Date: 19980116
Docket: 97-682-IT-I
BETWEEN:
GILLES TEASDALE,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasons for Judgment
G. Tremblay, J.T.C.C.
Point at issue
[1] According to the Notice of Appeal and the Reply to the
Notice of Appeal, the question is whether the appellant's
earned income for the purposes of deducting child care expenses
was correctly set at $1,360, and consequently whether the sum of
$907 was correctly deducted in calculating the appellant's
income for child care expenses for the 1995 taxation year.
[2] The appellant argued that his salary from self-employment
assistance (S.E.A.) is earned income and not unemployment
insurance benefits, as the respondent maintained.
Burden of proof
[3] The appellant has the burden of showing that the
respondent's assessments are incorrect. This burden of proof
results from several judicial decisions, including a judgment of
the Supreme Court of Canada in Johnston v. Minister of
National Revenue.[1]
[4] In the same judgment the Court held that the facts assumed
by the respondent in support of the assessments or reassessments
are also deemed to be true unless proven otherwise. In the
instant case the facts assumed by the respondent are set out in
subparagraphs (a) to (f) of paragraph 4 of the Reply to
the Notice of Appeal. That paragraph reads as follows:
[TRANSLATION]
4. In arriving at this assessment the Minister assumed
inter alia the following facts:
a. in the year at issue the appellant reported the following
income:
i. Employment income $ 1,360
ii. Unemployment insurance benefits $27,150
making a total income of: $28,510
[admitted]
b. during the year at issue the appellant allegedly paid
$6,019 as child care expenses; [admitted]
c. when filing his tax return for the 1995 taxation year the
appellant claimed a deduction totalling $6,019 for child care
expenses; [admitted]
d. when filing his tax return for the 1995 taxation year the
appellant claimed a child care expenses deduction for the
following children:
NAME BORN ON
Katherine 13-09-90
Nicholas 16-03-92
[admitted]
e. during the year at issue the appellant's "earned
income" was $1,360, as appears from the [TRANSLATION]
"employment income" heading in his return for the 1995
taxation year; [denied]
f. the amount of $907 deductible as child care expenses was
correctly considered in calculating the appellant's net
income for the 1995 taxation year as follows:
the least of the following amounts:
i. Actual amount paid during year $ 6,019
ii. 2/3 of earned income: $1,360 = $ 907
iii. 2 children at $5,000 each $10,000
[denied]
[5] The facts admitted above are the essential part of the
evidence. The appellant challenged the fact that box 14 of
form T4U includes all amounts received from Human Resources
Development Canada (hereinafter "H.R.D.") and that
those amounts are regarded as "unemployment insurance
benefits" in line 119 of form T-688. The
appellant maintained that the allowance from self-employment
assistance and the allowance for the care of dependent children
(Exhibit A-1) are not employment insurance
benefits.
[6] The appellant maintained essentially that two-thirds of
the amount of $27,150 received from H.R.D. was received as
self-employment assistance and as assistance for the care of
dependent children. From May to December 1995 the appellant
received $619 a week as self-employment assistance (as a tour
guide) and $149 for care of dependent children
(Exhibit A-2). In short, the appellant maintained that
the sum of $14,733 should be added to the amount of $1,360 as
earned income.
[7] The appellant filed the form for applying for financial
aid and registration in an employment activity as Exhibit A-3.
This document among others summarizes this assistance. The
appellant emphasized the underlined paragraph:
The Bottom Line on financial assistance for...
Self-employment
The revenue from the new business is not treated as
income when determining the basic financial assistance that the
person receives.
• Most clients can receive financial assistance for up
to 52 weeks.
• Persons with a disability may receive assistance for up
to 78 weeks if the disability presents a barrier to making the
business sustainable in one year.
The contract signed with the client by the HRCC can state that
the assistance will be for a shorter period if the client’s
business income becomes sufficient.
Participants are also eligible for personal supports such
as an amount to defray the cost of child care.
Because individuals participating in the self-employment
benefit may be unable to predict their true financial needs,
HRCCs may decide to provide a flat rate of financial
assistance.
None of the financial assistance received is insurable, but it
is taxable.
[8] The appellant also referred to the detailed text,
emphasizing points where it may be concluded that earned income
is referred to, not employment insurance benefits:
Section 25 referral
Under section 25 of the EI Act, a claimant is
unemployed, capable of and available for work and therefore
eligible to receive EI benefits when the claimant is
. . .
b) participating in any other employment activity for which
assistance has been provided for the claimant under prescribed
employment benefits to which the Commission, or an authority
designated by the Commission, has referred the claimant .
