Rowe D.J.T.C.:
1 The appellant appeals from an assessment of income tax for her 1995 taxation year. In computing income for the 1995 taxation year, the appellant deducted child care expenses in the sum of $5,160.00. The Minister of National Revenue (the “Minister”) disallowed the deduction on the basis the appellant was married to, and resided with her husband, Theodore Kuchta, a supporting person, as defined in subsection 63(3) of the Income Tax Act (the “Act”) and in that year his income was deemed to be zero pursuant to the provisions of paragraph 3(f) of the Act. Accordingly, the appellant's income exceeded that of her husband and he did not fall within any of the provisions of subsection 63(2)(b) so as to eliminate the effect of her greater income as it related to eligibility for claiming the child care expense.
2 The appellant testified she resides in Richmond, British Columbia and works as a Registered Nurse. She filed, as Exhibit A-1, a copy of her separation agreement, dated January 19, 1990, between herself - then Cheryl Lynne Watkins - and her former husband, James Robert Watkins. There were four children of the marriage and the appellant and her former husband agreed to joint custody which was continued pursuant to the terms of their divorce decree, dated October 19, 1992. They also agreed they would consult with each other on all questions relating to the health, education and general well-being of the children. James Robert Watkins agreed to pay, to the appellant, the sum of $2,000.00 per month for the support of the children. They also agreed to share - equally - the family allowance paid in respect of the children. In 1995, the separation agreement of 1990 was applicable to only two children of the marriage, Heather, 14, and Anne (Annie), 13. Gregory Kuchta - born June 4, 1993 - is the child of the appellant and her husband, Theodore (Ted) Kuchta. She stated Ted Kuchta is not responsible for the financial support or discipline of Heather and Annie. The appellant stated that, in 1995, she worked as a nurse in an intensive care ward at the Vancouver General Hospital. She worked 12-hour shifts which would, from time to time, be scheduled on weekends or holidays. To work a day shift, she would leave home at 6:30 a.m. and return at 8:00 p.m. and for the night shift she would leave at 7:00 p.m. and return at 8:00 the next morning. Including travel to and from the hospital, her working day lasted 14 hours. As a result, it created difficulties in terms of caring for the children. Gregory was in a day-care from 9:00 a.m. until 5:00 p.m. and the older children, Heather and Annie, were involved in evening activities where she was confident they were properly supervised, thereby eliminating the need to hire care during such periods. The appellant referred to her 1995 tax return - Exhibit A-3 - in which she claimed the sum of $5,160.00 - at line 214 - as an amount paid for child care and deducted it from reported income in the sum of $53,075.02. She also completed Form T778(E), in which she set forth the details of the various amounts paid and included it in her return. She included certain payments made for attendance by the children at supervised evening activities on the basis these were equivalent to a sports school or camp as referred to in an extract from the 1995 Income Tax Guide (Exhibit A-4). The appellant explained that her shifts - whether day or night - still overlapped the evening hours when the children were at the supervised activities, playing ringette or taking gymnastic and/or karate lessons. The appellant stated she regarded her husband, Ted Kuchta, as a supporting person only with respect to their child, Gregory. She doubted that she was aware of the definition of “supporting person” in the Act prior to completing her 1995 return of income. Her former husband, James Robert Watkins, was the person paying support for the children of their marriage. Ted Kuchta is a self-employed lawyer and was carrying on a practice in 1995. Although he had gross income - due to expensive overhead in a downtown Vancouver office and other factors - he reported, in his 1995 income tax return, Exhibit A-5, a negative amount of income. This was confirmed in his Notice of Assessment dated June 27, 1996 - Exhibit A-6 - which stated his net income for the 1995 taxation year was minus $2,048, resulting in taxable income of zero. Because he had wound up his Vancouver practice in order to relocate to an office in their residence in Richmond, there was a reporting of income over a 21-month period which resulted in a loss - from the practice - in the sum of $17,824.43. In addition, there was a capital loss in the sum of $1,368.70. Income consisted of $4,690.29 in Old Age Security, $7,105.44 in Canada Pension Plan benefits and $4,171.96 in taxable dividends for a total of $15,967.69. The appellant stated it was obvious Ted Kuchta had no income from which he could deduct any payments for child care. He babysat during evenings and weekends when he was able to do so but, other times, a babysitter was hired. In 1995, Ted Kuchta - who was born in 1926 - worked throughout the year as a lawyer. The appellant stated that when she received the letter - Exhibit A-7 - from Revenue Canada, dated August 28, 1996, requesting certain receipts to support her claim for child care expenses she had already received a refund based on her return, as filed. On October 15, 1996 she received a Notice of Reassessment disallowing her claim for child care expenses.
