Citation: 2013 TCC 292
Date: 20130919
Docket: 2012-4325(IT)I
BETWEEN:
SERGEI SEVERINOV,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Woods J.
[1]
The appellant, Sergei Severinov,
appeals in respect of an assessment made under the Income Tax Act for
the 2010 taxation year. There are two items in dispute – a child tax credit in
the amount of $4,202 and a deduction for child care expenses in the amount of
$11,000.
Procedural matter
[2]
The counsel for Mr. Severinov was retained a short time before the
hearing. Prior to this, Mr. Severinov was self-represented and he filed a
motion seeking that the appeal be allowed on the basis that he has been unfairly
treated by the respondent and the Canada Revenue Agency (CRA). He testified
that he thought the CRA were biased towards him because of his Russian
background.
[3]
Mr. Severinov asked to speak to
this matter at the hearing. This was not on the advice of his counsel, but I
agreed to hear his submissions.
[4]
Mr. Severinov alleges that counsel for the respondent was abusive
and refused to provide him with key documents. Counsel for the respondent
denied these allegations.
[5]
Mr. Severinov also alleges that
the Registry of this Court unfairly engaged in ex parte communications
with the respondent. When the
Court was informed of this allegation by Mr. Severinov, the Director of Court Operations wrote to him and
informed him that the Registry made an error in failing to provide him with a
copy of correspondence received from the respondent.
[6]
The allegations of bias by Mr.
Severinov are serious but they have not been established by proper evidence –
they are merely unproven allegations. In addition, an allegation of bias is not
a sufficient ground to allow an appeal. The motion to allow the appeal on this
basis is denied.
Background
[7]
Mr. Severinov and his spouse, Olga
Tikhonova, have two children who were 4 and 6 years of age in 2010, which is
the relevant taxation year.
[8]
In 2008, the family moved from San Francisco to Vancouver when Mr. Severinov accepted a teaching position at the University of British Columbia. Ms. Tikhonova did not stay long in Vancouver, however, and
soon moved back to San Francisco where she had a job.
[9]
Mr. Severinov testified that,
since his work hours were more flexible than his spouse’s, it was decided that
the children would stay with their father in Vancouver until they became old
enough for school. He stated that the older child stayed in Vancouver until he
began school in September 2010 and that the younger child stayed until near the
end of 2010.
[10]
Mr. Severinov testified that while
he was looking after the children he enrolled them in a small private daycare
near the university called Little Scholars Daycare.
[11]
The factual issues that are
central to this appeal are whether any child care expenses were incurred and
whether the children actually lived with Mr. Severinov.
Analysis
[12]
The relevant legislative
provisions are reproduced in an appendix.
Child care expenses
[13]
Pursuant to section 63 of the Act,
Mr. Severinov must satisfy the following conditions in order to be entitled to
a deduction for child care expenses:
(a)
the expense must be incurred to
enable Mr. Severinov to work,
(b) the expense must relate to Mr. Severinov’s two
children,
(c)
the children must reside with Mr.
Severinov at the time the expense is incurred, and
(d) the payment must be proven by filing receipts issued
by the payee, that contain the payee’s social insurance number if the payee is
an individual.
[14]
The requirement for receipts was
commented on by Bowman J. in Senger‑Hammond v The Queen, [1997] 1
CTC 2728 (TCC). He concluded that this requirement is not inviolate because it
would not achieve the social policy that is behind the legislation. At
paragraph 16:
16 To say that
the failure to file receipts with the payees' social insurance numbers even
where it has been established beyond a shadow of a doubt that the expenses were
paid, results in non-deductibility under section 63 would be to adopt a
"purely mechanical" rather than a "functional" approach.
[15]
In this case, documents purporting
to be receipts were entered into evidence by Mr. Severinov (Ex. A-6), but their
bona fides has been challenged by the Crown.
