Jo-Anne McCluskie v. Her Majesty the Queen (Informal Procedure), [1994] 1 CTC 2401, 94 DTC 1735

Citations
[1994] 1 CTC 2401, 94 DTC 1735

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Text of decision

Rip, J.T.C.C.:—In computing her income for 1991 Jo-Anne McCluskie ("McCluskie") deducted child care expenses of $10,205.78. The Minister of National Revenue ("Minister"), in reassessing McCluskie, reduced the amount of child care expenses deductible in computing her income by $1,260 on the basis that this amount was paid for child care with respect to a period McCluskie was not performing the duties of an office or employment: clause 63(3)(a)(i)(A) of the Income Tax Act, R.S.C. 1952, c. 148 (am. S.C. 1970-71-72, c. 63) (the "Act").

McCluskie has appealed the reassessment, electing to proceed under the informal procedure, for the reasons that (1) she was required to hire a babysitter at the time the latter arrived in Canada or she would have risked losing the babysitter and then not be able to work, and (2) a training period for the babysitter and the three children of the appellant was necessary in that ‘’a working parent cannot just leave their [sic] children with a stranger and hope everything is O.K. especially when the caretaker has just arrived from a foreign country".

The appellant also stated she "feels(s) I have been discriminated against".

McCluskie acted on her own behalf.

Facts

The facts assumed by the Minister in making the assessment are not in issue. They are:

(a) the appellant was in the employ of the Vancouver School District No. 39 during the year, but was on maternity leave from that employment during the period April 29, 1991 to August 23, 1991, and

(b) apart from unemployment insurance benefits which were received by the appellant during the year, the employment with the school district was the appellant’s only source of income in the year.

McCluskie had two children who attended daycare. She commenced maternity leave in April and the children then stayed with her at home. The appellant had applied in February 1990 to retain the services of the particular person, who resided outside of Canada, as a babysitter and did not want to lose her services when she arrived in Canada in July 1991. The appellant was informed by officials of the Department of Immigration that if the babysitter was not happy she would be free to return home. Therefore McCluskie felt she had to hire the babysitter in July in order to have someone at home when she would return to work at the end of August. The babysitter was hired to care for the appellant's three children.

The appellant did not state the reason the babysitter entered Canada when she did in July rather than sometime later in August.

Positions of parties

In the Minister's view none of the $1,260 was deductible in computing the appellant’s income for 1991 from any source, in particular from employment, by virtue of subsections 4(2) and 8(2) of the Act nor was it a child care expense within the meaning of paragraph 63(3)(a).

The appellant did indicate she was relying on subsections 4(2) and 8(2) of the Act. She relied on subsections 63(1) and (3).

I.T.A. Provisions

Subsection 63(1) permits a taxpayer to deduct child care expenses in computing her or his income for a year to the extent it does not exceed certain amounts. The relevant portions of subsection 63(1) in 1991 read as follows:

63(1) Subject to subsection (2), where an individual who has an eligible child for a taxation year files with his return of income . . . under this Part for the year a prescribed form containing prescribed information, there may be deducted in computing the income of the taxpayer for the year the aggregate of all amounts each of which is an amount paid in the year as or on account of child care expenses in respect of an eligible child of the taxpayer for the year

(a) by the taxpayer. . . .

. . . but not exceeding the amount, if any, by which

(e) the lesser of

(i) 2/3 of the taxpayer’s earned income for the year, and

(ii) the aggregate of

(A) the product obtained when $4,000 is multiplied by the number of eligible children of the taxpayer for the year each of whom

(I) is under seven years of age at the end of the year, or

(II) is a person in respect of whom an amount may be deducted by reason of section 118.3 in computing a taxpayer's tax payable under this Part for the year, and

(B) the product obtained when $2,000 is multiplied by the number of eligible children of the taxpayer for the year (other than those referred to in clause (A))

Clause 63(3)(a)(i)(A) reads as follows:

63(3) In this section,

(a) "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,

The term “earned income" of a taxpayer in subparagraph 63(1 )(e)(i) is defined in paragraph 63(3)(b) to mean the aggregate of:

63(1 )(e)(i) all salaries, wages and other remuneration, including gratuities, received by him in respect of, in the course of, or by virtue of offices and employments, and all amounts included in computing his income by virtue of sections 6 and 7,

(ii) . . . and

(iii) his incomes from all businesses carried on either alone or. . . .

