Judgments

Decision Information

Decision Content

A-290-89
Her Majesty the Queen (Appellant)
v.
Elizabeth C. Symes (Respondent)
INDEXED AS: SYMES v. CANADA (CA.)
Court of Appeal, Pratte, MacGuigan and Décary JJ.A.—Toronto, May 7 and 8; Ottawa, June 19, 1991.
Income tax — Income calculation — Deductions — Appeal from trial judgment vacating reassessment disallowing self- employed mother's deduction of nanny's salary as business expense under Income Tax Act, s. 18(1)(a), while allowing deduction as child care expense under s. 63 — Child care expenses parental expense (s. 63), not business expense (s. 18(1)(a)) — S. 63 code covering self-employed and salaried parents — Accepting respondent's argument would favour self-employed professional over salaried taxpayers.
Construction of statutes — Income Tax Act, s. 18(1)(a) — Trial Judge vacating reassessment disallowing self-employed mother's deduction of nanny's salary as business expense under s. 18(1)(a), allowing relatively modest deduction as child care expense under s. 63 — Meaning of 'for the purpose of in s. 18(1)(a) — Judicial interpretation sensitive to changing circumstances (women's entry into economy) — Context in which business expense developed considered, but Parliament having amended Act to provide for respondent's situation by adopting s. 63 — Legislation not to be minutely examined, given extreme interpretation to implicate Charter — Court not to substitute own view for Parliament's political, social and economic choice.
Constitutional law — Charter of Rights — Equality rights — Appeal from trial judgment vacating reassessment disal lowing self-employed mother's deduction of nanny's salary as business expense under Income Tax Act, s. 18(1)(a) — Arguing economic and social inequality as cost of child care barrier to women's entry into workplace — Charter not to be implicated by extreme statutory construction — Charter not imposing obligation on legislatures to redress social or economic inequalities — Trial judgment creating discrimination between self-employed professional and salaried taxpayers — S. 63, favouring all women, not infringing right to equality.
This was an appeal from the trial judgment vacating notices of reassessment disallowing deductions of a nanny's salary as a business expense under Income Tax Act, paragraph 18(1)(a), but substituting the relatively modest deductions for "child care expenses" permitted by section 63. Taxpayer was a married woman, self-employed in the practice of labour law. Income Tax Act, paragraph 18(1)(a) allows deductions for expenses made for the purpose of gaining or producing income; para graph 18(1 )(h) precludes deduction of personal or living expenses; and section 63 allows a specified deduction per child for child care expenses. The respondent argued that child care expenses were incurred "for the purpose of gaining income ... from the business" and were not personal or living expenses. While the respondent invited the Court to interpret "for the purpose of' in paragraph 18(1)(a) so as to take into account contemporary reality in the business world, specifically the problems of child care faced by women in business, the appel lant suggested a new concept: expenses incurred within the "revenue-producing circle" are deductible, but those incurred simply to approach the circle are not. The appellant relied on Mattabi Mines Ltd. v. Ontario (Minister of Revenue) in sup port of the argument that "for the purpose or in paragraph 18(1 )(a) means "in the process of earning" and that deductible expenses should be incurred "in the ordinary course of busi ness". The appellant also argued that section 63 was enacted to deal with the question of child care expenses and precluded their deduction under paragraph 18(1)(a). Finally, respondent argued that if a statute fails to redress a social or economic inequality, the courts should interpret it so as to redress the inequality since to interpret it otherwise would be contrary to the Charter in its application, if not in its actual wording. The Trial Judge held that paragraph 18(1)(a) should be interpreted in view of the social and economic realities of the times and that he was not bound by cases decided in the 1950's and 1960's based on the reasoning of an 1891 decision. He added that to ignore that women bear the major responsibility for child rearing and that the costs of child care are a major barrier to women's participation in the economy would violate Charter, section 15.
Held, the appeal should be allowed.
Child care expenses are not a business expense within para graph 18(1)(a), but a parental expense within section 63. While Mattabi Mines lent support to the appellant's argument, it did not preclude the respondent's contentions. Judicial interpreta tion had to be flexible and sensitive so that it could adapt to changing circumstances. The concept of business expense had developed exclusively in relation to the commercial needs of business, without regard to the particular needs of those in charge. It was difficult to see how a change in the needs of these persons could justify modifying an interpretation which had nothing to do with their needs. In any event, section 63 had been enacted to provide for the specific situation in which taxpayer found herself. Section 63 is a complete and independ-
ent code, covering both self-employed and salaried mothers. It was a "liberalization" of the law which permitted a deduction by all parents, regardless of the nature of their work, income or sex.
Legislation was not to be minutely examined to determine whether, by an extreme interpretation, it might be possible to implicate the Charter. The rights which section 15 guarantees are not based on any concept of strict, numerical equality amongst all human beings. If they were, virtually all legislation, whose function is to define, distinguish and make categories, would be prima fade in breach of section 15 and require justification under section 1. The broader the reach given to section 15, the more likely it will be deprived of any real content.
The Charter imposes on legislatures no obligation to redress all social or economic inequalities. The respondent's proposition would mean that, through the right to equality recognized by section 15, the Charter guarantees individuals every right, whether or not included in those expressly defined in the Charter. For example, though the right to work and the right to be in a position to work are not guaranteed by the Charter, an individual could invoke section 15 to require legislatures to adopt measures enabling him to work and be in a position to work. That is not the effect of section 15. To give effect to taxpayer's argument would accord privileged treatment to mothers in her position and create discrimination between professional and salaried taxpayers. By adopting section 63, Parliament made a political, social and economic choice. A provision which favours all women cannot directly or indirectly infringe the right of women to equality. Even if there were discrimination, in light of the ample evidence of justification, the Court should not substitute its choice for that of Parliament.
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.) [R.S.C., 1985, Appendix II, No. 44], s. 15.
Child Welfare Act, R.S.O. 1980, c. 66, s. I9(1)(b)(ii),(iii).
Criminal Code, R.S.C., 1985, c. C-46, ss. 215, 218. Income Tax Act, S.C. 1970-71-72, c. 63, ss. 9,
18(1)(a),(h), 63 (as am. by S.C. 1976-77, c. 4, s. 21;
1984, c. 1, s. 25; c. 45, s. 22; 1988, c. 55, s. 39).
