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Citation: 2005TCC64
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Date: 20050131
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Docket: 2004-237(OAS)
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BETWEEN:
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SAMUEL GERSTEL,
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Appellant,
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and
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THE MINISTER OF HUMAN RESOURCES
DEVELOPMENT,
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Respondent.
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REASONS FOR JUDGMENT
Angers, J.
[1] This appeal has been referred to
our Court by the Office of the Commissioner of Review Tribunals
for Old Age Security pursuant to subsection 28(2) of the Old
Age Security Act ("OASA"). Under that subsection, where the
grounds for appeal relate to the determination of income within
the meaning of section 2 of the OASA, the appeal must be referred
to our Court for decision. This particular appeal concerns the
Respondent's calculation of the appellant's 2001 income pursuant
to sections 2 and 13 of the OASA for the purposes of calculating
entitlement to the Guaranteed Income Supplement ("GIS") for the
period from July 2002 to June 2003.
[2] No evidence was adduced at trial.
The appellant agreed with the statement of facts included in the
Reply to the Notice of Appeal, which reads as follows:
A.
STATEMENTS OF FACT
2. The
Respondent denies all allegations of fact as stated in the Notice
of Appeal except the facts specifically pleaded herein.
3. Since 1996
the Appellant and his spouse have received a monthly Old Age
Security and the Guaranteed Income Supplement ("GIS") in
accordance with the Old Age Security Act (hereinafter the
"Act").
4. The
Act provides that an OAS pensioner may be eligible for the
GIS benefit in a given calendar year. Eligibility for the monthly
GIS benefit is dependant largely upon the income of the pensioner
and his/her spouse for the preceding calendar year. Sections 2
and 13 of the Act define income for a calendar year for
the purpose of determining the amount of the supplement that may
be paid to a pensioner.
5. Section 2
of the Act provides that a person's income for the year is
computed in accordance with the Income Tax Act, subject to
several limited exceptions. The Respondent considered and applied
section 2 of the Act when calculating the Appellant's
income for the year.
6. On March
27, 2002 the Appellant filed an application to renew his GIS
benefits for the payment period July 2002 to June 2003.
7. The year
2001 is base [sic] calendar year for the purpose of
calculating the supplement payable pursuant to the Act.
The income earned by the Appellant and his spouse during the 2001
taxation year therefore determines the GIS payable for the period
of July 2002 to June 2003.
8. In March
2002 the Appellant reported the couple's income for 2001 was
$ 5,883.00 calculated as follows:
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Source
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Mr. Gerstel
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Mrs. Gerstel
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QPP Benefits
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$ 6,532.44
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Dividend Income
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$ 645.00
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Capital Gains
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$ 2,675.62
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Rental income
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$ 125.00
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$ 125.00
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Carrying Charges
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($ 4 219.88)
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Total Income
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$ 5,113
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$ 770
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Combined Income
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$ 5,883
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In so doing the Appellant confirmed that the information was
exact and complete.
9. The
Respondent has the right to verify the information declared with
the Minister of National Revenue ("MNR"). The MNR rounds its
figures however, the Respondent does not.
10. On July 12, 2002, the
MNR provided the Respondent with a statement indicating that for
the 2001 taxation year: (a) the Appellant had declared Rental
Income of $733.00; and (b) the Appellant's spouse had declared
Rental Income of $731.00 and dividend income of $588.00.
11. On July 12, 2002, the
MNR provided to the Respondent a statement regarding the
Appellant's spouse income for the 2001 taxation year. The
Respondent found discrepancies in the Net Rental Income and
dividend income reported by each spouse for income tax purposes
and GIS purposes. For GIS purposes the couple each declared Net
Rental Income of $125.00 but for income tax purposes, they
declared Net Rental Income of $733.50 and 731.00. The
Appellant's spouse reported dividend income of $588.00 for income
tax purposes but declared $645.00 for GIS purposes.
