Date: 19981112
Docket: 98-588-IT-I
BETWEEN:
DEBRA FORD,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasons for Judgment
Beaubier, J.T.C.C.
[1] This appeal pursuant to the Informal Procedure respecting the Appellant's 1993, 1994 and 1995 taxation years was heard at Vancouver, British Columbia, on October 9, 1998. The Appellant was the only witness.
[2] The assumptions in the Reply to the Notice of Appeal are correct. Paragraphs 1 to 9 outline the problem. They read:
A. STATEMENT OF FACTS
1. He admits the Appellant did not report any income during the years affecting the subject matter of this appeal; that entitlement for Child Tax Benefits is calculated automatically, without application, using information captured from income tax returns filed; that the same method is used to determine eligibility for the B.C. Family Bonus which the federal government administers on behalf of the provincial government of B.C.; that the Appeals Division advised the Appellant the system used to capture data from income tax returns was not initially properly programmed; that Revenue Canada advised the Appellant of a tax balance outstanding including a balance owing for the B.C. Family Bonus.
2. He also admits the Appellant stated her spouse's income on the relevant tax returns but denies that this information was used for the purpose of determining eligibility for Child Tax Benefits.
3. With respect to the second sentence of the Notice of Appeal, he states that the Appellant failed to state the date when and what portion of the alleged balance owing of $5,526.66 applied to Child Tax Benefit or the B.C. Family Bonus.
4. He has no knowledge of the Appellant's financial situation nor her alleged inability to pay her outstanding tax balance.
5. The Appellant was paid Child Tax Benefits of $2,040, $2,040 and $1,870 for the periods July 1994 - June-1995, July 1995 - June 1996 and July 1996 - May 1997, respectively.
6. The Minister of National Revenue (the "Minister") notified the Appellant on June 20, 1997 that the amount of Child Tax Benefit to which she was entitled to had been recalculated to $826.10, $644.40,and $967.08, respectively, and therefore requested that overpayments of $1,213.90, $1,395.60 and $902.92, respectively, be repaid for the periods July 1994 - June 1995, July 1995 - June 1996 and July 1996 - May 1997.
7. In so notifying the Appellant, the Minister made the following assumptions of fact:
(a) at all material times, the Appellant was married to and cohabiting with her spouse Brian Ford;
(b) the Appellant is an "eligible individual" for the purpose of the Child Tax Benefit;
(c) the "adjusted earned income" by virtue of Brian Ford's income for Child Tax Benefit purposes for taxation years 1993, 1994 and 1995 was $59,435, $61,965 and $62,623, respectively;
(d) for Child Tax Benefit purposes, the "adjusted income" for taxation years 1993, 1994 and 1995 was $50,199, $53,833 and $45,621, respectively;
(e) at all material times, there were two qualified dependants, who were over the age of seven but had not yet attained the age of eighteen years; and
(f) the Appellant received overpayments of Child Tax Benefit of $1,213.90, $1,395.60 and $902.92 for the periods July 1994 - June 1995, July 1995 -June 1996 and July 1996 - May 1997, respectively.
B. ISSUES TO BE DECIDED
8. The issue is whether the Appellant received overpayments of Child Tax Benefit.
C. STATUTORY PROVISIONS, GROUNDS RELIED ON AND RELIEF SOUGHT
9. He relies on sections 122.6, 122.61, 122.62 and subsections 152(3.2) and 152(3.3) of the Income Tax Act as amended to apply after 1992.
[3] The Income Tax Act taxes the income of a person resident in Canada. Sections 2 and 3 and their introductions read:
Part I - Income Tax
Division A - Liability for Tax
SECTION 2: Tax payable by persons resident in Canada.
(1) An income tax shall be paid, as required by this Act, on the taxable income for each taxation year of every person resident in Canada at any time in the year.
(2) The taxable income of a taxpayer for a taxation year is the taxpayer's income for the year plus the additions and minus the deductions permitted by Division C.
(3) Where a person who is not taxable under subsection (1) for a taxation year
(a) was employed in Canada,
(b) carried on a business in Canada, or
(c) disposed of a taxable Canadian property,
at any time in the year or a previous year, an income tax shall be paid, as required by this Act, on the person's taxable income earned in Canada for the year determined in accordance with Division D.
Division B - Computation of Income
Basic Rules
SECTION 3: Income for taxation year.
The income of a taxpayer for a taxation year for the purposes of this Part is the taxpayer's income for the year determined by the following rules:
(a) determine the total of all amounts each of which is the taxpayer's income for the year (other than a taxable capital gain from the disposition of a property) from a source inside or outside Canada, including, without restricting the generality of the foregoing, the taxpayer's income for the year from each office, employment, business and property,
(b) determine the amount, if any, by which
(i) the total of
(A) all of the taxpayer's taxable capital gains for the year from dispositions of property other than listed personal property, and
(B) the taxpayer's taxable net gain for the year from dispositions of listed personal property,
exceeds
(ii) the amount, if any, by which the taxpayer's allowable capital losses for the year from dispositions of property other than listed personal property exceed the taxpayer's allowable business investment losses for the year,
(c) determine the amount, if any, by which the total determined under paragraph (a) plus the amount determined under paragraph (b) exceeds the total of the deductions permitted by subdivision e in computing the taxpayer's income for the year (except to the extent that those deductions, if any, have been taken into account in determining the total referred to in paragraph (a)), and
(d) determine the amount, if any, by which the amount determined under paragraph (c) exceeds the total of all amounts each of which is the taxpayer's loss for the year from an office, employment, business or property or the taxpayer's allowable business investment loss for the year,
and for the purposes of this Part,
(e) where an amount is determined under paragraph (d) for the year in respect of the taxpayer, the taxpayer's income for the year is the amount so determined, and
(f) in any other case, the taxpayer shall be deemed to have income for the year in an amount equal to zero.
