Levine v. R., [1996] 2 CTC 2147, [1995] 2 CTC 2168 (Informal Procedure)

Archambault J.T.C.C.: — Mrs. Sharon Levine is appealing an assessment by the Minister of National Revenue (Minister) for the 1992 taxation year in which the Minister disallowed a sum of $2,397 out of the $13,206 claimed by her as child care expenses.

Facts

In 1992, Mrs. Levine was a flight attendant working for Air Canada. Although she had been in Air Canada’s employ for 15 years, she was still on call and had to accept flight assignments with very short notice. She went anywhere in the world and could be away as long as five days at a time. She usually worked 18 days per month and she was off 13 days. However, she could be asked to replace sick co-workers on her days off.

Her husband, who testified on her behalf, estimated that she worked during weekends about half the time. Mr. Levine was a chartered accountant, an expert in forensic accounting, who worked long hours. His services could also be required on very short notice. He usually worked on Saturdays and sometimes on Sundays. In January 1992, the Levines had two children, aged seven and four. They had a live-in nanny to look after the children. The nanny worked no more than 50 hours a week and generally not on weekends. Mrs. Levine was able to make special arrangements with her to take into account her days off and trade weekend days for weekdays. The Levines also hired extra help from neighbours or got help from relatives for evenings and weekends.

As Mrs. Levine was expecting twins in the month of June, 1992, she stopped flying at the end of March and assumed ground duties until May 25 when the twins were born. Unfortunately for the Levines, the nanny decided to leave her employ soon after and they had a lot of difficulty finding a replacement. Many were hired but did not stay very long. They had to hire an agency to find a replacement. After two failures, the agency found a new nanny who is still working for them. They paid a finder’s fee of $500 for this service. After the birth of the twins, Mrs. Levine took a 6-month maternity leave which was extended to March 1993.

In computing Mrs. Levine’s income for 1992, the Minister refused the deduction of the following expenses:

Cost Course

$169.00 Ballet Lessons

$ 77.00 Hampstead-Swimming

$155.79 Nautilus Plus Swimming

$135.00 Visual Arts Centre

$318.00 Mount Royal Ballet Lesson

$135.00 Ville Montréal Skating

$ 36.00 Hampstead-Swimming

$ 45.00 McGill University Tennis

$ 47.00 Pointe-Claire Swimming

$455.00 Hampstead Ski School

$170.00 Questo-Gymnastics

$ 50.00 Club Flexart-Gymnastics

$ 70.00 Cote St-Luc Skating

$ 35.00 Brownies

$500.00 Womens Domestic Service

The recreational activities described above represent lessons of a duration of one hour to one hour and a half once a week over a 12-to 13-week period, and in some instances over an 8-month period. The only exception is the ski school activity which was a whole day affair. They were either the activities of the seven year old or the four year old, but not both, except for the Nautilus swimming. They usually took place right after kinder garten or during the weekend. The Levines had an arrangement with friends and neighbours to share the duties for the transportation of their children as is often done in communities across Canada. Mr. Levine estimated that he and his wife did about 40% of the transportation.

Analysis

Are the recreational expenses and the finder’s fee deductible as child care expenses under section 63 of the Income Tax Act (Act)? The answer to this question depends on the application of the definition of child care expenses found in paragraph 63(3)(a) of the Act which reads as follows:

“child care expense” means an expense incurred in a taxation year for the purpose of providing in Canada, for an eligible child of a taxpayer, child care services including baby sitting services, day nursery services or services provided at a boarding school or camp if the services were provided

i) to enable the taxpayer, or the supporting person of the child for the year, who resided with the child at the time the expense was incurred,

(A) to perform the duties of an office or employment,

[...]

ii) by a resident of Canada other than a person

(A) who is the father or the mother of the child;

(B) who is a supporting person of the child or is under 18 years of age and related to the taxpayer, or

(C) in respect of whom an amount is deducted under section 118 in computing the tax payable under this Part for the year by the taxpayer or by a supporting person of the child, (Emphasis is mine)

This paragraph lists certain exceptions:

(iv) for greater certainty, any expenses described in subsection 118.2(2) and any other expenses that are paid for medical or hospital care, clothing, transportation or education or for board and lodging (except as otherwise expressly provided in this paragraph)

are not child care expenses;

It is useful to refer to the French version of the key words in paragraph 63(3)(a):

“frais de garde d’enfants” s’entend des frais engagés au cours d’une année d’imposition dans le but de faire assurer au Canada la garde de tout enfant admissible du contribuable, en le confiant à des services de garde d'enfants, y compris des services de gardienne d’enfants ou de garderie ou encore des services assurés dans un pensionnat ou dans une colonie de vacances, si les services étaient assurés....

