Rogutski v. R., [1999] 3 CTC 2679 (Informal Procedure)

Rowe D.J.T.C. (orally):

The appeals of Boris Rogutski and Sandra Rogutski were heard together and the appeals are in respect to assessments of income tax for the 1995 and 1996 taxation years. Both the individuals, in computing their income tax liability with respect to those years, claimed a transfer of a tuition credit and education tax credit with respect to their daughter Tara in certain amounts relating to tuition fees paid to the Royal Ballet School in London, England, where their daughter was a full-time student and enrolled in a full-time three-year teacher’s program.

Leaving aside for the moment the issue as to whether or not they’re prohibited from splitting this credit, the overriding issue which will determine both appeals is the issue as to whether or not there is eligibility for the credits as claimed under section 118.5 and 118.6 of the Income Tax Act. The Minister disallowed the credits on the basis that the school - located in London, England - does not meet the definition of university under the Income Tax Act because the school does not grant a degree.

The Appellant, Mr. Rogutski, presented in evidence certain diplomas and certificates that had been issued by the school in London and also advised that from the research done by himself and his wife and daughter, there aren’t any institutions having the status of a university which grant degrees rather than diplomas or certificates. The particular school is an excellent school, highly regarded, and upon graduation with her diplomas, Ms. Tara Rogutski would be well able and qualified and in demand to teach ballet at a variety of institutions.

The particular wording in the Income Tax Act requires the educational institution - outside of Canada - in fact be an institution that is capable of being seen as a university. This matter has been earlier regarded by the Courts in the case of Li v. Minister of National Revenue (1978), 78 D.T.C. 1758 (T.R.B.), and further in the case of Sweeney v. Minister of National Revenue (1978), 78 D.T.C. 1885 (T.R.B.). The Li case was a decision of Mr. Bonner, as he then was, sitting on the Tax Review Board as it was then constituted, and the issue there was again the question as to whether or not a particular institution was a university. At page 1759 Mr. Bonner stated:

The absence of a power vested in Leicester Polytechnic to grant degrees is in my view fatal to the contention that the institution is a university within the meaning of the Act. In Re City of London and Ursuline Religious of the Diocese of London, (1964) 1 O.R. 587, the Ontario Court of Appeal considered the question whether Ursuline College, an institution affiliated to the University of Western Ontario and offering courses leading to a degree which could be conferred only by the University of Western Ontario, was a university within the meaning of the Assessment Act (Ontario). Schroeder, J.A., delivering the judgment of the court, considered the authorities at pages 594 and 595 and concluded at page 595:

The chief distinguishing characteristic between a university and other institutions of learning is the power and authority possessed by an institution of learning to grant titles or degrees such as Bachelor of Arts, Master of Arts, or Doctor of Divinity, by which it is certified that the holders have attained some definite proficiency. It is not pretended that the respondent is invested with such power or authority. Our modern universities would appear to be the successors of the medieval institution known as the studium generale, the body of students and masters being known as universitas scho- larium and universitas magistrorum, which were organized into four faculties, arts, theology, medicine and law. Unless an educational institution for instruction and examination in the more important branches of learning possessed the power by character or statute to grant degrees it did not quality as a university. When measured by that standard the respondent clearly does not possess the status of a university.

In that instance the particular appeal was dismissed.

In the Sweeney case, again the issue was whether or not an institution known as World Open University, located in the United States, was, in fact, an educational institution that was recognizable as a university, and in that particular instance it was decided that it was not.

A recent case, Gilbert v. R. (1998), [1999] 1 C.T.C. 2125 (T.C.C.), was decided by Judge Mogan of the Tax Court of Canada. In that particular instance, as in this case, the issue was whether or not the institution was a university. And, in that instance Judge Mogan looked at Dictionary of Canadian Law definitions, Webster’s Dictionary and Black’s Law Dictionary, and also referred to the London (City) v. Ursuline Religious of the Diocese of London case [[1964] 1 O.R. 587 (Ont. C.A.)] that had been referred to by Mr. Bonner in the Li decision I referred to. Judge Mogan came to the same conclusion, that the chief distinguishing characteristic between a university and other institutions of learning is the power and authority to grant titles or degrees. In that particular case then, the same fundamental definition was utilized.