12. On August 7, 2002 the
Respondent received a revised Statement of Income from the
Appellant and his spouse for the 2001 calendar year showing
combined income of $5,721.68 calculated as follows:
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Source
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Mr. Gerstel
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Mrs. Gerstel
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QPP Benefits
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$ 6,532.44
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Dividend Income
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$ 558.12
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Capital Gains
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$ 2,675.62
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Rental income
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$ 733.50
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$ 731.00
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Carrying Charges
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($ 4 219.88)
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Total Income
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$ 5,721
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$ 1,289.12
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Combined Income
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$ 7,010
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13. In September 2002 the
Respondent asked the Appellant and his spouse to verify the
differences in income reported for dividends, Net Rental Income
from Property using a table provided and to attach copies of
their T1 Income Tax Returns for 2001.
14. The couple indicated
that the $125 claimed as Rental Income from Property was the
figure arrived at after capital cost allowance; $733 was the
figure before capital cost allowance was deducted. The
Appellant's spouse stated the $588.00 interest income declared by
her was received in U.S.funds totalling $837.00 CAD.
15. In October 2002 the
Respondent recalculated the couple's combined income using the
same figures as before except it included dividend income of
$837.00 rather than $645.00 as originally declared for GIS
purposes. The Respondent determined the couple's combined income
was $6,219.94.
16. On or about October 4,
2002 the Respondent advised the Appellant and his spouse that
$837 was added to the spouse's income for the 2001 taxation year
and that their combined income for 2001 would be adjusted to
include the Net Rental Income amount as reported to the MNR. The
Respondent, having determined that the couple's combined income
was $6,219.94, advised the Appellant and his spouse that their
GIS benefits would be adjusted accordingly. Consequently, there
was an overpayment of $51 for each spouse for the GIS payments
issued for the period July to September 2002. The Respondent
recovered this overpayment by withholding the amount from the
October GIS benefits.
17. By undated letter
received by the Respondent on October 24, 2002 the Appellant
asked for a re-examination of the decision rendered on October 4,
2002.
18. In December 2002 the
MNR advised the Respondent that for 2001 income tax purposes the
Appellant and his spouse had declared capital gains of $2,675.62
and dividend income of $558.00, respectively.
19. In January 2003 the
Respondent calculated the combined income for 2001 to be
$7,010.80 as follows:
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Source
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Mr. Gerstel
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Mrs. Gerstel
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QPP Benefits
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$ 6,532.44
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Capital Gains
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$ 2,675.62
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Dividend Income
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$ 558.12
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Rental income
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$ 733.50
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$ 731.00
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Carrying Charges
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($ 4,219.88)
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Total Income
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$ 5,721.68
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$ 1,289.12
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Combined Income
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$ 7,010.80
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20. On January 15, 2003,
the Respondent advised the Appellant and the Appellant's spouse
that they each had received a GIS overpayment of $161.00 (for the
period July 2002 to January 2003) based on their combined income
of $7,010.80 for 2001. The Respondent stated it would recover
this amount.
21. On January 29, 2003,
the Appellant sent a letter to the MNR requesting that his and
his spouse's income for 2001 be re-examined.
22. In March 2003 the MNR
advised the Respondent that the Appellant's capital gains were
$1,605.37 instead of the $2,675.62 originally declared by the
Appellant for GIS purposes. The Respondent again recalculated the
couple's combined income for GIS purposes to be $5,940.55 as
follows:
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Source
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Mr. Gerstel
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Mrs. Gerstel
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QPP Benefits
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$ 6,532.44
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Dividend Income
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$ 588.00
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Capital Gains
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$ 1,605.37
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Rental income
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$ 733.50
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$ 731.00
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Carrying Charges
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($ 4 219.88)
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Total Income
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$ 4,651.43
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$ 1,289.12
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Combined Income
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$ 5,940.55
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23. On March 6, 2003 the
Respondent advised the Appellant and his spouse that the MNR had
determined the couple's income for the 2001 taxation year was
$5,940.55. Unfortunately, the letter itself erroneously indicated
the Appellant's income was $5,721.68 when it was actually
$4,651.43. The Respondent advised the Appellant and his spouse
that their GIS entitlement for the 2002/2003 payment year had
been reassessed. The Respondent had underpaid the Appellant and
his spouse GIS benefits of $184.00 for July 2002 to February
2003. The Respondent advised that $23.00 (the difference between
the existing overpayment of $161.00 and the underpayment of
$184.00) would be included in the April 2003 GIS payment.
