The Queen v. Kendall, 83 DTC 5134, [1983] CTC 119 (FCTD)

Collier, J:—These are my reasons. Mr Kendall, I have every sympathy in the world for you, but I regret I must confirm the tax gatherer’s approach in this case. When you succeeded in front of Mr Dubrule in the Tax Review Board, he allowed the matrimonial expenses. Unfortunately since his decision, the Federal Court of Appeal, by which I am bound, reversed a decision of mine in a case called G A Bryce v The Queen, [1982] CTC 133; 82 DTC 6126.

It is very obvious, I have to follow the Bryce case because the Federal Court of Appeal says that is the law. No matter how much I may disagree with them. Our system of law insists that I, as a trial judge, am bound by a decision of a higher court.

Mr Dubrule, at the time he decided in your favour didn’t have the Bryce case in front of him. Although he doesn't refer to my trial decision, I am sure he had it in mind because I upheld him in his initial Bryce decision. It is very complicated. The Bryce case started in the Tax Review Board and came to me in the Federal Court (just as yours has come) and then went on from there.

But the law as currently laid down by the Federal Court of Appeal rules that these expenses, paid by you for the benefit of your wife and to third parties, no matter how the Income Tax Act appears to read, cannot be deducted. I tried to do something about it in the Bryce case, but as I say, the Court of Appeal overruled me. So, I just have no choice but to dismiss your appeal in respect of those so-called matrimonial expenses.

I have every sympathy for you. Some of my colleagues in the Trial Division have railed about the harshness of the Pascoe case. But again it is the Federal Court of Appeal by which I am bound. We have sad cases, such as yours. I refer you to one I heard, Fritz v The Queen, where the parties had separated. The husband made payments to the wife, by agreement, to third parties because she had a lot of problems, mental problems and other problems. The only way that he could ensure that she was looked after properly was to pay them to third parties. He did it that way.

But the Pascoe decision says, no matter that all of that money was paid for the benefit of the wife and in fact used for her benefit, because she wasn’t given absolute control over it, the husband cannot deduct it.

I can only add that the whole theory, on this aspect of the case, is coming before the Supreme Court of Canada. The Bryce decision, and a parallel case, Gagnon, are on appeal to the Supreme Court of Canada. At some stage, the Supreme Court of Canada will be able to consider the Federal Court of Appeal judgments in the Bryce case, the Gagnon case and in the Pascoe case. They will have to get into merits, or otherwise, of the Pascoe decision.

So, in respect of the matrimonial expenses, I just can’t do anything else but allow this appeal.

In respect of the disallowance of the so-called retroactive payments amounting to $1,437.50, again, I have every sympathy for you. I have to say that the tax gatherer is, I think, probably technically correct. He is not, in my view, humanely or morally correct in the approach taken. But I can only apply the law. I cannot dictate morality or humaneness to tax assessors. I am going to allow that portion of the appeal as well.

I am not going to issue what is called a formal judgment, because if I do that, to keep your hopes alive, you would have to file an appeal in the Federal Court of Appeal within thirty days, assuming I signed the formal document today. I know you are concerned about legal expense. It may be the Supreme Court of Canada will reverse the Bryce and Gagnon cases; in which case I would assume the Minister would take a second look at your case and its assessment.

While I am giving you reasons now why I am allowing the Minister’s appeal, I am not formally, finally, allowing it. That is the best I can do for you. I don’t know whether this gentleman has incurred any legal costs, but it seems to me there is less than $2,500 tax involved.

MRS. VAN DER HOUT: No my lord, but the plaintiff is not seeking the costs of this action.

HIS LORDSHIP: There is more than $2,500 involved?

MRS. VAN DER HOUT: Yes, my lord.

HIS LORDSHIP: It just seems odd, I mean he may have paid more than $2,500 in tax but the Statute talks about when the amount of tax involved in the appeal is less.

MRS. VAN DER HOUT: Yes, My Lord, the amounts that are in issue, however, are outlined on page 2 of the supplementary agreed statement.

HIS LORDSHIP: That is the amount of deduction, not the amount of tax.

MRS. VAN DER HOUT: Yes, my lord, and I have asked that question of the Department of National Revenue. They have reviewed the deduction and the amount of tax they advised me is in excess of $2,500.

HIS LORDSHIP: There is a provision in the Statute, Mr Kendall, that where the amount of tax at stake, not the amount of deduction, the final amount of tax at stake is under $2,500, and an appeal is taken by the Minister, the taxpayer’s costs are paid, legal costs are paid by the Crown regardless of the outcome. Apparently that doesn’t apply here in this case. Sorry. I wish the taxpayers in the Bryce case luck in the Supreme Court of Canada. It may affect your decision.

MR KENDALL: May I ask a question my lord?

HIS LORDSHIP: Sure.

MR KENDALL: If this does happen, would there be an automatic review of my situation?

HIS LORDSHIP: I can’t predict what the Minister would do, but I am certainly putting on record that I am not handing down a formal judgment until the outcome of those other cases in the Supreme Court of Canada.

In other words, everything will just sit as it is until the Supreme Court of Canada.

MR KENDALL: The onus would be on me to do whatever is necessary at that time?

HIS LORDSHIP: I would suggest that you go back to these people here and see what, if anything, they can do for you and what their views will be. It will be at least a year or so before those cases are heard, Mr Kendall. In the meantime, you have paid the tax, I am sure. The Act requires you to.

MR KENDALL: Very definitely.

HIS LORDSHIP: So you may at some stage get something back, but I can’t tell the Minister what to do. I can only apply the law. I am trying to keep it open for you.

Thank you very much.