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Citation: 2003TCC898
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Date: 20031222
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Docket: 2003-1430(IT)I
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BETWEEN:
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STEPHEN J. MURPHY,
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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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____________________________________________________________________
For the Appellant: The Appellant himself
Counsel for the Respondent: Eric Sherbert
____________________________________________________________________
REASONS FOR JUDGMENT
(Delivered orally from the Bench on
October 24, 2003, at Hamilton, Ontario
McArthur J.
[1] The Minister of National Revenue
disallowed the Appellant's claim in the 2001 taxation year
for a $6,923 non-refundable tax credit in respect of a spousal
amount on the basis that his spouse had net income in that year
of $27,598.92. The issue is whether the $27,598.92 she earned and
received in 1995 can be considered her income in 2001 pursuant to
subparagraph 118(1)(a)(ii) of the Income Tax Act.
It involves the interpretation to be given to the word
"income". The facts are not in dispute.
[2] The Appellant is a retired
engineer and his spouse, Megan Murphy is a retired
physiotherapist. The net income of $27,598.92 shown on
Megan's income tax return in 2001 represented an amount
deferred from 1995 as a result of a statutory change to the
fiscal year-end date for medical professions. The
Appellant's position is that what was deferred from 1995 was
the tax that was due on the income and not the income itself
which was actually received in 1995 and not 2001. If the purpose
of the spousal deduction is to provide assistance to individuals
who are in fact supporting a spouse who had no income during a
given year, the Appellant states that the appeal should be
allowed.
[3] The Respondent's position is
that the net income of the Appellant's spouse was $27,598 in
2001 which is the amount represented by the letter C in the
formula found in subparagraph 118(1)(a)(ii) of the
Act. Accordingly, the Appellant is precluded from
deducting a non-refundable tax credit in respect of a
spousal amount under paragraph 118(1)(a) in the 2001
taxation year. Paragraph 118(1)(a) provides in part as
follows:
118(1) For the purpose of computing the tax payable
under this Part by an individual for a taxation year, there may
be deducted an amount determined by the formula
A x B
where
A is the appropriate percentage for the year, and
B is the total of,
(a) in the
case of an individual who at any time in the year is a married
person or a person who is in a common-law partnership who
supports the individual's spouse or common-law partner and is
not living separate and apart from the spouse or common-law
partner by reason of a breakdown of their marriage or common-law
partnership, an amount equal to the total of
(i) $7,131, and
(ii) the amount determined by the formula
$6,055 - (C - $606)
where
C is the greater of $606 and the income of the
individual's spouse or common-law partner for the year or,
where the individual and the individual's spouse or
common-law partner are living separate and apart at the end of
the year because of a breakdown of their marriage or
common-law partnership, the spouse's income for the
year while married or in a common-law partnership and not so
separated,
[4] The problem arises after the
application of sections 34.1 and 34.2 of the Act. The
Appellant's spouse was a self-employed physiotherapist
until mid-2000. The purpose of section 34.1 effective after
1994 was to end the practice of achieving in effect a deferral of
income earned in a fiscal period for almost an additional year.
Arising from the solution an individual could be taxed on almost
two years of income in one year.
[5] As a result, an application of
subsections 34.1(1) and 249.1(4) permits a taxpayer to spread her
1995 or 1996 income over a period of years pursuant to a formula.
Megan Murphy took advantage of sections 34.1 and 34.2 and as a
result, declared 1995 earned income in 2001. She, in fact, had no
income in 2001, having retired in mid-2000. As stated,
subsection 118(1) reads in part "... there may be deducted
an amount determined by the formula ..." and for married
status, under the letter C referring to the formula, "is the
greater of $606 and the income of the individual's spouse or
common-law partner for the year ...". The crux of the
matter is the word "income" and whether the $27,598
declared in 2001 is the income of the Appellant's spouse.
[6] Further definitions include
subsection 34.2(6) which reads in part:
34.2(6)
No deduction shall be made under subsection (4) in computing a
taxpayer's income for a taxation year from a business
where
(a) ...
(c) the
taxpayer is an individual, and
(i) at the
beginning of the year, the business is not carried on principally
by the individual nor by members of a partnership of which the
individual is a member.
The Respondent states that this subsection disentitles the
Appellant's claim because Megan Murphy was no longer carrying
on business in 2001. I believe this subsection is referring to
the taxpayer claiming the deduction and not his spouse and I
return to the word "income" as contained in paragraph
118(1)(c) of the Act. It does not say "earned
income" in the year the deduction is claimed. It simply
refers to "income". What else could the $27,598 be but
income? This is admitted. There is no limitation to the word
"income" in the subsection.
[7] The Appellant's wife declared
income of $27,598 in 2001 and I cannot ignore the plain and
ordinary meaning of the word "income" as referred to in
the subsection. The appeal is dismissed.
Signed at Ottawa, Canada, this 22nd day of December, 2003.
McArthur J.
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