CASES JUDICIALLY CONSIDERED APPLIED:
Andrews v. Law Society of British Columbia, [1989] 1 S.C.R. 143; (1989), 56 D.L.R. (4th) 1; [1989] 2 W.W.R. 289; 34 B.C.L.R. (2d) 273; 36 C.R.R. 193; 91 N.R. 255;
Smith, Kline & French Laboratories Ltd. v. Canada (Attorney General), [1987] 2 F.C. 359; (1986), 34 D.L.R. (4th) 584; 11 C.I.P.R. 181; 12 C.P.R. (3d) 385; 27 C.R.R. 286; 78 N.R. 30 (C.A.); Ontario Public Service Employees Union et al. v. National Citizens Coalition Inc. et al. (1987), 60 O.R. (2d) 26; 39 D.L.R. (4th) 449; [1987] 2 C.T.C. 59; 87 DTC 5270 (H.C.); affd (1990), 74 O.R. (2d) 260; 90 DTC 6326; 38 O.A.C. 70 (C.A.); PSAC v. Canada, [1987] I S.C.R. 424; (1987), 38 D.L.R. (4th) 249; 87 CLLC 14,022; 32 C.R.R. 114; [1987] D.L.Q. 230; 75 N.R. 161.
REVERSED:
Symes v. Canada, [1989] 3 F.C. 59; [1989] 1 C.T.C. 476; (1989), 89 DTC 5243; 25 F.T.R. 306 (T.D.).
DISTINGUISHED:
Schachter v. Canada, [1990] 2 F.C. 129; (1990), 66 D.L.R. (4th) 635; 29 C.C.E.L. 113; 90 CLLC 14,005; 34 F.T.R. 80; 108 N.R. 123 (C.A.).
CONSIDERED:
Mattabi Mines Ltd. v. Ontario (Minister of Revenue), [1988] 2 S.C.R. 175; (1988), 53 D.L.R. (4th) 656; [1988] 2 C.T.C. 294; 87 N.R. 300; 29 O.A.C. 268; Slaight Communications Inc. v. Davidson, [1989] 1 S.C.R. 1038; (1989), 59 D.L.R. (4th) 416; 26 C.C.E.L. 85; 84 CLLC 14,031; 93 N.R. 183; Hills v. Canada (Attorney General), [1988] I S.C.R. 513; (1988), 48 D.L.R. (4th) 193; 88 CLLC 14,011; 84 N.R. 86.
REFERRED TO:
Bailey et al. v. M.N.R. (1980), 1 C.H.R.R. 193 (C.H.R.T.); Foothills Pipe Lines (Yukon) Ltd. v. The Queen (1990), 90 DTC 6607 (F.C.A.); Royal Trust Co., The v. Minister of National Revenue, [1956-60] Ex.C.R. 70; (1957), 9 D.L.R. (2d) 28; [1957] C.T.C. 32; 52 DTC 1055; The Queen v. Kurisko (S.R.), [1988] 2 C.T.C. 254; (1988), 88 DTC 6434; 19 F.T.R. 182 (F.C.T.D.); affd [1990] .2 C.T.C. 136; (1990), 90 DTC 6376; 36 F.T.R. 160 (note); I11 N.R. 146 (F.C.A.); leave to appeal to S.C.C. denied; Tiberio v. M.N.R., [1990] 2 C.T.C. 2545; (1990), 91 DTC 17 (T.C.C.); R. v. Big M Drug Mart Ltd. et al., [1985] 1 S.C.R. 295; (1985), 60 A.R. 161; 18 D.L.R. (4th) 321; [1985] 3 W.W.R. 481; 37 Alta. L.R. (2d) 97; 18 C.C.C. (3d) 385; 85 CLLC 14,023; 13 C.R.R. 64; 58 N.R. 81; R. v. Turpin, [1989] 1 S.C.R. 1296; (1989), 48 C.C.C. (3d) 8; 69 C.R. (3d) 97; 96 N.R. 115; R. v. Beare, [1988] 2 S.C.R. 387; (1988), 55 D.L.R. (4th) 481; [1989] 1 W.W.R. 97; 71 Sask. R. 1; 45 C.C.C. (3d) 57; 66 C.R. (3d) 97; 36 C.R.R. 90, 88 N.R. 205; R. v. Whyte, [1988] 2 S.C.R. 3; [1988] 5 W.W.R. 26; (1988), 29 B.C.L.R. (2d) 273; 42 C.C.C. (3d) 97; 64 C.R. (3d) 123; 6 M.V.R. (2d) 138; 86 N.R. 328; R. v. Schwartz, [1988] 2 S.C.R. 443; (1988), 55 D.L.R. (4th) 1; [1989] 1 W.W.R. 289; 56 Man. R. (2d) 92; 45 C.C.C. (3d) 97; 66 C.R. (3d) 251; 88 N.R. 90; United States of America v. Cotroni, [1989] 1 S.C.R. 1469; (1989), 23 Q.A.C. 182; 96 N.R. 321; 48 C.C.C. (3d) 193; Irwin Toy
Ltd. v. Quebec (Attorney General), [1989] 1 S.C.R. 927; (1989), 58 D.L.R. (4th) 577; 25 C.P.R. (3d) 417; 94 N.R. 167; McKinney v. University of Guelph, [1990] 3 S.C.R. 229; (1990), 76 D.L.R. (4th) 545; 91 CLLC 17,004.
AUTHORS CITED
Arnold, B. J. "The Deduction for Child Care Expenses in the United States and Canada: A Comparative Anal ysis" (1973), 12 West Ont. L. Rev. 1.
Canada, House of Commons Debates, Vol. 21, 1st Sess., 32nd Parl., 33 Eliz. II, 1983, at p. 24744.
Canada, House of Commons Debates, Vol. 10, 2nd Sess., 33rd Parl., 33 Eliz. II, 1988, at p. 12926.
Dickson, Alan J. "Deduct the Nanny?" (1989), 16 N.S.L. News No. 2, p. 17.
Hanly, Kathleen S. M. "A Break for Working Women" (1989), 37 Cdn. Tax Jl. 733.
