Date: 20010207
Docket: 2000-2231-IT-I
BETWEEN:
ANNA C. WHALEN,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasons for Judgment
Campbell, J.
[1] The Appellant appeals from an assessment for her 1998 taxation year. In computing income for the 1998 taxation year, the Appellant deducted the amount of $5,542.00 as childcare expenses. The Minister of National Revenue disallowed the deduction on the basis that the Appellant was the common law spouse of and resided with Dan Welsh, that Mr. Welsh was a supporting person as defined in subsection 63(3) of the Income Tax Act (the "Act") and that Mr. Welsh's income in 1998 was deemed to be zero pursuant to paragraph 3(f) of the Act. Because of subsection 3(f), the Appellant's income exceeded that of her common law spouse. Dan Welsh did not fall within any of the provisions enumerated in subsection 63(2), which might have otherwise eliminated the effect of the Appellant's greater income in respect to eligibility for claiming the deduction.
[2] The issue here is whether the Appellant is entitled to deduct the childcare expenses of $5,542.00 pursuant to section 63 of the Act when her earned income exceeded that of her common spouse and when none of subsection 63(2) provisions applied to the common law spouse, Mr. Welsh.
[3] The Appellant and Dan Welsh are the parents of one child born in 1997. The Appellant and Mr. Welsh resided together during the relevant period. The Appellant's net income in 1998 exceeded that of Mr. Welsh, who was self-employed in a newer business and unable to draw an income from his business. The Appellant was the sole financial support for the family. It was from the Appellant's income that childcare expenses were paid and yet she was denied the deduction.
[4] Section 63 of the Act is designed to provide relief for taxpayers that incur childcare expenses in order to work, carry on a business or undertake training activities. Subsection 63(1) permits a deduction for childcare expenses paid by a taxpayer in the year on account of an eligible child or a deduction by a supporting spouse of an eligible child. The definition of "supporting person" which is relevant to this case is contained in subsection 63(3). Mr. Welsh is quite clearly the "supporting person" here. That being the case, the Appellant would be permitted the deduction for childcare expenses if the supporting person falls within the scope of subsection 63(2) of the Act. Mr. Welsh, however, does not fall within any of the provisions of this subsection. This means that the Appellant cannot claim the deduction and it follows that neither parent, in this instance, can claim the benefit of the deduction. Section 63 does not specifically define income and therefore paragraph 3(f) of the Act applies. Paragraph 3(f) specifically deems negative total income for the year to be an amount equal to zero. The case law has treated such an amount as positive income in an amount equal to zero. Subsection 3(f) deems the negative total income reported by Mr. Welsh to be an amount equal to zero and case law has treated this amount as positive income. This means that Mr. Welsh's income is lower than the income of the taxpayer, the Appellant. It is the supporting person with the lower income who is entitled to the deduction in computing income. As a result under subsection 63(2) the supporting person, Mr. Welsh, is entitled to the deduction but it is of no use to him.
[5] The Appellant quoted the cases of The Queen v McLaren, 90 DTC 6566 (Fed. T.D.) & Fiset v. M.N.R., 88 DTC 1226 (T.C.C.). The cases, decided in 1990 and 1988, respectively, held that the word "income" meant a positive amount and not zero or no income. To overcome the decisions of these cases, section 3 of the Act was amended by the addition of subsection 3(f). This amendment ensured that the person with the lower income, whether it be zero or an actual negative amount, when calculated according to section 3, is deemed to have income for that year in an amount equal to zero. And of course under subsection 63(2), the other spouse's positive income is then clearly greater than that of the spouse with income deemed at zero.
[6] Subsection 3(f) is clear -- the supporting person with the income of nil is the one who must claim the deduction. While I agree with the Appellant that this creates an unfair result, the provisions of the Act are clear, as is the case law, and unfortunately the Appellant is bound by the strict wording of the legislation. The result is not only unfair but also unreasonable. Due to the Appellant's circumstances she is denied the benefit contemplated by section 63 despite the family unit having two working parents.
[7] During the proceedings, the Appellant, for the first time, raised section 15 of the Canadian Charter of Rights and Freedoms. She alleged that subsections 3(f) and 63(2) violated section 15 of the Charter. The Appellant's Notice of Appeal had not raised this issue and of course she had not complied with the notice requirements of section 57 of the Federal Court Rules. Counsel for the Respondent objected to the jurisdiction of the Court to hear the Charter issue on the grounds that it was not properly before the Court due to the lack of compliance with the notice requirements of section 57. Counsel did not object on the basis that the Notice of Appeal had never raised this issue.
