Tax Court of Canada Judgments

Date: 20030123

Docket: 2002-1673(IT)I

BETWEEN:

JAMES E. YOUNG,

Appellant,

and

HER MAJESTY THE QUEEN,

Respondent.

_______________________________________________________________

Appeal heard on December 18, 2002, at Ottawa, Ontario,

By : The Honourable Judge A.A. Sarchuk
	Appearances:
	For the Appellant:	The Appellant himself
	Counsel for the Respondent:	Tony Chambers

_______________________________________________________________

JUDGMENT

          The appeal from the assessment of tax made under the Income Tax Act for the 2000 taxation year is dismissed.

Signed at Ottawa, Canada, this 23rd day of January, 2003.

"A.A. Sarchuk"

J.T.C.C.

Date: 20030123

Docket: 2002-1673(IT)I

BETWEEN:

JAMES E. YOUNG,

Appellant,

and

HER MAJESTY THE QUEEN,

Respondent.

REASONS FOR JUDGMENT

Sarchuk J.

[1]      In computing tax payable for the 2000 taxation year the Appellant claimed, inter alia, an equivalent-to-spouse amount of $6,140. By notice of reassessment, the Minister of National Revenue, relying on paragraph 118(1)(a) of the Income Tax Act, disallowed the claim.

[2]      The facts are not in dispute. The Appellant and his former spouse, Laurie Ruth Young, were married on August 9, 1980 and separated on November 7, 1994. There were three children, Christopher, James and Jenna. A separation agreement dated September 24, 1997 provided that the Appellant and his former spouse would have joint custody of the children and that the children "shall have their primary residence in the home of the wife". The separation agreement further provided that:

6.          Commencing on the 1st day of October, 1997, and in each subsequent month, the Husband will pay to the Wife for the support of the three children $1,814.00 (payable in two instalments, $907.00 on the 15th of each month, and $907.00 on the last day of each month) until one of the following occurs:

(a)         a child ceases to reside full time with the Wife; "reside full time" includes a child living away from home to attend an educational institution, or pursue summer employment, or obtain medical treatment, or take a vacation, providing a child is otherwise maintaining a residence with the wife;[1]

                                                                                          (Emphasis added)

The foregoing terms were incorporated into a divorce judgment dated January 5, 1998.[2]

[3]      In April 2000 one of the children, James, moved in with the Appellant and ceased to "reside full time with the wife". It is not disputed that the Appellant continued to pay the full amount of $1,814 per month for the balance of the taxation year in issue. He testified that he did so on the mistaken assumption that the divorce judgment dated January 5, 1998 remained in effect until otherwise directed by the Court. He further said that because a number of other issues had to be determined, this did not occur until an Ontario Superior Court of Justice issued a temporary Order on July 10, 2001, which directed that the child support from the Appellant to his former spouse for James was terminated.[3] This Order was followed by a final Order dated October 5, 2001 to similar effect.[4]

Respondent's position

[4]      Counsel for the Respondent conceded that for the taxation year in issue, the Appellant met all of the conditions stipulated in paragraph 118(1)(b) of the Act. More specifically, the Appellant was not entitled to and did not claim a tax credit for a dependant spouse, he was unmarried, and as of April 2000, maintained a home in which he totally supported his son James. Nonetheless, the Respondent's position is that the Appellant is precluded from receiving the equivalent-to-spouse credit for the 2000 taxation year because he was required to and did pay a support amount in that year within the meaning of subsection 118(5) of the Act.

[5]      Counsel for the Respondent further argued that even if this Court were to find that the Appellant was no longer required to pay a support amount in respect of James for the period of April 1, 2000 to the end of the year, the appeal ought to be dismissed on the grounds that for the first three months of the taxation year in issue when James was living with his mother, the Appellant did in fact pay a support amount within the meaning of subsection 118(5) of the Act.