Hershfield, Joe E. "Recent Trends in the Deduction of Expenses in Computing Income" (1989), Can. Tax Found. 41.
National Council on Welfare, Child Care: A Better Alternative, December 1988.
Ontario Ministry of Labour, Study of Wages and Employment Conditions of Domestics and their Employers, Toronto, May 29, 1985.
Report of the Royal Commission on Taxation, Ottawa: Queen's Printer, 1966 (Chair. K. M. Carter).
Status of Women Canada. Report of the Task Force on Child Care, Ottawa: Supply & Services Canada, 1985.
Task Force on Immigration Practices and Procedures, Domestic Workers on Employment Authorizations.
Woodman, Faye "A Child Care Expenses Deduction, Tax Reform and the Charter: Some Modest Proposals" (1989), 8 Can. J1. Fam. L. 371.
COUNSEL:
John R. Power, Q.C. and Sandra E. Phillips for appellant.
Mary Eberts and Wendy M. Mathieson for respondent.
SOLICITORS:
Deputy Attorney General of Canada for appellant.
Tory, Tory, DesLauriers & Binnington, Toronto, for respondent.
The following is the English version of the reasons for judgment rendered by
DÉCARY J.A.: The appellant is challenging a judgment of Cullen J. rendered on May 11, 1989
[[1989] 3 F.C. 59]. At that time the Trial Judge, as requested by the respondent, vacated notices of reassessment by which the Minister of National Revenue had, first, disallowed deductions which the respondent was claiming for the salary she paid to her nanny and which she regarded as a business expense within the meaning of paragraph 18(1)(a) of the Income Tax Act' ("the Act"), and second, substituted for those deductions the ones authorized by section 63 of the Act for "child care expenses".
The notices of reassessment cover four taxation years. Depending on whether the respondent can avail herself of the provisions of paragraph 18(1)(a) of the Act, the amount of the eligible deductions will be $10,075, $11,200, $13,173 and $13,359 instead of $1,000, $2,000, $2,000 and $4,000 for the 1982, 1983, 1984 and 1985 taxation years respectively.
A brief review of the relevant facts is necessary.
FACTS AND EVIDENCE
(a) Respondent's situation
The respondent has been married since 1969. She was admitted to the Ontario Bar in 1978 and practised as a lawyer by herself in Toronto before going into a firm with two colleagues in 1980, which she did not leave until March 1988. Her practice consisted mostly of litigation, primarily in labour law. She developed relations with her cli ents that were such as to make it difficult for her to delegate her work to her colleagues in any way. Few days went by without her having to go to court and her practice sometimes required her to travel outside Toronto. As a general rule she left her house at 8:30 a.m. and returned at about 6:30 p.m., and would even do two to three hours' work in the evenings. She could not have practised her profession from her home, neither could she have done so on a part-time basis or intermittently.
Her husband is a salaried employee whose income for the period at issue was about the same as her own. When the couple decided to have children, it was agreed that if it became necessary
1 S.C. 1970-71-72, c. 63, as amended.
for one of them to remain at home to look after the children, it would be the respondent that would give up her job, rather than her husband.
Their first daughter was born on November 26, 1981. The respondent explored the possibility of obtaining authorized day-care services, but such services were almost non-existent for very young children, did not offer any flexibility after 6:00 p.m. without paying a considerable financial premium and were not available when a child was ill. In short, the only solution consistent with the practice of the respondent's profession was to hire the services of a nanny.
The respondent accordingly hired a Ms. Simp- son. She came to the house at 8:30 a.m. and did not leave until 6:30 p.m., when one of the parents returned. She looked after the child exclusively from Monday to Friday, and did no housework, laundry or shopping except in connection with the child's needs. Ms. Simpson also looked after a second child, born on June 12, 1985.
The respondent and her husband agreed that Ms. Simpson's salary would be paid from the respondent's income rather than from her hus band's or from the couple's combined income. This, the respondent said, was a "family decision" based on the fact that in practice it was the respondent who was ultimately responsible for looking after the house and caring for the children. The respondent said they were jointly responsible but most of the burden fell onto her.
The respondent deducted tax withholdings from the salary she paid Ms. Simpson as well as contri butions to the pension and unemployment insur ance plans, and gave her T-4 forms every year. In her own tax returns, the respondent then deducted as a business expense the salary she paid her nanny. It is worth noting at this stage that this expense was treated not as an expense of the firm but as the respondent's personal expense. This approach was suggested by accountants for the firm and applied both to the nanny's salary and,
for example, to automobile expenses incurred individually by each of the partners.
After accepting the deductions as claimed for the 1982 and 1983 taxation years, Revenue Canada changed its mind and, by notices of reas
sessment dated December 9, 1985 and November 7, 1986 told the respondent that she would have to be content with the deductions allowed by section 63 of the Act ("child care expenses"), that is $1,000 for 1982 (only one child, deduction allowed $1,000 per child), $2,000 for each of 1983 and 1984 (one child, deduction allowed raised to $2,000 per child), and $4,000 for 1985 (two children, deduction allowed $2,000 per child). In the opinion of Revenue Canada, the salary paid to the nanny was not an expense incurred by the taxpayer to earn business income (which would be deductible under paragraph 18(1)(a) of the Act), but an expense in the nature of personal or living expenses (which are not deductible under paragraph 18(1)(h)).
(b) Situation of professional women in labour market
Relying on the sworn statement and testimony of an expert in sociology, Dr. Pat Armstrong, the respondent submitted evidence of a major social development which she expected to make use of in her interpretation both of the Income Tax Act and section 15 of the Canadian Charter of Rights and Freedoms [being Part I of the Constitution Act, 1982, Schedule B, Canada Act 1982, 1982, c. 11 (U.K.) [R.S.C., 1985, Appendix II, No. 44]] (the Charter). Essentially, that evidence was that when women moved into the labour market in the 1970's this radically altered the landscape and the way in which business was conducted; that women who have young children have no choice if they want to work, and they do, but to make use of day-care services; that women bear by far the greatest burden of caring for children, even when they work away from home; that women who are self- employed incur additional problems when the time comes to have their children looked after, in par ticular because their working hours are unpredict able, they find it very hard to be away from their work when a problem arises involving the children, and if they are to go on operating their businesses
they have greater need of day-care services which are reliable and responsible in all respects and at all times. At the risk of simplifying Dr. Arm- strong's testimony, it seems advisable to set out what the Trial Judge concluded from this [at pages 73, 81 and 84]:
... Armstrong's evidence supports the notion that the availabil ity 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 evidence 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 there fore lowering the barrier by arriving at a satisfactory means of dealing with the cost of child care, would make good business sense.
