Bruce N. Cox v. Her Majesty the Queen, [1997] 1 CTC 2071 (Informal Procedure)

Teskey J.T.C.C.: — The Appellant elected, in his Notice of Appeal, the informal procedure when he appealed his assessment of income tax for the 1992 taxation year.

Issue

The issue is what is the income of the Appellant’s spouse for the purposes of calculating the Appellant’s marital status non-refundable tax credit for 1992.

Facts

The Appellant’s spouse had an income of $3,524.24 in 1992 which is not in issue. Over and above this, she also received $1,317.48 as income supplement under the Old Age Security Act.

Respondent's position

The Respondent submits that the Appellant’s spouse should have entered this amount of $1,317.48 on line 146 of her T1 tax return. This would have changed line 150 to $4,841.72 which reads “total income”. Line 236 which reads “net income” would then read the same. Line 250 should have the amount inserted, i.e. the $1,317.48, which is a deduction which then on line 260 under the heading “taxable income” shows $3,524.24. Thus, when the Appellant filed his T1 tax return, he should have used $4,841.72 as the spouse’s net income in the calculation of the marital status amount and not his spouse’s taxable income of $3,524.24.

Attached hereto as Schedule A is the relevant portion of page I of the Appellant’s spouse’s TI tax return for 1992.

Attached hereto as Schedule B is the relevant portion of page 1 of a 1992 TI tax return completed as it should have been completed by the Appellant’s spouse.

Attached hereto as Schedule C is the relevant portion of the Appellant’s T1 tax return for 1992, where he did his marital status calculation.

Attached hereto as Schedule D is the relevant portion of a 1992 TI tax return completed as the Appellant should have completed it.

The provision for a marital status tax credit is found in paragraph 118(l)(a) of the Income Tax Act (the “Act”) under the heading “marital status”. Subparagraph 118(1 )(a)(ii) thereof reads:

(ii) an amount determined by the formula

$5,918 - (C - 538) [1] where

C is the greater of 538 and the “income” of the individual spouse’s.

[Emphasis added.]

“Income” is defined by Section 3 of the Act. The applicable portion for this appeal reads:

Section 3 : Income for taxation year.

The income of a taxpayer for a taxation year for the purposes of this Part is his income for the year determined by the following rules:

(a) determine the aggregate of amounts each of which is the taxpayer’s income for the year (other than a taxable capital gain from the disposition of a property) from a source inside or outside Canada, including, without restricting the generality of the foregoing, his income for the year from each office, employment, business and property;

(b) n/a

(c) determine the amount, if any, exceeds the aggregate of the deductions permitted by subdivision e in computing the taxpayer’s income for the year (except such of or such part of those deductions, if any, as have been taken into account in determining the aggregate referred to in paragraph (a)); and

(d) determine the amount, if any, by which the amount determined under paragraph (c) exceeds the aggregate of all amounts each of which is his loss for the year from an office, employment, business or property or his allowable business investment loss for the year;

and for the purposes of this Part,

(e) where an amount is determined under paragraph (d) for the year in respect of the taxpayer, the taxpayer’s income for the year is the amount so determined, and

Each category of income in paragraph 3(a) of the Act is referred to as “income from a source” whether inside or outside of Canada. The named sources of income (office, employment, business, property and capital gains) are not exhaustive as income can arise from any other unnamed source. In this regard, other sources of income are identified in Subdivision d of Division B of the Act (sections 56 to 59.1).

The $1,317.48 that the Appellant’s spouse received from the Government of Canada as an old age security supplement is not a named source of income. However, as mentioned, Subdivision d brings into income several types of other income, of which monies received as an old age security supplement is one such type. In this regard, it is necessary to examine the application of paragraphs 56(1 )(a) and 110(1)(f) of the Act, which are the provisions that relate to the taxation consequences of monies received as an old age supplement. In 1992, the relevant portion of these provisions read as follows:

Section 56. Amounts to be included in income for year

(1) Without restricting the generality of section 3, there shall be included in computing the income of a taxpayer for a taxation year,

(a) Pension benefits, unemployment insurance benefits, etc.- any amount received by the taxpayer in the year as, on account or in lieu of payment of, or in satisfaction of,

(i) a superannuation or pension benefit including, without limiting the generality of the foregoing,

(A) the amount of any pension, supplement or spouse’s allowance under the Old Age Security Act and the amount of any similar payment under a law of a province,

Section 110. Other Deductions permitted

(1) For the purpose of computing the taxable income of a taxpayer for a taxation year, there may be deducted such of the following amounts as are applicable:

(f) Deductions for payments - any social assistance payment made on the basis of a means, needs or income test and included by reason of clause 56(l)(a)(i)(A) or paragraph 56(1 )(u) in computing the taxpayer’s income for the year...

to the extent that it has been included in computing the taxpayer’s income for the year;

As can be seen by the combined application of paragraphs 56(1 )(a) and 110(l)(f), monies received under an old age security supplement paid by the federal government under the Old Age Security Act are initially included in income but are deductible in calculating taxable income to the extent that the payments represent a guaranteed income supplement. Thus, in effect, guaranteed income supplements are not taxed. Their inclusion in income may, however, affect the amount of other deductions or tax credits that might otherwise be available to the taxpayer or to the taxpayer’s spouse.

This is the exact situation facing the Appellant in the instant case, as Revenue’s treatment of his wife’s old age security supplement has had an effect on the Appellant’s claim for a marital status tax credit. Paragraph 3(a) of the Act requires that all sources of income, whether named or not, be included in the calculation of income. Therefore, the $1,317.48 received as an old age security supplement, pursuant to paragraph 56(1 )(a), must be included in the calculation of income. However, paragraph 3(c) of the Act then provides that the amount determined under paragraph 3(a) is to be reduced by the total of the deductions permitted by Subdivision e of Division B in computing the taxpayer’s income for the year. In this regard, it should be noted that Subdivision e encompasses section 60 through to section 66.8 and, thus, only those deductions provided for in these sections can be used to reduce income.

In the instant case, the deduction in question is contained in section 110 of the Act and as such is not applicable in calculating income of a taxpayer. It follows that Revenue Canada has properly calculated the appellants’ spouse’s income for the purposes of the marital status tax credit.

For these reasons, the appeal is dismissed.

Appeal dismissed.