Citation: 2011TCC247
Date: 20110509
Docket: 2010-3222(IT)I
BETWEEN:
TENAYA JEANNOTTE,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
(Delivered orally from the bench on March 3, 2011
in Vancouver,
British Columbia)
V.A. Miller J.
[1]
The issue to be
determined in this appeal is whether the Minster of National Revenue (the
“Minister”) properly assessed taxes under section 120.4 on the dividends
received by the Appellant in 2006.
[2]
Section 120.4 was added
to the Income Tax Act (the “Act”) in 2000 and is applicable to
the 2000 and subsequent taxation years. The purpose of section 120.4 was to
prevent high-income individuals from being able to reduce their taxes by income
splitting with their minor children. The tax levied by this section is more
commonly referred to as the “kiddie tax”.
[3]
The Appellant was
represented by her grandfather, Ray Jeannotte. He stated that he was the
individual who was most knowledgeable about the trust which had been created
with the Appellant and her sister as beneficiaries.
[4]
Mr. Jeannotte explained
the steps taken to create the trust. It was his evidence that, in 1994, on
advice from a tax accountant, the Appellant became the shareholder of 480554
B.C. Ltd. Mr. Jeannotte was advised that the money used to purchase the shares
for the Appellant should not come from a family member. Mr. Jeannotte arranged
for Mr. R[1]
to lend the money to the Appellant. The documents tendered with the court to
support these statements were a “Non-Negotiable Promissory Note” dated September
1, 1994 signed by an unknown guardian for the Appellant; a cheque dated
September 1, 1994 made payable to the Appellant for $15 and marked: Loan to
Make Share Purchase; a letter dated August 27, 1994 to the Appellant from Mr. R
stating his agreement to lend $15; and, a cheque to 480554 B.C. Ltd. for 26
cents for the purchase of shares.
[5]
In 1997, 333 Common
shares of 486368 B.C. Ltd. were transferred from 480554 B.C. Ltd. to Tenelle
Financial Corp. (the “Corporation”). Mr. Jeannotte explained that the Corporation’s
name was composed of the Appellant’s name and her sister’s name. On April 30,
1997, the Vaughn Jeannotte Financial Trust (the “Trust”) was created with
Vaughn Jeannotte, the Appellant’s father as trustee.
[6]
Mr. Jeannotte stated
that the purpose of the Trust was not to split income or to effect “dividend
sprinkling” but to ensure that there were funds for his granddaughters’
education. The Trust was created at the time when his granddaughters’ parents
were getting a divorce. It was the Appellant’s position that the funds in the
Trust were her funds because she had borrowed the money to purchase the shares
of 480554 B.C. Ltd. Mr. Jeannotte stated that there were many more documents
which would support the Appellant’s position but he did not have the documents
with him.
[7]
The issue in this
appeal is whether the facts of this appeal satisfy the conditions in section
120.4 such that the Appellant is liable for the tax imposed under this section.
I will discuss the facts in this appeal in relation to the section.
Legislation and the Facts
[8]
The charging provision
for the tax is subsection 120.4(2) which reads:
(2) Tax on split income
-- There shall be added to a specified individual’s tax payable under this Part
for a taxation year 29% of the individual’s split income for the year.
[9]
The terms “specified
individual” and “split income” are defined in subsection 120.4(1) as follows:
“specified individual”, in relation to a taxation
year, means an individual who
(a) had not
attained the age of 17 years before the year;
(b) at no
time in the year was non-resident; and
(c) has a
parent who is resident in Canada at any
time in the year.
“split income”, of a specified individual for
a taxation year, means the total of all amounts (other than excluded amounts)
each of which is
(a) an
amount required to be included in computing the individual’s income for the
year
(i) in respect of taxable dividends received
by the individual in respect of shares of the capital stock of a corporation
(other than shares of a class listed on a designated stock exchange or shares
of the capital stock of a mutual fund corporation), or
(ii) because of the
application of section 15 in respect of the ownership by any person of shares
of the capital stock of a corporation (other than shares of a class listed on a
designated stock exchange),
[10]
In 2006, the Appellant
met the definition of a “specified individual”. She was born on October 23,
1990 and was 15 at the beginning of the 2006 taxation year. At all times in
2006, she was resident in Canada and had a parent who was resident in Canada.
[11]
The Minister of National
Revenue (the “Minister”) assumed that a dividend of $25,000 (taxable amount of
$31,250) was paid by the Corporation to the Trust who distributed it to the
Appellant. The Appellant, who is a beneficiary of the Trust, received the
dividend in respect of shares of the capital stock of the Corporation.
[12]
Mr. Jeannotte confirmed
that the Minister’s assumptions were correct. He also agreed that the dividend
was not paid on shares of a class listed on a designated stock exchange or
shares of the capital stock of a mutual fund corporation.
[13]
The dividend received
by the Appellant in 2006 meets the definition of “split income” in section
120.4 and it is not an “excluded amount”. The definition of “excluded amount”
is:
“excluded
amount”, in
respect of an individual for a taxation year, means an amount that is the
income from a property acquired by or for the benefit of the individual as a
consequence of the death of
(a) a parent of the
individual; or
(b) any person, if the
individual is
(i) enrolled as a full-time
student during the year at a post-secondary educational institution (as defined
in subsection 146.1(1)), or
(ii) an individual 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.
[14]
In the circumstances of this appeal, the shares giving
rise to the dividend were not acquired by or for the benefit of the Appellant
as a consequence of the death of a parent or any other person and the “split
income” is not an “excluded amount”.
[15]
The dividends received
by the Trust from the Corporation and distributed to the Appellant, a specified
individual, retained their character for the purposes of section 120.4[2]. All of the
conditions in section 120.4 have been met and the Appellant has been properly
assessed.
[16]
Contrary to the
Appellant’s position, there is no need to identify the property transfer or the
person who made the loan to the Appellant in order for section 120.4 to apply.
The definition of “split income” in section 120.4 and the charging provision in
subsection 120.4(2) avoid this need.
[17]
Mr. Jeannotte stated
that the law was not fair and asked that the Court interpret section 120.4 in a
manner consistent with his argument. However, the Court must interpret the
section as it finds it. As stated by Rothstein J.A., as he then was, in Chaya
v Canada[3] at paragraph 4:
[4] The applicant
says that the law is unfair and he asks the Court to make an exception for him.
However the Court does not have that power. The Court must take the statute as
it finds it. It is not open to the Court to make exceptions to statutory
provisions on the grounds of fairness or equity. If the applicant considers the
law unfair, his remedy is with Parliament, not with the Court.
[18]
The appeal is
dismissed.
Signed at Ottawa, Canada, this 9th day of May 2011.
“V.A. Miller”
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