... women bear by far the largest burden of child care.
... 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 consider able portion of women's income (approximately one-fifth) and is considered a high price item. As a high price item it constitutes a barrier to women's access to the economy.
(c) Fiscal history of child care expenses
In 1966, the Report of the Royal Commission on Taxation (the "Carter Report") expressly recommended that "Such things as commuting expenses, the costs of child care, and recreational club memberships should be explicitly denied as deductions from income" 2 and favoured instead the granting of tax credits to mothers working outside the home.
In 1969, the "Proposals for Tax Reform" (the White Paper) moved away from this recommenda tion and proposed the following: 3
2.7 We propose to permit deduction of the child care expenses that face many working parents today. The problem of adequately caring for children when both parents are work ing, or when there is only one parent in the family and he or she is working, is both a personal and a social one. We
2 A.B., vol. 2, at p. 243.
3 A.B., vol. 2, at p. 248.
consider it desirable on social as well as economic grounds to permit a tax deduction for child care expenses, under carefully controlled terms, in addition to the general deduc tion for children.
In 1972, as part of a major tax reform, Parlia ment accepted the proposals contained in the White Paper and adopted section 63 of the Income Tax Act. That section allowed a woman, and in certain well-defined cases a man, to deduct child care expenses of $500 per child from their income, with a maximum of $2,000 per family, and made this deduction subject to a considerable number of conditions.
In 1976, section 63 was amended [S.C. 1976- 77, c. 4, s. 21]. The deduction allowed per child rose from $500 to $1,000, and the total allowable per family rose from $2,000 to $4,000.
In 1983, section 63 was again amended [S.C. 1984, c. 1, s. 25]. The deduction allowed per child rose from $1,000 to $2,000, and the total allowed per family rose from $4,000 to $8,000. Additional ly, to correct what the Canadian Human Rights Tribunal had found to be discriminatory,' Parlia ment allowed men the same right to claim deduc tions as it had granted to women. In his budget speech on April 19, 1983 the Hon. Marc Lalonde, Minister of Finance, said that this amendment was one of four measures designed to assist lower- income families, working parents and others in needs and in the "Budget Papers" tabled by the Minister at that time, there is the following: 6
Through the Family Allowance program, the child tax credit, the child tax exemption, and the child care expense deduction, the federal government provides a comprehensive system of child benefits. [My emphasis.]
Finally, in 1988, section 63 was once again amended [S.C. 1988, c. 55, s. 39]. The deduction allowed per child rose from $2,000 to $4,000 for children six years and under, and the total of
° Bailey et al. v. M.N.R. (1980), 1 C.H.R.R. 193 (C.H.R.T.).
5 A.B., vol. 2, at p. 175.
6 A.B., vol. 2, at p. 179.
$8,000 allowed per family was dropped. In his budget speech on February 10, 1988, the Minister of Finance noted that this amendment and several others had been made to the Income Tax Act to give effect in tax legislation to the new government policy on child care, announced by the Minister of National Health and Welfare in December 1987.'
(d) Government policies on child care expenses
Certain ministerial statements made in the debates on the budget or on other measures are worth examining.
On April 21, 1983 the Hon. Monique Bégin, Minister of National Health and Welfare, said the following in the budget debate: 8
One of the areas that has brought forth a great deal of discussion is the child care expense deduction. The growing consensus ... is that the current child care expense deduction is totally inadequate ... The Government has responded through the budget, and I am pleased about that.
This measure is an excellent one. I realize it does not cover the entire cost of child care, but it has never been the policy of this Government to subsidize the total cost of child care. Our objective is to support the family in its role of bringing up children in a society where all family partners are working. [My emphasis.]
On February 12, 1988 the Hon. Michael Wil- son, Minister of Finance, in answer to an Opposi tion M.P. who charged that he was not doing enough for child care, said: 9
... the program put forward on behalf of the Government by the Minister of National Health and Welfare is a much more balanced program and provides a much broader response to the needs of Canadian working women and other women than would the more narrow approach which the Hon. Member would follow.
(e) Reports and Commissions
Governments both federal and provincial have explored the problems connected with child care and have looked at a range of solutions, including direct grants, tax deductions, tax credits and
7 A.B., vol. 2, at pp. 171-173.
8 Canada, House of Commons Debates (April 21, 1983, vol. 21, at p. 24744), A.B., vol. 3, at p. 476.
9 Canada, House of Commons Debates (February 12, 1988, vol. 10, at p. 12926), A.B., vol. 3, at p. 498.
grant[s] to private and public day-care centers. The parties referred in this connection to the Report of the Task Force on Child Care, prepared in 1985 for Status of Women Canada '° and to certain background papers;" to the Report by the National Council on Welfare, titled Child Care: A Better Alternative, prepared in December 1988; 12 to the Study of Wages and Employment Condi tions of Domestics and their Employers, prepared in 1985 by the Ontario Ministry of Labour; 13 and to the Report of the Task Force on Immigration Practices and Procedures, titled Domestic Workers on Employment Authorizations. 14
ARGUMENTS OF PARTIES
In their simplest form, the parties' arguments may be summarized as follows:
respondent: — child care expenses, inasmuch as the concept of a business expense is given a modern interpretation, are actually incurred by the taxpayer "for the purpose of gaining ... income from the business" within the meaning of para graph 18(1)(a) of the Act and are not "personal or living expenses" within the meaning of para graph 18(1)(h);
— the existence of a statutory deduc tion for child care expenses in section 63 of the Act does not in any way alter the taxpayer's right to rely on paragraph 18(1)(a);
— any other interpretation would mean that the inability of a self-employed taxpay er to claim a deduction for all the expenses reason ably incurred for child care would be a kind of discrimination prohibited by the Charter, and the courts cannot interpret legislation so as to make it contrary to the Charter.
appellant: — child care expenses are not business expenses, but personal or living expenses;
10 A.B., vol. 4, at pp. 521 et seq.
11 A.B., vol. 5, at pp. 618 et seq.
12 A.B., vol. 6, at pp. 855 et seq. '3 A.B., vol. 6, at pp. 913 et seq. 14 A.B., vol. 7, at pp. 999 et seq.
— in section 63 of the Act, Parliament dealt expressly with the question of child care expenses;
— it is not for the courts to question the validity of the socio-economic policies adopted by governments;
— as the Charter confers no right to deduct child care expenses, it is in no way a breach of the Charter to interpret the Income Tax Act as not authorizing this deduction as a business expense.
