REASONS
FOR JUDGMENT
Graham J.
[1]
James Grenon separated from his former spouse in
1998. There are two children of the marriage, both of whom were minors at the
time of the separation. In 1999, Ms. Grenon commenced family law proceedings in
the Court of Queen’s Bench of Alberta concerning custody, child support, spousal
support and the division of property. Mr. Grenon retained counsel to represent
him in the family law proceedings and incurred legal fees to pay such counsel.
The family law proceedings were ultimately resolved in 2001 in a manner that,
among other things, resulted in Mr. Grenon paying child support payments to his
former spouse.
[2]
In 2001, Mr. Grenon asked the Minister of
National Revenue to adjust his 1999 income tax return to allow a deduction of
$11,816.21 in legal expenses with respect to the family law proceedings. The
Minister issued a notice of reassessment denying Mr. Grenon’s request. When Mr.
Grenon filed his 2000 income tax return, he deducted $165,187.70 for legal
expenses incurred with respect to the family law proceedings. The Minister also
denied that deduction. Mr. Grenon has appealed the denial of his deductions
and, as part of that appeal, is challenging the denial of the deductions under
section 15 of the Canadian Charter of Rights and Freedoms.
Issues
[3]
There are three issues in this Appeal.
(a) What
legal fees did Mr. Grenon incur in the family law proceedings in relation to
his child support obligations?
(b) To
the extent that Mr. Grenon incurred legal fees in the family law proceedings,
is Mr. Grenon entitled to deduct those legal fees from his income in 1999 and
2000?
(c) If
Mr. Grenon is not entitled to deduct his legal fees, does the denial of that
deduction result in a breach of his equality rights under section 15 of the Charter?
[4]
In addition to the foregoing issues, I will also
have to review the evidence of Mr. Grenon’s expert witnesses and address a
request from the Respondent to re-open its case to introduce additional
evidence.
Amount of Legal
Fees
[5]
The Minister did not make any assumptions of
fact regarding either the quantum of legal fees incurred by Mr. Grenon in the
family law proceedings or the amount of such fees that related specifically to
the determination of Mr. Grenon’s child support obligations. Mr. Grenon
testified on his own behalf. I found him to be a credible witness. He explained
that he was represented by three different law firms over the course of the
family law proceedings, described the roles those firms played and explained
how he determined the percentage of their fees that related to the
determination of his child support obligations.
[6]
While Mr. Grenon’s testimony and the supporting
documents that were filed as exhibits were by no means as complete or clear as
I would have preferred, this evidence was not seriously challenged on
cross-examination and no evidence to the contrary was introduced by the
Respondent. I therefore accept that Mr. Grenon incurred legal fees relating to
the determination of his child support obligations of $10,265.82 in 1999 and $116,360.65 in 2000 (together, the “Fees”).
Is Mr. Grenon entitled to deduct the Fees?
[7]
There is no provision in the Income Tax Act
that would specifically permit Mr. Grenon to deduct the Fees the way that, for
example, paragraph 60(o) of the Act specifically permits the
deduction of legal fees incurred disputing an income tax assessment in court.
For Mr. Grenon to be able to deduct the Fees, they would have to be an expense
that he had incurred for the purpose of gaining or producing income from a
business or property.
[8]
Mr. Grenon is the payor of child support, not the
recipient. The leading case on the deductibility of legal fees relating to
child support payments is the Federal Court of Appeal decision in Nadeau v.
The Queen. The
Court made it clear at paragraph 18 of that decision that “expenses incurred by
the payor of support (either to prevent it from being established or increased,
or to decrease or terminate it) cannot be considered to have been incurred for
the purpose of earning income, and the courts have never recognized any right
to the deduction of these expenditures”.
[9]
Mr. Grenon submits that, despite the general
prohibition in Nadeau on the deduction of legal fees by the payors of
support, he is still entitled to deduct the Fees because they were incurred for
the purpose of gaining or producing income from property. As part of the
settlement of the family law proceedings between Mr. Grenon and Ms. Grenon, Ms.
