Hokhold v. The Queen, 93 DTC 5339, [1993] 2 CTC 99 (FCTD)

Rothstein, J.:— This is an application by the defendant, Her Majesty The Queen, under Rule 419(1)(a) of the Federal Court Rules to strike out the plaintiff’s statement of claim for failure to show reasonable cause of action. Rule 419(1)(a) provides:

The Court may at any stage of an action order any pleading or anything in any pleading to be struck out, with or without leave to amend, on the ground that

(a) it discloses no reasonable cause of action or defence, as the case may be,

and may order the action to be stayed or dismissed or judgment to be entered accordingly.

Rule 419(2) states:

No evidence shall be admissible on an application under paragraph (1)(a)

In The Attorney General of Canada v. Inuit Tapirisat, [1980] 2 S.C.R. 735, 115 D.L.R. (3d) 1, Estey, J. stated at page 740 (D.L.R. 5):

As I have said, all the facts pleaded in the statement of claim must be deemed to have been proven. On a motion such as this a court should, of course, dismiss the action or strike out any claim made by the plaintiff only in plain and obvious cases and where the court is satisfied that "the case is beyond doubt": Ross v. Scottish Union and National Insurance Co. ((1920), 53 D.L.R. 415, 47 O.L.R. 308 (App. Div.)).

Accordingly in this case, I must accept the facts as pleaded as being true and grant the motion only if the case is beyond doubt.

The issue raised by the plaintiff's amended statement of claim can be briefly described as follows. Paragraph 56(1)(u) of the Income Tax Act, R.S.C. 1952, c. 148 (am. S.C. 1970-71-72, c. 63) (the "Act") requires social assistance payments received by a taxpayer to be included in computing the income of the taxpayer. Subparagraph 110(1)(f)(iii) of the Income Tax Act allows a taxpayer who included a social assistance payment in computing his or her income to deduct the social assistance payment. The net result is that a social assistance payment is not included in a taxpayer's income for the purposes of computing income tax.

The plaintiff says that he is entitled to the benefit of subparagraph 110(1)(f)(iii) because he received social assistance payments from the governments of Canada and British Columbia as a dentist in respect of treating certain patients on social assistance. He says that other taxpayers who worked for profit were allowed this deduction and he feels that he should be entitled to the same deduction.

Subparagraph 110(1)(f)(iii) of the Income Tax Act which was in force in 1986 and 1987, the relevant taxation years in this case, was amended in 1988. The amendment was expressly made retroactive to the 1982 and subsequent taxation years to explicitly restrict the deduction of social assistance payments to only those cases in which the payments were received by the individual in respect of whom the social assistance was provided or by a person who resided with the individual.

The plaintiff recognizes that by virtue of the amended subparagraph 110(1)(f)(iii), that he is not entitled to the social assistance deduction. However, he claims that the retroactive amendment is discriminatory and thereby contrary to the Charter of Rights and Freedoms. In particular he says that other taxpayers who claimed the deduction originally have not been reassessed and that by reason of the fact that the defendant cannot reassess some taxpayers because the relevant years are statute-barred and because of the way in which the defendant administers the Income Tax Act in respect of the deduction of social assistance payments, different taxpayers are being treated differently with resulting discrimination.

Relevant statutory provisions

Subparagraph 56(1)(u) of the Income Tax Act provides:

1. Without restricting the generality of section 3, there shall be included in computing the income of a taxpayer for a taxation year,

(u) a social assistance payment made on the basis of a means, needs or income test received in the year by

(i) the taxpayer, other than a married taxpayer who resided with his spouse at the time the payment was received and whose income for the year is less than his spouse’s income, or

(ii) the spouse of the taxpayer with whom he resided at the time the payment was received if the spouse's income for the year is less than the taxpayer’s income for the year. . . .

Subparagraph 110(1)(f)(iii) originally enacted by S.C. 1980-81-82-83, c. 140, subsection 65(5) and originally in force for the taxation years 1986 and 1987 provided:

1. For the purpose of computing the taxable income of a taxpayer for a taxation year, there may be deducted such of the following amounts as are applicable. . . .

(f) any amount that is. . .

