Date: 19980116
Docket: 97-682-IT-I
BETWEEN:
GILLES TEASDALE,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasons for Judgment
G. Tremblay, J.T.C.C.
Point at issue
[1] According to the Notice of Appeal and the Reply to the Notice of Appeal, the question is whether the appellant's earned income for the purposes of deducting child care expenses was correctly set at $1,360, and consequently whether the sum of $907 was correctly deducted in calculating the appellant's income for child care expenses for the 1995 taxation year.
[2] The appellant argued that his salary from self-employment assistance (S.E.A.) is earned income and not unemployment insurance benefits, as the respondent maintained.
Burden of proof
[3] The appellant has the burden of showing that the respondent's assessments are incorrect. This burden of proof results from several judicial decisions, including a judgment of the Supreme Court of Canada in Johnston v. Minister of National Revenue.[1]
[4] In the same judgment the Court held that the facts assumed by the respondent in support of the assessments or reassessments are also deemed to be true unless proven otherwise. In the instant case the facts assumed by the respondent are set out in subparagraphs (a) to (f) of paragraph 4 of the Reply to the Notice of Appeal. That paragraph reads as follows:
[TRANSLATION]
4. In arriving at this assessment the Minister assumed inter alia the following facts:
a. in the year at issue the appellant reported the following income:
i. Employment income $ 1,360
ii. Unemployment insurance benefits $27,150
making a total income of: $28,510
[admitted]
b. during the year at issue the appellant allegedly paid $6,019 as child care expenses; [admitted]
c. when filing his tax return for the 1995 taxation year the appellant claimed a deduction totalling $6,019 for child care expenses; [admitted]
d. when filing his tax return for the 1995 taxation year the appellant claimed a child care expenses deduction for the following children:
NAME BORN ON
Katherine 13-09-90
Nicholas 16-03-92
[admitted]
e. during the year at issue the appellant's "earned income" was $1,360, as appears from the [TRANSLATION] "employment income" heading in his return for the 1995 taxation year; [denied]
f. the amount of $907 deductible as child care expenses was correctly considered in calculating the appellant's net income for the 1995 taxation year as follows:
the least of the following amounts:
i. Actual amount paid during year $ 6,019
ii. 2/3 of earned income: $1,360 = $ 907
iii. 2 children at $5,000 each $10,000
[denied]
[5] The facts admitted above are the essential part of the evidence. The appellant challenged the fact that box 14 of form T4U includes all amounts received from Human Resources Development Canada (hereinafter "H.R.D.") and that those amounts are regarded as "unemployment insurance benefits" in line 119 of form T-688. The appellant maintained that the allowance from self-employment assistance and the allowance for the care of dependent children (Exhibit A-1) are not employment insurance benefits.
[6] The appellant maintained essentially that two-thirds of the amount of $27,150 received from H.R.D. was received as self-employment assistance and as assistance for the care of dependent children. From May to December 1995 the appellant received $619 a week as self-employment assistance (as a tour guide) and $149 for care of dependent children (Exhibit A-2). In short, the appellant maintained that the sum of $14,733 should be added to the amount of $1,360 as earned income.
[7] The appellant filed the form for applying for financial aid and registration in an employment activity as Exhibit A-3. This document among others summarizes this assistance. The appellant emphasized the underlined paragraph:
The Bottom Line on financial assistance for...
Self-employment
The revenue from the new business is not treated as income when determining the basic financial assistance that the person receives.
• Most clients can receive financial assistance for up to 52 weeks.
• Persons with a disability may receive assistance for up to 78 weeks if the disability presents a barrier to making the business sustainable in one year.
The contract signed with the client by the HRCC can state that the assistance will be for a shorter period if the client’s business income becomes sufficient.
Participants are also eligible for personal supports such as an amount to defray the cost of child care.
Because individuals participating in the self-employment benefit may be unable to predict their true financial needs, HRCCs may decide to provide a flat rate of financial assistance.
None of the financial assistance received is insurable, but it is taxable.
[8] The appellant also referred to the detailed text, emphasizing points where it may be concluded that earned income is referred to, not employment insurance benefits:
Section 25 referral
Under section 25 of the EI Act, a claimant is unemployed, capable of and available for work and therefore eligible to receive EI benefits when the claimant is
. . .
b) participating in any other employment activity for which assistance has been provided for the claimant under prescribed employment benefits to which the Commission, or an authority designated by the Commission, has referred the claimant .