JUDGMENT A QUO
The Trial Judge first recognized [at page 75] that "Prior to 1972, child care expenses were treated as non-deductible personal expenses for income tax purposes". 15
On paragraph 18(1)(a), the Trial Judge said [at pages 72-73] that in his opinion that paragraph should be interpreted "in view of the social and economic realities of the times" and that he was not bound "by a cluster of cases decided in the 1950's and 1960's based on the reasoning of a decision made in 1891". He found [at page 73] that the respondent "exercised good business and commercial judgment in deciding to dedicate part of her resources from the law practice to the provision of child care" and that this decision by the respondent "was acceptable according to busi ness principles which include the development of intellectual capital, the improvement of productivi ty, the provision of services to clients and making available the resource which she sells, namely her time". He noted [at page 73], referring to the testimony of Dr. Armstrong, 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
' 5 See also B. J. Arnold, "The Deduction for Child Care Expenses in the United States and Canada: A Comparative Analysis" (1973), 12 West. Ont. L. Rev. 1, at pp. 26-27, and the cases cited there. Thus, for example, the salary of the nanny hired by a professional man or woman, or by a man whose wife was in hospital, was not recognized as a business expense.
the costs of child care, would make good business sense". He concluded [at page 73] that "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".
On section 63, the Trial Judge, based on an admission made by counsel for the appellant con cluded [at page 75] "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".
Finally, rather than stopping there, as he might have done, the Trial Judge considered the argu ment based on the Charter and concluded [at page 84], with respect to taxation subsequent to April 17, 1985, that "an interpretation of the Income Tax Act which ignores the realities that women bear a major responsibility for child rear ing and that the costs of child care are a major barrier to women's participation, would itself vio late section 15 of the Charter".
SECTIONS 9(1), 18(1)(a) AND (h) AND 63 OF THE INCOME TAX ACT
According to subsection 9(1) of the Act,
9. (1) ... a taxpayer's income for a taxation year from a business or property is his profit therefrom for the year.
According to paragraphs 18(1)(a) and (h) of the Act,
18. (I) In computing the income of a taxpayer from a business or property no deduction shall be made in respect of
(a) an outlay or expense except to the extent that it was made or incurred by the taxpayer for the purpose of gaining or producing income from the business or property;
(h) personal or living expenses of the taxpayer except travel ling expenses (including the entire amount expended for meals and lodging) incurred by the taxpayer while away from home in the course of carrying on his business;
As the Trial Judge noted, 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. 16 As a general rule, in determining whether an expense can be deducted, the Court first decides whether the calculation of profit was made in accordance with ordinary business principles and the well- established principles of current business practice. If not, the Court does not have to go any further. If it was, the Court must then consider whether the expense was "made or incurred by [the taxpay er] for the purpose of gaining ... income from a business...."" In the case at bar, I will reverse the usual order. I will deal first with paragraph 18(1)(a) and only consider subsection 9(1) if I come to the conclusion that the expense is not prohibited by that paragraph.
At the hearing counsel for the parties went to great lengths to persuade the Court to adopt their own interpretations of the expression "for the pur pose of" ("en vue de") to be found in paragra ph 18(1)(a). While the respondent invited the Court to give an interpretation that takes into account contemporary reality in the business world, and in particular the specific problems of child care faced by women in business, the appel lant suggested a new concept which the Trial Judge described as the "business or revenue-pro ducing circle": expenses incurred within the reve- nue-producing circle are properly speaking deduct ible, but those incurred by the taxpayer simply to approach the circle are not. The appellant relied in particular on the recent judgment of the Supreme Court of Canada, Mattabi Mines Ltd. v. Ontario (Minister of Revenue),' 8 in which Wilson J. said the following [at page 189] for the Court:
The only thing that matters is that the expenditures were a legitimate expense made in the ordinary course of business with the intention that the company could generate a taxable income some time in the future. [My emphasis.]
16 Foothills Pipe Lines (Yukon) Ltd. v. The Queen (1990), 90
DTC 6607 (F.C.A.), at p. 6612.
l' Royal Trust Co., The v. Minister of National Revenue,
[1956-60] Ex.C.R. 70, at p. 72.
's [1988] 2 S.C.R. 175.
and confirmed [at page 189] for all practical purposes the interpretation given by the federal government itself in an Interpretation Bulletin dated April 26, 1982, on paragraph 18(1)(a):,
I find support for this conclusion in the federal government's Interpretation Bulletin dealing with s. 18(1)(a). An Interpreta tion Bulletin does not, of course, have the binding effect of law (I discuss this later) but such Bulletins do have persuasive force in the event of ambiguity. The federal government's Bulletin IT-487, April 26, 1982, entitled "General Limitation on Deduction of Outlays or Expenses", states in part:
(b) "... for the purpose ...". It is not necessary to show that the income actually resulted from the particular outlay or expenditure itself. It is sufficient that the outlay or expense was a part of the income-earning process.
I reject at the outset the respondent's argument that the existence of a legal obligation to care for children 19 is a reason for treating child care expenses as a business expense. The legal obliga tion in the case at bar—which I stress is imposed equally on both spouses and is in any case a natural obligation—is imposed on the parents as parents, and follows them wherever they may be, whether they are absent on business, pleasure or for any other reason. The law does not impose an obligation on the respondent to look after her children because she is operating a business.