(iii) a social assistance payment made on the basis of a means, needs or income test by a registered charity or under a program (other than a prescribed program) provided for by an Act of the Parliament of Canada ora law of a province,

to the extent that it has been included in computing the taxpayer's income for the year

By an Act to Amend the Income Tax Act, S.C. 1988, c. 55, subsection 34(2), paragraph 56(1)(u) of the Income Tax Act was repealed and the following substituted:

Without restricting the generality of section 3, there shall be included in computing the income of a taxpayer for a taxation year. . .

(u) a social assistance payment made in the year

(i) on the basis of a means, needs or income test, and

(ii) in respect of the taxpayer or of a person who, at the time of the payment, is related to the taxpayer or is a person in respect of whom any individual was entitled to receive a family allowance payment under the Family Allowances Act, 1973

and received by

(iii) the taxpayer, other than a married taxpayer who resides with his spouse at the time of the payment and whose income for the year is less than his spouse's income for the year, or

(iv) the spouse of the taxpayer with whom the taxpayer resides at the time of the payment if the spouse's income for the year is less than the taxpayer's income for the year.

Subsection 8 of section 34 of the said Act to Amend the Income Tax Act, S.C. 1988, c. 55 provides:

Subsection 2 is applicable to the 1982 and subsequent taxation years.

By the same Act to Amend the Income Tax Act, S.C. 1988, c. 55, subsection 77(7), subparagraph 110(1)(f)(iii) was repealed and the following substituted:

1. For the purpose of computing the taxable income of a taxpayer for a taxation year, there may be deducted such of the following amounts as are applicable:

(f) any amount that is

(iii) a social assistance payment made on the basis of a means, needs or income test by a registered charity or under a program (other than a prescribed program) provided for by an Act of the Parliament of Canada ora law of a province where the payment is received by the individual in respect of whom the social assistance was provided or by a person who, at the time the payment was made, resided with the individual,

to the extent that it has been included in computing the taxpayer's income for the year.

Subsection 77(17) of the said Act to Amend the Income Tax Act, S.C. 1988, c. 55, provides:

Subsection 7 is applicable to the 1982 and subsequent taxation years.

On their face, subsections 34(8) and 77(17) of the Act to Amend the Income Tax Act, S.C. 1988, c. 55 render the amended paragraphs 56(1)(u) and subparagraph 110(1)(f)(iii) of the Income Tax Act applicable to the calendar years 1982 and subsequent and specifically to the calendar years 1986 and 1987, the years for which the plaintiff was reassessed.

The facts

The facts contained in the amended statement of claim as filed were described by counsel for the defendant in the following manner. The plaintiff agreed this was a fair representation of the relevant facts as pleaded.

1. The plaintiff is a practising dentist who resides in Fort St. James, British Columbia. The plaintiff carries on business as a sole proprietorship (paragraph 1) as amended.

2. Since 1982, the plaintiff has rendered the majority of his professional services to non-treaty Native Indians who receive benefits from Health & Welfare Canada. (paragraph 19)

3. The payments received by the plaintiff from Health & Welfare Canada for these services comprised the bulk of the “social assistance payments" received in his 1986 and 1987 taxation years, (paragraph 19)

4. In his 1986 and 1987 taxation years, the plaintiff received the following amounts as” social assistance payments" from the B.C. and federal governments (paragraph

Year	B.C. government	Federal government	Total
1986	$6,489.98	$327,853.71	$334,334.69 [sic]
1987	$5,722.65	$252,339.19	$258,061.84

5. Subparagraph 110(1)(f)(iii) was amended by S.C. 1988, c. 55 subsection 77(7), applicable to payments received after 1981, explicitly restricting the deduction of social assistance payments to those taxpayers on whose behalf the social assistance was paid or certain related individuals (paragraph 14).

6. For his 1986 and 1987 taxation years, the plaintiff claimed deductions pursuant to subparagraph 110(1)(f)(iii) for “social assistance payments” received by him from the B.C. and federal governments (paragraphs 3, 4 and 7).

7. The Minister of National Revenue disallowed these deductions and the plaintiff filed notices of objections and waivers.

8. Other taxpayers who worked for profit were allowed deductions under paragraph 110(1)(f) prior to the amendment and can carry forward any resulting noncapital losses. Even though these taxpayers should lawfully be reassessed pursuant to the retroactive legislation, they were not because of an internal policy of Revenue Canada and because those years became statute-barred (paragraphs 17 and 18).

9. Taxpayers now assessed retroactively, such as the plaintiff, will not be allowed the deductions (paragraphs 17 and 18).

