Date: 19980612
Docket: 97-2310-IT-I
BETWEEN:
CECILIA S. DOMINGUEZ,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasons for Judgment
Mogan, J.T.C.C.
[1] When computing income for her 1995 taxation year, the
Appellant deducted certain child care expenses under subsection
63(1) of the Income Tax Act.Upon reassessment, her
deduction was disallowed because she did not have receipts from
the person who provided the child care. The Appellant has
appealed from the disallowance of her deduction and I am required
to apply subsection 63(1) to the facts of this case.
[2] The Appellant and her husband have three children:
Charlene born in 1979, Rick born in 1982, and Dorothy born in
1990. In 1995, the ages of the children were 16, 13 and 5,
respectively. At that time, the Appellant and her husband were
both employed full-time and needed someone to provide child care
for Dorothy who was at school only half days, in the morning.
According to the Appellant’s testimony, she hired a person
to provide child care in the following circumstances.
[3] The Appellant came to Canada from the Philippines in 1973.
She and her husband live near Highway 10 in Mississauga but the
Appellant works as a store accounting clerk at Airport Drive near
the Toronto International Airport. The woman who was providing
child care for the Appellant’s children up to 1992 was
older and wanted to retire. One of the Appellant’s
neighbours told her about a woman, Gloria Melgar, who lived in
the neighbour’s basement. Gloria was also from the
Philippines and had done some baby-sitting for people on the
street. The Appellant hired Gloria in 1993 primarily to look
after Dorothy who was only three at that time. Gloria worked for
the Appellant from 1993 until October 1995 when Gloria returned
to the Philippines.
[4] Gloria lived near the Appellant and so it was convenient
for her to come to the Appellant’s home. From Monday to
Friday, Gloria would come to the Appellant’s home at 6:30
a.m. and stay until she took Dorothy to school (kindergarten?) at
8:45 a.m. The school was only five houses away from the
Appellant’s home. Gloria was then free until 11:30 a.m.
when she would pick up Dorothy at the school and bring her home
for lunch and the remainder of the day. Gloria was there for the
two older children (Charlene and Rick) when they came home for
lunch but the Appellant said that she prepared the lunches the
night before. I believe her. Gloria would stay until about 5:00
p.m. when the Appellant and her husband would come home from
work.
[5] The Appellant paid Gloria $150 per week in cash each
Friday at the end of the day. She said that it was better to pay
in cash in order to save service charges at the bank. The
Appellant did not obtain any receipts from Gloria. When asked
whether it was dangerous to pay in cash with no receipt because
Gloria could come back the next day (Saturday) and claim that she
had not been paid for the week, the Appellant responded that she
trusted Gloria and that there had never been any problem between
them concerning payments in cash. The Appellant did not state
that Gloria refused to give a receipt week-by-week. She simply
stated that she did not obtain such receipts. Although the matter
was not pursued in evidence, I was left with the impression that
Gloria may not have been a landed immigrant and may not have been
permitted by law to work in Canada.
[6] On the question of credibility, I have no hesitation in
believing the Appellant. Her oral testimony was given in a simple
and straightforward manner without guile. She answered questions
from counsel and from me directly. Her problem is that she has no
receipts from Gloria, no record of Gloria’s social
insurance number (if any), and no bank statements showing a
pattern of $150 cash withdrawals every Friday. In short, there is
no paper trail. At the conclusion of the evidence, however, when
I consider her sequence of oral statements made under oath but
devoid of any documentary corroboration, I believe her.
[7] In argument, when I asked counsel for the Respondent what
he had to say about credibility, he replied that the credibility
of the Appellant was irrelevant because the statute was so clear
in its requirement for receipts in writing. This brings me to
subsection 63(1) of the Income Tax Act, the relevant words
of which are set out below:
63(1) ... where a prescribed form containing prescribed
information is filed with a taxpayer’s return of income ...
under this Part for a taxation year, there may be deducted in
computing the taxpayer’s income for the year such amount as
the taxpayer claims not exceeding the total of all amounts each
of which is an amount paid, as or on account of child care
expenses incurred for services rendered in the year in respect of
an eligible child of the taxpayer,
...
and the payment of which is proven by filing with the Minister
one or more receipts each of which was issued by the payee and
contains, where the payee is an individual, that individual's
Social Insurance Number, but not exceeding the amount, if any, by
which
...
The above legislation was considered by my colleague Bowman J.
in Senger-Hammond v. The Queen, [1997] 1 C.T.C.
2728. Judge Bowman raised the question as to whether the words in
section 63 requiring receipts with the payee’s social
insurance number are directory or imperative. He concluded that
the words are only directory and stated at pages 2732-33:
The problem stems from an attempt by the government to achieve
two incompatible goals - to allow parents to deduct child care
expenses in appropriate cases - a commendable social objective -
and to protect the revenue by ensuring that the Department of
National Revenue can find, and tax, the payees and not be faced
with fraudulent or inflated claims - a purely fiscal objective.
As a practical matter, what the government in this instance gives
with one hand it takes away with the other. It does not require
much imagination to realize that persons who receive payment in
cash for taking care of children may very well not include those
amounts in income. For this reason, they will refuse to give
receipts or provide their social insurance numbers, or, if they
do, they will demand higher fees because they know that they will
be taxed. Thus, persons who need the deduction for child care
expenses must in many cases choose between
non-deductibility or the payment of higher fees. Affluent
parents who can afford to send their children to more expensive
caregivers who issue receipts will benefit from the deduction.
Lower income groups or, as in this case, single parents in more
straitened circumstances, must make do with caregivers who expect
to be paid cash and will not issue receipts or give their social
insurance numbers. Nor is it necessarily a matter of economics.
The most appropriate caregiver may be one who will not issue a
receipt.
...
The overriding object of section 63 is to permit the deduction
of child care expenses, not to assist the Minister of National
Revenue to collect tax from baby-sitters. To focus on
... the method, the means, to achieve the goal ...
is to ignore the principle stated by the Federal Court of
Appeal and to ignore the telos encompassed in the teleological
approach.
And further at page 2736:
The essence of section 63 is the deduction of child care
expenses, not the collection of tax from baby-sitters. The
language of the provision does not support the view that the
filing of receipts is mandatory. For one thing, the word
“shall” is not used. Rather it describes a method of
proof, which is clearly formal, evidentiary and procedural.
...
[8] Respondent’s counsel argued that the language in
subsection 63(1) requiring a receipt plus the social insurance
number (S.I.N.) of the payee was so plain and clear that there
was no need for Judge Bowman to embark upon a quest as to whether
such requirement is directory or imperative. Counsel also cited
the later decision of my colleague Bonner J. in Pinto v.
The Queen, (September 16, 1997, unreported) in which the
appeal was dismissed because the taxpayer did not produce
receipts bearing the S.I.N. of the recipient. Judge Bonner said
that he could not fail to give effect to “the plain
language” of subsection 63(1). I agree with
Judge Bonner that the language in subsection 63(1) is plain
but the application of the statute is more complex. For example,
assume that a taxpayer obtains the required receipts for child
care expenses with the S.I.N. of the payee but the receipts are
destroyed in a fire and the payee dies or leaves Canada (as in
this appeal) before the taxpayer files her/his return of income.
Assume also that the taxpayer can prove with bank records a
pattern of cash withdrawals or cancelled cheques to corroborate
the claimed payments for child care but cannot prove the
payee’s S.I.N. If that hypothetical taxpayer’s appeal
to this Court were to be dismissed on the plain language of
subsection 63(1), the result would be harsh and not consistent
with one of the “two incompatible goals” described by
Bowman J. in the passage quoted above. A harsh result, by itself,
is not an adequate reason to refrain from applying the plain
language of any legislation but, when such a result is not
consistent with what Judge Bowman described as the
“overriding object” of section 63, then other
questions arise.
[9] Respondent’s counsel referred me to the decision of
the Federal Court of Appeal in The Queen v. Ginsberg, 96
DTC 6372 in which the Court had to reconcile certain provisions
of the Income Tax Act which might appear to be
inconsistent. Desjardins J.A. when delivering judgment for the
Court in Ginsberg referred to the decision of the Supreme
Court of Canada in British Columbia (Attorney General) v.
Canada (Attorney General), [1994] 2 S.C.R. 41 and concluded
that the distinction between a mandatory and directory provision
is not very helpful. In the British Columbia (Attorney
General) case, Iacobucci J. stated at page 123:
In other words, courts tend to ask, simply: would it be
seriously inconvenient to regard the performance of some
statutory direction as an imperative?
There can be no doubt about the character of the present
inquiry. The “mandatory” and “directory”
labels themselves offer no magical assistance as one defines the
nature of a statutory direction. Rather, the inquiry itself is
blatantly result-oriented.
[10] If the inquiry is blatantly result-oriented (I am pleased
to follow those refreshingly candid words), then I will adopt the
label which permits a court to determine as a matter of evidence
whether a particular taxpayer has incurred specific expenses on
account of child care. In my opinion, the requirement in
subsection 63(1) that the Appellant file receipts containing the
S.I.N. of the payee is only directory. It is not imperative.
Notwithstanding the plain language of the subsection, the
evidence of the Appellant and her credibility is relevant. The
appeal is allowed.
[11] I am reinforced in my conclusion by the recent decision
of the Quebec Court of Appeal in Deputy Minister of Revenue
for Quebec v. Letarte, 97 DTC 5515. In Letarte, the
Court interpreted and applied section 353 of the Quebec Income
Tax Act (similar to subsection 63(1) of the Federal Income
Tax Act) and concluded that the taxpayer was permitted to
deduct child care expenses which were otherwise proven to be paid
notwithstanding the absence of receipts.
Signed at Ottawa, Canada, this 12th June, 1998.
"M.A. Mogan"
J.T.C.C.
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