Aldo Diaz v. Minister of National Revenue, [1979] CTC 2548

Delmer E Taylor:—This is an appeal heard in the City of Montreal, Province of Quebec, on April 9, 1979, against an income tax assessment for the year 1976 in which the Minister of National Revenue disallowed an amount of $2,965.38 claimed by the taxpayer as a deduction for the support of nonresident relatives. In his reply to notice of appeal, the respondent relied, inter alia, upon section 3 and paragraph 109(1)(f) of the Income Tax Act, SC 1970-71-72, c 63, as amended. Such disallowance was explained by the Department of National Revenue as:

. . . no exemption can be allowed for your non-resident dependants for the following reasons:

(a) The method of providing support was not on a periodic basis.

(b) Your non-resident dependants receive an income in their country.

During the notice of objection stage, the appellant replied as follows:

periodicity of payments is not necessary to qualify according to Interpretation Bulletin IT-383.

My dependents’ income is below the Old Age Security equivalent.

For purposes of reference, paragraph 109(1)(f) is quoted:

Deductions permitted by individuals.

(1) For the purpose of computing the taxable income of an individual for a taxation year, there may be deducted from his income for the year such of the following amounts as are applicable:

(f) Other dependants.—an amount expended by the individual during the year for the support of a person who, during the year, was dependent upon the individual for support and was

(i) his parent or grandparent and dependent by reason of mental or physical infirmity,

(ii) his brother or sister

(A) under 21 years of age,

(B) 21 years of age or over and dependent by reason of mental or physical infirmity, or

(C) 21 years of age or over and in fulltime attendance at a school or university,

not exceeding an amount equal to,

(iii) if the person has not attained the age of 16 years before the end of the year, $300 less /2 of the amount, if any, by which the income for the year of the person exceeds $1,100, and

(iv) in any other case, $550 less the amount, if any, by which the income for the year of the person exceeds $1,150.

Facts

The appellant is an economist by profession who lived in Montreal during the relevant year, and whose parents (and parents-in-law) lived in Argentina.

Contentions

The position of the appellant for purposes of the hearing was that:

—Since I have replied to the assessment and no counter-argument was raised, I would like to know the real reasons for the disqualification . .. The position of the respondent in the reply to notice of appeal was stated as:

— In computing his income for the 1976 taxation year, the appellant claims as deduction, amounts expended by him for the support of the following persons:

Family Tie

Mother	$ 650.00
Father	823.00
Mother-in-law	771.63
Father-in-law	720.75
Total	$2,965.38

— During the said year, the above mentioned relatives were all resident in Argentina;

—The appellant has not established that the said relatives were dependent upon him for support;

—The said relatives were in receipt of income during the said year, and particularly of a pension form the Argentinian government;

—The appellant has not established that the said relatives were dependent on him by reason of mental or physical infirmity;

—The appellant failed to establish that the said amount of $2,965.38 claimed as a deduction in computing his income for his 1976 taxation year was expended by him for the support of the above-mentioned relatives;

—The appellant failed to establish that the said relatives were during the said taxation year dependent upon him by reason of a mental or physical infirmity, pursuant to paragraph 109(1 )(f).

It is evident that the Minister did not pursue the issue of “periodicity” raised in the notice of assessment, and indeed I would support the view of the appellant that such periodicity was not required to qualify.

Evidence

At the hearing the appellant gave evidence both documented and oral which satisfies the Board that he did send the funds in question to relatives in Argentina. It was further brought out that the taxpayer has close relatives (brothers, sisters, brothers-in-law and sisters-in-law) who perhaps should have contributed to the support, but were not in a financial position to do so. There was also limited information regarding the “other income” of the dependent relatives but even allowing for its imprecision, it supports the appellant’s opinion that the recipients of the funds managed to maintain only a minimum level of existence, even with that help.