10. Subparagraph 110(1)(f)(iii) was amended after section 15 of the Charter was proclaimed in force (paragraph 23).

11. The plaintiff willingly treated non-treaty Native Indians for which he received less reimbursement from the federal government than if he had treated Caucasian people (paragraphs 20 and 25(a)).

12. Revenue Canada did not, among the various district offices, consistently administer subparagraph 110(1)(f)(iii) prior to or after the amendment to subparagraph 110(1)(f)(iii) (paragraph 25(d)).

13. The Minister of National Revenue did not make all taxpayers equally available for reassessment under amended subparagraph 110(1)(f)(iii) because he did not amend the relevant sections of the Income Tax Act to allow reassessments beyond the three and four year limitation periods (paragraphs 25(d) and 25(e)).

Analysis

The premise of the plaintiff's case is that he would have been entitled to the social assistance deduction had subparagraph 110(1)(f)(iii) of the Income Tax Act not been amended with retroactive effect in 1988.

The deduction under subparagraph 110(1)(f)(iii) is applicable to the social assistance payment received and included in the computation of income under paragraph 56(1)(u). Such social assistance payment is one received by a taxpayer and is made on the basis of a means, needs or income test. In my view, the taxpayer referred to in paragraph 56(1)(u) is the person to whom the means, needs or income test relates. I do not see how a provider of professional services such as a dentist could be said to be a taxpayer who received a social assistance payment made on the basis of a means, needs or income test.

Further, paragraph 56(1)(u) refers to an individual or the spouse of an individual. The social assistance payment is to be included in computing the income of the taxpayer if he is unmarried or if he is married and his spouse has a higher income than his. It is to be included in computing the spouse's income if the spouse's income is less than the taxpayer's. This again suggests to me that the taxpayer to whom paragraph 56(1)(u) applies is the person on social assistance or, in some circumstances, the spouse of such person. Nothing in the context indicates that it is applicable to a provider of professional services. [1]

Subparagraph 110(1)(f)(iii) as it was originally worded, allowed a deduction of any amount that was a social assistance payment made on the basis of a means, needs or income test. As in the case of paragraph 56(1)(u), I find it difficult to imagine that Parliament could have contemplated providers of professional services being the taxpayers envisaged by subparagraph 110(1)(f)(iii).

I asked the plaintiff why he thought Parliament would have intended that dentists such as himself should be entitled to receive professional fees from governments in respect of patients on social assistance on a tax free basis. The only answer that he gave me was that the fees charged in respect of social assistance patients was less than for other patients and, in particular, that the fee level for Status Native Indians on social assistance was less than the fee level for others on social assistance.

The plaintiff may have a legitimate grievance in respect of the fee levels paid for patients in different categories. However, there is nothing in the Income Tax Act to indicate that the Government of Canada intended to allow providers of professional services to persons on social assistance, to receive professional fees tax free because such fees were at a lower level than fees charged to other patients.

Except for the fact that the plaintiff's amended statement of claim contains the following allegation, which I must accept as being true:

Other taxpayers who worked for profit were allowed this deduction, i.e., those individuals received fee for service just as I did.

I would have thought it beyond doubt that the plaintiff was not entitled to the benefit of the deduction under subparagraph 110(1)(f)(iii) as it was originally worded. However, the fact that the defendant allowed this deduction to others suggests that, at least in the minds of the officials of the defendant, the wording of the original subparagraph 110(1)(f)(iii) may have allowed for the deduction claimed by the plaintiff. This possible ambiguity is corroborated by the fact that in respect of the amendment to subparagraph 110(1)(f)(iii) by S.C. 1988, c. 55, which was made retroactive to 1982 and subsequent taxation years, the Minister of Finance issued a press release on December 22, 1987, #87-180, stating in part as follows:

The Honourable Michael Wilson, Minister of Finance, today announced four measures which will affect the filing of individual income tax returns for the 1987 and subsequent years. These measures are in the nature of technical adjustments, and the necessary legislation will be introduced in the House of Commons in the new year. The Income Tax Act will be amended in the following areas

Social Assistance Payments

The legislation will be amended to clarify that the deduction allowed in computing taxable income in respect of social assistance payments will not be allowed to third parties such as landlords, dentists or others who are recipients of such payments made by governments or charitable agencies on behalf of the persons in need and who would normally include such payments in computing their rental or business income. The necessary amendments for this purpose will be effective in respect of such assistance payments received after 1981 — the date on which the existing provisions of the Act relating to such payments were first made effective.