Mattabi Mines lends support to the appellant's argument that the words "for the purpose of" ("en vue de") in paragraph 18(1)(a) of the Act should be interpreted as meaning "in the process of earn ing" ("pendant le processus de gain"), and that deductible expenses should be incurred "in the ordinary course of business" ("dans le cours ordinaire des affaires"). 20 However, that judg ment did not deal with the question of child care
19 See Criminal Code, R.S.C., 1985, c. C-46, ss. 215 and 218; Child Welfare Act, R.S.O. 1980, c. 66, s. 19(1)(b)(ii), (iii).
20 The parties referred the Court to a number of articles from journals which have examined the validity of the conclusion arrived at by the Trial Judge: Joe E. Hershfield, "Recent Trends in the Deduction of Expenses in Computing Income", (1989), Can. Tax Found., 44:1-44:23, at p. 44:09; Faye Wood man, "A Child Care Expenses Deduction, Tax Reform and the Charter: Some Modest Proposals" (1989), 8 Can. JI. Fam. L. 371; Alan J. Dickson, "Deduct the Nanny?" (1989), 16 N.S. L. News No. 2, p. 17; Kathleen S. M. Hanly, "A Break for Working Women" (1989), 37 Cdn. Tax Jl. 733.
or discuss the possibility of extending the tradi tional concept of a business expense in light of the new social reality referred to by the respondent and I would hesitate to regard Wilson J.'s remarks as precluding respondent's contentions.
Like the Trial Judge and like the respondent, I consider that judicial interpretation is not cast in stone and must be sufficiently flexible and sensi tive to adapt to changing circumstances. I have no problem with the idea that business tax law has developed in a context in which women had no place, and I have no hesitation in saying that concepts should be extended by the courts in order to take into account the presence of women in the business world, and in the labour market, provided that these concepts have been developed in relation to these circumstances which have since changed or that the legislature has not itself adapted its legislation to these new realities. But the concept of a business expense has been developed exclu sively in relation to the commercial needs of the business, without any regard to the particular needs of those in charge of the business, and I have difficulty in seeing how a change in the particular needs of these persons could justify modifying an interpretation which has nothing to do with these needs. Having said that, I consider that the case at bar does not require a conclusion on this point for the simple reason that Parliament has itself already amended the Income Tax Act to provide for the specific situation relied on by the respondent.
In 1972, by adopting section 63 which in sub- paragraph (3)(a)(i) authorizes the deduction of child care expenses "to enable the taxpayer, or the supporting person of the child for the year, who resided with the child at the time the expense was incurred, (A) to perform the duties of an office or employment, (B) to carry on a business either alone or as a partner actively engaged in the business . . ." (my emphasis), Parliament has expressly covered self-employed parents as well as salaried parents. (I use the word "parent" to sim plify the discussion; it is understood that section 63 deals more generally with an individual
providing the support for a child and residing with the child at the time the expense was incurred.) In the case at bar, the respondent incurred the child care expenses to enable her "to carry on a business ... as a partner actively engaged in the business". Had section 63 been drafted to apply specifically to the respondent's case, it would not have been drafted otherwise.
That is not all. The expression "earned income" in paragraph (3)(b) is defined as "the aggregate of (i) all salaries, wages and other remuneration ... received ... by virtue of offices and employments" and (iii) his incomes from all businesses carried on either alone or as a partner actively engaged in the business" (my emphasis). The respondent's "earned income" in the case at bar is the income she derived from her partnership, and it is that income which is covered by section 63.
The intent of Parliament, referred to above, and the fact that self-employed mothers were covered by the very wording of the new legislation just as much as salaried mothers, are so clear that I was surprised to read in paragraph 60 of the respond ent's submission: "Further, there is no indication either in the debates or in the permissive wording of section 63 itself that, in enacting this provision designed to redress the inferior economic position of women who were by and large employees in the labour market, the Legislature intended to pre clude self-employed women from deducting reasonable costs of child care expenses incurred for the purpose of gaining income".
Whatever may have been the admission made at trial by counsel for the appellant on a point of law—which certainly cannot bind the Court, and which counsel hastened to withdraw in this Court—it is not possible to interpret paragraph 18(1)(a) of the Act without reference to section 63. As Professor Faye Woodman notes in her article mentioned above, at page 377, "surely the existence of section 63 is very important, if not
determinative, in the interpretation of sections 9 and 18". Section 63 is really a code in itself, complete and independent, and it does not matter in the circumstances whether it was inserted in one subdivision of the Act rather than another, as by its very wording, which is clear and not open to question, it covers a parent carrying on a business and income earned by the parent from the opera tion of a business.
Section 63 was adopted in 1972, and thus at a time when according to the testimony of Dr. Arm- strong herself (transcript, page 217), an important social change was occurring with the entry of women of child-bearing age into the labour market. That section has been amended three times, in 1976, 1983 and 1988. In light of the evidence presented of Parliament's intent, it is difficult not to see this section as a "liberalization" which, for obvious monetary reasons, the respond ent would have preferred to see take the form of a deduction for business expenses rather than a deduction for parental expenses, a new deduction which is generally applicable and limited to specif ic amounts, applying to all parents whatever the nature of their work, whatever their income and whatever their sex.
I therefore come to the conclusion that the respondent's particular situation is, literally and fundamentally, one of those which Parliament clearly had in mind when it adopted and then amended section 63. As I have already said, I do not in so doing disregard the possibility of applying a contemporary approach to the interpretation of tax legislation; I am simply saying that, in the case at bar, Parliament in 1972 adapted the Act to contemporary reality when it established a system favouring salaried mothers and self-employed mothers.
As I have decided that in the case at bar child care expenses are not a business expense within the meaning of paragraph 18(1)(a), but a parental expense within the meaning of section 63, I do not have to determine whether they have been correct ly taken into account in determining the "profit"
of the business within the meaning of subsection 9(1).
