R. v. Scheller, [1975] C.T.C. 601, 75 D.T.C. 5406

Cattanach, J:

1 This is an appeal by the Minister from a judgment of the Tax Review Board whereby an amount claimed by the defendant as a deduction in computing his income for his 1972 taxation year was allowed.

• (i) $1,500 in respect of himself;

• (ii) $1,350 in respect of his 28-year-old daughter Katrin, resident in the Union of Soviet Socialist Republics;

• (iii) $480 in respect of Liidia Palts, also resident in the Union of Soviet Socialist Republics;

• (iv) $250 in respect of Evald Silvet, the defendant's brother, also resident in the Union of Soviet Socialist Republics;

• (v) $300 in respect of Kaspar Kolk, the defendant's one-year-old grandson and son of Katrin; and

• (vi) $300 in respect of Kaarel Kolk, the defendant's grandson born to Katrin during the 1972 taxation year.

• (i) $800 in respect of the defendant's daughter, Katrin, as she at no time during the 1972 taxation year resided with the defendant in a self- contained domestic establishment maintained by him;

• (Since the defendant had claimed an amount of $1,350 in respect of his daughter and the Minister reduced that amount by $800, it follows that the Minister did allow the deduction so claimed but in the amount of $550. The Minister did so in accordance with subparagraph 109(1)(d)(v) of the Income Tax Act.)

• (ii) $480 in respect of Liidia Palts as she was not connected to defendant by blood relationship or adoption, in accordance with clause 109(1)(b)(ii)(B) of the Income Tax Act; and

• (iii) $250 in respect of Evald Silvet as not in accordance with paragraph 109(1)(f).

4 The member of the Tax Review Board dismissed the defendant's appeal with respect to the amounts of $480 and $250 referred to in paragraphs (ii) and (iii) immediately above, respectively, but allowed as a deduction from income the amount of $800 referred to in paragraph (i) immediately above.

5 It is from the decision of the Tax Review Board allowing the deduction in the amount of $800 in respect of the defendant's daughter Katrin that Her Majesty the Queen appeals.

6 The defendant, by appropriate amendment to his statement of defence, supports the decision of the Tax Review Board on the deduction in the total amount of $1,350 with respect to defendant's daughter Katrin, which the Board allowed, which is the sole matter with respect to which Her Majesty has appealed, but the defendant, in his turn, also appeals from the decision of the Board in those aspects in which the Board's decision was adverse to him, that is to say, with respect to the amount of $480 claimed by the defendant with respect to Liidia Palts and an amount of $250 paid by the defendant to his brother, Evald Silvet.

7 This is tantamount to a counterclaim by the defendant in these two latter respects and is treated as such by Her Majesty who has pleaded thereto by filing a “Defence to the Counterclaim”.

• (1) the amount of $800 with respect to the defendant's daughter Katrin, which the Minister disallowed as a deduction in assessing the defendant as he did for the 1972 taxation year, which deduction the Tax Review Board allowed and from the Board's decision in this respect Her Majesty appeals;

• (2) the amount of $480 with respect to Liidia Palts, which was disallowed by the Minister as a deduction by the defendant in computing his income for his 1972 taxation year and the assessment in this respect was confirmed by the Tax Review Board, which decision is appealed by the defendant; and

• (3) the amount of $250 with respect to the defendant's brother, Evald Silvet, claimed as a deduction by the defendant and disallowed by the Minister, which disallowance was confirmed by the Tax Review Board and from which decision the defendant appeals.

9 The tragic situation in which the defendant finds himself is the direct aftermath of political forces and events over which the defendant had no control. The defendant's native land, Estonia, was invaded by the German armies in 1943 followed by the expulsion of those armies by the Russian armed forces and the subsequent incorporation of Estonia into the Union of Soviet Socialist Republics.

10 The German occupation explains the difference in the surnames of the defendant, which is Scheller, and that of his brother, which is Silvet. The family name was originally Silvet but the policy of the German occupation authorities was that the inhabitants should adopt names of German origin. The defendant and his mother, Emilie Scheller, complied with that direction but the defendant's brother did not.

