Suzanne Thibaudeau v. Her Majesty the Queen (Informal Procedure), [1992] 2 CTC 2497, 92 DTC 2111

Garon, T.C.C.J.:—This appeal is governed by the provisions of the Tax Court of Canada Act, S.C. 1980-81-82-83, c. 158, and the Tax Court of Canada Rules which apply to the informal procedure.

This is an appeal from an assessment of the Minister of National Revenue dated August 2, 1991 for the 1989 taxation year, in which the Minister of National Revenue added to the appellant's income under paragraph 56(1)(b) of the Income Tax Act, R.S.C. 1952, c. 148 (am. S.C. 1970-71-72, c. 63) (the "Act") all of the alimony payments, amounting to $14,490, received by her during year 1989.

The evidence established that the appellant received these payments from Mr. Jacques Chaîné under a conditional divorce judgment rendered by the Superior Court of Quebec on December 1, 1987, as alimony payable monthly for the exclusive benefit of the children of her marriage to Mr. Jacques Chaîné. The appellant had been separated from Mr. Chaîné under a judicial separation ordered on November 29, 1984. The final divorce judgment is dated October 22, 1990. The appellant did not dispute that all the necessary conditions set out in paragraph 56(1)(b) applied to the moneys received in 1989 from her spouse but, as we shall see later, she contended, relying on section 15 of the Charter, that paragraph 56(1)(b) discriminates against her in that it imposes a tax burden on amounts which were to be used for the sole benefit of her children.

During her testimony, the appellant referred to the conditional divorce judgment dated December 1, 1987, which awarded her custody of her two, infant children, Jean-Francois Chaîné and Marie-Christine Chaîné, born on June 6, 1979 and May 11, 1981, respectively, in addition to indexed monthly alimony payments starting at $1,150. The appellant explained that the alimony payments were made by cheques written by Mr. Jacques Chaîné to the order of the appellant and endorsed by her with the notation [Translation] "alimony for Jean-François and Marie-Ch ristine”. These cheques were deposited in a bank account that had been opened in the children's names, which she administered. Thereafter, the money deposited in the children’s account was transferred into an account held by the appellant. Cheques on that account were drawn for the support of the children, specifically to pay expenses relating to the maintenance and education of the children. The appellant added that this procedure was similar to how things had been done while she was living with Mr. Chaîné when she did not hold paid employment. Mr. Chaîné then would give her the money she needed so that she could support the children.

With respect to this fact situation, the appellant testified that she had filed three tax returns for the 1988 taxation year and for the year in issue, 1989. One of these returns dealt with her personal situation, and in this first return she reported, inter alia, her income from employment; she did not, however, include the alimony she had received for the sole benefit of her children. The other two income tax returns were filed on behalf of her infant children. In each child's return she included, in both their incomes, half of the alimony she had received in the year in question. She realized, after consulting lawyers and accountants, that in so doing she was not complying with the Income Tax Act. She believed that she was justified in doing this because she considered that she was being discriminated against by being taxed on moneys which were intended to be for the exclusive benefit of her children. On this point, she stated that to her personal knowledge more than 1,000 women were in situations similar to hers. She was able to determine the number of women who had experienced the same tax treatment with respect to alimony payments intended for children as a result of publi- city in the media and holding meetings. According to the appellant, this group of people is composed almost exclusively of self-supporting women who receive alimony which must be used to support their children. On the other hand, she stated that she agreed with the principle of including the alimony if it were paid to provide for her own support.

The second witness, Mr. Jean-François Drouin, a tax lawyer who has worked in the tax department of a well-known firm of chartered accountants since 1989, was called by the appellant as an expert. This witness was asked to give his opinion as to the tax consequences resulting from certain assumptions proposed by counsel for the appellant. He was also asked to explain the various calculations relating to federal income tax which appear in the expert's report filed in evidence at the hearing of this appeal.

In making his comments on certain tax questions submitted for his consideration, Mr. Drouin relied on information set out in the conditional divorce judgment, which he accepted at face value or inferred from for the purposes of his expert's report. We should reproduce the following portions, on which that report was based:

The divorce judgment assessed the cost of supporting Ms. Thibaudeau's children at about $900 to $1,000 per month. Moreover, Judge Boudreault fixed the total amount to be paid monthly to Ms. Thibaudeau for the benefit of her children at $1,150, plus indexation. In this context, the compensation awarded to Ms. Thibaudeau for income tax associated with the alimony received apparently varies between $150 and $250 per month, or between $1,800 and $3,000 per year. For discussion purposes, this document assumes that the tax compensation is $200 per month, or $2,400 on an annual basis. Moreover, in the absence of any indication to the contrary by the court, it is assumed that this compensation is divided equally between federal and provincial income tax: $1,200 for each level of government.

