D H Rowley v. Minister of National Revenue, [1982] CTC 2245, 82 DTC 1226

D E Taylor:—This is an appeal heard in Toronto, Ontario, on March 3, 1982 against an income tax assessment for the year 1978 in which the Minister of National Revenue reduced the married exemption claimed by the appellant. The respondent relied, inter alia, upon subparagraphs 56(1 )(a)(iv) and 109(1 ) (a)(ii) of the Income Tax Act, SC 1970-71-72, c 63, as amended.

The Notice of Appeal read:

The facts and grounds for the appeal are as follows. My 1978 claim for married exemption was adjusted because my wife had a 1978 income in excess of $400. Her total income was the $1,600 received from the Unemployment Insurance Commission at the time of her pregnancy. I subsequently realized in late 1978 that my wife was ineligible for UIC benefits and I went to the Scarborough, Ontario Office of the U.I.C. and explained the error. An agreement for the repayment was made, however, the completion of this repayment in full and the issuance of a Statement of Benefits Repaid by the UIC was not made until 1979. My wife received no income in 1979 and cannot, therefore, apply the 1979 Statement of Benefits Repaid reduction to her 1979 tax return.

Officials of Revenue Canada, Toronto Office, told me that no provision in the Income Tax Act existed for this situation and that I would have to pay the $393.13 and consider it lost money. I object to this ruling in that: (a) we are paying tax on supposed income returned to its source and (b) the error made by the UIC and found by me was brought to their attention and properly repaid. In no way have we benefitted from the UIC payments but are being penalized because of inadequate provisions in the law covering a change in the taxation year.

In reply, the Minister noted that the appellant’s wife had an income of $1,470 in 1978 and, as such, the appellant is entitled only to the reduced deduction under subparagraph 109( 1 )(a)(ii) of the Act.

There was little in the way of evidence or argument presented in the appeal, the parties being in agreement on the facts.

The critical phrase within which the Minister must place the appellant in order to support the imposition of tax is:

“any amount received . . . as, . . .

(iv) a benefit under the Unemployment Insurance Act, 1971,” (Sec 56(1) (a)(iv)).

The factual situation is simple — the appellant’s wife applied for UIC benefits, the application was approved by UIC, and payments resulting from that application and approval were received. The specific inclusion of subparagraph 56(1)(a)(iv) in the Act leads to a review of the Unemployment Insurance Act. There, one finds the following guidelines in paragraph 10317:

ELIGIBILITY

(10,317) When benefit payable

Sec. 17. (1.) Unemployment insurance benefits are payable as provided in this Part to an insured person who qualifies to receive such benefits.

Qualifications

(2) An insured person qualifies to receive benefits under this Act if he

(a) has had eight or more weeks of insurable employment in his qualifying period,

and

(b) has had an interruption of earnings from employment.

Details regarding the ineligibility of the appellant’s spouse were not provided to the Board and they would appear to be irrelevant. The fact is that she was ineligible, could not legally and should not have received “a benefit under the Unemployment Insurance Act, 1971”. It could be argued that should end the matter in the appellant’s favour were it not for paragraph 10349 of the said Act which deals with the refund of payments in the following way:

(10,349) Liability for overpayments

Sec 49. (1) Where a person has received benefit under this Act or the former Act for any period in respect of which he is disqualified or any bene-fit to which he is not entitled, he is liable to repay an amount equal to the amount paid by the Commission in respect thereof.

As I read it, the term “in respect thereof” can only have meaning as related to the earlier phrase . has received . . . any benefit (under this Act) to which he is not entitled . . The amount paid by the Commission as a result of the completion and approval of the form “Application for Benefit” (paragraph 11912 of the Ul Act) must be treated as a benefit under that Act while it is being paid, irrespective of the applicant’s ultimate entitlement to receive payment, or any provisions for later reimbursement.

It is perhaps unfortunate that no specific definition of “benefit” is provided in the Unemployment Insurance Act, but I can find therein no basis upon which this appellant can escape the provisions of subparagraph 56(1 )(a)(iv) of the Income Tax Act.

It is highly doubtful that the drafters of either legislation foresaw a situation as unique as the one represented by this appeal, but the impact of the law is clear in my mind even though the taxing result is highly inappropriate and unjust. This situation may be one in which special consideration should be given for a rebate or remission, but that is beyond the powers of the Board.

The appeal is dismissed.

Appeal dismissed.