Grenon agreed that she would reimburse Mr. Grenon when he spent money for
the benefit of the children that she was otherwise required to spend under the
terms of their agreement. Mr. Grenon submitted that this right to reimbursement
was “property” within the meaning of section 248(1) of the Act. I accept
that this right is property but I struggle to see how it would give rise to
income. At best it could be characterized as giving rise to a reimbursement.
[10]
Based on all of the foregoing, I find that Mr.
Grenon was not entitled to deduct the Fees when computing his income in his
1999 and 2000 tax years.
Does the denial of the deduction of the Fees breach Mr.
Grenon’s equality rights under section 15 of the Charter?
[11]
Mr. Grenon submits that payors and recipients of
child support payments are treated differently under the Act and that
that differential treatment is the result of discrimination on the basis of sex
in breach of his rights under section 15 of the Charter.
[12]
The two-part test to be applied on a section 15
analysis was confirmed by the Supreme Court of Canada in Withler v. Canada
(Attorney General). The
first part of the test requires me to determine whether the law creates a
distinction based on a ground that is enumerated in section 15 or on an
analogous ground. The second part of the test asks whether that distinction
creates a disadvantage by perpetuating prejudice or stereotyping.
Does the law create
a distinction?
[13]
As set out above, payors of child support are
not permitted to deduct legal fees incurred to establish their support
obligations, to resist the increase of existing support obligations, to resist
the payment of existing support obligations, to cause the decrease of existing
support obligations or to cause the elimination of existing support
obligations. Both the Minister and the Courts have been consistent in applying
this principle. By contrast, the Minister permits recipients to deduct legal
fees incurred to establish, increase or enforce child support payments and to
resist actions by the payor to reduce or eliminate such payments. In order to determine the basis of this differential treatment, I
need to examine why recipients of child support payments are permitted to
deduct their legal fees.
[14]
There is no provision in the Act that
specifically permits the deduction of legal fees by recipients of child
support. The justification for the deduction of these fees is based on the idea
that such fees are amounts laid out to earn income from property. In Nadeau,
the Federal Court of Appeal observed that “[t]he cases have consistently held
for more than forty years that the right to support, once established by a
court, is ‘property’ within the meaning of subsection 248(1) of the Act,
and that the income from such support constitutes, in the hands of the person
receiving it, income from property”. The Court went on to conclude that the Court had “little
difficulty in finding that income from a support payment is income from
property and that as such the expenses incurred in obtaining the payment
thereof may be deducted”. The
Court stated that “… this is the treatment that the Minster has advocated and
applied for more than 40 years. It is logical to assume that if this treatment
was in some way contrary to Parliament’s wishes, an amendment would have been
brought”. In
reaching these conclusions, the Court noted that the 1996 amendments to the Act
to eliminate the taxation of child support payments had been drafted in such a
way as to continue to allow the deduction of expenses under paragraph 18(1)(a)
and concluded from this that Parliament was of the view that child support
payments were income from property. I am bound by this reasoning.
[15]
Nadeau did not
address the question of whether legal fees expended to establish child support
payments were deductible. While one might normally expect that amounts laid out
to create a right to income would be treated as being on capital account, it
has been broadly accepted by this Court for almost 20 years that legal fees
incurred by a recipient of child support payments in order to establish that
support are deductible. The
reason for this is that the right to child support has been found to be a
pre-existing right. Thus, legal fees paid to establish the amount of child
support have been considered to have been spent to enforce the right to the
income rather than to create it and thus have been found to be on income
account rather than capital account.
[16]
Based on the foregoing, the difference in the
treatment of payors and recipients of child support payments in respect of the
deduction of legal fees relating to establishing child support payments lies
solely in the fact that recipients of child support have a source of property
income in the form of their right to child support payments and payors do not.
