2002-3842(IT)G
TAX COURT OF CANADA
In Re: The Income Tax Act (Canada)
BETWEEN:
JAMES T. GRENON
Appellant
- and -
HER MAJESTY THE QUEEN
Respondent
3rd AMENDED NOTICE OF APPEAL
A. Address of Appellant
1. The address of the Appellant is in care of his solicitors at the amended address for service below.
B. Identification of Assessments Under Appeal
2. Taxation years ended:
(a) December 31, 1999, which was subject to a Notice of Reassessment dated September 24, 2001. A Notice of Confirmation in respect of the Notice of Reassessment was issued July 10, 2002;
(b) December 31, 1999, which was subject to a further Notice of Reassessment dated October 22, 2003. A Notice of Confirmation in respect of the Notice of Reassessment was previously issued July 10, 2002; and
(c) December 31, 2000, which was subject to a Notice of Reassessment dated December 10, 2001. A Notice of Confirmation in respect of the Notice of Reassessment was issued July 10, 2002.
C. Material Facts Relied On
1999 Taxation Year
3. The Appellant has at all material times resided in Alberta. He filed his return of income for the 1999 taxation year reporting taxable income of $636,444.
4. The Appellant was at all material times and remains the joint custodial parent of the children of his marriage. He has at all times fulfilled the role of a loving father, supporting his children's emotional, physical, mental and financial needs. However, in determining the amount of child support to be paid by the Appellant to his ex-wife, it became necessary to retain legal services for litigation purposes.
5. In 1999, the Appellant therefore incurred and paid legal fees and disbursements in obtaining a court order for child support. In filing his 1999 income tax return, however, he did not claim a deduction in respect of those amounts.
6. By request dated April 26, 2001, the Appellant requested an adjustment to his return of income to increase line 232 (Other Deductions - Legal Fees) of the T1 General from $0 to $11,816 to account for legal fees paid in 1999 with regard to costs in obtaining a court order for child support, along with unrelated adjustments that were granted or that relate to issues not relevant to this appeal.
7. Pursuant to a letter to the Appellant from T1 Client Services at the Winnipeg Taxation Centre dated September 17, 2001, the Minister refused to allow the Appellant's claim for a deduction of these legal fees, on the basis that in order to deduct those fees, they had to have been incurred to get a court order when suing a "spouse or former spouse in a Family Court to establish the amount of support payments for which a right already exists".
2000 Taxation Year
9. The Appellant continued to incur and pay legal fees during his 2000 taxation year in obtaining an order for child support. Specifically, he paid legal fees and deducted a substantiated total of $116,360.65 in respect of obtaining the order for child support in his return of income and subsequent filings with the Minister.
10. Pursuant to a letter dated December 27, 2001 the Minister denied the Appellant's claim for a deduction of these legal fees.
10.1 In the July 10, 2002 Notice of Confirmation of the Minister, the Minister denied the deductibility of the claimed legal fees on the basis that: "...you have not shown that the legal expense[s]...you paid in the year were for collecting or establishing a right to income.".
10.2 The apparent basis for the Minister's denial of the Appellant's deduction as published in income tax bulletin IT-99R5 at paragraphs 17 through 21. IT-99R5 stipulates in part that:
...since children have a pre-existing right, arising from legislation, to support or maintenance, legal costs to obtain an order for child support are deductible....
11. The Appellant was required to incur these legal fees to establish the proper amount and obtain an order for child support in relation to the joint financial obligation of the Appellant and his former spouse to financially support their children both generally and under the provisions of the Divorce Act and Federal Child Support Guidelines (the "Guidelines"). The Order granted by the Court provided for an amount less than that sought by the Appellant's spouse.
D. Issues To Be Decided
13. The primary issue to be decided is whether the deduction of legal fees by the Appellant should be allowed. In determining the primary issue, the following sub-issues must be determined:
(a) Are the legal fees properly deductible from income, or are they barred from deduction applying the restriction imposed by paragraph 18(1)(a) of the Income Tax Act (the "Act") whereby no deduction shall be made in respect of an expense except to the extent it was made or incurred by the taxpayer for the purpose of gaining or producing income from a business or property?
