Hutter v. MNR, 92 DTC 1750, [1992] 2 CTC 2088 (TCC)

Mogan, T.C.C.J.:—The appellant is a farmer who resides near Goodsoil, Saskatchewan, a small community with a population of less than 300 located north-west of Saskatoon near the Alberta border. For his 1988 taxation year, the appellant claimed the" northern residents deduction” permitted under section 110.7 of the Act which reads in part as follows:

110.7(1) In computing the taxable income for a taxation year of an individual who resided in an area that was a prescribed area for the year or for one of the 2 preceding taxation years and who files a claim in prescribed form . . . there may be deducted

There follows a formula within subsection 110.7(1) which is not relevant to the issue herein. In order to be eligible for the deduction, the appellant must establish that he resided in a "prescribed area" as defined in Regulation 7303. The relevant portion of the Regulation is paragraph 7303(1)(c) which provides:

7303(1) An area is a prescribed area for a taxation year for the purposes of section 110.7 of the Act where it is

(c) an area in Canada south of the 55th parallel of north latitude other than an area that is situated in grassland south of the 50th parallel of north latitude, that, in the preceding taxation year, met the following requirements:

(i) it had a population of less than 10,000,

(ii) it was entitled to a total of 50 points or more determined under subsection (7),

(iii) where there was no all-weather road providing access to the area, it was more than 80 kilometres in a straight line from the administrative centre of the nearest urban centre with a population of 50,000 or more, and

(iv) where there was no all-weather road providing access to the area, it was more than 320 kilometres by all-weather road from the administrative centre of the urban centre with a population of 50,000 or more that was nearest to the area by all-weather road and was more than 160 kilometres by all- weather road from the administrative centre of the urban centre that was nearest to the area;

The appellant resides in an area that was south of the 55th parallel of north latitude but it was not south of the 50th parallel of north latitude. The parties agree that the area in which the appellant resides meets all of the criteria set out in paragraph 7303(1)(c) with the exception of subparagraph 7303(1)(c)(iv). The Minister disallowed the appellants claim for the northern residents deduction in 1988 on the basis that the group of communities in Alberta which I will refer to as Grand Centre/Cold Lake/Medley is an “urban centre" and that Goodsoil (Saskatchewan) was, therefore, not more than 160 kilometres by all- weather road from the urban centre that was nearest to Goodsoil.

The distance in kilometres from Goodsoil to the nearest principal cities in Saskatchewan and Alberta is set out in the table below:

All of the above distances exceed 160 kilometres. Goodsoil is 75 kilometres from Grand Centre, Alberta, a village of approximately 2,500 residents near the Saskatchewan border. Cold Lake is another village of approximately 2,000 residents just a few kilometres north of Grand Centre and located on the shores of Cold Lake. Medley is the name given to the community of armed forces personnel and families who reside within the Canada Forces Base known as "Cold Lake". Medley is just a few kilometres west of Grand Centre. The issue in this appeal is whether the group of communities Grand Centre/ Cold Lake/Medley is an “urban centre” as referred to in subparagraph 7303(1)(c)(iv) and as defined in Regulation 7302(1):

7302(1) In this section and sections 7303 and 7304 . . .

“urban centre” means an urban area within the meaning assigned by the 1986 Census Dictionary published under the authority of the Minister of Supply and Services in January 1987, Catalogue 99-101E, south of the 60th parallel of north latitude that has a population of 10,000 or more as shown in Table 14 of the publications entitled Population and Dwelling Counts—Provinces and Territories published under the authority of the Minister of Supply and Services in September 1987, Catalogues 92-109 to 92-118.

If Grand Centre/Cold Lake/Medley is an “urban centre” as defined in Regulation 7302(1), then the appellants area of residence (i.e. Goodsoil) is not more than 160 kilometres from the administrative centre of the urban centre that is nearest to Goodsoil; and the appellant would not be entitled to the Northern Residents Deduction. The definition of“ urban centre” in Regulation 7302(1) requires that it be an urban area within the meaning assigned by the 1986 Census Dictionary which states at page 143:

URBAN AREA

Refers to a continuously built-up area having a population concentration of 1,000 or more and a population density of 400 or more per square kilometre, based on the previous census. To be considered as continuous, the built-up area must not have a discontinuity exceeding two kilometres.

