Citation: 2008 TCC 91
Date: 20090306
Docket: 2006-3534(IT)G
BETWEEN:
SANDRA GALLANT,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Angers J.
[1]
This is an appeal by
the appellant of reassessments for her 2001 and 2002 taxation years. The Minister
of National Revenue has reassessed the appellant for unreported income of 114,365
$ for 2001 and 137,360 $ for 2002.
[2]
The appellant, during
both taxation years under appeal, operated two special care homes. One was
located at 86 Mecklenburg
Street in Saint John, New Brunswick, and was known as "Laura
Manor". The other one was located at 646 George Street in Saint
John, New Brunswick, and was known as "Park Place". At all relevant times, the appellant also
owned a property at 45 Cedar Grove Drive in Quispamsis, New Brunswick,
approximately 25 kilometres or 20 minutes' drive from Saint John (the "Cedar
Grove property"). The appellant also owned a number of residential rental
units in Saint. John.
[3]
The appellant at all
material times was licensed by the province of New Brunswick to operate the two special care homes. The operators of these special
care homes provide long-term care services. When the person in need of such
services is financially unable to pay the full cost thereof, the Province of New Brunswick, by virtue of the Nursing Homes Act and Family
Services Act, has the ability to subsidize those services. Eligibility for
the services is based on criteria set out in policies of the Department of
Family and Community Services of New Brunswick. The Standard Family
Contribution Policy (the "Policy") is based on the following
principles (Exhibit A-1):
·
the family, as opposed
to the individual, is responsible in the first instance for the full cost of
non-insured services;
·
the government is payer
of last resort;
·
and the client’s
obligation to pay for non-insured services takes precedence over
intergenerational transfer of assets.
Other provisions
of interest contained in the Policy are as follows:
6. Policy
New Brunswickers are responsible for the cost and provision of
long-term care services to their family members.
Under the Long Term Care Strategy, government assists families by
assessing the need for services and accessing such services. In some instances,
government assists with the cost of these services when the client requiring
long-term care services is financially unable to pay the full cost of these
services.
The Standard Family Contribution Policy Towards Long-Term Care
Services sets out the terms for determining whether a client is eligible for
government subsidization of their government approved non-insured long-term
care services.
Elements considered are:
• Clients with the ability to pay for their
non-insured long-term care services must make a contribution towards, or in
some instances, pay the full amount of services provided.
• Clients with incomes at or below basic
income assistance levels will be exempt from the contribution for non-insured
long-term care services.
• The amount of the client’s contribution will
be based on the net family income (Appendix A) and the net family assets
(Appendix B) plus the family composite.
6.1. Eligibility for Subsidy
A person must be assessed as eligible for
long-term care services by an authorized employee of the Department of Family
and Community Services and/or the Department of Health and Wellness in order to
apply for a government subsidy. The person must also be a New Brunswick resident and a Canadian
citizen.
6.2. Purchased Services
Purchased services include in-home support,
and services provided by special care homes, community residences and nursing
homes approved by the Department of Family and Community Services.
The cost of each service provided will be
used to calculate the total case plan cost for a family.
A financial subsidy is applied against the
approved government rate for services such as, hourly rates, daily rates,
service cost ceilings, etc. It is not available for services that are not
approved by Department of Family and Community Services but which a family may
choose to purchase.
. . .
6.4. Financial Responsibility
The family is responsible for the full costs of services. It is
only when a financial assessment has been completed and a family contribution
level assessed that subsidy may be authorized.
The family’s assessed monthly contribution towards the approved
services is always applied first against the service provider’s monthly service
costs before the government subsidy is applied. If the client does not use all
of the services approved for a particular month and their monthly contribution
level is more than the cost of the services used, then the client pays the
total cost of services for that month.
Approved services are those services that have been assessed by an
authorized employee of the Department of Family and Community Services as
required to meet the client’s service needs and are within the approved
government rate for that service.
. . .
