Normand Fiset v. Minister of National Revenue, [1988] 1 CTC 2335, 88 DTC 1226

Couture, C.J.T.C. [Translation] : —This is an appeal from an assessment for the 1984 taxation year issued by the respondent in which the latter disallowed the child care expenses in the amount of $4,000 which the appellant had claimed as a deduction in computing his income.

The appellant acted for himself and his evidence consisted in admitting certain facts set out in the reply to the notice of appeal, namely:

(a) During the 1984 taxation year the appellant had legal custody of two children pursuant to an order of the Superior Court, Family Division;

(b) During 1984 the appellant incurred child care expenses for Patrick from January 1, 1984 to August 1, 1984 and for Martin from January 1, 1984 to September 1, 1984; the children were 12 and 11 years of age respectively;

(c) On December 21, 1984 the appellant remarried, his new wife being Dame Micheline Giroux;

(d) During 1984 Dame Micheline Giroux had no employment or other income.

[Emphasis added.]

The respondent disallowed the child care deduction for 1984 on the ground that in the circumstances set out above the appellant had an income that exceeded that of his wife for the said year and that she was a "supporting person" of the appellant's children within the meaning of paragraph 63(3)(d) of the Income Tax Act (the Act). The appellant for his part maintains that since his wife had no income in 1984, it is false to maintain that his income exceeded that of his wife. Consequently, he submits that he is the taxpayer who is entitled to the deduction for child care expenses pursuant to the provisions of subsection 63(1) of the Act.

The respondent bases his position on the provisions of subsection 63(2) of the Act, which reads as follows:

63 (2) Where the income for a taxation year of a taxpayer who has an eligible child for the year exceeds the income for that year of a supporting person of that child (on the assumption that both incomes are computed without reference to this section and paragraphs 56(1)(s) and (u)), the amount that may be deducted by the taxpayer under subsection (1) for the year as or on account of child care expenses shall not exceed the lesser of

(a) the amount that would, but for this subsection, be deductible by him for the year under subsection (1); and

(b) the product obtained when the lesser of

(i) $240, and

(ii) $60 multiplied by the number of eligible children of the taxpayer for the

year in respect of whom the child care expenses were incurred

is multiplied by the number of weeks in the year during which the child care expenses were incurred and throughout which the supporting person was a person described in one or more of the following subparagraphs:

(iii) a person in full-time attendance at a designated educational institution (within the meaning assigned by paragraph 110(9)(a)),

(iv) a person certified by a qualified medical practitioner to be a person who

(A) by reason of mental or physical infirmity and confinement throughout a period of not less than 2 weeks in the year to bed, to a wheelchair or as a patient in a hospital, an asylum or other similar institution, was incapable of caring for children, or

(B) by reason of mental or physical infirmity, was in the year, and is likely to be for a long-continued period of indefinite duration, incapable of caring for children,

(v) a person confined to a prison or similar institution throughout a period of not less than 2 weeks in the year, or

(vi) a person living separate and apart from the taxpayer, throughout a period of not less than 90 days commencing in the year, by reason of a breakdown of their marriage or similar domestic relationship.

At the request of counsel for the respondent, both parties submitted written arguments in support of their respective positions. So that we can properly understand the argument of counsel for the respondent, I shall quote the following extract from her submission:

[Translation]:

Generally speaking, when a child is dependent on more than one person (see the definition of "supporting person" in section 63(3)(d)), child care expenses may be claimed by the person having the lower income regardless of which of the two (2) actually incurred these expenses, since section 63(1) must be read in conjunction with subsection 2.

The Act even provides that in cases where the incomes of the taxpayer and the "supporting person" are equal, the two must elect which will declare that he has the lower income or no deduction will be allowed (section 63(2.1)).

The only cases where the legislation allows the taxpayer who has the higher income to deduct child care expenses are set out in subparagraphs (iii), (iv), (v) and

(vi) of section 63(2) and these are exceptional situations where the "supporting person” is attending a designated educational institution or by reason of physical or mental infirmity is incapable of caring for children for at least two (2) weeks in the year or was confined to a prison or lived separate and apart from the taxpayer for at least ninety (90) days commencing in the year by reason of a breakdown of their marriage or similar domestic relationship.

When she tells us that "the only cases where the legislation allows the taxpayer who has the higher income to deduct child care expenses are set out in subparagraphs (iii), (iv), (v) and (vi) of section 63(2)", she is assuming for purposes of her argument that an individual who had no income in a taxation year nonetheless has a lower “income” than the other individual for purposes of the subsection. In other words, she maintains that in a situation such as the one we are concerned with in this appeal, where there is a total lack of income in a year for one of the individuals involved, such a situation must be interpreted as though a lack of income constituted income for purposes of subsection 63(2). I cannot accept such a thesis.

