Dufton v. R., [1998] 3 CTC 2747

Bowman T.C.J.:

These appeals are from assessments for the 1994 and 1995 taxation years.

By these assessments the Minister of National Revenue has disallowed a claim by the appellant under section 63 of the Income Tax Act of child care expenses.

Ms. Dufton in the years in question was employed by the Department of National Revenue as a supervisor in the Customs Branch of that department. She worked at the border, on the Canadian side, but lived with her husband in Blaine, Washington, where they owned a house. Her husband, who has both Canadian and U.S. citizenship, works in the United States. She moved to the United States in 1986.

Their first child was born in 1993. When the appellant returned to work she placed her child with a person who lived near her residence in Blaine, and paid amounts to her for doing so. There does not appear to be any issue as to the amounts.

Ms. Dufton is paid a salary by the Government of Canada in respect of her employment in Canada. Accordingly, she is taxed as a non-resident by Canada under subsection 2(3) and subparagraph 115(l)(a)(i).

She files a Canadian income tax return and claims the taxes that she pays to Canada as a credit against the taxes paid to the U.S. when she and her husband file a joint U.S. return.

The claim for child care expenses paid was denied substantially because of the definition of child care expenses in subsection 63(3) that the child care services be provided in Canada and that they be provided by a resident of Canada. That condition simply is not met here.

Ms. Dufton also contends that she falls within subsection 63(4) which reads:

(4) Commuter’s child care expense — Where in a taxation year a person resides in Canada near the boundary between Canada and the United States and while so resident incurs expenses for child care services that would be child care expenses if

(a) the definition “child care expense” in subsection (3) were read without reference to the words “in Canada”, and

(b) the reference in paragraph (b) of the definition “child care expense” in subsection (3) to “resident of Canada” were read as “person”,

those expenses (other than expenses paid for a child’s attendance at a boarding school or camp outside Canada) shall be deemed to be child care expenses for the purpose of this section if the child care services are provided at a place that is closer to the person’s principal place of residence by a reasonably accessible route, having regard to the circumstances, than any place in Canada where such child care services are available and, in respect of those expenses, subsection (1) shall be read without reference to the words “and contains, where the payee is an individual, that individual’s Social Insurance Number”.

To come within this provision she would have to “reside in Canada near the boundary...” I do not think that “reside in Canada” means the same thing as be “a resident of Canada”. Reside means simply to live in Canada. Whether one is resident in Canada is a far more complex determination, depending upon many factors (see Fisher v. R. (1994), 95 D.T.C. 840 (T.C.C.)). I do not think that it can be said that Ms. Dufton “resided” in Canada, considering that her home and her husband and family were in the United States.

She pointed to a number of factors that might indicate that she is resident in Canada — such as her bank accounts, credit cards, employment insurance, pensions and family ties, but the predominant fact is that her husband, her home and her child are all in the United States. Even if she could establish that she was resident in both Canada and the United States, the first of the so-called “tie-breaker rules” in paragraph 2(a) of Article IV of the Canada-U.S. Income Tax Convention (1980) would apply because she would be deemed to:

be a resident of the Contracting State in which [s]he has a permanent home available to [her].

This would be the United States.

I mentioned in the course of argument Article XIX of the Canada-U.S. Income Tax Convention (1980) which reserves to Canada the exclusive right to tax salaries paid to Canadian citizens in respect of government services. However, this provision is of little assistance to the appellant considering that she claims a credit in the United States in respect of her Canadian taxes. Of perhaps greater importance is the fact that to the extent that Canada’s disallowance of the child care expenses increases her Canadian tax, there should be a corresponding increase in the credit against U.S. taxes that she is entitled to claim. This is a matter that she should ask her U.S. tax advisors to consider.

It is unfortunate that she seems to fall between the cracks of the legislation, but the wording of section 63 is reasonably clear.

The appeals are therefore dismissed.

Appeal dismissed.