24. On August 16, 2003,
the Appellant requested the legal basis of the Appellant's
decision of March 13, 2003.
25. By letter dated
October 17, 2003, the Respondent referred the Appellant to the
Old Age Security Act and the definition of income. The
Respondent confirmed its decision.
26. On November 26, 2003,
the Appellant appealed the Respondent's decision of March 13,
2003 to the Review Tribunal.
27. On January 13, 2004,
the Review Tribunal referred the case to the Tax Court of
Canada.
28. In March 2004 the MNR
advised the Respondent that the $558.12 dividend income included
in the Appellant's spouse' [sic] was received in U.S.
dollars. The MNR applied the average 2001 U.S.exchange rate to
the interest income received and changed the figure $558.12 to
$864.20.
29. Therefore, the
Respondent states that the Appellant's base income for the 2001
calendar year is $6,246.63 calculated as follows:
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Source
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Mr. Gerstel
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Mrs. Gerstel
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QPP Benefits
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$ 6,532.44
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Interest Income
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$ 864.20
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Dividends
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$ 1,605.37
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Rental income
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$ 733.50
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$ 731.00
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Carrying Charges
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($ 4 219.88)
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Total Income
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$ 4,651.33
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$ 1,595.20
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Combined Income
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$ 6,246.63
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[3] The office of the Commissioner of
Review Tribunals had suggested that since the appellant's wife
may be directly affected by the decision, she should be made a
party to this appeal. Unfortunately, this did not take place.
[4] The issue in this appeal is
whether the Respondent has properly calculated the appellant's
combined base income for 2001 in accordance with sections 2 and
13 of the OASA for the purposes of calculating entitlement to the
GIS for the period from July 2002 to June 2003. The parties
submitted and agreed that the only issue (in those calculations)
is whether the appellant may claim a Capital Cost Allowance (CCA)
in calculating both his income and his spouse's income for the
purposes of applying for the GIS under the OASA and in the same
year decline to deduct CCA from their income for tax purposes.
Does the definition of income under the OASA allow the appellant
and his spouse to do that? In all other respects, the
calculations made by the Respondent are not being appealed.
[5] The definition of "income" for the
purposes of the OASA reads as follows:
"income"
"income" of a person for a calendar year means the
person's income for the year, computed in accordance with the
Income Tax Act, except that
(a) there shall be
deducted from the person's income from office or employment
for the year
(i) a single
amount in respect of all offices and employments of that person
equal to the lesser of five hundred dollars and one fifth of the
person's income from office or employment for the year,
(ii) the amount of
employee's premiums paid by the person during the year under
the Employment Insurance Act, and
(iii) the amount of
employee's contributions made by the person during the year
under the Canada Pension Plan or a provincial pension plan as
defined in section 3 of that Act,
(b) there shall be
deducted from the person's self-employment earnings for the
year the amount of contributions made in respect of those
self-employed earnings by the person during the year under the
Canada Pension Plan or a provincial pension plan as defined in
section 3 of that Act, and
(c) there shall be
deducted from the person's income for the year, to the extent
that those amounts have been included in computing that
income,
(i) the amount
of any benefit under this Act and any similar payment under a law
of a provincial legislature,
(ii) the amount of
any death benefit under the Canada Pension Plan or a provincial
pension plan as defined in section 3 of that Act, and
(iii) the amount of any
social assistance payment made on the basis of a means, a needs
or an income test by a registered charity as defined in
