Donato v. R., [1999] 4 CTC 2395 (Informal Procedure)

Beaubier T.C.J.:

This appeal pursuant to the Informal Procedure was heard at Ottawa, Ontario on July 30, 1999. The Appellant’s wife, Maria Donato was the only witness.

The assumptions contained in paragraph 10 of the Reply to the Notice of Appeal read as follows:

10. In so reassessing the Appellant’s income tax return for the 1996 taxation year, the Minister made the following assumptions of fact:

(a) during the 1994 calendar year, the Appellant paid medical expenses, as defined in subsection 118.2(2) of the Income Tax Act (the “Act”) and in section 5700 of the Income Tax Regulations (the “Regulations”), for his dependant, in the amount of $10,458:

(b) the medical expenses referred to in subparagraph 10(a) above are enumerated in the attached Schedule “A”;

(c) of the total amount of medical expenses paid during the 1994 calendar year and referred to in subparagraphs 10(a) and 10(b) above, the Appellant claimed, in the computation of his non-refundable tax credits and tax payable, the amount of $3,000 for the 1994 taxation year and the amount of $7,500 for the 1996 taxation year;

(d) the Minister allowed the amount of $3,000 claimed by the Appellant as medical expenses for the 1994 taxation year which amount reduced the Appellant’s tax payable for the said taxation year to nil; and

(e) of the total amount of medical expenses paid during the 1994 calendar year and referred to in subparagraphs 10(a) and 10(b) above, medical expenses in excess of the amount of $3,000 allowed by the Minister and referred to in subparagraph 10(d) above are not allowable medical expenses to the Appellant for the 1996 taxation year as the said expenses were not paid by the Appellant within any period of 12 months ending in the 1996 calendar year.

The assumptions were not refuted. However, they do not describe the facts of the case. Mrs. Donato was, quite understandably, in tears through her testimony in which she was assisted by her agent and family friend, Mr. Pritam Basi.

Mr. and Mrs. Donato’s son suffered from a deadly disease. They heard of a hormone therapy treatment at a medical clinic in Houston, Texas, which was not as yet approved by Health Canada. To save their son they put a mortgage on their home and did not pay their property taxes for three years in order to pay for their son’s treatment. Mr. Donato left his job for some of the time in order to assist in caring for their son. Their son died of the disease.

Mr. and Mrs. Donato’s income in 1994 and 1995 was too low to avail them of all the medical bills they paid for the treatment of their son. As a result they had a carryover into 1996.

Mr. Basi pointed out in his argument that business loss provisions have much more generous carry forward and back allowances than the medical expense provision. He added that the result of the medical expense restriction, as interpreted, is that there is one law for the rich and another law for the poor in Canada.

Subsection 118.2(1), respecting the time element, reads:

118.2(1) For the purposes of computing the tax payable under this Part by an individual for a taxation year, there may be deducted an amount...

{or medical expenses for a preceding taxation year and that were paid by either the individual or the individual’s legal representative,

(a) where the individual died in the year, within any period of 24 months that includes the day of death, and

(b) in any other case, within any period of 12 months ending in the year;

Mr. and Mrs. Donato are on a cash basis both because they are individuals and because they are not well to do. They did not use their cash to pay the medical expenses. They did not have enough cash. Rather they used borrowed money. They borrowed on the security of a mortgage which they are repaying. The money was borrowed to pay the medical expenses in question and the borrowed money paid them.

In the Court’s view, section 118.2 is to be interpreted liberally. Therefore, “there may be deducted an amount ... for medical expenses for a preceding taxation year that were paid by either the individual or the individual’s legal representative ... where the individual died in the year, within any period of 24 months....

In order words, the Court find that the Appellant has a period of 24 months (not 12 months) from the date of his son’s death in which to deduct the medical expenses.

The Court also finds great merit in the argument on behalf of the Appellant that medical expenses should be allowed the same degree of generosity for deduction as business losses are. However, that law is for Parliament to decide.

The Appellant incurred out of pocket expenses to file and conduct this appeal and is therefore awarded the sum of $100 in costs to reimburse him for these expenses of appeal.

Appeal allowed.