virtue
of
subsection
2(2)
to
ascertain
their
"taxable
income”
they
are
entitled
to
the
deductions
and
exemptions
referred
to
in
the
Division
C.
It
is
only
at
the
conclusion
of
that
exercise
that
it
is
determined
whether
or
not
they
are
“liable
to
pay
tax”.
It
follows
that
a
corporate
non-resident
which
has
no
income
derived
from
Canadian
sources,
is
not
required
to
compute
its
taxable
income,
as
that
word
is
defined,
supra,
and,
thus,
has
no
need
to
utilize
the
deductions
permitted
by
Division
C,
including
those
permitted
under
paragraph
111
(1)(a)
—
non-capital
losses.
Such
a
corporation
is
not
“‘liable
to
pay
tax".
I
put
the
reasoning
in
another
way.
The
definition
of
"taxpayer",
properly
understood
in
its
context
in
the
whole
of
the
scheme
of
the
Act,
shows,
indisputably
in
my
view,
that
it
refers
to
resident
individuals
or
corporations
who
may
be
liable
to
pay
tax
at
some
time
whether
or
not
they
are,
at
any
given
time,
liable
therefor.
A
non-resident
without
income
from
Canadian
sources
can
never
be
liable
to
pay
tax
under
the
Act
on
its
foreign
income.
It
is
not,
therefore,
a
corporation
contemplated
by
the
definition
of
"taxpayer"
in
the
Act.
By
the
same
token,
as
a
non-resident
corporation,
any
losses
which
it
may
have
incurred
as
the
result
of
its
business
activities
outside
of
Canada
are
irrelevant
under
the
Act.
It
is
hard
to
conceive
how
they
could
become
relevant
and
capable
of
utilization
under
paragraph
111(1)(a),
by
osmosis,
as
it
were,
after
the
non-resident
corporation
becomes
a
resident
any
more
than
if
it
had
operated
profitably
as
a
nonresident,
such
profit
could
be
taxed
in
Canada
after
it
became
a
resident.
I
find
further
support
for
this
view
from
the
following.
Until
it
becomes
a
"taxpayer"
a
non-resident
corporation
does
not
have
"[f]or
the
purpose
of
this
Act”,
a
"taxation
year.
.."
within
the
meaning
of
paragraph
249(1
)(a)
of
the
Act,
supra.
When
it
becomes
a
resident,
the
Act
becomes
applicable
to
it
because
it
becomes
liable
to
pay
tax.
It
is
then
that
it
becomes
a
"taxpayer"
by
definition.
Before
that
that
term
had
no
application
to
it.
Consequently,
until
then,
the
definition
of
“taxation
year"
was
inapplicable
to
it.
It
further
follows
that
paragraph
111(1)(a)
does
not
apply
to
it
because
that
paragraph
is
referrable
to
the
"5
taxation
years
immediately
preceding
.
.
.
the
taxation
year.
.
.
."
During
those
five
years
the
appellant,
“for
the
purpose
of
the
Act”,
had
no
"taxation
year".
It
could
not,
therefore,
deduct
its
non-capital
losses
incurred
offshore
in
the
calendar
years
1972,
1973,
1974
and
1975.
Counsel
for
the
appellant,
however,
argued
that
because
the
appellant
had,
in
1980,
filed
T-2
returns
for
the
taxation
years
1976
to
1979
inclusive
on
the
basis
of
its
1972
to
1975
"fiscal
periods"
which
in
each
case
was
the
calendar
year
and
because
these
were
“‘accepted
for
purposes
of
assessment
under
[the]
Act"
as
required
by
the
definition
of
“fiscal
period"
in
section
248(1)
of
the
Act,
they
became
taxation
years
for
purposes
of
the
Act.
The
short
answer
to
that
submission
is
that,
as
earlier
stated,
a
nonresident
not
carrying
on
business
in
Canada
cannot
have
a
taxation
year
for
Canadian
tax
purposes.
I
fail
to
understand
how
it
can
be
given
one
retroactively.
The
appellant's
contention,
thus,
cannot
withstand
analysis.