Argument

Certain citations provided by counsel for the respondent are helpful and illuminating:

Stefan Kopinski v MNR, 41 ABC 41 at 44; 66 DTC 303 at 305:

Furthermore, the evidence fell short of establishing that these middle-aged persons were in fact dependent upon the taxpayer for support or that, if they were indeed unable to work because of physical infirmity, that they were not being supported by some Polish agency, either state or civil.

It must be remembered that, in circumstances such as those of the instant matter, an appellant is under the burden of proving that every constituent element of the exempting provision of the Act which he is seeking to invoke has been complied with, otherwise the presumption of validity resting upon the Minister’s assessment cannot be disturbed. This would entail adequate proof that the sister and brother were in fact dependent upon the taxpayer by reason of mental or physical infirmity; and such proof would have to consist, at the very least, of some acceptable form of medical certificate for each of them, attesting to the fact that they are unable to support themselves because of their physical inability to work at any remunerative occupation.

Zoltan Tanto v MNR, 41 Tax ABC 73; 66 DTC 332; At 75 and 334 respective- ly:

Counsel for the appellant submitted that s 26(1)(d) of the Income Tax Act did not prescribe exactly what was the support required to comply with the provisions of the Act nor what documentation was required to support a claim for a deduction under the said section. He argued that there was a duty upon the Canadian Government to provide a way of establishing such claims in circumstances where the relatives alleged to be dependents resided in countries far removed from Canada, saying that if the appellant’s mother had resided in this country the government would not have required any document to substantiate a claim for a deduction, as they would have had other means of verifying the claim by first-hand evidence.

At 77 and 335 respectively:

The provisions of s 26(1)(d) of the Income Tax Act (now s 109(1 )(f)) speak of persons dependent upon the taxpayer for support by reason of physical or mental infirmity. No evidence was adduced as to whether the appellant’s parents-in-law were in fact dependent upon him for support, as they may have had independent means or substantial savings of their own. No evidence was adduced, other than a reference to the advanced age of the appellant’s own parents, as to whether either they or the appellant’s parents-in-law were in fact dependent upon him for support. With respect to the appellant’s own parents, it was established that they were in receipt of Hungarian Government pensions, but beyond that nothing was said as to whether they did in fact have other means of support, although it is understood that the Hungarian Embassy in Ottawa will give assistance to persons seeking documentary evidence of dependency from local officials in Hungary. The question of the dependency of parents is equally as important as proof of the actual amount of the contributions towards their support in substantiating claims for personal exemptions on their behalf.

Fouad Zaki v MNR, [1978] CTC 2843: 78 DTC 1583 at 1584:

I believe that consel for the respondent has claimed, or at any rate has not disputed, that the sum of $1,292 may have been sent to Egypt, and the document which you have, a sworn statement to the effect that this sum was in fact sent, I accept as such. Nor do I question the two medical certificates which the appellant has produced as evidence that the sum of money sent to Egypt was for his mother, who is claimed to be sixty-five years old, and for his sister, who suffered a nervous breakdown on the death of her husband. There have been precedents in case law in which members of the Board have seen fit to reject documents not formally sworn before a justice of the peace; however, I do not contest the validity of these two certificates, very probably signed by a doctor, although they have not been sworn. What has drawn my attention is the content of these certificates. As regards your mother, the certificate simply states that she is sixty-five years old. I am under the very strong impression that section 109 of the Income Tax Act refers specifically to ‘his parent or grandparent and dependent by reason of mental or physical infirmity’. This, in my opinion, goes much further than mere old age at sixty-five. Had she been ninety or crippled, she might have been considered a dependant under the Act, but no evidence has been offered other than the mere fact of age. To my mind, this section of the Act, which must be applied very re- Strictively, does not include among the infirm any person sixty-five years of age; therefore, I do not think that this section of the Act applies in this case, and I am obliged, in the circumstances, to dismiss the appeal.

Asit Hazra v MNR, [1978] CTC 2844 at 2847; 78 DTC 1618, at 1620:

The appellant, in my opinion, quite properly pointed out that it is almost impossible to compare the life style and standard of living between Canada on the one hand, and India on the other. I asked some questions to the appellant, mainly in the expectation that the answers would in some measure assist me in determining this troublesome question of dependency for support, which is nowhere defined. I am told that Revenue Canada experiences this problem all the time in trying to determine the same issue.

