Date: 20090611
Docket: A-497-08
Citation: 2009 FCA 200
CORAM: SHARLOW
J.A.
RYER
J.A.
TRUDEL
J.A.
BETWEEN:
HER MAJESTY THE QUEEN
Appellant
and
HUBERT DECHANT
Respondent
REASONS FOR JUDGMENT
SHARLOW
J.A.
[1]
This
appeal deals with the determination of the monthly guaranteed income supplement
(GIS) payable to a pensioner under Part II of the Old Age Security Act,
R.S.C. 1985, c. O-9. The question is whether the amount of the GIS payable to a
pensioner for a particular period must necessarily be based on the amount of
income as actually filed or determined for the prior year under the Income
Tax Act, R.S.C. 1985, c. 1 (5th supp.). The Tax Court Judge
concluded that, in the particular circumstances of this case, the answer is no (2008
TCC 459). The Crown does not agree, and has appealed. The pensioner, Mr. Hubert
Dechant, did not file a notice of appearance or file a memorandum of fact and
law, but he was given leave to make oral submissions at the hearing.
Background
[2]
A
“pensioner” is defined in the Old Age Security Act as a person whose
application for the basic pension payable under Part I of the Old Age
Security Act has been accepted. The entitlement of a pensioner to the GIS
for a particular period is based primarily on the pensioner’s “income” for the
prior year, as defined in section 2 of the Old Age Security Act. The
definition reads in relevant part as follows:
|
2. In
this Act, […]
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2.
Les définitions qui suivent s’appliquent à la présente loi. […]
|
|
“income”
“income”
of a person for a calendar year means the person’s income for the year, computed
in accordance with the Income Tax Act, except that […].
|
«
revenue »
Le
revenue d’une personne pour une année civile, calculé en conformité avec la Loi
de l’impôt sur le revenu, sous réserve de ce qui suit
: […].
|
[3]
Mr.
Dechant is a pensioner who is entitled to the GIS. The amount of the GIS
payable to Mr. Dechant for the period relevant to this appeal, July 2005 to
June 2006, was required to be based on Mr. Dechant’s income for 2004 “computed in
accordance with the Income Tax Act”. (The exceptions referred to in the
definition quoted above are not relevant to this appeal.)
[4]
Mr.
Dechant has been a grain farmer for many years. He has always elected for
income tax purposes to report his farming income using the cash method, as
permitted by section 28 of the Income Tax Act. The cash method is
comprehensively defined in section 28. For the purposes of this appeal, it is
enough to say that under the cash method a business expense is deductible in
computing the income of the business only for the year in which it is actually
paid. That is unlike the most common method of income computation, the accrual
method, under which a business expense normally is deductible in computing
income for the year in which it is incurred.
[5]
Mr.
Dechant has never sought to change his cash method election, as he could have
done under subsection 28(3) with the Minister’s consent. He testified in the
Tax Court that he did not wish to change his election for the 2004 taxation
year.
[6]
In the 2004
taxation year, Mr. Dechant incurred an expense of $31,000 in his farming
business. As that expense was not paid until January of 2005, Mr. Dechant could
not and did not deduct it in computing his 2004 farming income as reported in
his 2004 income tax return. He could and did deduct it in computing his 2005
farming income.
[7]
When Mr. Dechant
applied for the GIS for the period in issue, the Minister of Human Resources
and Social Development followed the ordinary procedure for assessing a GIS
claim. That is, he referred to Mr. Dechant’s 2004 income tax return for the
purpose of determining Mr. Dechant’s 2004 income. Based on Mr. Dechant’s 2004 income
as reported and accepted for income tax purposes, the Minister determined that Mr.
Dechant’s GIS for the period in issue would be an amount that was $111 less
than his entitlement for the prior period. Mr. Dechant was notified
accordingly.
[8]
Mr.
Dechant appealed to the Minister for relief on the basis that there would be no
reduction in his GIS if the $31,000 expense referred to above were taken into account
in computing his income for 2004, rather than 2005, when it was paid. Mr.
Dechant’s appeal was taken as a dispute over the computation of his 2004 income,
and was referred to the Tax Court of Canada pursuant to subsection 28(2) of the
Old Age Security Act.
