Thomas Korisan v. Minister of National Revenue, [1971] CTC 527, 71 DTC 5278

KERR, J :—This is an appeal from a decision of the Tax Appeal Board, dated December 14, 1970 (reported [1970] Tax A.B.C. 1314) which dismissed an appeal against the appellant’s income tax assessment for 1968.

The issue is whether the appellant, for the purpose of computing his taxable income for 1968, is entitled to deduct $550 from his income for the year in respect of each of his dependent children. The appellant claims that he is so entitled. The respondent claims that he is not.

For the purposes of the appeal the case w as heard on an agreed statement of facts, as follows :

1. The Appellant has resided in Canada since 1948,

2. The Appellant became an. employee of the Department of National Revenue, Customs and Excise, of the Government of Canada in 1958 and has had several official postings abroad in New York, U.S.A., and Tokyo, Japan, as follows:

August 1958 posted to New York

October 1960 reposted to Ottawa

February 28, 1961 posted to New York

July 1, 1964 reposted to Ottawa

June 1965 posted to Tokyo

September 1968 reposted to Ottawa

3. The Appellant’s domicile has been in Canada continuously since 1948.

4, The Appellant has three children as follows : Michael, born 1959, New York, N.Y., U.S.A.

David, born 1962, Glen Cove, N.Y,, U.S.A.

Bruce; born 1963, Glen: Cove, N.Y., U.S.A.

5. During the years, or parts thereof, 1960, 1961, 1964: end 1965 one or more of the abovementioned children were qualified for family allowance and family allowances in regard to one or more of these children were paid to the wife of the Appellant.

6. In J une 1965 the Appellant was posted to Tokyo, Japan, and was accompanied to Japan by his family; family allowance payments in regard to the abovementioned children: were stopped in June or July 1965.

7. The Appellant returned to Canada with his family in 1968, and the Appellant’s children were duly registered with the Toronto Regional Family Allowance Office and payments of family allowance have been received for October 1968 and succeeding months thereafter.

8. By Notice of Assessment dated the 15th day of August, 1969, a tax in the sum of $2,181.80 was levied against the Appellant in respect of income for the tax year 1968.

9, A Notice of Objection was filed by the Appellant and the Respondent issued a Notification dated the 11th day of February, 1970, confirming the said assessment.

10. A Notice of Appeal ‘was filed with the Tax Appeal Board on the 6th day of May, 1970, an on the 11th day of December, 1970, the appeal was dismissed.

_. 11. On the 8th day, of April 1971, Thomas Korican by Notice of Appeal to the Exchequer Court of Canada, appealed the Judgment of the Tax Appeal Board.

The right of deduction is conferred by Section 26(1) (c) of the I ncome Tax Act, which, so far as relevant, reads:

26. (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:

(c) for each child or grandchild of the taxpayer who, during the year, was wholly dependent upon him for support and was

(i) under 21 years of age,

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

(iii) 21 years of age or over and in full- time attendance at a school or university,

$300 if the child or grandchild was a child qualified for family allowance and $550 if the child or grandchild was not so qualified;

‘ Child qualified: for familyallowance’’ is defined in [former I Section 139(1) (£) of the Income Tax Act as "‘a child who, in the last month of the taxation year in respect of which the expression is being applied, was or might have been qualified by registration under the Family Allowances Act, so that an allowance under the said Act was or might have been payable in respect of that child for the immediately following month”. ;

The issue turns on whether Section 85C of the Income Tax Act, which was in effect during 1968 but has since been repealed, is applicable to the facts in the present case. It reads as follows :

85C. (1) Where any child not previously qualified for family allowance, in respect of whom a taxpayer. is entitled to a deduction under section 26, becomes a child qualified for family allowance during a taxation year by reason of. having become during the year a child as described in subparagraph (ii) or (iii) of paragraph (b) of section 2 of the Family Allowances Act the following rules are, if the taxpayer so elects, applicabl :

(a) the child shall be deemed not to have been a child qualified for family allowance during the year; and

(b) there shall be added to the tax otherwise. payable by the taxpayer under this Part upon. his taxable income for the year an amount equal to the aggregate of all amounts that were payable during the year as family allowance in respect of that child or that would have been so payable if that child had been registered under the Family Allowances Act.

The appellant submits that the words "‘not previously qualified” in the opening sentence of Section 85C do not relate farther back than the particular taxation year in question. The respondent submits that the children of the appellant were qualified for family allowances in the last month of 1968 within the meaning of Section 139(1) (f) of the Income Tax Act (supra) and that since they had previously qualified for family allowances, i.e. in previous years, they do not meet the requirement of Section 85C and cannot take advantage of that section.

