T-1878-86
Elizabeth C. Symes (Plaintiff)
v.
Her Majesty the Queen (Defendant)
INDEXED AS: SYMES Y. CANADA (T.D.)
Trial Division, Cullen J.—Toronto, February 21
and April 27; Ottawa, May 11, 1989.
Income tax — Income calculation — Deductions — Child
care expenses of married mother of two — Nanny's salary
deductible by law firm partner as expense incurred in gaining
or producing income from business within Act s. 18(1)(a) —
Liberal interpretation of Act s. 18(1)(a) in light of current
social and economic realities — Reasoning in 1981 case
Bowers v. Harding antiquated — Taxpayer having legal obli
gation to look after children — Women's and parents' equality
rights guaranteed by Charter s. 15 requiring Act to be inter
preted as allowing deduction of child care expenses as business
expenses.
Constitutional law — Charter of Rights — Equality rights
— Child care expenses — Tax deductions — Whether deduct
ible as business expense by law firm partner — In view of
women's and parents' legal responsibilities for child care and
of fiscal disadvantages resulting therefrom, Charter s. 15
requiring Income Tax Act to be interpreted as allowing deduc
tion of child care expenses as business expenses.
Constitutional law — Charter of Rights — Limitation
clause — Income tax deduction of child care expenses
incurred in earning income from business — Women's and
parents' equality rights — No "pressing and substantial"
objective justifying invocation of limitation clause.
The plaintiff, a married mother of two pre-schoolers, was a
partner in a Toronto law firm. In her taxation year's 1982 to
1985, she employed a nanny. The plaintiff issued T-4 slips,
deducted tax, CPP contributions and UI premiums. The issue
was whether the nanny's salary—amounting to about
$47,000—was deductible as business expenses under paragraph
18(1)(a) of the Act or whether the taxpayer was only entitled
to deduct $9,000, the amounts allowed for child-care expenses
under subsection 63(1) of the Act. The first question was
whether the statute should be construed as allowing or disal
lowing the deduction. The second was whether disallowing the
deduction violated the equality rights guaranteed by section 15
of the Charter.
Held, the action should be allowed.
The proper approach to be taken when dealing with the
question of what expenses are to be considered business
expenses in the calculation of business profits is to ascertain
whether the expense or disbursement was consistent with ordi
nary principles of commercial trading or well accepted princi
ples of business practice. Principles of accounting can be help
ful in that determination but they are not conclusive. The
expense must also have been incurred for the purpose of
gaining or producing income from a business. In that regard,
there is an increasing tendency in the case law to interpret
paragraph 18(1)(a) more liberally. The root of the reasoning
behind the 1950's and 1960's cases which disallowed nanny
expenses as a business deduction was the antiquated case of
Bowers v. Harding, [1891] 1 Q.B. 560. That was a case from
another age when there were rigid restrictions on women and
they occupied a subordinate position in society and under the
law.
On the facts of this case, the plaintiff exercised good business
and commercial judgment in deciding to dedicate part of her
resources from the law practice to the provision of child care.
Furthermore, it can be said that there is a causal relationship
between the dedication of resources generated in her practice to
child care and the generation of those resources. And it did not
matter that the plaintiff reported the nanny expenses on her
personal income tax form rather than on the partnership's
financial statement, as long as it was a proper deduction.
What makes this case unique is that the plaintiff has a legal
obligation to look after her children and it is this legal obliga
tion which distinguishes the provision of child care from other
kinds of expenses that have been characterized as personal
living expenses.
The plaintiffs argument based on section 15 of the Charter
could only be invoked with respect to the balance of the 1985
taxation year subsequent to April 15, when section 15 came
into effect, and subsequent taxation years. If in our society, we
are to promote the equality of women, as clearly intended by
section 15, then an interpretation of the Income Tax Act which
allows women entrepreneurs (in the proper circumstances) to
deduct their child care expenses to permit them to pursue a
business, is clearly in order. The plaintiff has, on the basis of
the Supreme Court of Canada's decision in Andrews, estab
lished the differential impact of the law, as well as the requisite
discrimination based on her personal characteristics of sex and
family or parental status. In light of Andrews, an interpretation
of the Income Tax Act which ignores the realities that women
bear a major responsibility for child rearing and that the costs
of child care are a major barrier to women's participation,
would violate section 15 of the Charter.
Upon a review of the evidence presented by the defendant, it
was evident that there was no "pressing and substantial"
objective to justify, under Charter section 1, denying deducti-
bility as a business expense of the plaintiffs nanny costs.
STATUTES AND REGULATIONS JUDICIALLY
CONSIDERED
Canadian Charter of Rights and Freedoms, being Part I
of the Constitution Act, 1982, Schedule B, Canada Act
1982, 1982, c. 11 (U.K.), ss. 1, 15.
Child Welfare Act, R.S.O. 1980, c. 66, s.
19(1)(b)(ii),(iii).
Criminal Code, R.S.C. 1970, c. C-34, ss. 197, 234.1 (as
enacted by S.C. 1974-75-76, c. 93, s. 15).
Employment Standards Act, R.S.O. 1980, c. 137.
Income Tax Act, R.S.C. 1952, c. 148, ss. 12(1)(a),
27(1)(a).
Income Tax Act, S.C. 1970-71-72, C. 63, ss. 9,
18(1)(a),(h), 63(1) (as am. by S.C. 1984, c. 1 s. 25; c.
45, s. 22), 67.
O. Reg. 75/84, s. 1.
O. Reg. 39/85, s. 1.
R.R.O. 1980, Reg. 283 (Employment Standards Act).
CASES JUDICIALLY CONSIDERED
APPLIED:
Royal Trust Co. v. M.N.R. (1957), 57 DTC 1055 (Ex.
Ct.); Neonex International Ltd. v. Her Majesty the
Queen (1978), 78 DTC 6339 (F.C.A.); Mattabi Minés
Ltd. v. Ontario (Minister of Revenue), [1988] 2 S.C.R.
175; Premium Iron Ores Ltd. v. Minister of National
Revenue, [1966] S.C.R. 685; 66 DTC 5280; Olympia
Floor & Wall Tile (Quebec) Ltd. v. M.N.R. (1970), 70
DTC 6085 (Exch. Ct.); Aluminium Company of Canada
Ltd. v. The Queen, [1974] 1 F.C. 387; 74 DTC 6408
(T.D.); Holmes v. The Queen, [1974] 1 F.C. 353; 74
DTC 6143 (T.D.); Imperial Oil Ltd. v. Minister of
National Revenue, [1947] Ex.C.R. 527; 3 DTC 1090;
Parkinson v. M.N.R. (1951), 51 DTC 323 (TAB);
Andrews v. Law Society of British Columbia, [1989] 1
S.C.R. 143; The Queen v. Oakes, [1986] 1 S.C.R. 103; R.
v. Seo (1986), 54 O.R. (2nd) 293 (C.A.).
DISAPPROVED:
Bowers v. Harding, [1891] 1 Q. B. 560.