(b) If the legal fees are not properly deductible under paragraph 18(1)(a) of the Act, does paragraph 18(1)(a) of the Act infringe upon the Appellant's rights to equal protection and equal treatment under the law pursuant to subsection 15(1) of the Canadian Charter of Rights and Freedoms (the "Charter") through: (a) imposing differential treatment between the appellant and others; (b) where that differential treatment was based on the enumerated ground of sex or on an analogous ground of marital or custodial status; and (c) where the differential treatment under paragraph 18(1)(a) is discriminatory and in violation of the equality guarantee in s.15(1) of the Charter?
(b.2) Does paragraph 18(1)(a) of the Act and the application of the provision by the Minister create an unconstitutional effect by subsidizing the legal fees of one sex in child support disputes to enforce the Guidelines?
(c) If paragraph 18(1)(a) of the Act infringes upon the Appellant's rights to equal protection and equal treatment under the law pursuant to subsection 15(1) of the Charter, is the infringement justified by section 1 of the Charter as a reasonable limit prescribed by law that is demonstrably justified in a free and democratic society?
(d) If the infringement is not justified by section 1 of the Charter, is a just and appropriate remedy under subsection 24(1) of the Charter for the court to read into the Act words providing for the deduction of legal fees with regard to costs incurred by either party in obtaining a court order for child support, or to otherwise order the Minister to reassess the Appellant's taxable income by allowing the deductions for legal expenses?
(e) If the infringement is not justified by s.1 of the Charter, is an appropriate remedy under s.52(1) of the Constitution Act, 1982, to determine s.18(1)(a) of the Act to be of no force and effect to the extent that it allows the deductibility of legal fees to only one side of a child support dispute?
E. Statutory Provisions Relied Upon
15. The Appellant relies, inter alia, on the provisions of Section 1 and sections 7, 15(1), 28 and 24(1) of the Charter, s.52(1) of the Constitution Act, 1982, on sections 3, 6, 9, 18 and subsection 248(1) of the Income Tax Act, section 12 of the Tax Court of Canada Act, section 26.1 of the Divorce Act, R.S.C. 1985, and the Federal Child Support Guidelines.
F. Submissions of the Appellant
16. In Nadeau v. Canada, 2003 FCA 400, the Federal Court of Appeal ruled that a right to child support payments was a property right, and that legal expenses incurred in relation to such child support payments were tax deductible by the recipient parent on account of such payments being income derived from property. Conversely, the Federal Court of Appeal ruled that legal expenses incurred by the payer of child support were not deductible as such expenses could not be considered to have been incurred for the purposes of earning income from property.
16.1 The Federal Court of Appeal decision in Nadeau is subject to alternate reasoning, and the conclusions reached by the Court create an unconstitutional discriminatory effect on child support paying parents. First, the original jurisprudence upon which the decision to allow the deductions to only one side of a child support dispute follows decisions which both predate the Charter and amendments to the Act enacted at the same time as the Guidelines were implemented. Those amendments resulted in child support payments no longer being considered as taxable income in the hands of the recipient parent. Second, if child support payments may be considered as income, such payments fall into the category of "other income" under the Act, for which there is no designated deductibility for legal expenses. Accordingly, such payments are not a productive source of income from property for which legal costs are tax deductible under s. 18(1)(a) of the Act. In sum, the reasoning in Nadeau and the application of the Act is open to an alternate analysis, and they create an unfair and unequal treatment of the opposing sides to a child support dispute. This unequal treatment results in an infringement of the Charter rights of the Appellant and all support paying parents. That unconstitutionality is outlined below.
