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Citation: 2005TCC140
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Date: 20050217
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Docket: 2004-318(IT)I
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BETWEEN:
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CARMEN DELISLE,
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Appellant,
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and
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HER MAJESTY THE QUEEN,
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Respondent.
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[OFFICIAL ENGLISH TRANSLATION]
REASONS FOR JUDGMENT
LamarreJ.
[1] The Appellant is appealing from an assessment made by the Minister of National Revenue ("Minister") through which she was denied, for her 2002 taxation year, a tuition credit of $7,800 that she spent during the 1997 and 1998 taxation years, while she was in bankruptcy. The Minister relied on subparagraph 128(2)(g)(iii) of the Income Tax Act ("ITA"). Paragraph 128(2)(g) reads in part as follows:
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Bankruptcies
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Faillites
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SECTION 128:
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ARTICLE 128: Faillite d'une société.
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4128(2)3
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4128(2)3
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(2) Where individual bankrupt. Where an individual has become a bankrupt, the following rules are applicable:
. . .
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(2) Faillite d'un particulier. Lorsqu'un particulier est en faillite, les règles suivantes s'appliquent :
[...]
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(g) notwithstanding subparagraphs (e)(ii) and (iii) and (f)(iii) and (iv), where at any time an individual was discharged absolutely from bankruptcy,
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g) malgré les sous-alinéas e)(ii) et (iii) et f)(iii) et (iv), lorsque le particulier obtient sa libération inconditionnelle:
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(i) in computing the individual's taxable income for any taxation year that ends after that time, no amount shall be deducted under section 111 in respect of losses for taxation years that ended before that time,
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(i) dans le calcul de son revenu imposable pour une année d'imposition se terminant après la libération, aucun montant ne peut être déduit en application de l'article 111 au titre de pertes pour les années d'imposition s'étant terminées avant la libération.
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(ii) in computing the individual's tax payable under this Part for any taxation year that ends after that time,
. . .
(B.1) no amount shall be deducted under section 118.62 in respect of interest paid before the day on which the individual became bankrupt, and
. . .
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(ii) dans le calcul de son impôt payable en vertu de la présente partie pour une année d'imposition se terminant après la libération:
[...]
(B.1) aucun montant ne peut être déduit en application de l'article 118.62 au titre des intérêts payés avant le jour de la faillite du particulier,
[...]
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(iii) the individual's unused tuition and education tax credits at the end of the last taxation year that ended before that time is deemed to be nil;
. . .
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(iii) la partie inutilisée de ses crédits d'impôt pour frais de scolarité et pour études à la fin de la dernière année d'imposition s'étant terminée avant la libération est réputée nulle;
[...]
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S. 128(2)(g)(ii)(B.1) was added by S.C. 1999, c. 22, s. 51(4), applicable to bankruptcies that occur after 1997.
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La division (B.1) du sous-alinéa 128(2)g)(ii) a été ajoutée par L.C. 1999, ch. 22, par. 51(4), applicable aux faillites qui surviennent après 1997.
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S. 128(2)(g) was amended by S.C. 1998, c. 19, s. 152(3), applicable to bankruptcies that occur after April 26, 1995 except that, in applying subsection 128(2) to taxation years that ended before 1997, . . . paragraph 128(2)(g) shall be read without reference to subparagraph (iii).
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L'alinéa 128(2)g) a été modifié par L.C. 1998, ch. 19, par. 152(3), applicable aux faillites qui surviennent après le 26 avril 1995. Toutefois, pour l'application du paragraphe 128(2) aux années d'imposition s'étant terminées avant 1997:
[...]
b) il n'est pas tenu compte du sous-alinéa 128(2)g)(iii).
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Facts
[2] The Appellant became bankrupt in October 1997. She was discharged absolutely in May 1999.
[3] While she was bankrupt, she took out a student loan from the Caisse Populaire de St-Jean Bosco, under the student financial assistance program guaranteed by the Quebec Ministère de l'Éducation. Thus, she obtained a loan of $3,605, on December 19, 1997, and two loans of $3,750 and $1,227, respectively, on February 13, 1998 (see Exhibit A-1, (P-1)).
[4] The Appellant did not claim a tuition credit in 1997 or 1998 while she was bankrupt. Instead, she claimed this credit in 2002 when she had sufficient income. In her Notice of Appeal, the Appellant mentions that she contacted the trustee who was handling her bankruptcy. The trustee allegedly informed her that the tuition was not taken into account in the income tax returns filed in the years where she was bankrupt because that tuition was for the period after the Appellant declared bankruptcy. The Appellant also states that the trustee told her that she is entitled to claim a tuition credit in an income tax return after the bankruptcy on the same basis as her other personal deductions.