DISTINGUISHED:
Associated Investors of Canada Ltd. v. Minister of Na
tional Revenue, [1967] 2 Ex.C.R. 96; Mandel v. The
Queen, [1977] 1 F.C. 673; (1976), 76 DTC 6316 (T.D.);
affd [1979] 1 F.C. 560; (1978) 78 DTC 6518 (C.A.);
Bank of Nova Scotia (The) v. R., [1980] 2 F.C. 545;
(1979), 80 DTC 6009 (T.D.); aff'd [1982] 1 F.C. 311;
(1981), 81 DTC 5115 (C.A.); Canadian General Electric
Company v. The Minister of National Revenue, [1962]
S.C.R. 3; Minister of National Revenue v. Anaconda
American Brass Ltd., [1956] A.C. 85 (P.C.).
CONSIDERED:
Smith, Kline & French Laboratories Ltd. v. Canada
(Attorney General), [1987] 2 F.C. 359 (C.A.).
REFERRED TO:
Bailey et al. v. Minister of National Revenue (1980), 1
C.H.R.R. D/193 (C.H.R.T.).
COUNSEL:
Mary Eberts and Wendy M. Matheson for
plaintiff.
John R. Power, Q.C. and Sandra E. Phillips
for defendant.
SOLICITORS:
Tory, Tory, DesLauriers & Binnington,
Toronto, for plaintiff.
Deputy Attorney General of Canada for
defendant.
The following are the reasons for judgment
rendered in English by
CULLEN J.: This is an appeal from reassess
ments of tax for the plaintiffs 1982, 1983, 1984
and 1985 taxation years. In these reassessments
the Minister of National Revenue (MNR) disal
lowed the deductions of $10,075, $11,200, $13,173
and $13,359 paid in respect of a Mrs. Simpson's
(Simpson) salary as a business expense for the
1982, 1983, 1984 and 1985 taxation years respec
tively; and instead allowed a revised child care
deduction of $1,000 in respect of the 1982 expense,
a $2,000 deduction in respect of the 1983 and
1984 expense and a $4,000 deduction in respect of
the 1985 expense.
The plaintiff, during the period in question, was
a full-time practising lawyer and a partner in a law
firm in Toronto. In the 1982, 1983 and 1984
taxation years the plaintiff was the mother of one
daughter and in 1985 was the mother of two
daughters. Both children are of pre-school age.
The plaintiff is married. As she was involved on a
full-time basis with her business, she employed
Simpson as a nanny in order to ensure that her
daughters would be properly cared for at home.
There is no dispute that Simpson's duties were
solely and entirely to care for the plaintiffs
daughters.
In each of the taxation years the plaintiff issued
a T-4 slip to Simpson and Simpson paid tax on the
amount she received as wages. The plaintiff also
deducted from Simpson's wages and remitted to
Revenue Canada Simpson's income payments,
Canada Pension Plan [CPP] contributions and
Unemployment Insurance [UI] premiums. When
the plaintiff filed her income tax returns, she
deducted the amounts paid in respect of Simpson's
wages as business expenses.
By notice of assessments in respect of the 1983
and 1984 taxation years, Revenue Canada accept
ed the plaintiff's deduction of Simpson's salary as
a business expense. However, by notices of reas
sessment dated December 9, 1985 and November
7, 1986 the plaintiff was advised that the deduc
tions claimed for Simpson's salary had been disal
lowed and that: 1) a revised child care deduction
of $1,000 had been allowed in respect of the 1982
taxation year; 2) a revised child care deduction of
$2,000 had been allowed in respect of the 1983
and 1984 taxation years; and 3) a revised child
care deduction of $4,000 had been allowed in
respect of the 1985 taxation year.
The basis for the disallowances was that the
wages paid to Simpson were not outlays or
expenses incurred for the purpose of gaining or
producing income from business, but were personal
or living expenses. The amounts allowed were for
child care expenses under subsection 63(1) of the
Income Tax Act [S.C. 1970-71-72, c. 63 (as am.
by S.C. 1984, c. 1, s. 25; c. 45, s. 22)], (the Act).
The plaintiff objected to the disallowances of the
deductions for all four tax years by notices of
objection dated March 7, 1986 and December 23,
1986. The reassessments were confirmed by notice
of confirmation dated May 20, 1986.
PLAINTIFF'S POSITION:
The plaintiff maintains that the expenses of the
wages claimed for each tax year in question were
properly deductible as these expenses were part of
the calculation of the plaintiff's income from busi
ness under section 9 of the Act and that these
expenses were made for the purpose of gaining or
producing income from the business, within the
meaning of paragraph 18(1)(a) of the Act. The
plaintiff submits that if Simpson had not been
caring for the plaintiff's two daughters, the plain
tiff would not have been able to engage in the
practice of law and would have earned no income
from that business (i.e. the law firm) during the
taxation years in question. Therefore it was
reasonable for the plaintiff to hire Simpson to
ensure that her daughters were properly cared for
while the plaintiff was earning income from the
business. Moreover, by so doing, the plaintiff also
fulfilled her legal obligation to care for her chil
dren, as required by section 197 of the Criminal
Code, R.S.C. 1970, c. C-34 as amended, and
subparagraphs 19(1)(b)(ii) and (iii) of the Child
Welfare Act, R.S.O. 1980, c. 66, as amended.
The plaintiff contends that section 63 of the Act
(the child care deduction provision) does not
adversely affect the plaintiff's claim because: 1)
the deduction of an expense in calculating the
profit from a business in accordance with sections
9 and 18 of the Act is a separate item for a section
63 deduction; and 2) section 67 of the Act allows a
taxpayer to make a deduction for an outlay or
expense in respect of which any amount is other
wise deductible "to the extent that the outlay or
expense was reasonable in the circumstances."
The plaintiff further submits that the MNR's
disallowance of the deduction of the expenses
claimed violates the guarantee of equality set out
in subsection 15 (1) of the Canadian Charter of
Rights and Freedoms [being Part I of the Consti
tution Act, 1982, Schedule B, Canada Act 1982,
1982, c. 11 (U.K.)] (the Charter) for the following
reasons: 1) the disallowance as a business expense
of child care expenses incurred to permit a parent
to earn income from a business, while requiring a
parent/employer to make deductions from income
at source, provide a T-4 and make remittances of
the employee and employer portion of Unemploy
ment Insurance and Canada Pension Plan premi
ums, amounts to an invidious distinction between
the parent/employer and other employers, who are
allowed to deduct from business income the wages
paid to employees as well as the employer share of
Unemployment Insurance and Canada Pension
Plan contributions. Accordingly, such disallowance
constitutes a denial of the equal benefit of the law;
and 2) the disallowance as a business expense of
child care expenses incurred to permit a parent to
earn income from a business has a disproportion
ate impact on women, who remain in fact primari
ly responsible for child care in our society, and
therefore constitutes a denial of the equal benefit
of the law on the basis of sex.
