Citation: 2007TCC262
Date: 20070502
Docket: 2006-2512(IT)I
BETWEEN:
WAYNE CHU,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
O'Connor, J.
Facts
[1] The basic facts and
issue in this appeal are set forth in the following provisions of the Reply to
the Notice of Appeal (“Reply”):
…
8. In reassessing
tax for the 2004 taxation year and in confirming that reassessment, the
Minister assumed the same facts as follows:
a) the Appellant
was married to Kerry Ann Chu (“Kerry Ann”);
b) the Appellant
and Kerry Ann are the natural parents of a daughter born in 1994 and a son born
in 1998 (collectively the “Children”);
c) the Appellant
and Kerry Ann separated and appeared before a Master of the Supreme Court of
British Columbia for a custody order for the Children;
d) pursuant to an
Interim Order of the Supreme Court of British Columbia dated November 14, 2001
(the “Interim Order”):
i) the Appellant and Kerry Ann had joint
custody of the Children;
ii) the Children were to alternate residences
between the Appellant and Kerry Ann; and
iii) the Appellant was to pay child support
of $200.00 per month to Kerry Ann in respect of the Children commencing on
December 1, 2001 and continuing on the first day of each and every month
thereafter until a trial or further Court Order; and
e) the Appellant was living separate and
apart from his former spouse throughout 2004.
B. ISSUES TO BE
DECIDED
9. The issue is
whether the Appellant is entitled to claim Brendan Chu as a wholly dependent
person for the purpose of calculating his non-refundable tax credit for the
2004 taxation year.
C. STATUTORY
PROVISIONS RELIED ON
10. He relies on
subsections 56.1(4) and 118(5), and paragraph 118(1)(b) of the Income Tax
Act, R.S.C. 1985, c.1 (5th Supp.), as amended (the “Act”).
D. GROUNDS RELIED
ON AND RELIEF SOUGHT
11. He submits that
the Appellant is not entitled to claim his son, Brendan Chu, as a wholly
dependent person for the purpose of computing his non-refundable tax credit for
the 2004 taxation year, pursuant to subsection 118(5) and paragraph 118(1)(b)
of the Act, as he was required to pay child support in the 2004 taxation
year under the terms of the Interim Order and the Appellant was living separate
and apart from his former spouse throughout the 2004 taxation year.
[2] The Appellant’s
position is stated in his Notice of Appeal:
…
Even though I have shared custody of my
two kids, I am the sole provider of all their financial needs. They stay with
me at my place over 60% of the time. Not only do I work to support them, I also
do the actual caring part for them. I cook and clean for them. I take them to
school every day. The question should remain: whom do they depend on? Or: who
is the one that supports them?
…
[3] The Appellant’s
evidence is credible. It was to the effect that he totally supports his two
children, that Kerry Ann suffers from schizophrenia and other problems and that
he is the one who is totally responsible for the care of the children, both
financially and physically, including being involved in all aspects of their
lives. The Appellant also accentuated the fact that although he and Kerry Ann
had separate residences in 2004, she spent considerable time at his residence,
including sleeping there from time to time. Because of all of the foregoing,
the Appellant feels that he is entitled to the non-refundable tax credit which,
for 2004, he claimed the maximum amount of $6,803, 16 percent of which is used
to calculate the exact credit.
Analysis
[4] The provisions of
the Income Tax Act ("Act") applicable in 2004 were
paragraphs 118(1)(a), 118(1)(b) and subsections 118(5) and
56.1(4). Paragraph 118(1)(a) provides, inter alia, for a
deductible tax credit for a taxpayer who supports his consort with whom he is
living and is therefore not applicable. Paragraph 118(1)(b) and
subsections 118(5) and 56.1(4), so far as relevant, provide as follows:
118(1)(b) wholly dependent person
["equivalent to spouse" credit] – in the case of an individual who
does not claim a deduction for the year because of paragraph (a) and who, at any
time in the year,
(i) is
(A) ...
(B) a person who is married ..., who
neither supported nor lived with their spouse or ... and who is not supported
by that spouse or ..., and
(ii) whether alone
or ..., maintains a self-contained domestic establishment (in which the
individual lives) and actually supports in that establishment a person who, at
that time, is
(A) ...