I
find
support
for
the
foregoing
views
in
the
judgment
of
the
Supreme
Court
of
Canada
in
Lea-Don
Canada
Limited
v.
M.N.R.,
[1970]
C.T.C.
346
at
349;
70
D.T.C.
6271
at
6273-74
where,
admittedly
in
another
context,
Hall,
J.,
on
behalf
of
the
Court,
held:
The
argument
that
the
provisions
of
the
Income
Tax
Act
authorizing
a
deduction
on
account
of
the
capital
cost
of
depreciable
property
are
applicable
to
nonresidents
who
are
not
subject
to
assessment
for
income
tax
under
Part
I
of
the
Act
because
such
deduction
is
from
income
is
wholly
untenable.
It
is
clear
that
section
20(4)
is
concerned
with
taxpayers
entitled
to
a
deduction,
not
with
persons
who
are
not
subject
to
assessment
under
Part
I.
A
non-resident
not
carrying
on
business
in
Canada
is
not
a
person
entitled
to
such
a
deduction
and
therefore
section
20(4)
cannot
properly
be
said
to
be
“applicable”
to
him.
[Emphasis
added.]
A
fortiori,
a
corporation
which
incurs
losses
from
business
activities
outside
Canada
when
it
is
neither
a
resident
nor
had
income
from
a
source
in
Canada,
and
thus
is
not
subject
to
assessment
under
the
Act,
is
not
entitled
to
deduct
such
losses
to
reduce
taxable
income
to
nil
on
income
derived
after
it
becomes
a
Canadian
resident.
The
appellant's
appeal
with
respect
to
the
deductibility
of
losses
in
the
years
1972
to
1975
inclusive
must,
therefore,
fail.
(a)
Deduction
of
non-capital
losses
incurred
in
1976
during
which
year
the
appellant
became
a
resident
It
is
the
appellant’s
contention
that
Parliament
did
not
intend
the
rules
in
Division
D
to
apply
to
a
corporation
where
it
became
a
resident
of
Canada
part
way
through
a
taxation
year.
Moreover,
in
counsel's
submission,
the
learned
trial
judge
erred
in
prorating
the
non-capital
loss
for
1976.
Counsel
for
the
respondent
replies
by
arguing
that
a
non-resident
not
carrying
on
business
in
Canada
cannot
have
a
taxation
year
for
Canadian
tax
purposes,
a
contention
with
which
I
agree
as
has
been
seen.
The
appellant,
however,
having
become
a
resident
and
having
elected
to
adopt
the
calendar
year
as
its
fiscal
period,
could
only,
counsel
says,
have
a
taxation
year
dating
from
June
15,
1976,
the
date
upon
which
it
took
up
residence
in
Canada.
In
1976,
therefore,
its
fiscal
period
for
tax
purposes
was
June
15
to
December
31.
Therefore,
only
non-capital
losses
incurred
in
that
period
could
be
deducted
pursuant
to
paragraph
111(1)(a)
of
the
Act.
In
counsel’s
view,
there
is
nothing
in
the
Act
which
requires
that
a
taxation
year
or
a
fiscal
period
for
a
corporation
be
for
a
minimum
period.
All
that
is
required
is
that
the
period
not
be
in
excess
of
53
weeks.
In
such
circumstances
as
here
prevail,
the
Minister
is
entitled
to
prorate
losses,
as
he
did,
between
the
periods
of
non-residency
and
residency
of
the
corporation.
The
learned
trial
judge
dealt
with
these
submissions
in
the
following
way
(A.B.
p.
122):
To
these
arguments
it
needs
only
to
be
mentioned
that
the
absence
of
explicit
provisions
enabling
the
Minister
to
prorate
plaintiff’s
losses
is
not
a
bar
to
the
solution
chosen
by
the
Minister,
especially
in
view
of
the
fact
that
the
proration
of
plaintiff’s
losses
was
employed
as
a
consequence
of
the
fiscal
period
selected
and
the
system
of
accounting
that
was
chosen
by
the
plaintiff.
The
methodology
employed
by
the
Minister
was
merely
an
extension
of
the
statutory
restraint
of
jurisdiction
imposed
by
the
legislation
in
the
assessment
of
the
tax
liability
of
a
taxpayer.