subsection 248(1) of the Income Tax Act or under a program
provided for by an Act of Parliament or a provincial legislature
that is neither a program prescribed under the Income Tax Act nor
a program under which the amounts referred to in subparagraph (i)
are paid;
(d) there shall be
deducted from the person's income for the year three times
the amount, if any, by which
(i) the total
of any amounts that may be deducted under section 121 of the
Income Tax Act in computing the person's tax payable for the
year
exceeds
(ii) the person's
"tax for the year otherwise payable under this Part" (within
the meaning assigned by subsection 126(7) of the Income Tax
Act for the purposes of paragraph 126(1)(b) of that
Act) for the year;
[6] For the purposes of the monthly
guaranteed income supplement, the calculation of income is
defined as follows in s. 13 of the OASA:
Calculation of income
13. For the purposes of determining the amount of
supplement that may be paid to a pensioner for a month before
July 1, 1999, the income for a calendar year of a person or an
applicant is the income of that person or applicant for that year
computed in accordance with the Income Tax Act, except that
(a) there shall be
deducted from the person's or applicant's income from office
or employment for that year
(i) a single
amount in respect of all offices and employments of that person
or applicant equal to the lesser of five hundred dollars and one
fifth of the person's or applicant's income from office or
employment for that year,
(ii)
the amount of employee's premiums paid by the person or
applicant during the year under the Employment Insurance Act,
and
(iii)
the amount of employee's contributions made by the person or
applicant during the year under the Canada Pension Plan or a
provincial pension plan as defined in section 3 of that Act;
(b) there shall be
deducted from the person's or applicant's self-employed
earnings for that year the amount of contributions made in
respect of those self-employed earnings by the person or
applicant during the year under the Canada Pension Plan or a
provincial pension plan as defined in section 3 of that Act;
and
(c) there shall be
deducted from the person's or applicant's income for that
year, to the extent that those amounts have been included in
computing that income,
(i) the amount
of any benefit under this Act and the amount of any similar
payment under a law of a provincial legislature,
(ii)
the amount of any allowance under the Family Allowances Act and
the amount of any similar payment under a law of a provincial
legislature,
(iii)
the amount of any death benefit under the Canada Pension Plan or
a provincial pension plan as defined in section 3 of that
Act,
(iv)
the amount of any grant under a program that is a prescribed
program of the Government of Canada relating to home insulation
or energy conversion for the purposes of paragraphs
12(1)(u) and 56(1)(s) of the Income Tax Act,
and
(v)
the amount of any social assistance payment made on the basis of
a means, a needs or an income test by a registered charity as
defined in subsection 248(1) of the Income Tax Act or under a
program provided for by an Act of Parliament or a provincial
legislature that is neither a program prescribed under the Income
Tax Act nor a program under which the amounts referred to in
subparagraph (i) are paid.
[7] The appellant's argument is that
paragraph 20(1)(a) of the Income Tax Act ("Act")
allows a taxpayer to claim CCA deductions from a business or
property in computing a taxpayer's income for a taxation year.
Since the taxpayer's income must be computed in accordance with
the ITA for his GIS, he is therefore entitled to deduct
CCA from his rental income, as allowed by the Act and its
Regulations, even though he did not claim that deduction in
computing his income for that year for tax purposes. The
Respondent's position is that they must consider the net rental
income on the appellant's tax return (i.e. without CCA
deductions) since the appellant cannot choose to claim CCA
deductions for GIS purposes and not claim them on his tax return
for the same year.
[8] The definition of income under the
OASA does not preclude the appellant from claiming CCA deductions
for tax purposes and not for OASA purposes. The definition lists
several modifications that must be made in computing income but
the words "computed in accordance with the ITA" leave open the
possibility that two different methods for computing income may
be used as long as both methods are provided for under the ITA.
In Markevich v. Canada, 2003 D.T.C. 5185 (S.C.C.), the
Supreme Court of Canada adopted Driedger's modern approach to
statutory interpretation both generally and in the construction
of taxation legislation, which requires that 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.