[Translation.]

This expert determined the tax cost associated with including the alimony the appellant received in 1989 for the benefit of her children in her income, as follows:

On this point, we must compare: (1) the federal tax payable by Ms. Thibaudeau for the 1989 taxation year if we assume that the $14,490 alimony is not taxable; (2) the federal income tax payable for the same year if we assume that the alimony must be included in Ms. Thibaudeau’s income. Thus Table 1, which is annexed hereto, indicates that Ms. Thibaudeau’s federal tax, using the first assumption, is $338. On the other hand, Table II, which is also annexed hereto, shows that Ms. Thibaudeau’s federal tax, using the second assumption, is $4,043. Accordingly, the difference between these two assumptions, or $3,705, represents the tax cost associated with taxation of the alimony.

[Translation.]

I considered it useful to reproduce Table I only, which appears hereinafter as Appendix I to these reasons.

The same expert added essentially that the tax compensation provided for in the divorce judgment did not in fact compensate for the tax cost, as far as the federal income tax is concerned, that results from including the alimony received by the appellant for the benefit of her children in her income, [Translation] “since the tax compensation set out in the divorce judgment is only $1,200 and the tax cost described above is $3,705”. The expert witness therefore deduced that the cost to the appellant in terms of federal income tax was on the order of $2,500. The witness indicated that, as he understood the judgment, he believed that the Court had concluded that it would be appropriate for the appellant herself to contribute financially to the support of the children in addition to her on-going personal care of them. The witness went on to say that in terms of Quebec income tax the cost would be on the same order, that is, the total cost to the appellant for federal and provincial income tax for the 1989 taxation year would be about $5,000. The witness admitted that in doing the calculation in relation to the first assumption—in which the alimony is not taxable—he allowed the appellant the equivalent to married tax credit, the dependant tax credit and the child tax credit. He also included the family allowance in the appellant's income in those calculations. According to that expert, he was justified in taking these credits into account, as they are allowed to taxpayers who have custody of children, regardless of whether they receive alimony and of whether the alimony is taxable or not.

This expert also indicated that in determining the tax cost to the appellant associated with the alimony received by reason of including it in income he simply compared one situation in which alimony is not taxable to another situation in which alimony is taxable. The difference then represents the tax cost to the appellant of receiving taxable alimony, as compared to alimony which is not taxable. This expert added the comment essentially that these tax credits, and inclusion of the family allowance, would have to be taken into account if the allowance and tax credits in question were given only to spouses who receive taxable alimony. Later, the witness acknowledged that it is theoretically possible for the parties to avoid the inclusion-deduction mechanism but in practice the payer will insist on taking this deduction and the person receiving the alimony will have very little room to manoeuvre. It is normally the payer who decides the tax consequences which the payment, and thus the receipt, of the alimony will have, given that the provisions dealing with the inclusion and deduction of alimony in computing the incomes of the two taxpayers concerned are complementary.

The respondent called five witnesses. The first was a senior appeals officer in the Department of National Revenue, Mr. Michel Carbonneau. He confirmed in an affidavit that the appellant had filed income tax returns for the 1989 taxation year for herself and her two children, and described the process which followed in terms of the various notices of assessment issued by the Minister of National Revenue and of service of the notice of objection by the appellant.

Also in that declaration under oath Mr. Carbonneau referred to the various income tax calculations, which are described as follows in paragraphs 12, 13, 14 and 15 of the affidavit:

12. The comparative table (Exhibit "A") shows, first, the income tax which the applicant would have to pay if she did not include the amount of the alimony in her income, as submitted by the applicant in the income tax return she filed for the 1989 taxation year, and second, the income tax which the applicant should pay if she included the value of the alimony in her income, in accordance with the Income Tax Act of Canada;

13. According to the comparative table, if neither the alimony payment of $14,490 attributable to the 1989 taxation year nor the equivalent to married tax credit and the dependent child tax credit are taken into account, the applicant's federal tax payable (net amount) is $1,147.81, as indicated on the initial assessment of April 17, 1990;

14. On the other hand, if we calculate the alimony in the applicant's income, and allow the tax credits referred to in paragraph 14* above, the applicant's federal tax payable (net) would be $4,042.80, as indicated on the assessment of August 2, 1991;

15. Thus the difference in federal tax payable between the initial assessment of April 17, 1990 and the assessment of August 2, 1991 is $2,894.99;

*the author should have referred to paragraph 13

[Translation.]

