Montgomery v. Minister of National Revenue, 99 DTC 5186, [1999] 2 CTC 196 (FCA)

Rothstein J.A.:

The issue in this appeal is whether membership dues paid by the Appellant, Alan Montgomery, to the Appraisal Institute of Canada, for the taxation year 1988, were deductible in computing his income from employment for that year under subparagraph 8( 1 )(i)(i) of the Income Tax Act, S.C. 1970-71-72 c. 63. Mr. Montgomery was employed by the Department of National Revenue as the Chief of the Real Estate Appraisal Section in the Hamilton, Ontario District Office. As a condition of employment in that position, he was required to hold the Accredited Appraiser designation of the Appraisal Institute of Canada but was not reimbursed, and was not entitled to be reimbursed, by his employer for the payment of those dues. The parties are agreed that real estate appraisers are members of a profession for purposes of subparagraph 8(1 )(i)(i).

In 1988, there was no statute that incorporated or regulated the Appraisal Institute of Canada as a self-governing profession. Rather, on April 11, 1960, the Institute had been incorporated as a corporation without share capital under Part II of the Dominion Companies Act, R.S.C. 1952, c.

53. The Institute has by-laws providing for, amongst other things, designation of members as Accredited Appraiser Canadian Institute (AACI), Professional Appraiser (P. App.) and Canadian Residential Appraiser (CRA), education and discipline.

The sole issue is whether a real estate appraiser in Ontario has a professional status “recognized by statute” within the meaning of subparagraph 8(l)(i)(i) of the Income Tax Act.

In the Tax Court of Canada, Bowman T.C.J. relied on reference to appraisals being conducted by persons designated AACI by the Appraisal Institute of Canada in the British Columbia Expropriations Act and Regulation. As a result, he found in favour of Mr. Montgomery and allowed his dues to the Appraisal Institute as a deduction. (See Montgomery v. Minister of National Revenue, [1996] I C.T.C. 2796 (T.C.C.)). In the Federal Court, Trial Division, the learned Trial Judge came to the opposite conclusion. See Montgomery v. Minister of National Revenue (1997), 97 D.T.C. 5510 (Fed. T.D.) . Citing a long line of authority which she followed [1] , she concluded:

In my opinion, a statutory provision requiring the preparation of an appraisal by a member of the Appraisal Institute of Canada does not constitute a recognition by statute of the professional status of that group; it merely indicates that a member of that group must perform the appraisal required by the statutory provision. A profession only possesses “a professional status recognized by statute”, within the meaning of subparagraph 8( 1 )(i)(i) of the Income Tax Act, following the enactment of legislation permitting it to regulate its affairs in accordance with express rights, duties and powers. In 1988, there was no legislation anywhere in Canada permitting the self-regulation of the Appraisal Institute of Canada or any of its affiliated groups as a profession.

Subparagraph 8( 1 )(i)(i) provides:

8.(1) In computing a taxpayers’s income for a taxation year from an office or employment, there may be deducted such as the following amounts as are wholly applicable to that source or such part of the following amounts as may reasonably be regarded as applicable thereto:

(i) amounts paid by the taxpayer in the year as...

(i) annual or professional membership dues the payment of which was necessary to maintain a professional status recognized by statute

to the extent that he has not been reimbursed, and is not entitled to be reimbursed in respect thereof;...

(emphasis added)

The term “recognized” is not further defined.

Before this Court, the Appellants cited three statutes in existence in 1988 which, they argued, recognized the professional status of appraisers. The first was subsection 19(2) of the Expropriation Act, S.B.C., 1987, c. 23 which provides:

19.(2) The appraisal report shall be prepared by a person who has been accredited by an institute or body prescribed by the Lieutenant Governor in Council, shall be reasonably detailed and shall include...

Section 8 of the Expropriation Act General Regulation 451/87 provides:

For the purpose of section 19(2) of the Act, the following persons may prepare appraisal reports:

(a) a person designated A.A.C.I. by the Appraisal Institute of Canada

Next, the Appellants cited subsection 8(5) of the Nursing Homes Act, S.A. 1985, c. N-14.1. It provides:

(5) If the Minister grants an approval referred to in subsection (1), it is subject to the conditions prescribed in the regulations.

Subsection 7(d) of the Nursing Homes General Regulation 232/85 provides:

7. If an operator of a non-district nursing home applies to the Minister under section 8(1) of the Act for his approval of a sale or other disposition of any interest in the land and buildings used for his nursing home to a district board, an approval, if granted, is subject to the condition that the selling or disposition price for land, buildings, and any other property used for the nursing home shall not exceed the aggregate of the fair market value for land, buildings and any other property determined as at the date of sale or disposition on an appraisal basis under which

(a) the district board shall obtain an appraisal of them from an appraiser appointed and paid by it,

(d) each appraiser shall be a member of either the Alberta Association of Professional Appraisers or the Appraisal Institute of Canada

Finally, the Appellants cited subsections 5(2), (3) and (4) of the Government Employee Housing Plan Act, R.S.Y. 1986, c. 80 which provide:

5.(2) A person shall not be appointed as an appraiser under this section unless he is able to demonstrate that he is experienced in the making of appraisals of real property for others, for other purposes, for gain or reward.

