Thibaudeau v. Canada, [1995] 2 SCR 627

[1995] 2 S.C.R.

Thibaudeau v. Canada

627

---

Her Majesty The Queen      Appellant

v.

Suzanne Thibaudeau      Respondent

and

Attorney General of Quebec      Intervener

and

Support and Custody Orders for
Priority Enforcement (SCOPE)      Intervener

and

Charter Committee on Poverty Issues,
Federated Anti-Poverty Groups of British Columbia,
National Action Committee on the Status of Women
and Women's Legal Education and Action
Fund (The Coalition)      Interveners

Indexed as:  Thibaudeau v. Canada

File No.:  24154.

1994:  October 4; 1995:  May 25.

Present:  La Forest, L'Heureux-Dubé, Sopinka, Gonthier, Cory, McLachlin and Iacobucci JJ.

ON APPEAL FROM THE FEDERAL COURT OF APPEAL

      Constitutional law -- Charter of Rights  -- Equality rights -- Alimony -- Income tax -- Divorced wife refusing to include in computing income amounts received from ex-husband as alimony for maintenance of children -- Whether tax provision requiring her to include amounts in income infringes s. 15  of Canadian Charter of Rights and Freedoms  -- If so, whether provision can be justified under s. 1  of Charter  -- Income Tax Act, S.C. 1970-71-72, c. 63, s. 56(1)(b).

     Under the decree granting her divorce the respondent was awarded custody of her two minor children and

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b Income Tax Act b b (b s. 15(1)  Canadian Charter of Rights and Freedoms  b b s. 1  Charter 

     Held (L'Heureux-Dubé and McLachlin JJ. dissenting): The appeal should be allowed. Section 56(1)(b) ITA does not infringe the equality rights guaranteed by s. 15(1)  of the Charter .

     Per La Forest and Sopinka JJ.: There is agreement with Cory and Iacobucci JJ. and with Gonthier J. that s. 56(1)(b) ITA does not impose a burden or withhold a benefit so as to attract the application of s. 15(1)  of the Charter .

     Per Cory and Iacobucci JJ.: Section 56(1)(b) ITA does not violate s. 15(1)  of the Charter . The purpose of s. 15(1) is to protect human dignity by ensuring that all individuals are recognized at law as being equally deserving of concern, respect and consideration. Consequently, it is the effect that an impugned distinction has upon a claimant which is the prime concern under s. 15(1). Here, the group of single custodial parents receiving child support payments is not placed under a burden by the inclusion/deduction regime. Although there may be some cases in which the gross-up calculations shift a portion of the payer's tax liability upon the recipient spouse, one cannot necessarily extrapolate from this that a "burden" has been created, at least not for the purposes of s. 15(1). Sections 56(1)(b) and 60( b )  operate at

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b b b b b b b

     The disagreement with McLachlin J.'s conclusion that ss. 56(1)(b) and 60(b) occasion a burden is limited to an application of her approach to the facts of this case, not with her methodology per se, which is endorsed. By corollary, the concurrence with Gonthier J. in the disposition of this appeal is one of result, not of method.

     Per Gonthier J.: The special nature of the ITA is a significant factor that must be taken into account in defining the scope of the right to the "equal benefit of the law" provided for in s. 15(1)  of the Charter . It is of the very essence of the ITA to make distinctions, so as to generate revenue for the government while equitably reconciling a range of necessarily divergent interests. In view of this, the right to the equal benefit of the law does not mean that each taxpayer has an equal right to receive the same amounts, deductions or benefits, but merely that he or she has a right to be equally governed by the law. The concept of fiscal equity should not be

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     The first stage in the method of analysis under s. 15(1) involves determining whether the provision in question creates a distinction between the individual, as a member of a group, and others. The inclusion/deduction system, adopted to deal with the unfavourable economic consequences resulting from the breakup of the family unit, creates a distinction since it applies only to separated or divorced spouses, where one parent is paying alimony to the other under a judgment or agreement. The system exceptionally permits income splitting between the latter in order to increase their available resources. This group of separated or divorced couples clearly cannot be subdivided by income level, as income level is not a characteristic attaching to the individual.

     The second stage involves determining whether this distinction creates prejudice in respect of the group in question. A comparison between the treatment of couples subject to the general taxation system and that applicable to separated or divorced couples subject to ss. 56(1)(b) and 60(b) indicates that the inclusion/deduction system does not produce a prejudicial effect on the latter group.  The general rule is that the income of parents used for the maintenance of their children shall be taxed in the hands of the parents. The special system applicable to separated or divorced parents maintains this rule, but taxes the income in the hands of the parent who ultimately receives it rather than in the hands of the parent who earned it. Imposing the tax on the person who can dispose of the income is not a prejudicial measure in itself.  Further, this comparison indicates that the parents to whom the special inclusion/deduction system applies enjoy an overall lessening of their tax burden. In fact, although the tax savings generated by the inclusion/deduction system depend on a variable -- the difference between the tax rates of the members of the couple -- it was shown that on the whole members of the group derive a benefit from it since most of the parents receiving alimony for the children are subject to a marginal tax rate lower than that of the parents paying the maintenance. It can thus be said that the purposes for which the system was created have been to a large extent achieved. In view of the substantial savings generated by the inclusion/deduction system, the group of separated or divorced parents cannot as a whole claim to

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     Even accepting that a comparison should be made between those who receive and those who pay the maintenance, it was not shown that in the context at issue here the distinction created by the ITA in making the maintenance taxable in the hands of the recipient alone entails a disadvantage. The tax burden of the couple is reduced and this has the result of increasing the available resources that can be used for the benefit of the children, in satisfaction of their parents' obligation to support them.

     The question of the distribution of the resources available for the benefit of the children is important in assessing the prejudice alleged by the respondent. This question is governed by the rules of family law which are incorporated into ss. 56(1)(b) and 60(b) by reference. As the fiscal impact resulting from the obligation of inclusion is one of the factors to be taken into account in computing the alimony, the very way in which that impact is distributed between the parents for the ultimate benefit of the child must still be subject to the fundamental criterion of the latter's best interests. That criterion expresses a fundamental value of our society. Since it is governed by that criterion the distribution of the fiscal impact is therefore not open to challenge under the Charter . The fact that the tax saving resulting from the inclusion/deduction system does not benefit both parents in equal proportion therefore does not infringe the equality rights protected by the Charter . Additionally, there is no evidence to show that the recipient parent or the children would benefit by taxation in the hands of the payer of the alimony. In short, the fact that the support may not be increased by an amount equal to the payer's tax relief or the recipient's tax increase does not as such place the latter at a disadvantage since in principle the distribution takes place in accordance with family law, which is incorporated into the tax system by reference and the aims of which are promoted by contributing to an alleviation of the tax burden. Additionally, such results, if any, depend primarily on the individual case. They do not establish a disadvantage for the group.
Finally, a review of the principal provisions of the ITA dealing with tax credits which the respondent could claim (ss. 118(1)(b) and (d) and 122.2) does not alter the conclusion that there is no prejudicial effect. That review indicates that these credits are independent of the inclusion/deduction system and do not depend on receipt of alimony. In enacting these provisions it would

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de facto

     As no prejudice exists, there is no need to go on to the third step in the analysis and consider the relevance of the personal characteristic on the basis of which the distinction was created. Section 56(1)(b) ITA does not infringe the equality rights guaranteed by s. 15(1)  of the Charter .

     Per McLachlin J. (dissenting): An analysis under s. 15(1)  of the Charter  involves two stages: (1) the claimant must show that the impugned legislation treats him or her differently by imposing a burden not imposed on others or denying a benefit granted to others; and (2) the claimant must show that this unequal treatment is discriminatory. In the great majority of cases the existence of prejudicial treatment based on an enumerated or analogous ground leads to a conclusion that s. 15(1) has been infringed.

     Section 56(1)(b) ITA imposes on one member of the separated or divorced couple a burden which does not affect the other member of that couple. This section requires the separated or divorced custodial parent to include child support payments, while the non-custodial parent may deduct these payments from his taxable income, under s. 60(b) ITA. This inequality between the custodial and non-custodial spouse is exacerbated by the fact that the latter enjoys an automatic and absolute right of deduction of support payments from personal income, while the former's ability to offset the increase in her taxes by obtaining an adjustment of support is unpredictable. Further, one of the premises on which the inclusion/deduction scheme rests -- namely that custodial parents (the great majority of whom are women) are generally subject to a lower tax rate than non-custodial parents) -- is less and less in accord with present reality and undermines the importance our society places on women attaining financial self-sufficiency. Furthermore, the inclusion/deduction scheme overlooks the custodial parent's financial contribution to the support of the children. The custodial parent not only cannot deduct amounts she spends on maintaining the children, but must also pay the tax that the non-custodial parent would ordinarily have had to pay on the income devoted to child support. Apart from s. 56(1)(b) ITA, child support is not included in the taxable income of other persons in situations similar to that of the custodial parent.

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b

     The family law regime does not in practice succeed in rectifying the inequality created by the inclusion/deduction scheme. The tax impact of support payments is not always considered by the courts and, when it is, the adjustment is often insufficient to cover the additional tax which the custodial parent must pay as a result of being subject to the scheme. The amount of child support is determined in light of several factors and thus leaves room for the exercise of a very wide discretionary judicial power which precludes, in many cases, complete neutralization of the negative effects that may result from the inclusion requirement provided for in s. 56(1)(b). The legality of the inclusion/deduction scheme is not preserved by the fact that the custodial parent can appeal a judgment which does not adequately take the tax impact into account or obtain an increase in child support when new circumstances increase the additional

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     While the status of separated or divorced custodial parent is not one of the grounds enumerated in s. 15(1), it constitutes an analogous ground of discrimination. This conclusion results from the following considerations: (1) the imposition of prejudicial treatment solely on the basis of this status may violate the dignity of an individual and his or her personal worth to a degree affecting the individual's personal, social or economic development; (2) separated or divorced custodial parents considered as a group have historically been subject to disadvantageous treatment; (3) the special difficulties with which separated or divorced custodial parents must live and their minority position as compared with Canadian families as a whole justifies viewing them as a discrete and insular minority; (4) classification as a separated or divorced custodial parent may give rise to adverse distinctions on the basis of immutable personal characteristics in the broad sense of the term, rather than on the merit and actual circumstances of a particular individual; and (5) the status of separated or divorced custodial parents is linked to the enumerated ground of sex given that the great majority of the members of this group are women. The distinction in s. 56(1)(b), based on the status of separated or divorced custodial parent, is discriminatory and infringes s. 15(1) since it runs directly counter to the values underlying it.

     Section 56(1)(b) cannot be justified under s. 1  of the Charter . The objective of the inclusion/deduction scheme is to increase the resources of the family as a unit in order to increase child support and ease the discharge of the non-custodial parent's obligations. This legislative objective is of sufficient importance to justify an infringement of a constitutional right, but s. 56(1)(b) does not meet the proportionality test. Even in the absence of mechanisms for dividing the tax saving, there is a tenuous rational connection between the means chosen by Parliament and the objective pursued. However, while Parliament does not have to choose the least intrusive means of all to meet its objective, it did not select one of a range of choices so as to impair a constitutional right as little as possible. The inclusion/deduction scheme does not reasonably minimize the impairment of the equality rights of the respondent and persons in her situation. Alternatives less intrusive of that right protected by the Charter  may be readily envisaged. The tax credits provided by the ITA do not attenuate any inequality which the inclusion requirement may work on the custodial parent. Finally, the inclusion/deduction scheme does not meet the

page 635

     Section 56(1)(b) thus infringes the equality rights guaranteed by s. 15(1) in an unjustifiable manner in so far as it applies to amounts paid between separated or divorced parents for child support. In this case, a reading down of s. 56(1)(b) to exclude child support payments appears appropriate. Since the issue turned essentially on s. 56(1)(b), there should be no ruling on the constitutionality of s. 60(b) ITA. Except as regards the respondent, the effects of the declaration of unconstitutionality respecting s. 56(1)(b) should be suspended for a period of one year from the date of the judgment.

     Per L'Heureux-Dubé J. (dissenting): In an analysis under s. 15(1)  of the Charter , it is preferable to focus on the group adversely affected by the distinction as well as on the nature of the interest affected, rather than on the grounds of the impugned distinction. A claimant under that section must establish that: (1) there is a legislative distinction; (2) this distinction results in a denial of one of the four equality rights on the basis of the claimant's membership in an identifiable group; and (3) this distinction is "discriminatory" within the meaning of s. 15(1).

     Section 56(1)(b) ITA makes distinctions and these distinctions have the effect of imposing a burden unequally on the basis of one's membership in an identifiable group -- separated or divorced custodial parents. Although the inclusion/deduction regime confers a net tax saving upon a majority of divorced or separated couples, its effect is not experienced equally by both members of the couple. The regime imposes at the outset a tax burden uniquely on custodial spouses, and confers a tax benefit uniquely on non-custodial spouses. As a practical matter, the family law system is incapable of

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     The distinction made by s. 56(1)(b) is discriminatory within the meaning of s. 15(1)  of the Charter . Separated or divorced custodial spouses, the vast majority of whom are women, are, on the whole, an economically and socially vulnerable group, bound together by traits that are personal, though not necessarily wholly immutable. Adverse legislative distinctions on the basis of membership in this group are likely to be reasonably perceived to have a discriminatory impact by members of this group, and are capable of touching upon essential aspects of personal self-worth and dignity. The interest most directly and adversely affected by s. 56(1)(b) is the economic situation of separated or divorced custodial parents and their children -- an important societal interest. The impugned distinction may visit significant economic hardship upon this group. In view of the nature of the group and the interest affected, the distinctions drawn in the inclusion/deduction regime, and in particular in s. 56(1)(b), are reasonably capable of having a material discriminatory impact on separated or divorced custodial parents. The fact that some isolated

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b s. 15(1)  Charter 

     Section 56(1)(b) cannot be saved under s. 1  of the Charter . The modern purpose of the inclusion/deduction regime -- to place more money in the hands of the separated or divorced "couple" for the purposes of raising the level of child support -- is a pressing and substantial objective, but the regime does not achieve this objective in a proportionate manner. While the regime is rationally connected to its objective, it lies outside the reasonable range of minimally intrusive alternatives available to the government. The government has not demonstrated that the benefit accruing to the separated or divorced "couple" is fairly and equitably shared between the two individuals. The initial unequal distribution will only be equally divided by the good graces of the non-custodial spouse or in the unlikely event that the family law system fully understands, anticipates, and applies the principles of tax expenditure analysis. Other alternatives could more effectively achieve the objective. Further, the deleterious effects of the impugned distinction outweigh its salutary effects. The fact that the inclusion/deduction regime often imposes a very real disadvantage upon the very group it is intended to help is not outweighed by the net tax savings to couples that it frequently occasions. Accordingly, s. 56(1)(b) should be declared invalid in respect of child support payments. The declaration of invalidity should be suspended for a 12-month period to enable Parliament to implement a less discriminatory alternative. No pronouncement is made on the constitutionality of s. 60(b) ITA.

Cases Cited

By Cory and Iacobucci JJ.

     Referred to: Egan v. Canada, [1995] 2 S.C.R. 513; Miron v. Trudel, [1995] 2 S.C.R. 418; Symes v. Canada, [1993] 4 S.C.R. 695.

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By Gonthier J.

     Distinguished: Symes v. Canada, [1993] 4 S.C.R. 695; Tétreault-Gadoury v. Canada (Employment and Immigration Commission), [1991] 2 S.C.R. 22; referred to: Droit de la famille--1488, J.E. 91-1753; Parker v. Parker, [1988] O.J. No. 749 (Q.L.); Chelmick v. Chelmick (1991), 118 A.R. 385; Lehmann v. Lehmann (1989), 95 A.R. 383; Treen v. Treen (1991), 88 Sask. R. 278; Girard v. Girard (1990), 103 N.B.R. (2d) 377; Andrews v. Law Society of British Columbia, [1989] 1 S.C.R. 143; R. v. Swain, [1991] 1 S.C.R. 933; R. v. Oakes, [1986] 1 S.C.R. 103; R. v. Turpin, [1989] 1 S.C.R. 1296; R. v. Big M Drug Mart Ltd., [1985] 1 S.C.R. 295; Gagnon v. The Queen, [1986] 1 S.C.R. 264; Miron v. Trudel, [1995] 2 S.C.R. 418; Hodson v. The Queen, [1988] 1 C.T.C. 2; Moge v. Moge, [1992] 3 S.C.R. 813; Young v. Young, [1993] 4 S.C.R. 3.

By McLachlin J. (dissenting)

     Miron v. Trudel, [1995] 2 S.C.R. 418; R. v. Oakes, [1986] 1 S.C.R. 103; R. v. Edwards Books and Art Ltd., [1986] 2 S.C.R. 713; Black v. Law Society of Alberta, [1989] 1 S.C.R. 591; Irwin Toy Ltd. v. Quebec (Attorney General), [1989] 1 S.C.R. 927; Andrews v. Law Society of British Columbia, [1989] 1 S.C.R. 143; Symes v. Canada, [1993] 4 S.C.R. 695; Willick v. Willick, [1994] 3 S.C.R. 670; R. v. Chaulk, [1990] 3 S.C.R. 1303; R. v. Swain, [1991] 1 S.C.R. 933; Tétreault-Gadoury v. Canada (Employment and Immigration Commission), [1991] 2 S.C.R. 22; Dagenais v. Canadian Broadcasting Corp., [1994] 3 S.C.R. 835; Schachter v. Canada, [1992] 2 S.C.R. 679.

By L'Heureux-Dubé J. (dissenting)

     Egan v. Canada, [1995] 2 S.C.R. 513; Miron v. Trudel, [1995] 2 S.C.R. 418; Symes v. Canada, [1993] 4 S.C.R. 695; Schaff v. Canada, [1993] 2 C.T.C. 2695; Willick v. Willick, [1994] 3 S.C.R. 670.

Statutes and Regulations Cited

Canadian Charter of Rights and Freedoms , ss. 1 , 15 .

Civil Code of Lower Canada, art. 30.

Civil Code of Quebec, S.Q. 1980, c. 39, arts. 635, 638 [repl. 1987, c. 105, s. 1].

Civil Code of Quebec, S.Q. 1991, c. 64, arts. 33, 587, 590 [am. 1992, c. 57, s. 305].

Divorce Act, 1985, S.C. 1986, c. 4.

Divorce Act, R.S.C. 1970, c. D-8.

Divorce Act , R.S.C., 1985, c. 3 (2nd Supp .), ss. 15(5), (8)a).

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Family Allowances Act, R.S.C., 1985, c. F-1 [rep. 1992, c. 48, s. 31], s. 7(1).