The gender of the payor and the recipient have nothing to do with the
determination of deductibility. The distinction between people who do and do
not earn income from property is commonplace under the Act. For example,
a residential landlord may deduct the property taxes, mortgage interest and
utilities that she pays in respect of her rental property, but a simple
homeowner who resides in his own property may not.
[17]
Having or not having a source of property income
is certainly not an enumerated ground under section 15 nor could it be said to
be an analogous ground. An analogous ground is one based on “a personal
characteristic that is immutable or changeable only at unacceptable cost to
personal identity”. It
is difficult to see how whether one is earning income from property, or not,
could be considered to be such a ground. Accordingly, Mr. Grenon’s Charter
challenge fails to pass the first part of the Withler test. Having
reached that conclusion, it is not necessary for me to consider the second part
of the test.
[18]
In reaching this conclusion, I am mindful of an
argument raised by Mr. Grenon. His counsel characterized Nadeau as
standing for the proposition that child support payments are income from
property, not because of any current logical basis for reaching that
conclusion, but rather because the system has treated them as being income from
property for so long that it is no longer feasible to treat them in any other
manner. I am sympathetic to this characterization of Nadeau. It appears
to me that what has happened over the course of many years is that the tax
system has effectively read in to section 60 of the Act a paragraph that
permits recipients of child support to deduct their legal fees irrespective of
whether those fees are actually laid out to earn income from property. That
said, I am bound by the reasoning in Nadeau. Mr. Grenon will no
doubt appeal my decision. He may be able to convince the Federal Court of
Appeal to revisit Nadeau or that recipients of child support payments
are currently permitted a deduction, not because they expend legal fees to earn
income from property, but rather simply on the basis that they are recipients
of child support payments. Since the vast majority of recipients of child
support payments are women and the vast majority of payors are men, Mr. Grenon
may then be in a better position to pursue his belief that allowing recipients
a deduction but denying the deduction to payors effectively discriminates on
the basis of sex.
Expert
Witnesses
[19]
Two expert witnesses testified at trial on
behalf of Mr. Grenon. The purpose of those witnesses was to provide evidence in
support of the second part of the Withler test. Given my conclusion on
the first part of the test, it would normally not be necessary for me to
consider their evidence. However, since I am almost certain that Mr. Grenon
will appeal my decision to the Federal Court of Appeal, I need to review the
expert evidence in case it is required on appeal. I will look at the evidence
of each witness separately.
Professor
Paul Millar
[20]
Professor Paul Millar is an assistant professor
in the School of Criminology and Criminal Justice at Nipissing University. He
has a doctorate in sociology and specializes in the areas of law and society,
criminology, sociology and statistical quantitative methods. I accept Professor
Millar as an expert in these areas. He prepared an expert report entitled
“Gender Bias and Disadvantage in the Family Law System”.
[21]
I take Professor Millar’s report with a
significant grain of salt. He demonstrated a bias towards Mr. Grenon’s position
that was not in keeping with the impartiality expected of expert witnesses. He
cited studies performed by others without drawing my attention to various
weaknesses of those studies, made significant logical leaps in his own report
without clearly highlighting them for me, used the term “custody” to mean
different things in different parts of his report without clarifying that difference
and was evasive when asked about his personal experience bringing a Charter
challenge to the Alberta Court of Appeal in respect of the Maintenance
Enforcement Program.
[22]
In paragraph 15 of his report, Professor Millar
states that “A survey conducted by the Canadian Research Institute for Law and
the Family in 2007 found a strong perception that the justice system is biased
in favour of mothers, and that it penalizes fathers, regardless of either
parent’s conduct.” A review of the report setting out the results of that
survey shows that the authors had considerable concerns about making
generalizations from the results given the very low sample size and response
rate. They
were also concerned about the respondent’s understanding of the survey questions.