The plaintiff also maintains that the limitations
on her equality rights noted above do not amount
to reasonable limits imposed by law which are
demonstrably justified in a free and democratic
society (i.e. section 1 of the Charter).
DEFENDANT'S POSITION:
The defendant submits that the MNR properly
disallowed the salary paid to Simpson as a business
expense because the amounts in question were not
outlays or expenses made or incurred by the plain
tiff for the purpose of gaining or producing income
from a business within the meaning of paragraph
18(1)(a) of the Act but were personal or living
expenses within the meaning of paragraph
18(1)(h) and subsection 248(1) of the Act. Fur
ther, the MNR correctly reassessed the plaintiff
and allowed the deductions of $1,000, $2,000,
$2,000 and $4,000 for the 1982, 1983, 1984 and
1985 taxation years respectively, as child care
expenses in accordance with subsection 63(1) of
the Act.
The defendant maintains that the disallowance
of the deduction sought by the plaintiff for the
amounts in question pursuant to paragraphs
18(1)(a) and 18(1)(h) does not conflict with any
provisions of the Charter. The defendant also sub
mits that the provisions of section 15 of the Char
ter do not apply to the 1982, 1983 and 1984
taxation years.
Therefore, essentially what has to be determined
in the case at bar is the proper characterization of
the payments made by the plaintiff to Simpson.
Deductibility of Simpson's salary under the
Income Tax Act:
In dealing with the taxation aspect of this case,
the first matter to be addressed is whether the
salary paid to Simpson may be deducted as an
expense under section 9 and paragraphs 18(1)(a)
and 18(1)(h) of the Act. Subsection 9(1) states
that a taxpayer's income for a taxation year from
a business or property is his/her profit therefrom
for the year. Paragraph 18(1)(a) of the Act pro
vides a general restraint on the deductions permit
ted in the computation of a taxpayer's income
from a business or property by prohibiting the
deduction of outlays or expenses except to the
extent that they were made or incurred by the
taxpayer for the purpose of gaining or producing
income. Paragraph 18(1)(h) contains a further
limitation in that it prohibits the deduction of
personal or living expenses.
The determination of profit and the question of
whether an expenditure is a proper business
expense to be included in the calculation of profit
are questions of law:
There is no doubt that the proper treatment of revenue and
expenses in the calculation of profits for income tax purposes
with a view to obtaining an accurate reflection of the taxable
income of a taxpayer, is not necessarily based on generally
accepted accounting principles. Whether it is so based or not is
a question of law for determination by the Court having regard
to those principles (see: M.N.R. v. Anaconda Brass Ltd.
(1956), A.C. 85; see also Associated Investories of Canada
Ltd. v. M.N.R. (1967) 2 Ex. C.R. 96, at pages 101 and 102).
per Urie J., Neonex International Ltd. y Her
Majesty the Queen (1978), 78 DTC 6339
(F.C.A.), at page 6348.
After reviewing the cases, I agree with counsel
for the plaintiff that the proper approach to be
taken when dealing with the question of what
expenses are to be considered business expenses in
the calculation of business profits is to ascertain
whether the expense or disbursement was con
sistent with ordinary principles of commercial
trading or well accepted principles of business
practice. (Royal Trust Co. v. M.N.R. (1957), 57
DTC 1055 (Ex. Ct.); Neonex, supra; Mattabi
Mines Ltd. v. Ontario (Minister of Revenue),
[1988] 2 S.C.R. 175).
The defendant put forward a number of cases
(Associated Investors of Canada Ltd. v. Minister
of National Revenue, [1967] 2 Ex.C.R. 96;
Mandel v. The Queen, [1977] 1 F.C. 673; (1976),
76 DTC 6316 (T.D.); aff d [1979] 1 F.C. 560;
(1978), 78 DTC 6518 (C.A.); Bank of Nova
Scotia (The) v. R., [1980] 2 F.C. 545; (1979), 80
DTC 6009 (T.D.); affd [1982] 1 F.C. 311;
(1981), 81 DTC 5115 (C.A.); Canadian General
Electric Company v. The Minister of National
Revenue, [1962] S.C.R. 3; Minister of National
Revenue v. Anaconda American Brass Ltd.,
[1956] A.C. 85 (P.C.)) in support of the proposi
tion that "business practice" can be determined
only by means of accounting evidence. In general,
these cases involve an attempt by a taxpayer to use
a particular method of accounting to escape tax
liability and for this reason the focus was on the
"principles of accounting" test rather than on a
business practice test. Therefore, I am satisfied
that the test is a business test, not an accounting
test. However, this does not necessarily mean that
accounting evidence, if presented, should not be
considered, just that it should not be determinative
of the issue.
Thus profit from a business, subject to any
special direction in the statute, must be deter
mined in accordance with ordinary commercial
principles and business practice, having regard to
the circumstances of each particular case. Further,
for the expense in question to be deductible it must
also be made or incurred for the purpose of gain
ing or producing income from the business.
The question of whether an outlay or expense
was incurred for the purpose of earning income
has been the subject of much judicial consider
ation. There is no point in attempting to review all
the case law on this subject; instead I propose to
illustrate that there is an increasing tendency to
interpret paragraph 18(1)(a) of the Act more lib
erally. In the case of Royal Trust Co. v. M.N.R.,
supra, the Exchequer Court found that club dues
paid for its executives by the company were
deductible. Thorson P. made the following com
ments at page 1060:
Thus, it may be stated categorically that in a case under The
Income Tax Act the first matter to be determined in deciding
whether an outlay or expense is outside the prohibition of
section 12(1)(a) of the Act is whether it was made or incurred
by the taxpayer in accordance with the ordinary principles of
commercial trading or well accepted principles of business
practice. If it was not, that is the end of the matter. But if it
was, then the outlay or expense is properly deductible unless it
falls outside the expressed exception of section 12(1)(a) and,
therefore, within its prohibition.
He continued at page 1062:
The essential limitation in the exception expressed in section
12(1)(a) is that the outlay or expense should have been made
by the taxpayer "for the purpose" of gaining or producing
income "from the business". It is the purpose of the outlay or
expense that is emphasized but the purpose must be that of
gaining or producing income "from the business" in which the
taxpayer is engaged. If these conditions are met the fact that
there may be no resulting income does not prevent the deducti-
bility of the amount of the outlay or expense. Thus, in a case
under The Income Tax Act if an outlay or expense is made or
incurred by a taxpayer in accordance with the principles of
commercial trading or accepted business practice and it is made
or incurred for the purpose of gaining or producing income
from his business its amount is deductible for income tax
purposes.
This case is significant because of the relative
remoteness of the expenditure from its purpose
and for the emphasis given to purpose rather than
result.
Further, in Premium Iron Ores Ltd. v. Minister
of National Revenue, [1966] S.C.R. 685; 66 DTC
5280 the Court allowed the deduction of legal
expenses incurred in protecting income already
earned. The expenses in question were incurred in
making preparations to dispute a claim that had
been made by the U.S. Internal Revenue Service.