Income Tax Act, S.C. 1970-71-72, c. 63, ss. 3(a), 56(1)(b), 60(b), 118(1)(b) [ad. 1988, c. 55, s. 92], (d) [idem], (5) [idem], 122.2 [ad. 1978-79, c. 5, s. 4; am. 1980-81-82-83, c. 47, s. 24; c. 48, s. 67; c. 140, s. 83; am. 1984, c. 1, s. 65; am. 1986, c. 6, s. 67; c. 44, s. 1; am. 1988, c. 55, s. 97].

Old Age Security Act , R.S.C., 1985, c. O-9 .

Authors Cited

Canada. Department of Justice. Bureau of Review. Evaluation of the Divorce Act -- Phase II: Monitoring and Evaluation. Ottawa: Department of Justice, 1990.

Canada. Department of National Revenue. Taxation. Interpretation Bulletin IT-307R2, "Registered Retirement Savings Plan for Taxpayer's Spouse", July 12, 1984.

Canadian Institute for Research and the Steering Committee. Matrimonial Support Failures: Reasons, Profiles and Perceptions of Individuals Involved. Edmonton: Institute of Law Research and Reform, 1981.

Chambers, David L. Making Fathers Pay: The Enforcement of Child Support. Chicago: University of Chicago Press, 1979.

Côté, Pierre-André. The Interpretation of Legislation in Canada, 2nd ed. Cowansville: Yvon Blais, 1991.

Durnford, John W., and Stephen J. Toope. "Spousal Support in Family Law and Alimony in the Law of Taxation" (1994), 42 Can. Tax J. 1.

Eichler, Margrit. "The Limits of Family Law Reform or, The Privatization of Female and Child Poverty" (1991), 7 C.F.L.Q. 59.

Federal/Provincial/Territorial Family Law Committee. The Financial Implications of Child Support Guidelines: Research Report. Ottawa: The Committee, May 1992.

House of Commons Debates, vol. V, 3rd sess., 19th Parl., July 17, 1942, pp. 4360-61.

La Novara, Pina. A Portrait of Families in Canada. Ottawa: Statistics Canada, 1993.

Maclean, Mavis, and John M. Eekelaar. "The Economic Consequences of Divorce for Families with Children". In John M. Eekelaar and Sanford N. Katz, eds., The Resolution of Family Conflicts: Comparative Legal Perspectives. Toronto: Butterworths, 1984, 488.

page 640

McLindon, James B. "Separate But Unequal: The Economic Disaster of Divorce for Women and Children" (1987), 21 Fam. L.Q. 351.

Pask, E. Diane, and M. L. McCall, eds., How Much and Why? Economic Implications of Marriage Breakdown: Spousal and Child Support. Calgary: Canadian Research Institute for Law and the Family, 1989.

Weitzman, Lenore J. The Divorce Revolution: The Unexpected Social and Economic Consequences for Women and Children in America. New York: Free Press, 1985.

Weston, Ruth E. "Changes in Household Income Circumstances". In Peter McDonald, ed., Settling Up: Property and Income Distribution on Divorce in Australia. Sydney: Prentice-Hall, 1986, 100.

Williams, R. James. "Quantification of Child Support" (1989), 18 R.F.L. (3d) 234.

Wishik, Heather Ruth. "Economics of Divorce: An Exploratory Study" (1986), 20 Fam. L.Q. 79.

Zweibel, Ellen B. "Thibaudeau v. R.: Constitutional Challenge to the Taxation of Child Support Payments" (1994), 4 N.J.C.L. 305.

Zweibel, Ellen B., and Richard Shillington. Child Support Policy: Income Tax Treatment and Child Support Guidelines. Toronto: Policy Research Centre on Children, Youth and Families, 1993.

     APPEAL from a judgment of the Federal Court of Appeal, [1994] 2 F.C. 189, 94 D.T.C. 6230, [1994] 2 C.T.C. 4, 167 N.R. 161, 114 D.L.R. (4th) 261, 21 C.R.R. (2d) 35, 3 R.F.L. (4th) 153, allowing the respondent's application for judicial review and setting aside a decision of the Tax Court of Canada, 92 D.T.C. 2111, [1992] 2 C.T.C. 2497. Appeal allowed, L'Heureux-Dubé and McLachlin JJ. dissenting.

     Jean-Marc Aubry, Q.C., Carole Johnson and Guy Laperrière, for the appellant.

     Michel C. Bernier, Richard Bourgault, Pierre Rioux and Bryan O'Gallagher, for the respondent.

     Monique Rousseau, René Bourassa and Judith Kucharsky, for the intervener the Attorney General of Quebec.

     Mary Eberts and Steve Tenai, for the intervener SCOPE.

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     Katherine Hardie and Gwen Brodsky, for the intervener the Coalition.

     The judgment of La Forest and Sopinka JJ. was delivered by

     SOPINKA J. -- I agree with Gonthier J. and with Cory and Iacobucci JJ. that the impugned provisions of the Income Tax Act, S.C. 1970-71-72, c. 63, do not impose a burden or withhold a benefit so as to attract the application of s. 15(1)  of the Canadian Charter of Rights and Freedoms . Accordingly, I would dispose of the appeal as suggested by Gonthier J.

     The following are the reasons delivered by

     L'HEUREUX-DUBÉ J. (dissenting) -- Although I agree with the result reached in the instant case by McLachlin J. as well as with a great part of her analysis, I arrive at this conclusion somewhat differently, given the s. 15 framework that I have set out in Egan v. Canada, [1995] 2 S.C.R. 513. Accordingly, I prefer to focus on the group adversely affected by the distinction as well as on the nature of the interest affected, rather than on the grounds of the impugned distinction. As in Miron v. Trudel, [1995] 2 S.C.R. 418, the following remarks apply the framework I set out in Egan to the facts of this case.

     Section 56(1)(b) of the Income Tax Act, S.C. 1970-71-72, c. 63 ("ITA"), requires that a person who receives spousal or child support payments pursuant to a decree, order, judgment or written agreement include those payments within his or her taxable income. To some extent, it mirrors s. 60(b) ITA, which permits the payor of such sums to deduct these sums from taxable income. Together, these two provisions comprise what is commonly known as the inclusion/deduction scheme. Whereas the general principle underlying the ITA is that income is taxable in the hands of the person who earns it, ss. 56(1)(b) and 60(b)

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spends

     The question before this Court is whether s. 56(1)(b), the inclusionary half of the inclusion/deduction regime, violates s. 15(1)  of the Canadian Charter of Rights and Freedoms  and, if so, whether it can be saved under s. 1. It must be underlined at this juncture that the present challenge to s. 56(1)(b) ITA arises only in respect of the inclusion of child support payments. It is not necessary for this Court to address the constitutionality of this provision in relation to its treatment of spousal support nor, for that matter, the constitutionality of s. 60(b) ITA.

     A. Section 15  of the Charter 

     In Egan, I set out the following factors that must be established by a rights claimant before the impugned distinction will be found to be discriminatory within the meaning of s. 15  of the Charter : (1) there must be a legislative distinction; (2) this distinction must result in a denial of one of the four equality rights on the basis of the rights claimant's membership in an identifiable group; and (3) this distinction must be "discriminatory" within the meaning of s. 15.

     At the outset, I feel it important to underline a point which attracted the unanimous agreement of this Court in Symes v. Canada, [1993] 4 S.C.R. 695. At page 753, Iacobucci J. underlined that the ITA is no less subject to scrutiny under s. 15  of the Charter  than any other statute, and that a deferential approach is not appropriate at any stage earlier than the s. 1 analysis. Inequality is inequality and discrimination is discrimination, whatever the legislative source. To water down one's analysis of a legislative distinction or burden merely because it arises in a statute which makes many other distinctions is antithetical to the broad and purposive approach to s. 15  of the Charter  which this Court has repeatedly endorsed. This being said, I now

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     1. Is There a Legislative Distinction?

     Premised upon the assumption that the custodial spouse will always have a lower income -- and therefore a lower marginal tax rate -- than the non-custodial spouse, the inclusion/deduction system is ostensibly intended to alleviate the overall tax burden on separated or divorced couples in order to free up more money for child and spousal support obligations. In advancing this purpose, s. 56(1)(b) ITA makes many layers of distinctions. It distinguishes between parents who are separated or divorced and persons who are not. Within the former group, it further distinguishes between persons who pay and receive support payments "pursuant to a decree, order or judgment ... or pursuant to a written agreement" and those who do not. Amongst those whose support payment arrangement falls within the definition given in the ITA, a further distinction is drawn between those who receive child support and those who pay child support. These distinctions are, in many ways, inextricable from one another. It would therefore be artificial to single out any one distinction without looking to the effects of the others.

     The more important question, then, is to decide whether this combination of distinctions has the effect of imposing a benefit or burden unequally on the basis of one's membership in an identifiable group.

     2. Do the Distinctions Result in a Denial of One of the Four Equality Rights on the Basis of the Rights Claimant's Membership in an Identifiable Group?

     At the outset, I must emphasize that although the legislation purports to confer a tax benefit upon separated or divorced couples who are parties to a child support arrangement, and although Ms.

page 644

     With all due respect to my colleagues, I believe that one should exercise extreme caution before defining one's unit of comparison in such a way as to raise certain types of distinction above Charter  scrutiny. Defining the unit of analysis as the "couple" is, in my view, inconsistent with the purpose and spirit of s. 15. There is no doubt, for instance, that an unequal burden arose in the old Marital Property Acts of the nineteenth century, under which, upon marriage, the wife's assets automatically became those of the man. Yet if the only unit of analysis were taken to be the "couple", we would be precluded from looking to the effects of these provisions on each member of the couple, and we would have to conclude that they did not violate s. 15  of the Charter .

     In the instant case, although the purpose of the impugned legislation may indeed be to confer net tax savings upon couples, it does not follow that its effect is experienced equally by both members of the couple. When undertaking Charter  analysis, effect is just as important as purpose. As such, the unequal effects of the inclusion/deduction system must be studied. In particular, the effects on separated or divorced custodial parents must be

page 645
non-custodial

     According to the government's own figures for the 1991 taxation year, the inclusion/deduction system permitted non-custodial spouses to deduct $661 million from their provincial and federal income taxes while $331 million in taxes were collected from custodial spouses. Although these figures demonstrate a net tax benefit of approximately $330 million being conferred upon divorced or separated couples, no figures are provided regarding what percentage of these tax savings were actually realized by custodial spouses, or actually went to benefit the children for whom the support is intended.

     As a logical point of departure for our analysis, it is useful to examine the topography of the playing field that the inclusion/deduction scheme initially sets up, before the redistributive effects of the family law system are factored in. At this first stage, the inclusion/deduction regime can be said to create a burden in one sense and a benefit in another. The burden is the taxation of child support. By virtue of s. 56(1)(b), this burden is initially placed uniquely on the shoulders of the person in receipt of such support, who is by definition the custodial parent. The benefit, on the other hand, is the deduction of such support from one's taxable income. By virtue of s. 60(b), this benefit is initially uniquely available to the payor of such support, who is the non-custodial parent. Thus, the "playing field" initially created by the inclusion/deduction regime imposes a tax burden uniquely on custodial spouses, and confers a tax benefit uniquely on non-custodial spouses.

     My colleagues conclude that any difficulties with respect to the equitable division of both the benefits and burdens of this scheme are attributable to, and susceptible to correction by, the family law system, rather than originating in the inclusion/deduction regime itself. They, therefore,

page 646
s. 15  Charter 

     While I agree that the effects of the family law system are relevant to this inquiry because they are incorporated by reference into the inclusion/deduction regime, I respectfully disagree with their conclusion for two reasons. First, on both a practical and theoretical level, I do not believe that the family law system is capable of remedying the initial unequal distribution effectuated by the inclusion/deduction system. Second, even if the family law system were up to the task, I believe that it would only address the symptoms of the inequality, rather than its source.

     (a) The Role of the Family Law System

     In order to understand fully the interaction between the family law system and the inclusion/deduction regime, as well as the limits of the family law's capacity to redistribute equitably the burdens and benefits under that regime, it is necessary to isolate two different dynamics.

     The first dynamic is the "gross-up". When the custodial spouse receives income in the form of child support, she must add these receipts to her income and pay tax on them. Since any tax paid on child support will reduce the quantum of that support by the amount of the tax, it is necessary for a judge to "gross up" the support award by the amount of tax payable in order that the financial needs of the child may be fully met. Any "gross-up" that compensates for less than the entire amount of the tax payable on the child support will reduce the effective value of the child support, and will, therefore, constitute an additional burden on the custodial spouse which is not shared by the non-custodial spouse.

     Furthermore, we must recall that the custodial spouse is already taxable on all of her other income, including that part of her own financial contribution to the children's financial needs. Child support payments represent the non-custodial spouse's fair share of the financial needs of

page 647
the children. Thus, any failure to "gross up" child support fully for tax payable on the child support payments results in the custodial spouse paying some of the non-custodial spouse's tax, since that tax relates uniquely to the non-custodial spouse's po rtion of the child support obligation

     The second dynamic is the "upside-down subsidy". The value of the tax deduction of child support to the payor depends upon the payor's marginal tax rate. Similarly, the cost of inclusion in taxable income of child support depends upon the recipient's marginal tax rate. Where the marginal tax rate of the payor is higher than the marginal tax rate of the recipient, then net tax savings ensue to the couple. The fact that a deduction from revenues is worth more to a person with a high income than to a person with a low income leads to what is often referred to as an "upside-down subsidy". The effect of the inclusion/deduction system is to confer the entire benefit of this "upside-down subsidy" on the non-custodial spouse. This benefit will only be shared with the custodial spouse or with the children in the event that a conscious redistribution is made by the judge fixing the quantum of child support, or by the good graces of the payor.

     Let us now examine how the family law system addresses and compensates for these two types of dynamics, beginning with the facts of the present case.

     At the original hearing, although the judge assessed the total needs of the children at between $900 and $1,000 per month, he awarded child support, including "gross-up" of only $1,150. Although the judgment is unclear on this point, it would appear that the judge intended the financial needs of the children to be met entirely by Mr. Chainé, in light of the fact that his projected income as a prosthodontist was significantly higher than that of Ms. Thibaudeau. This assumption, which was made by Ms. Thibaudeau's expert before the tax court, was in any event not

page 648
b b

     Thus, although Ms. Thibaudeau and Mr. Chainé fell within the 67 percent of couples that the government claims benefit as "couples" from the inclusion/deduction system, the regime in practice not only uniquely disadvantaged Ms. Thibaudeau by cutting into the money she had available for the children, but also uniquely enriched Mr. Chainé to the extent that he saved tax because his marginal tax rate would have been higher than that of Ms. Thibaudeau. Ironically, the trial judge who fixed the child support award recognized that a disproportionate percentage of the financial burden was being imposed upon Ms. Thibaudeau as a result of the inclusion/deduction regime:

     [TRANSLATION]  When we consider the tax impact on the payer and on the receiver of alimony payments like those under consideration here (i.e. a real cost of about 50 percent for the payer and an additional real receipt by the recipient in a similar proportion only), it appears to be fair and equitable to continue the alimony payable for the children alone at $1,150.00 per month for the moment; in view of the tax consequences, that amount will compel the applicant to contribute to the financial support of the children, in addition to her on-going personal care of them, in a proportion which is probably higher than a simple ratio of the parties' income would impose on her. [Emphasis added.]

     (Thibaudeau v. Chainé, Sup. Ct. Mtl., No. 500-12-151837-865, December 1, 1987, at p. 15.)

     It is, therefore, absolutely indisputable that Ms. Thibaudeau suffered a significant inequality. The

page 649
as a group

     In my view, the latter view is more reflective of reality. Important systemic factors preclude the family law system from properly filling the lacuna left by the inclusion/deduction provisions of the ITA.

     To begin with, the objective of the inclusion/deduction scheme is, in some respects, substantially at odds with important facets of the family law system. While the family law system, and society generally, encourages custodial parents to seek out additional sources of income in a quest for self-sufficiency, it discourages the frequent applications for variation of the original support order that may be necessary in order to ensure a constant and complete "gross-up". Recall, however, that whenever the gross-up is less than perfect, the custodial spouse is essentially paying tax on the non-custodial spouse's fair share of the child support responsibilities.

     In addition to the fact that success is far from guaranteed in variation proceedings, the costs alone of such court actions may easily outweigh the benefits of the additional gross-up, and may thereby act as a significant disincentive to custodial parents who are shouldering more than their fair share of the tax burden of child support. The process of applying for and successfully obtaining such variations may be complicated by the fact that judges, who set original support orders, frequently fail to provide a precise financial breakdown so that others will know how, or whether, they calculated the appropriate gross-up for taxes.

     The human elements at work also cannot be ignored. A custodial spouse may quite reasonably fear that seeking additional gross-ups may

page 650

     To recapitulate, the custodial parent striving to become self-sufficient must wage an unremitting and costly battle, both emotionally and in the family law system, to avoid absorbing personally part of the non-custodial parent's tax liabilities on his fair share of the child support obligation. At the same time, the non-custodial parent who pays child support will generally and effortlessly receive the full income tax benefit of these payments, featuring the full "upside-down subsidy" as well as the benefits of whatever portion of the gross-up which the custodial spouse, for whatever reason, has had to absorb.

     Moreover, according to the government's own figures, the inclusion/deduction regime acts to the net detriment of the "couple" in 29 percent of all cases. Although the loss of tax credits may play some role in this phenomenon, this situation generally arises in circumstances where the marginal tax rate of the payor is lower than that of the recipient. The following extract from E. B. Zweibel and R. Shillington, Child Support Policy: Income Tax Treatment and Child Support Guidelines (1993), sets out (at p. 17) an important problem that may arise in such circumstances:

     Family law determines child support based on the children's needs and the parent's relative abilities to meet those needs. In some cases, the child support is then adjusted for income tax. When the custodial mother's tax liability exceeds the father's tax savings, the tax adjustment becomes more problematic and less likely. The father's tax savings can no longer be used to persuade him to pay a fully grossed-up award. If the father indemnifies the mother for her tax liability, the effect on his disposable income is greater than he anticipated and arguably greater than he originally agreed to. But, if the support payment is not fully grossed up, then the effective value of the child support payment is

page 651
considerably diminished. The custodial mother receives less child support than she originally anticipated and is left to make up any shortfall

     In such circumstances, although the non-custodial parent does not benefit from any "upside-down subsidy", the custodial spouse will, nonetheless, experience an unequal burden whenever the "gross-up" is not fully compensated for.

     Zweibel and Shillington go on to observe that even where the custodial parent's marginal tax rate is lower than that of the non-custodial parent, such that the "couple" as a whole will benefit, many factors exist to prevent the family law system, as a practical matter, from ensuring that this benefit will be divided equitably (at p. 17):

     Under the right circumstances, the deduction/inclusion provisions can provide a beneficial subsidy to separated and divorced families. The payor's tax savings must exceed the recipient's tax liability. The payor and recipient must have a common goal of increasing the support available for the children and they must be assisted by accountants and lawyers.

