Côté v. R., [1999] 2 CTC 2403

Bowman T.C.J.:

The facts in this case are simple, but the same cannot be said of the law. At issue is the equivalent to married credit provided for in paragraph 118( 1 )(b) of the Income Tax Act as it applied to the 1993 taxation year.

Prior to 1993, the appellant lived with and supported his de facto spouse and their two children. On his 1992 income tax return, he claimed a deduction under paragraph 118(1)(b). Essentially, before 1993, an unmarried person who was not entitled to claim the married credit provided for in paragraph 118( I )(a) was nevertheless entitled to claim a dependant deduction. It is not necessary to explain the formula used in computing the credit. In cases where the claim was made in respect of a dependent child, the taxpayer was not entitled to make a claim in respect of that child under paragraph 118( 1 )(d). A person living with a de facto spouse did not lose his right to claim the credit under paragraph 118( I )(£>) simply because he was not considered to be married.

Two changes made to the system in 1993 are of special interest to us. First, the dependant credit under paragraph 118(1)(d) was replaced with the child tax benefit provided for in sections 122.6 to 122.64. Second, and more important for Mr. Côté, the meaning of the expression “spouse of a taxpayer at any time”, used in subsection 252(4), was extended to include the person of the opposite sex who cohabits at that time with the taxpayer in a conjugal relationship and has so cohabited with the taxpayer throughout a 12-month period ending before that time or is a parent of a child of whom the taxpayer is a parent.

Subsection 252(4), as it applied to 1993, reads as follows:

(4) In this Act:

(a) words referring to a spouse at any time of a taxpayer include the person of the opposite sex who cohabits at that time with the taxpayer in a conjugal relationship and

(i) has so cohabited with the taxpayer throughout a 12-month period ending before that time, or

(ii) is a parent of a child of whom the taxpayer is a parent

and, for the purposes of this paragraph, where at any time the taxpayer and the person cohabit in a conjugal relationship, they shall, at any particular time after that time, be deemed to be cohabiting in a conjugal relationship unless they were not cohabiting at the particular time for a period of at least 90 days that includes the particular time because of a breakdown of their conjugal relationship;

(b) references to marriage shall be read as if a conjugal relationship between 2 individuals who are, because of paragraph (a), spouses of each other were a marriage;

(c) provisions that apply to a person who is married apply to a person who is, because of paragraph (a), a spouse of a taxpayer; and

(d) provisions that apply to a person who is unmarried do not apply to a person who is, because of paragraph (a), a spouse of a taxpayer.

The result of this change is that Mr. Côté, who had lived with Patricia Tessier for several years before 1993, and who was the father of her two children, was considered to be married to Ms. Tessier. Therefore, the question that arises is whether in 1993, because of this change, Mr. Côté could not benefit in any way from paragraph 118(1 )(/?). That paragraph, which covers the case of a wholly dependent person, reads as follows:

(1) For the purpose of computing the tax payable under this Part by an individual for a taxation year, there may be deducted an amount determined by the formula

A x B

where

A is the appropriate percentage for the year, and

B is the aggregate of,

(b) in the case of an individual not entitled to a deduction by reason of paragraph (a) who, at any time of the year,

(i) is an unmarried person or a married person who neither supported nor lived with his spouse and is not supported by his spouse, and

(ii) whether by himself or jointly with one or more other persons, maintains a self-contained domestic establishment (in which the individual lives) and actually supports therein a person who, at that time, is

(A) except in the case of a child of the individual, resident in Canada,

(B) wholly dependent for support on the individual, or the individual and such other person or persons, as the case may be,

(C) related to the individual, and

(D) except in the case of a parent or grandparent of the individual, either under 18 years of age or so dependent by reason of mental or physical infirmity,

an amount equal to the aggregate of

(iii) $6,000, and

(1V) an amount determined by the formula

$5,000 - (D - $500)

where

D is the greater of $500 and the income for the year of the dependent person;

The matter becomes more complicated because of the fact that the appellant’s de facto spouse moved out of the marital home on May 2, 1993 and the fact that the two parties did not resume cohabitation until February 14, 1994. Ms. Tessier lived with her mother during that period. The two children, Valérie and Rémy, aged six and 10, lived with their father, and he supported them.

The Minister of National Revenue did not accept the assertion that Mr. Côté was separated from Ms. Tessier during the period from May 2, 1993 to February 14, 1994. I accept Mr. Côté’s testimony that he was separated from Ms. Tessier during that period and that they were not living together because of the breakdown of their relationship.