I am troubled both by the fact that Professor Millar would rely on such a
survey in his report despite its flaws and that he did not draw those flaws to
my attention. Accordingly, I would give no weight to paragraph 15 of Professor
Millar’s report.
[23]
In his report, Professor Millar concludes that
there is a historical and ongoing bias in the Canadian court system in favour
of awarding custody to women. It appears to me that the facts that Professor
Millar relies upon in coming to this conclusion are open to alternative
interpretations. Professor Millar did little to convince me that he had valid
reasons for considering and discarding those alternatives. For example,
Professor Millar finds that gender is not a good indicator of parenting
ability. He also finds that courts award custody to women substantially all of
the time. My understanding is that from this information he concludes that the
courts must be biased against fathers. I struggle with the leap of logic that
he appears to have made. I am not satisfied that he has given adequate or even
any consideration to other variables such as whether the selection of cases
that actually go to trial are representative of the population of parents as a
whole and whether the father was even actively seeking custody in the cases
that went to trial or was simply seeking a determination of the amount of
support. When I combine this concern with my overall concern about Professor
Millar’s bias, I am unable to give weight to his finding that the court system
is biased against men.
[24]
Professor Millar used the term “custody” in
different ways in different parts of his report. It appears that in some
circumstances he used the term to describe legal custody (i.e. the right to
make decisions about the child’s education, health care, religion, etc.
regardless of where the child resides) and that in other cases he used the term
to describe where the child resided. To the extent that the term related to
where the child resided, it was unclear whether the use of the term referred to
residing with the given parent 100% of the time or simply the majority of the
time. The fact that Professor Millar did not clarify these terms either in his
report or in his direct examination and the fact that he seemed somewhat
uncertain on cross-examination exactly how the term was used throughout his
report, has left me unable to accept the statistics contained at paragraphs 8,
11, 12 and 14 of his report as I am unsure exactly what they mean. I do,
however, accept the figures set out in paragraphs 13(b) and (c) of the report
as Professor Millar clearly stated on cross-examination that the term “custody”
as used in paragraphs 13(b) and (c) refers to where the child lives, not legal
custody.
[25]
Notwithstanding my concerns about Professor
Millar’s bias, I am prepared to accept what I think is the key piece of
evidence that Mr. Grenon wanted to rely on from Professor Millar’s report. That
is the statistic, found in paragraph 13(a) of the report, that fathers are
child support payors in 92.8% of cases. Professor Millar draws this statistic
from a report from the Department of Justice entitled “Phase 2 of the Survey of
Child Support Awards: Final Report”. The Respondent drew my attention to a number of issues that may
affect the reliability of the report. While I acknowledge those issues, I note
that they were not of sufficient concern to prevent the government from issuing
the report in the first place. Professor Millar stated that he had done similar
research using a different source of data and had arrived at a comparable
figure. Ultimately, the exact percentage of child support payors who are men is
not important. It is sufficient for the purposes of this Appeal that I accept
that substantially all of the payors of child support are men.
Professor
Douglas W. Allen
[26]
Professor Douglas W. Allen is the Burnaby
Mountain Professor of Economics at Simon Fraser University. He has a doctorate
in economics and specializes in the area of law and economics. The economics of
the family is one of his areas of research. He has published four papers on the
Federal Child Support Guidelines. I accept Professor Allen as an expert in
these areas. Professor Allen’s expert report was filed with the Court.
[27]
I found Professor Allen’s report and testimony
to be essentially free from bias. While it is clear that he has a strong
opinion on the issues upon which he was opining, I do not feel that he slipped
into the role of advocating for Mr. Grenon. The only concern that I had
with Professor Allen’s report is that he relies to an extent on the work of
Professor Christopher Sarlo. In a pre-trial conference the Respondent objected
to the introduction of a previous version of Professor Allen’s report on a
number of different grounds. One of those grounds was that it relied too
heavily on the work of Professor Sarlo. Mr. Grenon was permitted to file an
amended version of the expert report on the condition that, to the extent the
report continued to rely on Professor Sarlo’s work, Professor Sarlo would be
made available for cross-examination at the trial. I have not read the previous
report so I do not know exactly to what extent it relied upon
Professor Sarlo’s work. There are three remaining references to Professor
Sarlo’s work in Professor Allen’s report. Professor Sarlo was not made available
for cross‑examination at trial. Accordingly, I must exclude paragraphs 38
and 51 of the report and any conclusions that rely on those paragraphs from
evidence along with the reference to Professor Sarlo’s work in footnote 1 of
the report.