The fact that the defendant thought it necessary to clarify the entitlement of the social assistance deduction so as not to allow it to dentists is further indication that, insofar as subparagraph 110(1)(f)(iii) stood before the retroactive amendment of 1988, its application was not without some doubt.

While I am of the view that at trial, it is likely the trial judge would find the original subparagraph 110(1 )(f)(iii) not applicable to the plaintiff, I do not think it would be appropriate for me to make such a determination on a motion to strike where I must be satisfied beyond doubt that there is no reasonable cause of action.

I then turn to subparagraph 110(1)(f)(iii) as amended by S.C. 1988, c. 55, subsection 77(7). The plaintiff acknowledges in his amended statement of claim that under this version of the subparagraph, taxpayers such as himself are not entitled to the social assistance deduction. In paragraph 18(b) of the amended statement of claim the plaintiff says:

These taxpayers who lawfully should be reassessed. . . .

In paragraph 26(c) he asks that subparagraph 110(1)(f)(iii) as amended be struck down.

Under the revised subparagraph, the deduction of social assistance payments is allowed only where the payments are received by the individual in respect of whom the social assistance is provided or Dy 2 person who resides with the individual. I agree with the plaintiff that it is beyond doubt that this wording could be construed to allow a provider of professional services such as a dentist to avail himself of the deduction.

This version of subparagraph 110(1)(f)(iii) of the Income Tax Act was addressed by Bonner, T.C.C.J. in Storey Group Homes Ltd. v. M.N.R., [1992] 2 C.T.C. 2052, 92 D.T.C. 1295. At page 2054 (D.T.C. 1296) he stated:

A description of a profit-making corporation not only as an individual but also as an individual in respect of which social assistance is provided stretches the English language beyond the bounds of its ordinary meaning. The amounts received by the appellant were received by it as the ordinary revenues of its business pursuant to contracts between it and the various children’s aid societies. Such amounts were not, in my view, received as social assistance.

I agree with Bonner, T.C.C.J. I am satisfied beyond doubt that the provision in question is not applicable so as to entitle the plaintiff to the deduction he seeks.

However, the plaintiff's argument relates to what he alleges is the discriminatory effect of the provision by virtue of its retroactive effect.

The general presumption against retroactivity of statutes may be rebutted by expressed statutory language (see, for example, Colonial Sugar Refining Co. v. Irving, [1906] A.C. 360 at page 366:

The Parliament had undoubted power to impose taxation . . . and it is not now disputed that the Parliament could, if the thought fit, make the Act retroactive, and impose the duties from the date of the resolution. That practice is (it is believed) universally followed in the Imperial Parliament, and (their Lordships were told) is common in the Colonial Legislatures and Acts of this description, and for obvious reasons it is convenient and almost necessary. There was nothing, therefore, in either the subject matter of the Act or in the mode of dealing with it, which was beyond the power of the Parliament.

Retroactive taxing statutes have been recognized as being valid in Air Canada and Pacific Western Airlines Ltd. v. B.C., [1989] 1 S.C.R. 1161, [1989] 4 W.W.R. 97. Of course, the retroactivity must be clearly expressed or necessarily implied. In Storey Homes, supra, Bonner, T.C.C.J. referring to S.C. 1988,

c. 55, states at page 2054 (D.T.C. 1296):

. I. subsection 77(17) of the amending legislation is clear. It states that subsection (7), the section that effected the amendment, is applicable to the 1982 and subsequent taxation years. This Court is obliged to give effect to clear statutory language and I will be doing so by dismissing the appeals.

I find nothing unclear about subsection 77(17) of the Act to Amend the Income Tax Act S.C. 1988, c. 55. There is no doubt that subparagraph 110(1)(f)(iii) enacted by subsection 77(7) of that Act applied to the years 1982 and subsequent and in particular to 1986 and 1987.

The plaintiff argues that the retroactive effect of subparagraph 110(1)(f)(iii) is discriminatory and is contrary to sections 7 and 15 of the Canadian Charter of Rights and Freedoms. Section 7 of the Charter states:

Everyone has the right to life, liberty and security of the person and the right not to be deprived thereof except in accordance with the principles of fundamental justice.