The comparative table referred to in the above-mentioned paragraphs 12 and 13 of Mr. Carbonneau's '"affidavit" is reproduced in Appendix 2 to these reasons.

The second witness, Ms. Lise Potvin, is an economist in the Personal Income Tax Division in the Tax Policy Branch of the Department of Finance Canada. The following paragraphs of this expert's "affidavit" should be noted:

5. Table 1 set out below indicates that as a general rule people who receive alimony are taxed at a lower rate than those who pay alimony.

Table 1

Distribution of taxpayers who paid and received alimony, by marginal federal tax rate, 1988

	Without deduction or inclusion				With deduction or inclusion
	Payer		Recipient		Payer		Recipient
#	%	#	%	#	%	#	%
Non-taxable	6,123 2.0 112,387 44.2 13,324 4.4 74,428 29.3
17%	116,678 38.4 110,614 43.5 137,583 45.3 124,386 49.0
26%	146,418 48.2 29,614 11.7 128,915 42.4 52,473 20.7
29%	34,718 11.4 1,447 0.6 24,115 7.9 2,775 1.1
Total	303,937 100.0 254,062 100 303,937 100 254,062 100.0

Source: Special compilation based on Revenue Canada taxation statistics for the 1988

taxation year.

6. In these circumstances, the provisions under which the payer deducts alimony and the recipient of the alimony includes it in income (tax mechanism which attributes taxation of the amount of alimony to the person who receives the alimony) are generally advantageous for the recipient of the alimony in that they operate to reduce the tax to be paid on the alimony, and thereby permit the alimony to be increased by an amount equal to the tax thus saved.

7. The following example illustrates this conclusion:

Example:

Let us suppose that the person who pays alimony is taxed at the marginal federal rate of 26 per cent, while the taxpayer to whom the alimony is paid is taxed at 17 per cent. Let us also suppose that a judge decides that, given his financial situation, the payer is capable of paying only $570 per month after tax (or $6,850 per year) for the support of his children, although his contribution should be greater than that amount, were it not for his limited financial resources.

However, since the deduction allowed reduces the after-tax cost of the alimony to the payer, the judge will be able to establish the amount of the alimony at $12,000 rather than $6,850: thus by deducting the $12,000 paid for alimony the payer's federal tax payable will be reduced by $3,276 [1] and his provincial tax will be reduced by $1,872, [2] for a total reduction of $5,148. The after-tax cost of the $12,000 alimony to the payer will therefore be only $6,852 ($12,000-$5,148), or the amount that the judge had decided as the payer's contribution for the support of the children.

The amount which may be put toward the support of the beneficiary will be less than $12,000, however, since the person who receives the alimony will have to pay income tax on that amount. Addition of the $12,000 alimony to the income of the person receiving the alimony will result in an increase of $2,142 in her federal tax and $1,224 in her provincial tax. The former spouse will therefore pay a total of $3,366 in income tax on the alimony. The after-tax value of the alimony (the income tax being paid by the spouse to whom the alimony is paid) will therefore be $8,634, or $1,784 more than what the alimony would have been if it had not been deductible by the payer ($6,850). This increase results from the difference in the income tax to be paid on $12,000, depending on whether it is included in the income of the payer spouse, taxed at 26 per cent at the federal level ($5,148), or of the spouse who receives the alimony, then taxed at 17 per cent ($3,366), a difference of $1,784. [3]

10. Unfortunately, there are no tax data linking taxpayers who pay alimony to the former spouse who receives the alimony, which would make it possible to determine the number of cases in which the payer is taxed at a higher rate than the taxpayer who receives the alimony. Nor are there any data dealing with alimony paid for the exclusive benefit of children. However, Revenue Canada's tax data do provide us with the distribution of taxpayers who pay and receive alimony by marginal tax rate at the federal level (see Table 1).

11. These statistics show that as a general rule the people who receive alimony are taxed at a lower rate than those who pay it. The great majority of taxpayers who receive alimony are not taxable or are taxed at the rate of 17 per cent (88 per cent, before alimony is added to income), while 60 per cent of payers are taxed at 26 or 29 per cent. These data do not take into account the difference of almost 50,000 between the number of people who claim a deduction for alimony payments and the number of people who include alimony payments in their income. This difference is partially attributable to taxpayers who receive alimony and who do not fill out tax returns because they are not taxable.

12. For the 1988 taxation year, the advantageous tax treatment accorded to alimony payments reduced the government's receipts by $145 million and the provinces’ receipts by $95 million. [4] These amounts represent the lower taxes paid on alimony in comparison to a situation in which they would not be deductible from the payer's income and not be included in the income of the taxpayer to whom they were paid. These amounts also give an indication of the potential increase in alimony payments from which recipients might benefit because of the tax advantage conferred.