[5] The Respondent submits that subparagraph 128(2)(g)(iii) of the ITA is very clear and that any unused tuition and education tax credits at the end of the last taxation year that ended before the discharge (1998), is deemed to be nil. As this credit was not claimed in 1997 or 1998, this credit, which was unused in the years that ended before the discharge in May 1999, is now nil.
[6] The Appellant submits that the tuition was for the period after the bankruptcy and is therefore not part of the statement of affairs. Also, according to the amendments made to the Bankruptcy Act on September 30, 1997, a bankrupt is not released from debts in respect of a student loan even after the discharge. The Appellant therefore does not understand the logic of denying the tuition credit in a year after the discharge, even if that tuition was for a period before that date, if the debt incurred to pay that tuition survived the discharge and still remains payable by the student.
[7] It is true that since September 30, 1997, individuals who have a debt in respect of a loan made or guaranteed under a federal or provincial student loans statute, and who become bankrupt while they are students or, since June 18, 1998, within ten years after they cease being students,[1] will not be released from the student loan debt and the interest owing on that debt.
[8] In fact, paragraph 178(1)(g) of the Bankruptcy Act was added in 1997 (1997, c. 12, s. 105), applicable on September 30, 1997, and amended in 1998 (1998, c. 21, s. 103), applicable on June 18, 1998. It reads as follows:
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178. (1) [Debts not released by order of discharge] An order of discharge does not release the bankrupt from
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178. (1) [L'ordonnance de libération ne libère pas des dettes] Une ordonnance de libération ne libère pas le failli:
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(g) any debt or obligation in respect of a loan made under the Canada Student Loans Act, the Canada Student Financial Assistance Act or any enactment of a province that provides for loans or guarantees of loans to students where the date of bankruptcy of the bankrupt occurred
(i) before the date on which the bankrupt ceased to be a full- or part-time student, as the case may be, under the applicable Act or enactment, or
(ii) within ten years after the date on which the bankrupt ceased to be a full- or part-time student;
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g) de toute dette ou obligation découlant d'un prêt consenti ou garanti au titre de la Loi fédérale sur les prêts aux étudiants, de la Loi fédérale sur l'aide financière aux étudiants ou de toute loi provinciale relative aux prêts aux étudiants lorsque la faillite est survenue avant la date à laquelle le failli a cessé d'être un étudiant, à temps plein ou partiel, en application de ces lois, ou dans les dix ans suivant cette date;
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[9] Furthermore, the ITA was also amended in the same years. In fact, paragraph 128(2)(g) of the ITA was amended in 1998 (S.C. 1998, c. 19) and is applicable to bankruptcies occurring after April 26, 1995. Subparagraph 128(2)(g)(iii) however only became applicable for the 1997 and subsequent taxation years.
[10] The Minister of Finance provides the following explanations at pages 144, 145 and 153 of the publication containing Legislative Proposals and Explanatory Notes Relating to Income Tax, July 1997:
118.61
New section 118.61 of the Act provides for the carryforward of a student's unused tuition and education tax credits.
Subsection 118.61(1) of the Act provides for the calculation of a student's unused tuition and education tax credits at the end of a taxation year that may be carried forward to future taxation years. That amount is determined by, first, adding to the student's unused tuition and education tax credits at the end of the previous year (where that year is after 1996) the portion of the student's tuition and education credits for the current year that is not needed to eliminate the student's tax payable for the current year. This total is then reduced by the amount of the tuition and education tax credits carryforward that is deductible for the year (which is, as set out in subsection 118.61(2), equal to the lesser of the previous year's carryforward and the tax that would be payable for the year by the student if no tuition and education tax credits were allowed). Finally, this total is further reduced by the tuition and education tax credits transferred for the year by the student to the student's spouse, parent or grandparent.
This amendment applies to 1997 and subsequent taxation years.
128(2)(g)
Paragraph 128(2)(g) of the existing Act prohibits an individual who is discharged absolutely from bankruptcy from deducting under section 111 losses carried forward from taxation years that ended before the individual's discharge, as well as certain amounts in computing the individual's tax payable. Paragraph 128(2)(g) is amended to restrict the individual from deducting an amount under section 118.61 (carryforward of unused tuition and education tax credits) in respect of the individual's unused tuition and education tax credits at the end of the last taxation year that ended before the bankruptcy. . . .
This amendment applies to the 1997 and subsequent taxation years.
