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Citation: 2003TCC806
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Date: 20031113
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Docket: 2003-2294(IT)I
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BETWEEN:
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LINDA LAZARESCU-KING,
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Appellant,
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and
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HER MAJESTY THE QUEEN,
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Respondent.
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REASONS FOR JUDGMENT
Sheridan, J.
[1] This is an appeal from an
assessment for the 2001 taxation year in which the Minister of
National Revenue (the "Minister") disallowed the
deduction claimed by the Appellant for the interest she paid in
respect of a student loan in her spouse's name.
FACTS
[2] The Appellant testified on her own
behalf. No other witnesses were called. The facts of the case are
not in dispute and appear in the Respondent's Reply to the Notice
of Appeal as follows:
(a) at all material
times, the Appellant was married to Roland King (hereinafter the
"spouse");
(b) the spouse
applied for and received a student loan under the Canada
Student Loans Act, the Canada Student Financial Assistance
Act or a law of a province governing the granting of
financial assistance to students at the post-secondary level;
(c) the interest
paid in the 2001 taxation year on the student loan made to the
spouse amounted to $1,050.00; and
(d) the interest
claimed on a student loan by the Appellant in the amount of
$1,050.00 in the 2001 taxation year was in respect of the student
loan made to the spouse and not in respect of a student loan made
to, or other amount owing by, the Appellant.
[3] The Appellant was assessed for the
2001 taxation year on March 21, 2002. There followed three
reassessments for the 2001 taxation year on May 9, 2002,
September 3, 2002 and December 2, 2002. Only the third Notice of
Reassessment dated December 2, 2002 ("the final
reassessment") pertains to this appeal. Paragraph 3 of the
final reassessment (Exhibit R-4) reads as follows:
We have adjusted your total federal non-refundable tax credits
[from $2,740.00] to $2,572.00 and your total Saskatchewan
non-refundable tax credits [from $2,233.00] to
$2,112.00."
[4] On cross-examination, the
Appellant agreed with counsel for the Respondent that this
reduction reflected the disallowance of the deduction claimed by
the Appellant for interest in the amount of $1,050 that she had
paid in respect of her spouse's student loan.
ISSUE
[5] The issue for determination in
this appeal is whether, pursuant to s. 118.62 of the
Income Tax Act (the "Act"), the Appellant
is entitled to a non-refundable tax credit in respect of
the interest she paid on her spouse's student loan for the
2001 taxation year.
ANALYSIS
[6] The relevant legislative provision
is s. 118.62 of the Act which reads as follows:
Credit for interest on student loan.
For the purpose of computing an individual's tax payable
under this Part for a taxation year, there may be deducted the
amount determined by the formula
A × B
where
A is the
appropriate percentage for the year; and
B is the
total of all amounts (other than any amount paid on account of or
in satisfaction of a judgement) each of which is an amount of
interest paid in the year (or in any of the five preceding
taxation years that are after 1997, to the extent that it was not
included in computing a deduction under this section for any
other taxation year) by the individual or a person related to the
individual on a loan made to, or other amount owing by, the
individual under the Canada Student Loans Act, the
Canada Student Financial Assistance Act or a law of a
province governing the granting of financial assistance to
students at the post-secondary school level.
[7] Paraphrased and reduced to its key
components, s. 118.62 reads as follows:
For the purpose of computing an individual's tax,
there may be deducted an amount equal to the appropriate
percentage multiplied by the amount of interest paid in the year
by the individual, or [by] a person related to the
individual, on a loan made to the individual.
[8] The Appellant's argument focussed
on the meaning to be given to the words "by the individual
or a person related to the individual". On her
interpretation of the subsection, either of these entities i.e
the individual to whom the loan was made or the person
related to the individual should be eligible to deduct
the interest paid on a student loan. In support of this
proposition she referred the Court to certain sections of the
Interpretation Act and to a Supreme Court of Canada
decision Rizzo and Rizzo Shoes [1998] 1 S.C.R. 27. She
concluded with the opinion that s. 118.62 is
"confusing" as drafted and wondered aloud why the
drafters would have included a reference in the subsection to
"a person related to the individual" if that person was
not meant to be entitled to the deduction.
[9] There is no question that the
Appellant feels frustrated in her attempts to seek clarification
of s. 118.62 from Canada Customs and Revenue Agency. By her own
admission, however, she had received timely responses from
officials at Canada Customs and Revenue Agency to each of her
written queries and had had numerous telephone discussions with
them as well. What brought her to Court, she stated, was that in
spite of their efforts, the Appellant couldn't see why she wasn't
entitled to claim the deduction under s. 118.62.
[10] Counsel for the Respondent argued that
s. 118.62 is not ambiguous and therefore, its words must be given
their plain meaning. Clearly, she argued, s. 18.62
contemplates two separate and distinct entities: the
"individual" and the "person related to the
individual". Reading through to the end of the subsection
reveals that the "individual" is the one to whom the
loan has been made, in this case, the Appellant's spouse
("Roland"). From this it follows that the "person
related to the individual" is the Appellant
("Linda").
[11] To illustrate the operation of the
subsection, Counsel for the Respondent substituted, for each of
the entities identified in s.118.62, the names of the Appellant
and her spouse as shown below:
For the purpose of computing [Roland's] tax payable ...
under this Part for a taxation year, there may be deducted the
amount determined by the formula
A × B
where
A is the
appropriate percentage for the year; and
B is
... the interest paid in the year [$1,050] ...by
[Roland] or [Linda] on a loan made to...[Roland] under the
Canada Student Loans Act, the Canada Student Financial
Assistance Act or a law of a province governing the granting
of financial assistance to students at the post-secondary school
level.
[12] The opening words of s. 118.62,
"for the purpose of computing an individual's tax
payable...there may be deducted", specify who
may claim the deduction. That is the "individual".
[13] The rest of the subsection has to do
with what may be deducted. The reason for the
reference to the "person related to the individual" is
to permit the individual to claim the deduction even in those
case where the "individual" has not paid the interest
on the student loan himself - as long as the interest has been
paid by a "person related to the individual". The use
of the disjunctive "or" in the phrase
"... by the individual or [by] a person
related to the individual ..." is limited in its
application to which of them has actually paid the interest. By
contrast, the opening words of the subsection defining who is
entitled to the deduction refer exclusively to the
individual.
[14] From this it follows that it is not
possible to read s. 118.62 in the manner urged by the Appellant.
The Appellant is not the "individual" referred to in
the opening line of the subsection since she is not the one to
whom the loan was made. As the individual's spouse, the
Appellant is "a person related to the individual" who paid the
interest on that individual's student loan. Counsel for the
Respondent argued quite rightly that the Appellant cannot be
both. Finally, as only the individual referred to in the opening
line of the subsection is eligible to claim the deduction, the
Appellant's argument cannot succeed.
[15] The Appellant argued that even in the
event that she was not successful in her appeal, she ought to be
awarded costs in the amount of two days' pay for her
preparation time and one day's pay for her court appearance.
Section 10 of the Tax Court of Canada Rules restricts the
awarding of costs to an appellant to those case where the appeal
is allowed and the judgment reduces the aggregate of all amounts
in issue by more than one half.
[16] Accordingly, the appeal is dismissed
without costs.
Signed at Ottawa, Canada, this 13th day of November 2003.
Sheridan, J.
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