Submissions

Respondent's counsel submitted that clause 63(3)(a)(i)(A) defines “child care expense" to mean a particular expense incurred by a taxpayer to enable him or her to perform duties of employment at the time the expense was incurred.

Counsel referred me to the definition of the word "perform" in the Merriam- Webster's Collegiate Dictionary (10th ed.): “to carry out an action or pattern of behaviour". The same dictionary defines the words “carry on": "to continue doing, pursuing, or operating", and the word "active": "characterized by action rather than by contemplation or speculation . . . producing or involving action or movement. . . expressing action as distinct from mere existence or state".

The Concise Oxford Dictionary of Current English (1982) ("Concise Oxford") defines the word "perform": "go through, execute".

Counsel argued that the word "perform" in clause 63(3)(a)(i)(A) thus indicates activity by the taxpayer with respect to her employment. In other words, if I can make it simpler, the taxpayer must be working at her job for the time she pays the babysitter; waiting for the job to start or restart does not count.

Ms. Glover, respondent's counsel, distinguished the facts in the appeal at bar from those in D'Amours v. M.N.R., [1990] 2 C.T.C. 2355, 90 D.T.C. 1827. In October 1984 D'Amours, a dental hygienist, was pregnant and was thus permitted to leave work as a preventive measure. Under the terms of the collective agreement, she began to receive from her employer an amount which, when added to the unemployment insurance benefits she was to receive, enabled her to continue to receive 95 per cent of her former salary. During 1984, and for the first four months of 1985, D'Amours employed a babysitter who agreed to stop working for her from May until August, 1985. In September 1985, the babysitter recommenced employment with D'Amours, at which time D'Amours returned to work. The Minister disallowed the deduction by D'Amours of the expenses incurred for the services of the babysitter during the first four months of 1985.

Lamarre Proulx, J.T.C.C., allowed the appeal based on the following facts: the babysitter had been employed prior to D'Amours' maternity leave, D'Amours retained her employment through her leave, and D'Amours retained the services of the babysitter during the four months to ensure that the babysitter would be available when she returned to work. In the view of Lamarre Proulx, Parliament did not limit the right to deduct child care expenses to persons physically at work; otherwise, she asked, "why would it have included in the definition of earned income certain sources of income other than earnings and gratuities, such as, for example, the benefits described in paragraphs 6(1 )(f)". She concluded at page 2357 (D.T.C. 1828):

. . . Parliament did not rule out situations where the person receives benefits in respect of, in the course of or by virtue of employment that he still holds, without being physically present at the work place, to the extent that the expenses claimed were incurred to perform the duties of the employment.

Ms. Glover distinguished the D'Amours case from the present appeal on the basis that McCluskie’s babysitter was not employed prior to McCluskie taking maternity leave. D'Amours, in the words of Lamarre Proulx, at page 2357 (D.T.C. 1828), "had to continue to pay [the babysitter] during her leave in order to ensure that the babysitter was still available when she returned to work" and "not for strictly personal reasons". McCluskie did not “continue to pay" her babysitter during the period in issue; she commenced to pay her for her services. However, McCluskie’s view is that she had to engage the services of the babysitter in July to ensure the babysitter would be available when she returned to work at the end of August.

Analysis

Section 63 is a code regulating the deductibility of child care expenses: Symes v. Canada, [1991] 2 C.T.C. 1, 91 D.T.C. 5397 (F.C.A.); aff'd. [1994] 1 C.T.C. 40, 94 D.T.C. 6001, per lacobucci, J., at page 63 (D.T.C. 6018). Section 63 provides limited tax relief to taxpayers who, in order to be gainfully occupied away from home, engage the services of someone to substitute for them the care of their children while they are at work.

