John B Watson v. Minister of National Revenue, [1978] CTC 2734, [1978] DTC 1548

A W Prociuk (orally: April 5, 1978):—The appellant, John B Watson, of the city of Vancouver, British Columbia, a barrister and solicitor by profession, appeals from the respondent’s reassessment of his income for the taxation year 1975, wherein the calculation of the amount which the appellant paid out on behalf of his aged and infirm mother, was not, in his view, properly deductible from his other income. I shall deal with this more fully at a later stage of my judgment.

At the opening of the hearing of this appeal, the parties hereto filed a statement of agreed facts, which reads as follows:

1. In 1975 the appellant’s mother was in the fulltime care of a nursing home.

2. In 1975 the appellant paid $4,750 for the nursing home care.

3. The appellant’s mother had been certified by a qualified medical practitioner to be a person suffering from brain disease and senile dementia who is, and in the foreseeable future will continue to be dependent on nursing home care for her personal needs and care.

4. In 1975 the appellant’s mother’s income exceeded $1,700.

I‘ might say, in addition to this, that on reviewing the file and a copy of the appellant’s income tax return for the said year, it would appear that it is stated there that his mother’s income was $2,950, but I should not like to deter him on that figure, but it may well be that this figure may have been adjusted by the department in consultation with the appellant. So, be that as it may, we’ll leave it at that and deal with whatever the excess is when we come to the appropriate section.

In filing his return for the said taxation year, the appellant perused subsection 7 of section 117 of the Income Tax Act and deduced therefrom that he was entitled to deduct the full amount of $4,750 as medical expenses paid in respect of his mother. The respondent, in reassessing, deducted therefrom 3% of the net income as is provided in paragraph 110(1)(c) of the Act and then used the notch provision as provided in subsection 117(7) for the purposes of arriving at the tax payable which in effect is a tax adjustment.

Subsection 117(7) reads as follows:

117. (7) Where the tax otherwise payable by a taxpayer for a taxation year under this part is greater than the aggregate of

(a) the tax that would be payable by the taxpayer if the taxpayer could deduct in computing his taxable income for the year a payment described in paragraph 110(1 )(c) in respect of any person who would be a dependent (in respect of whom the taxpayer could make a deduction from his income for the year) if that person’s income for the year were not in excess of $1,700, and

(b) the amount by which the income of the person described in paragraph (a) exceeds $1,700,

the tax otherwise payable for the year under this part may be reduced to that aggregate.

Counsel for the appellant states that the word “payment” in the said section which I have just read, means the full payment, i.e. the total amount which he is entitled to deduct from his net income without regard to the provision for the initial deduction of 3% of the taxpayer’s net income is $4,750. As I understand the section, it appears to me that the sole purpose of subsection 117(7) is to permit taxpayers to claim as “dependants” people who, otherwise but for the income that they have, would be classified as dependent for the purposes of deducting medical expenses paid on their behalf or home care in a nursing home as is the situation here.

Ordinarily, if the mother’s income had been less than $1,300 in 1975, the appellant would have been able to claim his mother as a dependent, and in the column entitled “personal exemptions”, he would have been entitled to deduct a further $646 as an allowance in that regard. Well, then she being a dependent, he would then claim the medical expenses or payments made on her behalf in the ordinary way. Subsection 117(7) deals with situations where a taxpayer may not claim a person as a dependent by reason of income that that person has, and it states here clearly, as I understand it that if the income of the would-be dependent is in excess of $1,700, then he can still claim the medical expenses nonetheless but he has to add, to his tax payable, the difference between $1,700 and the amount of income that. that person has. If the amount is $2,950, as I indicated earlier, well then the appellant would have to add the difference, which is $1,250, to the tax that would be determined as payable after having taken into account the $4,750 paid out on behalf of his mother.

As I understand the argument of counsel for the appellant, the difference of view lies in the wording of subsection 117(7) and he claims that subsection 117(7) permits the appellant to deduct the full amount of $4,750. I do not view that in this light and I repeat again: “the tax that would be payable by the taxpayer if. the taxpayer could deduct in computing his taxable income for the year a payment described in paragraph 110(1 )(c) . . . the tax otherwise payable for the year under this part may be reduced to that aggregate’’.

A payment described in paragraph 110(1)(c) is a payment in respect of medical expenses. One must make a payment in respect of medical expenses. One must produce a receipt to be able to claim it. But then, having set out the payments for medical expenses, paragraph 110(1)(c) states that it has to be payments over and above, or in excess of, the first 3% of the taxpayer’s income, which means the taxpayer’s net income. It says clearly:

An amount equal to that portion of medical expenses in excess of 3% of the taxpayer’s income for the year paid, either by the taxpayer or his legal representatives . . _.

I view subsection 117(7) not as an independent deduction section but as a section that permits you to claim a person as a dependent who otherwise, by reason of that person’s income, would not qualify as a dependent but to claim that person as a dependent for the purposes of paragraph 110(1)(c) where a substantial payment in respect of medical care or nursing care has been made, as is the case here.

In conclusion I am of the view that the respondent was correct in assessing the appellant as he did, and I do not feel that an error was made.

Accordingly, the appeal is dismissed.

Appeal dismissed.