Jackett P. in Olympia Floor & Wall Tile
(Quebec) Ltd. v. M.N.R. (1970), 70 DTC 6085
(Exch. Ct.), held that all the contributions made
by the appellant that were over $100 were deduct
ible under paragraph 12(1)(a) [Income Tax Act,
R.S.C. 1952] in computing the appellant's income;
the remainder of the contributions were deductible
under paragraph 27(1)(a) as charitable donations.
These larger contributions made to charitable
organizations (about $8,000 in 1962 and $10,000
in 1963) were expenditures laid out by the com
pany mainly (if not entirely) for the purpose of
increasing or maintaining its sales and only sub-
sidiarily, if at all, for charitable purposes. Jackett
P. noted at page 6089 of his judgment:
In my view, when a taxpayer makes an outlay for the purpose
of producing income—i.e. as part of his profit making proc-
ess—even though that outlay takes the form of a "gift" to a
charitable organization, it is not a "gift" within the meaning of
that word in section 27(1)(a) which, by reason of the place it
holds in the process of computing taxable income, was obvious
ly intended to confer a benefit on persons who made contribu
tions out of income and was not intended to provide deductions
for outlays made in the course of the income earning process.
In Aluminium Company of Canada Ltd. v. The
Queen, [1974] 1 F.C. 387; 74 DTC 6408 (T.D.)
payments made by the taxpayer to its Jamaican
subsidiary as a result of pressure from the Jamai-
can Government were allowed as deductible
expenses because the payments were necessary as
a practical and business decision if the taxpayer
was to enjoy continued friendly relations with the
Jamaican Government.
Another case worth noting is Holmes v. The
Queen, [1974] 1 F.C. 353; 74 DTC 6143 (T.D.).
In that case, the taxpayers were partners in a law
firm. The partners' wives incorporated a manage
ment company to take over the administrative
functions of the firm. Under the agreement be
tween the firm and the company, the company
would pay for the expenses the law firm incurred
for its services and then the law firm would reim
burse the company for the expenses plus a 15%
management fee. The Court held that each of the
taxpayers (partners) was entitled to deduct his
share of the fee. The Court was convinced that,
based on the evidence, the setting-up of a manage
ment firm considerably increased the efficiency of
the law firm's operation. Cattanach J. noted at
pages 371 F.C.; 6151 DTC:
There was evidence adduced that a management fee of 15%
of the disbursements made on behalf of a customer is the
normal and going rate for services of this kind. For that reason
the payment of a management fee in that amount would not
unduly reduce the income of the payor if the expense was
incurred for legitimate business reasons.
In my view the propriety of the deduction of the management
fee falls to be decided upon a determination of the question
whether genuine business reasons existed for payment of the
management fee under this contract.
In concluding that the payment of the fee was an expense
incurred for the purpose of gaining or producing income from
the plaintiffs' business, I found that true business motivation
existed with consequent business advantages.
There is no dispute that salaries paid to
employees are deductible as business expenses,
provided they are laid out to earn income and are
reasonsable. Further, under certain circumstances,
wages or salaries paid to spouses or children are
also deductible as business expenses. If this is so,
the plaintiff contends, why shouldn't the wages
paid to the plaintiff's nanny be deductible as a
business expense? Certainly, if the plaintiff hired a
junior lawyer or articling student whose duties also
included looking after the partner's children (if
perhaps a daycare service was provided by the
firm), there would be no dispute that the wages of
the junior or the articling student would be deduct
ible as a business expense.
In his argument counsel for the defendant intro
duced the concept of the "business or revenue
producing circle", arguing that expenses that bring
the taxpayer up to, but still outside, the circle are
not proper business deductions and therefore only
those made "within" the revenue-producing circle
can be said to be properly deductible. Counsel
characterized the payment of the nanny's salary as
an expense which enabled the plaintiff to go out
and practise her profession but was not incurred in
the practice of her profession. This concept as
proposed by counsel, would seem to suggest that
the business or revenue-producing circle has a
fixed content, namely limited to those items which
are within the circle and that other expenditures
cannot be added to the circle.
The idea of a "fixed content" circle seems to me
to be contrary to the language of the relevant
provisions of the Act and contrary to the trends in
the jurisprudence interpreting these provisions of
the Act. The Act does not contain a definition of
the term "profit". Instead, Parliament, by not
fixing the definition or content of the term "profit"
by any type of legislative enactment, has deter
mined that judicial interpretation shall infuse the
term with meaning, which will reflect the realities
of the times. Further, as I indicated earlier, it is
clear from the case law that the courts have given
a more progressive interpretation to the wording of
paragraph 18(1)(a) of the Act. After the decisions
in Imperial Oil Ltd. v. Minister of National Reve
nue, [1947] Ex.C.R. 527; 3 DTC 1090; Royal
Trust (supra); Parkinson v. M.N.R. (1951), 51
DTC 323 (TAB); Olympia Floor (supra), dam
ages, club dues, conference expenses and chari
table donations respectively were considered to be
acceptable and proper deductions from busisness
income. Thus the concepts of "profit" and what is
considered a proper business deduction have been
adapted to reflect the changing ways of doing
business. Indeed, had Parliament not allowed the
concept to be interpreted and reinterpreted by the
courts, allowable business deductions would be
frozen where they were at the time of the enact
ment of the predecessor of paragraph 18(1)(a) of
the Act.
Dr. Patricia Armstrong (Armstrong) was called
as an expert witness and I qualified her as such
after hearing evidence, followed by arguments of
counsel. Counsel for the defendant then took the
following position (page 214 of the transcript):
MR. POWER: My Lord, in light of your last ruling and in
consultation with my learned friend during the break, I wish to
propose the following to Your Lordship. I have mentioned this
to my learned friend.
Instead of my standing up on behalf of the Crown and
objecting to the relevancy of each and every paragraph, begin
ning with paragraph No. 5 of Dr. Armstrong's affidavit, which
goes from paragraph No. 5 right to paragraph No. 22, I will
with your Lordship's permission, at this juncture for the record
object to the relevancy of each and every one of those para
graphs based on its relevancy to the circumstances of this case
as I had noted it from the Constitutional Question stated by my
learned friend.
So therefore, My Lord, if it can be taken that the Crown has
objected to each and every one of those paragraphs, I will not
stand up unless other objections arise on the question of
relevancy because the objection will be noted now and that will
facilitate the expedition of the evidence of this witness.
Armstrong's evidence reveals that the influx of
women of child bearing age into entrepreneurship
and the workplace, especially in the 1970's and
after, has effected a major change in the landscape
and in the very conduct of business. Thus the
question of the deductibility of Simpson's salary
must be interpreted in view of the social and
economic realities of the times.