(3) A person shall be deemed to have satisfied the requirements of subsection (2) if

(a) he is the holder of a certificate from the Appraisal Institute of Canada qualifying him to appraise the housing unit, or

(4) An appraisal under this section shall be based on the cost approach or on the market approach as recognized by the Appraisal Institute of Canada.

The question is whether these references satisfy the words “professional status recognized by statute” in subparagraph 8( 1 )(i)(i) of the Income Tax Act. For purposes of subparagraph 8(l)(i)(i), the British Columbia and Alberta legislation suffer from the complication that the references to the Appraisal Institute of Canada, or the AACI designation, are found in regulations and not in the statutes themselves. However, the Yukon Government Employees Housing Plan Act provides that an appraiser is deemed to have satisfied the requirement that he be experienced in the making of appraisals of real property, if he is the holder of a certificate from the Appraisal Institute of Canada qualifying him to appraise the housing unit.

The line of jurisprudence upon which the learned Trial Judge relied in adopting the view that “recognized” means that a statute must provide for the regulation of the professional organization, was based on cases commencing with Minister of National Revenue v. Montgomery, supra. However, we do not read the ratio decidendi in Montgomery to deal directly with the question of what “recognized” means in subparagraph 8( 1 )(i)(i), which is the question before us in this appeal. Indeed in Montgomery, Kerr J. stated at page 120:

The purpose of the payment of wardroom dues is not, in my opinion, to maintain a professional status. The status of a navy officer does not call for membership in a mess, unlike the practice of medicine, for example, which calls for membership in a medical society established by statute.

My attention was not drawn to any specific recognition of a wardroom mess in a statute, and I scarcely think that the status of membership in a wardroom mess is a professional status recognized by statute.

Subsequent cases appear to rely on the obiter comments of Kerr J. at page 119:

I feel sure, the present day concept of organized societies and associations of doctors, dentists, lawyers, engineers, chartered accountants and other professional persons, which have been given a special status by statute and have the power to make regulations governing the issue of certificates and licences to practise the profession, examinations of candidates for membership and the right to practise, discipline of members, and a variety of other matters, including the regulation of the practice and the professional conduct of its members. (sic)

We are of the respectful view that Montgomery, and the cases following it, read into the Income Tax Act Words that are not there. In this respect, we must be guided by the words of Iacobucci J. in Canderel Ltd. v. R. (1998), 98 D.T.C. 6100 (S.C.C.), at 6107 :

For the court to usurp this inherent power of Parliament is rife with unnecessary danger. As was observed in Royal Bank of Canada v. Sparrow Electric Corp., [1997] 1 S.C.R. 411, at p. 485:

All that is needed to effect the desired result is clear language of that kind. In the absence of such clear language, judicial innovation is undesirable, both because the issue is policy charged and because a legislative mandate is apt to be clearer than a rule whose precise bounds will become fixed only as a result of expensive and lengthy litigation.

The law of income tax is sufficiently complicated without unhelpful judicial incursions into the realm of lawmaking. As a matter of policy, and out of respect for the proper role of the legislature, it is trite to say that the promulgation of new rules of tax law must be left to Parliament. As one eminent jurist of the United States Supreme Court once observed, “we are a Supreme Court, not a Supreme Legislature.”

The Respondent’s approach requires us to supplement the word “recognized” in subparagraph 8( 1 )(i)(i) with words such as “incorporating” or “providing for the regulation of’ the profession or words of similar import. We have no doubt that many, and perhaps most, professional organizations will be established and regulated by statute. However, the Income Tax Act is not concerned with the incorporation or regulation of professional societies and there is no necessary implication that the word “recognized” in subparagraph 8(1 )(i)(i) includes such requirements.

Subparagraph 8( 1 )(i)(i) is concerned with allowing, as a deduction from income, professional dues paid in order to maintain a professional status recognized by statute. The purpose of the term “recognized by statute” is only to establish a standard against which the validity of the professional status in question is measured. The dictionary definition of “recognized” is, in this context, “to acknowledge the existence, validity, character or claims of’. See Concise Oxford Dictionary, 8th ed. Had Parliament intended to restrict the meaning of “recognized” to include the requirement of being “incorporated”, “created” or “regulated” by statute, it was open to it to use words to that effect. It did not. For this Court to do so would be contrary to the approach to interpretation mandated by Canderel. There is statutory acknowledgement of the status of appraisers which status is associated with membership in the Appraisal Institute of Canada and which the parties agreed is a professional status. We are therefore satisfied in this case that there is statutory recognition of the professional status of appraisers for purposes of subparagraph 8( 1 )(i)(i).

The appeal will be allowed, the decision of the Trial Division will be set side and the appeal by the Respondent against the decision of the Tax Court of Canada will be dismissed, the whole with costs to the Appellants, in this Court and in the Trial Division.

Appeal allowed.