One must not lose sight that the object of the Act is to provide the means for the Government of Canada to collect money. The government requires money to Operate and provide services to the public. To extend the clear words of a provision which permits a deduction under certain conditions to what one may consider socially desirable or acceptable at the time risks frustrating the purposes of the Act. However at the same time the enactment is to be given such fair, large and liberal construction and interpretation that best ensures the attainment of its objects (see Interpretation Act, R.S.C. 1985, c. I-21, s. 12). Section 63 is to be read in the context of the whole statute and with the “object and spirit” and purpose of that provision in mind: Stubart Investments Ltd. v. The Queen, [1984] 1 S.C.R. 536, [1984] C.T.C. 294, 84 D.T.C. 6305.

In Symes, supra, at pages 64-65 (D.T.C. 6019-20), lacobucci, J. made particular note of the proposals which directly led to the 1972 introduction of section 63. In Proposals for Tax Reform (1969) (E.J. Benson, Minister of Finance), the following approach to child care expenses is advocated at page 15:

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.

2.9 This new deduction for child care costs would be a major reform. While it is not possible to make an accurate forecast of the number who would benefit from this new deduction, it seems likely to be several hundred thousand families. It would assist many mothers who work or want to work to provide or supplement the family income, but are discouraged by the cost of having their children cared for. . . .

[Emphasis added.]

Paragraph 63(3)(c) defines an eligible child of a taxpayer with respect to whom the taxpayer may deduct child care expenses. Subsection 63(2) determines which taxpayers are entitled to deduct child care expenses, lacobucci, J., in Symes, supra, 63 (D.T.C. 6018), explains paragraph 63(1 )(e) operates to cap the deduction with reference to "earned income". Basically, the amount claimed by a taxpayer in 1991 may not exceed the amount, if any, by which the lesser of 2/3 of the taxpayer's "earned income" for the year and the aggregate of other amounts depending on the age and number of eligible children of the taxpayer exceeds the aggregate of all amounts deducted under section 63 by another individual in respect of the eligible children of the taxpayer. It is the taxpayer's earned income which determines the amount of the child care deduction.

Earned income is the aggregate of the following:

(a) salaries, wages and other remuneration, including gratuities received in respect of, in the course of, or by virtue of an office and employment;

(b) taxable benefits included in section 6: value of board and lodging, sickness or accident insurance plans, and disability insurance plans, for example:

(d) training allowances: paragraph 56(1 )(m);

(e) certain scholarships and bursaries received in the year: paragraph 56(1 )(n);

(f) research grants in excess of certain expenses: paragraph 56(1 )(o); and

(g) income from a business carried on by the taxpayer as a sole proprietorship or as a partner actively engaged in the business.

Earned income, then, includes income from business, employment, study, research and job training, that is, activity where labour is requirea. In addition, earned income includes the value of benefits or amounts received in the year in respect of, in the course of, by virtue of, or as a result of this labour: for example, amounts received in respect of loss of income from employment pursuant to an insurance plan to which the taxpayer’s employer had contributed.

Since earned income determines the amount of the child care deduction it is in the taxpayer's interest to ensure that her earned income be high. I cannot agree with Lamarre Proulx, J. that the definition of earned income in paragraph 63(3)(b) is relevant in considering the meaning of the words ‘”’. . . to perform the duties of an office or employment" (or ”. . . de remplir les fonctions d'une charge ou d'un emploi”) in paragraph 63(3)(a). To assimilate the definition of earned income to the phrase ”’. . . to perform the duties of an office or employment" would render the latter phrase meaningless. Words in a statute must have meaning; one cannot ignore the words "perform" and "duties".

The verb "perform" means "execute": Concise Oxford. The Shorter Oxford English Dictionary on Historical Principles ("Shorter Oxford") defines the word "perform", in part: ”. . . to carry out in action, execute (a command, promise, undertaking, etc.). . . . To carry out, achieve (any undertaking). . . .”

Le Petit Robert defines the words "remplir" to include: "Exercer, accomplir effectivement. Remplir une fonction, des fonctions. . . .”

The word "duty" is defined in the Shorter Oxford, in part, as: "Action, or an act, that is due by moral or legal obligation; that which one ought or is bound to do. . . . Business, office, function."

