Hodson v. The Queen, 88 DTC 6001, [1988] 1 CTC 2 (FCA)

Heald, J.:—This appeal from a judgment of the Trial Division relates to assessments of the appellant by the Minister of National Revenue (the Minister) for income tax for the taxation years 1981 and 1982. The issue between the parties is the refusal by the Minister to allow as deductions from income, payments made by the appellant to his wife as separation allowances. It is not in dispute that the appellant paid his wife the sum of $12,000 in 1981 and the sum of $12,800 in 1982. It is also not in dispute that the appellant and his wife lived separate and apart from each other during those years. The appellant contends that those amounts should have been allowed by the Minister as deductions from income in the computation of income tax payable by him in the years in question. On the other hand, the Minister takes the position that, in order for subject moneys to be deductible, the appellant must bring himself within the provisions of paragraph 60(b) of the Income Tax Act! [1] and, on the facts established by this record, the appellant has not demonstrated compliance therewith.

The appellant first appealed the two assessments in question to the Tax Court of Canada. Chief Judge Couture dismissed the appeal. [2]

That decision was appealed to the Trial Division of this Court where it was heard by Strayer, J. who also dismissed the appeal.

In his memorandum of fact and law and in his reply to the respondent's memorandum of fact and law, the appellant raises a number of objections to the judgment of the Trial Division. However, when the appellant made his oral submissions at the hearing of the appeal, he informed the Court, at the outset, that he was relying only on two issued:

1. the interpretation of section 60 of the Income Tax Act; and

2. whether or not bias existed against the taxpayer in the Tax Court and in the Federal Court.

The Interpretation of Section 60 of the Income Tax Act

The appellant submits that the rationale for the exception provided by paragraph 60(b) which, in effect, allows income splitting between former spouses or separated persons, is to distribute the tax burden between them, thus allowing them greater financial resources than when living together which, in turn, provides partial compensation for the lost economics of maintaining a single household. [3] The appellant then proceeds to quote section 11 of the Interpretation Act which deems every enactment to be remedial and requires ”. . . a fair, large and liberal construction and interpretation as best ensures the attainment of its objects.” Based on the purpose for paragraph 60(b) supra, and relying on section 11 supra, the appellant maintains that the interpretation of the paragraph advanced by the Minister in this case is in definite conflict with the purpose of the legislation. Accordingly, in his view, the Minister's interpretation should not be allowed to prevail.

I do not think that the approach to interpretation suggested by the appellant accords entirely with the modern approach to statutory construction. While the purpose of the legislation is a factor to be considered, it is only one of several which need to be taken into account. Dr. Driedger in the Second Edition of his work on the Construction of Statutes states the modern principle to be applied, in the following concise terms: [4]

Today there is only one principle or approach, namely, the words of an Act are to be read in their entire context and in their grammatical and ordinary sense harmoniously with the scheme of the Act, the object of the Act, and the intention of Parliament. . . . Earlier expressions, though in different form, are to the same effect; Lord Atkinson in Victoria (City) v. Bishop of Vancouver Island ([1921] A.C. 384 at p. 387) put it this way:

In the construction of statutes their words must be interpreted in their ordinary grammatical sense, unless there be something in the context, or in the object of the statute in which they occur, or in the circumstances with reference to which they are used, to show that they were used in a special sense different from their ordinary grammatical sense.

Applying that approach to the paragraph in question, I conclude that the words employed by Parliament in paragraph 60(b) must be interpreted ”. . . in their ordinary grammatical sense." I am unable to ascertain anything in the context or purpose of the statute or the circumstances of use which would justify an interpretation different from that resulting from a literal interpretation. The language used is clear and unequivocal. In order for the alimony payments to be deductible, there must be either a Court order or written agreement which requires such payment.