[16]
I find that the
receipts are not sufficiently reliable to
establish that child care expenses were incurred. The purported receipts were
issued from generic receipt books. Mr. Severinov stated that he filled out part
of the contents and that the caregiver, Victoria Milton, checked the
information and signed them. It would be relatively easy to fabricate the
receipts.
[17]
When the evidence is viewed as a
whole, I am not satisfied that the receipts are genuine or that any child care
expenses were incurred by Mr. Severinov in the relevant taxation year. There is
simply not sufficient reliable evidence for me to have any confidence that
child care expenses were incurred.
[18]
One of the main problems that I
have with Mr. Severinov’s position is that his testimony was vague in several
respects.
[19]
First, Mr. Severinov testified
that Little Scholars moved from an apartment to a stand alone building in 2010.
However, he did not provide an address for the new location so that this could
be verified. The purported owner of Little Scholars did not testify.
[20]
Further, Mr. Severinov could not remember the exact address
of his own two‑bedroom apartment and it was not listed on any of the
contemporaneous documents, including his income tax return. He said that the
address on the T4 slip was actually a one-bedroom apartment that he maintained
for his mother. He said that he may have used this apartment but that it was
not his primary residence. As for his current address, Mr. Severinov
testified that he currently lives in a hotel while he looks for a home to
purchase.
[21]
I would also note that Mr.
Severinov and his spouse own a four bedroom home in San Francisco. Mr.
Severinov testified that it was purchased in 2010 but there is no support for
this statement.
[22]
In addition, Mr. Severinov was
asked by the CRA whether the children resided with him throughout the year. He replied
that they did, which is contrary to his evidence at the hearing that the oldest
boy started school in San Francisco in September 2010.
[23]
Mr. Severinov testified that he
paid Ms. Milton mostly in cash which she asked for. This is plausible in
itself, but no evidence was provided as to withdrawals from bank accounts to support
this.
[24]
Mr. Severinov’s testimony as to
the amounts paid with respect to the older child was very vague. He testified
that the payments were reduced because he taught tennis to Ms. Milton’s son. There
was no detailed explanation as to how the amounts were calculated.
[25]
Mr. Severinov provided evidence in
the form of photographs of the children taken in Vancouver. This evidence does
not support the payment of child care expenses. The photographs could be taken
on visits to Vancouver.
[26]
When the evidence is viewed as a
whole, I am not satisfied that the receipts are genuine or that any daycare
expenses were incurred.
[27]
This conclusion also has some
support in the testimony of Carol Schurmann, a CRA appeals officer, who
attempted to obtain evidence of the existence of Little Scholars. The inquiry
was done at the request of counsel for the respondent because Mr. Severinov
filed this appeal before the CRA had considered the notice of objection. After
making some inquiries, Ms. Schurmann could not find any evidence of the
existence of Little Scholars.
[28]
Counsel for Mr. Severinov objected
to this evidence on grounds of hearsay and questioned its reliability. The
appropriate approach in this case is to take the frailty of the evidence to
weight.
[29]
Since Ms. Schurmann undertook this
investigation after the litigation process had started, Mr. Severinov may not
have had an opportunity to adequately respond to it. However, Mr. Severinov may
have contributed to this because he filed an appeal before his objection was
considered.
[30]
I accept that Ms. Schurmann’s investigation
was quite thorough, but I am not satisfied that her hearsay testimony supports
a conclusion, by itself, that Little Scholars did not exist.
[31]
Ultimately, the main problem that
I have with Mr. Severinov’s position is that he has not been able to provide
sufficient support that the daycare expenses were incurred. The denial of the
deduction for child care expenses by the Minister will be upheld.
Child tax
credit
[32]
Mr. Severinov claimed a child tax
credit for each of the children in the aggregate amount of $4,202 pursuant to clause
(b.1) of paragraph 118(1) of the Act.
[33]
Clause (b.1) has two parts. Subclause
(b.1)(i) provides for a credit in the amount of $2,000, plus indexation, for each child where both parents live with the child
throughout the year. This provision does not apply in this case because
Mr. Severinov’s spouse did not live with him throughout the year.