. . .
Income tax
Except for the assistance provided for paying tuition fees,
financial assistance under EI is subject to income tax.
. . .
Financial assistance
Under the E.I. Act, the Commission has established a number of
Employment Benefits (programs) to enable insured participants to
obtain employment. Under these Employment Benefits financial
assistance may be provided to support various types of employment
activities. Included in the range of financial assistance that
may be provided in support of each employment benefit is direct
financial assistance to the insured participants who are
participating in an employment activity. This direct assistance
may cover your living expenses and other costs such as
dependant care, disability needs, tuition fees for courses or
programs of instruction or training, and transportation and
accommodation. . . .
[9] The respondent filed the appellant's tax return for
1995 (Exhibit I-1) and the self-employment agreement
of May 3, 1995 between the appellant and the Canada
Employment and Immigration Commission (now Human Resources
Development Canada). The respondent referred in particular to the
following two paragraphs:
[TRANSLATION]
WHEREAS, under the plan to assist claimants to start a
business or become self-employed workers, a plan established
under Division III of Part VIII of the Unemployment
Insurance Regulations, the COMMISSION may pay
self-employment benefits and, if necessary, supplementary
allowances to claimants employed in developing and
implementing a business plan under a self-employment
agreement;
WHEREAS the CLAIMANT is eligible for benefits under the
Unemployment Insurance Act, desires to start a
business or become a self-employed worker, and has made an
application for self-employment benefits, and if necessary, for
supplementary allowances, in accordance with the aforementioned
assistance plan . . .
and in paragraph 3(1)(a) of the agreement:
[TRANSLATION]
3. (1) The CLAIMANT shall:
(a) every two weeks complete the unemployment insurance
claimant report card he receives from the COMMISSION and return
it to the COMMISSION within the deadlines specified in s. 34
of the Unemployment Insurance
Regulations . . .
[10] The respondent referred to s. 63(1)(e) of the
Act, providing inter alia under the heading "Child
Care Expenses" that the amount to be received by the
taxpayer is:
(e) the lesser of
(i) 2/3 of the taxpayer's earned income for the year,
and
(ii) the total of
(A) the product obtained when $5,000 is multiplied by the
number of eligible children of the taxpayer for the year each of
whom
(I) is under 7 years of age at the end of the year,
or
(II) 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
(B) the product obtained when $3,000 is multiplied by the
number of eligible children of the taxpayer for the year (other
than those referred to in
clause (A)) . . .
[11] The concept of "earned income" is defined in
s. 63(3)(b), which reads as follows:
63. (3)(b) "Earned income". -
"earned income" of a taxpayer means the aggregate
of
(i) all salaries, wages and other remuneration, including
gratuities, received by him in respect of, in the course of, or
by virtue of offices and employments, and all amounts included in
computing his income by virtue of sections 6 and 7,
(ii) amounts included in computing his income by virtue of
paragraph 56(1)(m), (n) or (o), and
(iii) his incomes from all businesses carried on either alone
or as a partner actively engaged in the
business . . .
[12] The definition of "unemployment insurance
benefits" is contained in s. 56(1)(a)(iv) of the
Act:
56. (1) Without restricting the generality of section 3,
there shall be included in computing the income of a taxpayer for
a taxation year,
(a) Pension benefits, unemployment insurance benefits,
etc. — any amount received by the taxpayer in the year as,
on account or in lieu of payment of, or in satisfaction of,
. . .
(iv) a benefit under the Unemployment Insurance Act,
other than a payment relating to the cost of a course or program
designed to facilitate the re-entry into the labour force
of a claimant under that Act . . .
[13] The Court, considering the evidence as a whole and in
particular the definitions of "earned income" and
"unemployment insurance benefits", considers that the
amounts received by the appellant either as self-employed
assistance allowances or as allowances for the care of dependent
children were received under the Employment Insurance Act
and must be regarded as employment insurance benefits.
[14] Accordingly, despite various points raised by the
appellant these amounts cannot be regarded as earned income.
Conclusion
[15] The appeal is dismissed.
"Guy Tremblay"
J.T.C.C.
[OFFICIAL ENGLISH TRANSLATION]
Translation certified true on this 13th day of March
1998.
Benoît Charron, Revisor
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