[8] The practice of this Court has been to hear argument when a constitutional issue is raised and there has been no compliance with section 57. If this Court were to find some merit in the argument, then the matter would be adjourned for section 57 compliance. The case, Langlois v. R., 1999 CarswellNat 1695, a Federal Court of Appeal decision, is authority in support of this practice. I overruled the Respondent's objections and permitted the Appellant to raise the Charter issue at the hearing. Counsel for the Respondent requested and was given an opportunity to respond to the Charter argument by written submission.
[9] After reviewing the Appellants' arguments raised at the hearing together with the further written submissions of both the Appellant and the Respondent, I must conclude that the Appellant's constitutional argument must fail. Surprisingly, counsel for the Respondent in his written submission did not address Appellant's Charter argument. Instead, he quoted section 57 and reiterated that I had no jurisdiction to hear such a constitutional issue where there is non-compliance with section 57. He referred to R. v. Fisher [1996] 2 C.T.C. 103 (FCA) and Nelson v. R., 2000 CarswellNat 2038 (FCA). My only comment is that there are obviously two lines of thinking in the Federal Court and my own preference, in terms of a common sense approach, is the Langlois case. I believe the decision of the Federal Court in Nelson is quite clearly incorrect and could only result in longer delays in hearing Appellants' cases. Counsel's argument that this Court lacks jurisdiction to hear the constitutional argument displays a remarkable misunderstanding of the meaning of the word jurisdiction. The Nelson decision ignores the plain meaning of subsection 57(1) of the Federal Court Act. That subsection provides only that an Act or regulation shall not be adjudged to be invalid, inapplicable or inoperable unless the requisite notice is given. It does not prevent this Court from hearing the argument. In permitting the request of Respondent's counsel to file submissions on the Appellant's charter argument, I expected more than a mere reiteration of his argument of section 57 notice requirements. However of far greater concern to me is the omission by Counsel to refer me to the alternate practice as confirmed in Langlois. It is highly improper for counsel, as an officer of the Court, to refrain from referring the Court to relevant authorities that do not support his or her position.
[10] The Appellant's argument is that subsection 3(f) and section 63, in denying her the childcare expense deduction, resulted in a disadvantage to her that amounts to a breach of her rights under subsection 15(1) of the Charter. She argued that these provisions created a situation where she, the income earner, and her common law spouse who was attempting to succeed in a business, that did not yield income, were treated unfairly. In being denied this deduction she argued they were treated differently than a family unit where both parents were productively engaged in profitable employment. It is my view that the differential treatment created by subsection 3(f) of the Act is not based on one of the enumerated grounds set out in subsection 15 of the Charter or grounds analogous thereto. Subsection 3(f) does not create distinctions on personal characteristics, and does not offend the Appellant's dignity, intrinsic worthiness or self-respect. Nor does it bring into play the purpose of subsection 15(1) in respect to remedying certain societal problems such as prejudice, stereotyping and historical disadvantage. The section in the Act is designed to provide a benefit to working parents for amounts expended on childcare expenses. The fact that some members of the group derive a greater benefit from the legislation than others, does not itself trigger a violation of section 15 of the Charter. Judge Bowman summarized it best in Hover v. M.N.R., 93 DTC 98 at page 100, when he stated:
... There is a world of difference between persons who are accorded unequal treatment under the law because of personal characteristics over which they have no control such as race, colour, sex, age, citizenship or mental or physical disability and persons who voluntarily choose a form of economic activity which carries with it a mix of fiscal advantages and disadvantages. The latter do not, in my view, form a discrete or insular minority ... It is not open to such persons to invoke the Charter ...
While the application of subsection 3(f) creates a deplorable financial effect where one parent earns income but the other's business does not, the remedy cannot be advanced through a subsection 15(1) argument. It is through Parliament that a remedy must be found. I am not persuaded that subsection 3(f) and section 63 of the Act violate the Appellant's equality rights guaranteed in section 15 of the Charter.
[11] With regret, I must dismiss the appeal.
Signed at Ottawa, Canada, this 7th day of February 2001.
"Diane Campbell"
J.T.C.C.