11 The inevitable result of this invasion and counter-invasion was chaos and turmoil to the inhabitants of the disputed territory and utter dis ruption of their normal lives. The defendant made his way to Finland, an ally of Germany and an enemy of Russia. Upon Finland being overrun by the Russian armies the defendant returned to Estonia, both countries being occupied by the Russians.

12 There he met and fell in love with Liidia Palts. She had been married previously but both she and the defendant were morally certain that her former husband had been killed. However, it was impossible to establish their moral certainty as a fact because that death, if it occurred, had happened in territory occupied by enemy forces. Therefore, the defendant and Liidia Palts, both devout Christians, were precluded from being legally married in Estonia either by a church or civil ceremony. The adage is that marriages are made in Heaven and in compliance with that adage the defendant and Liidia Palts considered themselves married and lived together in that state for a short time. The parties then became separated due to the exigencies of the time. On June 22, 1944 a daughter, Katrin, was born to this union.

13 The spiritual and temporal authorities do not accept this adage. The stark and irrefutable fact remains that the defendant and Liidia Palts were not married to each other. The defendant made his way to Sweden and despite frantic efforts to do so he was unable to find Liidia Palts, who had become a refugee, and a search elsewhere was virtually impossible.

14 In 1951 the defendant immigrated to Canada where he has achieved success as a scholar. He earned a doctorate in philosophy, specializing in mathematics, a subject he now teaches in a college.

15 While communication between persons resident in Canada and those in the Union of Soviet Socialist Republics has improved as has travel, nevertheless both remain difficult by reason of political barriers raised. The defendant has learned of the whereabouts of Liidia Palts, their daughter Katrin, and his mother and his brother. They are resident in Estonia, which is now a province of the USSR.

16 It is not the defendant's choice that Liidia Palts and their daughter Katrin remain in the USSR. He has made every effort through every avenue available to him (and he has explored all avenues) to have Liidia Palts and their daughter reunited with him in Canada but without success, again because of political obstacles over which he has no control nor can he circumvent.

17 The defendant's attitude, for which he is to be commended, is that he is obligated to support Liidia Palts as well as his daughter and other members of his family resident in the USSR less fortunate than he to the best of his ability. Having so assumed that responsibility his discharge of it has also been fraught with difficulty. Recourse to remittances through financial institutions result in less money being received by the donee than that transmitted by the donor due to a rate of exchange being set which is unfavourable to the recipient. If I recall the defendant's evidence correctly the recipient realized less than 54% of the amount sent. Accordingly the defendant resorted to other methods, such as sending cash through friends who might travel to the USSR, and by sending articles which are readily marketable in the USSR at an enhanced price. In one instance the defendant sent a copy of an English dictionary to his brother.

18 The Minister did not dispute that moneys in the amounts claimed by the defendant as deductions were actually sent by him to the persons in the USSR. For the purposes of this matter, I, in turn, accept that the amounts were actually sent by the defendant and received by the various members of his family to whom they were destined.

19 The question which remains for determination is whether these amounts are permissible as deductions by the defendant in computing his taxable income for his 1972 taxation year. In so considering and in construing a taxation statute it must be borne in mind that taxation is the general rule. An exemption from taxation is the exception and an exempting provision must be strictly construed. A taxpayer cannot succeed in claiming an exemption from income tax unless his claim falls precisely within the four corners of the exempting provision. The taxpayer must show that every constituent element is present in his case and that every condition required by the exempting section has been complied with. (See Walter G Lumbers v Minister of National Revenue, [1943] Ex. C.R. 202 at 211, [1943] C.T.C. 281 at 290, 2 D.T.C. 631.) With those well established premises in mind, I therefore turn to each of the three claims for deductions made by the defendant and the applicable provisions of the Income Tax Act under which the claims so made must be considered.