The short answer to the section 7 argument is that there is no connection between the facts in this case and the right to life, liberty and security of the person. This is an assessment under the Income Tax Act and no argument was formulated that even faintly supported any deprivation contemplated under section 7.

Section 15 of the Charter states:

15(1) Every individual is equal before and under the law and has the right to the equal protection and equal benefit of the law without discrimination and, in particular, without discrimination based on race, national or ethnic origin, colour, religion, sex, age or mental or physical disability.

(2) Subsection (1) does not preclude any law, program or activity that has as its object the amelioration of conditions of disadvantaged individuals or groups including those that are disadvantaged because of race, national or ethnic origin, colour, religion, sex, age or mental or physical disability.

It is clear that the plaintiff does not come within any of the enumerated grounds expressly set forth in section 15. Nor was there any suggestion that he fell under any analogous ground as that concept is recognized in Andrews v. The Law Society of British Columbia, [1989] 1 S.C.R. 143, 56 D.L.R. (4th) 1. Indeed in OPSEU v. National Citizens' Coalition Inc., [1990] 2 C.T.C. 163, 90 D.T.C. 6326 (Ont. C.A.), Blair, J.A. stated at pages 166-67 (D.T.C. 6328):

In my opinion, Canadian taxpayers earning income from employment, who constitute the great majority of the working population, do not constitute a group suffering discrimination on grounds analogous to those enumerated in subsection 15(1) of the Charter. This huge group of taxpayers is not a ''discrete and insular minority". It is a large segment of the population which we described in Mir- hadizadeh (1989), 69 O.R. (2d) 422, 60 D.L.R. (4th) 597, at page 426 (D.L.R. 601) as "not linked by any personal characteristics relating to them as individuals or members of a group”. They are what we called in Mirhadizadeh, supra, at page 426 (D.L.R. 601) “a disparate and heterogeneous group" linked together only by the fact that they are taxed on their employment income. They are incapable of being discriminated against on grounds analogous to those enumerated in subsection 15(1).

I am satisfied that section 15 has no application in this case.

The plaintiff's concern seems to be that other taxpayers were treated differently than was he by Revenue Canada. Whatever the reasons for Revenue Canada’s action in respect of other taxpayers, they are not relevant to the plaintiff’s situation. In Ford Motor Company of Canada Ltd. v. M.N.R., an unreported decision of the Associate Chief Justice of this Court (Jerome, A.C.J.), in Court File No. T-3700-82 on May 8, 1991, the learned Associate Chief Justice states at page 5:

Here, the onus lies with the plaintiff to establish that its manufacturing activities bring it within the definition of” manufacturer or producer" in paragraph 2(1)(f) of the Excise Tax Act and that it is not precluded from such consideration on the basis of the defendant's assumption that its dealers are operating retail stores within the meaning of that section. The activities of other automotive manufacturers and the defendant's treatment of those manufacturers is of no relevance to the plaintiff’s action. No matter how similar the activities of two businesses, if one company can frame its dispute in such a way as to make another company's affairs relevant, the result would be chaos. In each individual case the plaintiff must prove that it meets the requirements of the legislation. Here, if the plaintiff establishes that its manufacturing activities fall within the definition in paragraph 2(1)(f) then it will be entitled to the consideration provided in subsection 26(1) for similar goods". That entitlement does not flow from the fact that other automotive manufacturers have received it but rather from the fact that the plaintiff meets the requirements in the legislation.

These principles are fully applicable to the case at bar. While it is understandable that the plaintiff considers it unfair that Revenue Canada appears to have treated taxpayers in similar circumstances differently, that cannot be the basis for the plaintiff's appeal. The plaintiff is either entitled, on a reasonable interpretation of the words of subparagraph 110(1)(f)(iii) of the Income Tax Act, to the social assistance deduction or he is not. I have found that it is clear that he is not.

I have no doubt that subparagraph 110(1)(f)(iii) as enacted by S.C. 1988, c. 55, subsection 77(7) is validly applicable to the taxation years 1986 and 1987 by virtue of subsection 77(17) of that Act. It is beyond doubt that the plaintiff is not entitled to avail himself of the social assistance deduction provided for in subparagraph 110(1)(f)(iii).

This application to strike the plaintiff's amended statement of claim is granted. Judgment shall be entered for the defendant with costs.

Application to strike granted.