[Translation.]

Data were filed for the 1989 taxation year, which are similar to the data for the 1988 taxation year set out in Table I above in the “ affidavit” of Ms. Lise Potvin, as shown in the table reproduced below:

Source: Special compilation based on Revenue Canada taxation statistics for the

1989 taxation year.

Notes: The data relate to taxpayers who claimed a deduction for alimony or

included it in their income. The 1989 taxation year is the most recent year for which complete data are available.

* The distribution is essentially the same as for the 1988 taxation year.

Two statisticians, Mr. Daniel Côté and Mr. Daniel Michaud of the Department of National Revenue, provided some interesting information on the manner in which tax statistics are compiled by that Department. We should note from Mr. Côté's testimony that he believes, subject to study being made by methodologists, that it would be possible to establish statistics on the number of cases in which alimony payments are paid to the children only.

The last witness, Mr. Guy Oddo, a consultant analyst with Statistics Canada, indicated that the statistics establish that for 1989 child custody was

The data on the same subject for 1988 show only slight variations.

This expert confirmed that there were no statistics on the number of cases in 1988 and 1989 in which support was paid to the father when the father was awarded custody of the children. Nor are there any data as to the number of mothers with custody of the children who receive alimony. The above data are based on divorce cases in which information was provided as to custody of the children. These data were obtained under an agreement between Statistics Canada and the Department of Justice Canada, through the central divorce registry.

Appellant's submissions

The appellant argued that including the alimony in her own income under section 56 of the Act caused her prejudice, since she must pay income tax on moneys which were not intended for her use. The appellant argued that this prejudice resulted from:

1. Her civil status:

She has suffered prejudice which results from the fact that she is a woman who:

— is divorced

— is self-supporting

— has custody of her children

— receives alimony for the children only, which alimony is paid by the

father of the children.

2. Her sex:

The discrimination is based on sex since the fact is that it is women who find themselves in this situation.

3. Her social status:

The appellant must pay income tax while other people in similar situations do not have to pay any tax. The following situations are examples:

(a) third party pays alimony

(b) alimony payment is paid to third party

(c) income is from work done by the children

(d) the man and the woman are in a similar situation but the man derives an advantage from the deduction and the woman suffers prejudice as a result of the inclusion.

The appellant argued that the inclusion-deduction system is an archaic and outmoded system going back to the 1940s which does not recognize the evolution of the role of women over the years. Moreover, this system causes her prejudice since there is no legal provision under which the courts are compelled to take tax consequences into account in deciding on the quantum of alimony.

Counsel for the appellant also argued that sections 15 and 28 of the Charter raise a presumption of discrimination which reverses the burden of proof. Any measure which is intended to cause or has the effect of causing prejudice to women only must be presumed to be discriminatory. The appellant argued, in the alternative, that if this provision benefits Canadian society it is much too high a price and does not pass the proportionality test in section 1 of the Charter, which was discussed in The Queen v. Oakes, [1986] 1 S.C.R. 103, 26 D.L.R. (4th) 200. Counsel for the appellant also suggested that the Court must rule not only as to the intent of Parliament, but also as to the effect of the provision, as was indicated in MacKay v. Manitoba, [1989] 1 S.C.R. 143, 61 D.L.R. (4th) 385, and that discrimination is no less real even if the legislation in fact confers an advantage on many groups. In addition to Oakes and MacKay, supra, the appellant relied particularly on the following decisions: Andrews v. Law Society of British Columbia, [1989] 1S.C.R. 143, 56 D.L.R. (4th) 1; Symes v. Canada, [1991] 1 C.T.C. 476, 91 D.T.C. 5386 (F.C.A.) and [1989] 2 C.T.C. 1, D.T.C. 5244 (F.C.T.D.); and The Queen v. Big M Drug Mart Ltd., [1985] 1 S.C.R. 295, 18 D.L.R. (4th) 321.

Respondent's submissions

The respondent argued that paragraph 56(1)(b), paragraph 56(1)(c) and section 56.1 are not contrary to the Canadian Charter of Rights and Freedoms. These provisions do not infringe the values entrenched in section 15 of the Charter and do not have the effect of denying one of the equality rights in a discriminatory manner. It was argued on this point that the provisions in question are sufficiently flexible to permit individuals not to be governed by them. It was further argued that the aim of these provisions was to secure a substantial benefit for a significant portion of the population through income splitting. Such income splitting is an exceptional measure designed to deal with the disintegration of the family, which has been going on for some time, and to take into account the reduced capacity of separated or former spouses to maintain two households.

