Date: 20050120
Docket: A-176-04
Citation: 2005 FCA 25
CORAM: ROTHSTEIN J.A.
NOËL J.A.
MALONE J.A.
BETWEEN:
BEVERLY BAILEY
Appellant
and
THE ATTORNEY GENERAL OF CANADA
Respondent
Heard at Toronto, Ontario, on January 19, 2005.
Judgment delivered at Toronto, Ontario on January 20, 2005.
REASONS FOR JUDGMENT BY: NOËL J.A.
CONCURRED IN BY: ROTHSTEIN J.A.
MALONE J.A.
Date: 20050120
Docket: A-176-04
Citation: 2005 FCA 25
CORAM: ROTHSTEIN J.A.
NOËL J.A.
MALONE J.A.
BETWEEN:
BEVERLY BAILEY
Appellant
and
THE ATTORNEY GENERAL OF CANADA
Respondent
REASONS FOR JUDGMENT
NOËL J.A.
[1] This is an appeal from the order of Hershfield J. (2004 DTC 2322) which upheld the decision of the Minister of National Revenue to include spousal support received by the appellant in her taxable income under s. 56(1)(b) of the Income Tax Act (ITA).
[2] It is not necessary to repeat the facts which are set out in full in the decision under appeal. It is sufficient to say that the support payments in issue were ordered to be paid by the Superior Court of Justice in conformity with an offer to settle which was made on behalf of the appellant and which did not take into account the taxes which she would have to pay.
[3] The appellant says that this offer to settle was made by her counsel without her approval. Her instructions were to "gross up" the amounts to account for the taxes. She submits that imposing tax on these amounts essentially leaves her without the support which the order of the Superior Court of Justice was intended to provide. She further argues that construing s. 56(1)(b) as requiring the amounts to be included in income in these circumstances violates s. 15(1) of the Charter.
[4] According to the appellant the Tax Court Judge, in dismissing her appeal, erred by focussing on the taxability of support payments rather than net support payments (Reasons, para. 1).
[5] Two issues arise from the submissions of the appellant:
1. Did the Tax Court Judge err in determining that spousal support should be included in the appellant's income even where the Court order granting it did not take tax liability into account?
2. To the extent that s. 56(1)(b) requires this inclusion does it offend s. 15(1) of the Charter?
[6] In my opinion, the Tax Court Judge did not err when he held that the amounts in issue had to be included in the appellant's income. The ITA establishes a scheme whereby payments for spousal support are deductible by the payer under s. 60(b) of the act, and must be included in the income of the recipient under s. 56(1)(b). These provisions provide for a broad definition of spousal support and the payments received by the appellant in this case clearly fall within it.
[7] The question of whether child support payments should be included in income where those amounts are insufficient to meet the maintenance allotment was considered by the Supreme Court in Thibaudeau v. Canada, [1995] 2 S.C.R. 627. In that case, Cory J. states (para. 160):
The amount of income taxable under ss. 56(1)(b) and 60(b) is determined by the divorce or separation decree and, unless the family law system operates in a defective manner, the amount of child support will include grossing-up calculations to account for the tax liability that the recipient ex-spouse shall incur on the income. If there is any disproportionate displacement of the tax liability between the former spouses (as appears to be the situation befalling Ms. Thibaudeau), the responsibility for this lies not in the Income Tax Act, but in the family law system and the procedures from which the support orders originally flow. This system provides avenues to revisit support orders that may erroneously have failed to take into account the tax consequence of the payments.
[8] This rationale applies equally to spousal support payments. The Tax Court Judge was correct in his determination that responsibility for shortfalls regarding tax liability does not fall with the tax system. To the extent that the tax liability may render the support insufficient to give effect to the objectives of the support order, the remedy can only be provided by the Court that granted the order.
[9] In this respect, the record reveals that despite the appellant's claim, the Superior Court of Justice has ruled that the offer to settle submitted by her lawyer had been authorized by her and that accordingly, she is bound by it. (Reasons for Judgment of the Superior Court of Justice, March 26, 2001, appellant's record, p. 90). This was a matter for the Superior Court of Justice to decide and the Tax Court Judge was bound to apply s. 56(1)(b) to the spousal support as determined by that Court.
[10] With respect to the second issue, I understand the appellant's argument to be that s. 56(1)(b) violates s. 15(1) of the Charter as it forces lower income ex-spouses to make do without basic necessities in order to pay tax on an amount which was calculated without regard for tax liability. The support, it is argued, is ordered because of the basic needs and the day-to-day expenses of the recipient. By failing to take this into account, s.56(1)(b) fails to provide equal protection under the law.
[11] In my view, the Tax Court Judge was correct in dismissing this argument. The Supreme Court in Law v. Canada (Minister of Human Resources Development) [1999] 1 S.C.R. 497 established a three part test for determining a Charter challenge under s.15(1): The Court must first consider whether the provision in question differentiates based on a personal characteristic; then, the Court must consider whether this is a ground of distinction enumerated or analogous to the grounds of s.15(1) of the Charter; finally, the Court must consider whether this treatment is discriminatory and violates the human dignity of the individual.
[12] In this case, the provision in question does not differentiate based on a personal characteristic of the appellant. As the respondent states, income level is not considered to be a personal characteristic. Moreover, with regard to the second factor, an analogous ground of discrimination must be "immutable or constructively immutable": Corbière v. Canada (Minister of Indian and Northern Affairs), [1999] 2 S.C.R. 203. Courts have affirmed that income level is not an immutable characteristic and thus, not an analogous ground. It follows that the treatment complained of cannot impugn the constitutional validity of s. 56(1)(b).
[13] Finally, the appellant alleges that gender was also advanced as a ground of discrimination, and that the Tax Court Judge erred in failing to deal with this argument in his reasons.
[14] It is difficult to fault the Tax Court Judge in this regard as the transcript of the proceedings clearly reveals that the appellant did not pursue this argument (appellant's record, transcript, Vol. 2, pages 181 to 185). Neither has the appellant provided us with any basis, factual or legal, on which a gender based attack could be explored on her behalf.
[15] I would dismiss this appeal but would do so without costs.
"Marc Noël"
J.A.
"I agree
Marshall Rothstein"
"I agree
B. Malone"
FEDERAL COURT OF APPEAL
Names of Counsel and Solicitors of Record
DOCKET: A-176-04
STYLE OF CAUSE: BEVERLY BAILEY
Appellant
and
THE ATTORNEY GENERAL OF CANADA
Respondent
PLACE OF HEARING: TORONTO, ONTARIO
DATE OF HEARING: JANUARY 19, 2005
REASONS FOR JUDGMENT: NOËL J.A.
CONCURRED IN BY: ROTHSTEIN J.A.
MALONE J.A.
DATED: JANUARY 20, 2005
APPEARANCES BY:
Beverly Bailey For the Appellant, on her own behalf
Arnold H. Bornstein For the Respondent
SOLICITORS OF RECORD:
Beverly Bailey For the Appellant, on her own behalf
John H. Sims, Q.C.
Deputy Attorney General of Canada For the Respondent
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