Can the Respondent have leave to re-open the Respondent’s case?
[28]
The Respondent did not lead any evidence that
would support a defence under section 1 of the Charter if Mr. Grenon
were able to prove that there was a breach of his section 15 rights. At the end
of oral submissions, counsel for the Respondent requested leave to re-open the
Respondent’s case in order to introduce evidence in support of defences under
section 1. It was not entirely clear, but I believe the request was also
intended to cover possible evidence under section 15(2) of the Charter.
[29]
I am not willing to grant such leave. The
Respondent appears to have expected to win this Appeal on the first part of the
Withler test based on the fact that I would be bound by the decision in Nadeau
and thus does not appear to have been concerned about introducing evidence to
deal with the second part of the test or to deal with a section 1 defence. This
Appeal has been going on for more than a decade. The Respondent knew that Mr.
Grenon was not just a taxpayer with a chip on his shoulder and a belief that
the Charter gave him a general right to be treated “fairly”. He was
represented by counsel, had a clear idea of the basis upon which he believed
discrimination was occurring and obviously intended to introduce the factual
evidence that he believed he needed to support a section 15 challenge. Given
the history of this appeal, it should have been obvious to the Respondent that,
if Mr. Grenon lost, he would almost certainly appeal to the Federal Court of
Appeal. Even
though the Respondent knew that I would most likely find myself to be bound by Nadeau,
the Federal Court of Appeal would clearly not have been so bound. Thus the
Respondent should have known that it needed to lay the evidentiary groundwork
at trial to defend a section 15 challenge on appeal. Mr. Grenon was also no
doubt aware that I would most likely find myself to be bound by Nadeau
yet he introduced the expert evidence that he needed to pursue his appeal to
the Federal Court of Appeal.
[30]
Based on the foregoing, the Respondent’s request
to re-open its case to introduce additional evidence is denied.
[31]
I want to make it clear that the foregoing
comments are in no way intended to reflect on the judgment of counsel for the
Respondent. I am well aware that decisions on the conduct of this Appeal will
most likely have involved a wide variety of different individuals at the
Department of Justice, the Canada Revenue Agency and, possibly, the Department
of Finance and may not, in fact, reflect the manner in which counsel may have chosen
to conduct the litigation if it had been her decision alone.
Conclusion
[32]
Based on all of the foregoing, the appeal is dismissed
with costs to the Respondent.
Concerns about
the state of the law
[33]
I have spent a great deal of time considering
the issues raised in this Appeal. I would like to take this opportunity to
express some concerns that I have about the current state of the law. In my
view, there are serious inequities that can arise when child support recipients
are permitted to deduct the legal fees that they have laid out to establish
child support payments and child support payors are not permitted the same
deduction. I feel that those inequities are aching to be addressed by
Parliament. Please note that the following comments relate only to legal fees
laid out to establish child support, not those laid out to enforce
arrears of child support.
[34]
For example, take a divorced couple who are both
fully employed and assume that the mother earns $1,000 per year more than the
father. If they both go to court seeking 75% custodial access to their children
there are four possible outcomes:
(a) Example “A”: The mother will be successful
in getting 75% custodial access. As the mother will have more than 60%
custodial access, support will be determined based on the father’s income
without taking the mother’s income into account. The mother will therefore
become the recipient of child support and will be able to deduct her legal fees
and the father, as the payor, will not.