[4]
The rate paid for long-term
care services is determined by the Province of New
Brunswick and is dependent on the level of care needed. Special care homes such
as the ones operated by the appellant may take in only level one and level two
residents. In 2001, the rate was $1,095 for level one and $2,068.33 for level
two. The subsidy is paid by cheque payable to both the home operator and the
beneficiary.
[5]
The program described
above began in 1995 and was called the residential model. As already mentioned,
the program falls under the Family Services Act and the Nursing Homes
Act, but it also comes under the Mental Health Act of New Brunswick and is managed by that province's Department of
Family and Community Services. A group of experts was asked to establish an
acceptable rate of payment for home operators for each level of beneficiaries.
They factored in food, lodging and staff costs as well as inflation and profit.
The profit margin for operating a special care home is contingent on many
factors, such as whether or not the operators have mortgages to pay or whether
they live with the beneficiaries or not. Homes operated under the program are
considered to be businesses, so profits are to be expected, but the amount thereof
depends on how each special care home is managed.
[6]
The appellant is a
registered nurse with many years of experience working in hospitals and nursing
homes. Around 1986, she bought the Cedar Grove property in Quispamsis and moved
in with her then common-law husband and their respective children; they are now
married. Each had children from a previous marriage. The property is a single-family
dwelling on a lake and was used primarily as the family residence.
[7]
Over the years, the
appellant became more and more involved in assisting people in need and started
operating special care homes. The Laura Manor property was purchased in the
late eighties. It was an old three-storey boarding house in need of repairs.
Around 1992, the appellant was licensed to operate the first floor of Laura
Manor. A licence was eventually obtained to accommodate 15 residents in need of
special or long-term care. They were residents with mental health problems or requiring
long-term or palliative care; others had drug addictions. The Park Place property could accommodate 10 residents.
[8]
At all relevant times,
the appellant managed and worked at Laura Manor and worked a shift at Park Place; she also worked as a casual or part-time nurse.
[9]
The Laura Manor
property has a kitchen, a dining room and four bedrooms on the first floor, six
bedrooms and an office on the second floor and eight bedrooms on the third
floor. As the years went by, the appellant had to spend more and more time at
Laura Manor and Park Place to help out there and to manage these homes. In the
fall of 1997, she and her husband moved their clothes, books and other personal
items to a room on the second floor of Laura Manor. It was a fairly large room
that they used as a living area and as an office where confidential information
on the residents, and also the residents' medications and/or tobacco, were kept
under lock and key.
[10]
The appellant testified
that during the relevant years, she resided at Laura Manor with her
husband. Her stepdaughter, her stepdaughter's boyfriend and their child
occupied one room and her stepson occupied another. The stepson graduated from
high school in June 2001. He attended Saint John Community
College and became a
certified special care home worker in December 2002. The appellant, her husband
and family members all had their meals at Laura Manor with the residents.
[11]
In the relevant years, the
Cedar Grove property was gradually abandoned and was used more like a cottage. They
kept the property neat, mowed the lawn and went there on weekends in both
winter and summer to engage in skating and swimming activities. The Cedar Grove
property was also used to store their furniture, some antiques that they had bought
and other valuables that needed to be stored away from the residents at Laura Manor.
No food was kept at the Cedar Grove property. Some mail was still being
delivered there as it was difficult to prevent staff and residents from opening
the appellant’s mail, particularly if it was cheques or other important items.
[12]
The appellant was
informed by her accountant in late 1999 about a provision in the Income Tax
Act (the Act), namely paragraph 81(1)(h), that exempted
income received by a taxpayer in certain circumstances. Paragraph 81(1)(h)
reads as follows:
81(1) Amounts not included in income
. . .
(h) Social assistance — where the taxpayer is an
individual (other than a trust), a social assistance payment (other than a
prescribed payment) ordinarily made on the basis of a means, needs or income
test under a program provided for by an Act of Parliament or a law of a
province, to the extent that it is received directly or indirectly by the
taxpayer for the benefit of another individual (other than the taxpayer's
spouse or common-law partner or a person who is related to the taxpayer or to
the taxpayer's spouse or common-law partner), if
(i) no family
allowance under the Family Allowances Act or any similar allowance under
a law of a province that provides for payment of an allowance similar to the
family allowance provided under that Act is payable in respect of the other
individual for the period in respect of which the social assistance payment is
made, and
(ii) the other
individual resides in the taxpayer's principal place of residence, or the
taxpayer's principal place of residence is maintained for use as the residence
of that other individual, throughout the period referred to in subparagraph (i).