SECTION 15 OF CHARTER
Although in a notice of a constitutional question the respondent indicated her intent to challenge the constitutionality of sections 18 and 63 of the Income Tax Act, her counsel admitted at the hearing that that notice was only pro forma and she was not challenging the constitutionality of those two sections as such. Her argument based on the Charter derives not from the actual wording of those two provisions but from the interpretation this Court would give them if by chance it held— as I have just decided—that child care expenses incurred by a parent are not business expenses. 21
In support of this proposition, the respondent cited the following extract from the opinions of Lamer J. (as he then was) and L'Heureux-Dubé J. in, respectively, Slaight Communications Inc. v. Davidson 22 and Hills v. Canada (Attorney General): 23
Although this Court must not add anything to legislation or delete anything from it in order to make it consistent with the Charter, there is no doubt in my mind that it should also not interpret legislation that is open to more than one interpretation so as to make it inconsistent with the Charter ... (Lamer J.)
Appellant, while not relying on any specific provision of the Charter, nevertheless urged that preference be given to Charter values in the interpretation of a statute, namely freedom of association. I agree that the values embodied in the Charter must be given preference over an interpretation which would run contrary to them ... (L'Heureux-Dubé J.)
I do not think that by these statements the Supreme Court of Canada intended to say that legislation should be minutely examined to deter mine whether, by an extreme interpretation, it might not be possible to implicate the Charter directly or indirectly. Strictly speaking, any legis-
21 The argument based on s. 15 is admissible with respect to that part of the deductions which is claimed for the salary paid after s. 15 came into effect, that is after April 17, 1985.
22 [1989] 1 S.C.R. 1038, at p. 1078.
23 [1988] 1 S.C.R. 513, at p. 558.
lation is an invasion of a right, and in the field of taxation in particular, everything or nearly every thing can be immediately or remotely connected in some way to the concept of equality. On the question of economic rights and section 15, I adopt these observations of Hugessen J.A. in Smith, Kline & French Laboratories Ltd. v. Canada (Attorney General) [at pages 367-368, 369 and 3711: 24
The rights which [section 15] guarantees are not based on any concept of strict, numerical equality amongst all human beings. If they were, virtually all legislation, whose function it is, after all, to define, distinguish and make categories, would be in prima fade breach of section 15 and would require justification under section 1. This would be to turn the exception into the rule. Since courts would be obliged to look for and find section 1 justification for most legislation, the alternative being anarchy, there is a real risk of paradox: the broader the reach given to section 15 the more likely it is that it will be deprived of any real content.
While the generalisation will no doubt require refinement, it would seem to me that, since the Charter's primary focus is upon personal rights, liberties and freedoms, categories whose main impact is elsewhere, such as on property and economic rights, will be less subject to scrutiny.
To succeed, plaintiffs have to urge, as they do, that section 15 guarantees absolute equality to every individual in every con ceivable circumstance and that every possible distinction that can result in one receiving a benefit or incurring a disadvantage which is not enjoyed or suffered by all can only be justified, if at all, under section 1 ... As I have attempted to indicate, that view seems to me to be untenable.
which are essentially the same as those of La Forest, Wilson and McIntyre JJ. in Andrews v. Law Society of British Columbia: 25
That having been said, I am convinced that it was never intended in enacting s. 15 that it become a tool for the wholesale subjection to judicial scrutiny of variegated legisla tive choices in no way infringing on values fundamental to a free and democratic society. Like my colleague, I am not prepared to accept that all legislative classifications must be rationally supportable before the courts. Much economic and social policy-making is simply beyond the institutional compe-
24 [1987] 2 F.C. 359 (C.A.).
25 [1989] 1 S.C.R. 143.
tence of the courts: their role is to protect against incursions on fundamental values, not to second guess policy decisions. [La Forest J., at page 194.]
If every distinction between individuals 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. [Wilson J., at page 154.]
It is not every distinction or differentiation in treatment at law which will transgress the equality guarantees of s. 15 of the Charter. It is, of course, obvious that legislatures may—and to govern effectively must—treat different individuals and groups in different ways. Indeed, such distinctions are one of the main preoccupations of legislatures. The classifying of individuals and groups, the making of different provisions respecting such groups, the application of different rules, regulations, require ments and qualifications to different persons is necessary for the governance of modern society. [McIntyre J., at pages 168-169.]
At bottom, the approach put forward by the respondent risks trivializing the Charter. As Gal- ligan J. of the Ontario High Court of Justice concluded in Ontario Public Service Employees Union et al. v. National Citizens Coalition Inc. et al.: 26
The argument advanced with respect to s. 15(1) is that the circumstances disclosed in paras. 10 and 11 of the statement of claim show that certain taxpayers could be disentitled to equal benefit of the tax laws. I have some difficulty in understanding how tax laws can be said to bestow benefits on taxpayers. But, having said that, it is clear that some taxpayers are entitled to certain deductions from their income while others are not. The Income Tax Acts are full of examples where one taxpayer for certain reasons has certain deductions which another taxpayer does not have. Also, certain taxpayers are called upon to pay more taxes than others. Some taxpayers are called upon to pay taxes at a higher rate than others.
The Charter, as it has been said in many, many cases, too numerous to mention, is an important piece of legislation which constitutionally protects important rights and freedoms of people who live in this country. It seems to me that it comes very close to trivializing that very important constitutional law, if it is used to get into the weighing and balancing of the nuts and bolts of taxing statutes. [My emphasis.]
n (1987), 60 O.R. (2d) 26 (H.C.), at p. 29; affd Ontario Court of Appeal (1990), 74 O.R. (2d) 260 (C.A.). See also The Queen v. Kurisko (S.R.), [1988] 2 C.T.C. 254 F.C.T.D., at pp. 268-269, Walsh D.J.; affd [1990] 2 C.T.C. 136 (F.C.A.); leave to appeal denied by the Supreme Court of Canada on Septem- ber 17, 1990; Tiberio v. M.N.R., [1990] 2 C.T.C. 2545 (T.C.C.).
Accepting the respondent's arguments would be to fall into the trap of overshooting against which the Supreme Court of Canada has constantly warned the courts. 27 As Dickson C.J., dissenting, noted in PSAC v. Canada: 28
In my opinion, courts must exercise considerable caution when confronted with difficult questions of economic policy. It is not our judicial role to assess the effectiveness or wisdom of various government strategies for solving pressing economic problems. The question how best to combat inflation has per plexed economists for several generations. It would be highly undesirable for the courts to attempt to pronounce on the relative importance of various suggested causes of inflation, such as the expansion of the money supply, fiscal deficits, foreign inflation, or the built-in inflationary expectations of individual economic actors. A high degree of deference ought properly to be accorded to the government's choice of strategy in combatting this complex problem. Due deference must be paid as well to the symbolic leadership role of government. Many government initiatives, especially in the economic sphere, necessarily involve a large inspirational or psychological com ponent which must not be undervalued. The role of the judici ary in such situations lies primarily in ensuring that the select ed legislative strategy is fairly implemented with as little interference as is reasonably possible with the rights and free doms guaranteed by the Charter.