In addition to the above, many other commercial, industrial and institutional land uses may be considered as urban even though they do not meet the population and density requirements. Examples include commercial and industrial areas, railway yards, airports, parks, golf courses, cemeteries, etc.

The procedures used by Statistics Canada to delineate urban areas were described by the respondent's witness, Mr. Puderer, who is a statistician at Statistics Canada with an honour's degree and a Master's degree in geography and urban planning from the University of Waterloo. He works within the geographic division responsible for the definitions and the defined areas with which this appeal is concerned. A number of standard geostatistical areas are used to package the census data in the most useful fashion. Some of these areas such as provinces, cities and municipalities referred to as administrative areas are defined externally. Others, referred to as statistical areas such as urban areas and census conglomerations are defined by Statistics Canada.

All urban areas appear in Table 14 of the publications entitled Population and Dwelling Counts—Provinces and Territories. The determination of what constitutes an urban area uses population counts from the 1981 Census although the population counts found in Table 14 are from the 1986 Census. When determining an urban area, Statistics Canada starts with an enumeration area which is covered by a Census representative at the time of the Census. The enumeration area is delineated according to a number of criteria. For example, there are approximately 350 households per enumeration area in an urban setting while an enumeration area in a rural setting would consist of approximately 125 households. For each of these enumeration areas, Statistics Canada calculates the land area; determines the population; and then calculates population density. They then look for enumeration areas that satisfy firstly the population density requirement of 400 per square kilometre and secondly the 1,000 population count. If these two requirements are satisfied, they have determined an urban area. If an enumeration area meets the density requirement but not the population requirement, Statistics Canada begins to look for adjacent enumeration areas that also meet the density requirement to see whether a number of enumeration areas can be consolidated to achieve the required population count. When applying their procedures for consol- idating adjacent enumeration areas, Statistics Canada determined the following urban areas as shown in Exhibit R-1:

I note that two enumeration areas in the table, EA 063 and 060, do not meet the population density requirement yet they were included in the urban areas of Grand Centre and Cold Lake. In his testimony, Mr. Puderer was surprised to see that these enumeration areas had been included as urban areas and suggested that they had been wrongly included. If enumeration area 063 had not been included in the Grand Centre area, then Grand Centre and Cold Lake would not have been consolidated (by the application of operational rules) and consequently Grand Centre (even if linked with Medley) would not have been an urban centre with a population of 10,000 or more in Table 14. Alter an adjournment, the respondent's counsel made an application to reopen the case for the purpose of obtaining evidence from Mr. Puderer on the inclusion of enumeration area 063 in the Grand Centre area. Mr. Puderer testified that although most of enumeration area 063 is vacant, the population concentration was mainly toward the south and adjacent to the area of Grand Centre which had already been established as urban. He stated it was a "judgment call” whether to include or exclude that particular enumeration area for consolidation purposes; and the same rationale applied to enumeration area 060.

Once the three urban areas had been established as described above, Statistics Canada applied what Mr. Puderer called operational rules, the purpose of which he described in his Report (Exhibit R-1):

Urban areas are then examined to ensure efficiency of the urban areas as dissemination units (by determining proximity to other urban areas) and to determine data confidentiality constraints (by measuring differences in land area between the urban area and other standard reporting units). They are also examined at this stage to adjust the urban area limits where necessary to ensure efficient enumeration area delineation for the purposes of census field collection.

Two operational rules which applied when establishing the 1986 urban area of Grand Centre are described as follows:

Confidentiality and Operational Efficiency Rule:

If an area is defined as urban within a census subdivision and if the difference in land area between that urban area and the census subdivision is less than 10 square kilometres, then the entire census subdivision is declared urban.

Reporting Unit Rule:

If an urban area is located within 2 km straight line distance from another urban area (closest boundaries), the two urban areas are joined to form one urban area.