[13]
As a result, the
appellant recorded separately the Laura Manor revenues received from the
residents and those received from the Province of New Brunswick
and she apportioned the expenses accordingly. Thus, only the revenues from the
residents were declared as income and from this income was deducted the
appropriate portion of the expenses. The appellant did not declare the income
that came from the government program. The T2124 forms attached to the
appellant’s 2001 and 2002 tax returns do indicate that part of her income is
exempt and that income is shown as net of related expenses.
[14]
The issue is therefore
whether the income or payments received by the appellant from the Province of New
Brunswick are exempt income
under paragraph 81(1)(h) of the Act. The respondent’s
position is that the nature of the payments is inconsistent with the purpose of
paragraph 81(1)(h) of the Act and that this provision therefore does
not apply. The respondent submits that they are not social assistance payments
ordinarily made on the basis of a means, needs or income test under a program
provided for by a federal or provincial law, that Laura Manor was not, during
the relevant years, the appellant’s principal place of residence and that the
payments thus cannot be considered as exempt income.
[15]
The respondent quoted this
Court's decision in Saulniers v. Minister of National Revenue, [1997] 2
C.T.C. 3033, in support of its position. In Saulniers, the taxpayer
operated out of a residential home a business providing care to elderly and
disabled persons at a cost of $700 per person per month for board and lodging.
Of the nine people to whom she provided care, seven paid with their Old Age
Security benefits while the other two received social assistance. The Minister
included the net earnings of $ 35,404 in 1993 and $41,975 in 1994 as
taxable income earned from the operation of a business. The Court held that the
exemption under paragraph 81(1)(h) did not apply because the
paragraph is very restrictive and, while not very clear, it was not drafted so
as to exempt from taxation a business which reported the above income and to
prevent the application of subsection 9(1) of the Act which taxes such
income.
[16]
In another decision of
this Court, namely that in Anderson v. R., [2001] 4 C.T.C. 2837, Judge O’Connor addressed
the issue of two first requirements of paragraph 81(1)(h) in these
words at paragraphs 6, 7, 8 and 9:
There are two separate requirements:
(a) The payment must be social assistance, and
(b) Payment must be made under a program provided for by a
provincial law.
Both requirements raise the same
issue: Did the Appellants receive a per diem because they had a statutory right
to be paid or was the per diem simply consideration owed pursuant to the terms
of a contract? Counsel for the Respondent has advised that the Minister has
been willing to accept on an administrative basis that a non-profit
organization is essentially the same as the government. Thus a payment from
such an organization directly to a foster parent is the same as a payment from
a government, but the Minister has never extended this treatment to payments
from a for-profit entity. Reference was made to the Income Tax Technical
News No. 17, Apr. 26, 1999. It is submitted that a person's entitlement to
a social assistance or program payment is a right created by the specific
statute that mandates the payment. The resulting payment is not given as
consideration for any good or service. By contrast the Appellants do not have a
statutory right to be paid. All they have is a contractual right to be paid and
that payment is made as consideration for services rendered.
In Storey Group Homes Ltd. v.
The Minister of National Revenue, 92
D.T.C. 1295 the Appellant was a corporation that
provided foster care through houses staffed by house parents. The parents performed
duties that were similar to those of these Appellants. The corporation received
almost all of its income from various Children's Aid Societies. The corporation
argued that the money that it received from the CAS's was a social assistance
payment and was not taxable. Despite a concession on this point by the
Respondent, Bonner, J.T.C.C. expressed strong reservations that such payments
constituted social assistance and refused to make such a finding. His
conclusion on the tax status of the payments was as follows:
… The amounts received by the
Appellant were received by it as the ordinary revenues of its business pursuant
to contracts between it and the various children's aid societies. Such amounts
were not, in my view, received as social assistance. ...
