Evelyn Flint v. Minister of National Revenue, [1991] 1 CTC 2365, 91 DTC 528

Mogan, T.C.J.:—The issue in this appeal is whether the appellant, in her special circumstances, is entitled to the child tax credit for 1988. The respond ent admitted all of the facts alleged in the notice of appeal and the parties filed with the Court an agreed statement of facts. No evidence (oral or documentary) was entered at the hearing and the issue was argued on the facts admitted or agreed.

The appellant is a single mother with four children each of whom was under the age of 18 on the last day of December 1988. In September 1988, the appellants children were placed in the legal custody of the Children’s Aid Society of Halifax (the "CAS") but the appellant retained physical custody. In November 1988, the appellant’s children were removed from her physical custody and placed in the physical custody of the CAS. In January 1989, the appellant was incarcerated following a conviction for "break and enter" which she had committed.

As of November 1988 when the CAS took physical custody of the children, the appellant was no longer eligible to receive a family allowance under the Family Allowances Act, 1973 in respect of any of her children; and this situation continued throughout January 1989. The appellant had applied for the child tax credit for 1988 during that year and, in November 1988, she received a prepayment of the child tax credit in the amount of $1,135.08 based on her eligibility for the 1987 taxation year.

By notice of assessment dated May 24, 1989, the respondent took the position that the appellant was not eligible for the child tax credit for 1988 because she was not entitled in January 1989 to receive a family allowance in respect of any of her children. The respondent claimed that the entire prepayment of the child tax credit was an amount refunded to the appellant in excess of the amount to which she was entitled; and the respondent required the appellant to repay the entire prepayment. The appeal herein is from that assessment.

The child tax credit is established in section 122.2 of the Income Tax Act, R.S.C. 1952, c. 148 (am. S.C. 1970-71-72, c. 63) (the "Act") and, omitting many words which are not necessary for the purpose of this appeal, subsection 122.2(1) states:

Where an individual who has an eligible child files with his return of income . . . for a taxation year a prescribed form . . . the amount, if any, by which

(a) (a formula providing a certain amount for each eligible child)

exceeds

(b) (a formula which reduces or eliminates the child tax credit for individuals with high income)

shall be deemed to be an amount paid by the individual . . . on account of his tax . . . for the year.

If the individual referred to in subsection 122.2(1) has low income which is subject to tax, the amount "deemed to be paid" will reduce his tax liability. And if that individual has no income at all, then the amount "deemed to be paid" will be available to the individual as an income tax refund. Notwithstanding the provision in subsection 122.2(1) which requires a prescribed form with the return of income for a taxation year, section 164.1 permits the respondent to pay to an individual without application during the year a portion of the child tax credit on the basis of his eligibility for the preceding year. It was in accordance with this policy that the appellant received the prepayment of $1,135.08 during 1988. The decision in this appeal depends upon the definition of "eligible child” in paragraph 122.2(2)(a):

“eligible child” of an individual for a taxation year means a child in respect of whom the individual is entitled

(i) in January of the following taxation year, or

(ii) where the child died or attained 18 years of age during any month in the year, in that month,

to receive a family allowance under the Family Allowances Act, 1973;

The arguments submitted on behalf of the appellant are based on the fact that she had physical custody of her children for more than ten months in 1988, until that date in November 1988 when her children were placed in the physical custody of the CAS. The appellants arguments proceed as follows. Firstly, the appellant is within the spirit if not the letter of the law, and the assessment defeats the purpose of the child tax credit. The requirement in paragraph 122.2(2)(a) that an individual be "entitled in January of the following year to receive a family allowance" is to accommodate children born in December rather than to penalize a person in the appellant's circumstances. In support of this first argument, the appellant relies on the decision of the Supreme Court of Canada in The Queen v. Bronfman Trust, [1987] 1 S.C.R. 32; [1987] 1 C.T.C. 117; 87 D.T.C. 5059 in which Dickson, C.J. speaking for the Court stated at page 128 (D.T.C. 5066-67; S.C.R. 52):