Le Petit Robert defines the word "fonction" to include: "Exercice d'un emploi, d'une charge. . . ."

To my mind the words “to perform the duties of an office or employment" and "de remplir les fonctions d'une charge ou d'un emploi" in paragraph 63(3)(a) means that the child care expense must be incurred to enable the taxpayer to execute or perform the job for which she was hired. If the taxpayer is not performing her duties of employment (or office) during the period for which the expense is incurred it may be argued by definition, she has not incurred a child care expense.

Now there may be times when a parent will be permitted a child care deduction with respect to a period she or he is not physically present at the work place. The parent may be on sick leave, for example. To dismiss the babysitter on such occasion would be disruptive. The child care deduction may also be available to permit the parents, the children and a newly hired babysitter a period of time to get oriented with, and familiar to, each other. It is not acceptable from a welfare point of view, for example, for a newly hired babysitter to arrive at the taxpayer’s door step early Monday morning, when the parents leave for work, to start providing services without prior introduction and some preparation. I cannot imagine that the costs incurred during such periods were not contemplated by Parliament as a child care expense. To include babysitting expenses incurred during such periods as a child care expense is within the "object and spirit” of section 63.. However the lengths of leave and orientation would have to be reasonable, depending on circumstances, and not remote from the time the taxpayer continues to perform his or her occupation. For example, sick leave of two weeks may be reasonable; one month may not be. Where illness is chronic, one must consider whether the services of a babysitter are being retained to perform duties of employment or due to the illness. Similarly a one week orientation period may be acceptable but not a two-month period. 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.

The costs that a taxpayer incurs during leave while she or he is at home in order to ensure that the babysitter be available when the taxpayer eventually returns to work may be described as a "stand by fee". The parent is at home presumably caring for the children and does not require a babysitter for that purpose. Nevertheless the parent realizes that if she or he wishes to retain that person's services when the parent returns to work, she or he must continue to pay that person. The babysitter, in these circumstances, is someone upon which the parent can rely and is paid a fee for the comfort of this reliance. The babysitter stands by the parent to render services in the future. This is a personal convenience to the parent. Such standby fee is not a child care expense within the meaning of paragraph 63(3)(a).

Charter

The appellant stated that she felt "discriminated against”. She did not raise subsection 15(1) or any other provision of the Canadian Charter of Rights and Freedoms and no evidence was led by her to demonstrate any adverse effect created or contributed to by section 63 or that the assessment was discriminatory. She also did not state what she felt the discrimination was. Nevertheless I have searched for indicia of discrimination on the evidence before me.

The respondent's counsel referred me to the reasons for judgment in Andrews v. Law Society (B.C.), [1989] 1 S.C.R. 143, 56 D.L.R. (4th) 1. Since the trial of this appeal, the reasons for judgment of the Supreme Court in Symes, supra, were released. In his reasons, lacobucci, J., refers to Andrews on several occasions. McIntyre, J., in Andrews, supra, page 174 (D.L.R. 18), described discrimination:

. . . as a distinction, whether intentional or not but based on grounds relating to personal characteristics of the individual or group, which has the effect of imposing Durdens, obligations, or disadvantages on such individual or group not imposed upon others, or which withholds or limits access to opportunities, benefits, and advantages available to other members of society.

lacobucci, J., also examined the discrimination analysis by the Supreme Court of Canada several other cases including Tétreault-Gadoury v. Canada (Employment & Immigration Commission), [1991] 2 S.C.R. 22, 81 D.L.R. (4th) 358, at page 41 (D.L.R. 370); McKinney v. University of Guelph, [1990] 3 S.C.R. 229, 45 O.A.C. 1, at page 279 (O.A.C. 38-39). In Ontario Human Rights Commission v. Simpsons-Sears Ltd., [1985] 2 S.C.R. 536, 23 D.L.R. (4th) 321; R. v. Turpin, [1989] 1 S.C.R. 1296, 69 C.R. (3d) 97, per Wilson, J. at pages 1331-33 (C.R. 125-27); and R. v. Swain, [1991] 1 S.C.R. 933, 5 C.R. (4th) 253, per Lamer, C.J., at page 992 (C.R. 297).