[4] Sections 122.6 to 122.63 of the Income Tax Act were inserted by Chap. 7, S.C. 1994 effective after 1992 respecting "overpayments" of the Child Tax Benefit deemed to arise after 1992. They are contained in Part I, Division E, Subdivision a.1, the introductions of which read, respectively:
DIVISION E - Computation of Tax
...
Subdivision a.1 - Child Tax Benefit
Subsection 122.61(1) reads:
SECTION 122.61
(1) Deemed overpayment [Child Tax Benefit]
Where a person and, where the Minister so demands, the person's cohabiting spouse at the end of a taxation year have filed a return of income for the year, an overpayment on account of the person's liability under this Part for the year is deemed to have arisen during a month in relation to which the year is the base taxation year, equal to the amount determined by the formula
1/12 (A-B)
where
A is the total of
(a) the product obtained by multiplying $1,020 by the number of qualified dependants in respect of whom the person was an eligible individual at the beginning of the month,
(b) the product obtained by multiplying $75 by the number of qualified dependants, in excess of 2, in respect of whom the person was an eligible individual at the beginning of the month, and
(c) where the person is, at the beginning of the month, an eligible individual in respect of one or more qualified dependants, the amount determined by the formula
C - D
where
C is the lesser of $500 and 8% of the amount, if any, by which the person's adjusted earned income for the year exceeds $3,750, and
D is 10% of the amount, if any, by which the person's adjusted income for the year exceeds $20,921, and
(d) the amount determined by the formula
E - F
where
E is the product obtained by multiplying $213 by the number of qualified dependants who have not attained the age of 7 years before the month and in respect of whom the person is an eligible individual at the beginning of the month, and
F is 25% of the total of all amounts deducted under section 63 in respect of qualified dependants in computing the income for the year of the person or the person's cohabiting spouse; and
B is 5% (or where the person is an eligible individual in respect of only one qualified dependant at the beginning of the month, 2 ½%) of the amount, if any, by which the person's adjusted income for the year exceeds $25,921.
[5] Subsection 122.61(1) deems a restricted overpayment of income tax based upon a calculation which includes Mr. Ford's income. Thereupon the overpayment was given to Mrs. Ford [see subsections 164(2.3), 164(1.5), 160.1(1), 152(1) and Regulation 6301]. Under the authority of subsection 122.61(1) Revenue Canada paid Mrs. Ford an amount which was calculated pursuant to section 122.61.
[6] The amount paid to Mrs. Ford was more than section 122.61 described. Apparently the computer calculating the amount was programmed incorrectly. Now Revenue Canada wants Mrs. Ford to repay the excess of the amount that it paid her by mistake. It does not want, and is not entitled to charge, any interest or penalties for the money it overpaid.
[7] This Court has examined section 122.61 and the calculations respecting Mrs. Ford. According to the deemed restricted overpayment described in subsection 122.61(1) Mrs. Ford was paid, respectively, $1,213.90, $1,395.60 and $902.92 too much.
[8] However section 122.61 warrants a closer examination. The "person's adjusted income" and the "adjusted earned income" of Debra Ford is defined by section 122.6 to be the combined amounts of both Mr. and Mrs. Ford. The deemed overpayment described in section 122.61 is then reduced by 5% of the "adjusted income" exceeding $25,921. There are two problems with this:
(i) The scheme is based in part on Mr. Ford's income.
Section 2, which is Division A of Part I (which also includes Divisions B and E), only authorizes an income tax on Mrs. Ford on account of her income, not Mr. Ford's. Thereafter section 3 authorizes a computation of Mrs. Ford's income, not Mr. Ford's. There is no authorization respecting Mrs. Ford for a calculation which includes Mr. Ford's income or earned income. As a result, neither income tax nor an overpayment respecting Mrs. Ford can be deemed or assessed under Part I of the Income Tax Act using Mr. Ford's income.
(ii) The "deemed overpayment" is not an overpayment at all.
Division E - Computation of Tax, of Part I, which includes sections 122.6 to 122.63, deems an overpayment using Mr. Ford's income. But the fundamental sections of the Income Tax Act to tax income and to calculate income do not authorize those inclusions respecting Mrs. Ford so as to permit the next step, namely the computation of tax using Mr. and Mrs. Ford's income taken together so as to deem an overpayment. The deemed overpayment does not relate to Mrs. Ford's tax. Nor does it relate to any overpayment of her tax. Mrs. Ford never paid any tax. Rather, the "overpayment" constitutes a payment of money to Mrs. Ford for which there was no authorization in the Income Tax Act. The Income Tax Act is to tax. It is not to pay benefits which a draftsman words in the guise of deemed "overpayments".
The Income Tax Act could not deem and collect an income tax from Mrs. Ford on this basis and it cannot deem and pay an overpayment to Mrs. Ford on this basis. There is a limit to the powers granted in the Income Tax Act.
[10] For these reasons, the Court finds that the Income Tax Act does not authorize the assessment of these amounts, nor does it authorize their payment. The alleged "overpayments" were not overpaid. There was no legal authority to pay them to Mrs. Ford in the first place.
[11] The appeal is allowed. This matter is referred to the Minister of National Revenue for reconsideration and reassessment on the basis that Mrs. Ford is not to pay the alleged overpayments described in paragraph 10 of the Reply to the Notice of Appeal. Mrs. Ford prepared her own Notice of Appeal and came from Chilliwack to Vancouver to prosecute it; she is awarded $100 in costs on account of her out of pocket disbursements.
Signed at Ottawa, Canada this 12th day of November 1998.
"D.W. Beaubier"
J.T.C.C.