Counsel for the respondent also noted that the payer of the alimony cannot claim any deduction or income tax credit, although the person who receives the alimony payments may do so. The payer loses all control over how the alimony will be used, while the person who receives the alimony has complete discretion to use it as he or she wishes. It was also suggested that the deduction system from which the payer benefits is designed to encourage him to pay the full amount of the alimony since he or she is permitted to deduct only the payments actually made in a given year. The repercussion is that the situation of the person who receives the alimony benefits from the payer's obligation to do what is required if he or she is to claim the deduction. Counsel for the respondent relied on several decisions in support of their arguments, inter alia, the decisions in Andrews, Big M. Drug Mart Ltd. and Symes, supra.

We must first determine, in light of the evidence and the arguments of the parties, whether the appellant has suffered discrimination as a result of the application of paragraph 56(1)(b) of the Income Tax Act to her situation and having regard to section 15 of the Canadian Charter of Rights and Freedoms.

Discrimination in the context of section 15 of the Charter was defined in the leading decision of the Supreme Court of Canada in Andrews, in which McIntyre, J. made the following comments at page 174:

I would say then that 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.

In that case, the judge stated the following at pages 163-64 with respect to subsection 15(1) of the Charter:

This is not a general guarantee of equality; it does not provide for equality between individuals or groups within society in a general or abstract sense, nor does it impose on individuals or groups an obligation to accord equal treatment to others.

He added, farther on at page 164, with respect to the concept of equality:

It is a comparative concept, the condition of which may only be attained or discerned by comparison with the condition of others in the social and political setting in which the question arises.

He went on at another point, at page 165, to say:

Recognizing that there will always be an infinite variety of personal characteristics, capacities, entitlements and merits among those subject to a law, there must be accorded, as nearly as may be possible, an equality of benefit and protection and no more of the restrictions, penalties or burdens imposed upon one than another. In other words, the admittedly unattainable ideal should be that a law expressed to bind all should not because of irrelevant personal differences have a more burdensome or less beneficial impact on one than another.

Finally, I would conclude my examination of the principles and comments set out in Andrews, in so far as they may be useful for the purposes of this case, by referring to the following observations which appear at pages 180-81:

‘Questions of stereotyping, of historical disadvantagement, in a word, of prejudice, are the focus and there may even be a recognition that for some people equality has a different meaning than for others.’

The analysis of discrimination in this approach must take place within the context of the enumerated grounds and those analogous to them. 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 section 15 itself and limit those distinctions which are forbidden by the section to those which involve prejudice or disadvantage.

We should also keep in mind certain comments of Wilson, J. of the Supreme Court of Canada in The Queen v. Turpin, [1989] 1 S.C.R. 1296, 48 C.C.C. (3d) 8. She stated, at pages 1331-32 (S.C.R.):

In determining whether there is discrimination on grounds relating to the personal characteristics of the individual or group, it is important to look not only at the impugned legislation which has created a distinction that violates the right to equality but also to the larger social, political and legal context.

Accordingly, it is only by examining the larger context that a court can determine whether differential treatment results in inequality or whether, contrariwise, it would be identical treatment which would in the particular context result in inequality or foster disadvantage. A finding that there is discrimination will, I think, in most but perhaps not all cases, necessarily entail a search for disadvantage that exists apart from and independent of the particular legal distinction being challenged.

We may observe, from these comments in Andrews and Turpin, the very particular importance of factors which relate, first, to the personal characteristics of the individuals and groups and, second, to the burdens or disadvantages or, in other words, the prejudicial effects or consequences.

Despite the absence of statistics as to the number of people who are in the same situation as the appellant in terms of receiving alimony for the exclusive benefit of their children, this Court takes judicial notice of the fact that the appellant is part of a group of which the great majority is separated or divorced women, who have a certain degree of financial self-sufficiency (in that they receive no alimony for themselves), who have custody of their children and who receive taxable alimony from their spouse for the benefit of the children. As Cory, J. of the Supreme Court of Canada stated in MacKay v. Manitoba, supra, at page 366 (S.C.R.):

It may well be [argued] that one could take judicial notice of some of the broad social facts referred to by the appellants, but here there is a total absence of a factual foundation to support their case.

In the present case, there is not this total absence of factual foundation that Justice Cory, was deploring in the aforementioned case given the appellant's evidence on the existence of the group that I have just described.