[11] That text indicates that the carryforward of a student's unused tuition and education tax credits was made possible through the addition of the new section 118.61, applicable to the 1997 and subsequent taxation years. The provision of subparagraph 128(2)(g)(iii) deeming the unused tax credits at the end of the taxation year that ended before the absolute discharge to be nil was also added to the ITA for 1997 and subsequent years. Thus, although the Explanatory Notes mention that such carryforward would not be possible for the unused tuition and education tax credits at the end of the taxation year that ended before the bankruptcy, subparagraph 128(2)(g)(iii) specifically talks about those unused credits at the end of the last taxation year that ended before the discharge. This comports with another provision of paragraph 128(2)(g) which already provides for the cancellation, in the taxation year of the discharge, of the losses carried over from the taxation years that ended before the discharge in application of section 111 of the ITA (whether or not those losses were accumulated before the date of the beginning of the bankruptcy or during the bankruptcy). In that regard, I refer to subparagraph 128(2)(g)(i) of the ITA (supra) and to the commentary on page 50 of the Association de planification fiscale et financière's conference on "La Loi sur la faillite et l'insolvabilité: aspects pratiques", Conference #6, on insolvency and taxation, May 1993, which states the following:
[translation]
(g) Paragraph 128(2)(g) ITA also provides for the cancellation of all of the bankrupt individual's losses accumulated both before the date of the beginning of the bankruptcy and during the bankruptcy, in the taxation year during which an absolute order of discharge is granted; consequently, those losses can no longer be used in the taxation year where that order is rendered, nor in any subsequent year.
[12] It must therefore be concluded that the provisions on how to deal with debts accumulated in respect of a student loan under the Bankruptcy Act and the provisions of the ITA dealing with tuition and the interest on student loans were amended at about the same time. Parliament was therefore aware, in introducing subparagraph 128(2)(g)(iii) of the ITA, that the debts in respect of a student loan survived the discharge of the bankrupt. It can also be concluded that Parliament wanted to give the same treatment to losses carried forward under section 111 as to the carryforward for tuition and education tax credits. In fact, Parliament decided to introduce into the ITA this presumption that the unused tuition and education credits at the end of the taxation year preceding the discharge of the bankrupt becomes nil and therefore cannot be carried forward in the years subsequent to the discharge.
[13] That is particularly true since, with respect to the interest on a student loan, only the interest paid before the day of the bankruptcy of the individual (and not before the discharge of the bankrupt) can no longer be deducted by the student after the discharge (see the provision 128(2)g)(ii)(B.1)). That amendment applies to bankruptcies that occur after 1997.
[14] Hence, in the case of interest, Parliament referred to the day of the bankruptcy, whereas for the unused tuition and education credits Parliament refers to the year that ended before the discharge of the bankrupt.
[15] Parliament does not speak in vain and if a text is clear, the courts cannot intervene to amend the meaning (see Shell Canada Ltd. v. Canada, [1999] 3 S.C.R. 622, page 643 at paragraph 43):
43 . . . The Act is a complex statute through which Parliament seeks to balance a myriad of principles. This Court has consistently held that courts must therefore be cautious before finding within the clear provisions of the Act an unexpressed legislative intention: CanderelLtd. v. Canada, [1998] 1 S.C.R. 147, at para. 41, per Iacobucci J.; Royal Bank of Canada v. Sparrow Electric Corp., [1997] 1 S.C.R. 411, at para. 112, per Iacobucci J.; Antosko, supra, at p. 328, per Iacobucci J. Finding unexpressed legislative intentions under the guise of purposive interpretation runs the risk of upsetting the balance Parliament has attempted to strike in the Act.
[16] Furthermore, although the tuition and student loan were for the period after the bankruptcy, as is the case here, I am of the view that section 128 is nevertheless applicable. In fact, the tuition fees were incurred by the Appellant when she still had bankruptcy status. The way in which subsection 128(2) is drafted provides that the trustee must file an income tax return on behalf of the bankrupt for every calendar year where the individual is bankrupt (under the conditions imposed by paragraph 128(2)(e) of the ITA). Similarly, the individual must file a separate income tax return for any taxation year during which he or she was bankrupt (under the conditions imposed by paragraph 128(2)(f) of the ITA).
[17] Paragraph 128(2)(g) then sets out the rules for computing the taxable income and the tax payable by the individual when that individual is discharged absolutely. This is the part that deals with the unused tuition and education tax credits.
[18] Paragraph 128(2)(h) also sets out the rules applicable in certain cases when filing an income tax return for a taxation year commencing after an order of discharge has been granted in respect of the individual.
[19] I therefore determine from the structure itself of subsection 128(2) and the clear wording of subparagraph 128(2)(g)(iii) of the ITA that although the tuition was paid after the date of the bankruptcy, the carryforward of the that tax credit is still subject to the rules of subparagraph 128(2)(g)(iii) because those tuition fees were incurred before the discharge of the Appellant. Subsection 128(2) was therefore still applicable.
[20] Consequently, the amount of $7,800 claimed by the Appellant during her 2002 taxation year as an unused tuition credit at the end of the last taxation year that ended before her discharge in May 1999, cannot be granted to her because that credit is deemed nil under subparagraph 128(2)(g)(iii) of the ITA.
[21] The Appeal is dismissed.
Signed at Ottawa, Canada, this 17th day of February 2005.
Lamarre J.
Translation certified true
on this 3rd day of October 2005.
Aveta Graham, Translator
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