16.2 Section 26.1 of the Divorce Act dictates that the Guidelines must be based on the principle that spouses have a joint financial obligation to support the children of the marriage. The Guidelines require that the income of both spouses be taken into account in the assessment of child support payments for situations where each parent has at least 40% custody of a child, or where the income of the spouse against whom a child support order is sought is over $150,000.00. The amount of child support payments assessed are often set-off on a straight or pro-rated basis as against each parent's child support obligations under the Divorce Act and Guidelines. In addition, in cases of split custody (where each spouse has custody of at least one child), child support is assessed on a straight set-off basis. In these enumerated cases, each parent has a prima facie support paying obligation, which obligation is not exclusive to the spouse that ultimately obtains a set-off payment.
18. The Minister's denial of a deduction of legal fees incurred by the Appellant evidences the imposition of unfair and unequal treatment between parties to disputes over child support, which unequal treatment is a breach of the Appellant's (and other taxpayers in similar circumstances) right to fair and equal protection under the law. The impact of this discrimination is that the legal expenses of parents receiving child support (the vast majority of whom are women) are subsidized by the tax system, while those of parents paying child support (the vast majority of whom are men) are not. Accordingly, subsection 18(1)(a) of the Act, and the application of that section by the Minister discriminates against the Appellant in a manner inconsistent with the provisions of subsection 15(1) of the Charter.
23. The Appellant submits that the breach of his rights under subsection 15(1) of the Charter is not justified by section 1 of the Charter as a reasonable limit prescribed by law that is demonstrably justified in a free and democratic society. The limitation on the Appellant's s.15(1) Charter rights by s.18(1)(a) of the Act do not address any pressing and substantial objective. Further, there is no rational connection between the objectives of income tax legislation and the favouring of one sex in child support disputes. As such, there can be no minimal impairment of, or proportional effect on, the Appellant's rights to equal treatment under the Charter as there is no legitimate objective in the manner in which the Act has been applied by the Minister.
24. Further, the administrative law principles of natural justice and procedural fairness apply to the Minister and his agents at the Canada Customs and Revenue Agency. The unfairness and discrimination created by subsection 18(1)(a) of the Act is based upon incomplete, biased and ill-informed assumptions without appropriate analysis and establishment of facts, which is further indication that the breach of the Appellant's rights under subsection 15(1) of the Charter is not justified under section 1 of the Charter.
25. The Guidelines are a central contextual factor in the systemic discrimination against men in the field of family law. The Guidelines create an inherent inequality between women as support recipients and men as support paying parents, creating an unconstitutional discriminatory effect on men. That unconstitutional effect arises from a violation of the Appellant's (and all support paying parents, the vast majority of whom are men), rights to equal protection and equal benefit under the law as required under s.15(1) and s.28 of the Charter. The particulars of the deficiencies in the Guidelines and Divorce Act leading to this unequal treatment and unconstitutional discrimination include:
a. Failing to implement the principle under s.26.1 of the Divorce Act that spouses have a joint financial obligation to support their children by focusing only on a paying parent's income and not adequately, or at all, taking into account the financial circumstances of the recipient parent;
b. An arbitrary focus on the income of the paying parent in the assessment of child support without an actual or reasonable assessment of the needs or true costs of children and thereby failing to provide a bona fide economic foundation for the Guidelines;
c. Failing to account adequately, or at all, for the costs of having custody of children at any level less than 40% of the time thereby failing to require the recipient custodial spouse to share in any of those costs. Further unequal treatment includes applying onerous factual presumptions and financial disclosure requirements on paying parents only;
d. Applying an unfairly simplistic linear formula connected to the paying parents after-tax income and not recognizing that the actual costs of raising children does not rise proportionately as income increases;
e. Causing an unwarranted transfer of wealth between the paying and recipient parent aimed at an equalization of household income as opposed to the stated and legitimate aims of the joint financial support of children;
f. Arbitrarily dictating that the non-custodial parent (where custody is less than 40% of the time) is the paying parent, when financial circumstances may indicate that the opposite should be ordered;
g. Such further and other particulars as may be proven at the hearing of this appeal.
