Citation: 2013 TCC 286
Date: 20130913
Docket: 2013-146(IT)I
BETWEEN:
MARION SOTSKI,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
(Delivered orally from the Bench on
September 10, 2013, at Edmonton, Alberta)
Pizzitelli J.
[1]
The only issue to be
decided in this case is whether the Appellant can deduct the sum of $3,675
expended in 2010 to install engineered hardwood flooring in her home pursuant
to paragraph 118.2(2)(l.2) of the Income Tax Act (the “Act”).
[2]
The facts are not generally
in dispute. The Appellant’s husband suffers from the progressively debilitating
Parkinson’s disease that, without dispute by either party, constitutes a severe
and prolonged physical disability, which makes walking on surfaces that offer
friction like carpets both difficult and unsafe due to risks from falling. Due
to both the difficulty in raising his feet above a friction offering surface
like carpeting and the forward leaning posture of her husband due to the
disease, as well as the added problem of his psoriatic arthritis which causes
his toes to turn in, the husband was at serious risk of having the carpet
arrest his feet and forcing him into a fall; essentially risking injuring
himself, the Appellant as his in-home caregiver and any outside caregivers who
try to assist him. As a result, the Appellant, a person with experience in caregiving,
attended at a flooring centre, and after obtaining the advice of the dealer
having regard to her husband’s needs, replaced the fairly new carpet in their
five-year old home with very modestly‑priced engineered smooth laminate flooring
to eliminate the resistance and hence reduced the physical effort and resulting
fatigue as well as the risk of fall to all as mentioned.
[3]
The Respondent agrees
that the Appellant has a medical reason and justification for installing the
flooring and agrees with the Appellant that the new laminate flooring would
enable the Appellant’s husband to be more mobile and function within the
dwelling as contemplated by the above paragraph 118.2(2)(l.2) of the Act.
The only dispute between the parties is the Respondent’s position that the
other two conditions of the above paragraph are not met, namely, those found in
the portion of the above paragraph that reads:
(l.2)
… provided that such expenses
(i)
are not of a type that would typically be expected to increase the
value of the dwelling, and
(ii)
are of a type that would not normally be incurred by persons who have
normal physical development or who do not have a severe and prolonged mobility
impairment;
[4]
In order for the
Appellant to succeed in this appeal, both the above conditions must be met.
[5]
The Respondent takes
the position that the installation of laminate flooring is a type of renovation
that would typically be expected to increase the value of the dwelling unit and
that the installation of laminate floors is a type of expense normally incurred
by persons who have normal physical development or who do not have a severe and
prolonged mobility impairment, although led no evidence in this regard. The
onus to rebut the Minister of National Revenue’s (the “Minister”) assumption of
course rests on the Appellant and the Appellant argued that while the
installation of solid hardwood floors could typically be expected to increase
the value of a dwelling unit the installation of modestly-price engineered
floors would not, as the existing carpet was relatively new. The Appellant also
testified that she replaced only the 800 square foot area utilized by her
husband and not the remainder of the carpets in the house. The Appellant also
testified that her personal preference is a quality carpet as she had before
over the laminate but that the laminate was the only affordable option she had
to address her husband’s medical condition. The Appellant’s testimony was
sincere and consistent and I found her to be highly credible.
[6]
Frankly, the Appellant
has demonstrated to my satisfaction that the installation of modestly-priced
laminate flooring instead of solid hardwood flooring cannot be said to typically
increase the value of the dwelling. The issue of flooring is, as she suggested
and which I accept as being most reasonable, a personal consumption decision at
best, and although I would find it reasonable to conclude that the replacement
of an old and stained carpet would likely increase the value of a dwelling
unit, I cannot agree that the replacement of a fairly new quality carpet with
low-end laminate flooring would achieve the same result. I must say, from my personal
experiences, that the cost of quality carpeting can be substantially higher
than some types of laminate flooring and that engineered flooring with a wood
veneer is substantially less expensive than full-quality hardwood flooring. In
my view, the Appellant has demonstrated she has met the first condition of
paragraph 118.2(2)(l.2) of the Act and the Respondent led no
evidence to the contrary.
[7]
The second condition
the Appellant must meet in the above paragraph is more problematic in my view.
The Appellant must demonstrate that this type of expenditure is of “a type that
would not normally be incurred by persons who have normal physical development
or who do not have a severe and prolonged mobility impairment” to paraphrase
the clause. The Respondent had argued that Parliament’s intention was clear
that the installation of hardwood flooring was one of those types of expenses
that would normally be incurred by those without the requisite impairment. The
Respondent led into evidence the Annex to the Budget Plan of 2005 where the
Minister of Finance acknowledged on page 19 that recent decisions of this Court
interpreted the former section more broadly so as to include in some cases the
cost of hardwood floors or installing a hot tub, which went beyond the policy
intent of the Medical Expense Tax Credit because:
… it
subsidizes renovation expenses that increase the value of the home, and extends
tax recognition to expenses with a substantial element of personal consumption
and personal choice. …
[8]
To stop this
recognition, Parliament added the two conditions in question above, which the
Respondent pointed out was to have overruled previous Tax Court of Canada decisions
which allowed hardwood flooring expenses and hot tub expenses. While Budget
Papers and Technical Notes are not law, they should be given good weight when
Parliament was aware at the time the legislation was passed that the Department
of Finance was aware of the issue and intended to deal with it.