Counsel for the defendant put forth a number of
cases decided in the 1950's and 1960's where the
courts disallowed nanny expenses as a legitimate
business deduction. The expenses were considered
to be personal or living expenses within the mean
ing of paragraph 18(1)(h) (actually its predeces
sor) of the Act. After reviewing these cases, I
agree with counsel for the plaintiff's comments
that the root of the reasoning that underlies these
cases is the reasoning from the 1891 case of
Bowers v. Harding, [1891] 1 Q.B. 560. The
Bowers case arose at a time when there were very
rigid restrictions on women and very fixed ideas
about what was proper for women and what was
the position of men, in terms of employment and
income. The case came from another age, from
another system dealing with a tax question that
related to employment rather than profits from a
business. Moreover, the case is full of illustrations
of the subordinate position of women in that socie
ty and that law.
As shown by Armstrong's evidence, there has
been a significant social change in the late 1970's
and into the 1980's, in terms of the influx of
women of child-bearing age into business and into
the workplace. This change post-dates the earlier
cases dismissing nanny expenses as a legitimate
business deduction and therefore it does not neces
sarily follow that the conditions which prevailed in
society at the time of those earlier decisions will
prevail now. For this reason I do not see why I
should be limited in my interpretation of what is a
proper business expense as it relates to nanny
expenses, by a cluster of cases decided in the
1950's and 1960's based on the reasoning of a
decision made in 1891.
I am satisfied on the facts of this case that the
plaintiff exercised good business and commercial
judgment in deciding to dedicate part of her
resources from the law practice to the provision of
child care. This decision was acceptable according
to business principles which include the develop
ment of intellectual capital, the improvement of
productivity, the provision of services to clients and
making available the resource which she sells,
namely her time.
Further, Armstrong's evidence supports the
notion that the availability of child care increases
productivity by enhancing the peace of mind of
employees. Enhancing productivity is something
that is totally in keeping with well established
business practices. Moreover, Armstrong's evi
dence indicates that the absence of child care is a
barrier to women's participation in the economy,
in terms of paid work and income-generating work
and therefore lowering the barrier by arriving at a
satisfactory means of dealing with the costs of
child care, would make good business sense.
The plaintiff submits that her participation in
the profession of law was made possible because of
Simpson's work in her home. It would seem that
putting oneself in the position as a professional to
generate income is in accordance with good busi
ness principles. The plaintiff testified that her
business involved essentially selling her time and
expertise to her clients. She maximized the profit
derived from her time and expertise by being able
to devote that time and expertise to her work on a
full time basis. The plaintiff was also able to keep
the hours on a daily basis that she required to
accommodate the demands of her work, because
Simpson was looking after her children. Thus, I
think it can be said that there is a causal relation
ship between the dedication of resources generated
in her practice to child care and the generation of
those resources.
With respect to the plaintiff's manner of report
ing the nanny expense, namely as an item on her
personal income tax form rather than on the part
nership's financial statement, I agree with the
plaintiff's submission that in partnership situa
tions, it does not matter where one claims an
expense, as long as it is a proper deduction (see
Parkinson v. M.N.R. (1951), 51 DTC 323
(T.A.B.)). It seems to me that a proper determina
tion of whether an item is deductible should be
based on the nature of the expense, not on the
piece of paper on which it is or was claimed.
Further, as I indicated earlier, the case law is
clear that accounting principles do not necessarily
have to be taken into consideration in determining
profit under business principles. This is especially
so in the case before me, as no expert accounting
evidence was tendered.
In the terms of the submission that the nanny
expense falls within paragraph 18(1)(h) of the
Act, it seems to me that on the facts of this
particular case, a distinction has been made be
tween child care which allows one to participate in
the economy and generate income and child care
which allows one to go out on social occasions or
the hiring of a maid to ease one's life. These last
two are clearly discretionary and personal living
expenses.
The defendant argued that the plaintiff's nanny
costs are equivalent to any of the basic personal
maintenance expenses that any business person has
to pay in order to work and that the nanny costs
are equivalent to the equipment used by the dis
abled in order to work and therefore not deduct
ible. With respect, I do not agree with these
analogies. What makes this case unique is that the
law is clear that the plaintiff has a legal obligation
to look after her children and it is this legal
obligation which distinguishes the provision of
child care from other kinds of expenses that have
been or could be characterized as personal living
expenses.
Therefore, in light of the above, and in the
particular cirmumstances of this case, I find that
the salary paid to the nanny qualifies as an
expense made for the purpose of gaining or pro
ducing income from a business within the meaning
of paragraph 18(1)(a) of the Act.
With respect to section 63 of the Act, I would
like to note at this point in my reasons that the
defendant has admitted that if the nanny expense
is a proper business expense pursuant to sections 3,
9 and 18 of the Act, then section 63 cannot
prevent it from being allowed as such.
Reasonableness (section 67 of the Act):
Section 67 of the Act places a limitation on the
amount of an outlay or expense that may be
deducted. The test is what is "reasonable in the
circumstances". In the case before me there is no
question that the wages paid to Simpson were
reasonable. In this regard I note that the Regula
tions [R.R.O. 1980, Reg. 283] under the Employ
ment Standards Act [R.S.O. 1980, c. 137] of
Ontario require that a nanny working in a private
home be paid a minimum of $757 per month or
$9,084 per year (O. Reg. 75/84 s. 1 and O. Reg.
39/85 s. 1). Simpson's wages could not be con
sidered unreasonable given this minimum and the
fact that she was looking after two children. (In
using the term "reasonable" I am of course stating
the amount claimed was not excessive, but from a
nanny's standpoint or a day care educator, the
wages are, in about every situation, not really
adequate.)
Child care expenses—section 63 of the Act:
Prior to 1972, child care expenses were treated
as non-deductible personal expenses for income tax
purposes. In 1972, as part of a tax reform package,
Parliament addressed the question of providing a
statutory scheme in the Act for the deductibility of
child care expenses by enacting section 63 of the
Act. The purpose of passing section 63 was to
facilitate the entry of women into the labour force,
thereby promoting economic equality between the
sexes as well as providing relief for low income
families. (White Paper on Tax Reform, (1969)).
Initially, it was considered that the main responsi
bility for child care rested with the mother, and
therefore the child care deduction was only avail
able to women (unless it could be shown that the
mother, because of illness or imprisonment, was
unable to care for the child or children). However,
in response to the ruling of the Canadian Human
Rights Tribunal in Bailey et al. v. Minister of
National Revenue (1980), 1 C.H.R.R. D193, sec
tion 63 was amended, with respect to the 1983 and
subsequent taxation years, so that it applied equal
ly to male and female taxpayers. Section 63, as it
read in 1985, allowed a taxpayer to deduct from
earnings up to $2,000 per child (maximum of four
children) in respect of child care expenses for the
year. Where expenses were incurred by a couple,
the person with the lower income had to claim the
deduction.
Interpretation of subsection 15 (1) of the Charter:
The plaintiff relies upon this subsection which
provides as follows:
15. (1) Every individual is equal before and under the law
and has the right to the equal protection and equal benefit of
the law without discrimination and, in particular, without
discrimination based on race, national or ethnic origin, colour,
religion, sex, age or mental or physical disability.