25.2 Further, to the extent that the Guidelines and s.26.1 of the Divorce Act authorize child support orders in excess of the needs of the child, this legislation and regulations exceed the constitutional competence of Parliament over "Marriage and Divorce" under s.19(26) of the Constitution Act, 1867, and falls under the provincial sphere of "Property and Civil Rights" in s.92(13) of the Constitution Act, 1867.
25.3 Further, the Guidelines are ultra vires the Divorce Act, through provisions of the Guidelines not falling within the conditions, limits and mandates of s.26.1 of the Divorce Act.
26. The Appellant submits that the discrimination described herein arising from the Act results from and reinforces other unequal, discriminatory treatment of men and fathers in the field of divorce law, including that:
a. the federal government has expressly adopted a policy of promoting the legal, social, economic and political interests of women, including informal and formal consultations between the federal Department of Justice and the federal Status of Women Canada agency, but has not adopted a similar policy with respect to men;
b. the federal government funds and participates in private ex parte briefings to judges, including judges in matters of divorce, that promote the legal, social, economic and political interest of women, but do not address in an equal manner the interests of men;
c. the federal government includes a Secretary of State cabinet position, together with a concomitant budget and bureaucracy with the mandate to promote the legal, social, economic and political interests of women, yet there is no cabinet member with the same mandate for men;
c.1 the federal government funds non-governmental organizations promoting the legal, social, economic and political interests of women, yet does not fund, or does not fund at an equal level, groups promoting those same interests of men;
d. according to a federal Department of Justice publication, women are awarded sole custody of children in divorce proceedings in 78.5% of cases. Fathers had sole custody in only 8.8% of cases and shared custody (where a child spends at least 40% of the time with each parent) was only in 6.7% of cases;
e. according to a federal Department of Justice publication, men are the payers of child support in 92.8% of cases before the court;
e.1. The Minister has also interpreted that spousal support recipients are entitled to deduct legal fees incurred in relation to such support, but that the payers of such support are not entitled to deductibility. According to a federal Department of Justice publication, men are the payers of spousal support in 98.7% of cases where such support is ordered for couples that had children, and men are the payers in the vast majority of cases where spousal support is paid where the couple had no children.
h. Numerous laws and enforcement programs have been participated in by the federal government for the enforcement of child support payments, but none for the enforcement of court ordered child access by a non-custodial parent.
G. Relief Sought
30. The Appellant seeks Judgment:
(b) Allowing the appeal on the basis that the Appellant is entitled to the claimed deduction of legal fees in each of the 1999 and 2000 taxation years pursuant to the Act and directing the Minister to reassess accordingly.
(b.1) A determination that s.18(1)(a) of the Act is contrary to the Appellant's s.15(1) Charter rights and that the Minister reassess the Appellant's income tax for the 1999 and 2000 taxation years to allow the deduction of legal fees.
(c) A determination that s.18(1)(a) of the Act, to the extent that it may be interpreted to allow the deductibility of legal fees to only one side of a child support dispute, be declared of no force and effect pursuant to s.52(1) of the Constitution Act, 1982, as being inconsistent with section 15(1) of the Charter;
(d) Costs on a solicitor and his own client basis, based on the public interest in resolution of the issue.
H. Province in Which Appeal Instituted and Place of Trial
31. Alberta, with the proposed place of trial as Calgary, Alberta.
I. Name and Address of Solicitors For The Appellant
32. The Appellant's address for service is in care of his solicitor:
Ronald J. Robinson
300, 509 - 8th Avenue S.W.
Calgary, AB T2P 1G1
Telephone: (403) 571-4482
Fax: (403) 571-4444
J. Date of Notice of Appeal
Dated at the City of Calgary, in the Province of Alberta, this 19th day of June, 2006.
Ronald J. Robinson
Per: ___________________________
Solicitor for the Appellant
TO: The Registrar
Tax Court of Canada
200 Kent Street
Ottawa, Ontario