It can only be concluded that each case must be decided on its own set of facts. It is, in reality, in my opinion, tantamount to conducting a means test on the basis of the information available.

It is not of course within my office to determine what standard of living the appellant’s parents ought to enjoy in retirement. Nor am I in a position to state what the father’s income in India commands by way of goods and services. The appellant is naturally, within his limits anxious to supplement his parent’s income and he does. Are his parents dependent on him for support? Or, more specifically, were his parents dependent on the appellant for their support in the taxation year 1975?

In answer to a question put to the appellant as to how his parents got along before he was able to send them money, he replied that the father was obliged to encroach on his savings, that is, on his capital to supplement his pension.

The Board has no information as to the father’s estate and extent of capital at the present time except what came out in the evidence indirectly. But there was interest from capital savings or securities.

Taking all the evidence under consideration, including the fact that the Board has, for all practical purposes no knowledge of the life styles and the cost of living in India, I have concluded with some hesitation, that the appellant’s parents in 1975 did not depend upon the appellant for support and accordingly, they may not be claimed as his additional dependents for income tax purposes.

Medardo A Cardona v MNR, [1978] CTC 3236 at 3237; 78 DTC 1883 at 1884:

3.02 The appellant’s mother lives with her husband who was 77 years old in 1976. He is a retired teacher who has a Superannuation pension. The appellant did not know the amount.

3.03 The appellant is one of six children. Two of them are living in the Philippines, three in Canada and one in the United States. The latter, one of his sisters, is a doctor and ordinarily she is the one who helps her parents financially. But in this particular case of the medical expenses, the appellant who is a bachelor decided to pay the amount. He added that during the year (at Easter, Christmas, etc) he sent his mother some money as a gift.

3.04 The amount of $350 in International Money Order dated October 28, 1976, was made by the appellant payable to the order of his sister, Mrs Leticia Car- donaAcosta. Since his mother was in hospital, his sister paid the bill.

3.05 According to the appellant, old age pension program does not exist in the Philippines but no written confirmation by the Philippine Government was given as evidence.

3.06 As exhibit A-1 was filed a medical certificate dated August 22, 1977, signed by Dr Lawn of Baccod Health Center and it reads as follows:

To whom it may concern:

This is to certify that Mrs Aurea Cardona was examined by the undersigned and found to be suffering from heart disease. She is being treated by the undersigned at present and her treatment will continue probably for 4-6 months more for further . ..

3.07 According to the appellant, his mother is mentally alert. Even if she has been sick for many years, she can walk and have a normal every day life.

At pages 3238 and 1885 respectively:

All the conditions required in section 109(1)(f) quoted above must be met so that the personal deduction can be claimed. One of those conditions is that the appellant’s mother is dependent upon him.

The appellant has not reversed the burden of proof which was on his shoulders. On the contrary, the facts explained in paragraphs 3.02 and 3.03 of the Facts prove that his mother is not dependent upon him.

Findings

In the final analysis, the objections raised by the Minister are twofold:

(a) were the recipients dependent upon the appellant for support? AND

(b) was such dependence by reason of mental or physical infirmity?

The answer of the appellant may be summarized that they were dependent for support on him as the son (or son-in-law) since they did not have sufficient financial resources to maintain themselves properly; and because they are quite old (ranging 68 and 77 years), they must be considered infirm.

It is interesting to note that paragraph 109(1 )(f) of the new Act for all practical purposes is analogous to paragraph 26(1)(d) of the old Act, and has been very little challenged or argued over so many years. At the same time, it is reasonable to assume that the deduction has had relevance and applicability to many thousands, perhaps hundreds of thousands of taxpayers, but even now the critical terms noted above “dependent upon the individual for support’’ and “mental or physical infirmity” are not delineated. This can only be regarded as a considerable tribute to the dedication, understanding and flexibility of the officials of Revenue Canada in examining the merits of the various claims. At the same time the quotations from judgments given earlier strongly etch the extreme difficulty which this section of the Act has posed when an issue has been raised about it, and the great reluctance with which the appeals were often dismissed.

