Bendo v. R., [1997] 2 CTC 2497

Somers DJ.T.C.:

This appeal was heard in Toronto, Ontario on November 27, 1996, pursuant to the Informal Procedure of this Court.

This appeal is from an assessment made under the Income Tax Act by which the Appellant was denied the child care expenses deduction claimed by her for the 1994 taxation year.

In making the assessment, the Minister of National Revenue (the “Minister”) made the following assumptions of fact which were admitted or denied, by the Appellant:

(a) during the 1994 taxation year, the Appellant was the married mother of two children; (admitted)

(b) in the 1994 taxation year, the Appellant and her spouse were supporting persons of the children within the meaning of subsection 63(3) of the Income Tax Act (the “Act”); (admitted)

(c) unemployment insurance benefits in the amount of $29,205.00 comprised the Appellant’s total reported income for the 1994 taxation year; (admitted)

(d) the claimed expenses were not expenses incurred by the Appellant to enable her to perform the duties of an office or employment, to carry on a business either alone or as a partner actively engaged in the business, to undertake an occupational training course in respect of which she received a training allowance paid to her under the National Training Act, or to carry on research or any similar work in respect of which she received a grant, as defined under Section 63 of the Act; (denied)

(e) the Appellant’s earned income, as defined under subsection 63(3) of the Act, was nil for the 1994 taxation year; (denied)

(f) at no time during 1994 was the Appellant a person described in any of subparagraphs 63(2)(6)(iii) and 63(2)(b)(vi) of the Act (admitted)

The Minister relied on section 63, subsection 63(3) and subparagraph 56(l)(a)(iv) of the Act as amended for the 1994 taxation year.

The Appellant, a professional accountant, received unemployment insurance benefits in the amount of $29,205 as the total income for the 1994 taxation year. Part of the benefits were received under the Self-Employment Program. The Appellant did fulfil the conditions set out in the Self-Employment agreement.

Under subsection 63(1) of the Income Tax Act, the amount that a taxpayer is entitled to claim for child expenses is the lesser of:

(a) the expenses actually incurred for child care;

(b) 2/3 of the taxpayer’s “earned income”; and

(c) $5,500 for each eligible child under 7 and $3,000 for each eligible child who is older than 7.

Subsection 63(1) of the Income Tax Act reads as follows:

“earned income” — “earned income” of a taxpayer means the total of

(a) all salaries, wages and other remuneration, including gratuities, received by the taxpayer in respect of in the course of, or because of, offices and employments,

(b) all amounts that are included or that would, but for paragraph 81(1)(a), be included because of section 6 or 7 or paragraph 56(1)(m), (n) or (0), in computing the taxpayer’s income,

(c) all the taxpayer’s incomes or the amounts that would, but for paragraph 81(1)(«), be the taxpayer’s incomes from all businesses carried on either alone or as a partner actively engaged in the business, and

(d) all amounts described in paragraph 56(8)(a) received by the taxpayer in the year;

The questions that remains is whether subsection 63(3) envisions that unemployment insurance benefits are to be included in the computation of earned income.

In the decision of this Court in the appeal of McCoy v. R., [1996] 3 C.T.C. 2263, [1996] T.C.J. No. 680 (T.C.C.), the taxpayer had income from two sources consisting of employment income and unemployment insurance benefits. The taxpayer had incurred and claimed child care expenses for the years in question based on the combined earnings of the two sources indicated above. The Minister reassessed such as to only allow child care expenses in relation to the taxpayer’s income. Judge Bowman, in analyzing the provisions relating to child care expenses, expressed himself as follows: “Unemployment benefits are not included in the computation of earned income”.

This line of reasoning was followed by Judge Bell in Reinstein v. R., [1995] 2 C.T.C. 2924, [1995] T.C.J. No. 937 (T.C.C.), where the taxpayer had various sources of income with unemployment benefits being one such source. The conclusion in the decision is as follows:

Because Reinstein had no earned income in the taxation year, his income being from a registered retirement savings plan, unemployment insurance, investment, interest and dividends he is entitled to no deduction during that year.

During the 1994 taxation year, the Appellant in this case received regular unemployment insurance benefits and also benefits under the Self-Employment Program. She complied with the conditions under the program. Evidence has shown that she incurred certain child expenses. However, she did not earn income as defined in paragraph 63(3)(d) of the Income Tax Act.

The appeal from the assessment made under the Income Tax Act for the 1994 taxation year is therefore dismissed.

Appeal dismissed.