(b) Example “B”: The father will be
successful in getting 75% custodial access. As the father will have more than
60% custodial access, support will be determined based on the mother’s income
without taking the father’s income into account. The father will therefore
become the recipient of child support and will be able to deduct his legal fees
and the mother, as the payor, will not.
(c) Example “C”: The court will award
custodial access somewhere between the two levels requested by the parents. For
simplicity assume that custodial access is divided 50/50. In that case, support
will be determined based on a comparison of the income levels of both parents.
Since the mother’s income is slightly higher than the father’s, the father will
become the recipient of child support (albeit a very relatively small amount of
support). Thus the father will be able to deduct his legal fees and the mother,
as the payor, will not.
(d) Example “D”: The court will award 75%
custodial access to one child to the father and 75% custodial access to the
other child to the mother. Support for the first child will be determined based
on the mother’s income and support for the second child will be determined
based on the father’s income and the resulting amounts will be set-off against
one another. Since the mother has the higher income, she will end up being the
payor after the set-off so the father will be able to deduct his legal fees but
the mother will not.
[35]
Regardless of whether the recipient has income
from property or not, I struggle to see how, in the foregoing examples, it is acceptable
from a public policy point of view to allow the recipient to deduct his or her
legal fees while denying that deduction to the payor. Both parties are in court
fighting about the exact same issues. What policy objective could possibly
justify this outcome? The objective cannot be to give a financial break to the
party with the greater financial need because in Example “A” the parent with
the higher income receives the deduction. The objective cannot be to ensure the
financial security of the children because the children in each example would
benefit more from having both parents receive the deduction. The objective
cannot be to reward the party who is successful in court because in Example “C”
both parents have succeeded in increasing their custodial access from the 25%
offered by the other parent to the 50% they received in court yet the mother is
not permitted to deduct her legal fees. The objective cannot be to ensure
access to justice because the subsidy is given to one parent and denied to the
other regardless of their individual financial resources (e.g. in Example “C”
above, the father receives the subsidy whether his income is $4,000, $49,000 or
$499,000 and the mother is denied it whether her income is $5,000, $50,000 or
$500,000).
[36]
In my view, the problem with the current system
arises, to a large extent, because there is an unfortunate tendency to examine
this issue using the classic “deadbeat dad” stereotype. If that stereotype is used, then there does not appear to be a
problem with the system. The stereotypical “deadbeat dad” is considerably
financially better off than the mother, wants little or no custodial access and
is seeking to keep his child support payments as low as possible. In this
situation, it is easy to argue that giving the deduction to the mother achieves
the above policy goals: the mother is the party with the greater need; the
children are better off if the mother is subsidized in her fight to establish a
high level of child support and the father is not subsidized in his fight to
keep his child support payments low; the mother is the successful party in
court; and, without the deduction, the mother may not be able to afford access
to justice.
[37]
However, tax policy should not be driven by
stereotypes. The modern reality is that more and more parents fall into Example
“C”. The tax system should, in my view, do a better job of reflecting that
reality.
[38]
Justice Woods’ decision in Trignani v. The
Queen and
Justice Angers’ decision in Mercier v. The Queen show that it may be possible for a payor in the above examples to
obtain a deduction if he or she has a claim for child support that is “bona
fide, not frivolous, and [has] a reasonable prospect of success”. I applaud the ingenuity of Justices Woods and Angers in addressing
the inequality in the system but I feel that payors of child support should not
have to wait for a patchwork of relief to emerge from this Court one decision
at a time. Taxpayers would be far better served by a well thought out global
system that balances the various fiscal and social issues and addresses both
the needs of the parents in my examples and the needs of the parents in the
“deadbeat dad” scenario. This Court cannot possibly achieve such a global
system on a case by case basis. It is my hope that Parliament will give serious
consideration to establishing such a system.
Signed at Toronto, Ontario, this 3rd day of October 2014.
“David E. Graham”
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