the use of any, whether copyrighted or not, subsequently produced or reproduced in Canada by way of spoken word, print, or mechanical sound on or from paper, composition, films, or mechanical devices of any description, provided that in the case of motion-picture films 60 percent of such payment shall not be subject to the tax under this section. "46 TAXABLE INCOME Taxable income is defined by section 3 as follows: For the purposes of this act, "income" means the annual net profit or gain or gratuity, whether ascertained and capable of computation as being wages, salary, or other fixed amount, or unascertained as being wages, salary, or other fixed amount, or unascertained as being fees or emoluments, or as being profits from a trade or commercial or financial or other business or calling, 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 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 or gain from any source including (a) the income from but not the value of property acquired by gift, bequest, devise, or descent; and (b) the income from but not the proceeds of life-insurance 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; and (c) any payment to any employee out of any employees' superannuation or pension fund or plan; and (d) the salaries, indemnities, or other remuneration of all persons whatsoever whether paid out of the revenue of His Majesty in respect of his Government of Canada, or of any Province thereof, or by any person, except as herein otherwise provided; and (e) personal and living expenses when such form part of the profit, gain, or remuneration of the taxpayer; and (f) rents, royalties, annuities, or other like periodical receipts which depend upon the production or use of any real or personal property, notwithstanding that the same are payable on account of the use or sale of any such property. CAPITAL GAINS AND CASUAL PROFITS Capital gains are not deemed to be taxable income, but whether a gain is income or only an appreciation of capital is determined on the particular facts in each case. The tests applied to the facts are the same as those which have been laid down by British courts under the United Kingdom Income Tax Act: Broadly speaking, the profits derived from the sale of real property or other capital assets that have been held as an investment, or from the transmutation of capital assets from one form into another, are not taxable income; but gains arising from the purchase and sale of property as part of the business of the taxpayer are subject to tax. Where properties were acquired and sold many years later, it was held that the owner was not carrying on the trade of buying and selling land and the gain was not taxable. Where part of the company's business was the development and sale of land, however, the profits were considered as trading profits and were therefore taxable." In an important Canadian case 48 arising under the British Columbia Income Tax Act it was held that where the powers of a company, incorporated to take over as a going concern a logging business, in 46 The words in italics were added by the 1936 Amendment Act, and are applicable to income of the year 1935 and fiscal periods ending therein and all subsequent periods. 47 T. P. S. 147, "Company Law and Business Taxes in Great Britain," p. 71. 48 Anderson Logging Co. v. The King (1925) S. C. R. 45; (1926) A. C. 140. cluded the power to acquire timber lands with a view to dealing in them and turning them to account for the profit of the company, and it bought a tract of land and sold it at a profit, the gain was not a capital profit but one derived from the business of the company and as such assessable to income tax. In a more recent case " also involving the British Columbia Act, the Supreme Court of Canada stated that the test to be applied is "whether the sum in dispute was a gain made in an operation of business in carrying out a scheme for profit making" as laid down in an early British case, California Copper Syndicate v. Harris, 50 which was followed by that court in Anderson Logging Co. v. The King, and reaffirmed in subsequent British cases.51 Casual or isolated transactions outside of the ordinary business of a person do not as a rule render the profits taxable as income, although even profits from a single transaction, if it is shown that a trade or business has been embarked upon may become taxable as income. Each case is decided on its own particular facts in determining whether the dealings amount to a trade or business. "If an individual occasionally buys securities, shares, cotton, wheat, or some other commodity on the exchange and sells later at a profit, he would probably not be taxed on his gain; but if he repeated such transactions a number of times in order to make profits thereon, there seems to be a possibility that such income would be regarded as trading profits and therefore liable to tax." 52 In a Canadian case 53 where an individual, who was a member of a grain commission firm, personally carried on a series of grain transactions through his firm on the same basis as other customers (independent of the business of the firm on which he was without question taxable as to his share of the profits), it was held that these personal speculations amounted to the carrying on of a business or trade and that the net profits therefrom were subject to income taxation. INVESTMENT INCOME Special surtaxes on investment income, applying to ail persons other than corporations and joint-stock companies, were introduced into the Canadian tax system by the 1935 Amendment Act. To determine the application of the new rates, a distinction was made for the first time between earned income and investment income. "Earned income" means salary, wages, fees, bonuses, pensions, superannuation allowances, retiring allowances, gratuities, honoraria, and the income from any office or employment of profit held by any person, and any income derived by a person in the carrying on or exercise by such person of a trade, vocation, or calling, either alone or, in the case of a partnership, as a partner actively engaged in the conduct of the business thereof, and includes indemnities or other Merritt Realty Co., Ltd., v. Brown (1932) S. C. R. 187. 