With respect to the matter of the judicial notice by a Court of certain facts I would like to refer as well to the observations of Justice LaForest in a case where the Supreme Court of Canada was called upon to consider the constitutionality of Sunday closing legislation in Ontario. Justice LaForest expressed himself in the case The Queen v. Edwards Books and Art Ltd., [1986] 2 S.C.R. 713, 35 D.L.R. (4th) 1, at pages 802-03 (S.C.R.):

It is true that the evidence presented to the Court regarding other religious groups was scanty and that relating to Hindus, unsatisfactory. But counsel during argu- ment freely discussed other days of worship by other groups. Besides, I do not accept that in dealing with broad social and economic facts such as those involved here the Court is necessarily bound to rely solely on those presented by counsel. The admonition in Oakes and other cases to present evidence in Charter cases does not remove from the courts the power, where it deems it expedient, to take judicial notice of broad social and economic facts and to take the necessary steps to inform itself about them. Examples of cases where this has been done in this Court include Reference re Alberta Statutes, [1938] S.C.R. 100 especially at page 128, and as aff'd. sub nom. Attorney-General for Alberta v. Attorney-General for Canada, [1939] A.C. 117, at pages 130-32; Curr v. The Queen, [1972] S.C.R. 889, at pages 902-03; see also The Queen v. Jones, [1986] 2 S.C.R. 284; for discussions, see

B. Strayer, The Canadian Constitution and The Courts, at pages 252-56; S.A. Schiff, Evidence in the Litigation Process, vol. 2 c. 11, pages 682-84, 712-13. The United States Supreme Court does the same. A classic case in this context is the well- known abortion case, Roe v. Wade, 410 U.S. 113 (1973); see Lempert and Saltzburg, A Modern Approach to Evidence, pages 920-22.

This group of people described earlier, of whom the appellant is one, is entitled, in my opinion, because of certain personal characteristics, to the guarantee set out in section 15 of the Charter, which prohibits all forms of discrimination based on the stated grounds or on analogous grounds.

We should first consider whether the effect of paragraph 56(1)(b) of the Act, which provides, inter alia, for inclusion of alimony in the recipient's income (when such alimony is paid by the spouse to the other spouse for the exclusive benefit of the children of the marriage), entails prejudicial consequences for the appellant.

Parliament has provided that in cases where alimony was paid by a person to a recipient—a spouse or former spouse—for the support of the recipient or of the children of their marriage or both the recipient and the children of the marriage, the payer of the alimony was entitled to deduct the amounts paid and the recipient was required to include these same amounts where all the conditions set out in paragraph 56(1)(b) with respect to inclusion and in paragraph 60(b) with respect to deduction are met. This inclusiondeduction, 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. However, it is not certain that in real life the benefit received by the children in the final analysis, if we assume that the alimony is paid solely for their support, may be measured with mathematical accuracy. Nonetheless it 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 inclusiondeduction system is neutral.

In Mr. Drouin's expert opinion, the inclusion-deduction system has prejudicial tax consequences for the appellant resulting from the inclusion of this alimony in her income. Mr. Drouin established, as was noted earlier, that for year 1989 the tax cost, to the extent that federal income tax is involved, of including the alimony in her income was $2,500, taking into account that $1,200 was provided in the conditional divorce judgment on an annual basis to compensate for taxes. Counsel for the respondent replied to this conclusion that this analysis is wrong and that it did not take into account that the appellant would be entitled to three tax credits: the equivalent to married credit, the dependant credit and the child tax credit, and would also receive the family allowance payments.

In order to assess the tax impact on the appellant which results from her obligation to include the alimony received for the benefit of the children in her income we must therefore take into account the equivalent to married tax credit, the dependant tax credit and the child tax credit.

Paragraph 118(1)(b), which establishes the equivalent to married credit, provides:

in the case of an individual not entitled to a deduction by reason of paragraph (a) who, at any time in the year,

(i) is an unmarried person or a married person who neither supported nor lived with his spouse and is not supported by his spouse, and

(ii) whether by himself or jointly with one or more other persons, maintains a self-contained domestic establishment (in which the individual lives) and actually supports therein a person who, at that time, is

(A) except in the case of a child of the individual, resident in Canada,

(B) wholly dependent for support on the individual, or the individual and such other person or persons, as the case may be,

(C) related to the individual, and

(D) except in the case of a parent or grandparent of the individual, either under 18 years of age or so dependent by reason of mental or physical infirmity . . . .