20 I turn first to the claim of $480 as a deduction made by the defendant with respect to Liidia Palts. The incontrovertible fact is that the defendant is not legally married to Liidia Palts. That being so the defendant is not a married person and is not within paragraph 109(1)(a) of the Income Tax Act. Therefore the exempting provision upon which the defendant must rely is paragraph 109(1)(b) of the Act. That section provides an exemption to an individual who is unmarried, as the defendant is, who maintains a self- contained domestic establishment in which he lives, which the defendant does, in which he actually supported a person, Liidia Palts, which the defendant did not do, who was during the year wholly dependent upon the taxpayer for support and who was connected by blood relationship, marriage or adoption with the taxpayer. The defendant cannot establish two of the constituent elements required by the section. He admits in the pleadings that Liidia Palts is not connected with him by blood relationship or adoption. He is not married to her. Neither did Liidia Palts live with the defendant in a self- contained establishment supported therein by the defendant. I made no findings on the other constituent elements as are required by paragraph 109(1)(b) as conditions precedent to the exemption sought by the defendant.

21 Accordingly the Minister was not in error in disallowing this particular amount as a deduction in computing the defendant's taxable income for his 1972 taxation year. Similarly, the Tax Review Board was also correct in dismissing the defendant's appeal to that Board from the assessment by the Minister. For the foregoing reasons I dismiss the defendant's appeal by way of counterclaim from the decision of the Tax Review Board in this particular respect.

22 I now turn to the claim by the defendant for a deduction from income in the amount of $1,350 with respect to his daughter Katrin. As previously indicated, the Minister in assessing the defendant to income tax reduced the amount of $1,350 claimed by the defendant to $550. The Minister allowed the defendant the amount of $550 in accordance with paragraph 109(1)(d) in that Katrin was a child of the defendant, as she undoubtedly is, within the extended meaning of the word “child” as set out in subsection 252(1), that she was over 21 years of age in 1972 but that she was in full time attendance at a university.

23 In my view the Minister in so assessing the defendant must be taken as having admitted that Katrin was wholly dependent upon the defendant and that Katrin did not have income in excess of $1,050, otherwise the constituent elements of paragraph 109(1)(d) would not have been present. On appeal by the defendant to the Tax Review Board the Board allowed the full amount claimed by the defendant, that is $1,350, and did so because that was the maximum benefit under paragraph 109(1)(b). Put another way, the Board restored the amount of $800 which was disallowed by the Minister. The Minister has appealed the decision of the Board in respect of this item only.

24 Paragraph 109(1)(b) is the section which was considered with respect to the defendant's claim for deduction for Liidia Palts. Clearly the defendant is unmarried, he maintained a self-contained domestic establishment in which he himself lived but he did not actually support therein his daughter Katrin who is connected with him by blood relationship. Thus a constituent element required by paragraph 109(1)(b) has not been complied with and that failure standing alone is sufficient reason for allowing the Minister's appeal from the decision of the Tax Review Board whereby the additional amount of $800 was allowed.

25 Accordingly, I allow the Minister's appeal in this respect for the reason stated.

• (1) another constituent element required for exemption is not present, as I have indicated above, for which reason the appeal by Her Majesty in this particular respect has been allowed and therefore it is not necessary for me to make the finding of fact which counsel has invited me to do;

• (2) the evidence before me in this particular respect was not satisfactory upon which to base such a finding, and it is not necessary for me to rely on the failure of the defendant to discharge the onus cast upon him in view of my first reason for allowing the appeal; and

• (3) to do so would be tantamount to allowing the Minister to appeal from his own assessment. The Minister is bound by his own assessment. If I were to find that Katrin was not wholly dependent upon the defendant for the purposes of paragraph 109(1)(b), then in all logic I must also find that she was not wholly dependent upon the defendant for the purposes of paragraph 109(1)(d), and in this respect the Minister must be taken as admitting that Katrin was wholly dependent upon her father otherwise the deduction of $550 under paragraph 109(1)(d) should not have been allowed by him, as he did, and that would then result in increasing the assessment by the Minister, which I do not think that I can do.

27 Authority for the proposition I have advanced as the third reason for not making this particular finding of fact is to be found in the remarks of Thurlow, J in L J Harris v Minister of National Revenue, [1964] C.T.C. 562 at 571, 64 D.T.C. 5332 at 5337.

28 The third item in dispute between the parties is the deductibility by the defendant in computing his income for his 1972 taxation year of an amount of $250 which he sent to his brother, Evald Silvet, in that year.