[6]      Counsel referred to Barthels v. Canada[5] and Biggs v. Canada.[6] In each of these cases, (a) the operative Order contained language stipulating that the support payments to the spouse cease upon the child commencing to live with the Appellant full time; (b) that event occurred prior to the taxation year in issue; and (c) the Appellants immediately had ceased making payments in respect of the child. Counsel for the Respondent, quite correctly, distinguished these cases on the basis that as contrasted to the present appeal, no support amounts whatsoever had been paid by Barthels or Biggs in the taxation year in issue.

[7]      Counsel further referred to Spirig v. Canada,[7] Sherrer v. Canada[8] and Canada v. Marshall[9] and argued that these decisions stand for the proposition that when an Appellant is required to and does make a support payment in a given year, be it for one month or five or ten, that Appellant is not entitled to claim the equivalent-to-spouse credit by virtue of subsection 118(5).

Appellant's position

[8]      The Appellant says the Minister erred in disallowing the equivalent-to-spouse credit on the basis that:

(a)       the Court Order failed to take into account the fact he supported his son as a dependant living with him in a home he maintained; and

(b)      the Order failed to address the issue of retroactive support with the result that it also failed to take into account that "the child support paid (i.e. April 1, 2000 to June 30, 2001) was effectively spousal support".

None of the foregoing submissions provide the Appellant with a basis for the relief sought.

[9]      The Appellant also urged the Court to adopt the following comments of the trial judge in Barthels:

11         Secondly, I note that subsection 118(5) has a potential ambiguity in that one might ask the relevance of it not expressly stating when the requirement to pay a support amount needs to be in place. It is somewhat unusual that that subsection denies the credit "for a taxation year" where there is "a requirement to pay a support amount" but makes no mention of when that requirement must have come into existence or have been extinguished. More typically, exhaustive drafting styles evidenced in the Act might have said the credit is denied where there is "in the year" or "at anytime in the year" or "in respect of the year or any part of the year" a requirement to pay a support amount. While I hesitate to suggest that these cumbersome provisions be made more cumbersome by adding further language, I am inclined in this case to suggest that by not adding a time reference as to when the requirement to pay must be in existence, an extinguishment, at any time, of the requirement to pay any support amount "in respect of the year" might well be sufficient to escape the limitation imposed by that subsection. Certainly in this case I see no mischief in such a statutory construction approach.                                                       (Emphasis added)

Although the Appellant's submissions lacked clarity, I understood him to say that the relevant provisions, i.e. subsections 118(1) and 118(5), could be read so as to allow his claim to the tax credits either in total or on a prorated basis for the period commencing April 1, 2000.

Analysis

[10]     Reference to a number of sections of the Act suggests that it is reasonable to conclude that in certain instances, the legislators intended that a tax credit or liability be applied for a specific period of time regardless of whether the taxpayer engaged in the requisite behaviour for the entire period. An example of this is found in the same section as the equivalent-to-spouse credit, the application of which is in dispute in the case at bar. This is made apparent by the use of the words "at any time in the year" in paragraph 118(1)(a):

118(1)    For the purpose of computing the tax payable under this Part by an individual for a taxation year, there may be deducted an amount determined by the formula

                                                            A x B

            where

A          is the appropriate percentage for the year, and

B           is the total of,

(a)         in the case of an individual who at any time in the year is a married person or a person who is in a common-law partnership who supports the individual's spouse or common-law partner and is not living separate and apart from the spouse or common-law partner by reason of a breakdown of their marriage or common-law partnership, an amount equal to the total of ...

The section relating to the equivalent-to-spouse benefit is 118(1)(b). It provides:

(b)         in the case of an individual who does not claim a deduction for the year because of paragraph (a) and who, at any time in the year, ...

On reading of 118(1)(b), it is clear that if all of the criteria set out therein are met "at any time in the year" the credit would appear to be available. Unfortunately for the Appellant, the legislators also enacted subsection 118(5) which reads:

118(5) No amount may be deducted under subsection (1) in computing an individual's tax payable under this Part for a taxation year in respect of a person where the individual is required to pay a support amount (as defined in subsection 56.1(4)) to the individual's spouse or common-law partner or former spouse or common-law partner in respect of the person and the individual

(a)         lives separate and apart from the spouse or common-law partner or former spouse or common-law partner throughout the year because of the breakdown of their marriage or common-law partnership; or

(b)         claims a deduction for the year because of section 60 in respect of a support amount paid to the spouse or common-law partner or former spouse or common-law partner.