The
competing
contentions
can
be
dealt
with
briefly.
The
starting
point
is
subsection
2(1),
the
relevant
portion
of
which
states
that:
An
income
tax
shall
be
paid
.
.
.
upon
the
taxable
income
for
each
taxation
year
of
every
person
resident
in
Canada
at
any
time
in
the
year.
[Emphasis
added.]
In
the
case
of
an
individual,
as
opposed
to
a
corporation,
section
114
of
the
Act*
permits
a
prorating
of
income
earned
in
Canada.
The
effect
of
the
rule
is
that
only
income
earned
during
the
portion
of
the
taxation
year
in
which
the
individual
is
resident
in
Canada
is
to
be
chargeable
to
tax
unless,
during
the
balance
of
the
year,
he
was
employed
in
Canada
or
carried
on
business
in
Canada.
If
he
was
employed
or
carried
on
business
in
Canada,
the
whole
of
his
world
wide
income
for
the
year
would
be
taxable
under
subsection
2(1).
There
is
no
equivalent
section
to
114
applicable
to
corporations.
Thus,
if
a
corporation
becomes
a
resident
of
Canada
part
way
through
its
fiscal
period,
tax
is
payable
on
its
taxable
income
for
the
entire
year
irrespective
of
its
source.
Logic,
common
sense,
fairness
and
harmony
within
the
Act
dictates
that
non-capital
losses
incurred
in
the
same
factual
situation
should
be
treated
in
the
same
way.
Therefore,
when
a
non-resident
corporation
whose
fiscal
period
has
been
the
calendar
year
becomes
a
resident
part
way
through
that
fiscal
period,
and
does
not
change
its
fiscal
period,
that
becomes
its
taxation
year.
That
being
so,
reading
subsection
2(1),
paragraphs
3(a),
(c)
and
(d)
and
the
definitions
of
“fiscal
period”
and
"taxation
year”
together,
it
is
abundantly
clear,
in
my
view,
that
Division
D,
in
those
circumstances,
has
no
application.
Moreover,
if
it
were
otherwise,
there
would
have
been
no
necessity
to
enact
section
114
to
prescribe
a
rule
applicable
only
to
individuals.
Non-capital
losses
incurred
in
the
fiscal
period
are,
therefore,
deductible
from
income
earned
during
that
period
without
establishing
that
they
were
incurred
only
during
the
time
that
it
was
a
resident.
The
trial
judge
therefore
erred,
in
my
opinion,
in
assimilating
the
prorating
rule
applicable
to
individuals
who
are
residents
of
Canada
for
only
part
of
a
taxation
year
to
that
of
corporations
in
a
similar
factual
situation.
To
do
so,
as
I
see
it,
flies
in
the
face
of
the
statute.
Accordingly,
I
would
dismiss
the
appeal
on
the
first
issue
and
allow
the
appeal
on
the
second
issue
with
costs
both
here
and
below.
I
would
remit
the
matter
to
the
Minister
of
National
Revenue
for
reassessment
in
respect
of
the
appellant's
1976
taxation
year
in
a
manner
not
inconsistent
with
the
reasons
for
judgment.
Appeal
allowed
in
part.
made
by
virtue
of
the
taxpayer’s
having
ceased
to
be
resident
in
Canada
were
made
in
such
period
or
periods,
and
(b)
the
amount
that
would
be
his
taxable
income
earned
in
Canada
for
the
year
if
at
no
time
in
the
year
he
had
been
resident
in
Canada,
computed
as
though
the
portion
of
the
year
that
is
not
in
the
period
or
periods
referred
to
in
paragraph
(a)
were
the
whole
taxation
year,
minus
the
aggregate
of
such
of
the
deductions
from
income
permitted
for
the
purpose
of
computing
taxable
income
as
may
reasonably
be
considered
wholly
applicable
to
the
period
or
periods
referred
to
in
paragraph
(a)
and
of
such
part
of
any
other
of
the
said
deductions
as
may
reasonably
be
considered
applicable
to
such
period
or
periods.