While ultimately finding against the appellant in Zaki (supra), the Chairman of this Board sensed keenly and emphasized pointedly the dilemma faced by any taxpayer under this section—if being 65 years of age, retired and unemployed was not sufficient to qualify as “dependent by reason of mental or physical infirmity”, would ninety years of age and crippled be satisfactory? The fact that the situation was so highlighted by the Chairman has caused me to ponder the matter at considerable depth.

In what way, realistically, could the appellant demonstrate that the relatives were dependent upon him for support, and that they were mentally or physically infirm? Am I to conclude that the vast majority of all the deductions so claimed over many years, and presumably granted by Revenue Canada, have somehow filled requirements of definition and precision for “dependency” and “infirmity”, the nature of which is certainly not evident in the few judicial decisions available? Am I to conclude that if the particular additional sustenance provided by the economic support had been denied, withdrawn or unavailable, the dependants would have suffered the most grievous consequences—and that therefore the recipients must be virtually destitute and that only funds needed for absolute survival should be permitted as a deduction? Am I to conclude that “dependent upon the individual” means dependent solely, and totally upon that par- ticular individual—to the exclusion of every other possibility or avenue for support, and that a parent must exhaust every other conceivable means before turning in utter desperation to his own child? I think not. Rather, it should be sufficient that due to recognized and accepted family relationships, the parents look to the child for support in their waning years, just as the child looked to them for support during his early years, and that the level of such support might well be, as Mr Prociuk indicated in Hazra (supra), largely a matter of determination between the parties. The term “dependent upon the individual for support” must surely be subject to a humane interpretation when applying the criteria between parent and child. This is particularly true, in my opinion, when there is no possible way of accurately defining the term, or characterizing it exactly.

Similarly, there can be no exact level of mental or physical incompetence to which a dependant must be reduced before this section of the Act may be invoked to provide some relief to a taxpayer assisting his parent. In my view it is simply inappropriate to suggest that at 78 years of age, for example, a dependent is not yet physically at the level which would engender a response which would include financial support from a son or daughter. Again that timing should be left to the individuals concerned, particularly when there is no statistical basis of which I am aware provable by document or evidence which would determine with certainty the relative state of infirmity which has been attained, short of perhaps a court order providing for committal to an institution.

In summary, where the taxpayers claim to the deduction is disallowed for lack of proof of either or both of the above grounds (“dependency” or “infirmity”), the Minister’s case is on the most fragile of foundations. With adequate proof of the family relationship, and satisfactory evidence that the amounts claimed were in fact paid, the taxpayer, prima facie, should have a right to the deduction. These grounds (“relationship” and “payment”) have Substance and can be objectively assessed and compared, while the others can only be dealt with subjectively and do not lend themselves to the establishment of any reasonable criteria. Under such circumstances, to assume the burden of proof, the taxpayer is facing not only imposing but insurmountable odds, and I do not see that as a just cause for failure of his appeal in an action before this Board. The difficulties of interpretation and implementation might make subparagraph 109(1 )(f)(i) of the Act more properly the subject for exercise of Ministerial discretion, a state of affairs which apparently has not been accorded the Minister under the section of the Act as it now reads.

Conclusion

The Board recognizes that the information provided by the appellant to support the payments and the living standards of the recipients was indeed minimal, but it was offset by his forthright manner and his clear willingness to provide more if necessary, to whatever extent it could be obtained. The Board is satisfied that the taxpayer provided support to relatives who qualified as “parents”, and that the known total income of the recipients of such support did not exceed the limitations prescribed for deductibility to the taxpayer.

Decision

The appeal is allowed and the matter referred back to the respondent for reassessment accordingly.

Appeal allowed.