[9]
The Tax
Court Judge concluded that it was open to Mr. Dechant to use the cash method in
computing his 2004 income for income tax purposes while using the accrual
method in computing his 2004 income for purposes of the GIS. On that basis, he
issued a judgment allowing Mr. Dechant’s appeal and vacating the decision of
the Minister. No costs were awarded because subsection 45 of the Old Age
Security Regulations, C.R.C. 1246, precludes an award of costs on a
reference under subsection 28(1) of the Old Age Security Act.
[10]
The
judgment has the effect of reversing the Minister’s decision to reduce Mr.
Dechant’s GIS by $111 per month. However, the Tax Court Judge said the
following in his reasons at paragraph 21:
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If
the Appellant [Mr. Dechant] wishes to accept this position, he must approach
officials of the Minister of National Revenue and obtain the permission of
the Minister to maintain two sets of books – a set of books using the cash
basis for the purposes of the Income Tax Act and a set of books using
the accrual basis for the purposes of the Old Age Security Act. If the
appellant wishes to follow the approach outlined above, he must finalize his
discussions with officials of the Minister on or before December 31, 2008.
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[11]
The legal
effect of the comments in paragraph 21 of the Tax Court Judge’s reasons is
unclear because they are not reflected in the judgment, which is or should be the
only instrument that establishes the legal rights and obligations of the
parties at the conclusion of a court proceeding.
[12]
It is
uncontested that Mr. Dechant has not taken the steps set out in paragraph 21
of the Tax Court Judge’s reasons. Nevertheless, the Crown has proceeded on the
assumption that, unless and until the Tax Court judgment under appeal is set
aside, there is no legally valid decision of the Minister determining the
amount of Mr. Dechant’s GIS for the period in issue.
Discussion
[13]
The
principal issue in this appeal is whether the judgment of the Tax Court Judge
was based on an error of law. As mentioned above, the judgment was based on the
premise that it was open to Mr. Dechant to use the cash method in computing his
2004 income for income tax purposes while using the accrual method in computing
his 2004 income for purposes of the guaranteed income supplement. Indeed,
counsel for the Crown had submitted in argument in the Tax Court that this was
a valid principle (Appeal Book, page 83). I assume that counsel’s comments on
this point were based on the decision of this Court in Gerstel v. Canada (Minister of Human Resources
Development),
2006 FCA 93.
[14]
As I understand
Gerstel, it stands for the proposition that a pensioner who is entitled
to claim a discretionary deduction (in that case capital cost allowance) in
computing income for a particular year may choose to take that deduction in
computing income for the purposes of the Old Age Security Act even if no
such deduction (or a lesser deduction) is taken for income tax purposes.
[15]
In this appeal,
the Crown does not argue that Gerstel was wrongly decided. Rather, the
Crown is arguing that the principle in that case does not apply to Mr. Dechant.
I agree with the Crown that Gerstel does not assist Mr. Dechant.
[16]
Mr.
Dechant, having elected to use the cash method in computing his farming income,
did not have the legal right to deduct the $31,000 expense in computing his
2004 income for income tax purposes, because that expense was not paid until
2005. Therefore, in the circumstances as they existed when he applied for GIS
for the period in issue, a computation of Mr. Dechant’s 2004 farming income
that permitted the $31,000 deduction would not, in the words of section 13 of
the Old Age Security Act, be “computed in accordance with the Income
Tax Act.”
[17]
It is not
necessary for the purposes of this appeal to determine whether Mr. Dechant had
the right under subsection 28(3) of the Income Tax Act to change his
cash method election only for 2004, and only for GIS purposes (assuming the
Minister concurred). I express no opinion on that point. The fact is that Mr.
Dechant has not exercised or attempted to exercise any such right. In my view,
the fact that such a change might have been possible was not relevant to the
determination of Mr. Dechant’s 2004 income.
[18]
I conclude
that the Minister was correct in law when he determined Mr. Dechant’s GIS
entitlement for the relevant period on the basis that the $31,000 expense could
not be deducted in computing Mr. Dechant’s income for 2004. It follows that the
Tax Court Judge erred in law in vacating the Minister’s decision.
[19]
I would allow
this appeal without costs, set aside the judgment of the Tax Court, and dismiss
the appeal of Mr. Dechant under subsection 28(2) of the Old Age Security Act.
“K. Sharlow”
“I agree
C. Michael Ryer J.A.”
“I agree
J. Trudel J.A.”
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