The parties also referred to Sections 2(b) and (g) and 4 of the Family Allowances Act, R.S.C. 1952, €. 109, the. relevant portions of which read as follows :

2. In this Act,

(b) "child" means any person under the age of sixteen years who is a resident of Canada at the date of registration,

and

(i) who Was, born in Canada and has been a resident of Canada since birth,

(ii) who-has been a resident of Canada for one year immediately prior to the date of registration,

(iii) whose father’s or’ mother’s: domicile at the time of such person’s birth and for three years prior thereto was in Canada and has continued to be in Canada up to the date of registration, or

(g) "registration" means registration pursuant to section 4 and regulations ;

4. (1) The allowance shall be payable only after registration of the child, and shall commence in the first month after registration, and shall be payable to a parent in accordance with the regulations or to such other person as is authorized ‘by or pursuant to the regulations to receive the same.

(2) The allowance shall cease to be payable with the payment for the month when the child

(a) ceases to be maintained by a parent;

(b) ceases to be resident in Canada;

(c) attains the age of sixteen years;

(d) dies; or

(e) in the case of a female child, marries.

(3) The allowance shall cease to be payable if the child does not regularly attend school as required by the laws of the province where he resides, or does not receive training that, in the opinion of the competent educational authority designated by such province or, in the case of an Indian, or an Eskimo or a child resident in the Northwest Territories or the Yukon Territory, of the educational authority prescribed by regulation, is training equivalent to that which he would receive if he attended school; but where information as to school attendance or equivalent training, as may be requested, is not furnished by the competent educational authority of the province, the Governor in Council may prescribe the manner in which such information may be obtained.

and to Sections 4, 5, 17 and 27 of the F amily Allowances Regulations, as follows:

4. A child is deemed to be a resident of Canada if the child makes his home and is ordinarily present in Canada; periods of absence that are of a temporary nature do not affect the status of a child as a resident of Canada.

5. A child is deemed to be resident in. Canada if the child makes his home and is ordinarily present in Canada; periods of absence that are of a temporary nature do not interrupt residence: in Canada, but nothing in this section affects the provisions of section 27.

17. (1) The registration of a child shall be cancelled as of the last day of the month in which

(a) the child dies;

(b) the child, if female, marries,

(c) the child ceases to be a resident of Canada; or

(d) the parent who made the application to register the child authorizes in a form satisfactory to the Director that such registration be cancelled or withdrawn or that the payment of an allowance be discontinued.

(2) Where the registration of a child has been cancelled pursuant to paragraph (c). or (d) of subsection (1), a later application to register the child shall be dealt with as a new application for registration.

27. (1) Subject to subsections (2) and (3), where a child, in respect of whom an allowance is paid, is temporarily absent from Canada, the allowance shall, following the payment for the month in which such child departed from Canada, cease to be payable, and where the child resumes residence in Canada the allowance may then be reinstated for and from the. month following the month in which notice of such resumption of residence is received by the Regional Director in a form satisfactory to him.

(2) Where a notice is received within ninety days from the day in which the child resumes residence in Canada, the allowance may be reinstated for and from the month following resumption of residence, and if the total absence from Canada does not exceed three. calendar months, the allowance may be paid for the entire period of such absence. + .

(3) Where a notice is received. more than ninety days after the day in which the child resumes residence in Canada and an explanation satisfactory to the Regional Director is given for failure to notify him within such period, the allowance may be reinstated for and from the month following resumption of residence, and if the total absence from Canada does not exceed three calendar months, the allowance may be paid for the entire period of such absence.

The principal decision in respect of Section 85C that was referred to in argument is the decision of Thorson, P. in M. N. R. v. Glenn S. Woolley, [1956] C.T.C. 264. The facts there were that a taxpayer with a child born in Canada in November 1904 elected under Section 85C to claim the maximum exemption of $400 (as it then was) instead of $150, contending that his child, a girl, was a "‘child not previously qualified for family allow- ance (presumably before she was born) who became qualified in 1954 by reason of the fact that her father and mother were domiciled in Canada for 3 years prior to her birth and their domicile continued to be in Canada up to the time of her registration under the Family Allowances Act in. December 1964 (Section 2(b) (iii) of the Family Allowances Act).

Thorson, P. held that the child was a child” within the meaning of Section 2(b) (i) of the Family Allowances Act; that subparagraphs (i), (ii) and (iii) thereof are disjunctive; and as the child came within (i) she did not come within either (ii) or (iii). The facts in that case are different from the facts in this ease in that the child in that case was born in Canada in the year there under consideration, whereas the children in the present case were born outside Canada and family allowances were paid in respect of them in years previous to the taxation year in question. I think it may be assumed that Thorson, P. was not directing his mind to facts such as are present in this case, but, nevertheless, his interpretation of Section 85C is pertinent. He referrd to the definition of " " child’’ in Section 2(b) of the Family Allowances Act and to the definition of "‘child qualified for family allowance’’ in Section 139(1) (f) of the Income Tax Act, and in that. respect said (at pages 267-268) : .;1

Thus the tests of whether an allowance under the Family Allowances Act is payable in respect of a child and whether such child is a “child qualified for family allowance” within the meaning of Sections 139(1) (f) of the Income Tax Act are not necessarily the same. I need not elaborate this Statement further.