I acknowledge, however, that just as there has been a recent trend away from strict construction of taxation statutes (see Stubart Investments Ltd. v. The Queen, [1984] 1 S.C.R. 536 at 573-79; [1984] C.T.C. 294 at 313-316 and The Queen v. Golden, [1986] 1 S.C.R. 209 at 214-15; [1986] 1 C.T.C. 274 at 277), so too has the recent trend in tax cases been towards attempting to ascertain the true commercial and practical nature of the taxpayer's transactions. There has been, in this country and elsewhere, a movement away from tests based on the form of transactions and towards tests based on what Lord Pearce has referred to as a "common sense appreciation of all the guiding features" of the events in question: B.P. Australia Ltd. v. Commissioner of Taxation of Australia, [1966] A.C. 224 at 264; [1965] 3 All E.R. 209 at 218 (P.C.). See also F.H. Jones Tobacco Sales Company Ltd., [1973] F.C. 825 at 834; [1973] C.T.C. 784 at 790 (T.D.) per Noël, A.C.J, Hallstrom Pty. Ltd. v. Federal Commissioner of Taxation (1946), 8 A.T.D. 190 (High Ct.) at 196 per Dixon, J.; and Cochrane Estate v. M.N.R., [1976] C.T.C. 2215; 76 D.T.C. 1154 (T.R.B.), per Mr. A.W. Prociuk, Q.C.

This is, I believe, a laudable trend provided it is consistent with the text and purposes of the taxation statute. Assessment of taxpayers' transactions with an eye to commercial and economic realities, rather than juristic classification of form, may help to avoid the inequity of tax liability being dependent upon the taxpayer's sophistication at manipulating a sequence of events to achieve a patina of compliance with the apparent prerequisites for a tax deduction.

The above statement would, no doubt, be helpful in cases where particular words in a taxation statute are not clear or where the form of a transaction is different from its commercial and economic realities. I assume, however, that the above statement of the learned Chief Justice would not permit me to ignore what I regard as the clear wording in paragraph 122.2(2)(a) and thereby to embark upon a search for the underlying spirit of the law.

In my view, Parliament has in clear language described !he conditions that must be satisfied before a child may qualify as an ” eligible child” of a particular individual for a taxation year. The basic condition is that the individual be entitled to receive a family allowance in respect of the child in either of two mutually exclusive circumstances. If the child is alive and under the age of 18 at the end of the taxation year, the individual must be entitled to receive a family allowance in respect of that child in January of the following year. If the child died or attained 18 years of age during any month in the taxation year, the individual must be entitled to receive a family allowance in respect of that child in that month.

In this appeal, the parties agree that the appellant was not entitled to receive a family allowance in January 1989 with respect to any of her four children all of whom were alive and under the age of 18 on December 31, 1988. On those agreed facts, the appellant fails to qualify any one of her four children as an “eligible child" of hers for 1988 within the plain meaning of paragraph 122.2(2)(a).

The family allowance for a particular child is payable to the parent, other person or agency who wholly or substantially maintains that child. Some individual other than the appellant (possibly a foster parent) may have been entitled to receive a family allowance in January 1989 with respect to one or more of the appellant's four children. Attempting to expand the definition of “eligible child” on some compassionate ground because the appellant had physical custody of her children for more than ten months during 1988 could result in the appellant and some other individual both receiving a child tax credit for 1988 with respect to the same child (or the same four children).

I am satisfied that it was Parliament’s intention that only one individual could receive the child tax credit with respect to a particular child for a particular taxation year. Also, it is possible that no individual would receive the child tax credit if the particular child were maintained by an agency like the CAS which (as a non-individual) was entitled to receive the family allowance for that child. This would not be an absurd or unreasonable result because the child tax credit is in the nature of social welfare legislation intended to assist only individuals with little or no income who are attempting to maintain a child. The trend away from strict construction which the learned Chief Justice referred to in Bronfman Trust would not permit a court to ignore the plain meaning of a statutory provision in order to achieve some apparently equitable result. I think he had this in mind when he stated: "This is, I believe, a laudable trend provided it is consistent with the text and purpose of the taxation statute".

Secondly, the appellant argued that the two events in subparagraph 122.2(2)(a)(ii) being death or attaining 18 years of age are situations which Parliament recognized as valid reasons for departing from the requirement of entitlement to a family allowance in January; and that loss of custody is another similar valid reason. I cannot accept this argument because, if a child dies or turns 18 during a year, the last family allowance payment is made in the month of death or 18th birthday; and the entitlement to a family allowance as a condition for the child tax credit must be directed to the month of death or 18th birthday and not to January of the following year if the child tax credit is to be available in the year of a death or an 18th birthday. The change of focus to the month of death or 18th birthday for those two circumstances (which are mutually exclusive to being alive and under 18 at December 31) does not permit any other individual to qualify for the child tax credit with respect to the child who died or became 18. The termination of custody of a child by one individual during a taxation year could easily permit a second individual to acquire custody of the same child within the year and claim the child tax credit for the year through entitlement to a family allowance in January of the following year.