29 It was established in the defendant's testimony that for a number of years his mother, Emilie Scheller, had supported herself by working. With her advancing years she became ill and was no longer able to work. I understand that the defendant's brother took over the apartment which had formerly been maintained by their mother. He and his family moved in but they also afforded shelter, food and care to his mother. The brother had only modest means and those means have been reduced by his retirement. During her lifetime, the defendant felt that it was his filial duty to contribute to the support of his mother. I am in complete agreement with the defendant so feeling and in doing so. It is my understanding that claims for support of his mother were allowed by the Minister in prior taxation years and if that is so the Minister was right in doing so by virtue of paragraph 109(1)(f) to the extent of $550 provided that the defendant's mother did not have income in excess of $1,050, in which event the allowable deduction in the amount of $550 would be reduced by the amount his mother's income exceeded $1,050.

30 However, the defendant's mother died in January 1971. Her death caused additional expense to the defendant's brother for her funeral. It was to relieve the burden so cast upon his brother that the defendant sent his brother an amount of $250 in his 1972 taxation year. There are records of remittances by the defendant to his brother of $7.48 in March 1972, in August 1972 in the amount of $50 and a further $50 in October 1972. These total $107.48 and I assume that further remittances were sent by the defendant totalling $142.52 on dates approximately coincident with the three remittances of which there is written record. That means that the remittances by the defendant took place some three to nine months plus a full year after his mother's death. When viewed realistically in the light of these facts what the defendant did was to make a contribution to his brother to lighten the burden cast upon his brother by their mother's death. To pragmatize, therefore, the amounts the defendant sent to his brother in 1972 were for the relief of his brother and not for the support of his mother who died in January 1971. Furthermore, I fail to see how there can be support given to a person who is deceased in the ordinary dictionary meaning of that word which is to supply the necessities of life. The defendant's brother is not dependent upon the defendant for support, he is over 21 years of ago, he is not mentally or physically infirm nor is he attending school or university full time. Therefore the defendant's brother does not fall within paragraph 109(1)(f).

31 For these reasons I disallow the appeal by the defendant by way of counterclaim from the decision of the Tax Review Board with respect to this item.

32 The argument advanced by the defendant was simply that by virtue of circumstances beyond his control, and through no choice of his, his family could not be with him in Canada. That being so, he then suggested that the Minister through the officers or employees of the Department of National Revenue should exercise a discretion and allow the three deductions claimed by him and which are here in dispute. What the defendant asks is a waiver of the provisions of the Income Tax Act. The legislature did not confer in the Income Tax Act either authority or discretion to do so, and accordingly the Minister properly applied the law as it is. For the reasons which I have expressed this is what the Minister did as it is his duty and function to do and he was not in error in doing so.

33 As I have stated previously an exempting provision in a taxing statute must be construed strictly. When the meaning of those provisions in a statute is clear, as paragraphs 109(1)(a), (b), (d) and (f) are and which are the applicable sections referred to herein, then the Courts have nothing to do with their policy or impolicy, their justice or injustice. When the meaning of the legislature is plain and clear, my function is to apply the law as I find it. In this appeal and cross appeal this is what I have done. To do otherwise is to abandon the office of judge and assume the office of the legislative branch of government.

34 This is the error into which the learned member of the Tax Review Board fell. In allowing the defendant the full amount of $1,350 claimed by the defendant with respect to his daughter Katrin he said:

After hearing the evidence the Board is of the opinion that the appellant should be allowed to deduct the full amount of money he paid to support his daughter who, in 1972, was in her last year of study at a university in Russia. Even if the appellant does not comply strictly with section 109(1)(b) of the Income Tax Act and there is no equity in income tax, I think, in the circumstances, the appellant should get the maximum benefit of section 109(1)(b) of the Income Tax Act.

35 In the passage quoted the learned member acknowledges that the defendant “does not comply strictly with paragraph 109(1)(b) of the Income Tax Act”. That being so, and I have found to the same effect, then it follows upon the authority of Lumbers v. MNR (supra) that the defendant is not entitled to the exemption provided in that section.