This approach to the interpretation of paragraph 60(b) has been followed in a number of decisions of the Tax Review Board and the Tax Court of Canada as well as by the Trial Division of this Court. [5] I am not persuaded that this approach was wrong or should be altered. As pointed out by the Trial Judge, spouses who live together are not allowed to split their income thereby reducing the total tax bill of the family. Paragraph 60(b) provides an exception to that general rule and confers upon separated spouses who come within its terms and conditions certain tax advantages. Parliament has spoken in clear and unmistakeable terms. Had Parliament wished to extend the benefit conferred by paragraph 60(b) on separated spouses who, as in this case, do not have either a Court order or a written agreement, it would have said so. The rationale for not including separated spouses involved in payments made and received pursuant to a verbal understanding is readily apparent. Such a loose and indefinite structure might well open the door to colourable and fraudulent arrangements and schemes for tax avoidance. I hasten to add that there is no suggestion in the case at bar of any such fraudulent or colourable arrangement. The Minister agrees that, in the case at bar, the appellant has made the alimony payments to his spouse in good faith. Nevertheless, such a possible scenario in other cases commends itself to me as the rationale for the carefully worded restrictions set out in the paragraph. If the words used by Parliament create hardships, as suggested by the appellant, it is Parliament, and not the Court, that has the power to redress those hardships.

In inviting this Court to depart from the interpretation given to this paragraph by the lower Courts as noted supra, the appellant submitted that since the Trial Division had changed its interpretation of a clause in the Citizenship Act over the years, this was a precedent which we should follow in altering the conventional interpretation of paragraph 60(b) of the Income Tax Act. The cases referred to by the appellants commence with the decision of the Trial Division in Blaha v. The Minister of Citizenship and Immigration, [1971] F.C. 521, wherein the Court interpreted the terms "residence" and "resident" as used in the Canadian Citizenship Act, (R.S.C. 1970 c. C-19). The Blaha approach to the interpretation of these terms was followed by the Trial Division in a number of other decisions up until 1978. However, in 1978, those terms were given a wider meaning by Thurlow, A.C.J. (as he then was) in Re Antonio E. Papadogiorgakis, [1978] 2 F.C. 208. A perusal of the reasons for judgment in that case makes it abundantly clear why the interpretation of the terms in question was changed. As observed by Thurlow, A.C.J., the statute had changed from that being interpreted by Pratte, J. in Blaha. Mr. Justice Pratte was interpreting the provisions of the Canadian Citizenship Act, (R.S.C. 1970, c. C-19) whereas in Papadogiorgakis, Associate Chief Jus- tice Thurlow was interpreting the provisions of the Citizenship Act, (S.C. 1974-75-76, c. 108). At page 212 of the report, Thurlow, A.C.J. said:

I may say at once that, if the Canadian Citizenship Act Were still in effect and applicable to the present case, I would adopt and follow this reasoning, as other judges of the Court have done, and the result might be to deny the appeal. However, in the new Act, the Citizenship Act, which applies to this case, there is no definition of "place of domicile”, there is no reference to “place of domicile” and the French language version does not use the expression chaque anné entière passée au Canada. A substantial part of the reasoning on which the interpretation was based is, thus, as it seems to me, no longer applicable and one is left to interpret the words "residence" and “resident” by giving to them their ordinary meaning in the context in which they are found.

Accordingly, in my view, the appellant's submission relating to the so- called "change in interpretation" of the Citizenship Act is not valid because the statutory provisions being interpreted in those cases had changed significantly. In any event, even assuming a change in the interpretation of certain constant provisions of the Citizenship Act, such a circumstance would have no relevance whatsoever to the interpretation of provisions of the Income Tax Act since these two statutes are not in pari materia.

Accordingly, and for all of the above reasons, I have concluded that the Trial Judge did not err in his interpretation of paragraph 60(b) supra.

The Possible Existence of Bias against the Taxpayer in the Tax Court and in the Federal Court.

The appellant first raised this matter in his reply to respondent's memorandum of fact and law which was filed with the Court on October 19, 1987. In that memorandum the appellant made the following statements on page 1 thereof:

The first item of information concerns the Judge at the Tax Court, Judge J. C. Couture. Having initially contacted Mr. Pierre Garceau, Commissioner for Federal Judicial Affairs, I was referred to Mr. Lefebvre, the Associate Deputy Attorney General, who supplied me with the information on Tax Court Chief Judge Couture and on the Federal Court Judge B. Strayer, who presided at the Federal Court Trial. The information I received was disturbing, to say the least.

Judge Couture spent 12 years in National Revenue, the predecessor to Revenue Canada, as part of his illustrious career. It is a fact of life that we are all influenced by the environment in which we work, Judges no less than other mortals. There are two disturbing possibilities in this. One is that he had some input to the creation of the laws which he is now being asked to judge, and may not take lightly to the implied criticisms of these laws in a Tax Court hearing. The second is that, after 12 years in a position that is adversarial to the taxpayer, it would have a residual effect, to the detriment of a taxpayer seeking redress.

