Mogan T.C.J.:
1 When this appeal was called for hearing at Halifax, Nova Scotia on Friday, November 22, 1996, the Appellant requested permission to make written submissions on the basis that there were no facts in dispute and the only issue was a question of law. Counsel for the Respondent did not agree that there were no facts in dispute. I ruled that the hearing should proceed. The Appellant testified for about 40 minutes. At the end of her testimony, the Appellant again asked if she could make written submissions. I agreed to receive written arguments. Each party was given a period of time within which to make submissions and responses. The only year under appeal is 1992. The issue is whether the child tax credit is to be deducted in computing the tax payable under Part I of the Income Tax Act, or deducted from the total amount payable after the amounts of federal tax and provincial tax have been determined. The Appellant has elected the informal procedure.
2 The Appellant was married but divorced in 1989. There were two children born of the marriage: John William born on July 22, 1980 and Charles David born on August 13, 1983. Since the divorce, the Appellant has had sole custody of her two sons. When computing deductions for 1992 income tax purposes, the Appellant claimed an “equivalent-to-married” amount with respect to son John and a “child dependent” amount with respect to son Charles. On her 1992 income tax return, she computed her tax and tax credits as follows:
| Federal income tax | $4,644.00 |
| Less: non-refundable tax credits | $2,586.40 |
| $2,057.60 |
| Less: child tax credit | $1,132.20 |
| $ 925.40 |
| Add: federal individual surtax | $ 42.00 |
| Net federal tax | $ 967.40 |
| {*} Add: New Brunswick tax | $ 513.00{*} |
| Total Tax Payable | $1,480.40 |
Notes:{*} The Appellant appears to have written the amount $555.00 as New Brunswick Tax but she has clearly written the amount $1,480.40 as the Total Payable. In evidence, she confirmed that the New Brunswick tax was $555.00 and the Total Tax Payable should have been $1,522.40.
3 The Respondent determined that the Appellant was entitled to a child tax credit for 1992 in the amount of $1,112.20 (and not $1,132.20). The Respondent's determination of the child tax credit is $20.00 less than the Appellant's, but that is not the dispute between the parties. The real dispute concerns the place at which the Appellant may deduct the child tax credit. Because the New Brunswick tax is computed as a percent (approximately 55%) of the net federal tax, it is important to know whether the child tax credit is deducted in computing the net federal tax or deducted from the Total Tax Payable. As I understand the Respondent's argument, the Minister of National Revenue would deduct the child tax credit in the following manner starting with the same basic amounts as in the above computation:
| Federal income tax | $4,644.00 | |
| Less: non-refundable tax credits | $2,586.40 | |
| $2,057.60 | |
| Add: federal individual surtax | $70.00 | (approximate) |
| Net federal tax | $2,127.60 | |
| Add: New Brunswick tax | $1,130.00 | (approximate) |
| Total Tax Payable | $3,257.60 | |
| Less: child tax credit | $1,132.20 | |
| Balance Owing | $2,125.40 | |
4 The so-called “child tax credit” is created in section 122.2 of the Income Tax Act but the legislation itself does not use the words “child tax credit”. Omitting many qualifying phrases, the substance of subsection 122.2(1) states:
Where an individual who has an eligible child files with his return of income ... for a taxation year a prescribed form ... the amount, if any, by which
If the individual referred to in subsection 122.2(1) has low income which is subject to tax, the amount “deemed to be paid” may be used as a credit against any tax otherwise payable. Hence the nomenclature “child tax credit”. And if that individual has so little income that there is no tax payable, then the amount “deemed to be paid” will be paid to the individual like an income tax refund. Notwithstanding the provision in subsection 122.2(1) which requires a prescribed form with the return of income for a taxation year, section 164.1 permits the Minister of National Revenue to pay to an individual without application during a particular year a portion of the so-called child tax credit on the basis of his eligibility for the preceding year. Having regard to section 164.1, the so-called child tax credit appears to be part of the great social net for which so many Canadians beat the drum.5 I cannot find within the Income Tax Act (Canada) any specific permission to deduct in computing the federal tax the amount “deemed” to have been “paid” in subsection 122.2(1). By way of contrast, I note that subsection 118(1) commences with the words:
118(1) For the purposes of computing the tax payable under this Part by an individual for a taxation year, there may be deducted...
In 1992, similar words appeared in subsections 118(2), 118(3), 118.1(3), 118.2(1), 118.3(1), 118.5(1), 118.6(2) and 118.7(1). The amounts referred to in the above subsections relate to dependent spouses and children, donations to charities, medical expenses, disabilities, tuition fees, etc. These subsections provide specific formula amounts which may be deducted in computing the federal tax. There is no similar provision which permits any deduction in “computing the tax payable under this Part” with respect to an amount “deemed” to have been paid under section 122.2.6 It appears to me that the amounts “deemed” to have been paid under section 122.2 are similar to the amounts actually withheld and remitted in subsection 153(1) in the sense that they became a credit (i.e. deduction) against the total (federal and provincial) taxes payable. Within the written submissions from the parties, the following statement appears:
Whether the child tax credit is credited against the federal tax payable or the total tax will not change the amount of total tax that the Appellant would be assessed.
I think that this statement is patently not accurate. In the two sets of calculations set out above, there is a significant difference in “the amount of total tax that the Appellant would be assessed” depending upon whether one uses the Appellant's method or the Respondent's method. In the Appellant's method, the Total Tax Payable is $1,480.40. In the Respondent's method, the Total Tax Payable is $3,257.60. I am disappointed that the written submissions were not more helpful.7 The amount deemed to have been paid by an individual who meets the conditions in subsection 122.2(1) is not to be deducted in computing the federal tax or deducted from the federal tax before any provincial taxes is determined with respect to that individual. At best, that amount is deductible from the total (federal and provincial) tax otherwise payable. The appeal is dismissed.
Email this Content