Reading the two subsections together, it seems clear that had the legislators intended to permit an extinguishment, at any time, of the requirement to pay any support "in respect of the year" or, in the alternative, to create the equivalent-to- spouse credit by allowing that portion reflecting the period of time no support payment was required to be paid, they would have done so in clear and unambiguous language.

[11]     Furthermore, it is also evident that the concept or proration is not unknown to the legislators. The most common indication of proration is the frequent use of the words "proportion" or "portion thereof". This indicates that a calculation must be performed to determine the amount of the tax credit or liability. One such example is seen in subsection 18(2.5), which deals with special rules applicable for base level deductions in the section concerning legitimate deductions from business or property. Subsection 18(2.5) of the Act is applicable where a corporation has two or more taxation years ending in the same calendar year in which it is associated with another corporation. Paragraph 18(2.5)(b) provides:

18(2.5) Notwithstanding any other provision of this section,

            (a)         ...

(b)         where a corporation has a taxation year that is less than 51 weeks, its base level deduction for the year is that proportion of its base level deduction for the year determined without reference to this paragraph that the number of days in the year is of 365.

[12]     A similar example is seen in subsection 32(1) of the Act. This subsection provides a reserve in respect of "unearned commissions" for insurance agents or brokers, and stipulates that the reserve amount is limited to the lesser of an amount that is based on a proration of the taxpayer's commissions over that part of the term of each insurance contract that falls in subsequent taxation years and the amount that would have been deductible under paragraph 20(1)(m), which is not available to insurance agents or brokers.

[13]     There are alsoprovisions in the Act whereby a specific amount is reduced by proration. Such is the case in paragraph 122.3(1)(c), which calculates the overseas employment tax credit. This is determined by multiplying the tax otherwise payable in the year by a fraction: the numerator of which is the lesser of $80,000 and 80% of the individual's overseas employment income for the year; the denominator is the individual's income for the year less certain deductions. The $80,000 figure set out in paragraph 122.3(1)(c) is reduced, on a prorated basis, if the number of days in the "qualifying period" is less than 365.

[14]     What appears to be suggested by the Appellant based on the Barthels decision is reading into the language of the section and "any time in the year" concept or, as was suggested by him, the right to prorate. I am unable to accept either proposition. As previously noted, when the legislators intended that a tax credit or liability be applied for a specific period regardless whether the taxpayer is engaged in the requisite behaviour for the whole period, that intention was clearly expressed in the statue. The same applies to the concept of proration.

[15]     In this context, in Canada v. Marshall,[10] the Federal Court of Appeal dealt with an application by the Crown to determine whether both parents could be considered to primarily fulfil the responsibility for the care and upbringing of the children of the marriage. At issue was whether the entitlement to child care benefits under the Act could be prorated between two parents who both claimed to be eligible individuals. In concluding otherwise, Stone J. observed:

            This section of the Act contemplates only one parent being an "eligible individual" for the purpose of allowing the benefits. It makes no provision for prorating between two who claim to be eligible parents. Only Parliament can provide for a prorating of benefits but it has not done so.

[16]     For the foregoing reasons, the appeal is dismissed.

Signed at Ottawa, Canada, this 23rd day of January, 2003.

"A.A. Sarchuk"

J.T.C.C.

COURT FILE NO.:	2002-1673(IT)I

STYLE OF CAUSE:

James E. Young and Her Majesty the Queen

PLACE OF HEARING

Toronto, Ontario

DATE OF HEARING

December 18, 2002

REASONS FOR JUDGMENT BY:

The Honourable Judge A.A. Sarchuk

DATE OF JUDGMENT

January 23, 2003

APPEARANCES:

For the Appellant:

The Appellant himself

Counsel for the Respondent:

Tony Chambers

COUNSEL OF RECORD:

For the Appellant:

Name:

N/A

Firm:

N/A

For the Respondent:

Morris Rosenberg Deputy Attorney General of Canada Ottawa, Canada

---