E. Jane Langlois v. Minister of National Revenue, [1992] 1 CTC 2403, 92 DTC 1329

Bowman, T.C.C.J.:— This is an appeal from an assessment for the appellant's 1988 taxation year. The parties agreed that the matter could proceed on the basis of agreed facts and written submissions without the necessity of either party appearing before the Court.

There are two issues. The first has to do with the claim by the appellant to a personal exemption of $6,000 under section 118 of the Income Tax Act, R.S.C. 1952, c. 148 (am. S.C. 1970-71-72, c. 63) (the "Act"). The second has to do with the appellant's claim to a child tax credit under subsection 122.2 of the Income Tax Act.

I have concluded that the appellant succeeds on the first issue and not on the second.

The appellant was resident in Canada from January 1, 1988 to June 29, 1988 when she moved to the United States. It is common ground that after June 29, 1988, she was not a resident of Canada, nor was she employed or carrying on a business in Canada. In filing her return of income for 1988, she claimed under section 118 of the Income Tax Act the sum of $6,000. as a personal tax credit. The Minister reduced that amount to $2,967. on the basis that she was resident in Canada for a period of only 181 days, until June 29, 1988, and that after that time she was not resident in, and was not employed in Canada and was not carrying on a business in Canada. The Minister therefore applied section 118.91.

Section 118 by itself applies to all taxpayers who file returns under Part I. Its operation is however limited by section 118.91. Section 118.91 provides in part that:

.. .Notwithstanding sections 118 to 118.9, where an individual is resident in Canada during part of a taxation year and during some other part of the year is not resident in Canada, is not employed in Canada and is not carrying on business in Canada, unless all or substantially all of his income for the year is included in computing his taxable income for the year, no amounts may be deducted under those sections for the purpose of computing his tax payable under this Part for the year except the aggregate of

(b) such part of the deductions permitted under sections 118, 118.3, 118.8 and 118.9 to taxpayers resident in Canada throughout the year for the purpose of computing tax payable under this Part for the years as may reasonably be considered applicable to the individual for such period or periods.

The Minister concluded that the deduction of $6,000 permitted under section 118 was to be limited by the concluding words of paragraph 118.91(b) and accordingly computed the appellants tax credit under section 118 in accordance with the following formula:

181

— X $6,000 = $2,96

366

I requested the Registrar to write to the parties inquiring whether on the facts the words in the opening portion of section 118.91 ” unless all or substantially all of his income for the year is included in computing his taxable income for the year" had any application. The Minister responded to the inquiry as follows:

On the assumption that the appellant did not include all or substantially all of her income for the year in computing her taxable income for the year, the respondent allowed her to claim a basic personal exemption of $2,967

Counsel for the Minister went on to say:

It is respectfully submitted that, if the respondent was correct to assume that the appellant did not include all or substantially all of her income for the year in computing her taxable income for 1988, it was proper for the respondent to limit the appellant's basic personal exemption

The appellant responded to the Court's inquiry by stating:

. . . I earned no income in the United States for the period June 30, 1988- December 31, 1988. My only income for 1988 was earned and reported in Canada.

In response to a further letter from the Court, the Minister by letter dated February 19, 1992, stated:

The respondent accepts as true the appellant's statement that she earned no income in the United States for the period June 30, 1988 to December 31, 1988.

Accordingly, the Minister's assumption that all or substantially all of Mrs. Langlois’ income for the year was not included in computing her taxable income for the year was incorrect and there was no basis for applying section 118.91 to limit the appellant's credit under section 118. The appellant's appeal should therefore be allowed on this point and the assessment referred back to the Minister for the purpose of allowing to the appellant a personal tax credit under section 118 of $6,000. With respect to the child tax credit, I am unable to grant the appellant any relief. Subsection 122.2(1) of the Income Tax Act allows to a taxpayer a child tax credit in respect of each eligible child of the taxpayer. “Eligible child” is defined in paragraph 122.2(2)(a), which provides, insofar as it is relevant to this case, as follows:

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

(i) January of the following taxation year,

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

Under subsection 3(1) of the Family Allowances Act a family allowance is payable for each month in respect of each child whose parents are resident in Canada or deemed to be resident in Canada in prescribed circumstances

Subsection 2(3) of the Family Allowances Act states:

For the purposes of this Act, a person is resident in Canada or in a province if that person makes his home and is ordinarily present in Canada or in a province.

In January of 1989, the appellant, having moved to the United States, was not resident in Canada and was therefore not entitled to receive a family allowance. Since the appellant was not entitled to receive a family allowance in January of 1989, she did not have an eligible child in 1988 and was not entitled to claim a child tax credit in 1988 as provided in paragraph 122.2(2)(a) of the Income Tax Act. The Minister's position on this point is therefore correct.

The appeal will therefore be allowed and the assessment referred back to the Minister of National Revenue for reconsideration and reassessment on the basis that the appellant is entitled to a personal tax credit in the amount of $6,000 rather than in the amount of $2,967 allowed by the Minister on assessment. This is not a case for costs.

Appeal allowed in part.