REASONS
FOR JUDGMENT
Woods J.
[1]
This appeal by Kirstin Warnock concerns a
medical expense tax credit claimed for expenses incurred with respect to a
surrogacy arrangement to enable the appellant and her spouse to have a child.
The Minister of National Revenue reassessed the 2011 taxation year to allow
some of the expenses and to disallow others.
[2]
The appellant claimed the credit with respect to
three types of services: (1) medical services provided directly to the
appellant, (2) medical services provided directly to the surrogate, Penny
Warnock, who is the appellant’s sister-in-law, and (3) legal expenses related
to a mandatory surrogacy contract.
[3]
The appellant appeals in respect of the
disallowed amounts, which are $2,861.88 for legal services, $696.00 for
ultrasound tests for the surrogate, and $318.88 for prescription drugs for the
surrogate.
[4]
The appellant was represented at the hearing by
her mother, Margaret Gavigan, who works for the Canada Revenue Agency (CRA).
Ms. Gavigan informed the Court that through her work she became aware of a
similar case in which the tax credit was allowed (Zieber v The Queen,
2008 TCC 328). Not surprisingly, the appellant expected that the CRA would
follow this decision and allow her the same tax credit. This did not happen.
[5]
The Crown referred me to another case which
disagreed with Zieber (Carlson v The Queen, 2012-3063(IT)I). The
reasons in Carlson were not published, and accordingly were not
available to the appellant. The Crown obtained a transcript of the Carlson
decision for purposes of this hearing.
I. Legislative
scheme
[6]
The medical expense tax credit is provided for
in subsection 118.2(1) of the Income Tax Act. In general, the credit
gives modest tax relief for “medical expenses,” as
defined, incurred by a taxpayer in respect of the taxpayer, the taxpayer’s
spouse or the taxpayer’s child under the age of 18.
[7]
The provision reads in part:
118.2(1) For the purpose of computing the tax
payable under this Part by an individual for a taxation year, there may be
deducted the amount determined by the formula
A x [(B - C) + D]
where
A is the appropriate percentage for the taxation year;
B is the total of the individual’s medical expenses
in respect of the individual, the individual’s spouse, the individual’s
common-law partner or a child of the individual who has not attained the age of
18 years before the end of the taxation year
[…]
(Emphasis added)
[8]
The type of services that qualify for the credit
are generally set out in s. 118.2(2) of the Act. Paragraphs 118.2(2)(a),
(l.1), (n) and (o) are relevant to this appeal and are
reproduced below.
118.2(2) For the purposes of subsection 118.2(1), a
medical expense of an individual is an amount paid
(a) to a medical practitioner, dentist or nurse
or a public or licensed private hospital in respect of medical or dental
services provided to a person (in this subsection referred to as the “patient”)
who is the individual, the individual’s spouse or common-law partner or a
dependant of the individual (within the meaning assigned by subsection 118(6))
in the taxation year in which the expense was incurred;
[…]
118.2(2)(l.1) on behalf of the patient
who requires a bone marrow or organ transplant,
(i) for reasonable expenses (other than expenses
described in subparagraph 118.2(2)(l.1)(ii)), including legal fees and
insurance premiums, to locate a compatible donor and to arrange for the
transplant, and
(ii) for reasonable travel, board and lodging expenses
(other than expenses described in paragraphs 118.2(2)(g) and 118.2(2)(h))
of the donor (and one other person who accompanies the donor) and the patient
(and one other person who accompanies the patient) incurred in respect of the
transplant;
[…]
118.2(2)(n) for
(i) drugs, medicaments or other preparations or
substances (other than those described in paragraph (k))
(A) that are manufactured, sold or represented for use
in the diagnosis, treatment or prevention of a disease, disorder or abnormal
physical state, or its symptoms, or in restoring, correcting or modifying an
organic function,
(B) that can lawfully be acquired for use by the
patient only if prescribed by a medical practitioner or dentist, and
(C) the purchase of which is recorded by a pharmacist,
or
(ii) drugs, medicaments or other preparations or
substances that are prescribed by regulation;
118.2(2)(o) for laboratory, radiological or other
diagnostic procedures or services together with necessary interpretations, for
maintaining health, preventing disease or assisting in the diagnosis or
treatment of any injury, illness or disability, for the patient as prescribed
by a medical practitioner or dentist;
II. Discussion
[9]
I will first consider the legal expense incurred
by the appellant in connection with the mandatory surrogacy contract. This is
the largest item in dispute.
[10]
This expense will qualify for the credit
pursuant to s. 118.2(2)(l.1) if it is incurred on behalf of a “patient,” as defined, the patient requires an organ
transplant, and the expense is reasonably incurred to arrange for the
transplant.
[11]
In Zieber, this Court concluded that
expenses related to a surrogacy arrangement qualify for the tax credit because
an embryo transplant is an “organ transplant” for
purposes of s. 118.2(2)(l.1). The problem that I have in following this
decision is that the decision does not discuss all relevant aspects of s.
118.2(2)(l.1).
[12]
I would also note that Zieber was heard
under the informal procedure and has no precedential value. Decisions under the
informal procedure are rarely appealed by the Crown, and caution should be
exercised in relying on them.
[13]
The conclusion that I have reached is that if s.
118.2(2)(l.1) is considered as a whole, it does not apply to surrogacy
arrangements.
[14]
It is not necessary for purposes of this appeal
to decide whether an embryo is an “organ.” The
problem is that the person receiving the transplant is not the appellant but
the surrogate. The surrogate is not a patient, as defined.
[15]
Subsection 118.2(2)(l.1) requires that a “patient” need a transplant. The term “patient” is defined in s. 118.2(2)(a), above, to
mean the individual who is claiming the tax credit, or a spouse or a dependant.
In this case, it is the surrogate who received the transplant and she is not a “patient,” as required by s. 118.2(2)(l.1).
[16]
In the unreported Carlson decision,
Justice Archambault decided that this provision was not intended to apply to
surrogacy arrangements. I agree with this conclusion.
[17]
Turning to the appellant’s expenses for
ultrasound tests and prescription drugs for the surrogate, I have a similar
problem with these expenses. The relevant provisions, s. 118.2(2)(n) and
(o), above, both refer to a “patient.”
Parliament’s intent, in my view, is that these types of services must be
prescribed for the “patient,” as defined. In this
case, the surrogate is not a patient.
[18]
For these reasons, I have concluded that the
relevant provisions do not apply to the expenses that are at issue. Although
the circumstances of this case are sympathetic, the appeal should be dismissed.
Signed at Ottawa, Ontario this 24th day of July 2014.
“J.M. Woods”
Email this Content