In my view, the appellant's argument for a "non-strict construction” of paragraph 122.2(2)(a) cannot succeed because the words in that paragraph have a plain and clear meaning which does not lead to an absurd or unreasonable result. The appellant therefore submits an alternative argument that the definition of "eligible child” in paragraph 122.2(2)(a) violates her rights under section 7 or section 15 of the Canadian Charter of Rights and Freedoms which are set out below:

7. Everyone has the right to life, liberty and security of the person and the right not to be deprived thereof except in accordance with the principles of fundamental justice.

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.

(2) Subsection (1) does not preclude any law, program or activity that has as its object the amelioration of conditions of disadvantaged individuals or groups including those that are disadvantaged because of race, national or ethnic origin, colour, religion, sex, age or mental or physical disability.

I will consider first the possible violation of rights under section 7 of the Charter. The concept of the child tax credit is a financial or economic benefit to be conferred upon a person who maintains a child and has low income. The legislation must establish some kind of test to determine who maintains a child and what is low income. In the circumstances of this case, the test for maintaining a child for a particular taxation year is entitlement to a family allowance with respect to the child in January of the following year. There is no doubt that a person who loses the entitlement to a family allowance with respect to a child has lost the economic benefit of the child tax credit with respect to that child. The issues under section 7 of the Charter are whether the economic benefit of the child tax credit can be brought within the words “security of the person" and, assuming that it can, whether an individual who loses the child tax credit with respect to a child in the circumstances of this appeal is deprived of security of the person in accordance with the principles of fundamental justice.

As I read section 7 of the Charter in its entirety, it was never intended to apply to the appellant's circumstances. Firstly, the economic benefit of the child tax credit cannot, in my view, be included in the words "security of the person". In Irwin Toy Ltd. v. A.-G. Québec, [1989] 1 S.C.R. 927; 58 D.L.R. (4th) 577 at 1003 (D.L.R. 632-33), the majority of the Supreme Court held that economic rights as generally encompassed by the term "property" are not protected by section 7; and the majority declined to pronounce upon whether those economic rights fundamental to human life or survival should be treated like corporate-commercial economic rights. If the economic benefit of the child tax credit can be regarded as the economic right of a poor person maintaining a child, I would not regard that economic right as "fundamental to human life or survival” within the spirit of section 7.

And even if the economic benefit of the child tax credit were held to be an economic right fundamental to human life or survival and, therefore, a right to security of the person within the meaning of section 7 of the Charter, I would hold that the appellant was deprived of that right in accordance with the principles of fundamental justice when, on a purely objective statutory test, she failed to qualify as the person entitled to a family allowance in January 1989. Any other individual who was entitled to a family allowance with respect to the appellant's children in January 1989 would be the person entitled to that economic right if the low income test were met. Paragraph 122.2(2)(a) of the Income Tax Act does not violate section 7 of the Charter.

I have no difficulty in concluding that paragraph 122.2(2)(a) of the Income Tax Act does not violate section 15 of the Charter because a person's loss of entitlement to a family allowance under the Family Allowances Act, 1973 with respect to a particular child is based on the objective factual determination of whether the person was wholly or substantially maintaining the child. That determination has nothing to do with the prohibited grounds of discrimination in subsection 15(1) of the Charter. I think I am supported in this position by the following statement of Strayer, J. in Schachter v. The Queen, [1988] 3 F.C. 515; 52 D.L.R. (4th) 525 at 528 (D.L.R. 535-36):