The decision in Saulniers v. Her
Majesty the Queen, [1996] T.C.J. No. 1298
case also relied on a distinction between money paid as of right and money
earned under a contract. The Court was of the view that paragraph 81(1)(h)
was never intended to exempt income earned by a person running a business at a
profit.
In this case the Appellants are
running a business at a profit and, according to the evidence, they depend on
their income from ASH to help make a living. In this way they are no different
from teachers, social workers or fire fighters. [One might add the clergy,
doctors and nurses.] Persons working in each of those professions render an
important service to society and often do so for reasons other that [sic] the
possibility of making money. Nevertheless each of those persons is taxed on
their earnings because their occupation constitutes a source of income.
[17]
In analyzing the means,
needs or income test, Judge O’Connor wrote at paragraph 10:
Paragraph 81(1)(h) requires
that the payments in question be made on the basis of a means, needs or income
test. Thus a person is only entitled to the payment if his means, needs or
income are within the parameters set out by the legislation. In this case
neither the Appellants' right to be paid, nor the quantum of payment was
dependant [sic] on passing a means, needs or income test. Instead the
Appellants had a contractual right to be paid a specific per diem regardless of
the means, needs or income, of themselves or the children who were under the
care of ASH.
[18]
The appellant is
licensed by the Province of New Brunswick to operate a special care
home for level one and level two beneficiaries and to charge a rate determined
by the province for each level. The Province of New
Brunswick under its long-term
care strategy assists families by assessing the need for services and providing
access to such services. The Policy (Exhibit A-1) does stipulate, though, that
New Brunswickers are responsible for the provision of long-term care services
to their family members and for the cost thereof. Once a family member is
assessed by the Province as eligible for long-term care services and if that
person is unable to pay the costs of these services, he can apply for a
government subsidy. A financial assessment is then conducted to determine the
amount of the subsidy that will be granted to pay for the services provided by a
duly licensed long-term care home. The granting of a subsidy by the Province is
discretionary and the subsidy is given to a successful applicant in order to
pay for the long-term care services he needs.
[19]
The fact that the
subsidy is payable to both the applicant and the provider of the long-term care
services (as in this case) does not make the payment a social assistance
payment received by the provider (here, the appellant) for the benefit of the
applicant. The long-term care services are provided to beneficiaries, subsidized
or not, in return for the payment of the rate set by the Province and are
purely contractual in nature. The appellant is in the business of providing
long-term care services and the beneficiaries purchase those services by paying
the rate established by the Province. The fact that some beneficiaries have
qualified for a subsidy does not change the contractual nature of the services
nor does it make the subsidy a social assistance payment made to the home operator
on behalf of the beneficiary.
[20]
The rate is established
by the Province but the appellant is the person who pays the rate regardless of
where the money comes from. In my opinion, paragraph 81(1)(h) has no
application in this fact situation and the payments are not exempt income.
[21]
This conclusion is
sufficient to dispose of the appeal. The evidence on the issue of whether Laura
Manor was the appellant’s principal place of residence in 2001 and 2002 is
lengthy; I will nevertheless address that issue.
[22]
The appellant’s
daughter and two of the appellant's husband’s children confirmed that the
appellant, her husband and two children all lived at Laura Manor during the
relevant taxation years. Brian Gallant (the appellant's stepson) was a student and
lived at Laura Manor in 2001 and 2002. He also worked at Laura Manor when he
was a student and still works there. He considered Laura Manor as his parents’
home. They had a large bedroom there and all their clothes were there. They had
their meals at Laura Manor and slept there. Brian Gallant never lived at Cedar
Grove, but he acknowledged that the appellant and her husband lived there at
one point. During 2001 and 2002, the appellant and her husband did not go at
Cedar Grove very often, and when they did, it was simply to check things out.
He himself would go there occasionally for a swim in the summer. When he had
friends over, it was at Laura Manor, and that is also where he received his telephone
calls. His father would drive him to school everyday.