In effect, the plaintiffs case was made on the
basis of a denial of equal benefit of the law. This
section was not proclaimed in force until April 17,
1985. The case law is consistent on the point that
subsection 15 (1) of the Charter does not have
retrospective effect.
In R. v. Seo (1986), 54 O.R. (2d) 293, the
Ontario Court of Appeal noted that it was appar
ent that the reasons for postponing the implemen
tation of section 15 was to provide an opportunity
to Parliament and the Legislatures to bring their
legislation into compliance with the Charter. It is
only after this transition period that the legislation
could be challenged on the grounds that this sec
tion was infringed. Thus it was not open to the
accused in that case to challenge the validity of a
conviction under section 234.1 [as added by S.C.
1974-75-76, c. 93, s. 15] of the Criminal Code on
the basis that the failure to proclaim the section in
force throughout Canada created an inequality,
where the charge arose out of an occurrence in
1983.
Similarly here, the Charter defence cannot be
invoked for the taxation years 1982, 1983, 1984
and the first three and a half months of 1985. The
notices of reassessment mailed after April 17,
1985 do not have the effect, as alleged by the
plaintiff, of making the Charter applicable to those
years. However, the plaintiff is entitled to invoke
the Charter for the balance of the taxation year
1985 and subsequent taxation years.
The most recent judicial pronouncement on the
subject of section 15 of the Charter is found in
Andrews v. Law Society of British Columbia,
[1989] 1 S.C.R. 143. The questions before the
Court were whether the Canadian citizenship
requirement for admission to the British Columbia
bar infringed or denied the equality rights guaran
teed by subsection 15(1) of the Charter, and if so,
was the infringement justified under section 1 of
the Charter. The Court unanimously found that
this requirement infringed subsection 15(1) and a
majority held it was not sustainable under section
1 of the Charter. Although the decision is not on
point it is of interest for its comments on subsec
tion 15(1) and the interaction of section 1 and
subsection 15(1) of the Charter. What is note
worthy at the outset is the fact that the Supreme
Court of Canada rejected the "similarly situated
test", namely that similar people be treated simi
larly and those who are differently situated be
treated differently and instead chose the "enume-
rated or analogous" grounds test to determine
whether individuals have been discriminated on
the basis of the grounds outlined in subsection
15 (1) of the Charter.
McIntyre J., writing for the Court on the ques
tion of subsection 15 (1) and the interaction of
subsection 15(1) and section 1, first considered the
concept of equality and noted at pages 163-164
that subsection 15 (1) provides for every individual
a guarantee of equality before and under the law,
as well as equal protection and equal benefit of the
law without discrimination. [At page 144]: "This
is not a general guarantee of equality; its focus is
on the application of the law" (Emphasis added.)
In the case before me there is no problem with
the word "law" because I am dealing with an Act
of Parliament. With respect to the concept of
equality, McIntyre J. also noted the following at
page 165:
To approach the ideal of full equality before and under the
law—and in human affairs an approach is all that can be
expected—the main consideration must be the impact of the
law on the individual or the group concerned. Recognizing that
there will always be an infinite variety of personal characteris
tics, capacities, entitlements and merits among those subject to
a law, there must be accorded, as nearly as may be possible, an
equality of benefit and protection and no more of the restric
tions, penalties or burdens imposed upon one than another. In
other words, the admittedly unattainable ideal should be that a
law expressed to bind all should not because of irrelevant
personal differences have a more burdensome or less beneficial
impact on one than another.
McIntyre J. went on to consider the similarly
situated test and found at page 168 that the test
cannot be accepted as a fixed rule or formula for
the resolution of equality questions arising under
the Charter:
Consideration must be given to the content of the law, to its
purpose, and its impact upon those to whom it applies, and also
upon those whom it excludes from its application. The issues
which will arise from case to case are such that it would be
wrong to attempt to confine these considerations within such a
fixed and limited formula.
At pages 174-175 he described discrimination in
the following terms:
I would say then that discrimination may be described as a
distinction, whether intentional or not but based on grounds
relating to personal characteristics of the individual or group,
which has the effect of imposing burdens, obligations, or disad
vantages on such individual or group not imposed upon others,
or which withholds or limits access to opportunities, benefits,
and advantages available to other members of society. Distinc
tions based on personal characteristics attributed to an
individual solely on the basis of association with a group will
rarely escape the charge of discrimination, while those based on
an individual's merits and capacities will rarely be so classed.
Of course the Court must address the issue of
discrimination as the term is used in subsection
15(1). McIntyre J. added at page 175:
The enumerated grounds in s. 15(1) are not exclusive and the
limits, if any, on grounds for discrimination which may be
established in future cases await definition. The enumerated
grounds do, however, reflect the most common and probably
the most socially destructive and historically practised bases of
discrimination and must, in the words of s. 15(1), receive
particular attention. Both the enumerated grounds themselves
and other possible grounds of discrimination recognized under
s. 15(1) must be interpreted in a broad and generous manner,
reflecting the fact that they are constitutional provisions not
easily repealed or amended but intended to provide a "continu-
ing framework for the legitimate exercise of governmental
power" and, at the same time, for "the unremitting protection"
of equality rights: see Hunter v. Southam Inc., [1984] 2 S.C.R.
145, at p. 155.
McIntyre J. examined the three main approaches
courts have taken in determining the role of sub
section 15(1) of the Charter, the meaning of dis
crimination set out in this section and the relation
ship of subsection 15(1) and section 1 of the
Charter and found that the "`enumerated and
analogous grounds' approach most closely accords
with the purposes of s. 15 and the definition of
discrimination outlined above and leaves questions
of justification to s. 1" (page 182). At page 180 of
his reasons McIntyre J. included the following
quote from Hugessen J.A. in Smith, Kline &
French Laboratories Ltd. v. Canada (Attorney
General), [1987] 2 F.C. 359 (C.A.) at pages
368-369:
As far as the text of section 15 itself is concerned, one may
look to whether or not there is "discrimination", in the pejora
tive sense of that word, and as to whether the categories are
based upon the grounds enumerated or grounds analogous to
them. The inquiry, in effect, concentrates upon the personal
characteristics of those who claim to have been unequally
treated. Questions of stereotyping, of historical disadvantage -
ment, in a word, of prejudice, are the focus and there may even
be a recognition that for some people equality has a different
meaning than for others.
McIntyre J. then continued with the following
commentary at page 182:
However, in assessing whether a complainant's rights have
been infringed under s. 15(1), it is not enough to focus only on
the alleged ground of discrimination and decide whether or not
it is an enumerated or analogous ground. The effect of the
impugned distinction or classification on the complainant must
be considered. Once it is accepted that not all distinctions and
differentiations created by law are discriminatory, then a role
must be assigned to s. 15(1) which goes beyond the mere
recognition of a legal distinction. A complainant under s. 15(1)
must show not only that he or she is not receiving equal
treatment before and under the law or that the law has a
differential impact on him or her in the protection or benefit
accorded by law but, in addition, must show that the legislative
impact of the law is discriminatory. [Emphasis added.]
