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Citation: 2003TCC98
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Date: 20030303
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Docket: 2002-2352(IT)I
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BETWEEN:
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HELENE KERR,
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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
Bowman, A.C.J.
[1] This appeal is
from an assessment for the appellant's 2000 taxation year. It
has to do with the Minister of National Revenue's denial of
the appellant's claim to deduct child care expenses of
$1,170.
[2] Up to
December 16, 2000 the appellant was a single divorced parent
who supported her son from a previous marriage. In prior years
she had claimed and received both the equivalent to married
credit under paragraph 118(1)(b) of the Income Tax
Act and the deduction for child care expenses under
section 63.
[3] On
December 16, 2000 she remarried. Her husband's income in
2000 was less than hers. She claimed and was allowed the
equivalent to married credit under
paragraph 118(1)(b). She claimed the child care
expenses and they were denied, but allowed to her husband.
[4] She states that
it is anomalous that she should be allowed the equivalent to
married credit and not the child care expense deduction even
though she was fully responsible for her son and paid the
expenses before she was married.
[5] I agree that it
does seem rather strange that where she paid the expenses before
her marriage on December 16, 2000 her husband, who paid
nothing, should be given the deduction by reason solely of the
fact that his income was less than hers in 2000.
[6] The
appellant's being allowed the equivalent to married credit
even though she married near the end of 2000 is easy enough to
explain. The conditions necessary to the application of the
credit under paragraph 118(1)(b) (one of which is
that she be unmarried and another is that she supported her
wholly dependent child) are satisfied if they existed "at
any time in the year". They certainly did, right up to
December 16, 2000.
[7] The statutory
provisions in section 63 are more complex. The conventional
thinking is that child care expenses under section 63 can be
claimed only by the spouse with the lower income. This conclusion
was expressed by the Federal Court of Appeal in Kuchta v.
Canada, [1999] F.C.J. 1427, where the appellant paid the
expenses but her husband, who had nil income, was entitled to the
deduction because his income was lower.
[8] In two cases
heard by O'Connor J., Stone v. Canada, [2000]
T.C.J. No. 619, and Kwarteng v. R., [2001]
3 C.T.C. 2528, virtually the same situation arose as in
this case where the taxpayers, who had borne all of the child
care expenses prior to their marriages late in the year to
spouses who had lower incomes than they did, were denied the
deduction. The court in all three cases expressed regret at the
unfair result but stated that the law was clear and had to be
applied.
[9] Those cases all
dealt with earlier taxation years (1995 or 1996). Section 63
is amended regularly and it seems likely that the constant
position of the government is that the spouse with the lower
income gets the deduction regardless of who pays the expenses and
regardless of the injustice or inequity of the result. If this is
what section 63 as it applied to the taxation year 2000 says
I must of course give effect to it.
[10] Subsection 63(1)
read in part as follows in 2000:
Subject to subsection (2), where a prescribed form containing
prescribed information is filed with a taxpayer's return of
income (other than a return filed under subsection 70(2) or
104(23), paragraph 128(2)(e) or subsection 150(4)) under
this Part for a taxation year, there may be deducted in computing
the taxpayer's income for the year such amount as the
taxpayer claims not exceeding the total of all amounts each of
which is an amount paid, as or on account of child care expenses
incurred for services rendered in the year in respect of an
eligible child of the taxpayer,
(a) by the
taxpayer, where the taxpayer is a taxpayer described in
subsection (2) and the supporting person of the child for the
year is a person described in
subparagraph (2)(b)(vi), or
(b) by the
taxpayer or a supporting person of the child for the year, in any
other case,
to the extent that
...
[11] There follow a number
of conditions and limitations that are not germane to the
question with which we are concerned here.
[12] The husband is the
"supporting person" of the appellant's eligible
child within the definition of supporting person in
subsection 63(3).
[13] The problem with the
portion of subsection 63(1) that I have quoted above is that
in 2000 subsection 63(2) contained no
subparagraph (2)(b)(vi). Therefore one of the two
conditions in paragraph 63(1)(a) could not be met,
viz, the condition that the supporting person of the child
be a person described in subparagraph (2)(b)(vi). In
earlier years there used to be a
subparagraph (2)(b)(vi). It described a person who
because of a breakdown of the marriage was living separate and
apart from the taxpayer at the end of the year.
[14] This apparent mistake
was picked up by the editor of the Stikeman Income Tax Act, 29th
Edition (2000) where a footnote to the reference to
subparagraph 2(b)(vi) states
Sic. Reference should now be to
63(1)(b)C(i)(D).
[15] The mistake has now
been rectified by the technical bill of 2001, effective for 1998
and subsequent years, to correct the reference from
subparagraph 63(2)(b)(vi) to
clause 63(1)(b)C(i)(D).
Paragraph 63(1)(a), as corrected, now reads
(a) by the
taxpayer, where the taxpayer is described in subsection (2) and
the supporting person of the child for the year is a person
described in clause (i)(D) of the description of C in the formula
in that subsection.
[16] Although there is a
presumption against retroactive tax legislation the presumption
may be rebutted if the language is clear, as it is here (C.I.
Mutual Funds Inc. v. Canada, [1999] G.S.T.C. 12).
[17] (D) in the description
of C in the formula is a person living separate and apart from
the taxpayer because of a breakdown of their marriage.
[18] The appellant's
spouse was not such a person in the year 2000. Therefore
paragraph 63(1)(a) does not apply and therefore
paragraph 63(1)(b) permits the deduction by the
taxpayer or the supporting person, subject to
subsection 63(2). Under subsection 63(2) the
taxpayer's right to deduct is reduced to nil.
[19] The appellant is an
intelligent person who finds herself caught in a statutory morass
that leads to what she with justification perceives to be an
unfair and indeed absurd result. I have said on other occasions
that it is unacceptable that legislation that affects as many
people as the child care provisions in section 63 or the
child support provisions or the sections dealing with maintenance
and alimony in the Income Tax Act should be among the most
complex in the Act.
[20] The appellant is
entitled to an explanation. Subsection 63(1) allows her the
deduction for child care expenses. Subsection 63(2) takes it
away from her if she makes more than her husband. She is entitled
to deduct the lesser of the amount she could otherwise deduct
under subsection 63(1) and an amount determined by the
formula (A + B) X C, prior to its retroactive amendment in 2001
applicable to 2000.
[21] Under the prior
provision the formula worked as follows. A is $175 X the number
of eligible children under 7 years (or certain other
impaired dependents) and B is $100 X the number of eligible
children 7 years or older.
[22] In the appellant's
case this would be $100 because her son is 14.
[23] C, however, is zero
because it is the number of weeks in which her spouse is a
student in an educational institution, certified as incapable of
taking care of the children because of mental or physical
infirmity, in jail or separated from her because of a breakdown
of the marriage.
[24] Her new husband was
none of those things.
[25] I should mention that
the (A + B) X C formula had only been around for about three
years, during which section 63 was amended each year. In
2001 a new formula, A X C, was introduced retroactive to
2000.
[26] In light of the
legislative error discussed above I invited the parties to submit
written argument. Although the appellant is not a lawyer her
written argument was articulate, carefully expressed and
thoughtful, and it illustrates the anomalous result to which the
legislation leads.
[27] Unfortunately,
although the legislation may be difficult to understand, once one
does figure it out it seems clear that the appellant is not
entitled to the deduction.
[28] Regretfully, I must
dismiss the appeal.
Signed at Ottawa, Canada, this 3rd day of
March 2003.
A.C.J.
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