3 In cross-examination, the appellant stated her husband, Ted Kuchta's Social Insurance Number was on the label sent out by Revenue Canada which she attached to her return. Heather was involved with the sport of ringette and she went to a summer camp - for one week - and also went to tournaments in other municipalities which required overnight stay. She would travel with the team, coaches and supervisors and expenses for accommodation were included in the amount paid by the appellant for registration fees. The appellant stated she claimed only that portion of amounts paid for karate or gymnastic lessons which were occurring during periods when she was at work and unable to care for Heather and Annie during the evenings. By way of example, the appellant explained the cost of karate lessons, at the Community Centre, for Heather was $30 per month but she claimed only the sum of $120 for the year. The classes began between 6:30 p.m. and 8:00 p.m. and continued for 2.5 hours. Annie was involved in gymnastics five days a week. She took the bus from her school and attended an intensive gymnastics training program at a private school in Richmond and entered competitions within British Columbia. On Saturdays - for the entire day - she attended an aquatic program which was a “water sports camp”. The course lasted 10 weeks and involved training in canoeing, scuba diving and other related activities.
4 Theodore Kuchta, Counsel for the appellant, submitted the true supporting person in relation to the children, Heather and Annie, was the appellant's former husband, pursuant to the agreement dated January 19, 1990. The income of Theodore Kuchta, when calculated in accordance with the provisions of the Act, was minus $2,048 which is certainly not the sum of zero or equal to the sum of zero. To attempt to deem it otherwise, Counsel submitted, was to create an absurdity which should not be permitted, notwithstanding recent jurisprudence following the amendment to section 63 of the Act.
5 Counsel for the respondent submitted the taxpayer must calculate income in accordance with section 3 of the Act. As a consequence of paragraph 3(f), the income of Theodore Kuchta, husband of the appellant, was deemed to be an amount equal to zero. As such, it was exceeded by the income of the appellant and she was, therefore, ineligible to claim the amount for child care expenses.
6 Prior to the amendment of section 3 of the Act, in 1990, the Federal Court of Canada in McLaren v. Minister of National Revenue (1990), 90 D.T.C. 6566 (Fed. T.D.)and, before that, the Tax Court of Canada in Fiset v. Minister of National Revenue (1988), 88 D.T.C. 1226 (T.C.C.), had held the word “income” meant a positive amount and not zero or no income. Those decisions held that upon a taxpayer using the process described in section 3 of the Act, at the end, when the person's income emerged, it had to be a positive sum. Then, paragraph 3(f) was added, for the purposes of Part 1, dealing with the basic rules for determining income, and it reads:
(f) in any other case, the taxpayer shall be deemed to have income for the year in an amount equal to zero.
7 In the case of Fromstein v. R. (1993), 93 D.T.C. 726 (T.C.C.), Sobier, T.C.J. dealt with the effect of paragraph 3(f) of the Act, and, at p. 726, stated:
Until the enactment of section 3(f), the Federal Court and this Court through Chief Judge Couture made it clear that a positive amount was necessary in order to constitute income for the purpose of section 63. Section 63 is a scheme to allow the deduction of chid care expenses. It has as a matter of policy stated that the supporting party with the lower income will be the one entitled to the child care deduction. That was interpreted in McLaren and in Fiset as having to be a positive amount and in what was apparently a knee-jerk reaction to these cases, the Income Tax Act was amended and was amended badly, hastily, and without proper consideration of what it was doing. I think that by enacting section 3(f) as it was enacted, without giving proper consideration to what was intended by section 63, was a quick patch-over and enacted in order to negate the effects of McLaren and Fiset. They did so with a sledgehammer rather than with a scalpel. I believe that the problems could have been faced and dealt with in a more sophisticated fashion than they were, but they were not. They were using a very dull sword to cut out the heart of the decisions of McLaren and Fiset. However, cut out that heart they did.