By applying these two operational rules, Statistics Canada grouped together the three urban areas of Bonnyville No. 87 (sometimes referred to as ^Medley"), Grand Centre and Cold Lake with population densities per square kilometre of 262, 258 and 227 respectively; and this grouping resulted in an overall population density of 251 per square kilometre as shown in Exhibit R-1.

Mr. Puderer testified that the operational rules were applied for administrative convenience for census purposes and did not form part of the definition of urban area found in the Census Dictionary. He also admitted that, as a result of applying the operational rules, certain areas that did not meet the population density requirement were sometimes lumped into an urban area and the words “continuously built-up” in the Census Dictionary definition did not really add anything. For example, when measuring the distance between Grand Centre and Cold Lake to determine whether the built-up area had a discontinuity exceeding two kilometres, Statistics Canada ignored the fact that the northern part of Grand Centre (EA 063) did not meet the population count and density requirements to be considered an urban area. Mr. Puderer admitted that a particular area could be considered as built-up under the operational rules without regard to the presence or absence of buildings or population in that particular area.

The appellant submits that there are three conditions which must be satisfied before a particular area can be an" urban centre" as defined in Regulation 7302(1). Those conditions are:

1) The area must be an urban area within the meaning assigned by the 1986 Census Dictionary;

2) The area must be south of the 60th parallel of north latitude; and

3) The area must have a population of 10,000 or more as shown in Table 14 of a specified publication.

The appellant also submits that these are three separate conditions which must be read disjunctively. The appellant admits that the area in question is south of the 60th parallel of north latitude, and has a population of 10,000 or more as shown in Table 14. The appellant argues, however, that the Grand Centre/Cold Lake/Medley area is not "an urban area within the meaning assigned by the 1986 Census Dictionary". I will repeat the relevant words from the 1986 Census Dictionary because they have become the focal point of this case:

URBAN AREA

Refers to a continuously built-up area having a population concentration of 1,000 or more and a population density of 400 or more per square kilometre, based on the previous census. To be considered as continuous, the built-up area must not have a discontinuity exceeding two kilometres.

In particular, the appellant argues that the Grand Centre/Cold Lake/Medley area does not satisfy the definition of" urban area" in the 1986 Census Dictionary because it does not have a population density of 400 or more per square kilometre and its built-up area has a discontinuity exceeding two kilometres. Population densities based on the previous census (the 1981 census in this case) for the relevant areas provided in Exhibit AR-2 are as follows:

Medley is part of the municipal district of Bonnyville No. 87.

According to Exhibit AR-2, it is clear that these three areas do not have a population density of more than 400 per square kilometre. The appellants counsel put forward the following argument. The areas examined to determine population density should be the same areas used to determine a population count of 10,000 or more. It is inconsistent to look at certain enumeration areas to see if they meet the population density requirement, and then to look at an area which has been increased by the application of operational rules (for example, to apply the 10 square kilometre operational rule to take an urban area to the outer limits of a municipal district) to see if it meets the population count requirement.

The appellant referred to the definition of “continuously” in Black's Law Dictionary which states:

. . continuously uninterruptedly; in unbroken sequence; without intermission or cessation; without intervening time; with continuity or continuation.

He submitted that the evidence showed that when looking at the areas grouped together for population density and population count purposes, there was a discontinuity exceeding two kilometres in the built-up area between Grand Centre and Cold Lake. Also, the fact that the Census Dictionary definition of" urban area" refers back to the 1981 census while the data in Table 14 is compiled from the 1986 census leads one to conclude that the urban area test for population density and the Table 14 test for a population of 10,000 or more are two different tests.

The respondent's counsel argued that if the definition of" urban centre” in Regulation 7302(1) had to be read disjunctively; that is, broken down into three criteria, it would be very difficult for a Revenue Canada assessor to determine if a particular area was an urban area. She submits that because the legislation incorporated the Statistics Canada definition of" urban area" by reference, the methodology of Statistics Canada should be adopted when construing the legislation. Although the Statistics Canada method of grouping areas by the application of operational rules to determine what constitutes a built-up area may fly in the face of common sense, the respondent questions whether other methods can be applied in making that determination. The respondent submits that one must first look at whether an area is found to be urban area by Statistics Canada within the meaning of the 7986 Census Dictionary without examining the criteria that were applied to come to that conclusion. Then, one must determine whether the other requirements of the definition of “urban centre” in Regulation 7302(1) are satisfied; namely, is the area south of the 60th parallel of north latitude and is it shown in Table 14 as having a population of 10,000 or more?