We see that the provision which establishes this credit does not refer expressly to whether or not the individual who is entitled to the credit receives alimony. In order to be entitled to this tax credit, an individual must,in ter alia, live in a self-contained domestic establishment and support therein one of his or her wholly dependent children. In the present case, none of the appellant's children were wholly dependent on her in 1989, from an economic point of view. However, from a legal point of view, both of the appellant's children were wholly dependent because the appellant was entitled, under the Divorce Act, R.S.C. 1985, c. 3, to receive the alimony. The children had no right to claim the alimony even though it was intended for their support. That alimony is a source of income to the appellant, and she was therefore the only person supporting her children, with the use of this alimony and her other income. We can therefore say that the appellant was entitled to the equivalent to married credit for a wholly dependent person as provided by paragraph 118(1)(b) as a result of the fact that she received the alimony paid by her former spouse, whether the alimony was taxable or not. I must add that where the alimony is deductible by the payer, subsection 118(5) prevents the latter from claiming the equivalent to married credit. This alimony might be non-taxable if it is paid as a result of an oral agreement between the parties or if, generally speaking, any of the conditions imposed by paragraph 56(1)(b) is not met.

Moreover, the dependant tax credit referred to in paragraph 118(1)(d) cannot be claimed by a person who is entitled to a deduction under paragraph 60(b), (c) or (c.1), in view of subsection 118(5), referred to above. Given that in this case the father of the appellant's children, Mr. Jacques Chainé, is entitled to the deduction set out in 60(b), it follows that the appellant is the only person in the year in question who is entitled to the deduction permitted by paragraph 118(1)(d). The appellant could nonetheless be entitled to this credit if the alimony she received were non-taxable subject to the restrictions set out in paragraphs 118(4)(d) and 118(4)(e).

The child tax credit is granted under section 122.2 to the person who is entitled to receive the family allowance payments for the child in question under the Family Allowances Act, R.S.C. c. F-1, and the Family Allowances Regulations. Section 7 of that Act provides that as a general rule those allowances are paid to the female parent. None of the exceptions set out in that Act or Regulations is applicable in this case and the appellant was entitled to the family allowance payments and the child tax credit referred to in section 122.2 of the Income Tax Act for the 1989 taxation year. The appellants entitlement to this credit was therefore not subject to her reception of a non-taxable alimony. In other words, the appellant would be entitled to this credit even if the alimony had been non-taxable for some reason. We may therefore see that entitlement to the child tax credit and to the family allowances payments has nothing to do with whether or not alimony is received.

I am therefore of the opinion that the essential elements of the manner in which the tax impact on the appellant of including the alimony in her income was calculated by the appellant's expert witness are substantially correct. It is clear from the judgment of December 1, 1987 that the trial judge decided that the appellant should herself make a financial contribution to the maintenance of the children. This conclusion follows from the following passage from that judgment:

. . . it appears to be fair and equitable to continue the alimony payable for the children alone at $1,150 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.

[Translation.]

It appears from the foregoing observations that in the judgment of December 1, 1987 the Court to some extent took into account, in establishing the amount of the alimony, the tax consequences arising from the receipt of taxable alimony by the appellant, but there was no precise measurement of the tax impact.

For the purposes of this case, I must determine not whether the judgment referred to above should have done a more complete analysis of the tax consequences flowing from the appellant's receipt of this alimony but rather whether the effect of paragraph 56(1)(b) in particular, which requires the appellant to include those payments in her income, discriminates against the appellant, having regard to section 15 of the Charter.

We must then ask whether the Court which orders the alimony must in so doing take into account the tax consequences for both the payer and the person who receives the payments. This question was considered in a decision of the Quebec Court of Appeal dated November 7, 1991 in Droit de la

famille-1488 J.E. 91-175. In that case, the person who was entitled to receive the alimony challenged the amount of the alimony awarded, inter alia on the ground that the trial judge had erred by not taking the tax consequences into account. The two "whereases" in the judgment of the Court of Appeal are quite clear on this issue:

WHEREAS, with respect to the amount, the judge committed an error which justifies this Court in intervening, by failing to take the tax consequences of the alimony on the parties into account;

WHEREAS, in this regard, assuming that the amount of support needed was as established by the judge, $96.15 for the two children, the alimony should have been fixed at $140 per week (Les Pensions alimentaires. Tableaux des effets financiers—Implications fiscales, 3e édition, Gariépy et Marcoux, Les Éditions Yvon Blais Inc., 1989);

[Translation.]

The 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. This attitude was reflected in an unpublished judgment of the Quebec Court of Appeal dated November 7, 1991 in the case of Biron v. Donnelly, supra. This same approach has been adopted in common law provinces. For instance, the Court of Appeal of Ontario in an unpublished judgment dated June 16, 1988 in the case Parker v. Parker C.A. 210/86 confirmed this trend. See also the cases of Chelmick v. Chelmick (1991), 118 A.R. 385, 37 R.F.L. (3d) 155 (Q.B.); Lehmann v. Lehmann (1989), 95 A.R. 383 (Q.B.); Harper v. Harper (1985), 54 O.R. (2d) 591; Treen v. Treen, [1991] 2 W.W.R. 483, 88 Sask. R. 278 (Q.B.); Girard v. Girard (1990), 103 N.B.R. (2d) 377, 259 A.P.R. 377 (Q.B.).