It is, I think, clear that the amount of the deduction from income to which a taxpayer is entitled in respect of his dependent child is fixed at the end of the taxation year. Under Section 26(1)

(c) it is $150 if his child was a “child qualified for family allowance” and $400 if it was not so qualified. The amount to which he is entitled is either $150 or $400. In order to determine whether a taxpayer is entitled to deduct $400 or whether his right is restricted to a deduction of only $150 it is necessary to determine whether his dependent child was, at the end of the taxation year, a “child qualified for family allowance” within the meaning of the expression as used in Section 26(1) (c) and resort must be had to its statutory definition by Section 139(1) (f). According to this definition it is the situation in the last month of the taxation year in respect of which the expression is being applied that must be considered. In the present case this means the status of the re- spondent’s child in the month of December of 1954. In that month she was qualified by registration under the Family Allowances Act, that is to say, the registration on December 6, 1954, so that an allowance was payable in respect of her for the immediately following month. It is, therefore, clear, that the respondent’s child was, at the end of 1954, a “child qualified for family allowance” within the meaning of the statutory definition of the expression and, therefore, within its meaning as used in Section 26(1) (c). Consequently, it follows, as a matter of course, in the absence of a provision to the contrary, that the only deduction to which the respondent is entitled under Section 26(1) (c) in respect. of his “child for the taxation year 1954 is a deduction of $150.

Tn respect of Section 85C he said. (pages 268-270) :

Counsel for the respondent realized, of course, that Section 85C contemplated the case of a child that up to a certain time in the taxation year. was not qualified for family allowance and then became a child qualified for family allowance. In such a case the child, prior to becoming a child qualified for family allowance in the manner specified; was a “child not previously qualified for family allowance” and counsel sought to bring the. respondent’s child within that category. .

The confusion that has arisen regarding the scope of Section 85C may partly be due to failure to appreciate that the term “qualified for family allowance” in the opening words of the section, namely, “Where any child not previously qualified for family allowance” does not have the same meaning as the similar term in the expression “child qualified for family allowance" that appears later in the section. It is obvious that the two terms could not have the same meaning. In its later use in the section it is part of an expression that has a special statutory meaning whereas its use in the opening words of the section is not so limited. As I have pointed out, the determination of whether a child is "a child qualified for family allowance” within the meaning of the statutory definition depends on the status of the child in the last month of the taxation year in which the expression is sought to. be applied, but it is obvious that the determination of whether a child was a “child not previously qualified for family allowance” within the meaning of the opening words of the section cannot depend on a similar test. That must depend on a situation prior to that which was necessary to make a child a “child qualified for family allowance” within the meaning of the statutory definition. What was, no doubt, meant by the expression "a child not previously qualified for family allowance” in the opening words of the section was a child which, at the time referred to, was not qualified by its status to entitle its parent to be paid any allowance under the Family Allowances Act. The respondent’s child was not such a child. According to the agreed facts a family allowance of $5 would have been payable in respect of the child if she had been registered immediately after her birth. It could not, therefore, be said that the child was ever “not previously qualified for family allowance” within the meaning of the opening words of the section.

In the present case each of the children was registered under the Family Allowances Act and family allowances were paid in respect of them prior to their departure to Tokyo in 1965; each of them was, in 1958, within the definition of ‘‘child’’ in Section 2(b) of the Family Allowances Act; and each was a ‘‘child qualified for family allowance’’ within Section 139(1) (f) of the Income Tax Act by virtue of being a child who in the last month of 1968 was qualified by registration under the Family Allowances Act, so that an allowance under the Act was or might have been payable in respect of such child for the immediately following month. Consequently, the appellant is not entitled to a deduction of $550 in respect of the children unless they come within Section 85C.

The Tax Appeal Board held that the fact of the children having been qualified for family allowance before going to Japan in 1965 bars them from coming under Section 85C.

The registration of the children was effected in years prior to 1968 and was never cancelled. What happened was that the allowances ceased to be payable while the children were temporarily absent from Canada during their stay in Japan. But they continued to be registered during that absence and in 1968 the allowances were reinstated under Section 27 of the Regulations.

Section. 85C must be read with Section 2(b) (ii) and (iii) of the Family Allowances Act in which the date of registration is the focal point of time. Section 85C is restricted to a child who "‘becomes’’ a child qualified for family allowance during a taxation year "‘by reason of having become during the year’’ a child as described in Section 2(b) (ii) or (ii); The children having been registered in years prior to 1968, it does not appear to me that they ‘‘became’’, in 1968, children as described in Section 2(b) (ii) or (iii), for their registration had taken place not in that year but in previous years.

It is also my opinion that the children, having been registered and qualified for family allowance in years prior to 1968, which registration was never cancelled, were not at any time in 1968 children ‘ not previously qualified for family allowance

For the foregoing reasons, despite a forceful argument by the appellant, in which he referred to principles of interpretation of statutes, I have come to the conclusion that Section 85C is not applicable to the facts in the present case.

As to costs. Counsel for the respondent was content to leave the matter of costs entirely in the discretion of the Court. Having regard to the particular circumstances, the small amount involved and the fact that the appellant pleaded and conducted his appeal personally, I think that it would not be appropriate to require him to pay costs to the respondent.

The appeal will, therefore, be dismissed, without, costs.