[34]
Subclause (b.1)(ii)
provides for a credit in the amount of $2,000, plus indexation, for each child
under the age of 18 pursuant to clause (b). This provision appears to provide a
credit in addition to the basic credit in clause (b) for children under the age
of 18.
[35]
The question in dispute is whether
Mr. Severinov satisfies the requirements in clause (b) in order to be entitled
to the additional credit in clause (b.1). There was some discussion at the
hearing as to whether Mr. Severinov could also have claimed the basic credit
under clause (b) but this issue is not before me.
[36]
The part of the legislation that
is at issue between the parties is the following requirement set out in clause
(b):
(b) wholly
dependent person [“equivalent to spouse” credit] - 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,
[…]
(ii) whether alone or jointly with
one or more other persons, maintains a self-contained domestic establishment
(in which the individual lives) and actually supports in that establishment a
person who, at that time, is
(A) except in the case of a child
of the individual, resident in Canada,
(B) wholly dependent for support
on the individual, or the individual and the other person or persons, as
the case may be,
(C) related to the individual, and
(D) except in the case of a parent
or grandparent of the individual, either under 18 years of age or so dependent
by reason of mental or physical infirmity,
(Emphasis added)
[37]
The question raised by the
provision above is whether the children were at any time in the year maintained
by Mr. Severinov in his home and wholly dependent on him for support at that
time. The key phrase is “at any time.”
[38]
I am concerned about
procedural aspects of this issue because the
reply did not clearly identify the above requirement. The reply identified the
issue as whether the children resided with Mr. Severinov throughout the 2010
taxation year (Reply, para. 11(a)).
[39]
The failure to identify the proper
test may well have been prejudicial to Mr. Severinov. I also note that
counsel for the respondent did not clarify what the proper test was until his
closing argument. I have no idea whether Mr. Severinov, or his counsel who
was retained shortly before the hearing, understood what position the Crown was
taking before counsel made it clear during closing argument. This is simply too
late.
[40]
I would also comment that the
assumptions made by the Minister as set out in the Reply are not sufficient to
identify the proper test. Below are the relevant excerpts from the reply:
b) the Children were
not dependent on the Appellant for support in the 2010 taxation year;
c) none of the
Children resided with the Appellant throughout 2010;
d) in 2010, none of
the Children resided in Canada;
[41]
The purpose of the assumptions is
to inform the taxpayer of the case that he has to meet. The assumptions above
do not clearly do this.
[42]
The “at any time” test is a much
easier test to satisfy than a “throughout the year” test. In order to claim the
credit, all that needs to be established is that the children were with their
father in Vancouver, and supported by him, for some part of the year. It is not
even necessary that the children reside in Canada.
[43]
I have concluded that the child
tax credit should be allowed on the basis that the Crown failed to properly
state the issue in the Reply. Even if this is not sufficient to allow the
appeal, the child tax credit should also be allowed because the Crown cannot
rely on faulty assumptions to shift the burden to the taxpayer. The Crown had
the burden to establish the “at any time” requirement and it failed to satisfy
this burden.
Conclusion
[44]
For the reasons above, the appeal
will be allowed on the basis that the child tax credit will be allowed and the deduction
for child care expenses will be disallowed. Each party shall bear their own
costs.
Signed at Toronto, Ontario this 19th day of September
2013.