I do not believe it can be said, without reasonable doubt, that the background of Judge Couture would not result in a bias away from the taxpayer and towards Revenue Canada. Had this been known at the time of the Federal Court Trial I would have asked that my Claim be upheld on the basis of the reasonable doubt.

The second item of information I received from the Associate Deputy Attorney General was that Federal Court Judge Strayer spent 9 years as an Assistant Deputy Minister of Justice. In this capacity, as a member of various management committees, he had responsibility for creating or approving laws which are now being criticised. Again it cannot be said, without reasonable doubt, that he would not be adversely influenced by his background to those who are criticising laws in which he played a formative part.

Again I do not believe it can be said, withot reasonable doubt, that no bias against the Plaintiff is possible. In that reasonable doubt exists, not once but twice, I ask that my Appeal be allowed, and no costs be assessed, especially in view of the additional information I wish now to present.

At the hearing of the appeal, the appellant proposed to argue the matter of bias orally. At this juncture, the Court pointed out to him that there was no evidence of any kind on the record before us which could possibly form the basis of any submissions of bias or reasonable apprehension of bias on the part of either Chief Judge Couture or Mr. Justice Strayer. The appellant was reminded of the provisions of Rule 1204 which enables a party to an appeal to apply to the Court to add to the usual contents of the Appeal Case. Had the appellant intended to argue this matter as a serious ground of appeal it was incumbent upon him to at least apply to the Court to have affidavit or other evidence relevant to this issue added to the contents of the Case. This he has not done. Faced with this view of the matter by the Court, the appellant abandoned his allegations of bias at the oral hearing. Accordingly, it is unnecessary to deal with the argument contained in the appellant's reply to the respondent's memorandum of fact and law referred to supra.

The only other matter referred to by the appellant is the question of costs. In the appellant's submission, the arguments advanced by him on this appeal are unique and therefore costs should not be assessed against him. He also relied on the case of LeClerc and Lemay v. The Queen, [1982] C.T.C. 338 at 339; 82 D.T.C. 6339 at 6340. The quotation in that case upon which the appellant relies actually originates in the reasons for judgment of Mahoney, J. in the case of The Queen v. Creamer, [1977] 2 F.C. 195 at 206; [1977] C.T.C. 20 at 28. Mr. Justice Mahoney stated:

Parliament intended that, when so sued, the taxpayer be able to defend himself, as he may be competently advised, undeterred by the expense involved, so long as it is reasonably and properly incurred.

In so far as the submission of uniqueness is concerned, I find nothing unusual, unique or novel in the appellant's submissions to us. In so far as the LeClerc and Creamer cases are concerned, they were both cases decided pursuant to the provisions of subsection 178(2) of the Income Tax Act. That subsection provides that on an appeal by the Minister from a decision of the Tax Court of Canada, where the amount of tax in issue does not exceed $10,000 or the amount of loss in issue does not exceed $20,000, the Federal Court is required to order the Minister to pay all reasonable and proper costs of the taxpayer in connection with that appeal. This subsection does not apply to this appeal since this is not an appeal by the Minister nor is it an appeal from the Tax Court of Canada. Accordingly, the rationale of these two cases has no application or relevance to the question of costs in this appeal. Rule 344(2) affords the Court discretion in the award of costs. Normally, costs follow the event. In this case that practice would suggest that the respondent is entitled to her costs against the appellant. I see no reason to deviate from that practice in the circumstances of this case. At the outset, I had some sympathy for the position the appellant finds himself in because had he taken the necessary steps to bring himself within the four corners of paragraph 60(b), it seems clear that he would have been entitled to deduct the separation allowance paid to his wife in 1981 and 1982. However, that sympathy has been tempered somewhat by the appellant's serious allegations of bias and/or reasonable apprehension of bias against two respected members of the judiciary which allegations were made without a shred of evidence to support them [6] . Such conduct is, in my view, a serious misuse of the Court's process. It is to be condemed in the strongest possible terms. Accordingly, and in view of all of the circumstances of this case, I think the normal rule as to costs should prevail. Therefore, I would dismiss the appeal herein with costs.

Appeal dismissed.