I would strongly urge the Ministry of Finance and the Ministry of National Revenue to re-think the blundering way in which they try to get around McLaren and Fiset and to take a look at what their real purpose was and that is to benefit a family of two working parents which in this case, and in others I have heard, have done it incorrectly.
8 In Ladico v. R., [1995] 2 C.T.C. 2984 (T.C.C.), Taylor, T.C.J. came to the conclusion that the amendment to the Act- paragraph 3(f) - effectively removed any ambiguity and that the supporting person with an income of nil was the one that had to claim the child care expense. In Metcalf v. R., [1995] 2 C.T.C. 2740 (T.C.C.), Lamarre Proulx, T.C.J. came to the same conclusion, stating at page 7:
It seems clear that the object of section 63 of the Act is and was to ease the financial cost of providing for the care of children to working parents in the pursuit of earning income. However, the result of the legislation, as it stands now, is that parents employed in high-earning jobs will have, as a family unit, the benefit of a deduction for the care of their children. Whereas, a family unit, in which one spouse earns income from employment and the other, having lost his well-paying job, tries his most to succeed in a business that does not yet yield income, does not have the benefit of any deduction for the care of the children although incurring the same expenses but with less assets.
It belongs to the Legislator to find a cure. The Tribunal can only bring the matter to the Legislator's attention and care. The relevant provisions of the act being very clear, I have no option but to regretfully dismiss the appeal.
9 Counsel for the appellant referred to various cases which had been concerned with the word “deemed”, including Hickey v. Stalker (1924), 53 O.L.R. 414 (Ont. C.A.)at 418, per Middleton J., as follows:
The word ... “deemed” ... is not inflexible. It may but does not always mean “adjudged and determined.”
10 Further, Counsel referred to the effect of the decision in Crédit foncier franco-canadien v. Bennett (1963), 43 W.W.R. 545 (B.C. C.A.)in which it was held that the word “deemed” is capable of meaning “rebuttably presumed” or presumed until the contrary is proven.
11 It is extremely clear that Parliament, in enacting paragraph 3(f) did so in order to obviate the effect of the decisions in McLaren and Fiset, supra, and it is rare to discover a more direct expression of intent which is to ensure the person with the lowest income - whether it be zero or an actual negative amount when calculated in accordance with the basic rules in section 3 - is “deemed to have income for the year in an amount equal to zero”. Then, pursuant to subsection 63(2), the income of the other spouse - a positive amount - is obviously greater than the income of the spouse with the deemed amount equal to zero - which, I suspect, is, in fact, zero. The question also arose whether it is reasonable - in light of the evidence - for the appellant's husband to be a “supporting person” when it was apparent, by all reasonable and commonsense standards, he was not. The children's father paid support and also participated fully in their upbringing and care as a consequence of having joint custody of them with the appellant. However, Parliament has seen fit to classify a supporting person solely by reason of being the spouse of the taxpayer and that is rebutted only if the spouse fits into one of the exemptions set forth in paragraph 63(2)(b) and subsequent sub-paragraphs. There is no ambiguity whatsoever and there is no need to resort to the methodology set forth in the decision of the Supreme Court of Canada in Québec (Communauté urbaine) c. Notre-Dame de Bonsecours (Corp.) (1994), 95 D.T.C. 5017 (S.C.C.).
12 There are circumstances such as existed in the within appeal where the spouse with a zero income has been fully engaged in attempting to earn income and, because of the methods of computing income, ended up without a positive sum to show for the efforts expended during the taxation year. I doubt Parliament considered such a scenario but merely assumed that a person without any income should be available to look after the children involved in the relationship. Or, the legislators may have known such results could occur in rare instances but that it was more important to be concerned with the effect of promulgating a general rule which would, for the most part, not work an inequity upon a significant number of taxpayers. It is one thing for the person with the lower income - and, often, in a lesser marginal tax bracket - to be required to claim the deduction but it is another - worthy of inclusion in the Catch-22 Hall of Fame - for the person with no income at all to be the only one eligible to take the deduction. Anyone able to actually perform such a feat would be heralded as a worthy rival of the amazing magician known throughout the land over the past four decades as Reveen, The Impossibilist.
13 The appellant and her husband in the within appeal are caught by the strict wording of the section and her appeal is hereby dismissed.
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