The respondent more or less submitted that if a situation of social or economic inequality is not redressed by the legislature in a given statute, the courts should interpret that statute so as to redress the inequality, otherwise the interpretation of the statute would be contrary to the Charter and the statute would itself become contrary to the Chart er, in its application if not in its actual wording. With all due respect, I feel this would be giving the courts a function which the Charter has not given them and imposing on legislatures a burden which
27 See R. v. Big M Drug Mart Ltd. et al., [1985] 1 S.C.R. 295, at p. 345, Dickson J.; Andrews v. Law Society of British Columbia, [1989] 1 S.C.R. 143, at p. 169, per McIntyre J.; R. v. Turpin, [1989] 1 S.C.R. 1296, at p. 1333, per Wilson J.; R. v. Beare, [1988] 2 S.C.R. 387, at p. 401, per La Forest J.
28 [1987] 1 S.C.R. 424, at p. 442. See also R. v. Whyte, [1988] 2 S.C.R. 3, at p. 26; R. v. Schwartz, [1988] 2 S.C.R. 443, at pp. 487, 489 and 493; United States of America v. Cotroni, [1989] 1 S.C.R. 1469, at pp. 1495 and 1515-1516; Irwin Toy Ltd. v. Quebec (Attorney General), [1989] 1 S.C.R. 927, at p. 990; McKinney v. University of Guelph, [1990] 3 S.C.R. 229, at p. 285.
the Charter, far from imposing it on them, has been careful to avoid.
The Charter imposes on legislatures no obliga tion to redress all social or economic inequalities. Rather, in subsection 15(2), it allows them to adopt "any law, program or activity that has as its object the amelioration of conditions of disadvan taged individuals or groups". It seems obvious to me that what legislators have a power to do, they do not have a duty to do.
The respondent's proposition appears to mean, for all practical purposes, that through the right to equality recognized in section 15, the Charter guarantees individuals every right, whether or not included in those expressly defined in the Charter. For example, in the case at bar, though the right to work and the right to be in a position to work are not recognized by the Charter, an individual— on these facts a woman, a parent, but it could be anyone who can make use of the provisions of section 15—could under cover of section 15 require legislatures to adopt measures enabling him or her to work and be in a position to work. That is not the effect of section 15.
In my opinion, no one could have required Par liament to adopt section 63 and allow a parent to deduct child care costs. Parliament adopted sec tion 63 in the enlightened exercise of its discretion, and I do not see on what basis a particular group of professional women or parents, benefiting from the deduction allowed by that section, could require that the section be amended by the legisla ture or interpreted by the courts so as to give the group the right to take a further deduction. It is the same as saying that when a social promotion program is adopted pursuant to subsection 15(2), Parliament must adopt as many sub-programs as there are sub-groups and the courts must deter mine which sub-program best corresponds to which sub-group. The situation would of course be different if in section 63 Parliament had provided that only women would be entitled to deduct child care costs. I note in this regard that it is precisely because in its original version section 63 applied to all women but only to some men that, in 1983, Parliament was obliged to give identical treatment
to both. 29 I also note that in the case at bar the respondent, who is in some measure claiming privi leged treatment for professional women and par ents, does not argue that the Income Tax Act would create unlawful discrimination between professional and salaried taxpayers if her argu ment was allowed. As Professor Faye Woodman argues: 3 °
Certainly, in the Canadian context, one of the problems with Symes is that the "judicial interpretation" of sections 9 and 18 will affect other classifications, i.e.: employed and self- employed. But even accepting that this result is appropriate, the question still remaining to be answered is whether it is salutary from a tax policy perspective. The answer is a resounding no. Under this new regime, the richer the taxpayer, the more her child care expenses will be subsidized by other Canadian taxpayers. The poorer the taxpayer, the less she will receive. The poorest will receive nothing.
By adopting section 63 and deciding to create a new type of personal deduction for parents apply ing to child care expenses, Parliament made a political, social and economic choice. On the evi dence presented, that choice favours women more than men, and the respondent has no complaint about this. I do not see how a provision which favours all women could directly or indirectly infringe the right of women to equality, 31 and I am not prepared to concede that professional women make up a disadvantaged group against whom a form of discrimination recognized by section 15 has been perpetrated by the adopting of section 63, or would be perpetrated by this Court's refusal to interpret paragraph 18(1)(a) so as to give a self-employed mother an additional deduc tion for a business expense; and even if there were discrimination within the meaning of section 15, I
29 Schachter v. Canada, [1990] 2 F.C. 129 (C.A.) appealed to the Supreme Court of Canada by leave to appeal granted by the Court on November 15, 1990, concerned a provision of the Unemployment Insurance Act [R.S.C., 1985, c. U-1] which was discriminatory in itself because it conferred rights on adoptive but not on natural parents. That case does not apply here, since s. 18(1)(a) of the Act is not in itself in any way discriminatory.
30 Supra, note 20, at pp. 382-383.
31 I refer here to the actual principle of s. 63, not its particular provisions, none of which as I have already said is the subject of a constitutional challenge in the case at bar.
consider in light of the ample evidence of justifica tion submitted to the Court that it is not the function of this Court to substitute its choice for the one made by Parliament, with full knowledge of the options proposed and in keeping with an overall policy of assisting the family.
The Court is here being asked not only to fish in the most troubled socio-economic waters, but also to swim against the tide of a solution expressly adopted by Parliament in preference to that pro posed by the respondent. The Charter, the taxpay ers and the legal system would be badly served by acceding to such a request.
DISPOSITION OF CASE
I would allow the appeal and restore the notices of assessment issued by the Minister of National Revenue, with costs to the appellant at trial and on appeal.
PRATTE J.A.: I agree.
MACGUIGAN J.A.: I concur.
 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.