[Emphasis added.]

What is the meaning and scope of “care” in English and “garde” in the French version? In the Concise Oxford Dictionary, “care” means, inter alia, “4 a. protection, charge. b. Brit. = child care”. In Le Petit Robert, “garde” means:

Action de veiller sur un être vivant, soit pour le protéger (V. Défense, protection), soit pour l’empêcher de nuire, (V. Surveillance). Confier un enfant à la garde de quelqu’un.

To better understand the scope of these words, it is useful to read them within the object and spirit of section 63 of the Act. This is in conformity with the teleological approach recently reiterated by the Supreme Court of Canada in Québec (Communauté urbaine) v. Corporation Notre-Dame de Bon-Secours^ [1]

A legislative provision should be given a strict or liberal interpretation depending on the purpose underlying it, and that purpose must be identified in light of the context of the statute, its objective and the legislative intent: this is the teleological approach;

We can find a review of the legislative intent of Parliament respecting section 63 in Symes v. 7?., [2] another decision of the Supreme Court of Canada. Iacobucci J. there refers to the Proposals for Tax Reform, 1969 [3] where the following approach to child care expenses is described at page 15, para. 2.7:

We propose to permit deduction of the child care expenses that face many working parents today. The problem of adequately caring for children when both parents are working, or when there is only one parent in the family and she or he is working, is both a personal and a social one. We consider it desirable on social as well as economic grounds to permit a tax deduction for child care expenses, under carefully controlled terms, in addition to the general deduction for children.

In McCluskie v. Æ., [4] Judge Rip of this Court made the following comments on the approach to be followed in interpreting section 63:

Child care expenses were permitted by Parliament “under carefully controlled terms” and it is not for the courts to vary explicit terms. Where Parliament has drafted a provision of law in general terms, the Courts must use common sense in interpreting the provision.

Applying the above-mentioned principles, I conclude that the $500 finder’s fee paid to Women’s Domestic Service is a deductible expense because it was incurred for the purpose of providing child care services in Canada. The fee was paid to find a nanny to replace the previous one who had left. This expense was required to find the nanny who was to perform the child care services. In my view, it falls within the spirit of the section, which was to assist working parents in caring adequately for their children.

However, not all expenses incurred for the care of children are deductible. In particular, subparagraph 63(3)(a)(iv) stipulates for greater certainty that education, medical and transportation costs are not child care expenses. I do not think that the recreational expenses disallowed by the Minister are child care expenses or “frais de garde d’enfants” within the meaning of paragraph 63(3)(a) of the Act. These expenses were not incurred for the purpose of watching over the children to protect them, and therefore to enable the parents to earn income from employment. They were incurred to develop the physical, social and artistic abilities of the children. These expenses would have been incurred whether or not the parents had been working. The evidence has shown that these activities were carried out even if both parents were not working, that is, both during the period when Mrs. Levine was working and during her maternity leave. The fact that these activities were for a limited period of time, one hour to one hour and a half per week, sometimes just for a few weeks, also supports this conclusion. Attending a one-hour lesson can hardly be considered an effective way of watching over the children to protect them. It is, however, a very effective means of teaching children new physical and artistic abilities.

It was argued on behalf of the Appellant that these recreational activities had the benefit of providing care for the children, thereby freeing the nanny to devote more time to the twins. It is true that the children, once they have been transported to the location of their lesson, are under the supervision of a responsible person. However, this person’s primary role is not to watch over the children to protect them, [5] but to teach ballet, swimming, skating, arts, etc. In my view, the children’s being watched over is only an incidental benefit of the lessons. I do not believe that this type of expense was intended by the Canadian Parliament to be deductible. They are outside the scope of the “carefully controlled terms” of the Act. In conclusion, the recreational activities are not child care expenses within the meaning of paragraph 63(3)(a) of the Act.

For these reasons, this appeal is allowed and the assessment is referred back to the Minister for reassessment on the basis that the sum of $500 is a child care expense and that $1,897 of recreational expenses are not deductible in computing income for the 1992 taxation year.

Appeal allowed.