At line 305 of his 1993 income tax return, Mr. Côté claimed the equivalent to married credit provided for in paragraph 118(1)(b) for his daughter Valérie. The claim was disallowed, hence this appeal.

The fundamental question concerns the interaction of paragraphs 118(l)(a) and 118( 1 )(/?) in a case in which two de facto spouses separated during a year subsequent to 1992. There is no doubt that, because of the extended definition contained in subsection 252(4), Mr. Côté was an individual who “at any time in the year” (French “au cours de l’année”) was a married person within the meaning of paragraph 118(1)(a). According to the evidence, he supported his de facto spouse during the period from January I to May 2.

Furthermore, “at any time in the year”:

he [was] an unmarried person or a married person who neither supported nor lived with the married person’s spouse...

within the meaning of 118( 1 )(Z>).

In the case of a breakdown of the conjugal relationship between two de facto spouses, a formal divorce decree is not necessary in order for the parties to go back to being unmarried for the purposes of the Act. Cohabitation in a de facto conjugal relationship is deemed to be continuous unless the de facto spouses were not cohabiting at a particular time for a period of at least 90 days because of the breakdown of their relationship.

Thus, subsection 252(4) cannot operate to establish a presumption that Mr. Côté and Ms. Tessier were married at any time in 1993 which fell within 90 days after the day on which Patricia Tessier moved out of Mr. Côté’s house.

It thus follows that, at a particular time in 1993, Mr. Côté was an unmarried person who was supporting his wholly dependent child, Valérie, and who was entitled to the credit provided for in paragraph 118( 1 )(£?), provided he was a person who was not entitled to a deduction by reason of paragraph 118(1 )(</).

It is obvious that if Patricia Tessier’s net income during the period between January I, 1993 and the date of their separation, May 2, 1993, had not exceeded $5,918, Mr. Côté would have been entitled to the deduction under paragraph 118( I )(rz). There is no conclusive evidence as to Ms. Tessier’s net income during that period, but, if it had exceeded $5,918, the amount of the credit to which Mr. Côté would have been entitled would be nil. We must therefore answer the following question: “Does paragraph 118( 1 )(Z?) still apply to Mr. Côté in these circumstances?”

The answer depends on the meaning of the words:

in the case of an individual not entitled to a deduction by reason of paragraph (a)...

These words may mean:

either:

an individual who was not entitled to the deduction because he did not meet the criteria, that is that he had to be married and to have supported his spouse,

or:

an individual who met these criteria, but who was not entitled to the deduction because his spouse’s income exceeded the amount provided for in the formula set out in paragraph (a).

The second interpretation appears to me to be more consistent with the purpose of paragraphs 118(1)(a) and (b). I do not see anything in the Act that would justify the first interpretation. This would require that we disregard an essential element of the formula on which entitlement to the deduction is based. [1]

It thus follows that the appellant is entitled to the deduction provided for in paragraph 118(1)(a) if Ms. Tessier’s income during the period in 1993 which preceded May 2 was less than the amount specified in the formula in that paragraph. If Ms. Tessier’s income exceeded the amount specified in the formula, he is entitled to a deduction by reason of paragraph 118(1 )(b).

The appeal is thus allowed and the assessment for 1993 is referred back to the Minister of National Revenue for reconsideration and reassessment in accordance with these reasons for judgment.

The appellant is entitled to his costs, if any.

Appeal allowed.

New paragraph 118(1)(b) provides the amount applicable in respect of a wholly dependent person (the equivalent-to-married credit). This amount, available to a person who is not entitled to a married credit is $6,000 plus the amount determined by subtracting from $5,000 the excess, if any of the income for the year of the wholly dependent person over 500.

The French version of these explanatory notes reads as follows:

Le nouvel alinéa 118(1)0) de la Loi établit le montant applicable au titre d’une personne entièrement à charge (crédit équivalent au crédit de personne mariée). Ce montant, applicable à une personne qui n’a pas droit au crédit de personne mariée, s’élève à 6 000 $, plus le produit obtenu en soustrayant de 5 000 $ l’excédent éventuel du revenu pour l’année de la personne entièrement à charge sur 500 $.

However, the words “for reasons other than the spouse’s income” have been added to the technical notes for Bill C-139. Why the difference? In my opinion, the version in the explanatory notes is more accurate. The text of the Act does not justify the addition of this condition contemplated in the technical notes.