     However, circumstances are not always right.... The current policy ... ignores the reality that child support is a contentious issue and that non-custodial fathers seeking to minimize their payments may not readily agree to either a gross-up or to a further sharing of any tax savings above the gross-up. The Finance Department's rationale also ignores the number of persons who settle their child support arrangements on their own, without the assistance of lawyers or accountants, the number of lawyers and judges who rely on rough estimates and the number of cases where, despite the custodial mother's lawyer's careful tax calculations, the "glass ceiling" moves in to reduce the award. [Emphasis added.]

page 652

     These considerations lead me to conclude that the unequal outcome experienced by Ms. Thibaudeau is, and will continue to be, more representative than exceptional, even amongst the 67 percent of "couples" who, according to the government's figures, benefit as a whole from the inclusion/deduction regime. See, for example, Schaff v. Canada, [1993] 2 C.T.C. 2695 (T.C.C.).

     In my respectful view, it is, therefore, virtually undeniable that the family law system is, as a practical matter, incapable of addressing to any meaningful extent the inequalities flowing from the burden imposed upon custodial spouses of an imperfect "gross-up", as well as from the benefits accruing to non-custodial spouses as a result of the "upside-down subsidy".

     (b) Of Sources and Symptoms

     The appellant points out that computer programs are now becoming more readily available, to assist couples in dividing equitably the tax obligations flowing from the inclusion/deduction regime. Although I have serious reservations about assuming that such software, and the expertise to use it, will be available in all cases, or even a majority of cases, I am willing to assume for the sake of argument that, notwithstanding the many impediments listed above, it would be possible for the family law system to take the tax consequences of the inclusion/deduction system perfectly into account. I shall now examine how, even in such a rarefied environment, the family law system still could not completely counteract the unequal playing field established by the inclusion/deduction regime under two types of scenarios which, in my view, are not at all uncommon.

     The first scenario arises in circumstances where the non-custodial parent has a low income and where the custodial parent is, as a result of the inclusion of the child support payments in her income, in a higher marginal tax bracket. We must recall that although the quantum of child support is primarily determined according to the needs of the children, it is necessarily constrained by the means

page 653

     The second type of scenario arises in circumstances involving high-income non-custodial parents. Where the marginal tax rate of the parent receiving child support is lower than that of the payor, and where the payor's income is sufficiently high that the reasonable needs of the children are already fully met by child support, then the family law system has no incentive or established mechanism to reapportion the "upside-down subsidy" enjoyed uniquely by the high income payor as a result of the difference between his marginal tax rate and that of the custodial parent. As a result, the inclusion/deduction regime confers a benefit on that non-custodial parent which is in no way shared by the custodial spouse. Essentially, it gives to the non-custodial spouse money which is not needed for child support. This type of situation will arise, I suspect, with some frequency, since it occurs whenever the amount of the "upside-down subsidy" to the payor exceeds any additional contribution required to accommodate the children's reasonable needs. On every such occasion, the non-custodial spouse will be uniquely rewarded by the existing tax system and the custodial spouse will be left out in the cold.

page 654

and

     A denial of equality does not necessarily require that all members of a group be adversely affected by the distinction. It suffices that a particular group is significantly more likely to suffer an adverse effect as a result of a legislative distinction than any other group. Applying that principle to the present context, I am satisfied that the inclusion/deduction regime is, on the whole, very likely to disadvantage custodial spouses and, concomitantly, very likely to advantage non-custodial spouses. The converse will only arise in rare circumstances. As such, I am satisfied that the regime denies custodial spouses the equal benefit of the law.

     That this inequality stems from the ITA rather than from the family law system might perhaps be more clearly illustrated with a simple hypothetical. Let us suppose that, in a new initiative designed to respond to the high costs of maintaining separate households, the government decided to provide a net subsidy of $1,000 to all separated couples with children in order to help them meet their childrens' financial needs. Let us further suppose that this $1,000 net subsidy was accomplished by giving $2,000 to the non-custodial spouse and by clawing back $1,000 in tax from the custodial spouse. Finally, let us assume that although the new program provides that the custodial spouse may

page 655

     In my view, it undeniably does. It is no answer for the government to say that the program confers a net benefit and that the only inequality is that which flows from the imperfect operation of the family law system, which should theoretically take those benefits and liabilities completely into account. To give credence to such an argument is to confuse the source of the inequality, which is attributable to the government program, with the perpetuation of the inequality, which is attributable to the family law system.

     Alternatively, let us suppose that our hypothetical government program did, in fact, incorporate an express mechanism to redistribute this net subsidy appropriately between custodial and non-custodial parents, but that this mechanism was poorly tailored to the task, thereby leading to ineffective and incomplete division of the benefits and burdens flowing from the government program. Given that the source of the inequality actually lies in the initial distribution of benefits and burdens within the program itself, attacking the constitutionality of the redistribution mechanism may very well be addressing the problem at the wrong end. Although s. 15  of the Charter  does not impose upon governments the obligation to take positive actions to remedy the symptoms of systemic inequality, it does require that the government not be the source of further inequality. Such a scheme, in my view, would constitute a source of further inequality.

     The inclusion/deduction system is obviously considerably more complex than the simplistic examples given above. Though its system of tax liabilities and benefits is more masked and

page 656

     The inclusion/deduction system starts by producing a tax savings, a "win", for the paying non-custodial parent and a tax increase, a "loss" of resources, for the custodial parent, and then does nothing to rebalance the overall picture to produce the expected higher support payments or "win" for the children. Rather than ensure a higher support payment from an overall tax savings, the system increases the vulnerability of the custodial parent, who must now bargain for the income tax gross-up in order to protect the effective value of the child support payment. [Emphasis added.]

     (E. B. Zweibel, "Thibaudeau v. R.: Constitutional Challenge to the Taxation of Child Support Payments" (1994), 4 N.J.C.L. 305, at p. 342.)

     A system that materially increases the vulnerability of a particular group imposes a burden on that group which violates one of the four equality rights under s. 15. With respect, I believe that my colleagues fail to take this consideration adequately into account. An analysis that looks only to whether actual harm has been suffered is too narrow, and is inconsistent with the role that s. 15  of the Charter  is meant to play.

     For these reasons, I am satisfied that the inclusion/deduction regime is the source of an unequal distribution of tax benefits and burdens, and that it has the significant potential to adversely affect separated or divorced custodial parents. As a result, this scheme both imposes upon separated or divorced custodial parents an unequal burden of the law and denies them the equal benefit of the law.

     The fact that a distinction has been found to deny a person equal benefit of the law on the basis of their membership in an identifiable group does not necessarily mean that it violates the equality guarantees in the Charter . It remains for the rights claimant to demonstrate that the impugned

page 657
s. 15  Charter 

     3. Is the Impugned Distinction Discriminatory?

     In Egan, supra, I noted that a distinction will be discriminatory within the meaning of s. 15 where it is capable of either promoting or perpetuating the view that the individual adversely affected by this distinction is less capable, or less worthy of recognition or value as a human being or as a member of Canadian society, equally deserving of concern, respect, and consideration. I noted, as well, that this examination should be undertaken from a subjective-objective perspective.

     In order to arrive at the above determination by a principled means, I found it highly instructive to assess the discriminatory impact of the impugned legislative distinction by studying two categories of factors: the nature of the group adversely affected by the distinction, and the nature of the interest adversely affected by the distinction.

     (a) The Nature of the Affected Group

     As noted earlier, the group that is relevant to this inquiry is that of separated or divorced custodial parents. Separated or divorced custodial parents have suffered, and continue to suffer, considerable disadvantage in our society. Although the sources of this disadvantage are perhaps now less the result of direct social prejudices than may once have been the case, there is no denying the fact that, as McLachlin J. points out and as I underlined in Willick v. Willick, [1994] 3 S.C.R. 670, the breakup of relationships involving children usually marks the beginning of a precipitous descent into poverty for a significant number of custodial parents and their children. On the whole, moreover, this group is politically weak, economically vulnerable, and socially disempowered.

     Another equally relevant characteristic of the group of separated or divorced custodial parents is that, although a small percentage of separated or

page 658
Thibaudeau v. R. supra

     [S]eparated custodial mothers share as common characteristics the cumulative effects of disproportionate past and present child-rearing responsibilities, pregnancy and child-related workforce disruptions, wage and job discrimination, among other historical sex-linked disadvantages.

     These people's life situations must be taken into account when contemplating the effects of the impugned distinction on the group of separated or divorced custodial parents as a whole.

     Finally, it is not without significance that the decision to divorce or to separate after a relationship of some permanence is generally extremely traumatic to the parties involved. It is both difficult and intensely personal. In some cases, moreover, it represents the only possible escape from a relationship that may be either physically or psychologically abusive. Ultimately, whatever the reason, it is a decision that is rarely undertaken lightly. I believe that the same can generally be said about the decision to take custody of the children of the relationship. I am satisfied that a distinction that adversely affects an individual on the basis that he or she is a separated or divorced custodial spouse is certainly capable of touching upon some very essential aspects of personal self-worth and dignity. If one were to imagine this group's defining characteristics along a spectrum which ranged from the wholly immutable to the strictly meritocratic or mutable, I would place this group far nearer the former than the latter.

     For these reasons, I conclude that separated or divorced custodial spouses are, on the whole, a highly socially vulnerable group, bound together by traits that are very personal, though not necessarily wholly immutable. Adverse legislative

page 659

     (b) The Nature of the Affected Interest

     The interest most directly and adversely affected by the impugned distinction is the economic situation of separated or divorced custodial parents and their children over the short and medium term. Though one cannot speak of this interest as having any independent constitutional importance or, indeed, as relating to any fundamental social institution, I would venture to say that the economic well-being of family units, whatever their form, is an important societal interest. Although subsistence will always be possible, the impugned distinction may visit significant economic hardship upon the affected group. More importantly, any failure to "gross up" completely will lessen the amount of money available to respond to the children's acknowledged needs. This shortfall must be made up by the custodial spouse. Failure to share equitably the tax consequences of child support payments will therefore negatively affect the standard of living of both the custodial spouse and the children.

     In the instant case, for instance, the uncompensated tax consequences of the child support payments imposed an additional tax liability of over $2,500 per year on Ms. Thibaudeau. In addition to being liable for tax on her own financial contributions to the children's needs, she, therefore, paid $2,500 of tax on Mr. Chainé's share of the financial responsibility for the children. This sum represented almost 20 percent of her total child support receipts for the year. Given that certain costs such as rent and utilities are generally fixed, a 20 percent decrease in total income available to meet the reasonable needs of the children magnifies into an even larger decrease in disposable income available to meet those needs. At such low levels of

page 660
b

     In all fairness, it is equally worth noting that the impugned distinction does not consist of a complete exclusion or non-recognition of the interests of separated or divorced custodial parents. It may, indeed, benefit some custodial parents, by making more income available for the needs of the children than would otherwise be possible. The fact remains, however, that this distinction is an important source and perpetuator of inequality to a very significant number of other members of this group.

     I would, therefore, conclude that the interest adversely affected by the impugned distinction is of some societal importance, and that the economic consequences generally visited upon members of the group affected may be significant. At the same time, I note that, in my respectful view, an invidious metamessage flows from the manner in which this net tax benefit is administered -- it initially imposes an additional financial and administrative burden upon those who are generally less able to shoulder that load, and confers an unconditional benefit upon non-custodial spouses under circumstances which are predisposed to enriching them at the expense of the custodial spouse.

     In sum, having regard to the vulnerability of the group affected, the importance of the interest affected, and the extent to which that interest is affected on the whole of the circumstances, I am satisfied that the distinctions drawn in the inclusion/deduction scheme, and, in particular, in s. 56(1)(b), are reasonably capable of having a material discriminatory impact on separated or divorced custodial parents. The fact that some isolated individuals within this group may not be adversely affected does not alter or in any way undermine the general validity of this conclusion.

     As such, I conclude that the legislation is capable of either promoting or perpetuating the view that separated custodial parents are less capable, or

page 661
b s. 15(1)  Charter 

     B. Section 1  of the Charter 

     The inclusion/deduction regime may originally have been passed with a view to accommodating the financial burdens borne by many payor spouses who started second families. Notwithstanding this fact, I am willing to accept the government's argument that the modern purpose of the inclusion/deduction regime is to place more money in the hands of the separated or divorced "couple" for the purposes of raising the level of child support which the parents can afford. The intended beneficiaries of the scheme are, therefore, the children. I accept that this objective is pressing and substantial. There is no doubt in my mind that the state can legitimately construct a taxation policy that seeks to mitigate the economic consequences of divorce or separation. The real question is whether the present vehicle, the inclusion/deduction system comprising ss. 56(1)(b) and 60(b) ITA, achieves this goal in a manner that is at all proportionate. In my view, it does not.

     By the government's own figures, the inclusion/deduction system requires separated or divorced "couples" to pay more tax in almost 30 percent of all cases. However, almost 70 percent of divorced or separated "couples" appear to enjoy a net tax benefit from the inclusion/deduction provisions. I am satisfied that, in some of these cases, some portion of the net tax savings enjoyed by the couple will filter through to the children of the relationship. The impugned regime, though clearly ineffective in reaching its desired goal and though clearly resulting in disadvantage to separated or divorced custodial spouses in a significant number of cases, is not so underinclusive as to fail to further its objective in any significant way. I am,

page 662

     Before turning to the question of whether the impugned distinction is minimally impairing, I wish to make some brief observations on an important aspect of this analysis.

     The impugned distinction arises in the ITA, a statute which is undoubtedly the most complex and replete with distinctions of any in Canada. Clearly, the legislature must be accorded a reasonable latitude within which to advance its varied tax-related purposes. At the same time, however, we must recall that the ITA is also used as an important vehicle for developing and furthering social policy initiatives. Although this Court must generally approach the government's legitimate policy-making choices with a healthy degree of deference, it must, nonetheless, ensure that Parliament, in exercising its legitimate policy-making function, does not thereby trample upon the constitutional guarantees in s. 15  of the Charter . The mere fact that a distinction arises in the ITA does not grant the government an absolute licence to undertake indirectly what would be unconstitutional if pursued directly. A discriminatory distinction will, therefore, not be justifiable under s. 1 if it lies outside a reasonable range of minimally intrusive alternatives available to the government.

     In the instant case, the government has not demonstrated to this Court that the benefit accruing to the separated or divorced "couple" is fairly and equitably shared between the two individuals. Even though I accept that the family law system may sometimes enable such an outcome, the fact remains that, in a significant number of cases, it does not and cannot. The inclusion/deduction regime effectively makes a government benefit available uniquely to support-paying non-custodial parents and unavailable to custodial parents in receipt of child support payments. This initial

page 663

     As Professors J. W. Durnford and S. J. Toope point out in "Spousal Support in Family Law and Alimony in the Law of Taxation" (1994), 42 Can. Tax J. 1, the legislative objective could be much more effectively and directly achieved with a progressive system of child support credits or deductions. Such a system would be far less likely to perpetuate or exacerbate the economic disadvantage of custodial spouses and, at the very least, would not confer its greatest benefits on high-income non-custodial parents, which is presently the consequence of the ITA's "upside-down subsidy" to such individuals. Their proposal is one of several alternatives reasonably available to the government. Although I reiterate that considerable deference must be had for legitimate policy choices that entail a balancing of different interests and competing rights, I am not convinced that this is such a case. The inequality is too evident, and the range of more palatable alternatives is too readily available. Thus, I conclude that the present regime is outside the reasonable range of minimally intrusive options open to the government.

     Although it is not strictly necessary for me to do so, I would also note that I find the deleterious effects of the impugned distinction to outweigh its salutary effects. The fact that the present regime imposes in many cases a very real disadvantage upon custodial spouses is not outweighed by the

page 664
not

     I conclude that the legislation cannot be upheld under s. 1  of the Charter , and would accordingly declare it unconstitutional.

     C. Remedy and Disposition

     For the reasons I have given, I would find s. 56(1)(b) ITA to violate s. 15(1)  of the Charter  and I would conclude that it cannot be saved under s. 1.

     Since I have only analyzed the distinctions in the inclusion/deduction scheme in relation to their relevance to child support arrangements, and since different consideration may arise in relation to spousal support, I would declare s. 56(1)(b) ITA to be invalid in respect of child support payments only. In my view, this is an appropriate case to suspend the declaration of invalidity for a period of 12 months to enable the legislature to seek out and implement a less discriminatory alternative. I would not make any pronouncement on the constitutionality of s. 60(b) ITA.

     I would, therefore, dismiss the appeal. I would order costs as proposed by McLachlin J.

page 665

     English version of the reasons delivered by

     GONTHIER J. -- The issue in the instant appeal is whether s. 56(1)(b) of the Income Tax Act, S.C. 1970-71-72, c. 63 ("ITA"), which requires a taxpayer to include in computing his or her income any amount received by the taxpayer in the year as alimony, infringes the equality rights guaranteed by s. 15(1)  of the Canadian Charter of Rights and Freedoms . It should be stressed at the outset that the issue before this Court will not be considered from the standpoint of alimony paid to provide for the needs of the recipient parent. The obligation to include is only at issue in the case at bar as it applies to amounts intended to provide exclusively for the maintenance of the children of the marriage.

     I - Facts

     The respondent, Suzanne Thibaudeau, married Jacques Chainé on December 23, 1978. There were two children of this marriage, Jean-François and Marie-Christine, born in 1979 and 1981 respectively. On December 1, 1987 the respondent obtained a decree nisi of divorce granted pursuant to the old Divorce Act, R.S.C. 1970, c. D-8.

     Under that decree, which was made absolute on October 22, 1990, the respondent was awarded custody of her two minor children and her ex-husband was ordered to pay her alimony of $1,150 a month for the exclusive benefit of the children, with indexing pursuant to art. 638 of the old Civil Code of Quebec, S.Q. 1980, c. 39 (now art. 590, S.Q. 1991, c. 64). No amount was awarded to the respondent for herself as the court was of the view that she had sufficient financial self-sufficiency. In determining the said amount, therefore, account was taken of the cost of maintaining the children, some $900 to $1,000 a month, the tax impact on the former spouses and the respondent's duty also to provide for the maintenance of her children. The court recognized, however, that the amount so determined required a greater contribution from the respondent than would be required by the ratio

page 666

     The Minister of National Revenue subsequently reviewed these tax returns and, pursuant to s. 56(1)(b) ITA, included the amounts received as alimony in computing the respondent's income. In a notice of reassessment for 1989, the latter's net federal tax was accordingly increased to $4,042.80.

     As the Minister maintained his decision after considering the notice of objection filed by the respondent, the respondent appealed to the Tax Court of Canada, where she argued that s. 56(1)(b) ITA, by imposing a tax burden on her for amounts she was to use solely for the benefit of her children, infringed her equality rights as guaranteed by s. 15(1)  of the Charter .