[9] The English Oxford Dictionary
defines "in accordance with" as "in agreement or harmony with; in
conformity to". If the method for computing income reported in a
GIS application conforms to the ITA, the method used by the
appellant is valid. CCA is a discretionary deduction that may or
may not be claimed in any given year depending on the taxapayer's
wishes. Furthermore, the definition does not define income as
being income on which tax was "assessed" under the ITA;
therefore, it refutes an assumption that, for the purposes of the
OASA, income must match income reported or assessed for tax
purposes. The OASA leaves open the possibility for two different
but equally valid methods of "computing" income, such that the
ordinary grammatical meaning of the provision defining "income"
supports the appellant's position.
[10] The object of the OASA is to provide
assistance to elderly, low income Canadians. As such, a broad
liberal reading of the definition of income is favoured. The
teleological approach to statutory interpretation as found in
Corporation Notre-Dame de Bon-Secours v. Communauté
urbaine de Quebec, (1994) 95 D.T.C. 5017
supports this approach with any ambiguity being resolved in
favour of the appellant.
[11] Although the OASA is not a tax statute,
the rules of construction found in the above decision are of
assistance. At page 5023, the Supreme Court of Canada summarized
the rules it relied on in Symes v. Canada; an earlier
decision:
- The interpretation of tax legislation should follow the
ordinary rules of interpretation;
- A legislative provision should be given a strict or liberal
interpretation depending on the purpose underlying it, and that
purpose must be identified in light of the context of the
statute, its objective and the legislative intent: this is the
teleological approach;
- The teleological approach will favour the taxpayer or the
tax department depending solely on the legislative provision in
question, and not on the existence of predetermined
presumptions;
- Substance should be given precedence over form to the extent
that this is consistent with the wording and objective of the
statute;
- Only a reasonable doubt, not resolved by the ordinary rules
of interpretation, will be settled by recourse to the residual
presumption in favour of the taxpayer.
[12] Given that the object of the OASA is to
provide financial assistance to low income seniors and that there
are two methods for calculating income, the method providing a
more accurate picture of income should be preferred. Depreciation
is an economic cost to a taxpayer and the OASA does not preclude
the appellant from claiming it for OASA purposes as long as the
deduction is in accordance with the ITA. The object of the OASA,
in my opinion, supports a liberal interpretation.
[13] Counsel for the Respondent argued that
to allow the appellant to deduct CCA under the OASA and not
deduct CCA for tax purposes would create a problem in that the
Respondent would have to maintain a record of undepreciated
capital cost for the purposes of the OASA on a yearly basis. As
such, it would create an administrative burden. One could further
suggest that the Minister of National Revenue is better equipped
than the Respondent to maintain a balance of the year-to-year CCA
and UCC balances of the Appellant, therefore favouring that the
Minister of National Revenue should determine what the
Appellant's income for the year should be. No evidence was
adduced to support such a burden.
[14] As for the scheme of the Act, there is
no doubt that income is to be computed in accordance with the ITA
and as such it suggests that the Minister of National Revenue is
the person best equipped to assess and review tax returns. In
fact, s. 33.11 of the OASA is authority for the Minister of
National Revenue to make available to the Respondent a report
providing information he has with respect to any applicant or
beneficiary or the spouse or common-law partner of any applicant
or beneficiary. Therefore, this allows the Respondent to compare
the income declared by an applicant in his or her application for
GIS with the income reported on the applicant's tax return. It
therefore suggests that, for reasons of efficiency, the accuracy
of income is left to the Minister of National Revenue to
determine.
[15] Notwithstanding the above, I find that
the Appellant is entitled to claim his CCA deduction in computing
income under the ITA for the purposes of the OASA and to deprive
him of this right for reasons of efficiency is not sufficient. As
Noël J. stated in obiter in Penner International Inc. v.
Canada, [2003] 2 F.C. 581 at paragraph 72:
... it is not the role of the Court to curb the meaning
of the legislation so as to accommodate the administration.
[16] In my opinion, the appellant can claim
CCA deductions for the purposes of the OASA and not claim same
for income tax purposes. The appeal is allowed.
Signed at Ottawa, Canada, this 31st day of January 2005.
Angers, J.
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