1 Commissioner of Taxes v. Melbourne Trust Ltd. (1914) A. C. 1010; Ducker v. Rees, A. C. 127. Trade Promotion Series 147, Company Law and Business Taxes in Great Britain; obtainable for 15 cents from the Superintendent of Documents, Government Printing Office, Washington, D. C., or from any of the district offices of the Bureau of Foreign and Domestic Commerce. 53 Morrison v. Minister of National Revenue (1928), Ex. C. R. 75. remuneration paid to members of Dominion, Provincial, or Territorial legislative bodies or municipal councils, but does not include income derived by way of royalties, or any income, irrespective of the source or combination of sources from which it may be derived, in excess of $14,000 (par. "m" of sec. 2). "Investment income" includes any income not defined as earned income and also any amount deemed to be a dividend and any income from whatever sources derived in excess of $14,000 ("n" of sec. 2). INDIVIDUAL TAXPAYERS Individuals residing or ordinarily resident in Canada are liable to tax on income from all sources, foreign as well as domestic. Individuals who sojourn in Canada for a period or periods amounting to 183 days during a year are technically liable on their income from all sources during the entire year. An individual need not necessarily be in Canada for a period or periods amounting to 183 days in any year to become liable on his income from all sources, because such unlimited liability will arise if it is established that he is "residing or ordinarily resident” in Canada for one day only. "Residing or ordinarily resident' is not defined by the statute, and is a mixed question of fact and law, though primarily one of fact; it must be determined in accordance with all the circumstances of each case. Generally speaking, a person resides where he has his dwelling, home, and family, but a person may be resident though such indices be not present; residence is a quality or attribute which a person has acquired by a continuing relationship with a place in Canada; one who regularly returns to Canada in pursuance of a settled object and not merely casually or occasionally or on business ventures only, or as a traveler, may be deemed resident." 54 (Commissioner of Income Tax.) Nonresident individuals employed in Canada (border-commuters), or nonresidents, deriving income for services rendered in Canada, otherwise than in the course of regular or continuous employment, for any person resident or carrying on business in Canada, are liable to tax on such income. Fees for occasional professional services rendered in Canada by nonresident doctors, engineers, etc., are therefore under the law liable to tax, but as there is no withholding of the tax at source the collection thereof has been found difficult. Nonresident individuals are also liable to tax on profits derived from carrying on business in Canada, on royalties received from Canada, and a 5-percent tax on dividends and some interest payments from Canadian sources; these types of income are discussed in detail under corresponding headings. PARTNERSHIPS Partnerships as such are not liable to taxation, but the share of each partner in the income of the partnership, whether withdrawn or not during the tax year, is taxed against him individually along with his other income (sec. 30). A nonresident partner is assessable only on his share of the net profit from the firm's Canadian business. 54 Taxation of Foreign and National Enterprises, vol. III, p. 54. Where a husband and wife are partners in any business the total income from the business may in the discretion of the Minister be treated as income of the husband or wife and taxed accordingly (sec. 31). SCHEDULE OF RATES A. Rates of tax applicable to persons other than corporations and joint stock companies On the first $1,000 of net income or any portion thereof in excess of exemptions, 3 percent, or $30 upon net income of $1,000; and 4 percent upon the amount by which the income exceeds $1,000 and does not exceed $2,000, or $70 upon net income of $2,000; and 5 percent upon the amount by which the income exceeds $2,000 and does not exceed $3,000, or $120 upon net income of $3,000; and 6 percent upon the amount by which the income exceeds $3,000 and does not exceed $4,000, or $180 upon net income of $4,000; and 7 percent upon the amount by which the income exceeds $4,000 and does not exceed $5,000, or $250 upon net income of $5,000; and 8 percent upon the amount by which the income exceeds $5,000 and does not exceed $6,000, or $330 upon net income of $6,000; and 9 percent upon the amount by which the income exceeds $6,000 and does not exceed $7,000, or $420 upon net income of $7,000; and 10 percent upon the amount by which the income exceeds $7,000 and does not exceed $8,000, or $520 upon net income of $8,000; and 11 percent upon the amount by which the income exceeds $8,000 and does not exceed $9,000, or $630 upon net income of $9,000; and 12 percent upon the amount by which the income exceeds $9,000 and does not exceed $10,000, or $750 upon net income of $10,000; and 13 percent upon the amount by which the income exceeds $10,000 and does not exceed $11,000, or $880 upon net income of $11,000; and 14 percent upon the amount by which the income exceeds $11,000 and does not exceed $12,000, or $1,020 upon net income of $12,000; and 15 percent upon the amount by which the income exceeds $12,000 and does not exceed $13,000, or $1,170 upon net income of $13.000; and 16 percent upon the amount by which