     II - Judgments Below

     Tax Court of Canada, 92 D.T.C. 2111

     The respondent argued before Judge Garon that the prejudice which she suffered from the taxation of amounts not intended for her own benefit resulted from her civil status, her sex and her social status. In this connection Judge Garon noted the absence of statistical evidence regarding the group to which the respondent claims to belong, but he nevertheless took judicial notice, at p. 2118, of the fact that the respondent was part of a group "of which the great majority is separated or divorced women, who have a certain degree of

page 667
s. 15  Charter 

     Before determining whether the obligation to include alimony in the recipient's income, under the specific terms of s. 56(1)(b) ITA, entails prejudicial consequences for the respondent, Judge Garon analysed the system set up by ss. 56(1)(b) and 60(b) ITA, commonly known as the "inclusion/deduction system". He said the following at pp. 2118-19, in a passage which I set out at length for the sake of clarity:

     This inclusion-deduction system splits the payer's income. This exceptional measure confers a benefit on the person who receives the alimony if that person's marginal tax rate after including the alimony in his or her income is lower than the payer's rate because the result is a net tax saving with respect to the alimony, which also permits the alimony to be increased by an amount equal to the tax thus saved.... [I]t is undeniable that in the case of a difference between the marginal tax rates of the payer and of the person to whom the alimony is paid, as I have described, the children would or should receive a definite benefit. If we assume that the payer's marginal rate is higher than that of the person who receives the alimony, the inclusion-deduction system ultimately permits the alimony, which is to be used to support the children, for example, to be grossed-up. Moreover, it follows from the foregoing that if the marginal tax rate that applies to the payer and to the person who receives the alimony is the same, there is no tax advantage for them and clearly the alimony would not be grossed-up, and the effect of the inclusion-deduction system is neutral.

     Judge Garon adopted the method of analysis used by the expert called on behalf of the respondent, according to which it was proper to take into account tax credits she was given in assessing the tax impact resulting from the obligation specified

page 668
b

     Judge Garon was of the opinion, however, that it was not his function to decide whether there should have been a more complete analysis of the tax consequences: in his view the real question was rather whether the court which establishes the amount of the alimony must take into account the tax consequences both for the payer and for the recipient of the payments. He relied inter alia on Droit de la famille--1488, C.A. Québec, No. 200-09-000553-914, November 7, 1991, J.E. 91-1753; Parker v. Parker, [1988] O.J. No. 749 (C.A.); Chelmick v. Chelmick (1991), 118 A.R. 385 (Q.B.); Lehmann v. Lehmann (1989), 95 A.R. 383 (Q.B.); Treen v. Treen (1991), 88 Sask. R. 278 (Q.B.), and Girard v. Girard (1990), 103 N.B.R. (2d) 377 (Q.B.), in arriving at the conclusion, at p. 2120, that "[t]he case law according to which tax consequences must be taken into account when determining the amount of alimony has not varied at least in recent times in Quebec and in other provinces".

     In light of the foregoing observations, Judge Garon then concluded as follows, at pp. 2121-22:

     . . . if the court takes into account the tax consequences on both the payer and the recipient of the alimony in determining the amount of the alimony to be paid for the support of the children, the parent who receives the alimony suffers no prejudice even if he or she must include those payments in his or her income. If a trial court fails to consider the tax consequences or assesses them incorrectly, the party concerned should exercise his or her right of appeal to obtain the adjustment to which he or she is entitled.

     . . .

     The inclusion-deduction system in its true nature having regard to the comprehensive legal context does not have the effect of imposing obligations, disadvantages or burdens on the appellant or other persons who would find themselves in a situation similar to that of the

page 669

     Ms. Thibaudeau's appeal was accordingly dismissed.

     Federal Court of Appeal, [1994] 2 F.C. 189

     Hugessen J.A. for the Majority

     Two grounds of discrimination were pleaded in connection with this application for judicial review: the group SCOPE (Support and Custody Orders for Priority Enforcement), which was given leave to intervene and to file documents in support of its position, submitted on the one hand that s. 56(1)(b) ITA results in discrimination on the basis of sex, an enumerated ground under s. 15(1)  of the Charter . The respondent on the other hand argued that she was a victim of discrimination based on her membership in a group consisting of separated or divorced parents having custody of their children and receiving maintenance payments for them. According to Hugessen J.A., those allegations were a claim of discrimination based on a ground analogous to those enumerated in s. 15(1)  of the Charter .

     Hugessen J.A. first dealt with the arguments of the intervener SCOPE and noted that its claim of discrimination on the ground of sex required a consideration of the reasons in Symes v. Canada, [1993] 4 S.C.R. 695. In light of what was said in that judgment, he concluded that s. 56(1)(b) ITA is neutrally worded and that it neither expressly nor by necessary implication creates distinctions based on sex. Moreover, in his view the focus in such a determination is not on the number of persons affected by legislation as much as on the nature of its effects on them. From this standpoint there could not be said to be discrimination on the basis of sex in the case at bar, since s. 56(1)(b) ITA has the same prejudicial effects on custodial mothers as on custodial fathers, although there are fewer of the latter in such a situation and they are thus less

page 670

     That was not the case with the respondent's allegations that there was discrimination based on an analogous ground. Hugessen J.A. considered the latter in light of the three steps prescribed by analysis of s. 15(1)  of the Charter  and found inter alia in Andrews v. Law Society of British Columbia, [1989] 1 S.C.R. 143, R. v. Swain, [1991] 1 S.C.R. 933, and Symes, supra. He said the following, at pp. 206-7:

     First, paragraph 56(1)(b) draws an intentional distinction between [the respondent] and others based upon her being a separated [the word includes divorced persons] custodial parent. There can be simply no doubt in my mind that the qualities of being separated and a parent are "personal characteristics". . . .

     . . .

     Second, the inequality created for separated custodial parents is discriminatory and imposes a burden on them not imposed on others.

     The latter conclusion by Hugessen J.A. is based on comparisons of the respondent's situation with that of a non-separated parent, that of a separated non-custodial parent and that of separated non-parents having custody of a child, such as an uncle or grandmother. Hugessen J.A. noted that none of the aforementioned persons is required to include maintenance payments in computing his or her income. He went on (at pp. 208, 210 and 211):

     The third and last stage of the section 15 analysis is to inquire whether the personal characteristics at issue constitute grounds analogous to those enumerated. In my view, they do.

     . . .

     I have identified the group to which the applicant claims to belong as separated custodial parents. Neither that phrase nor any of its components constitute as such

page 671
be

     The appropriate description of the ground of discrimination to which separated custodial parents are subject would, it seems to me, be "family status". [Emphasis in original.]

     Finally, at the end of a review of the documentary evidence submitted by the parties on the effects of the inclusion/deduction system, Hugessen J.A. concluded that s. 56(1)(b) ITA cannot be saved by s. 1  of the Charter , since it does not meet the minimum impairment and proportionality tests developed in R. v. Oakes, [1986] 1 S.C.R. 103. The application for judicial review was allowed and the Tax Court of Canada's decision set aside.
Létourneau J.A., Dissenting

     Létourneau J.A. was of the view that s. 56(1)(b) ITA did not result in any discrimination, whether based on sex or on an analogous ground such as civil status or social condition. While he accepted that the respondent and the members of the group to which she belonged were treated differently as a result of the provision, he did not consider that this difference in treatment could be characterized as discriminatory.

     First, he noted that it is in the very nature of the ITA to apply a whole set of distinctions and differences in treatment which take into account the economic reality that ordinarily accompanies the taxpayer's civil status. Additionally, Létourneau J.A. noted that according to the decisions of this Court in R. v. Turpin, [1989] 1 S.C.R. 1296, and Symes, supra, the general context must be examined to determine whether there is discrimination. Accordingly, he rejected a purely textual analysis of the ITA as follows, at pp. 227-28:

page 672

     To undertake only a purely textual analysis of the provisions of the Income Tax Act, which establishes a distinction that takes civil status into account, and then conclude that there is discrimination amounts to ignoring the social, political, legal and economic reality which this Act and its provisions inhabit, and which are experienced differently by taxpayers whose family situations differ. . . .

     . . . To ignore this economic context, the reality that underlies it and the importance that the Government must necessarily place on it would mean that the numerous provisions of this Act which set up a distinction and impose different burdens based on different economic realities, because different civil statuses produce different needs, would be prima facie discriminatory.

     He went on to say, at pp. 228-29, that an examination of the subject matter of the impugned legislative provision is a relevant part of the analysis required by s. 15(1)  of the Charter :

     Paragraph 56(1)(b) . . . is intended precisely as a remedy for the disadvantages that this group of taxpayers, to which the applicant belongs, had suffered at one time.... The remedial measure necessarily creates a distinction by taking into account these people's civil status, since this is the group it is addressing, and this is the group that is living in a different and difficult economic situation as a result of the breakdown of the family unit. This distinction does not necessarily constitute discrimination. When read and taken literally in isolation, the measure may appear discriminatory, but it is not when it is placed in its socio-economic and socio-political context and the goal in mind is taken into account.

     Finally, Létourneau J.A. noted on this point that despite the improvements that might be desired, it should not be forgotten that s. 56(1)(b) ITA produces a beneficial effect in most cases. Under s. 15(1)  of the Charter  a remedy does not have to be flawless and without secondary effects. He concluded at p. 230 that the requirement "[of] such an obligation in terms of the result would have a paralysing effect on any initiative contemplated or taken to correct the prejudicial effects of a policy in the past".

page 673

     In concluding his reasons, Létourneau J.A. also dismissed the respondent's argument that the members of the group to which she claims to belong are the victims of discrimination on the basis of social condition.

     III - Issues

     This case requires the Court to consider the following constitutional questions, as stated by the Chief Justice on July 11, 1994:

     1.Does s. 56(1)(b) of the Income Tax Act, S.C. 1970-71-72, c. 63, infringe the equality rights guaranteed by s. 15  of the Canadian Charter of Rights and Freedoms ?

     2.If s. 56(1)(b) of the Income Tax Act, S.C. 1970-71-72, c. 63, infringes the equality rights guaranteed by s. 15  of the Canadian Charter of Rights and Freedoms  is it justified in the context of s. 1  of the Canadian Charter of Rights and Freedoms ?

     IV - Relevant Statutory Provisions

     At the relevant dates the ITA provided the following:

     3.  The income of a taxpayer for a taxation year for the purposes of this Part is his income for the year determined by the following rules:

     (a)determine the aggregate of amounts each of which is the taxpayer's income for the year (other than a taxable capital gain from the disposition of a property) from a source inside or outside Canada, including, without restricting the generality of the foregoing, his income for the year from each office, employment, business and property;

     56.  (1) Without restricting the generality of section 3, there shall be included in computing the income of a taxpayer for a taxation year,

     . . .

     (b)any amount received by the taxpayer in the year, pursuant to a decree, order or judgment of a competent tribunal or pursuant to a written agreement, as alimony or other allowance payable on a periodic basis for the maintenance of the recipient thereof, children of the marriage, or both the recipient

page 674

     60.  There may be deducted in computing a taxpayer's income for a taxation year such of the following amounts as are applicable:

     . . .

     (b)an amount paid by the taxpayer in the year, pursuant to a decree, order or judgment of a competent tribunal or pursuant to a written agreement, as alimony or other allowance payable on a periodic basis for the maintenance of the recipient thereof, children of the marriage, or both the recipient and children of the marriage, if he was living apart from, and was separated pursuant to a divorce, judicial separation or written separation agreement from, his spouse or former spouse to whom he was required to make the payment at the time the payment was made and throughout the remainder of the year;

     For ease of reference I also set out below s. 15(1)  of the Charter :

     15. (1)  Every individual is equal before and under the law and has the right to the equal protection and equal benefit of the law without discrimination and, in particular, without discrimination based on race, national or ethnic origin, colour, religion, sex, age or mental or physical disability.

     V - Analysis

     Essentially, the respondent's arguments require a review of the separate system created by the combined effect of ss. 56(1)(b) and 60(b) ITA, and in particular the question of how the benefit produced by the mechanisms so created is to be distributed between the custodial parent and the non-custodial parent. In this connection, it will thus be useful first to examine the general principles by which we must be guided in formulating a response to the first point at issue. They will be

page 675

     A.  An Infringement of Equality Rights

     (1)  Background

     In R. v. Big M Drug Mart Ltd., [1985] 1 S.C.R. 295, this Court per Dickson J. (as he then was), at p. 344, indicated the parameters within which a right or freedom protected by the Charter  should be analysed:

     . . . this analysis is to be undertaken, and the purpose of the right or freedom in question is to be sought by reference to the character and the larger objects of the Charter  itself, to the language chosen to articulate the specific right or freedom, to the historical origins of the concepts enshrined, and where applicable, to the meaning and purpose of the other specific rights and freedoms with which it is associated within the text of the Charter . The interpretation should be, as the judgment in Southam emphasizes, a generous rather than a legalistic one, aimed at fulfilling the purpose of the guarantee and securing for individuals the full benefit of the Charter 's protection. At the same time it is important not to overshoot the actual purpose of the right or freedom in question, but to recall that the Charter  was not enacted in a vacuum, and must therefore, as this Court's decision in Law Society of Upper Canada v. Skapinker, [1984] 1 S.C.R. 357, illustrates, be placed in its proper linguistic, philosophic and historical contexts.

     There can be no doubt that this passage also applies to the definition and interpretation of the equality rights contained in s. 15(1)  of the Charter .

     Additionally, the ITA is subject to the application of the Charter  just as any other legislation is: the special nature of the former clearly cannot be taken as a basis for maintaining that it is not subject to the latter. This was recently pointed out by my colleague Iacobucci J. in Symes, supra, at p. 753. I would add, however, that though it may not be relevant to determining whether the Charter  applies to the ITA, the special nature of the latter is nonetheless a significant factor that must be taken into account in defining the scope of the right

page 676

     It is of the very essence of the ITA to make distinctions, so as to generate revenue for the government while equitably reconciling a range of necessarily divergent interests. In view of this, the right to the equal benefit of the law cannot mean that each taxpayer has an equal right to receive the same amounts, deductions or benefits, but merely a right to be equally governed by the law. The basic purpose of s. 15  of the Charter  was explained by McIntyre J. in Andrews, supra, at p. 171:

     It is clear that the purpose of s. 15 is to ensure equality in the formulation and application of the law. The promotion of equality entails the promotion of a society in which all are secure in the knowledge that they are recognized at law as human beings equally deserving of concern, respect and consideration.

     That being the case, one should not confuse the concept of fiscal equity, which is concerned with the best distribution of the tax burden in light of the need for revenue, the taxpayers' ability to pay and the economic and social policies of the government, with the concept of the right to equality, which as I shall explain in detail later means that a member of a group shall not be disadvantaged on account of an irrelevant personal characteristic shared by that group.

     (2)  The Nature and Operation of the ITA
(a)  The General System for Taxing Individual Income

     The basic system of the ITA rests on the principle that a taxpayer's taxable income is computed in accordance with all of his so-called sources of income. Section 3 ITA contains the formula for arriving at a taxpayer's income for a taxation year. It is true that, using wording which is intended to be extremely flexible and all-inclusive, the legislature has chosen to refer to the three most important sources of income, namely income from an office or employment, business and property; but this list

page 677

     The mechanisms of the ITA are also intended to express another principle, namely that the unit of taxation is the individual. From this principle there follows the rule that the individual is taxed on the whole of his income, that he may not, for example, divide it among the members of his family in order to reduce his total tax payable. This is the general prohibition on income splitting. Accordingly, within a married couple each parent has to pay tax on his or her own income; the same applies to the income received by a child of the marriage. There are certainly provisions in the ITA, such as deductions for spouses and dependants, which do take into account the unit represented by the couple, in order to reflect the economic reality peculiar to it. That does not mean they detract from the importance of the rule stated earlier.

     (b)  Particular System Created by Sections 56(1)(b) and 60(b)

     The legislature has nevertheless sought to deal with the unfavourable economic consequences resulting from the breakup of the family unit. In 1942, it thus created by the combined effect of ss. 56(1)(b) and 60(b) ITA what is commonly referred to as the inclusion/deduction system. This is a system which applies only to separated or divorced spouses and which exceptionally permits income splitting between the latter in order to increase their available resources. This was recognized by Beetz J. in Gagnon v. The Queen, [1986] 1 S.C.R. 264, at p. 268, where this Court had to determine whether certain monthly payments made to an ex-wife to repay charges on her property were deductible under s. 60(b) ITA:

page 678

     The purpose of these provisions, by allowing income splitting between former spouses or separated spouses, is to distribute the tax burden between them. As C. Dawe wrote in an article titled "Section 60(b) of the Income Tax Act: An Analysis and Some Proposals for Reform" (1979), 5 Queen's L.J. 153:

     This allows the spouses greater financial resources than when living together, compensating in part for the lost economics of maintaining a single household.

     For an overall understanding of the inclusion/deduction system we must look at its specific mechanism. Alimony becomes taxable for the treasury by virtue of s. 56(1)(b) ITA. It will be noted that this source of income does not appear in s. 3 ITA. Section 56(1)(b) imposes on a parent who has custody of his or her child an obligation to include in computing income any amounts received as alimony for the maintenance of the child. At the same time, s. 60(b) ITA allows alimony so paid to be deducted in computing the non-custodial parent's income. This is where income splitting comes in: as we know, it is prohibited under the general system of taxation described earlier. A portion of the payer's income, equivalent to the amount of the alimony paid, is taxed in the hands of the recipient. The payer thus has his income split, contrary to the well-settled rule that an individual must be taxed on all his income. It should be noted that the income splitting at issue is not that of the couple but that of an individual, in this case the payer of the alimony. It is my view that this is how the passage by Beetz J. reproduced earlier is to be understood.

     It is by means of this income splitting operation that the legislature has sought to increase the available resources that can be used for the benefit of the children. This measure generally results in a net tax saving, allowing the court which has to set the amount of maintenance to increase the alimony to be paid by an amount equal to the amount thus saved.

page 679

     The tax savings generated by this system depend, however, on the difference in tax rates between the payer and the recipient of alimony. Accordingly, the more the marginal tax rate of the payer of the alimony exceeds that of the recipient, the greater the tax benefit. If the marginal tax rate is the same for the payer and the recipient, then the effect of the legislation is neutral.  On the other hand, if the custodial parent receiving the alimony is taxed at a marginal rate greater than that of the payer, then the tax he or she must pay will be higher than the saving which the non-custodial parent will enjoy. In short, for the deduction provided for in s. 60(b) ITA to produce a benefit for the custodial parent as well, the additional tax which the latter has to pay on account of the inclusion requirement provided for in s. 56(1)(b) must correspondingly be covered by a greater increase in the alimony to be paid by the non-custodial parent.

     In fact, although the tax savings generated by the inclusion/deduction system depend on a variable, namely the difference between the tax rates of the members of the couple, the system appears to confer a benefit in most cases: the evidence in the record indicated that recipient parents are generally subject to a tax rate lower than that of the parents paying the alimony.