Thus, the determination of a possible infringe
ment involves a two-step process: first, the person
alleging a subsection 15(1) breach will have to
demonstrate unequal treatment before or under
the law and second, the person will have to show
that the impact of the law is discriminatory. Fur
ther, McIntyre J. stated at page 182:
Where discrimination is found a breach of s. 15(1) has
occurred and—where s. 15(2) is not applicable—any justifica
tion, any consideration of the reasonableness of the enactment;
indeed, any consideration of factors which could justify the
discrimination and support the constitutionality of the
impugned enactment would take place under s. 1. This
approach would conform with the directions of this Court in
earlier decisions concerning the application of s. 1 and at the
same time would allow for the screening out of the obviously
trivial and vexatious claim. In this, it would provide a workable
approach to the problem.
The above distinction is important (as McIntyre J.
noted) because it is for the taxpayer in the case
before me to establish that her Charter right has
been infringed and if so, for the State to justify the
infringement.
The different treatment involved in the case
before me is the refusal by the MNR to allow the
plaintiff to deduct her child care expenses (namely
Simpson's salary) as a business expense for the
taxation years in question. The plaintiff is earning
a business income and in keeping with sound busi
ness sense or practice, the plaintiff hired a nanny
so that she (the plaintiff) could generate income.
Thus by refusing the plaintiff her deduction, the
MNR is treating her differently from other tax
payers with expenses that are considered necessary
to generate business income.
A secondary aspect of this different treatment is
that the MNR is applying to the plaintiff princi
ples developed in the case law dealing with deduct-
ibility of business expenses as they relate to child
care, but the application to this particular plaintiff
of those old principles has a different impact on
her (page 413 of the transcript). As counsel for the
plaintiff noted, the plaintiff is not treated like a
serious business person with a serious expense
incurred for a legitimate purpose. Instead she is
treated "like some frivolous person hiring a maid
or going for a manicure, and it is that treatment
that offends the guarantee against unequal treat
ment and differential impact". (Page 414 of the
transcript.)
The plaintiff must pay more tax than she would
otherwise pay if she were allowed a deduction,
which is also an inequity that affects her. Further,
she is required to make all the deductions for her
employee, Simpson, i.e., to deduct tax at source,
UI and CPP; and to pay employer UI and CPP
contributions. In this regard she is treated like any
employer who is incurring a business expense but
yet she is not allowed to deduct that expense.
Therefore, she not only has the extra tax but she
has the extra paper burden as well as the extra
responsibilities. The plaintiff maintains that it is
clear that a distinction is being made between the
treatment that she receives and that of other
employers, and the distinction is based on grounds
relating to personal characteristics of this plaintiff,
namely that she is a woman and a parent. In
support of the first distinction claimed, the plain
tiff refers to Armstrong's evidence that women
bear by far the largest burden of child care. It is
women entering the work force with these child
care responsibilities who are affected by this kind
of distinction.
The second aspect of the personal characteristic
argument is that the plaintiff is a parent. It is clear
that courts are willing to consider characteristics
or categories other than those listed in section 15
of the Charter in dealing with an issue of discrimi
nation under section 15. In Andrews (supra), the
Supreme Court indicated a willingness to take its
cue in determining what type of personal charac
teristics are an unconstitutional basis for differ
ence from Human Rights legislation. Armstrong's
evidence showed that the sex of the person who is
worked for and discrimination on the basis of
family status, while not universal in Canada, is
also a ground of discrimination noted in several
Human Rights Codes in Canada.
Therefore, I agree with the plaintiff's counsel
that there is a distinction in this particular case
and discrimination against the plaintiff, in respect
of personal characteristics such as sex and parental
status and this has the effect of imposing on her
burdens, obligations and disadvantages not
imposed upon others.
The plaintiff has the financial burden of paying
for almost all of her child care expenses (given the
section 63 allowance) from after-tax dollars. This
is a financial burden, yet it is not imposed with
respect to other kinds of business expenses and
according to the MNR is not a financial burden
imposed on employers who offer child care service
to their employees. Thus the plaintiff must bear
the financial burden of this expense in a way that
other generators of business income need not. She
must also bear the same paper burden as other
employers do, namely filling out all the forms,
making remittances and paying the CPP and UI
premiums levied against employers.
With respect to the second part of the discrimi
nation test, the limitations imposed on the plaintiff
withhold or limit access to the opportunities, ben
efits and advantages available to other members of
society. As indicated earlier, the plaintiff is denied
the benefit of a tax deduction which other people
who have these burdens receive. She pays the
money and fulfils the administrative requirements,
whereas other employers do not have to pay the
money in after-tax dollars and receive the benefit
of the deduction (page 419 of the transcript).
I think it would be appropriate at this point to
note the very purpose of section 15 of the Charter,
as stated by McIntyre J. at page 171 of his reasons
in Andrews:
It is clear that the purpose of s. 15 is to ensure equality in the
formulation and application of the law. The promotion of
equality entails the promotion of a society in which all are
secure in the knowledge that they are recognized at law as
human beings equally deserving of concern, respect and con
sideration. It has a large remedial component.
Therefore, I am of the opinion that if in our
society we are to promote the equality of women,
as clearly intended by section 15, then an interpre
tation of the Income Tax Act which allows women
entrepreneurs (in the proper circumstances) to
deduct their child care expenses to permit them to
pursue a business, is clearly in order.
The defendant maintains that whether some
thing is or is not a business deduction in respect of
the fundamental concepts of income determina
tion, is not a distinction that is discriminatory on
any of the enumerated grounds outlined in section
15 or analogous grounds. The defendant further
submits that the distinction of what is in the
"business circle" has nothing to do with personal
characteristics. It has to do with the answer to the
questions: "has it occurred in the course of carry
ing on the business?" Thus the distinction is not
pejorative, it is a distinction on economic commer
cial practices in regard to what constitutes a busi
ness deduction. In essence the argument is that the
provisions of Act regarding profit are "neutral on
their face". They apply to everyone equally wheth
er the taxpayer is claiming nanny expenses or
conference expenses. Therefore they are not dis
criminatory within the meaning of section 15 of
the Charter. Further, the so-called "burden" of
higher taxes and the paper burden of making
deductions, remittances and payments are imposed
on all Canadians in business, and in this sense the
plaintiff cannot be said to be discriminated
against.
In dealing with the defendant's submissions, I
would refer once again to the Supreme Court of
Canada's decision in Andrews, which stressed the
impact of the law on the individual or group
concerned. Thus a statute which is neutral on its
face can be held to be contrary to section 15 of the
Charter if, in its application, it imposes additional
burdens on one class or withholds from them
benefits available to others. I am satisfied that in
the case before me, the plaintiff has, on the basis
of Andrews, established the differential impact of
the law, as well as the requisite discrimination
based on her personal characteristics of sex and
family or parental status.
