Docket: 2012-2361(IT)G
BETWEEN:
DONALD G. MacKAY,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
____________________________________________________________________
Appeal heard on January 20, 2014, at London, Ontario
Before: The Honourable
Justice Judith M. Woods
Appearances:
|
For the Appellant:
|
The
Appellant himself
|
|
Counsel for the Respondent:
|
Christopher Kitchen
|
____________________________________________________________________
JUDGMENT
It is ordered that the appeal
with respect to an assessment made under the Income Tax Act for the 2006
taxation year is dismissed. Costs are awarded to the respondent.
Signed at Ottawa, Ontario, this 30th day
of January 2014.
“J.M. Woods”
Citation: 2014 TCC 33
Date: 20140130
Docket: 2012-2361(IT)G
BETWEEN:
DONALD G. MacKAY,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Woods J.
[1]
Donald MacKay commenced private
practice as a dentist in 1976. This appeal under the Income Tax Act
concerns the computation of Dr. MacKay’s dentistry income for the 2006 taxation
year, and in particular the income adjustments required by section 34.1 of the Act.
[2]
Section 34.1 is intended to limit
the tax deferral that would otherwise be available to an individual who has a
fiscal period for a business that does not coincide with the calendar year. Dr.
MacKay is subject to this provision because the fiscal year end for his
dentistry practice is January 31 and he made an election under subsection
249.1(4) of the Act to retain this fiscal period for purposes of the Act.
[3]
Dr. MacKay does not dispute the
computation required by section 34.1 but questions whether the provision is
enforceable. He submits that the provision is harsh in his particular
circumstances, and he suggests that he is treated differently from individuals
who have a calendar year end for their fiscal period.
Discussion
[4]
The conclusion that I have reached
is that Dr. MacKay’s argument is flawed because he has only taken a snapshot of
dentistry income for one taxation year. In order to accurately determine
whether the result is harsh, the dentistry income for the immediately preceding
taxation year and the subsequent taxation year also needs to be considered. By
this approach, it appears that Dr. MacKay actually received a partial deferral
of tax in an earlier taxation year that was adjusted in the taxation year at
issue. I am not persuaded that the result is harsh, as he has argued.
[5]
The dentistry income that Dr.
MacKay earned for the fiscal periods ended January 31, 2005, January 31, 2006
and January 31, 2007 was $235,324, $393,134 and $352,979, respectively.
[6]
By a combination of section 9 and
section 34.1, the parties agree that Dr. MacKay is required to include
dentistry income for the 2006 taxation year (the calendar year) in the amount
of $538,130, provided that section 34.1 is enforceable. This far exceeds any
income that was earned for any 12-month period.
[7]
The calculation that they provided
is set out below.
(a) Include income for 2006 fiscal period - $393,124
(b) Include 11/12 of income for 2006 fiscal period -
$359,744
(c) Deduct 11/12 of income for 2005 fiscal period -
$214,749
(d) Net income inclusion - $538,130.
[8]
Section 34.1 relates to the
amounts in (b) and (c) above. In essence, taxpayers who are subject to this
provision are required to add a notional amount of income for the portion of
the following fiscal period that ends on December 31. In Dr. MacKay’s case,
this relates to income earned in the period from February 1, 2006 to December
31, 2006. The notional amount is based on a pro-ration of income for the
immediately preceding fiscal period (see (b) above).
[9]
In order to prevent double
taxation, the notional amount that was included in income for one taxation year
is deducted from income in the following taxation year (see (c) above).
Accordingly, although there may be timing differences, the notional amount is
not ultimately subject to tax.
[10]
The result of the application of
section 34.1 appears to be that income may be temporarily over-estimated (where
income decreases) or under-estimated (where income increases). However, as
mentioned the difference is adjusted in the following taxation year.
[11]
In the 2006 taxation year which is
at issue in this appeal, the income for tax purposes is extremely high relative
to the actual income earned for any 12-month period.
[12]
There appears to be two reasons
for this. First, Dr. MacKay’s income rose dramatically in the fiscal period
ended January 31, 2006. Second, Dr. MacKay’s income decreased in the fiscal
period ended January 31, 2007. The rise in income caused the notional amount to
be low in the 2005 taxation year and resulted in a large amount of income to be
added in the 2006 taxation year. The decrease in income for the following year
also resulted in the notional amount for the 2006 taxation year to be high. In
effect, Dr. MacKay’s income for the 2006 taxation year was buffeted from income
earned before and after that year.
[13]
I am not satisfied that the result
is harsh in this particular case. On the contrary, Mr. MacKay seems to have
benefited from a tax deferral in the 2005 taxation year relative to individuals
whose businesses have calendar year ends. I fail to see how the result is
harsh.
[14]
In this case, Dr. MacKay has not
alleged that any income has been subject to double tax or that the result is
not in accordance with the provisions of the Act. Even if I were
satisfied that the result is harsh, which I do not, this would not be a basis
on which I could grant relief. In this regard, it is well-established that this
Court cannot grant relief on grounds only that the result is harsh: Lans v
The Queen, 2011 FCA 290.
[15]
The appeal will be dismissed, with
costs.
Signed at Ottawa, Ontario, this 30th day of January 2014.
“J.M. Woods”
CITATION: 2014 TCC 33
COURT FILE NO.: 2012-2361(IT)G
STYLE OF CAUSE: DONALD G. MacKAY, AND HER MAJESTY THE QUEEN
PLACE OF HEARING: London, Ontario
DATE OF HEARING: January 20, 2014
REASONS FOR JUDGMENT BY: The
Honourable Justice J.M. Woods
DATE OF JUDGMENT: January 30, 2014
APPEARANCES:
|
For the
Appellant:
|
The Appellant himself
|
|
Counsel for the
Respondent:
|
Christopher Kitchen
|
COUNSEL OF RECORD:
For the Appellant:
Name: n/a
Firm:
For the
Respondent: William F. Pentney
Deputy
Attorney General of Canada
Ottawa, Ontario
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