Going further, there seems to be a measure of consensus that the first test to be applied under s. 15 is as to whether there is inequality in the sense that the legislature has used an impermissible categorization in its differential application of the law, so as in effect to treat persons who are similarly situated in a dissimilar fashion. . . . This question may be easily answered if the categorization employed is one of those expressly enumerated as prohibited grounds of discrimination in s-s. 15(1). If the basis of categorization seems to be some other ground, then the Court must look to see if such a ground should be taken to be equally prohibited by s-s. 15(1). While there are as yet no exhaustive tests for determining this, it appears to be acceptable to look at factors such as whether the ground of distinction in question is analogous to those specifically mentioned in s-s. 15(1); whether it is rooted in historic stereotyping; whether it involves personal characteristics which are largely beyond the control of the individual, similar to these characteristics specifically mentioned in s-s. 15(1); whether those affected by the distinction are persons traditionally disadvantaged or the object of prejudice; and whether such a distinction is inconsistent with the purpose of the law itself or the values generally recognized in Canadian society. . . . These are the types of factors recognized by the Federal Court of Appeal in Smith, Kline & French Laboratories Ltd. [v. A.-G. Canada (1986), 34 D.L.R. (4th) 584, 12 C.P.R. (3d) 385, [1987], 2 F.C. 359

(F.C.A.)]. . .

The factors referred to by Strayer, J. are not in any way similar to the qualification for a family allowance based on wholly or substantially maintaining the child. The persons who receive the child tax credit are determined on the basis of having low income and an eligible child. The legislation must establish certain criteria to distinguish those persons from others who were not intended to receive the child tax credit. In Reference re an Act to Amend the Education Act (1986), 53 O.R. (2d) 513; 25 D.L.R. (4th) 1, Chief Justice Howland and Robins, J.A. state in a dissenting judgment at page 554 (D.L.R. 42):

In our view, s. 15(1) read as a whole constitutes a compendious expression of a positive right to equality in both the substance and the administration of the law. It is an all-encompassing right governing all legislative action. . . .

This is not to suggest that s. 15(1) requires that every person in every instance be treated in precisely the same manner. There is no infringement of the section unless the unequal treatment is discriminatory. Most laws provide for distinctions and prescribe different results based on those distinctions. Indeed, a State could not function without classifying its citizens for various purposes and treating some differently from others.

In order to receive the child tax credit, an individual must have an eligible child and low income. The definition of“ " eligible child" in paragraph 122(2)(a) of the Income Tax Act based on entitlement to a family allowance is one of those distinctions referred to by Chief Justice Howland and Robins, J.A. in the passage quoted above which are necessary for the operation of the statute but which do not violate the prohibition against discrimination. I have reviewed the decision of the Supreme Court of Canada in Andrews v. Law Society of British Columbia, [1989] 1 S.C.R. 143; 56 D.L.R. (4th) 1 and I find nothing in that case which is of assistance to the appellant. Considering the reasons for judgment of Mcintyre, J. and La Forest, J. in the Andrews case, I adopt the comments of my brother Garon, T.C.J. in Tiberio v. M.N.R., [1990] 2 C.T.C. 2545; 91 D.T.C. 17.

If I had concluded that paragraph 122.2(2)(a) did violate section 7 or section 15 of the Charter, I would have Pad genuine doubts concerning the appropriate remedy. In Zwarich v. A.-G. Canada, [1987] 3 F.C. 253; 87 C.L.L.C. 14,053, the Federal Court of Appeal stated at page 255:

It is clear that neither a board of referees nor an umpire have the right to pronounce declarations as to the constitutional validity of statutes and regulations. That is a privilege reserved to the superior courts. However, like all tribunals, an umpire and a board of referees must apply the law. They must, therefore, determine what the law is. And this implies that they must not only construe the relevant statutes and regulations but also find whether they have been validly enacted. If they reach the conclusion that a relevant statutory provision violates the Charter, they must decide the case that is before them as if that provision had never been enacted.

If paragraph 122.2(2)(a) had never been enacted, there would be no definition for" eligible child” and I doubt whether the appeal herein could be allowed. In Schachters The Queen, [1990] 2 F.C. 129; 66 D.L.R. (4th) 635 the Federal Court of Appeal was divided on the question of whether the Court could provide a remedy under section 24 of the Charter in a case where the legislation was held to be " under-inclusive". I do not see how the definition of “eligible child” could be regarded as under-inclusive. In any event, the Supreme Court of Canada has granted leave to appeal in the Schachter case. And lastly, section 171 of the Income Tax Act determines the manner in which this Court can dispose of an appeal and that section may restrict any remedy which this Court could otherwise provide under section 24 of the Charter. These doubts can be set aside for another occasion because, for the reasons set out above, the appeal is dismissed.

Appeal dismissed.