The respondent relied on the decisions of this Court in Mah v. M.N.R., [1990] 2 C.T.C. 2119, 90 D.T.C. 1582 and Ebach v. M.N.R., (not reported) to support the principle that the legislation must be applied even if the result seems inequitable. In each of those cases, the taxpayer who clearly did not reside in a prescribed area thought that it was unfair that other residents who lived nearby were entitled to the northern residents deduction. It is interesting to note that the question of whether Grand Centre was in fact an “urban centre" was raised in the Ebach case. The Court concluded, however, that because the taxpayer's community was less than 160 kilometres from Lloyd- minster, an urban centre with a population of more than 17,000 in 1986, the question of whether Grand Centre was an "urban centre" did not have to be resolved. These two decisions are not helpful in this appeal.

I cannot accept the respondent's submission that in "determining whether an area is an “urban centre" within the meaning of Regulation 7302, I must adopt the methodology used by Statistics Canada to determine whether an area is an “urban area” within the meaning assigned by the 1986 Census Dictionary. \f I were to accept such a submission, then in order to determine whether a particular area satisfies the criteria for an“ urban centre" as defined in Regulation 7302(1), I would need to look only at Table 14 which lists all urban areas with their population counts to see if the particular area is an urban area with a population of 10,000 or more, and I would not need to refer to the 1986 Census Dictionary to determine whether the particular area is an “urban area”. Had the legislative draftsman wanted to achieve such a result, he could have defined an urban centre in Regulation 7302(1) as an urban area south of the 60th parallel of north latitude that has a population of 10,000 or more as shown in Table 14. The draftsman did not follow that easier route when, in the definition of "urban centre" in Regulation 7302(1), he chose to incorporate by reference the meaning assigned to" urban area" in the 1986 Census Dictionary.

I accept the appellant's submission that the definition of “urban centre" provided in Regulation 7302 requires that three separate conditions be met. The condition that creates difficulty is whether Grand Centre/Cold lake/Medley is"an urban area within the meaning assigned by the 1986 Census Dictionary". Referring back to the inclusion of enumeration areas EA 060 and EA 063, I think it is irrelevant that the population density of each was less than 400 per square kilometre. What matters is the question of whether a particular area which has been accepted as an “urban area" for the purpose of Table 14 after certain enumeration areas are grouped together meets the population density and the continuously built-up requirements in the 1986 Census Dictionary. In my view, the consolidated area of Grand Centre/Cold Lake/Medley is not"an urban area within the meaning assigned by the 1986 Census Dictionary" because it does not have a population density of 400 or more per square kilometre (see Exhibit R-1, pages 4 and 5) and its continuously built-up area has a discontinuity exceeding two kilometres. I accept the appellant's evidence that the most northern built-up area in Grand Centre is more than two kilometres from the most southern built-up area in Cold lake.

The consolidated area of Grand Centre/Cold Lake/Medley cannot be saved as an "urban area" by suggesting that certain portions of that area met the population density requirement in the 1986 Census Dictionary before the Statistics Canada operational rules were applied causing those same portions of that area to be extended. The area that is examined to determine whether the 10,000 population requirement is satisfied must be the same area that is examined to determine whether the population density requirement is satisfied. If I must look at the whole area to find a population of 10,000 or more, then I must look at the whole area to find a population density of 400 or more per square kilometre.

I conclude that the consolidated area of Grand Centre/Cold Lake/Medley is not an “urban centre" within the meaning of Regulation 7302. Consequently, the appellant's residence is more than 160 kilometres by all-weather road from the administrative centre of the urban centre that was nearest to his residence; and he is entitled to the northern residents deduction provided for in section 110.7 of the Act. The appeal is allowed with costs.

Appeal allowed.