     On this aspect of the matter, finally, I would note that for the inclusion requirement in s. 56(1)(b) to arise, the alimony must have certain characteristics. The amount paid for the child's maintenance must inter alia be determined "pursuant to a decree, order or judgment of a competent tribunal or pursuant to a written agreement". It should be noted that the ITA through the provisions under consideration does not create a support obligation: the latter is covered by provincial legislation such as the Civil Code of Quebec, S.Q. 1980, c. 39 (now S.Q. 1991, c. 64), and by the Divorce Act, R.S.C. 1970, c. D-8 (replaced by S.C. 1986, c. 4 (now R.S.C., 1985, c. 3 (2nd Supp .))). In fact, the ITA only lays down the conditions under which certain forms of alimony will be covered by

page 680

     (c)  Section 15(1)  of the Charter : Some Principles of Analysis

     In recent years this Court has had occasion to state some of the fundamental principles applicable to an analysis made under s. 15(1)  of the Charter . Andrews, supra, marked the beginning of the effort undertaken by this Court to define the content of the right to equality. I note that the essential points in that judgment were recently highlighted by my colleague Iacobucci J. in Symes, supra. I again refer to them.

     In Andrews, at pp. 168-69, McIntyre J. first noted that discrimination will not result from every distinction or difference in treatment. In my view, this observation applies especially to tax legislation, the very essence of which is to create categories:

     It is, of course, obvious that legislatures may -- and to govern effectively -- must treat different individuals and groups in different ways. Indeed, such distinctions are one of the main preoccupations of legislatures. The classifying of individuals and groups, the making of different provisions respecting such groups, the application of different rules, regulations, requirements and qualifications to different persons is necessary for the governance of modern society.

     Section 15(1)  of the Charter  is thus designed only to eliminate discriminatory distinctions. The concept of discrimination was outlined by McIntyre J. as follows, at pp. 174-75:

     . . . discrimination may be described as a distinction, whether intentional or not but based on grounds relating to personal characteristics of the individual or group, which has the effect of imposing burdens, obligations, or disadvantages on such individual or group not imposed upon others, or which withholds or limits access to opportunities, benefits, and advantages available to other members of society. Distinctions based on personal characteristics attributed to an individual solely

page 681

     These comments make it clear that s. 15(1)  of the Charter  provides protection both from direct discrimination and from discrimination by prejudicial effect. In the words of McIntyre J., at p. 165, equality must be analysed essentially according to "the impact of the law on the individual or the group concerned".

     These are the basic principles that run through the concept of discrimination. I note the general nature of the remarks made by McIntyre J. in this connection. Accordingly, while bearing in mind the analytical framework he has provided us with, the notion of discrimination requires some further clarification.

     The method of analysing s. 15(1)  of the Charter , designed to serve this objective, is set out in my reasons in Miron v. Trudel, [1995] 2 S.C.R. 418, rendered concurrently herewith. As explained in that case, the question is whether the impugned provision creates a prejudicial distinction affecting the complainant as a member of a group, based on an irrelevant personal characteristic shared by the group. For the sake of convenience, this analytical method is divided into three stages.

     The first of these involves determining whether the provision in question creates a distinction between the individual, as a member of a group, and others. This distinction may result from the wording of the provision on its face. This was noted by Iacobucci J. in Symes, supra, at pp. 761-62:

     With respect to whether s. 63 [ITA] creates a distinction, the language of s. 63 must be separated from its effect. Clearly, the language of that provision does not include terms which expressly limit the child care expense deduction to one sex or the other. Instead, for the sake of simplicity in light of s. 63's multifaceted requirements, I can state that s. 63 creates a facial distinction between those supporting persons who incur

page 682

     The second stage involves determining whether this distinction creates prejudice in respect of the group in question. This element is essential: discrimination can only be said to exist if the result of the impugned provision is to impose on the group a burden, obligation or disadvantage not imposed on others. I refer in this regard to what was said by McIntyre J. in Andrews, supra, at pp. 180-81:

     The words "without discrimination" require more than a mere finding of distinction between the treatment of groups or individuals. Those words are a form of qualifier built into s. 15 itself and limit those distinctions which are forbidden by the section to those which involve prejudice or disadvantage. [Emphasis added.]

     Finally, in the third stage it must be determined whether the distinction created is based on an irrelevant personal characteristic which is an enumerated or analogous ground under s. 15(1)  of the Charter . Relevance is to be determined in light of the underlying objectives of the legislation.

     By its very nature the review described in the preceding paragraphs rests on a comparative analysis. In Symes, supra, at p. 754, Iacobucci J. referred to the part played by this fundamental principle in determining inequality in light of particular facts. He relied in this regard on the observations of McIntyre J., who said in Andrews, supra, at p. 164, that the condition of equality "may only be attained or discerned by comparison with the condition of others in the social and political setting in which the question arises".

     The importance of the comparative approach and the close connection between this and a review of the general context were noted by Wilson J. in Turpin, supra, at pp. 1331-32:

     In determining whether there is discrimination on grounds relating to the personal characteristics of the

page 683
the larger social, political and legal context

     The context has a vital part to play in identifying comparative groups and criteria, in determining prejudice and in assessing the nature and relevance of the personal characteristic to which the distinction refers.

     The case at bar raises more particularly the question of defining the legal context in a tax matter. In accordance with the comparative approach described earlier, the appellant suggested that account should be taken of the underlying objectives of the inclusion/deduction system in determining whether s. 15  of the Charter  has been infringed. In the appellant's submission there are four such objectives: the observance of fiscal equity between taxpayers, increasing the financial resources of separated couples, coherent arrangement of the tax system and an intention to encourage the payment of alimony. Based on this premise, the appellant then argued that other measures contained in the ITA, such as tax credits, and family law in general, are relevant in assessing whether s. 56(1)(b) ITA has a prejudicial effect.

     In support of the respondent's arguments, on the other hand, the intervener SCOPE submitted that any argument about the factors that led to the adoption of this system should be considered under s. 1  of the Charter , so as not to impose an unduly heavy burden on a person claiming an infringement of his or her equality rights. SCOPE relied on Andrews and Turpin, supra, in this regard and in particular on the comments of Wilson J. who stated, at p. 1328 of the latter case, that "[t]he equality rights must be given their full content

page 684

     In view of the parties' respective positions on this point, it is necessary to address at once the confusion which may arise between two fundamental approaches: the analysis of equality rights using a contextual approach and consideration of whether a rule of law is justified under s. 1  of the Charter . With respect, these are very different steps. I shall return to this later.

     The parameters that make up the legal context vary from one case to another. They depend inter alia on the nature of the legislation and the wording of the impugned provision. Accordingly, if the disputed section itself refers to other legislation or to other areas of law it will be relevant to look at these relationships under s. 15(1)  of the Charter . In my view, for the legal context to be properly defined the review must consider at least two aspects: (1) analysis of the legislation as a whole, taking into account all of its provisions, and (2) analysis of the legislation in light of measures prescribed by other statutes, when the impugned provision refers directly to them. Such a review in fact derives from the general rule that a statutory provision does not operate in a vacuum. As Professor Pierre-André Côté points out in The Interpretation of Legislation in Canada (2nd ed. 1991), at p. 258:

     . . . the law is considered to form a system. Every component contributes to the meaning as a whole, and the whole gives meaning to its parts: "each legal provision should be considered in relation to other provisions, as parts of a whole", wrote François Gény.

     This latter rule is especially important in taxation, where the legislation sets out a complex arrangement of interrelated and complementary provisions.

     It is true that in Symes, supra, and Tétreault-Gadoury v. Canada (Employment and Immigration Commission), [1991] 2 S.C.R. 22, this Court was careful to state that s. 1  of the Charter  is the provision under which a court should conduct a review of other government programs or other legislation

page 685

     In Symes, supra, the main purpose of the appeal was to determine whether child care expenses were deductible under the ITA as business expenses in calculating profit. In his reasons, at p. 759, Iacobucci J. recognized that s. 63 ITA in itself created a complete code which, unlike the special system set up by the combined effect of ss. 56(1)(b) and 60(b) ITA, contained no reference to other legislation.

     A similar observation can be made concerning Tétreault-Gadoury. This Court per La Forest J. considered the question of whether s. 31 of the Unemployment Insurance Act, 1971, S.C. 1970-71-72, c. 48, infringed the equality rights guaranteed by s. 15(1)  of the Charter . Section 31  prohibited the payment of ordinary unemployment insurance benefits to claimants over the age of 65. I note that under that provision a person became ineligible for benefits merely because of his or her age. When the Court had that case before it, s. 31 made no reference to other legislative provisions.

     That is not the case here. Sections 56(1)(b) and 60(b) ITA refer directly to family law in requiring that the amount paid for the maintenance of a child be set "pursuant to a decree, order or judgment of a competent tribunal or pursuant to a written agreement". It is by reason of this fundamental requirement that the payments received may be characterized as alimony: without it, the inclusion/deduction system simply does not come into play, as the Federal Court of Appeal pointed out in Hodson v. The Queen, [1988] 1 C.T.C. 2. On account of this express reference to other legislation which, like the Divorce Act  and the Civil Code of Quebec, has a direct bearing on one or more aspects of family law, the situation in the case at bar is thus quite

page 686
Symes Tétreault-Gadoury supra

     That being the case, and as part of the analysis of the validity of the inclusion/deduction system under s. 15(1)  of the Charter , I conclude that review of the legal context requires not only consideration of other relevant provisions of the ITA but also of the principles of family law applicable to determining the amount of alimony, to which the actual wording of ss. 56(1)(b) and 60(b) refers directly.

     It is worth mentioning at this stage, however, that any determination of the legal context depends on variable factors, including the nature and the wording of the impugned legislative provision. In this connection it will suffice to refer to Symes and Tétreault-Gadoury to see that reviewing the legal context as a relevant aspect of an analysis under s. 15(1)  of the Charter  will not require each time that the court consider all the government programs or legislation that may have some connection with the disputed provision.

     Let me be quite clear about this: this Court has obviously not ceased to hold that infringement of a right guaranteed by the Charter  can only be justified under s. 1  of the Charter . That approach is still valid. This is where the distinction drawn earlier becomes relevant. The purpose of the analysis under s. 15(1)  of the Charter  is solely to determine whether a provision is discriminatory on account of a prejudicial distinction, based on an irrelevant personal characteristic, which it makes in respect of a group. In this regard there must be a contextual analysis which allows for some consideration of the legislation referred to by this provision and the rules of law, if any, to which it refers. If at the conclusion of such an analysis the distinction is found to be discriminatory, it will then be necessary to examine the justification for the objectives pursued by the legislation in a free and democratic society, as required by s. 1  of the Charter . That being so, I shall now consider the general

page 687

     B.  Application to the Present Case

     (1)  First Step: The Distinction and the Group

     The tax system set out in ss. 56(1)(b) and 60(b) ITA was specifically introduced to alleviate the economic consequences of a breakdown of the family unit. Consequently, it applies only to separated or divorced spouses. That being the case, there is no need to consider further whether the Act creates a distinction.

     The group contemplated by the legislation consists of separated or divorced couples in which one parent is paying alimony to the other under a judgment or agreement. That is not the group to which the respondent claims to belong: she claims she is a member of the smaller group of custodial parents having some financial self-sufficiency and consequently receiving maintenance solely for the benefit of their children.

     With respect, two comments should be made at this point. First, the group cannot be subdivided by income level: this is not a characteristic attaching to the individual. Accepting such a proposition would also mean that the most disadvantaged subgroup would be the group of custodial parents with the highest incomes. Second, it is not possible to consider custodial parents in isolation as a group which would subsequently be compared with that of non-custodial parents, for purposes of determining prejudice; I repeat that in the final analysis the discussion in this Court has to do with distribution of the obligation to pay taxes within the couple. One must not lose sight of the fact that so far as the children of the family unit are concerned, for whose benefit the mechanisms of the ITA seek to free up additional resources, the separated or divorced parents still form an entity, ordinarily bound by the support obligation. Accordingly, a single facet of taxation, that of the person

page 688

b

     I note, however, that when she places these persons in the same group for comparison purposes the respondent is applying two different taxation systems. In the first example cited by the respondent it is the child himself who is treated like any individual taxpayer and must pay tax on his income, if any. In my opinion, for this very reason this subgroup cannot be validly used as a basis for comparison: the different tax treatment of the children's own income results from the fact that they do not fall either under the system applicable to the income of non-separated couples or under that of separated couples. They are subject to the general system which applies to everyone, including children, regardless of their parents' situation. The situations in which a child has to pay tax reflect a completely different context characterized inter alia by the payer being under no obligation to support the child. In that case I certainly cannot include that category in the group which the respondent seeks to create.

     The other examples given by the respondent involve parents to whom the provisions of ss. 

page 689
b b b b

     (2)  Second Step: Prejudice

     Now that the distinction has been established, it is necessary to determine whether ss. 56(1)(b) and 60(b) ITA, in the context contemplated by them, have a prejudicial effect on separated or divorced parents as members of that group.

     The respondent and the intervener SCOPE relied on the evidence in the record as showing that 98 percent of alimony recipients are women. In support of their arguments they also pointed to the recognition by this Court, in Symes, supra, of the disproportionate share women bear of the burden of child care and the social costs related to it. They also drew the Court's attention to Moge v. Moge, [1992] 3 S.C.R. 813, in which this Court noted that family breakup had a significant impact on the standard of living of custodial parents.

     These are undoubtedly facts which may suggest a need for reform. I would note, however, that the Court's function here is first to see whether ss. 56(1)(b) and 60(b) ITA produce a prejudicial effect on the group of separated or divorced couples as identified earlier, and in particular on a custodial parent to whom maintenance is paid for the needs of his or her children.

page 690

     The respondent and some of the interveners maintained that women in Ms. Thibaudeau's situation suffer prejudice which they described in three ways. First, parents who have the custody of children are subject to an obligation not imposed on non-custodial parents, that of including the amount of the alimony in computing their income. This obligation results from the actual wording of s. 56(1)(b) ITA. Then, as a result of this, custodial parents who enjoy a certain amount of financial self-sufficiency are subject to an additional tax burden, that of paying an additional amount in tax. Finally, on account of the very mechanism of the system, custodial parents are denied access to the additional financial resources which the legislature claims to intend for all parents, for the benefit of their children, and not just for non-custodial parents. It should be noted, as Hugessen J.A. indicated, that the alleged prejudice is of the same kind for all parents in such a situation regardless of sex, although for the most part it is women who are in this situation.

     A comparison was made between the respondent's situation, separately, and that of non-separated couples in which each parent is taxed individually on the portion of his or her income intended for a child's needs.

     In this connection I would first note that a valid examination of the situation requires consideration of how the system treats both parents, and not only the recipient of the maintenance. As I mentioned earlier, it is the question of distribution which is critical to the discussion, and for it to be meaningful it must be considered from the standpoint of the members of the couple. One cannot thus object to taxation in the hands of the recipient of the maintenance without at the same time taking the tax treatment given to the payer into account. To do otherwise would amount to claiming a tax exemption which other parents would not receive. The rule is that the income of parents used for the maintenance of their children shall be taxed in the hands of the parents. This is so for those living together and those who are in single-parent situations. The

page 691

     As I noted earlier, in order to decide whether the system is prejudicial it must be placed in context by comparing the treatment of parents covered by the special inclusion/deduction system with that which they would receive in the absence of such a system, namely that of parents to whom ss. 56(1)(b) and 60(b) ITA do not apply but who nevertheless have a support obligation.

     It will be seen from those sections, first, that tax is imposed on the person who can dispose of the income. As I noted above, this measure is not prejudicial in itself. Second, a comparison with non-separated couples indicates that the parents to whom the special inclusion/deduction system applies enjoy an overall lessening of their tax burden. The appellant pointed out that the income splitting allowed by the system gave the parents it covers a tax saving of some $240 million in 1988 alone.

     In view of the substantial savings generated by the inclusion/deduction system, it is clear that the group of separated or divorced parents cannot as a whole claim to suffer prejudice associated with the very existence of the system in question. On the contrary, it was shown that on the whole members of the group derive a benefit from it: as most of the recipient parents are subject to a marginal tax rate lower than that of the parents paying the maintenance, it can be said that the purposes for which the system was created have been to a large extent achieved.

page 692

     Additionally, even accepting the respondent's suggestion that a comparison should be made between those who receive and those who pay the maintenance, the foregoing conclusion remains unchanged. In fact, if the recipients of maintenance are taken as a group separate from the payers, on the assumption that as a group the former are likely to be the subject of discrimination, there is no doubt that the Act creates a distinction by making the maintenance taxable in the hands of the recipient alone. However, in the context at issue here, which must always be borne in mind, it was not shown that such a distinction entails a disadvantage: the tax burden of the couple is reduced and this has the result of increasing the available resources that can be used for the benefit of the children, in satisfaction of their parents' obligation to support them.

     Apart from the efforts to frame for comparison purposes a definition which is as close as possible to what the group's situation would be if there were no special system in its favour, the question of the distribution of the resources available for the benefit of the children is another aspect which is of crucial importance in assessing the prejudice alleged by the respondent: indeed, it is at the very heart of the debate. Accordingly, before proceeding to develop the points of comparison with non-separated couples, I feel it is proper to examine this question in greater detail at this stage.

     Distribution of available resources is governed by the rules of family law, that is according to the child's best interests within the meaning of art. 30 of the Civil Code of Lower Canada (now art. 33 of the new Civil Code of Quebec) and taking into account the needs and means of the parties as provided by s. 15(5)  of the Divorce Act , R.S.C., 1985, c. 3 (2nd Supp .), and art. 635 of the old Civil Code of Quebec (now art. 587, S.Q. 1991, c. 64) respectively. Additionally, in providing that a maintenance order made for a child's benefit should recognize that the spouses have a joint financial obligation to maintain the child, s. 15(8) (a) of the Divorce Act  also places the child's interests in the forefront of the factors to be considered. As the

page 693
Charter  b b Young v. Young [1993] 4 S.C.R. 3

     . . . as an objective, the legislative focus on the best interests of the child is completely consonant with the articulated values and underlying concerns of the Charter , as it aims to protect a vulnerable segment of society by ensuring that the interests and needs of the child take precedence over any competing considerations in custody and access decisions.

     In the case at bar, in the decree nisi of divorce which he rendered in respect of the respondent and her former husband, Boudreault J. of the Superior Court found the amount of the alimony as determined to be fair and equitable in all the circumstances, including the tax impact. I set out below the relevant passage:

     [TRANSLATION]  When we consider the tax impact on the payer and on the receiver of alimony payments like those under consideration here (i.e. a real cost of about 50 percent for the payer and an additional real receipt by the recipient in a similar proportion only), it appears to be fair and equitable to continue the alimony payable for the children alone at $1,150.00 per month for the moment; in view of the tax consequences, that amount will compel the applicant to contribute to the financial support of the children, in addition to her on-going personal care of them, in a proportion which is probably higher than a simple ratio of the parties' income would impose on her.

page 694

     (Thibaudeau v. Chainé, Sup. Ct. Mtl., No. 500-12-151837-865, December 1, 1987, at p. 15.)

     The judge thus took the tax burden into account, as he should have done, in determining the alimony to be paid by the non-custodial parent as an expense item. It is one of several items which, with the needs of the children and the means and other needs of each of the parties, serve to determine the contribution by each parent to the support of the children. This overall breakdown includes that of the tax burden. It is thus artificial to treat the latter in isolation and it is mistaken to think that the proper contribution by each parent to the support of the children has been determined without it being taken into account, and that accordingly the burden has been made the sole responsibility of the recipient of the alimony. Were that the case it could be overturned on appeal. The law requires that this burden be assumed and shared, as an integral part of the other expenses, in accordance with the means and needs of the parties and their children through the setting of alimony.

     The fact that the tax saving resulting from the inclusion/deduction system does not benefit both parents in equal proportion therefore does not infringe the equality rights protected by the Charter . Additionally, I would note that there is no evidence in this connection to show that the recipient parent or the children would benefit by taxation in the hands of the payer of the alimony, as the ordinary rules of taxation under the general system would postulate. In fact, in that case it appears that the latter's ability to pay would be reduced in total (he would be unable to deduct the amounts paid in computing his income) and over time (he would be unable to benefit from the special arrangements allowing the payer of support to reduce the amount of his source deductions).

     In short, the fact that the support may not be increased by an amount equal to the payer's tax relief or the recipient's tax increase does not as such place the latter at a disadvantage since in principle the distribution takes place in accordance with family law, which is incorporated into the tax system by reference and the aims of which are

page 695

     Reference has been made to the fact that family law does not achieve an equal distribution and leaves the custodial parent, usually the mother, relatively deprived, or at least leaves her saddled with a larger and disproportionate share of the burden. It is said that the deduction/inclusion system exacerbates the problem. It is thus incorrect, even accepting the argument as stated, to say that this system is the source of the problem even though, on that view of the matter, it may make the situation worse. The system thus cannot be blamed for the problem of the limited resources of custodial parents, which the system aims to relieve and does in fact relieve in general by reducing the amount collected in tax and leaving a larger part of the parents' income at their disposal to meet their requirements for maintaining their children. This is a benefit not enjoyed by other parents. Accordingly, the complaint is not in effect aimed at this benefit but rather bears upon the failure of certain non-custodial parents to fulfil their obligations to their children adequately, in view of the tax relief which they receive. This situation it is said should bar the government from allowing the non-custodial parent who supports the family a larger amount of disposable income in order to fulfil his obligations to his children, as defined by the law itself and the amount of which is set by a formal agreement or fixed by a decree. All parents would thus be deprived of this greater latitude and freedom to discharge their responsibilities.

     The impugned system provides an overall benefit to couples supporting children. The defects, not in the legislation, which provides for a sharing according to the children's best interests, but in its application in certain cases for reasons quite unrelated to the system, may lead one to conclude that the remedy chosen by Parliament is inadequate to solve fully a profound and complex social problem, but not that it causes prejudice to those it

page 696

     This aspect of the matter having been considered, the final conclusion resulting from comparison of the group of separated or divorced parents requires a brief review of the provisions of the ITA dealing with tax credits. I rely in this regard on the comments of Judge Garon of the Tax Court of Canada, who at the end of his analysis found that each of the credits which the respondent could claim was independent of the inclusion/deduction system and was not subject to receipt of alimony.
In their very wording the three main credits which the respondent may claim (I refer to the equivalent to married credit provided for in s. 118(1)(b) ITA, the tax credit for dependants in s. 118(1)(d) and the child tax credit provided by s. 122.2) are not in fact in any way exclusively associated with custody of a child pursuant to an order, judgment or written agreement. In fact, in enacting these provisions it would appear that the legislature instead intended to alleviate the tax burden of a wide range of persons whose only common denominator is having dependants. This arrangement is not de facto contrary to the custodial parent in a separation situation generally being the one able to claim such credits. The respondent's

page 697

     In view of the conclusion I have arrived at in the course of the earlier steps in the comparison, that no prejudice exists, I do not consider it necessary in this case to decide categorically the question of whether the tax credits, on account of their regular application to custodial parents, should be regarded as characteristics of the system applicable to separated or divorced parents. Even if that were the case, however, I would point out that my conclusion as to the absence of any prejudicial effect would not be altered thereby. On that assumption, the custodial parent would be able to benefit from measures which the non-custodial parent could no longer claim for himself or herself, although they were available under the general taxation system. This is the case in particular with s. 118(5) ITA, which prevents the payer of deductible maintenance from claiming the equivalent to married credit, and with the credit for dependants provided for in s. 118(1)(d), which is not available to someone who is entitled to a deduction provided for in s. 60(b) ITA. The child tax credit in s. 122.2 ITA is given to an individual entitled to receive a family allowance for his or her child under the Family Allowances Act, R.S.C., 1985, c. F-1 (repealed S.C. 1992, c. 48, s. 31 ). At the relevant times s. 7(1) of that Act stated that the allowance was to be paid to the female parent, unless otherwise provided. In view of the evidence in the record indicating that the vast majority of custodial parents are women, it cannot be said that the non-custodial parent, usually the father, will be deprived here of

page 698

     In the circumstances, I would be no more persuaded on this basis of the existence of a burden imposed on the respondent. Accordingly, there is no need to go on to the third step in the analysis and consider the relevance of the personal characteristic on the basis of which the distinction was created.

     VI - Conclusion

     In the course of this discussion it has certainly been suggested that greater generosity by the treasury toward separated custodial parents would be desirable in order to take better account of their economic and social problems, such as an exemption for maintenance for children: I note, however, that it was not argued that this was a government obligation under the Charter  nor was there any suggestion of a disadvantage based on the difference between the present law and such a system.

     It is true that the present law involves an alleviation of the burden on the payer of the maintenance, that the latter undoubtedly derives a benefit therefrom and that the parliamentary debates of the time mentioned this as one of the legislative aims, but this results in relief for the couple and a greater ability to pay and hence an incentive to pay. The beneficial effect of the system continues, though reduced since the legislation was adopted. On this point I note that the problems of collecting alimony, deplorable as they are, cannot be invoked in support of arguments that the tax system in question is discriminatory. They manifestly pertain to an area other than that of the ITA. In any case, it was not shown that the difficulties in collecting larger amounts of alimony are so serious as to cancel out the benefit conferred by the

page 699

     From another standpoint, it was also suggested that separated parents might exercise an option as to responsibility for taxes. First, this involves seeking a benefit which is not given to anyone else for the benefit of those in the group who have the least need of it, namely alimony recipients who have a higher marginal tax rate than the payers. Second, as I pointed out earlier, these same persons cannot constitute a group within the meaning of s. 15  of the Charter , since income level is not a characteristic attaching to the individual.

     In closing I would note that the inadequacy of maintenance is due to numerous factors governed by family law and is not the result of these provisions of the ITA. The distribution of the additional amounts freed up by the system does not, within the meaning of s. 15  of the Charter , have to be made equally between the members of the couple, as it is properly governed by family law in accordance with the child's best interests.

     On the question of costs, I note that the appellant agreed to pay costs in this Court in view of the general interest of this appeal. It seems proper that costs should be awarded to the respondent throughout, though there is no justification for departing from the general rule that the costs are to be determined according to the established tariff.

     VII - Disposition

     I would allow the appeal, but with costs to the respondent throughout, and answer the constitutional questions as follows:

     1.Does s. 56(1)(b) of the Income Tax Act, S.C. 1970-71-72, c. 63, infringe the equality rights guaranteed by s. 15  of the Canadian Charter of Rights and Freedoms ?

page 700

     A.  No.

     2.If s. 56(1)(b) of the Income Tax Act, S.C. 1970-71-72, c. 63, infringes the equality rights guaranteed by s. 15  of the Canadian Charter of Rights and Freedoms  is it justified in the context of s. 1  of the Canadian Charter of Rights and Freedoms ?

     A.  The question does not arise.

     The following are the reasons delivered by

     CORY AND IACOBUCCI JJ. -- We agree with the conclusion reached by Gonthier J., but prefer to express our own views in this matter, in light of the decisions of this Court bearing on s. 15  of the Canadian Charter of Rights and Freedoms  that are being released contemporaneously, namely: Egan v. Canada, [1995] 2 S.C.R. 513, and Miron v. Trudel, [1995] 2 S.C.R. 418. It is clear from our joint reasons in Egan and our agreement with McLachlin J.'s approach to s. 15  of the Charter  as expressed in Miron, that we cannot support Gonthier J.'s approach to s. 15. The analysis of functional values and relevance employed by Gonthier J. imports into a s. 15 analysis the justificatory analysis which properly belongs under s. 1  of the Charter . As a result, it deprives the s. 1 analysis of much of its substantive role. As well, it places an additional and erroneous onus upon the claimant. From the outset, decisions dealing with the equality section have made it clear that, under s. 15, the claimant bears only the burden of proving that the impugned legislation is discriminatory. On the other hand, under s. 1, it is the government which bears the onus of justifying that discrimination. In enunciating the principles which govern the relationship between the state and the individual, the Charter  recognizes that the state may impinge upon fundamental rights but only in situations in which it can justify that infringement as being necessary in a free and democratic society. This division of the burden is integral to the entire structure of the Charter . An approach to Charter  rights which changes the assignment of this onus should be avoided.

page 701

     Further, the functional values/relevance approach of Gonthier J. focuses narrowly on the ground of distinction and, as a result, omits an analysis of the discriminatory impact of the impugned distinction. As we indicated in Egan, the purpose of s. 15 is to protect human dignity by ensuring that all individuals are recognized at law as being equally deserving of concern, respect and consideration. Consequently, it is the effect that an impugned distinction has upon a claimant which is the prime concern under s. 15.

     Ultimately, the approach of Gonthier J. permits proof of relevance, standing alone, to negate a finding of discrimination. We agree with McLachlin J.'s critique of this approach as set out in Miron. As well, the reasons of La Forest J. in Egan provide an example of the somewhat circular results such reasoning might yield. This is demonstrated by his reliance upon the capacity to procreate as rendering the distinction in the Old Age Security Act , R.S.C., 1985, c. O-9 , "relevant". However, it is clear that the spousal allowance is provided to couples regardless of whether they actually have any children. Quite simply, procreation has nothing to do with the qualifications to receive the benefit.

     In the case at bar, we do not believe that the group of single custodial parents receiving child support payments is placed under a burden by the inclusion/deduction system created by ss. 56(1)(b) and 60(b) of the Income Tax Act, S.C. 1970-71-72, c. 63. Although there may very well be some cases in which the gross-up calculations may shift a portion of the payer's tax liability upon the recipient spouse, we agree with Gonthier J. that one cannot necessarily extrapolate from this that a "burden" has been created, at least not for the purposes of s. 15. In this regard, this appeal is markedly different from the situation presented in both Egan and Miron.

page 702

     In this appeal, we are, as noted by McLachlin J., dealing with two provisions geared to operate at the level of the couple. They are designed to minimize the tax consequences of support payments, thereby promoting the best interests of the children by ensuring that more money is available to provide for their care. If anything, the legislation in question confers a benefit on the post-divorce "family unit". It is clear that the divorced parents still function as a unit when it comes to providing financial and emotional support to their children and that both parents remain under a legal obligation to provide this support. The fact that one member of the unit might derive a greater benefit from the legislation than the other does not, in and of itself, trigger a s. 15 violation, nor does it lead to a finding that the distinction in any way amounts to a denial of equal benefit or protection of the law.

     We would stress that courts should be sensitive to the fact that intrinsic to taxation policy is the creation of distinctions which operate, as noted by Gonthier J., to generate fiscal revenue while equitably reconciling what are often divergent, if not competing, interests. As must any other legislation, the Income Tax Act is subject to Charter  scrutiny. The scope of the s. 15 right is not dependent upon the nature of the legislation which is being challenged. See Symes v. Canada, [1993] 4 S.C.R. 695. In the present case, however, in determining whether the distinction has the effect of creating a burden, it is necessary to examine the interaction between ss. 56(1)(b) and 60(b) of the Income Tax Act and the family law regime. Unlike the situations presented in Symes and in Egan, the impugned provisions in this appeal explicitly incorporate and are dependent upon both federal and provincial legislative enactments and do not, by themselves, constitute a complete self-contained code. Therefore the Income Tax Act provisions must be looked at in conjunction with the federal and provincial statutes under which child support orders are issued in order to assess the effect upon the claimant.

page 703

     In the present appeal, ss. 56(1)(b) and 60(b) of the Income Tax Act are triggered by the issuance of a support order pursuant to the Divorce Act, R.S.C. 1970, c. D-8. Accordingly, the taxation provisions operate in close conjunction with family law. The amount of income taxable under ss. 56(1)(b) and 60(b) is determined by the divorce or separation decree and, unless the family law system operates in a defective manner, the amount of child support will include grossing-up calculations to account for the tax liability that the recipient ex-spouse shall incur on the income. If there is any disproportionate displacement of the tax liability between the former spouses (as appears to be the situation befalling Ms. Thibaudeau), the responsibility for this lies not in the Income Tax Act, but in the family law system and the procedures from which the support orders originally flow. This system provides avenues to revisit support orders that may erroneously have failed to take into account the tax consequences of the payments. Therefore, in light of the interaction between the Income Tax Act and the family law statutes, it cannot be said that s. 56(1)(b) of the Income Tax Act imposes a burden upon the respondent within the meaning of s. 15 jurisprudence.

     Again, it must be emphasized that the situation in the instant appeal is markedly different from that presented in Egan. Sections 56(1)(b) and 60(b) of the Income Tax Act explicitly incorporate family law. By contrast, in Egan the spousal allowance is allotted independently of any reference to provincial social assistance legislation. To this end, when Egan and Nesbit (as well as any other gay couple that, but for their sexual orientation, would qualify for the spousal allowance) are denied the allowance, it is clear that a burden is created. In fact, the heterosexist nature of the definition of "spouse" in the Old Age Security Act  is solely responsible for denying the same-sex couple a benefit ordinarily available to an opposite-sex couple, and there is no incorporation of any provincial (or other) law to offset the effect of this denial.

page 704

     Similarly, in Miron there was a denial of equal benefit of the law. The legislation at issue in the Miron appeal infringes s. 15 since it directly denies common law couples the insurance coverage statutorily accorded to married couples. A burdensome distinction is thus created on the basis of marital status.

     We would observe that we are not required in this appeal to address the question of whether spousal support subject to the same taxation regime would threaten the equality principles embedded in the Charter . It is only child support that is at issue.

     In sum, this is not a case in which this Court is called upon to determine whether the distinction that has been created is actually discriminatory. Simply put, there is no burden. Accordingly, this appeal can thus be disposed of at this stage of the s. 15 analysis. It follows that there is no need to enter the next stage, that of finding discrimination, the level at which the opinions of our colleagues appear to diverge conceptually. In so far as we disagree with McLachlin J.'s conclusion that ss. 56(1)(b) and 60(b) of the Income Tax Act occasion a burden, our disagreement is limited to an application of her approach to the facts of this case, not with her methodology per se, which we endorse. By corollary, our concurrence with Gonthier J. in the disposition of this appeal is one of result, not of method. This conclusion emerges because, in the instant case, we find that there is no denial of any benefit of the law within the context of s. 15.

     We would dispose of the appeal and answer the constitutional questions in the manner proposed by Gonthier J.

     The following are the reasons delivered by

     MCLACHLIN J. (dissenting) -- This appeal requires the Court to determine whether the deduction/inclusion scheme for separated or divorced couples set out in ss. 56(1)(b) and 60(b) of the

page 705
Income Tax Act s. 15  Canadian Charter of Rights and Freedoms 

     The scheme taxes Ms. Thibaudeau on the amounts paid to her by her ex-husband for the exclusive benefit of the children in her custody through the inclusion requirement contained in s. 56(1)(b) ITA. Her ex-husband, on the other hand, enjoys a deduction for the amounts paid as child support due to the deduction benefit contained in s. 60(b) ITA. The inclusion of the children's support payments in Ms. Thibaudeau's taxable income increased her federal tax burden by $3,705 for 1989. The divorce decree provided only $1,200 for this additional tax burden. As a result of the application of the ITA deduction/inclusion scheme Ms. Thibaudeau was obliged to pay the difference of $2,505 in federal tax for 1989 out of her own income and resources after consideration of all tax credits.

     The Tax Court of Canada dismissed Ms. Thibaudeau's argument that the Act treats her in a discriminatory manner: 92 D.T.C. 2111, [1992] 2 C.T.C. 2497. It reasoned that since the system allows the quantum of the children's support payments to be adjusted in order to offset the increased tax burden resulting from the inclusion of amounts paid for the children in the custodial parent's taxable income, the system treats both parents equally. The Federal Court of Appeal set aside this decision, relying on the fact that in many cases, the deduction/inclusion scheme penalizes the custodial parent by imposing on him or her a proportionately higher tax burden than that of the non-custodial parent, who benefits from a 100 percent deduction in respect of the amounts he pays for his children: [1994] 2 F.C. 189, 94 D.T.C. 6230, [1994] 2 C.T.C. 4, 167 N.R. 161, 114 D.L.R. (4th) 261, 21 C.R.R. (2d) 35, 3 R.F.L. (4th) 153. Justices Sopinka and Gonthier, as well as Justices Cory and Iacobucci, would hold that the Federal Court of Appeal erred. With respect, I share the

page 706

     I. Facts

     As Gonthier J. has already related the principal facts, I need only refer to certain aspects of the evidence. The evidence established the following facts.

     1.  The children's support payments in the case at bar are paid and received pursuant to a decree nisi of divorce granted on December 1, 1987. By that decree, the judge awarded custody of the two children of the marriage to Ms. Thibaudeau. Finding her to be financially self-sufficient, he declined to order her ex-husband to make support payments for her own needs. With respect to support payments for the children, the judge ordered the ex-husband to pay Ms. Thibaudeau the sum of $1,150 a month, which included a sum of between $150 and $250 a month to cover the additional tax which Ms. Thibaudeau would be paying as a result of including the children's support payments in the computation of her taxable income.

     2.  The additional amount awarded to Ms. Thibaudeau for taxes on the children's support payments was insufficient to cover the increased tax burden resulting from inclusion of their support payments in her income. As a result of the inadequate adjustment of the amount of child support, Ms. Thibaudeau was obliged to pay part of her additional tax burden for 1989 -- $2,505 in federal tax -- from her own income and resources.