I am unable to find any grounds of discrimination suffered by the appellant as a result of the assessment in appeal. As I mentioned earlier, the appellant led no evidence to demonstrate any discrimination. I imagine the appellant is dissatisfied that she was not permitted to deduct expenses which were incurred so that she would have a babysitter available when she went to work and, as well, for a period to allow the children and the babysitter to get to know each other. I suppose that, in her view, was discriminatory. In my view, however, this is not the type of discrimination, if it really is discrimination, contemplated by subsection 15(1) of the Charter.

Decision

A period of orientation between the appellant, her children and the newly hired babysitter was necessary. Unfortunately there was no evidence as to what, on the facts of this appeal, constitutes a reasonable orientation period. I am not satisfied the period had to be nearly as long as claimed by the appellant. I shall however allow the appeal, without costs, to allow the costs paid to the babysitter for the period of the seven days immediately preceding the appellant returning to work to be included as a child care expense.

Appeal allowed in part.

Robert W. Agard v. Her Majesty The Queen

[Indexed as: Agard (R.W.) v. Canada]

Tax Court of Canada (Sobier, J. T.C.C.), January 26, 1994 (Court File No. 92-2369).

Income tax—Federal—Income Tax Act, R.S.C. 1952, c. 148 (am. S.C. 1970-71-72,

c. 63)—128(2)—Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3—2—Whether moneys

The appellant made a proposal under the Bankruptcy Act which was filed on July 11, 1990. Under the terms of the proposal, his registered retirement savings plan was to be cashed and included in the appellant’s assets to be paid to the appellant’s creditors. The RRSP was withdrawn and moneys were received by the trustee under the proposal. The moneys received from the RRSP were disbursed to the appellant’s creditors. The appellant filed his tax return for 1990 on a split basis, that is, one return for the period preceding the proposal and another for the period thereafter. The Minister reassessed on the basis that the appellant had only one taxation year and included the amount withdrawn from the RRSP in the appellant’s income for the 1990 taxation year. The appellant appealed.

HELD:

Since there was no definition of "bankrupt" in the Income Tax Act, it was necessary to turn to the Bankruptcy and Insolvency Act. The definition of a “bankrupt” in section 2 of the latter Act did not include a person making a proposal under bankruptcy. Accordingly, the appellant was not a bankrupt at the time of making of the proposal nor thereafter. Furthermore, notwithstanding that the appellant never received the moneys withdrawn from the RRSP, those moneys were always his property just as the RRSP itself was always his. Appeal dismissed.

The appellant appeared on his own behalf.

John O'Callaghan for the respondent.

Cases referred to:

Employers’ Liability Assurance Corp. v. Ideal Petroleum (1959) Ltd., [1978] 1

S.C.R. 230, 26 C.B.R. 84;

Re Ano Ltée (1981), 39 C.B.R. (N.S.) 263.

Sobier, J.T.C.C.:—The appellant appeals from the assessments by the Minister of National Revenue (the "Minister") for his 1990 taxation year whereby the Minister included in his income for that year, an amount equal to the amount the appellant became entitled to on deregistering a registered retirement savings plan (the "RRSP").

The parties filed an agreed statement of facts and the relevant portions are set out below:

1. The appellant made a proposal under the Bankruptcy Act, R.S.C. 1985, c. B-3, which was filed on July 11, 1990 (hereinafter referred to as the "proposal").

2. Under the terms of the proposal, the registered retirement savings plan (hereinafter referred to as the "RRSP") of the taxpayer was to be cashed and included in the appellant’s assets to be paid to the appellant’s creditors.

3. The RRSP was withdrawn and moneys were received by the trustee under the proposal.

4. Moneys received from the appellant’s registered RRSP were disbursed to creditors.

5. The Minister of National Revenue (hereinafter referred to as the "Minister") assessed tax on the appellant’s income for 1990, which income included the moneys withdrawn from the RRSP.

6. The appellant filed his tax return for 1990 on a split basis, that is, one return for the six months preceding the proposal and a second return for the six months after the proposal.

