Castillo v. The Queen, docket 97-2081-IT-I (Informal Procedure)

Date: 19980520

Docket: 97-2081-IT-I

BETWEEN:

ROMY-INES CASTILLO,

Appellant,

and

HER MAJESTY THE QUEEN,

Respondent.

Reasons for Judgment

Lamarre Proulx, J.T.C.C.

[1] This is an appeal under the informal procedure from a reassessment by the Minister of National Revenue (“the Minister”) for the 1995 taxation year.

[2] The issue is whether the appellant was entitled to deduct $6,110 in child care expenses under section 63 of the Income Tax Act (“the Act”) even though her earned income exceeded her spouse’s and none of the circumstances described in subparagraphs 63(2)(b)(iii), (iv), (v) and (vi) of the Act applied to her spouse.

[3] The facts on which the Minister relied in making the reassessment under appeal are described as follows in paragraph 4 of the Reply to the Notice of Appeal (“the Reply”):

[TRANSLATION]

(a) during the year at issue, the appellant claimed $6,110 in child care expenses;

(b) during the year at issue, the appellant’s earned income exceeded that of her spouse, Emmanuel Misonne;

(c) during the year at issue, the appellant did not live separate and apart from her spouse;

(d) during the year at issue, the appellant’s spouse was not a person:

(i) in full-time attendance at a designated educational institution;

(ii) certified by a medical doctor to be a person with a mental or physical infirmity;

(iii) confined to a prison or similar institution.

[4] The appellant and her spouse, Emmanuel Misonne, both testified. The facts are not in dispute.

[5] “Earned income” is defined as follows in subsection 63(3) of the Act:

“earned income” of a taxpayer means the total of

(a) all salaries, wages and other remuneration, including gratuities, received by the taxpayer in respect of in the course of, or because of, offices and employments,

(b) all amounts that are included or that would, but for paragraph 81(1)(a), be included because of section 6 or 7 or paragraph 56(1)(m), (n) or (o), in computing the taxpayer’s income,

(c) all the taxpayer’s incomes or the amounts that would, but for paragraph 81(1)(a), be the taxpayer’s incomes from all businesses carried on either alone or as a partner actively engaged in the business, and

(d) all amounts described in paragraph 56(8)(a) received by the taxpayer in the year;

[6] The appellant’s income from employment in 1995 was $15,183.77, resulting in an earned income of the same amount. In that taxation year, the appellant’s spouse worked long hours running a convenience store but did not earn any income from that business. Since he had no employment income either, he had no earned income. Under paragraph 63(3)(f) of the Act, he is deemed to have had income in an amount equal to zero.

[7] “Supporting person” is defined as follows in subsection 63(3) of the Act:

“supporting person” of an eligible child of a taxpayer for a taxation year means

(a) a parent of the child,

(b) the taxpayer’s spouse, or

(c) an individual who deducted an amount under section 118 for the year in respect of the child

if the parent, spouse or individual, as the case may be, resided with the taxpayer at any time during the year and at any time within 60 days after the end of the year.

[8] Since the appellant and her spouse lived together in 1995, they are both supporting persons of their three children, who were born in 1985, 1991 and 1994.

[9] Subsection 63(2) of the Act reads as follows:

(2) Income exceeding income of supporting person. Where the income for a taxation year of a taxpayer who has an eligible child for the year exceeds the income for that year of a supporting person of that child (on the assumption that both incomes are computed without reference to this section and paragraphs 60(v.1) and (w)), the amount that may be deducted by the taxpayer under subsection (1) for the year as or on account of child care expenses shall not exceed the lesser of

(a) the amount that would, but for this subsection, be deductible by the taxpayer for the year under subsection (1), and

(b) the product obtained when the total of

(i) the product obtained when $150 is multiplied by the number of eligible children of the taxpayer for the year each of whom

(A) is under 7 years of age at the end of the year, or

(B) is a person in respect of whom an amount may be deducted under section 118.3 in computing a taxpayer’s tax payable under this Part for the year, and

(ii) the product obtained when $90 is multiplied by the number of eligible children of the taxpayer for the year (other than those referred to in subparagraph (i))

is multiplied by the number of weeks in the year during which the child care expenses were incurred and throughout which the supporting person was

(iii) a person in full-time attendance at a designated educational institution (within the meaning assigned by subsection 118.6(1)),

(iv) a person certified by a medical doctor to be a person who

(A) by reason of mental or physical infirmity and confinement throughout a period of not less than 2 weeks in the year to bed or to a wheelchair or as a patient in a hospital, an asylum or other similar institution, was incapable of caring for children, or

(B) by reason of mental or physical infirmity, was in the year, and is likely to be for a long-continued period of indefinite duration, incapable of caring for children,

(v) a person confined to a prison or similar institution throughout a period of not less than 2 weeks in the year, or

(vi) a person who, because of a breakdown of the person’s marriage, was living separate and apart from the taxpayer at the end of the year and for a period of at least 90 days beginning in the year.

[10] It is the supporting person with the lower income who is entitled to include the child care expenses deduction in computing his or her income. The person with the higher income is entitled to a deduction for child care expenses only if one of the situations set out in subparagraphs 63(2)(b)(iii), (iv), (v) and (vi) applies to the other supporting person. None of the situations described in those subparagraphs applies to the appellant’s husband. This means that in their specific case, neither parent can use the deduction. The appellant said that she found the provision unfair, since both of them worked to earn income.

[11] Counsel for the respondent referred to the many decisions on this subject, including: Lucia Fromstein and The Queen, [1993] T.C.J. No. 155 (Q.L.); Thomas Richard Copeland and The Queen, [1993] T.C.J. No. 584; Emilia Ladico and The Queen, [1994] T.C.J. No. 812 (Q.L.); Karen D. Metcalf and The Queen, [1995] T.C.J. No. 726 (Q.L.); Arlen C. Reinstein and The Queen, [1995] T.C.J. No. 937 (Q.L.); and Cheryl Lynne Kuchta and The Queen, [1998] T.C.J. No. 166 (Q.L.).

[12] All of those decisions deplore the effect of the provision where one parent is an employee and the other does not earn any income from his or her business, since that effect does not seem to correspond to the purpose of the legislation, which is to allow parents to deduct child care expenses if they have to use child care services because of their employment or business. However, as in the other decisions cited above, the Court has no choice but to find that the legislation is clear and that the Minister’s reassessment is consistent with the Act.

[13] Accordingly, the appeal is dismissed.

Signed at Ottawa, Canada, this 20th day of May 1998.

“Louise Lamarre Proulx”

J.T.C.C.

[OFFICIAL ENGLISH TRANSLATION]

Translation certified true on this 14th day of December 1998.

Kathryn Barnard, Revisor