Paul Michaud v. Minister of National Revenue, [1976] CTC 2180, 76 DTC 1148

The Chairman:—This is the appeal of Paul Michaud from an income tax assessment in respect of the 1974 taxation year.

In this appeal the appellant is seeking to have deducted from his income family allowance in the amount of $740 received by and payable to his wife in 1974 in respect of their three children.

The evidence is that, in his 1974 return, the appellant claimed personal exemptions for his three children. In that year, the appellant’s wife received $740 in family allowances in respect of these children. The appellant did not include the family allowance payments in his own taxable income for 1974. The appellant’s wife, having no other source of income, did not file a return.

In presenting his argument, the appellant, who acted on his own behalf, cited passages from an Information Bulletin originating from the Department of National Revenue. I think it is only fitting to repeat here that the Board is not bound by any information, directions or advice contained in these bulletins. The Board must arrive at its decision on the basis of the pertinent sections of the Income Tax Act.

The appellant’s principal argument is that subsection 56(5) is not consistent with the basic principles enunciated in sections 3, 4 and 5 of the Income Tax Act, and he contends that, before he can be taxed on family allowances paid to his wife, pursuant to subsection 56(5) and related subsections, necessary changes must be made in the wording of sections 3, 4, and 5 of the Act.

In support of his argument, the appellant cited the case of Frank Sura v MNR, [1962] CTC 1; 62 DTC 1005, a decision of the Supreme Court of Canada, in which Mr Justice Taschereau is reported to have said, among other things, “only he must pay income tax who has absolute enjoyment of the income, unfettered by any restrictions on his freedom to dispose of the income as he sees fit”. From this statement the appellant concludes that he is not taxable on family allowance cheques paid to his wife.

Although the issue in the Sura case (supra) was principally one arising out of community of property as provided for in the Quebec Civil Code, which does not apply here, it seems to me that the Supreme Court decision, in its ultimate conclusion, does not support the appellant’s contention. On the contrary, in my view, it invalidates it.

Sura, because he came under the community of property law, contended that he should pay tax on only half of his income, which was derived from salary and rentals, and that his wife was liable for tax on the other half. The then Tax Appeal Board agreed with Sura’s position, but the Exchequer Court of Canada, to whom the Minister had appealed, reversed the Tax Appeal Board decision. Sura then appealed to the Supreme Court of Canada, and his appeal was dismissed. It is true that Mr Justice Taschereau, in giving reasons as to why Sura’s wife was not taxable under the community of property system, did say, “only he must pay income tax who has absolute enjoyment of the income, etc . . .”. But in the Sura decision, with which none of the judges dissented, it was held that Sura himself was liable for tax on all the income from the community property.

The issue before the Board is quite different. The evidence is that, in making out his 1974 income tax return, the appellant {not the appellant’s wife) claimed deductions from his income, pursuant to paragraph 109(1)(d), for each of the three children in respect of whom family allowances were paid. In my opinion, the appellant and his wife are considered in this instance, by statute, as a unit for tax purposes. Notwithstanding that the family allowance cheques were addressed to the appellant’s wife, the family as a whole enjoyed the benefits of family allowances without being subjected to any more restrictions than exist in respect of any other source of family income. So the basic principles enunciated by Mr Justice Taschereau in the Sura case have in fact been applied in this instance to the extent that they are pertinent.

More importantly, section 3 of the Income Tax Act, as amended by SC 1970-71-72, c 63, is much broader than the comparable section in the old Act on which the old sections 4 and 5 were predicated. Moreover, subsection 56(1) specifically commences with the words “Without restricting the generality of section 3”, before proceeding to list various items that are to be included in a taxpayer’s income for a taxation year. Subsections 56(5) and 7 which were enacted by SC 1973-74, c 44, section 23, read as follows:

56. (5) Subject to subsection (6) [which does not apply here], a taxpayer who is deemed by subsection (7) to have supported a child in a taxation year in respect of whom

(a) a family allowance under the Family Allowances Act, 1973, . . .

has been paid in the taxation year, shall include in computing his income for the year an amount equal to the said allowance.

(7) For the purposes of subsection (5), [above]

(a) a taxpayer who, in computing his taxable income for a taxation year, deducts an amount under section 109 in respect of a child in respect of whom an allowance described in subsection (5) has been paid in the taxation year, or

(b) [not applicable]

shall be deemed to have supported the child in the taxation year* [1]

Section 3 of the Income Tax Act is in no way inconsistent with, nor does it exclude, the provisions of subsection 56(5), which clearly impose a statutory obligation on a taxpayer to include in his income an amount equal to the family allowances received by him or his wife, whenever the taxpayer has claimed, as he did in this instance, deductions pursuant to section 109 for the three children in respect of whom the family allowances were received, in which case the taxpayer is deemed by subsection 56(7) to have supported the children in the pertinent taxation year. In my opinion, the facts in this appeal fall squarely within the clear meaning and intent of subsections 56(5) and 56(7), which in turn are consistent with the general and unrestricted rules as to what the taxpayer must include in his income pursuant to sections 3, 4, and 5 of the Income Tax Act, SC 1970-71-72, c 63, as amended.

For these reasons, ! conclude that the Minister did not err in Including in the appellant’s 1974 income an amount equal to the amount of family allowances received by the appellant’s wife in that year.

The appeal is therefore dismissed.

Appeal dismissed.