     II. Issues

     These facts raise the question of whether the inclusion of support payments for the children in the income of the spouse who has custody of the children, as required by s. 56(1)(b) ITA, infringes the Charter , which reads:

     1.  The Canadian Charter of Rights and Freedoms  guarantees the rights and the freedoms set out in it subject only to such reasonable limits prescribed by law as

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     The right at issue here is the right of equality:

     15.  (1) Every individual is equal before and under the law and has the right to the equal protection and equal benefit of the law without discrimination and, in particular, without discrimination based on race, national or ethnic origin, colour, religion, sex, age or mental or physical disability.

     It follows that the Court must consider two specific questions:

     1.  Does the inclusion requirement provided for in s. 56(1)(b) ITA infringe the equality rights guaranteed by s. 15  of the Charter ?

     2.  If so, is s. 56(1)(b) ITA justified under s. 1  of the Charter ?

     III. Analysis

     A.  Inequality Contrary to Section 15  of the Charter 

     (1) Legislative History

     An analysis of the argument that the ITA treats Ms. Thibaudeau unequally as compared with her ex-husband must be conducted against the background of the history of the impugned legislation. This history suggests that Parliament was never concerned with equality of treatment between separated parents, and that the potential for inequality contained in the legislation has been exacerbated during the years following its enactment.

     The deduction/inclusion scheme was introduced in 1942. Both the structure of the scheme and the wording of the provisions have essentially remained unchanged since then. The income splitting produced by this system is an exception to the general rule of individual taxation underlying the ITA. The deduction/inclusion scheme does not treat each taxpayer as a separate taxation unit, but treats the non-custodial parent as forming part of a single taxation unit, the family. By a legislative fiction, the deduction/inclusion scheme removes

page 708

     Parliament created this exception to the general rule of individual taxation in order to ameliorate the situation of separated or divorced couples as well as that of any new family that might result from a new marriage by the non-custodial parent. In 1942, the husband was almost invariably the sole source of financial support for the wife and children. It is thus not surprising that Parliament considered that any improvement in the situation of all concerned -- the first wife, the second wife or the children -- could best be accomplished by improving the situation of the husband or father. It is also not surprising that Parliament was not concerned with ensuring equal tax treatment for the former spouses. At the time of enactment, women who had the custody of children did not work outside the home, rare cases excepted. Thus they very seldom were required to pay tax. The following extract from the House of Commons Debates indicates the reasoning underlying the establishment of a deduction benefit for the non-custodial parent and reveals the logic which led Parliament in the Mackenzie King era to adopt the system to which Ms. Thibaudeau now objects:

     Mr. HANSON (York-Sunbury): Such a man who has married again is in a very tight spot. I think he ought to have a little consideration; that should be allowed as a deduction.

     Mr. BENCE: I was going to say a word on that point. It seems to me most unfair that when a man is divorced and is supporting his ex-wife by order of the court, he should not be allowed to deduct, for income tax purposes, the amount paid in alimony. If that were done, the ex-wife could be required to file an income tax return as a single woman, as she should, and she would have to acknowledge receipt of that income in making up that return. In many cases the man has married again, but still he must pay a very high tax on the $60, $70 or $80 a month he must pay his former wife. I am not thinking of it so much from the point of view of the husband, though I believe he is in a very bad spot. In the cases with which I have become acquainted, the

page 709
husband has defaulted in his payments because he has not been able to make them, and in those cases it is the former wife who suffers, and accordingly I believe she should be given as much consideration as the husband

     Mr. ILSLEY: I agree that there is a great deal of injustice to the husband, and perhaps indirectly to the wife, under the law as it stands now, and much consideration has been given some method by which the law might be changed. However, I am not in a position at the moment to say whether or not an amendment to meet the situation will be proposed. The matter is still under consideration.

     . . .

     Mr. GREEN: I really think it is an impossible situation, with the tax so greatly increased as it has been this year. After all, our law recognizes divorce, and once the parties are divorced they are entitled to marry again. In some cases that have been brought to my attention the husband has remarried and had children by the second wife, but is forced to pay income tax on the alimony that he pays the first wife, and I suggest that the position is absolutely unfair.

     Mr. ILSLEY: I agree that it is, in a great many cases. [Emphasis added.]

     (House of Commons Debates, vol. V, 3rd sess., 19th Parl., July 17, 1942, at pp. 4360-61.)

     Despite its laudable aim of ameliorating the position of all members of the broken family, the method Parliament chose to accomplish this goal contained the seeds of future inequality. It focused solely on improving the financial situation of the noncustodial parent and ignored the tax position of the custodial parent. It contained no provisions to ensure that the custodial parent receiving payments for children would not see her personal tax burden increased, much less share the advantageous tax treatment enjoyed by the non-custodial parent.

     At the time Parliament did not consider the tax impact of the deduction/inclusion scheme on custodial parents (who in the great majority of cases were the mothers). There was no concern with the need to ensure that the latter receive an adequate

page 710

     These assumptions, however, no longer hold true. The half-century that has passed since the adoption of the tax scheme which Ms. Thibaudeau challenges has seen great changes in society and in the family. In the social context of 1942 the inequality inherent in the system was not widely felt; in the modern social context, the same inequality is widely felt. In 1992, 56 percent of married women held employment (P. La Novara, A Portrait of Families in Canada (1993), at p. 21) and there are many more taxpayers today among women than there were in 1942. The negative effect of the inclusion requirement on the custodial parent (women in most cases) has thus become greater over the years.

     (2)  Present Inequality under Section 15(1)  of the Charter 

     In Miron v. Trudel, [1995] 2 S.C.R. 418, at p. 485, I take the view that an analysis under s. 15(1)  of the Charter  involves two stages. First, the claimant must show that the impugned legislation treats him or her differently by imposing a burden not imposed on others or denying a benefit granted to others. Second, the claimant must show that this unequal treatment is discriminatory. This requires one to consider whether the impugned legislative distinction is based on one of the grounds of discrimination enumerated in s. 15(1) or on an analogous ground. In the great majority of cases the existence of prejudicial treatment based on an enumerated or analogous ground leads to a conclusion that s. 15(1) has been infringed. Distinctions made on these grounds are typically based on stereotypical attitudes about the presumed characteristics or situations of individuals rather than their true situation or actual ability. Once a breach has been

page 711
s. 1  Charter  R. v. Oakes [1986] 1 S.C.R. 103 R. v. Edwards Books and Art Ltd. [1986] 2 S.C.R. 713 Black v. Law Society of Alberta [1989] 1 S.C.R. 591 Irwin Toy Ltd. v. Quebec (Attorney General) [1989] 1 S.C.R. 927 Andrews v. Law Society of British Columbia [1989] 1 S.C.R. 143

     (a)  Inequality of Protection or Benefit of the Law and its Basis

     The impugned taxation scheme imposes a burden on separated or divorced custodial parents, which it does not impose on separated or divorced non-custodial parents. The custodial parent must include child support payments from which she gains no personal benefit. The non-custodial parent may deduct support payments from his taxable income. He is taxed only on his actual personal income less this deduction. On its face, this demonstrates adverse unequal treatment of custodial parents. The evidence in this case suggests that taking into account the amounts from which she benefitted in the form of tax credits, Ms. Thibaudeau was obliged to pay from her own resources an additional $2,505 in federal tax for 1989 as a result of the inclusion of child support payments in her taxable income: testimony of Jean-François Drouin, a tax lawyer.

     The increased tax burden resulting from this artificial inflation of the custodial parent's taxable income may increase the amount of tax payable in two ways. First, the inclusion increases the amount of taxable income and consequently the amount of tax payable. Second, the inclusion may result in an increase in the marginal tax rate and hence in the tax payable.
The inequality between the custodial and non-custodial spouse is exacerbated by the fact that the latter enjoys an automatic and absolute right of

page 712

     Similarly, when the tax cost of child support alters as the result of a change in the circumstances of the parties, it is up to the custodial parent to claim an adjustment of child support. For example, if the custodial parent increases her annual income and her marginal tax rate, she will be obliged to initiate proceedings and show that the increase in the tax cost of the child support justifies an adjustment. The economic as well as psychological and practical hardships involved in such proceedings explain why support orders are rarely amended in such cases and why the custodial parent more often than not ends up paying the additional tax burden out of her own resources or those of the children in her custody (Federal/Provincial/Territorial Family Law Committee, The Financial Implications of Child Support Guidelines: Research Report, May 1992, at p. 91). The non-custodial parent, for his part, always automatically benefits from the deduction, even if the tax adjustment for the custodial parent is no longer adequate.

     The logic of the deduction/inclusion scheme is further called into question by the fact that our society strongly encourages women to attain financial self-sufficiency, and, in pursuit of that essential objective, to increase their income. The higher the income of the custodial parent, the greater will be her tax rate and the more she will be penalized

page 713

     A further inequality in the deduction/inclusion scheme may be noted. While the non-custodial parent may deduct child support from his taxable income, the custodial parent not only cannot deduct amounts she spends on maintaining the children, but must also pay the tax that the non-custodial parent would ordinarily have had to pay on the income devoted to child support. The deduction/inclusion scheme overlooks the custodial parent's financial contribution to the support of the children. The ITA limits the amounts that may be deducted to child support under a court order or written agreement. Court orders or written agreements never allude to the amounts which the custodial parent personally devotes to supporting the children in his or her custody. Still less do they note the contribution of the custodial parent in terms of services, presence and availability. Standard child deductions and credits claimed by the custodial parent are legislatively capped, and may fall short of her actual expenditure for the child. It need hardly be added that the non-custodial separated or divorced parent has no obligation to include in his or her taxable income amounts

page 714

     Although a comparison between the tax obligations of the custodial and non-custodial parents seems to me the best means of establishing the existence of prejudicial treatment of the former as compared with the latter, this conclusion can be buttressed by other comparisons.

     Apart from s. 56(1)(b) ITA, child support is not included in the taxable income of other persons in situations similar to that of the custodial parent. The general principle of individual taxation applies, and the person having custody is not taxed on amounts which do not personally belong to him or her. For example, if child custody is awarded to a third party to whom the parents pay child support, the principle of individual taxation applies and the third party is not required to include child support in his or her taxable income. The law thus treats a separated custodial parent and a custodial third party receiving child support differently, imposing on the former an obligation to which the latter is not subject. Parliament may have had valid reasons for not requiring custodial third parties to include the amount of the children's support payments in their taxable income, for example, a desire not to discourage third parties from accepting child custody. But this does not permit us to infer that it is fair and acceptable to penalize custodial parents by placing an unequal tax burden on them.

     The case of a custodial parent who is widowed provides a similar comparison. If one parent dies and leaves money for the child, the surviving parent who retains custody of the child and administers the money for the child is not required to include it in his or her taxable income. The amount bequeathed is intended exclusively for the child, a fact which the tax law recognizes. Again, we see

page 715

     I conclude that the deduction/inclusion scheme imposes a burden on the custodial parent which it does not impose on the non-custodial parent or on others who are in similar situations. I turn now to the arguments which are raised against this conclusion. The first argument, adopted by Gonthier J., is that it is wrong to focus the analysis on the individual's tax treatment and that one should consider the fractured family as a unit for taxation purposes. The second argument, adopted by Gonthier J. and by Cory and Iacobucci JJ., is that there is no inequality if one takes into account the impact of the family law regime on the tax scheme.

     With respect to the first argument, Gonthier J. suggests that it is wrong to focus on a comparison of the position of the custodial or non-custodial spouse. This, he contends, distorts the analysis by isolating the component parts of a single system.

page 716

     First, to compare the position of the custodial and non-custodial parent does not, as Gonthier J. suggests, take the matter out of context. Rather, it focuses on the interaction between the various components of the deduction/inclusion scheme. This is to place the analysis in its context and to make a comparison which takes into account the actual situation of the parties affected by the deduction/inclusion scheme.

     Second, s. 15(1) is designed to protect individuals from unequal treatment. Its opening words state: "Every individual is equal before and under the law and has the right to the equal protection and benefit of the law" (emphasis added). Where unequal treatment of one individual as compared with another is established, it is no answer to the inequality to say that a social unit of which the individual is a member has, viewed globally, been fairly treated.

     It is true, as Cory and Iacobucci JJ. suggest, that former spouses who are parents of the same children have a joint obligation toward the latter and so may theoretically be regarded as members of a single entity, despite the breakup of the family unit. It can be seen, however, that in practical terms the former spouses conduct their everyday lives much more as individuals than as a couple. As proof of this, Ms. Thibaudeau had to pay part of the additional tax resulting from the inclusion requirement ($2,505) out of her own income and resources. Her ex-husband made no contribution to these costs and the law did not require him to make any.

     The fact that the deduction/inclusion scheme does not impose prejudicial treatment on the majority of divorced or separated couples as compared with other couples -- and even confers a benefit on them in 67 percent of cases (affidavit of

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b the couple as a whole one of its members

     Even if the legislation is viewed from the perspective of the couple, it works significant inequality. Under the deduction/inclusion scheme, the higher the non-custodial parent's marginal tax rate is above that of the custodial parent, the greater is the overall tax benefit. Accordingly, when the custodial parent and the non-custodial parent are taxed at the same marginal tax rate, the tax benefit is nil. On the other hand, when the custodial parent's marginal tax rate is greater than that of the non-custodial parent, there is an adverse tax impact since the deduction/inclusion scheme has the effect of increasing the total tax paid by both parents. The result of this is that the deduction/inclusion scheme leads to tax savings for both parents together in about 67 percent of cases, adversely affects separated or divorced couples in about 29 percent of cases and has neutral effects in about 4 percent of cases (affidavit of Nathalie Martel, February 1, 1994, para. 21). From the outset, the deduction/inclusion scheme imposes prejudicial treatment on separated or divorced couples in about 30 percent of cases.

     The total federal income tax saved by separated parents in 1991 as a result of income splitting under the deduction/inclusion scheme is estimated at $203 million (affidavit of Nathalie Martel, June 30, 1994). But this global saving provides no defence to the charge of inequality. The problem is that the overall context in which this scheme is

page 718
supra Divorce Act 

     I conclude that the argument that the question of equality must be viewed from the perspective of the couple rather than the individual overlooks individual inequalities which s. 15  of the Charter  is designed to redress; and that even if the matter is viewed from the standpoint of the couple, unequal treatment is demonstrated.

     Gonthier J., as well as Cory and Iacobucci JJ., argue that the family law regime rectifies the inequality that the legislation creates between custodial and non-custodial parents by allowing the amount of the child support to be adjusted to offset the additional tax burden on the custodial parent. I agree that the s. 15 equality analysis must take into account the rules of family law. I cannot accept, however, the conclusion that the family law regime neutralizes the effects of the inequality created by the deduction/inclusion scheme.

page 719

     The evidence indicates that in practice the family law regime does not and cannot succeed in rectifying the inequality created by the deduction/inclusion scheme. Tax impact is not always considered by the courts and, when it is, the adjustment is often insufficient to cover the additional tax which the custodial parent must pay as a result of being subject to the deduction/inclusion scheme. A survey of 147 judges conducted by Judge R. James Williams of the Nova Scotia Family Court in 1990 indicates that only a minority of counsel present evidence to the court on the tax impact of the child support and that a majority of judges do not calculate the tax consequences if no evidence is presented to them in this connection (Report of the Federal/Provincial/Territorial Family Law Committee, supra, at p. 90, n. 52). The fact that the custodial parent can appeal a judgment which does not adequately take the tax impact into account or apply to the court to increase child support when new circumstances increase the additional tax burden she must bear as a result of including child support in her taxable income, does not answer these practical problems. I cannot accept that the legality of the system is preserved by the existence of corrective mechanisms which, in addition to being illusory, place on the shoulders of one individual -- the custodial parent -- the psychological and economic burdens inherent in implementing them.

     Even when the court considers the tax consequences, complete compensation for the additional tax burden on the recipient is far from certain. Leaving aside the question of the complexity of the calculations required, one cannot ignore the fact that the amount of child support has to be determined in light of several factors -- including the child's interests and the duty of both parents to contribute to their children's support in proportion to their means -- and leaves room for the exercise of a very wide discretionary judicial power. This precludes complete neutralization of the negative effects that may result from the inclusion requirement provided for in s. 56(1)(b) ITA (Report of the

page 720
supra

     The actual situation of thousands of custodial parents in Canada belies the contention that the family law regime corrects the inequality created by the deduction/inclusion scheme within the couple. In Willick v. Willick, [1994] 3 S.C.R. 670, at pp. 719-25, L'Heureux-Dubé J. decried the inadequate compensation which the law often provides for the hidden costs associated with the custody of children. To the already difficult task on the custodial parent of proving the true cost to her of raising a child, s. 56(1)(b) ITA adds the additional burden of proving, for the present and the future, what the increase in her tax will be as a result of inclusion of child support in her income. It is contradictory to concede on the one hand that family law is able only with difficulty to divide the financial obligations pertaining to the children equally between the former spouses, and at the same time to assert that the same law is able to fully and adequately compensate for the increase in the tax burden which the inclusion requirement imposes on the custodial parent.

     The same problems arise where child support is paid pursuant to an agreement between the parties, as opposed to a court order. Once again, full compensation for the additional tax burden imposed on the custodial parent is uncertain and contingent, while the deduction benefit for the non-custodial parent is automatic and absolute. Such agreements are often reached in an informal way and without professional advice. The custodial spouse is placed in the position of demonstrating to the non-custodial spouse the significance of the additional tax burden she must bear on account of the law's inclusion of child support in her taxable income. All this, taken in the emotional, personal and economic context in which such negotiations take place, has as a consequence that the custodial parent often fails to obtain sufficient compensation to indemnify her for the additional tax which the ITA imposes.

page 721

     In the present case the judge who set the quantum of the child support expressly considered its tax consequences. Boudreault J. stated that a sum of $900 to $1,000 a month was necessary to maintain the children and thought it advisable to set the amount of child support at $1,150 a month on account of the tax consequences of the latter for the recipient and the payer: Thibaudeau v. Chainé, Sup. Ct. Mtl., No. 500-12-151837-865, December 1, 1987. The adjustment made was inadequate, however forcing Ms. Thibaudeau to assume an additional federal tax burden of $2,505 out of her own income for the 1989 taxation year: testimony of Jean-François Drouin. In short, the family law regime failed to rectify the inequality which the tax law imposed on Ms. Thibaudeau. Even if she were to seek a variation in child support, there is no assurance that the result would be full indemnity. Ms. Thibaudeau's case, far from isolated, negates the notion that the family law regime neutralizes the discriminatory impact of the tax law.

     I conclude that the requirement of s. 56(1)(b) ITA that separated or divorced custodial parents include child support in their taxable income imposes obligations on separated or divorced custodial parents that do not apply to others in similar situations and denies benefits which the law accords to others. It denies the right of custodial parents to equal protection and benefit of the law. Unequal treatment under s. 15 is established.

     This brings us to the second stage of the analysis under s. 15: an examination of the ground(s) of discrimination.