[23]
Jonathan Gallant is
also the appellant’s stepson. He did not live at Laura Manor in 2001 and 2002.
He had his own apartment in one of the appellant’s apartment buildings and
acted as caretaker of that building. He also did maintenance and repairs at
Laura Manor and Park Place and mowed the lawn at Cedar Grove. He worked
night shifts and did maintenance at Laura Manor on a regular basis; he
confirmed that his father and the appellant lived at Laura Manor in the large
bedroom and that they slept there unless the appellant was working a night
shift. He confirmed that Cedar Grove was initially their home but very little
time was spent there in 2001 and 2002, and when they went, it was to do upkeep.
[24]
Kimberly Ernst is the
appellant’s daughter. She described her mother as a workaholic. In 2001 and
2002, Kimberly spent a lot of time at Laura Manor for the purpose of work and also
to be with her stepsister. She described Laura Manor as a family-run business
where the family members worked, and said that they considered it the family
home. When her mother was away on vacation, she would stay at Laura Manor in
her mother’s room on the second floor. All her mother’s personal items were
there such as clothes, curlers, pictures, files, television and computer. Her
mother’s laundry was done at Laura Manor. The family had their Christmas
gatherings at Laura Manor. In 2001, Kimberly kept the books, did the payroll
and converted it electronically. She kept track of revenues and expenditures, as
her mother had a very busy schedule.
[25]
When Kimberly was in
Grade 5, the family was living at Cedar Grove and all their belongings were kept
there until Laura Manor was purchased. She went to Moncton
for a year in the late 1990s and, upon her return, moved into an apartment one
block away from Laura Manor. In 2001 and 2002, neighbours at Cedar Grove would
check the place, as Kimberly's best friend lived next door. Cedar Grove was
used for storage and they only went there for an occasional swim. Only
confidential business was conducted at Cedar Grove and some mail went to Cedar
Grove, likewise for confidentiality reasons. That mail was picked up on a
weekly basis.
[26]
Zarina Szezendor lives
across from Laura Manor and is a friend of one of the children. She spent time
at Laura Manor as an employee until 1999 and visited her friend often over the
years. She believes that the appellant resided at Laura Manor in the large
bedroom on the second floor and that she slept there at all relevant times. She
has never heard of Cedar Grove and was not aware that the appellant may have
had another house. She did notice that mail was delivered to Laura Manor.
[27]
Bruce Arsenault is a
friend of the family who lives about three blocks away from Laura Manor. He
went to Laura Manor on a regular basis and for various reasons, one of which was
playing Santa Claus at Christmas. He is a friend of the appellant’s husband and
spent time with him watching television and doing a few chores around the
house. In 2001 and 2002, the appellant and her husband were living at Laura
Manor and occupied the second-floor room, where they slept. He confirmed that
fact by saying that was where they were when he left and that was where they were
the next morning when he came back to Laura Manor. He was familiar with the
Cedar Grove property and went there 3 or 4 times. It was considered a summer
place where they had barbecues; they also went there to do the regular upkeep.
There was no food kept in the refrigerator and the place looked unlived-in and lacked
fresh air.
[28]
William McIllwraith
lives across the street from the Cedar Grove property and three houses down. He
is able to see 45 Cedar Grove. He has known the appellant and her husband for
over twenty years. The appellant and her husband moved there with three
children and attended the neighbourhood get-togethers and parties. In the late
1990s or early 2000s, they moved to Laura Manor in Saint John, New Brunswick. Most of the neighbours told them they were throwing
their lives away. They were not around 45 Cedar Grove in 2001, 2002 and even beyond.
They would show up there on odd occasions in the summertime. The driveway was
often not plowed in the winter and the lawn was not mowed as often. Lights were
never on at night and only a light at the front door was kept on. If he needed
to call them, he would do so by calling them at Laura Manor. He would as well
visit them at Laura Manor. The appellant’s husband would pick up mail at the
Cedar Grove property and stop by sometimes for coffee.