the income exceeds $13,000 and does not exceed $14,000, or $1,330 upon net income of $14,000; and 17 percent upon the amount by which the income exceeds $14,000 and does not exceed $15,000, or $1,500 upon net income of $15,000; and 18 percent upon the amount by which the income exceeds $15,000 and does not exceed $16,000, or $1,680 upon net income of $16,000; and 19 percent upon the amount by which the income exceeds $16,000 and does not exceed $17,000, or $1,870 upon net income of $17,000; and 20 percent upon the amount by which the income exceeds $17,000 and does not exceed $18,000, or $2,070 upon net income of $18,000; and 21 percent upon the amount by which the income exceeds $18,000 and does not exceed $19,000, or $2,280 upon net income of $19,000; and 22 percent upon the amount by which the income exceeds $19,000 and does not exceed $20,000, or $2,500 upon net income of $20,000; and 23 percent upon the amount by which the income exceeds $20,000 and does not exceed $25,000, or $3,650 upon net income of $25,000; and 24 percent upon the amount by which the income exceeds $25,000 and does not exceed $30,000, or $4,850 upon net income of $30,000; and 25 percent upon the amount by which the income exceeds $30,000 and does not exceed $35,000, or $6,100 upon net income of $35,000; and 26 percent upon the amount by which the income exceeds $35,000 and does not exceed $40,000, or $7,400 upon net income of $40,000; and 27 percent upon the amount by which the income exceeds $40,000 and does not exceed $45,000, or $8,750 upon net income of $45,000; and 28 percent upon the amount by which the income exceeds $45,000 and does not exceed $50,000, or $10,150 upon net income of $50,000; and 29 percent upon the amount by which the income exceeds $50,000 and does not exceed $55,000, or $11.600 upon net income of $55,000; and 30 percent upon the amount by which the income exceeds $55,000 and does not exceed $60,000, or $13,100 upon net income of $60,000; and 31 percent upon the amount by which the income exceeds $60,000 and does not exceed $65,000, or $14,650 upon net income of $65,000; and 32 percent upon the amount by which the income exceeds $65,000 and does not exceed $70,000, or $16,250 upon net income of $70,000; and 33 percent upon the amount by which the income exceeds $70,000 and does not exceed $75,000, or $17,900 upon net income of $75,000; and 34 percent upon the amount by which the income exceeds $75,000 and does not exceed $80,000, or $19,600 upon net income of $80,000; and 35 percent upon the amount by which the income exceeds $80,000 and does not exceed $85,000, or $21,350 upon net income of $85,000; and 36 percent upon the amount by which the income exceeds $85,000 and does not exceed $90,000, or $23,150 upon net income of $90,000; and 37 percent upon the amount by which the income exceeds $90,000 and does not exceed $95,000, or $25,000 upon net income of $95,000; and 38 percent upon the amount by which the income exceeds $95,000 and does not exceed $100,000, or $26,900 upon net income of $100,000; and 39 percent upon the amount by which the income exceeds $100,000 and does not exceed $110,000, or $30,800 upon net income of $110,000; and 40 percent upon the amount by which the income exceeds $110,000 and does not exceed $120,000, or $34,800 upon net income of $120,000; and 41 percent upon the amount by which the income exceeds $120,000 and does not exceed $130,000, or $38,900 upon net income of $130,000; and 42 percent upon the amount by which the income exceeds $130,000 and does not exceed $140,000, or $43,100 upon net income of $140,000; and 43 percent upon the amount by which the income exceeds $140,000 and does not exceed $150,000, or $47,400 upon net income of $150,000; and 44 percent upon the amount by which the income exceeds $150,000 and does not exceed $175,000, or $58,400 upon net income of $175,000; and 45 percent upon the amount by which the income exceeds $175,000 and does not exceed $200,000, or $69,650 upon net income of $200,000; and 46 percent upon the amount by which the income exceeds $200,000 and does not exceed $225,000, or $81,150 upon net income of $225,000; and 47 percent upon the amount by which the income exceeds $225,000 and does not exceed $250,000, or $92,000 upon net income of $250,000; and 48 percent upon the amount by which the income exceeds $250,000 and does not exceed $275,000, or $104,900 upon net income of $275,000; and 49 percent upon the amount by which the income exceeds $275,000 and does not exceed $300,000, or $117,150 upon net income of $300,000; and 50 percent upon the amount by which the income exceeds $300,000 and does not exceed $325,000, or $129,650 upon net income of $325,000; and 51 percent upon the amount by which the income exceeds $325,000 and does not exceed $350,000, or $142,400 upon net income of $350,000; and 52 percent upon the amount by which the income exceeds $350,000 and does not exceed $375,000, or $155,400 upon net income of $375,000; and 53 percent upon the amount by which the income exceeds $375,000 and does not exceed $400,000, or $168,650 upon net income of $400,000; and 54 percent upon the amount by which the income exceeds $400,000 and does not exceed $450,000, or $196,650 upon net income of $450,000; and 55 percent upon the amount by which the income exceeds $450.000 and does not exceed $500,000, or $223,150 upon net income of $500,000; and 56 percent upon the amount by which the income exceeds $500,000. AA. Rates of tax applicable to all persons other than corporations and joint stock companies in receipt of all "investment income" as provided by the actOn investment income included in any income exceeding $5,000 but not exceeding $10,000, 2 percent. On investment income included in any income exceeding $10,000 but not exceeding $14,000, 3 percent. On income exceeding $14,000 but not exceeding $20,000, 3 percent. |