In Watkins v. Olafson, [1989] 2 S.C.R. 750, [1989] 6 W.W.R. 481, the Supreme Court of Canada decided that following an action for damages taken by a victim who had suffered physical injuries in an accident, allowance had to be made for income tax on the compensation awarded for future care when the evidence justified this. The Court accepted the theory of''grossing-up" which means” that an additional sum should be awarded to compensate for the tax that will accrue on the interest portion of the award”. While this decision was made in a context which was entirely different from the situation before us here, in my view the reasons which underlie this theory also apply in cases where the courts must determine the extent to which alimony paid by one parent to the other must, for example, support the children.

If, instead of alimony being fixed by the Court, as it was in this case, the parties concerned had made an agreement, they should determine the tax consequences of the support to be paid and could thereby specify the portion of the payments which must be used exclusively for the support of the children.

I therefore conclude that, if the Court takes into account the tax conse- auences 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. Obviously, where there is an agreement between the parties, the party who receives the alimony must satisfy himself or herself that the alimony is grossed-up to a fair level, in cases where that alimony is taxable, of course. As a corollary arising from the propositions set out in the present paragraph, it is correct to say that the recipient of the alimony for the maintenance of the children is in turn entitled to take into account the taxation implications and to withhold from the total amount of the alimony the appropriate portion of this amount which represents the additional income tax that he or she must pay by reason of the inclusion of the alimony payments in his or her income.

Since, according to my analysis, the appellant has not personally sustained any fiscal burden as a result of the receipt of alimony payments in the circumstances of the present case it is therefore not necessary for me to consider the other components of section 15 of the Charter.

Before concluding, I would like to make a few comments on two propositions advanced by the respondent.

It was argued for the respondent that if the parent who receives the alimony does not wish to be governed by the inclusion-deduction system, he or she need only ensure that one of the conditions set out in paragraph 56(1)(b) is not met. I do not believe that this suggestion is valid, given that if any of the conditions is not met, such as the payments being made on a periodic basis or if there is. no written agreement, the person who receives the allowance will not have the best legal protection possible to guarantee that the alimony for the children will be received when due.

Counsel for the respondent also argued, relying on the decision of the Supreme Court of Canada in Gagnon v. The Queen, [1986] 1 S.C.R. 264, [1986] 1 C.T.C. 410, 86 D.T.C. 6179, that the appellant had complete discretion as to how to use the moneys paid as support for the children. It is also true that the person to whom the alimony is paid under the Divorce Act is, as we have seen, entitled to claim this money, even when the alimony is made only for the exclusive benefit of the children. The important fact, I should say, the dominant aspect is still that the money must be used for the benefit of the children. However, it is true that the parent who has the custody of the children draws a certain benefit from the payment by the other parent of alimony paid for the benefit of the children because otherwise the parent in whose custody the children are would of necessity be required in most cases to increase his financial contribution for the support of the children. In economic terms, however, there is no doubt that the fact that one of the parents receives alimony for the benefit of the children directly benefits only the children. There is undoubtedly a substantial difference from the point of view of the person who receives the payment, in economic terms, if the alimony is to be used by him or her for his or her own support or if it is paid rather solely for the support of his or her children. Moreover, the same tax treatment applies to both situations. However, if the amount of the additional income tax which will result directly from the additional income which must be reported by the person who receives the alimony is taken into full account in determining the amount of the alimony, there can be no prejudice.

The inclusion-deduction system in its true nature having regard to the comprehensive legal context does not have the affect of imposing obligations, disadvantages or burdens on the appellant or other persons who would find themselves in a situation similar to that of the appellant with respect to the receipt of alimony made by one parent to the other for the exclusive benefit of the children. The inclusion-deduction system of alimony may raise in its application to a particular case certain difficulties but a statute or a provision therein cannot be considered for this sole reason discriminatory and unconstitutional. If a party feels aggrieved by the application of this system or by provisions of the law underpinning it, the remedy does not lie in invoking section 15 of the Charter dealing with equality rights but rather in showing the erroneous application of the system in a comprehensive legal context before the Courts which are called upon to deal with matters relating to alimony.

I am therefore of the opinion that paragraph 56(1)(b) which requires that the alimony received by the appellant for the benefit of her children be included in her income is not discriminatory in its application to the appellant.

For these reasons, the appeal is dismissed.

Appeal dismissed.