[29]
Bonnie Snodgrass is a
former employee who started working at Laura Manor in 1998 or 1999 as a special
care worker. She was uncertain as to when she actually left Laura Manor and
testified that she had not worked there in 2001 and 2002; she subsequently
stated that she may have left in the early months of 2001. She acknowledged
that the appellant and her husband went to 45 Cedar Grove but could not say how
often they went there, other than to indicate that they went when they had a
break. She could not say whether, prior to 2001, the appellant slept at Laura Manor,
nor was she aware if the appellant's laundry was done at Laura Manor.
[30]
The audit by the Canada
Revenue Agency was conducted in August 2003. Tanya McKinney was the auditor who
did the audit. She visited the appellant at Laura Manor and, as they entered
the premises, one elderly resident greeted the appellant by stating that she
had not seen the appellant in a while. That elderly person was not called as a
witness. The auditor was shown the room occupied by the appellant; she said that
she did not notice anything to indicate that the appellant may have been residing
there. The appellant’s husband was living at 45 Cedar Grove at the time and was
doing so because he was ill. The auditor also went to 45 Cedar Grove with
the appellant, as this was where she kept her antiques. She noticed that the
appellant had a very comfortable lifestyle.
[31]
She went through the
appellant’s accounting and did find some anomalies, such as expenses that were claimed
twice or sometimes more or tickets that were claimed as an expense but may have
been used for family members. The auditor suspected that there may also have
been other anomalies but could find no reliable evidence to confirm her
suspicions. What she observed on her visit to the Cedar Grove property led
her to believe that the appellant may have been residing at 45 Cedar Grove and
that she may have committed fraud.
[32]
The appellant’s file
was sent to the investigations unit for possible criminal charges but no charges
were ever laid against the appellant. In March 2004, a CRA investigator drove
to the different properties and took pictures. He drove by 45 Cedar Grove
on different occasions in the spring of 2004 and noticed that cars were parked
there, but that was mostly on weekends; he could not say if they were always the
same cars. He did confirm that the appellant’s accountant was the one who
informed the appellant about section 81 of the Act and of its
application in this instance.
[33]
Finally, the evidence
indicates that during the two taxation years in question, the appellant was
given a residential property tax credit on the Cedar Grove property as opposed
to Laura Manor, and the insurance coverage on Cedar Grove was not changed from
the years preceding 2001 and 2002, although it is uncertain what type of
insurance coverage was actually on the Cedar Grove property.
[34]
There is no doubt that
on this last issue the appellant’s position is contradictory and the evidence
does not provide any clear explanations as to why, other than to take advantage
of the situation, the appellant would not have so informed the Province of New
Brunswick if the Cedar Grove property was in fact no longer her principal
residence in 2001 and 2002. The determination of one’s principal place of residence
for the purposes of the application of paragraph 81(1)(h) is dealth
with in Income Tax Technical News No. 31 dated June 23, 2004, which reads
as follows:
The Cared-for individual must reside in the Caregiver’s “principal
place of residence”, or the Caregiver’s “principal place of residence” must be
maintained for use as the Cared-for individual’s residence, during the period
for which the payment is made.
An individual’s “principal place of residence” is the place where
the individual regularly, normally or customarily lives. In our view, the place
where the individual normally sleeps is a significant factor in making this
determination. Other significant factors include the location of the
individual’s belongings, where the individual receives his or her mail, and
where the individual’s immediate family, including the individual’s spouse or
common-law partner and children, reside.
The “principal place of residence” requirement is not met in
situations where the Caregiver and the cared-for individual do not share common
living areas in the residence. This includes the kitchen, living room, dining
room, family room and entrances to the home . . .
[35]
I have reproduced a
summary of the testimony of all the witnesses who were called to give evidence
on this question, and although there were some contradictions and discrepancies
in the various versions, I find the evidence of William McIllwraith reliable,
as he is the only independent witness to corroborate the appellant’s position
that the Cedar Grove property was no longer the appellant’s principal place of residence
during the two years in question. The appellant has thus established that fact
on a balance of probabilities.
[36]
The appeal is dismissed
with costs.
Signed at Ottawa, Canada, this 6th day of March 2009.
"François Angers"