. . .
Income tax
Except for the assistance provided for paying tuition fees, financial assistance under EI is subject to income tax.
. . .
Financial assistance
Under the E.I. Act, the Commission has established a number of Employment Benefits (programs) to enable insured participants to obtain employment. Under these Employment Benefits financial assistance may be provided to support various types of employment activities. Included in the range of financial assistance that may be provided in support of each employment benefit is direct financial assistance to the insured participants who are participating in an employment activity. This direct assistance may cover your living expenses and other costs such as dependant care, disability needs, tuition fees for courses or programs of instruction or training, and transportation and accommodation. . . .
[9] The respondent filed the appellant's tax return for 1995 (Exhibit I-1) and the self-employment agreement of May 3, 1995 between the appellant and the Canada Employment and Immigration Commission (now Human Resources Development Canada). The respondent referred in particular to the following two paragraphs:
[TRANSLATION]
WHEREAS, under the plan to assist claimants to start a business or become self-employed workers, a plan established under Division III of Part VIII of the Unemployment Insurance Regulations, the COMMISSION may pay self-employment benefits and, if necessary, supplementary allowances to claimants employed in developing and implementing a business plan under a self-employment agreement;
WHEREAS the CLAIMANT is eligible for benefits under the Unemployment Insurance Act, desires to start a business or become a self-employed worker, and has made an application for self-employment benefits, and if necessary, for supplementary allowances, in accordance with the aforementioned assistance plan . . .
and in paragraph 3(1)(a) of the agreement:
[TRANSLATION]
3. (1) The CLAIMANT shall:
(a) every two weeks complete the unemployment insurance claimant report card he receives from the COMMISSION and return it to the COMMISSION within the deadlines specified in s. 34 of the Unemployment Insurance Regulations . . .
[10] The respondent referred to s. 63(1)(e) of the Act, providing inter alia under the heading "Child Care Expenses" that the amount to be received by the taxpayer is:
(e) the lesser of
(i) 2/3 of the taxpayer's earned income for the year, and
(ii) the total of
(A) the product obtained when $5,000 is multiplied by the number of eligible children of the taxpayer for the year each of whom
(I) is under 7 years of age at the end of the year, or
(II) is a person in respect of whom an amount may be deducted under section 118.3 in computing a taxpayer's tax payable under this Part for the year, and
(B) the product obtained when $3,000 is multiplied by the number of eligible children of the taxpayer for the year (other than those referred to in clause (A)) . . .
[11] The concept of "earned income" is defined in s. 63(3)(b), which reads as follows:
63. (3)(b) "Earned income". - "earned income" of a taxpayer means the aggregate of
(i) all salaries, wages and other remuneration, including gratuities, received by him in respect of, in the course of, or by virtue of offices and employments, and all amounts included in computing his income by virtue of sections 6 and 7,
(ii) amounts included in computing his income by virtue of paragraph 56(1)(m), (n) or (o), and
(iii) his incomes from all businesses carried on either alone or as a partner actively engaged in the business . . .
[12] The definition of "unemployment insurance benefits" is contained in s. 56(1)(a)(iv) of the Act:
56. (1) Without restricting the generality of section 3, there shall be included in computing the income of a taxpayer for a taxation year,
(a) Pension benefits, unemployment insurance benefits, etc. — any amount received by the taxpayer in the year as, on account or in lieu of payment of, or in satisfaction of,
. . .
(iv) a benefit under the Unemployment Insurance Act, other than a payment relating to the cost of a course or program designed to facilitate the re-entry into the labour force of a claimant under that Act . . .
[13] The Court, considering the evidence as a whole and in particular the definitions of "earned income" and "unemployment insurance benefits", considers that the amounts received by the appellant either as self-employed assistance allowances or as allowances for the care of dependent children were received under the Employment Insurance Act and must be regarded as employment insurance benefits.
[14] Accordingly, despite various points raised by the appellant these amounts cannot be regarded as earned income.
Conclusion
[15] The appeal is dismissed.
"Guy Tremblay"
J.T.C.C.
[OFFICIAL ENGLISH TRANSLATION]
Translation certified true on this 13th day of March 1998.
Benoît Charron, Revisor