[9]
The Respondent, relying
on the above, states that the type of expense intended to be disallowed then
was that of the installation of hardwood floors and hence the Appellant should
be denied here. In addition, the Respondent points out that recent cases
decided after the change in legislation, which was effective as of February 23,
2005, the Budget date, support its position. In Hendricks v Canada, 2008
TCC 497, 2008 DTC 4852, Paris J. denied as a medical expense deduction of the
cost of hardwood flooring citing the clear intent of Parliament found in the
Budget Papers and in Barnes v Canada, 2009 TCC 429, 2009 DTC 1282, Boyle
J., also citing the clear intent of Parliament evidenced by the Department of
Finance’s Explanatory Notes and Budget Papers accompanying the 2005 amendments
to the legislation, denied the deduction of a swimming pool installation
expenses.
[10]
The Appellant, however,
has argued that in keeping with the intention of Parliament, her expense is not
an expense reflecting an element of personal consumption or personal choice as
the caution in the Budget Papers above alluded to. She testified she simply had
no choice if she wished to address her husband’s medical impairments due to
Parkinson’s.
[11]
Frankly, I am in
agreement with the position of Appellant in this matter. The Budget Papers
and explanatory notes make it clear the two conditions were inserted to ensure
the taxpayer was not subsidizing personal consumption and personal choices. I
agree with the Appellant that if her only choice was to install low-cost
laminate floors to deal with her husband’s condition, then there is no element
of personal consumption or choice here that the taxpayer is being asked to
fund. I note as well that in the Hendricks case above, in paragraphs 8
and 9, Paris J. found that the Appellant had not disproven the Minister’s
assumption that the installation of hardwood flooring was an alteration that
would typically be expected to increase the value of the dwelling and that, as
stated in paragraph 9:
9 …
I would also add that, as a matter of common sense, it would seem that the
installation of new hardwood floors in the place of 23 year old carpets in this
case, could typically be expected to increase the value of a dwelling.
[12]
Paris J. decided that
case on the basis the first condition had not been met.
[13]
In the case at hand, we
have a situation where the Appellant replaced fairly new carpets, only five years
old, in only part of the home which her impaired husband utilizes, with low-end
engineered laminate flooring, not solid flooring and I have found the first
condition had been met.
[14]
Moreover, in dealing
with the second condition, Boyle J. in the Barnes case above, stated at
paragraph 13 thereof:
13 This
is not to say that, in an appropriate case, a swimming pool especially designed
or altered for a person for therapeutic physiotherapy purposes will be unable
to qualify.
[15]
Accordingly, Boyle J.
recognized that the legislation is not solely geared to prohibiting “types” of
expenditures as the Respondent contends, but types of expenditures that fail to
meet the condition of Parliament having regard to its stated policy. In my
view, if as Boyle J. stated, a specially-designed pool for the disabled
Appellant in that case may have qualified, I fail to see why flooring that
needs no special design, but which meets the requirements, purchased and
installed without bells and whistles so to speak, should not. It would indeed
seem an absurd result that if the Appellant here hired an engineer to design a
super smooth concrete floor or “medical floor” to use the Respondent’s term, with
no resistance to specifically suit the needs of the Appellant at great expense,
that that would qualify while using the most modest means to achieve the same
result would not.
[16]
In interpreting the
provisions of the paragraph, one cannot lose sight of the policies of Parliament,
both in enacting the Medical Expense Tax Credit and in the amendments. The
Medical Expense Tax Credits were designed to grant relief to taxpayers who
suffer from serious and prolonged mental and physical impairments, to assist
them with dealing with the extra costs incurred by them as a result of their
condition. The amendments to the provisions in 2005 were to avoid abuses of
those provisions. The Respondent in this case does not disagree with the existence
of the Appellant husband’s impairments and even agrees that the installation of
the engineered laminate flooring assists in alleviating his symptoms and
addressing his condition. The Respondent does not take issue with the
Appellant’s purpose and intent in having the flooring installed to assist her
husband with mobility and reduce fatigue and risk of injury by providing a
surface of lesser resistance in her dwelling, those requirements spelled out in
subsection 118.2(2). The Respondent only relies on his technical interpretation
of the two conditions in such paragraph (l.2) pointing to the Budget
Papers and Technical Notes to suggest the intention of Parliament was to
categorize the types of expenditures in general, including all hardwood
flooring. I simply do not agree.
[17]
Parliament, having
regard to its policy of avoiding abuse in medical expenditures, set out two
conditions designed to avoid abuse. It did not specifically categorize
expenditures such as hardwood floorings, or hot tubs or swimming pools are
being prohibited in its language and while the language of the Budget Papers
and Explanatory Notes made mention of these types of abuses, these were the
types being set out as examples because they were the types that were the
subject matter of the cases the Department of Finance took issue with as being abusive
in those circumstances. In the circumstances at hand, I do not find that
replacing a quality carpet flooring of only five years old with modestly-priced
engineered laminate flooring instead of higher-priced solid hardwood to be
abusive. The Appellant did not attempt to buy a luxury floor or upgrade the
quality of her dwelling by installing the floor she did. She instead only put
in what was necessary, without the intent or expectation of having the taxpayer
fund her personal consumption choices. Had she installed, say high-end solid
mahogany instead of lower-end engineered flooring, one could question her
motives and arrive at a reasonable conclusion that this would not only increase
the value of his dwelling but also be of the type of higher-end material most
taxpayers would no doubt be happy to have his fellow taxpayers fund. This was
not the case here. There is no abuse and the conditions of paragraph 118.2(2)(l.2),
interpreted with the policies of Parliament in mind, have been met so the
appeal is allowed in full.
Signed at Ottawa, Canada, this 13th day of September 2013.
“F.J. Pizzitelli”
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