Beal v. R., [1996] 1 CTC 2281, 96 DTC 3230 (Informal Procedure)

Rip J.T.C.C.— John Beal, the appellant, has appealed (informal procedure) his assessments for the 1990, 1991 and 1992 taxation years claiming that he is entitled to a Federal Sales Tax credit (“FST credit”) for 1990 in accordance with section 122.4 of the Income Tax Act (“Act”) and Goods and Service Tax credits (“GST credits”) for 1991 and 1992 in accordance with section 122.5 of the Act.

The appellant stated he prepared his income tax returns for the years under appeal with the assistance and advice of personnel at Revenue Canada’s Montreal District Office. The officials at Revenue Canada informed him, he said, he was eligible for the FST and GST credits.

The appellant filed his returns on the basis he was not confined to a prison during the relevant years. Upon reviewing his tax returns Revenue Canada rejected the appellant’s claims for the tax credits on the basis that he was confined to a prison during 1990, 1991 and 1992 and is “deemed not to be an eligible individual” for FST and GST credits for 1990, 1991 and 1992 in accordance with paragraph 122.4(2)(b) for 1990 and paragraph 122.5(2)(c) forl991 and 1992.

Paragraph 122.4(2) reads as follows:

122.4(2) An individual shall be deemed not to be an eligible individual or a qualified relation of an individual for a taxation year where he was aperson

(a) referred to in paragraph 149( 1 )(a) or (b) for the year;

(b) confined in the year to a prison or similar institution for a period or

periods the aggregate of which in the year was more than six months; or

(c) who at no time in the year was resident in Canada.

Persons referred to in paragraphs 149(l)(a) and (b) are generally employees of a government other than Canada who reside in Canada and members of their families who are exempt from Canadian income tax.

Subsection 122.5(2) is similar to subsection 122.4(2):

122.5(2) Notwithstanding subsection (1), a person shall be deemed not to be an eligible individual for a taxation year or a qualified relation or qualified dependant of an individual for a taxation year where the person

(a) dies before the end of the year;

(b) is, at the end of the year, a person described inparagraph 149(1 )(a) or (b); or (c) is, at the end of the year, confined to a prison or similar institution and has been so confined for a period of, or periods the aggregate of which in the year was more than, 6 months.

Beal acknowledged he was incarcerated for most of 1992 and conceded he had no casewith respect to the assessment for that year.

With respect to 1990 and 1991 Beal stated that he was arrested in New Brunswick in 1985 but while in “lock-up” awaiting trial he escaped from custody. He was not apprehended until 1992. While at large Beal obtained employment under an alias. He used the social insurance number originally issued to him while employed. He reported income from employment for 1990 and 1991 in his tax returns. Beal was rearrested and sent to prison in February 1992; he was released on day parole in February 1993 and was granted full parole on August 17, 1993. I assume Beal filed his tax returns for 1990 and 1991 after his release.

The appellant’s position is that he was not confined to a prison in 1990 and 1991; during that time he was gainfully employed and was liable for, and paid, tax on his earnings. Accordingly, he concluded, he ought to be permitted the tax credits.

Beal was illegally at large during 1990 and 1991. Counsel forthe respondent cited the reasons of Sobier J.T.C.C. in McKinnon v. Minister of National Revenue, [1991] 2 C.T.C. 2284, 91 D.T.C. 1002, at page 2286 (D.T.C. 1004) for the authority that the purpose of the tax credits is to benefit low income taxpayers and that Parliament has chosen to exclude those individuals who it saw fit not to benefit, namely certain types of prison inmates.