As I understand this legislative provision, it seems clear to me that when the legislation says: "Where the income for a taxation year of a taxpayer who has an eligible child for the year exceeds the income for that year of a supporting person of that child", it presumes that each of the parties involved received income within the meaning of the Act during the taxation year. This interpretation seems to me all the more valid when one reads the next phrase in the same subsection: ", . . (on the assumption that both incomes are computed . . .)." Can a lack of income in fact be interpreted in this type of equation as income for purposes of subsection 63(2)?

The word "income" is not defined in the Act but it seems clear from the definitions of the different sources of "income" in the Act that "income" means a positive amount and not merely a simple numeral concept as the respondent maintains which can be a positive amount or figure or a negative amount or represent the lack of an amount as in the present case.

The computation of a taxpayer's income for a taxation year is provided for in Division B of the Act entitled "Computation of Income” and comprising sections 3 to 108 inclusive.

Section 3 stipulates the method for determining a taxpayer's income and the rules that must be applied in the process. Once this process has been completed, the section tells us that the amount if any represents the taxpayer's income for the year for the purposes of Part I of the Act. Since a taxpayer's income is dependent upon an "amount" in this determining process, if there is no amount the taxpayer thus has no income.

In Capling Estate v. M.N.R., [1987] 2 C.T.C. 2003; 87 D.T.C. 344, Judge Taylor of this Court tells us the following regarding the application of section 3:

Since subsection 2(2) of the Act follows the calculations arising out of section 3 of the Act, it would probably not be helpful to this appellant even if some “exception” could be read into section 3. But no such “exception” can even be read into section 3, in my view, because the entirety of section 3 consists of simply a process of reduction from one amount to a lesser amount, until — “and the remainder, if any, obtained under paragraph (e) is the taxpayer's income for the year for purposes of this Act” (last phrase from section 3 of the Act). I am prepared to find that in the determination of "income" as required under section 3 of the Act, the words “remainder, if any” mandate a positive number.

In addition, subsection 5(1) of the Act, which defines income from an office or employment, reads as follows:

5 (1) Subject to this Part, a taxpayer's income for a taxation year from an office or employment is the salary, wages and other remuneration, including gratuities, received by him in the year.

[Emphasis added.]

Therefore if the taxpayer has not received any salary, wages or other remuneration, including gratuities, in a taxation year, he has therefore not received any income for the said year, at least not from that source.

Subsection 9(1), which determines income from business or property, reads as follows:

9 (1) Subject to this Part, a taxpayer's income for a taxation year from a business or property is his profit therefrom for the year.

[Emphasis added.]

Once again, if the taxpayer did not receive any profit for a taxation year, he thus did not have any income from business or property for the said year.

As regards capital gains defined in subsection 39(1) of the Act, which it does not seem to me to be necessary to cite in full, it can be said that the concept which emerges from the very expression also implies a positive amount.

In view of these legislative provisions, it seems clear that the word "income" as it appears in the various sections of the Act and in subsection 63(2) in particular involves or means a positive amount. This means that the provisions of subsection 63(2) apply inasmuch as the two taxpayers referred to in the subsection have each received income during the taxation year from an office or employment or from business or property or from the realization of a capital gain. If a taxpayer did not earn or receive an amount from one of these sources in a taxation year, he therefore did not have any income within the meaning of the Act for the said year.

The following is what we read in CCH (Canadian Tax Reporter), in paragraph 2035:

Normally (subject to the express provisions of the Act) income will not arise unless the taxpayer has received directly or indirectly money or something which can be converted into money; see Tennant v. Smith, [1892] AC 150.

In that case it was necessary to determine whether the taxpayer had received a taxable benefit from the fact he was living free of charge in accommodation provided by his employer, the Bank of Scotland, in a building which also housed the bank branch. His employer required him to live there so that he would be available to conduct banking business after regular hours. The Court concluded that under the applicable legislation this was not a taxable benefit. Lord Halsbury's conclusion at page 157 is most relevant:

For these reasons, I am of the opinion, in the words of Lord Young, that the thing sought to be taxed is not income unless it can be turned into money.

Lord Watson made the following comments at page 159:

I do not think it comes within the category of profits, because that word in its ordinary acceptation appears to me to denote something acquired which the acquirer becomes possessed of and can dispose of to his advantage — in other words, money — or that which can be turned to pecuniary account.

Since the respondent admitted that the appellant's wife had not had any income for the 1984 taxation year, it follows that subsection 63(2) is not applicable to the appellant and that he is entitled to the deduction claimed in computing his income.

The appeal is allowed and the appellant is entitled to party-and-party costs.

Appeal allowed.