Another interesting matter was raised in that case, the matter of officially induced error. In this instance, Mr. Rogutski testified he contacted Revenue Canada, specifically identified the Royal Ballet School in London, England as the one his daughter was interested in attending and made the specific inquiry as to whether that institution was recognized by Revenue Canada for purposes of claiming the appropriate tuition tax credits and education credits under the Income Tax Act. He was informed by the person at Revenue Canada that that institution had, in fact, shown up on the screen on the computer and that it would, indeed, qualify. That aspect was important to the Rogutskis because of the tremendous cost involved in attending the school over a three-year period - $100,000.00 - and even after the reassessments came, again he contacted Revenue Canada, explained the situation and was informed by an individual that Royal Ballet School showed up on the screen and it would, in fact, qualify for the appropriate credit.

On another instance, when he spoke to an individual at Revenue Canada he was informed the same school was not acceptable because it was not a university by reason of the fact it didn’t have degree granting status. Later, when he spoke to an official at Revenue Canada, he was informed that it was a programming mistake and the wrong advice, certainly, had been given.

In the Gilbert case, at paragraph 22, Judge Mogan said this:

On the other argument of whether this was an officially-induced error, it is a difficult point for a person to argue for two reasons. First, it is difficult to prove that the error was based on accurate information when it is based entirely on a telephone call. Certain things are said by party A to party B; and party B may or may not understand the accuracy of what party A has said or whether the full information is given. Even if parties are acting in good faith, all of the relevant information may not have been given by part A; and party B may or may not have a full understanding of what the situation is but gives a certain answer. Party A proceeds to act on what he or she thinks is a favourable answer.

I do not have enough evidence to determine if the answer given by a Revenue Canada employee was based on complete information from the telephone conversation which the Appellant referred to. That would be the first problem in accepting the second argument. The more far-reaching problem is the question of estoppel. This case is a question of statutory interpretation on the meaning of “university”. No employee of Revenue Canada, even with the best information accurately delivered by a taxpayer, can permit a taxpayer to have a deduction if it is not permitted under the statute.

In other words, an employee of Revenue Canada listening to a taxpayer’s story, accurately and honestly delivered by the taxpayer, and the employee acting in good faith with reasonable intelligence and thinking that under the given circumstances a deduction is permitted, may very well say to the taxpayer in the course of the conversation: “Oh, yes you would be entitled to that deduction. Go ahead and deduct it.” That kind of conversation could easily happen.

But if on the facts as delivered to the employee of Revenue Canada, the deduction was not permitted by law and the employee gives a wrong answer, the employee cannot change the law. It is simply a wrong answer. If the deduction is not permitted under the statute, it is not permitted. The taxpayer does not get an advantage because he happened to speak with an ill-informed or ill-advised employee. I would hold that particularly so where, in the circumstances of this appeal, we have a sophisticated taxpayer who looks at the law and has the prudence to make an enquiry. I find that there are no grounds to grant relief on what the Appellant has called officially-induced error. To do so would be to say that the Minister is estopped from assessing by an erroneous opinion expressed by one of his employees over the telephone.

In the circumstances of this case, the Appellant cannot gain any relief. I therefore dismiss the appeal.

In this case, certainly the error was perpetuated and certainly through no fault at all of the Rogutskis. There’s no question that it is the Income Tax Act which governs but for some reason the Royal Ballet School showed up as an institution that met the necessary criteria when that was not the case. My jurisdiction, however, is to determine whether or not the Minister of National Revenue made a decision, in issuing the assessments, which was, as a matter of law, wrong. I do not have the luxury of amending the Act or to grant equity in the normal sense that term is used. My decision must be based on whether or not there’s been an error made by the Minister. The Minister didn’t make an error and the assessment is correct.

The particular provision in my view should be amended to take into account that, traditionally, the finest ballet schools in the world don’t issue what is generally regarded as a degree which would emanate from a university. That, of course, won’t help the parties here. The next thing is the Appellants should contact the Minister of National Revenue and put to the Minister the circumstances of the case and ask the Minister to exercise whatever appropriate judgment may flow and to grant such relief, whether by interest or full remission of amounts pursuant to the Fairness Package, as it is commonly known, the Financial Administration Act or perchance a combination of both. Any such considerations are solely with the purview and discretion of the Minister of National Revenue and cannot be the subject of any order from this Court.

With regard to these particular appeals, I reluctantly must come to the conclusion the Minister’s assessments are correct and, therefore, the appeals of Boris Rogutski and Sandra Rogutski are both dismissed.

FOOTNOTE: Mr. Rogutski testified the tuition had been paid in advance to the Royal Ballet School upon acceptance of his daughter’s applica- tion to attend there and then she was advised by the Royal Winnipeg Ballet she had also been accepted to study there. The point is, she could have gone to study in Winnipeg had the Rogutskis known the Royal Ballet School in London, England did not qualify for tuition tax credits.

Appeals dismissed.