Counsel also referred me to the Federal Court of Appeal judgment of Garland v. Canada (Employment and Immigration Commission), [1985] 2 F.C. 508. In that case the Court of Appeal was called on to determine whether a prisoner who was released on temporary absence, provided that he reside at and work on his parents’ farm, was “confined in a goal, penitentiary or similar institution” within the meaning of subsection 18(2)(b) of the Unemployment Insurance Act, 1971, during the time he resided and worked at his parents’ farm. Pratt J. dissenting held he was not. Heald J. (Urie J. concurring) held the prisoner was so confined while at his parents’ farm. Heald J. relied on section 45 of the Unemployment Insurance Act and section 55 of the Unemployment Insurance Regulations as well as paragraph 18(2)(b) and concluded:

.'..that Parliament intended that the class of individuals described in paragraph 18(2)(b) must necessarily include those prisoners who, while not still remaining in physical confinement, are nevertheless still within the class since they are not yet available for employment...

In Garland, because the individual was found to be confined to goal or a penitentiary while working at his parents’ farm and therefore he was not available for employment; therefore the qualifying period for purposes of the Unemployment Insurance Act when the prisoner was physically confined to an institution was extended. Paragraph 18(2)(b) of the Unemployment Insurance Act extends the qualifying period of an insured person defined in subsection 18(1) by the aggregate of any such weeks a person is “confined” in a penal institution on the basis the person was not available for work during the time of his confinement.

See also Ahluwalia (Re), [1989] 3 F.C. 209, 25 F.T.R. 208 at page 224-25 (F.T.R. 218).

Counsel concluded that it could not have been the intent of Parliament that a person committing an illegal act and escaping from custody have the right to a legal benefit solely because of the escape. He referred to Gauthier J. in Québec (Communauté urbaine) v. Corp. Notre-Dame de Bonsecours (sub nom. Notre-Dame de Bon-Secours Corp. v. Quebec (Commuinauté urbaine)), [1995], 1 C.T.C. 241, 95 D.T.C. 5017 (S.C.C.), at page 252 (D.T.C. 5023) for the rules in interpreting tax statutes:

— The interpretation of tax legislation should follow the ordinary rules of interpretation;

— 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;

— The teleological approach will favour the taxpayer or the tax department depending solely on the legislative provision in question, and not on the existence of predetermined presumptions;

— Substance should be given precedence over form to the extent that this is consistent with the wording and objective of the statute;

— Only a reasonable doubt, not resolved by the ordinary rules of interpretation, will be settled by recourse to the residual presumption in favour of the taxpayer.

A person confined to a prison for more than six months in a year is not the only person ineligible for the FST or GST credit. A person earning income in Canada who was not a resident in Canada at any time in 1990 was not eligible for the FST credit in 1990 although he may have been liable for Canadian income tax: paragraph 122.4(2)(c). A person who died before the end of 1991 may have been liable for income tax in 1991 but was not eligible for a GST credit: paragraph 122.5(2)(a). It does not follow that simply because a taxpayer may be liable for income tax he or she is entitled to FST or GST tax credits. Parliament has the power to tax and the power to grant tax credits. Parliament may cast a wide net on the former and restrict the benefit of the latter.

Subsections 122.4(2) and 122.5(2) of the Act must be given an interpretation depending on their purpose, and that purpose must be identified in light of the context of the statute, its objective and legislative intent. The intent of these provisions is to deny tax credits to certain taxpayers who may be otherwise eligible. A taxpayer who is, at the end of the year, confined to a prison or similar institution for periods aggregating more than six months in the year is not eligible for the credits. An escapee from custody does not become eligible by the fact he or she is at large and is not, strictly speaking, where he or she belongs. It is clear to me, in considering paragraphs 122.4(2)(b) and 122.5(2)(c), that Parliament intended that the class of individuals described in these provisions must necessarily include those persons who are not in physical confinement solely because they broke out of, or escaped, the goal, prison or similar institution in which they had been confined. Any other interpretation is contrary to the good and proper administration of the Act.

That the appellant relied on the advice of the Minister of National Revenue’s (“Minister”) officials in claiming the tax credits does not assist him. The Minister cannot be bound by advice given by his or her officials when the conditions prescribed by the law were not met: Minister of National Revenue v. Inland Industries Ltd., 72 D.T.C. 6013, at page 6017, per Pigeon J.

Appeals dismissed.