     (b) Does the Status of Separated or Divorced Custodial Parent Constitute an Analogous Ground Within the Meaning of Section 15 of

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the Charter  If so, Is the Distinction Based on this Ground Discriminatory

     The ground on the basis of which the distinction is made here -- the status of separated or divorced custodial parent -- is not enumerated in s. 15  of the Charter . The question, therefore, is whether it constitutes an analogous ground of discrimination.

     In Miron v. Trudel, supra, at p. 495, I explained that in order to decide whether a ground of discrimination is an analogous ground within the meaning of s. 15  of the Charter , it is essential to ask whether the characteristic on the basis of which the prejudicial distinction is made may be used to make irrelevant distinctions that are contrary to human dignity. The fact that the group in question has historically been disadvantaged, that it constitutes a discrete and insular minority, that the distinction is based on an immutable personal characteristic rather than on an individual's merit, capacities or circumstances, that the ground under consideration is similar to one of the enumerated grounds, or that the legislatures and the courts have recognized that distinctions based on the ground under consideration are discriminatory, are all factors which may help in deciding whether a ground of discrimination is an analogous ground for the purposes of s. 15  of the Charter .

     Is the status of separated or divorced custodial parent an analogous ground within the meaning of s. 15  of the Charter ? In my view it is.

     First, the imposition of prejudicial treatment solely on the basis of this status may violate the dignity of an individual and his or her personal worth to a degree affecting the individual's personal, social or economic development. One's status vis-à-vis one's former spouse involves the individual's freedom to form family relationships and touches on matters so intrinsically human, personal and relational that a distinction based on this ground must often violate a person's dignity.

     Second, separated or divorced custodial parents considered as a group have historically been

page 723
Evaluation of the Divorce Act -- Phase II: Monitoring and Evaluation How Much and Why? Economic Implications of Marriage Breakdown: Spousal and Child Support Fam. L.Q. C.F.L.Q. Fam. L.Q. Settling Up: Property and Income Distribution on Divorce in Australia The Divorce Revolution: The Unexpected Social and Economic Consequences for Women and Children in America The Resolution of Family Conflicts Matrimonial Support Failures: Reasons, Profiles and Perceptions of Individuals Involved Making Fathers Pay: The Enforcement of Child Support

     Third, the special difficulties with which separated or divorced custodial parents must live and their minority position as compared with Canadian

page 724
supra

     Fourth, classification as a separated or divorced custodial parent may give rise to adverse distinctions on the basis of immutable personal characteristics, rather than on the merit and actual circumstances of a particular individual.  The status of a divorced parent in respect of children of the dissolved marriage is, for all practical purposes, immutable. The remarriage of the custodial parent does not change the relationship with the children, and the parent still remains a "former spouse" in relation to the first marriage under the Divorce Act . Only if there is remarriage to the former spouse does the status of divorced parent disappear -- a possibility so remote that it may safely be ignored. Moreover, the decision to separate or divorce is often far from free. The other party may leave the relationship against the will of the parent who remains with the children. Or the circumstances of the marriage may have left the custodial parent with little choice but to leave it.

     Fifth, the status of separated or divorced custodial parents is linked to the enumerated ground of sex given that the great majority of the members of this group are women. In fact, in 1990 the courts awarded custody to women in 73.2 percent of divorce cases while custody was awarded to men in 12.3 percent of the cases and a joint custody order was made in 14.1 percent of the cases La Novara, supra, at pp. 11 and 18).

     These considerations lead to a single conclusion: the status of separated or divorced custodial parent

page 725
s. 15(1)  Charter 

     Unequal treatment by a law on an enumerated or analogous ground ordinarily suffices to establish that s. 56(1)(b) ITA constitutes discrimination and infringes the equality right guaranteed by s. 15(1)  of the Charter . The only exceptions are rare cases in which a distinction based on an enumerated or analogous ground does not lead to an infringement of s. 15(1)  of the Charter : see my reasons in Miron v. Trudel, supra. This is not such a case. The distinction made here on the basis of the status of separated or divorced custodial parent runs directly counter to the values underlying s. 15(1). It increases the disadvantages already suffered by separated or divorced custodial parents based not on their merit or actual situation but solely and arbitrarily by reference to their membership in a group.

     I conclude that a violation of s. 15(1)  of the Charter  is established. The remaining question is whether this infringement of s. 15(1) is justified by s. 1.

     B.Is the Infringement of Section 15  of the Charter  by Section 56(1)(b) ITA Justified in a Free and Democratic Society?

     (1)  Is the Objective Pursued of Sufficient Importance?

     The speeches which appear in the Parliamentary debates of the period suggest that the deduction/inclusion scheme challenged by Ms. Thibaudeau was adopted in order to increase child support and ease the discharge of support obligations owed by the non-custodial spouse to his first and sometimes second family. Under the scheme introduced, this objective was to be achieved by reducing the tax burden of the fractured family as a unit. This in turn, was to be achieved by transferring the tax burden for child support from the non-custodial

page 726

     I pause to note here that the mechanism of the scheme introduced -- a deduction for the non-custodial spouse with no assurance it would be passed on to the custodial spouse -- casts doubt on the genuineness of this legislative objective. The practical operation of the scheme suggests that it was designed more to improve the non-custodial parent's situation than that of the custodial parent. This aspect will be considered more fully under the analysis of the reasonableness of and justification for the means chosen by Parliament to achieve its objective.

     This said, I am of the view that the objective of increasing the resources of the broken family as a unit in order to increase child support and ease the discharge of the non-custodial parent's obligations responds to social concerns of considerable importance. There is no question that the breaking up of the family unit tends to impoverish its members. Parliament is to be commended for attempting to offset or reduce that impoverishment. The legislative objective may without exaggeration be described as pressing and substantial.

     (2)  Are the Means Chosen Reasonable and Justified?

     (a)  Rational Connection

     I am prepared to accept that there is a rational connection between the means adopted by Parliament (taxation of child support in the hands of the parent who would ordinarily have a lower marginal tax rate, together with a deduction for the other parent) and the objective pursued (increasing the amount of child support and enabling the non-custodial parent to discharge his support obligations more readily). However, I view the correlation as tenuous.
As indicated, the scheme introduced by Parliament was designed to improve the economic

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of each member means as a whole

     It is evident that the connection between the legislative objective and the means chosen exists more in theory than in practice.  No specific measure was contemplated to ensure or even encourage any attainment of the legislative objective. Neither the ITA nor the Divorce Act  requires a non-custodial parent to share the tax savings resulting from the deduction received or to proportionately increase the amount of the child support. The deduction/inclusion scheme appears to benefit only the person on whom the deduction is conferred, namely the non-custodial parent, and works to the disadvantage of the custodial parent, who must include an additional amount in computing her taxable income thereby increasing her tax burden. The appearance is borne out by the reality. In many cases, the tax benefit is not passed on to the custodial parent or the children and remains in the possession of the non-custodial parent (Report of the Federal/Provincial/Territorial Family Law Committee, supra, at p. 91).

     Having said that, I am not prepared to conclude that the impugned legislation entirely fails the rational connection test. Some connection may be argued for on the ground that the deduction/inclusion scheme reduces the tax burden of broken families as a whole in about 67 percent of cases (affidavit of Nathalie Martel, February 1, 1994, para. 21) and that the total federal tax saved by separated or divorced couples in 1991 as a result of the income splitting generated by the

page 728

     Although the connection may seem somewhat theoretical to an individual penalized by the system, it cannot be said that it is entirely irrational to assume that by improving the financial situation of one of the members of the broken family, through giving him a tax deduction, the situation of all members of the fractured family may also be improved. Since the scheme brings about an immediate improvement in the financial situation of the parent whose contribution to maintaining the other members of the family is generally the greater, namely the non-custodial spouse, it becomes difficult to argue that the scheme is devoid of all logic. The fact that the mechanisms for dividing the tax saving are ineffective or even non-existent is deplorable, but that does not mean that there is no rational connection between the objective and the means.

     (b) Minimal Impairment

     The onus is on the party seeking to uphold the limitation to show on a balance of probabilities that the impugned law is a "reasonable limit [which] can be demonstrably justified in a free and democratic society": Oakes, supra, at pp. 136-37; Edwards Books, supra, at p. 768; Black, supra, at p. 627; Irwin Toy, supra, at p. 986; and Andrews, supra, at p. 153. The question here is whether the Crown has discharged this burden in respect of the "minimal impairment" component of the s. 1 analysis. In other words, has the Crown demonstrated on a balance of probabilities that there were no other reasonable alternatives to the present system that were less intrusive of the right to equality guaranteed by the Charter , and by means of which the legislative objective could still have been achieved? A law should not be regarded as failing the minimal impairment requirement simply because it does not correspond exactly to the solution the Court would have adopted: Edwards Books, supra, at p. 795, and Black, supra, at p. 627. Parliament does not have to have chosen the least intrusive means of all to meet its objective. The fact that Parliament selected one of a range of

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choices Charter  R. v. Chaulk [1990] 3 S.C.R. 1303 R. v. Swain [1991] 1 S.C.R. 933

     In my view, it is far from clear that Parliament chose an alternative which reasonably minimizes the impairment of the equality rights of Ms. Thibaudeau and persons in her situation. A range of alternatives less intrusive of the right to equality protected by the Charter  may be readily envisaged: a deduction/non-inclusion scheme; taxation of the support in the hands of the child; complete abolition of the deduction/inclusion scheme; replacement of the deduction/inclusion scheme by tax credits; an optional deduction/inclusion scheme; and a progressive deduction/inclusion scheme. To consider only two of these, it appears that the alternatives of taxation in the hands of the child or an optional deduction/inclusion scheme would be much less intrusive of the right to equality guaranteed by the Charter  than the method Parliament chose, while still achieving the legislative objective.

     The alternative of taxation in the hands of the child offers a clear advantage in a significant number of cases since the income of children is frequently below the threshold at which a taxpayer is required to pay income tax ($7,000 federally). The objective of enabling separated families to have more money at their disposal to provide for their needs could thus be attained in a greater number of cases without imposing on custodial parents a tax burden for child support from which they derive no personal benefit.

     An optional deduction/inclusion scheme also appears attractive in that it would allow parents to avoid application of the scheme if it would have a detrimental effect. Restricting the

page 730

     These alternatives are mentioned only by way of illustration and are not intended as an exhaustive list of solutions that might be considered by Parliament to attain its valid objectives while complying with the requirements of the Charter . Not all are free from problems. However, it must be recalled that it is not up to this Court to "devise legislation that is constitutionally valid, or to pass on the validity of schemes which are not directly before it, or to consider what legislation might be the most desirable": Edwards Books, supra, at p. 783. It is rather the function of Parliament to consider the range of available solutions in depth, to weigh the competing interests and to arrive at the solution it thinks is best within the range of options permitted by the Charter .

     The existence of a panoply of less-intrusive alternatives available to Parliament to meet its objective of improving the economic situation of the members of broken families, leads me to conclude that the deduction/inclusion scheme does not impair the right to equality in a restrained and minimal fashion. It follows that the inequality imposed by s. 56(1)(b) ITA cannot be justified under s. 1  of the Charter .

     Against this conclusion, it was argued that the tax credits provided by the ITA reduce the impairment to an acceptable minimum by attenuating any inequality which the inclusion requirement may work on the custodial parent. I accept that tax credits should be considered under s. 1: Symes v. Canada, [1993] 4 S.C.R. 695, and Tétreault-Gadoury v. Canada (Employment and Immigration Commission), [1991] 2 S.C.R. 22. However, like

page 731

     I note that the tax credits for equivalent to married status (s. 118(1)(b) ITA), for dependants (s. 118(1)(d)) and for children (s. 122.2) essentially operate separately from the deduction/inclusion scheme. It is therefore difficult to argue that these provisions offset the inequality created by the deduction/inclusion scheme since the conditions under which the two systems apply are not the same.

     However, my principal objection to this argument arises from the evidence presented at the trial.  Quite apart from the fact that the increase in taxable income caused by the inclusion requirement may result in loss of entitlement to certain tax credits, Mr. Drouin's testimony clearly indicates that the amounts of the tax credits involved are frequently insufficient to offset the additional tax burden resulting from the inclusion requirement. After taking all available tax credits into account, he concluded that Ms. Thibaudeau was obliged to pay additional federal tax of $3,705 for the 1989 taxation year, $2,505 of which came out of her own income and resources.

     These considerations lead me to conclude that s. 56(1)(b) fails the minimal impairment test. Other options which are more consistent with equality rights ought to have been considered by Parliament. While this is sufficient to dispose of the case, I shall briefly comment on the proportionality of the effects of the impugned legislation.

     (c)  Proportionality of Effects

     In Dagenais v. Canadian Broadcasting Corp., [1994] 3 S.C.R. 835, at p. 889, Lamer C.J., writing for the majority, restated the proportionality of effects test as follows: "there must be a

page 732
and there must be a proportionality between the deleterious and the salutary effects of the measures

     As discussed earlier, the deduction/inclusion scheme produces tax savings for the broken family as a whole in approximately 70 percent of cases, leaving an adverse tax impact in approximately 30 percent of cases. Thus, the scheme disadvantages approximately 30 percent of the families it affects. Many custodial parents may suffer as a consequence of this disadvantage. In addition, they may suffer from the added disadvantage of being required to include child support in their personal income for tax purposes. An adverse tax impact for the custodial parent and the children may thus occur in more than 30 percent of cases.

     Accepting that there is no perfect system, it seems apparent that the harmful effects of the deduction/inclusion scheme are disproportionate to the benefits it may produce. What is at stake is nothing less than the adequacy of a custodial parent's livelihood and that of the children living with her. The interest at stake is too essential to permit us to accept as proportionate an adverse tax impact in more than 30 percent of cases.

     The deduction/inclusion scheme exacerbates the significant financial difficulties encountered by custodial parents and children upon the breakup of the family. The evidence indicates that it is usually the custodial parent and the children who bear the brunt of the impoverishment caused by the breakup of the family unit (Canada, Department of Justice, Bureau of Review, Evaluation of the Divorce Act -- Phase II: Monitoring and Evaluation, supra; Pask and McCall, supra, at pp. 76-78; Williams, supra; McLindon, supra; Eichler, supra, at p. 61; Wishik, supra; Weston, supra; Weitzman, supra; Maclean and Eekelaar, supra; Canadian Institute for Research and the Steering Committee,

page 733
supra supra supra

     I conclude that the requirement of proportionality between the deleterious effects of the scheme and the salutary consequences which it may potentially have is not satisfied.

     C. Conclusion

     Although the deduction/inclusion scheme is designed to improve the situation of the family upon divorce or separation and in many cases succeeds in achieving this objective, it does so at the cost of placing an unequal and unjustifiable tax burden on the shoulders of custodial parents like Ms. Thibaudeau. I conclude that the requirement of s. 56(1)(b) that child support be included in the custodial parent's income infringes the right to equality guaranteed by the Charter  and that this infringement is not justified by s. 1.

     (1)  Remedy

     A reading down of s. 56(1)(b) ITA to exclude child support payments appears appropriate. Since the issue in this Court turned essentially on s. 56(1)(b), the remedy must be limited to this provision, without ruling on the unconstitutionality of the deduction provision in s. 60(b) ITA.

     This solution, while not perfect, is the best available to the Court. All available options present difficulties in one respect or another. Limiting the remedy to s. 56(1)(b) without dealing with its immediate counterpart, the deduction benefit under s. 60(b) may be seen as enshrining a misguided system which enhances inequalities within the

page 734
b Schachter v. Canada [1992] 2 S.C.R. 679

     Notwithstanding these considerations, I am of the view that the remedy in this case must be limited to s. 56(1)(b). First, by extending the finding of unconstitutionality to s. 60(b) ITA, the Court would be ruling ultra petita since the parties did not seek a ruling on this provision and limited their claims to s. 56(1)(b).

     Second, s. 60(b) plays no part in the computation of the custodial parent's taxable income or assessment. The inclusion requirement and deduction benefit operate independently of one another. Indeed, I have criticized the fact that there is no connection between these two mechanisms, with the result that one leads to enrichment of the non-custodial parent, while the other leads to impoverishment of the custodial parent, without the former having any obligation to pass the benefits derived from the system on to the latter. The two aspects of the deduction/inclusion scheme are therefore not intrinsically related -- this is one of the scheme's problems -- and it is not entirely incoherent to regard these two components as independent when deciding on the remedy to be granted.

     Third, to declare s. 60(b) unconstitutional would be premature. Like the majority in the Federal

page 735
b

     Fourth, to declare s. 60(b) unconstitutional at this point might cause practical problems. Persons paying child support, deprived of their deduction, might be expected to apply to the courts for a reduction of support obligations. It seems preferable in these circumstances to leave s. 60(b) in place pending Parliament's review of the entire system.

     In order to permit Parliament the necessary time to review and amend the system, I would suspend the effect of the declaration of unconstitutionality for a period of 12 months from the date of this judgment. "A delayed declaration is a serious matter from the point of view of the enforcement of the Charter . A delayed declaration allows a state of affairs which has been found to violate standards embodied in the Charter  to persist for a time despite the violation": Lamer C.J., speaking for the majority in Schachter, supra, at p. 716. A period of delay nevertheless seems to me to be necessary here to allow Parliament to develop new measures that will make it possible to alleviate the economic problems created by family breakup, while complying with the Charter  and ensuring that the assistance directly benefits those whose situation is to be improved.

     Given the circumstances of the present case and the considerable legal battle waged by Ms. Thibaudeau, I would not suspend the declaration of unconstitutionality as it applies to her.

     (2) Disposition

     For these reasons I would dismiss the appeal and answer the constitutional questions raised as follows:

page 736

     1.Does s. 56(1)(b) of the Income Tax Act, S.C. 1970-71-72, c. 63, infringe the equality rights guaranteed by s. 15  of the Canadian Charter of Rights and Freedoms ?

     Yes, in so far as it applies to amounts paid between spouses or former spouses for child support.
2.If s. 56(1)(b) of the Income Tax Act, S.C. 1970-71-72, c. 63, infringes the equality rights guaranteed by s. 15  of the Canadian Charter of Rights and Freedoms  is it justified in the context of s. 1  of the Canadian Charter of Rights and Freedoms ?

     No.

     I would also suspend the effects of this declaration of unconstitutionality for a period of 12 months, except as regards the respondent; order the appellant to pay costs throughout, except costs relating to the class action brought; and refer the matter back to the Tax Court of Canada to be decided in accordance with this judgment.

     Appeal allowed with costs to the respondent, L'HEUREUX-DUBÉ and MCLACHLIN JJ. dissenting.

     Solicitor for the appellant:  John C. Tait, Ottawa.

     Solicitors for the respondent:  Bernier, Beaudry, Ste-Foy.

     Solicitor for the intervener the Attorney General of Quebec:  The Department of Justice, Ste-Foy.

     Solicitors for the intervener SCOPE:  Mary Eberts, Toronto; Tory Tory DesLauriers & Binnington, Toronto.

     Solicitor for the intervener the Coalition:  B.C. Public Interest Advocacy Centre, Vancouver.