“J. M. Woods”
APPENDIX
Relevant Legislative Provisions
Child care
expenses
63. (1) Child care
expenses - Subject to subsection (2), where a prescribed form containing
prescribed information is filed with a taxpayer’s return of income (other than
a return filed under subsection 70(2) or 104(23), paragraph 128(2)(e) or
subsection 150(4)) under this Part for a taxation year, there may be deducted
in computing the taxpayer’s income for the year such amount as the taxpayer
claims not exceeding the total of all amounts each of which is an amount paid,
as or on account of child care expenses incurred for services rendered in the
year in respect of an eligible child of the taxpayer,
(a) by the taxpayer, where the taxpayer is described in
subsection (2) and the supporting person of the child for the year is a person
described in clause (i)(D) of the description of C in the formula in that
subsection, or
(b) by the taxpayer or a supporting person of the child for
the year, in any other case,
to the extent that
(c) the amount is not included in computing the amount
deductible under this subsection by an individual (other than the taxpayer),
and
(d) the amount is not an amount (other than an amount that
is included in computing a taxpayer’s income and that is not deductible in
computing the taxpayer’s taxable income) in respect of which any taxpayer is or
was entitled to a reimbursement or any other form of assistance,
and the payment of which is
proven by filing with the Minister one or more receipts each of which was
issued by the payee and contains, where the payee is an individual, that
individual’s Social Insurance Number, but not exceeding the amount, if any, by
which
(e) the lesser of
(i) 2/3 of the taxpayer’s earned income for the year,
and
(ii) the total of all amounts each of which is the
annual child care expense amount in respect of an eligible child of the
taxpayer for the year
exceeds
(f) the total of all amounts each of which is an amount
that is deducted, in respect of the taxpayer’s eligible children for the year,
under this section in computing the income for the year of an individual (other
than the taxpayer) to whom subsection (2) applies for the year.
(3) Definitions - In this section,
“annual child care expense amount”, in respect of an eligible
child of a taxpayer for a taxation year, means
(a) $10,000, where the child is a person in respect of whom
an amount may be deducted under section 118.3 in computing a taxpayer’s tax
payable under this Part for the year, and
(b) where the child is not a person referred to in
paragraph (a),
(i) $7,000, where the child is under 7 years of age at
the end of the year, and
(ii) $4,000, in any other case;
“child care expense” means an expense incurred in a
taxation year for the purpose of providing in Canada, for an eligible child of
a taxpayer, child care services including baby sitting services, day nursery
services or services provided at a boarding school or camp if the services were
provided
(a) to enable the taxpayer, or the supporting person of the
child for the year, who resided with the child at the time the expense was
incurred,
(i) to perform the duties of an office or employment,
[…]
Child tax credit
118. (1) Personal
credits - 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 × B
where
A is the
appropriate percentage for the year, and
B is the
total of,
[…]
(b) wholly dependent person [“equivalent to spouse”
credit] - 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,
(i) is
(A) a person who is unmarried and who does not live in
a common-law partnership, or
(B) a person who is married or in a common-law
partnership, who neither supported nor lived with their spouse or common
law-partner and who is not supported by that spouse or common-law partner, and
(ii) whether alone or jointly with one or more other
persons, maintains a self-contained domestic establishment (in which the
individual lives) and actually supports in that establishment a person who, at
that time, is
(A) except in the case of a child of the individual,
resident in Canada,
(B) wholly dependent for support on the individual, or
the individual and the other person or persons, as the case may be,
(C) related to the individual, and
(D) except in the case of a parent or grandparent of
the individual, either under 18 years of age or so dependent by reason of
mental or physical infirmity,
an amount equal to the total of
(iii) $10,320, and
(iv) the amount determined by the formula
$10,320 – D
where
D is the dependent person’s income for the year,
(b.1) child amount [Child Tax Credit] – where
(i) a child of the individual ordinarily resides
throughout the taxation year with the individual together with another parent
of the child, $2,000 for each such child who is under the age of 18 years at
the end of the taxation year, or
(ii) except
where subparagraph (i) applies, the individual may deduct an amount under
paragraph (b) in respect of the individual’s child who is under the age of 18
years at the end of the taxation year, or could deduct such an amount in
respect of that child if paragraph 118(4)(a) did not apply to the individual
for the taxation year and if the child had no income for the year, $2,000 for
each such child.
Note: The amounts above are subject to indexation pursuant
to section 117.1.
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