36 The learned member, after having referred to the failure of the defendant to comply strictly with the section and stating that there is no equity in the Income Tax Act, continued to say “I think, in the circumstances, the appellant [the defendant herein] should get the maximum benefit of paragraph 109(1)(b) of the Income Tax Act”. He therefore allowed the defendant's appeal to the Board and referred the matter back to the Minister for reassessment accordingly. In my opinion and for the reasons expressed he was wrong in doing so. I am certain that the learned member entertained great sympathy for the defendant in his unfortunate predicament, for which sympathy there is ample justification, but that he permitted that sympathy to overrule his judgment. He fell prey to the age- old maxim that hard cases make bad law.

37 In the course of the hearing I indicated to the defendant that this Court is not the proper forum in which to advocate a change in the law which he considers unjust. The proper forum to do so is the legislative branch of government and that avenue remains open to him. In his argument the defendant went further and submitted that because through no choice of his own he was precluded from having his family with him in Canada and because he could not he was placed in a disadvantageous position compared to other residents of Canada who are fortunate to have their families with them. Accordingly he says that the law is bad because is it discriminatory.

38 In so saying I think the defendant, without realizing that he was doing so, was invoking the Bill of Rights, Statutes of Canada, 1960, c 44.

39 Section 1 of that statute provides for certain fundamental rights, including in paragraph (b) “the right of the individual to equality before the law and the protection of the law”. Section 2 provides that every law of Canada shall be construed and applied as not to abrogate, abridge or infringe any rights or freedoms recognized and declared in section 1 which includes, of course, the right of equality before the law.

40 The defendant is being afforded equality before the law in that other persons in the same circumstances as the defendant are subject to the same application of the Income Tax Act and accordingly there is no discrimination in the application of the Income Tax Act. If discrimination, in the sense of that word as used by the defendant, results it results from the different circumstances of different taxpayers but that is not discrimination any more than the result that a taxpayer with a higher income must pay a greater tax than a taxpayer with a lesser income who pays a smaller tax is discriminatory. For these reasons this submission advanced by the defendant is wholly untenable.

41 By virtue of subsection 178(2) of the Income Tax Act where on an appeal by the Minister from a decision of the Tax Review Board the amount of the tax that is in controversy does not exceed $2,500, the Federal Court, in delivering judgment disposing of the appeal, shall order the Minister to pay all reasonable and proper costs of the taxpayer in connection therewith. As pointed out at the outset, the Minister appealed only that portion of the decision of the Tax Review Board whereby the Board allowed the full amount claimed as a deduction by the defendant with respect to his daughter Katrin. It was the defendant who appealed those portions of the decision of the Board whereby the defendant's claim for deductions with respect to Liidia Palts and Evald Silvet were disallowed.

42 While I have doubt if the defendant is exempt from the costs of his appeal by way of counterclaim launched by him and that Her Majesty should not be entitled to costs with respect to the defendant's own appeal, since the three matters were so interwoven as to be virtually one appeal, the fact that the defendant acted on his own behalf from which it follows that the defendant's taxable costs would be so minimal as to be almost negligible, and because counsel for the Minister has not asked for costs, I have concluded that I should exercise the discretion vested in me by virtue of Rule 344 and order the Minister to pay the defendant's costs. In so doing I do not mean to be construed as deciding that a defendant is invariably to be entitled to all costs by virtue of subsection 178(2), and if that question should arise before any of my brother judges or a court of first instance, they are to be untrammelled by the manner in which I have exercised my discretion in this particular instance and by any remarks I may have made incidental thereto.

• (1) the appeal by her Majesty from the decision of the Tax Review Board with respect to the allowance of the claim by the defendant for a deduction in computing his taxable income for his 1972 taxation year with respect to his daughter Katrin to the full amount of the claim made is allowed;

• (2) the appeal by the defendant from the disallowance of the claim made by him as a deduction in computing his taxable income for his 1972 taxation year with respect to an amount of $480 paid by the defendant to Liidia Palts is dismissed;

• (3) the appeal by the defendant from the disallowance of the claim made by him as a deduction in computing his taxable income for his 1972 taxation year with respect to an amount of $250 paid by him to Evald Silvet is dismissed;

• (4) the assessment made by the Minister is restored; and

• (5) the Minister shall pay all reasonable and proper costs of the taxpayer in connection with the appeal by the Minister from the decision of the Tax Review Board and the cross appeal by the defendant from that decision.