7. The Minister reassessed on the basis of a full taxation year.

8. For the 1990 taxation year there were three returns filed by, or on behalf of, the appellant as follows:

(a) Return for the period from January 1 to July 11, 1990, showing a total income of $11,133;

(b) Return for the period from July 11 to December 31, 1990, showing a total income of $4,210.93;

(c) A return showing income from the withdrawal from the appellant’s RRSP in the amount of $31,713.47.

9. Of the $31,713.47 withdrawn from the appellant’s RRSP a sum in the amount of $9,514.04 was withheld at source and the remainder in the amount of $22,199.43 was paid to the trustee.

10. The Minister, by notice of reassessment dated March 2, 1992, reassessed the appellant for the 1990 taxation year on the basis that the appellant had only one taxation year during 1990.

The appellant claimed the right to file returns on a split year basis relying on the provisions of subsection 128(2) which in effect splits the taxation year in two. The first portion being his own taxation year ending the day prior to becoming, as he claims, a bankrupt and the second commencing on the date he claims he became a bankrupt. The appellant claims that on filing his proposal with the trustee, he was a bankrupt. Since there is no definition of a bankrupt, we must turn to the Bankruptcy Act. The definition of "bankrupt" and "bankruptcy" are found in section 2 of the Bankruptcy Act as follows:

''bankrupt" means a person who has made an assignment or against whom a receiving order has been made or the legal status of that person;

“bankruptcy” means the state of being bankrupt or the fact of becoming bankrupt;

The difficulty with the appellant's position in alleging that he was a bankrupt is that the definition of a "bankrupt" does not include a person making a proposal in bankruptcy only a person who has made an assignment or one against whom a receiving order has been made.

The case law is also clear that a person making a proposal is not a bankrupt nor does he have the status of a bankrupt. This was clearly set out in Employers' Liability Assurance Corp. v. Ideal Petroleum (1959) Ltd., [1978] 1 S.C.R. 230, 26 C.B.R. 84. At page 239 (C.B.R. 92), de Grandpré, J. stated:

The proposal is a contract between the debtor and his creditors. When it is made in accordance with certain formalities prescribed in the Act this contract, which binds all creditors, even the dissenting minority, is not an act of bankruptcy, and the situation which results from it is not a situation of bankruptcy. This is what Kelly, J.A., speaking for the Court of Appeal of Ontario, held in Amanda Designs Boutique Ltd. v. Charisma Fashions Ltd., [1972] 3 O.R. 68, 17 C.B.R. (N.S.) 16. Although written in another context, the following sentence expresses the situation well (at page 20 (O.R. 71)):

Accordingly, when filed the proposal has the potentiality of bankruptcy which does not crystallize until the proposal is refused and never crystallizes if the proposal be approved.

Accordingly, the appellant was not a bankrupt at the time of the filing of the proposal nor thereafter.

In addition, the appellant claims that the Minister's claim arose prior to the proposal and therefore was dealt with under the proposal.

There is no basis in fact for this proposition. The liability for income tax arose when the RRSP was deregistered which event took place after the proposal was filed.

As stated above, in Employers Liability, supra, a proposal is a contract between the debtor and his creditors. Here the contract stated that the appellant would deregister the RRSP and use the funds to pay his creditors. In addition, the appellant claims that he never received the moneys from the RRSP and therefore cannot be taxed on its receipt. This argument is also without merit. All of the assets of the appellant remained the assets of the appellant and not the trustee under the proposal. (See Re Ano Ltée (1981), 39 C.B.R. (N.S.) 263 (Que. S.C.).)

Under the proposal, the appellant merely directed what was to happen to the proceeds of the RRSP. The proceeds were always his property just as the RRSP itself was his. The trustee was merely a conduit through which the funds passed on their way to the creditors. In fact, paragraph 5 of the proposal states:

5. That the net, after tax realization of the RRSP held by Central Guarantee Trust valued at $27,000 and the net proceeds of the two properties described below, which comprise all of the none-exempt [sic] assets of the debtor shall be made available to the trustee to satisfy the terms of this proposal: