The Assistant Chairman:—The appeal is from a tax assessment for the 1969 taxation year.
Counsel for the parties agreed on the following facts:
The fiscal period of Bates Construction & Development Corporation (hereinafter called “Bates Construction”) ends on September 30. Having suffered a business loss of $95,863 during the 1967 taxation year, Bates Construction was obliged to discontinue its business before the end of the said period. On September 29, 1967, a few months after the discontinuance of business by Bates Construction, Federal Construction Com- pany Limited (“Federal Construction’) acquired control of Bates Construction by purchasing 5,005 common shares and 93,563 preferred shares of its capital stock. In 1968 and subsequent years, Bates Construction engaged in the real estate business—a very different business from the one it was operating when it suffered the loss in question; during the years 1968 and 1969 it realized a substantial profit and, on the basis of paragraph 27(1 )(e) of the Income tax Act it attempted to deduct the said loss suffered in 1967 from its 1969 income.
In computing the taxable income of Bates Construction for the year 1969, the respondent refused, under subsection 27(5a) of the Aci, to allow deduction of the business losses suffered during the 1967 taxation year. Counsel for the appellant maintains that the said subsection does not apply since control was acquired during the year 1967 while it was carrying on its business.
Counsel for the respondent contends, on the other hand, that the case before the Board meets all the requirements of subsection 27(5a) and that, as a result, paragraph 27(1 )(e) does not apply. Subsection 27(5a) reads as follows:
27. (5a) Paragraph (e) of subsection (1) does not apply to permit a corporation to deduct, for the purpose of computing its taxable income for a taxation year, a business loss sustained by it in a preceding taxation year from the carrying on of a business if during the preceding taxation year
(a) the business of the corporation in which the loss was sustained was wound up or discontinued; and
(b) control of the corporation was acquired
(i) after the winding up or discontinuance of the business, and
(ii) after June 13, 1963,
by a person or persons who did not control the corporation at any time during the preceding year when the business was being carried on.
(The italics are mine.)
It is therefore necessary to interpret the above section and more especially the last phrase, which reads: “at any time during the preceding year when the business was being carried on’’. It is an undisputed fact that a business loss was sustained by Bates Construction during a previous year, namely the year 1967, and that its business was discontinued during the said year. It is also certain that control of the corporation was acquired on September 29, 1967, a few months after its business was discontinued and after June 13, 1963. Up to this point subsection 27(5a) applies to the facts and circumstances of the case.
And now the words “control of the corporation was acquired . . . by a person or persons who did not control the corporation at any time during the preceding year when the business was being carried on” must be interpreted.
Counsel for the appellant contends that control of Bates Construction was acquired and held during the 1967 fiscal year while it was carrying on its business ‘and concludes that it is not subject to the provisions of subsection 27(5a).
However, if this section is considered as a whole, it is difficult to justify the interpretation given by counsel for the appellant to the words “at any time during the preceding year when the business was being carried on”.
Subsection 27(5-a) describes the circumstances under which business losses sustained in a preceding year cannot be deducted from the taxable income for a taxation year. Paragraph (a) of the said subsection 27(5a) clearly states “the business of the corporation in which the loss was sustained . .
The Board is aware that the business being carried on by Bates Construction when the loss was sustained was discontinued some months before Federal Construction took over control of the appellant. Moreover, once under the control of Federal Construction, Bates Construction’s income came from another type of business, quite different from the business it was carrying on when it sustained the loss in question,
The “preceding year” definitely means the year in which the loss was sustained, and the words ‘‘when the business was being carried on” which follow ‘‘the preceding year” have the same meaning, in my opinion, as the word “business” cited in paragraph (a) of subsection 27(5a), namely “the business in which the loss was sustained”.
To interpret the word “business” in subparagraph 27(5a)(b)(ii) as including business of a completely different nature from the business in which the loss was sustained and which was, in fact, discontinued a few months before control of the corporation was taken over by a new organization would seem to contradict the other provisions of the said section as well as the purpose the legislator had in mind, which was to check trading in business losses.
I therefore conclude that the appellant comes entirely within the provisions of subsection 27(5a) and is thus not in a position to benefit by the deductions for business losses allowed under the provisions of paragraph 27(1 )(e) of the Income Tax Act.
The appeal is dismissed.
Appeal dismissed.