(B) wholly dependent for support on the
individual, or the individual …
(C) related to the individual, and
(D) …
an amount equal to the total of
(a formula follows which, as applied in this case,
produces a credit of 16 percent of $6,803)
118(5) No amount may be deducted under
subsection (1) in computing an individual's tax payable under this Part for a
taxation year in respect of a person where the individual is required to pay a
support amount (within the meaning assigned by subsection 56.1(4)) to the
individual's spouse ... in respect of the person and the individual
(a) lives separate
and apart from the spouse ... throughout the year because of the breakdown of
their marriage ...; or
…
[5] It is clear from
the definition in subsection 56.1(4) that what the Appellant was paying was a
“support amount”.
[6] In his 2004 Return,
the Appellant claimed the tax credit of $6,803 (the maximum) because he
believed he qualified by providing support for his children. The Appellant
apparently filed his Return referring to support for his son, Brendan Chu,
whereas the Interim Order refers to support for both children. This is of no consequence
in this appeal.
[7] The Reassessment in
question denies the claim, alleging essentially in the Reply that the claim is
denied by subsection 118(5) because the Appellant was required to pay child
support in the 2004 year under the terms of the Interim Order and he was living
separate and apart from his former spouse throughout the 2004 taxation year.
[8] Because several
other appeals discussing subsection 118(5) have suggested an element of
unfairness in its application, the following comments may be helpful by way of
clarification.
[9] At first glance it
is difficult to identify the policy behind the provision. The element of
unfairness appears to be that a taxpayer, who is required to make support
payments to his separated spouse for the benefit of a child (after 1997 when
the rules changed from one of deduction by the support payor and inclusion by
the recipient to the exact opposite of no deduction and no inclusion), cannot deduct
that amount from his income and also cannot have the dependant tax credit if he
is required to pay child support. On the other hand in similar circumstances if
the taxpayer is not required to pay support he can have the credit. This policy
issue has been addressed by Justice Lamarre in Gautron v. the Queen,
2003 DTC 326 (English translation at 2005 DTC 729) and by Justice Bédard in Frégeau
v. the Queen, 2004 DTC 2726 (English translation at 2006 DTC 2243). It is
clear from these decisions and others that subsection 118(5) does not
contravene the Canadian Charter of Rights and Freedoms and, to the
extent that any unfairness may appear to exist, the remedy lies with Parliament
to change the provision but so long as it exists, the Court must apply it since
it is the law. Further, a complete analysis of the subsection demonstrates that
unfairness does not exist. Moreover, there are many other decisions of the
Courts that applied subsection 118(5) to deny the credit in fact situations
similar or identical to those in this appeal.
[10] In the present
appeal there is no doubt that the Appellant was obliged to make a support
payment for the benefit of the children. There is, however, a question as to
whether the Appellant and his wife were truly separate and apart. In this
connection, the evidence, especially the testimony of Diane Tawnley, an appeals
officer and Exhibit R-3, make it clear that the Appellant and his wife had separate
residences throughout 2004 and although the wife spent some time in the
Appellant’s residence, even sleeping there from time to time, this, in my opinion,
is very natural when two persons are the parents of two children with joint
custody. The fact of the wife being in the husband’s residence from time to
time is not sufficient, in my opinion, to have her considered as not living
separate and apart.
[11] In conclusion, in my
opinion, the position of the Minister is correct. The Appellant is not entitled
to claim his son, Brendan Chu, (or his children) as wholly dependent person or
persons for the purpose of computing the Appellant’s non-refundable tax credit
for the 2004 taxation year pursuant to subsection 118(5) and paragraph
118(1)(b) of the Income Tax Act as the Appellant was required to pay
child support in the 2004 taxation year under the terms of the Interim Order
dated November 12, 2001 and the Appellant was living separate and apart from
his former spouse throughout the 2004 taxation year.
[12] For all these
reasons the appeal is dismissed. There shall be no costs.
Signed at Ottawa, Canada, this
2nd day of May, 2007.
"T. O'Connor"
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