The defendant has also submitted that Parlia
ment, by enacting section 63 of the Income Tax
Act has specifically allowed the child care deduc
tions subject to statutory conditions. In so doing, it
has properly exercised its legislative function in the
social-economic field and has not infringed any of
the plaintiff's section 15 rights. Instead the section
(63) is a subsidiary section, and according to the
defendant, it addresses the problem of child care
and helps it out. However, Armstrong's evidence
seems to indicate that something is "wrong" and
that according to government reports, the present
system is not delivering child care in sufficient
quantities for Canadian women. The cost of child
care takes up a considerable portion of women's
income (approximately one-fifth) and is con
sidered a high price item. As a high price item it
constitutes a barrier to women's access to the
economy.
Therefore, I agree with the plaintiff's submis
sion that in light of Andrews, an interpretation of
the Income Tax Act which ignores the realities
that women bear major responsibility for child
rearing and that the costs of child care are a major
barrier to women's participation, would itself vio
late section 15 of the Charter. Moreover, since the
Andrews decision, the Act cannot be interpreted as
if parents (mostly female) are the same as other
workers, or entrepreneurs (i.e. without child care
responsibilities); it must be interpreted in a way
which recognizes their specific experience as prin
cipally responsible for child care.
Justification under section 1 of the Charter:
The third step involved in a section 15 claim is
the determination of whether the infringement is
justified by section 1 of the Charter. As I indicated
earlier, the onus of justifying the infringement is
on the party seeking to uphold the provision, in
this case the defendant Crown. Further, the justifi
cation would have to be done in accordance with
the test outlined in the case of The Queen v.
Oakes, [1986] 1 S.C.R. 103.
The defendant submits that denying the deduc
tion of nanny expenses is justified under section 1
of the Charter when viewed in the context of
Parliament's total fiscal responsibilities, its actions
done to-date and the amounts expended. The
defendant further submits that courts should not
be called upon to substitute judicial opinion for
legislative ones as to the place in which to draw
precise lines for the allocation of limited public
funds and tax expenditures. The defendant relies
on McIntyre J.'s reasons in Andrews (pages 183-
184) as support for these submissions.
However, it should be noted that with respect to
the portion of the reasons referred to by the
defendant, McIntyre J. was in the minority of the
Court. Wilson J. (with whom the Chief Justice,
Lamer and L'heureux-Dubé JJ. agree) disagreed
with McIntyre J. regarding the deference which is
to be given to legislative choice. At pages 153-155
of her reasons, Wilson J. describes the approach to
section 1 in the following terms:
The first hurdle to be crossed in order to override a right
guaranteed in the Charter is that the objective sought to be
achieved by the impugned law must relate to concerns which
are "pressing and substantial" in a free and democratic society.
The Chief Justice stated at pp. 138-39:
To establish that a limit is reasonable and demonstrably
justified in a free and democratic society, two central criteria
must be satisfied. First, the objective, which the measures
responsible for a limit on a Charter right or freedom are
designed to serve, must be "of sufficient importance to
warrant overriding a constitutionally protected right or free
dom": R. v. Big M Drug Mart Ltd., supra, at p. 352. The
standard must be high in order to ensure that objectives
which are trivial or discordant with the principles integral to
a free and democratic society do not gain s. 1 protection. It is
necessary, at a minimum, that an objective relate to concerns
which are pressing and substantial in a free and democratic
society before it can be characterized as sufficiently
important.
This, in my view, remains an appropriate standard when it is
recognized that not every distinction between individuals and
groups will violate s. 15. If every distinction between individu
als and groups gave rise to a violation of s. 15, then this
standard might well be too stringent for application in all cases
and might deny the community at large the benefits associated
with sound and desirable social and economic legislation. This
is not a concern, however, once the position that every distinc
tion drawn by law constitutes discrimination is rejected as
indeed it is in the judgment of my colleague, McIntyre J. Given
that s. 15 is designed to protect those groups who suffer social,
political and legal disadvantage in our society, the burden
resting on government to justify the type of discrimination
against such groups is appropriately an onerous one.
The second step in a s. 1 inquiry involves the application of a
proportionality test which requires the Court to balance a
number of factors. The Court must consider the nature of the
right, the extent of its infringement, and the degree to which
the limitation furthers the attainment of the legitimate goal
reflected in the legislation. As the Chief Justice stated in R. v.
Edwards Books and Art Ltd., [ 1986] 2 S.C.R. 713, at p. 768:
Second, the means chosen to attain those objectives must be
proportional or appropriate to the ends. The proportionality
requirement, in turn, normally has three aspects: the limiting
measures must be carefully designed, or rationally connected,
to the objective; they must impair the right as little as
possible; and their effects must not so severely trench on
individual or group rights that the legislative objective, albeit
important, is nevertheless outweighed by the abridgment of
rights.
Therefore, it is clear from the Andrews decision
that it is no longer possible to justify a differential
burden (withholding a benefit) merely because it is
done pursuant to a valid federal objective. This
latter test has been replaced by the test of justifia-
bility included in section 1 and interpreted in the
Oakes case. Thus the objective of a law which
violates the Charter must be "pressing and sub
stantial" in order to pass scrutiny under section 1.
After reviewing the evidence presented by the
defendant, it is my opinion that the defendant has
offered no "pressing and substantial" objective to
justify denying deductibility as a business expense
of the plaintiff's nanny costs.
Further, on the facts of this particular case, it
has not been established that Parliament has made
a legislative choice against full deductibility of
nanny expenses in this case. Instead, the courts are
left to decide, in accordance with the Charter,
whether the concepts of profit and business
expenses permit such a deduction. This is not to
say that nanny expenses will always be treated as a
business expense, or that section 63 of the Act has
been invalidated under section 52 of the Charter.
The defendant has argued that I have been
asked to "read in" some provision of the Income
Tax Act to bring it into conformity with the
Charter; to amend the definition of profit in the
Act (which is within the purview of judicial inter
pretation) or to strike down section 63 of the Act.
This is not so. The meaning to be given to the term
"profit", as I indicated earlier, is a matter for
judicial interpretation. Statutory interpretation
has traditionally been seen as the proper preserve
of the courts, within and without a constitutional
context. Therefore, it is open to me to give the
term "profit" as it relates to allowable business
expenses (sections 9 and 18 of the Act), an inter
pretation which is consistent with the requirements
of the Charter, without "deleting", "amending" or
"reading in".
For the reasons I have outlined above the plain
tiff is allowed to deduct the cost of her nanny (the
nanny's salary) as a business expense, pursuant to
the relevant provisions of the Income Tax Act, for
the following taxation years, namely 1982, 1983,
1984 and 1985.
Also, in keeping with the Charter intent to
promote equality as well as the new social and
economic realities of Canada, the plaintiff should
be allowed to deduct the cost of her nanny (the
nanny's salary) as a business expense in the 1985
and subsequent taxation years.
You are being directed to the most recent version of the statute which may not be the version considered at the time of the judgment.