Symes v. Canada

Symes v. Canada
Collection
Supreme Court Judgments
Date
1993-12-16
Report
[1993] 4 SCR 695
Case number
22659
Judges
Lamer, Antonio; La Forest, Gérard V.; L'Heureux-Dubé, Claire; Sopinka, John; Gonthier, Charles Doherty; Cory, Peter deCarteret; McLachlin, Beverley; Iacobucci, Frank; Major, John C.
On appeal from
Federal Court of Appeal
Subjects
Constitutional law
Taxation
Notes
SCC Case Information: 22659
Decision Content
Symes v. Canada, [1993] 4 S.C.R. 695
Elizabeth C. Symes Appellant
v.
Her Majesty The Queen Respondent
and
The Attorney General of Quebec,
the Charter Committee on Poverty Issues and
the Canadian Bar Association Interveners
Indexed as: Symes v. Canada
File No.: 22659.
1993: March 2; 1993: December 16.
Present: Lamer C.J. and La Forest, L'Heureux‑Dubé, Sopinka, Gonthier, Cory, McLachlin, Iacobucci and Major JJ.
on appeal from the federal court of appeal
Income tax ‑‑ Deductions ‑‑ Child care expenses ‑‑ Partner in law firm deducting wages paid to nanny in her income tax returns ‑‑ Whether child care expenses deductible as business expenses ‑‑ Income Tax Act, R.S.C. 1952, c. 148, ss. 9(1), 18(1)(a), (h), 63.
Constitutional law ‑‑ Charter of Rights ‑‑ Equality rights ‑‑ Income tax ‑‑ Child care expenses ‑‑ Partner in law firm deducting wages paid to nanny in her income tax returns ‑‑ Whether child care expenses deductible as business expenses ‑‑ If not, whether equality rights violated ‑‑ Canadian Charter of Rights and Freedoms, s. 15(1) .
The appellant practised law full‑time as a partner in a law firm during taxation years 1982 through 1985. During that period she employed a nanny to care for her children (she was the mother of one child in 1982, 1983 and 1984, and of two children in 1985). The appellant deducted the wages she paid to the nanny as business expenses in her personal income tax returns for those years. Revenue Canada initially allowed the deductions for 1982 and 1983, but later disallowed the deductions for all four years in notices of reassessment. The appellant objected, but the disallowance was confirmed on the ground that the expenses were not outlays or expenses incurred for the purpose of gaining or producing income from business, as required under s. 18(1)(a) of the Income Tax Act, but were personal or living expenses, deduction of which was prohibited by s. 18(1)(h). In place of the disallowed deductions, Revenue Canada allowed the appellant revised child care deductions of $1,000 for 1982, $2,000 for each of 1983 and 1984, and $4,000 for 1985, pursuant to s. 63 of the Act. The Federal Court, Trial Division, held that the appellant could deduct the payments to the nanny as business expenses. The Federal Court of Appeal reversed the judgment and restored the notices of reassessment.
Held (L'Heureux‑Dubé and McLachlin JJ. dissenting): The appeal should be dismissed. The appellant's child care expenses are not deductible as business expenses.
Per Lamer C.J. and La Forest, Sopinka, Gonthier, Cory, Iacobucci and Major JJ.: The well accepted principles of business practice encompassed by s. 9(1) of the Income Tax Act, under which a taxpayer's income from business is the taxpayer's profit therefrom for the year, would generally operate to prohibit the deduction of expenses which lack an income‑earning purpose, or which are personal expenses, just as much as ss. 18(1)(a) and (h) operate expressly to prohibit such deductions. Traditional tax analysis characterized child care expenses as personal expenses, such that s. 18(1)(h) would now operate to specifically prohibit them. The relationship between child care expenses and business income must be examined more critically, however, to determine whether that relationship can be sufficient to justify the expenses' deductibility. The current wording of s. 18(1)(a) indicates that Parliament amended its predecessor section so as to broaden the scope for business expense deductibility. The language of the section itself provides the most appropriate test: were the expenses incurred for the purpose of gaining or producing income from a business? Courts will look for objective manifestations of purpose, and purpose is ultimately a question of fact to be decided with due regard for all the circumstances. It may be relevant to consider whether a particular deduction is ordinarily allowed as a business expense by accountants, whether the expense is one normally incurred by others involved in the taxpayer's business, and whether it would have been incurred if the taxpayer was not engaged in the pursuit of business income.
In this case arguments can be made for and against the classification of the appellant's child care expenses as business expenses. While it is clear that the appellant would not have incurred child care expenses except for her business, it is equally clear that the need which is met by child care expenses exists regardless of the appellant's business activity. As well, while there is no evidence to suggest that child care expenses are considered business expenses by accountants, many parents, particularly women, confront child care expenses in order to work. Finally, the appellant's decision to have children should not be viewed solely as a consumption, or personal, choice. When one considers deductibility solely with reference to ss. 9, 18(1)(a) and 18(1)(h), child care expenses may remain difficult to classify.
However, ss. 9, 18(1)(a) and 18(1)(h) cannot be interpreted to account for a child care business expense deduction in light of the language used in s. 63. It is clear that the definition of "child care expenses" in s. 63 specifically comprehends the purpose for which the appellant maintains she incurred her nanny expenses. According to part of that definition, a child care expense is one incurred in order to provide child care services "to enable the taxpayer . . . to carry on a business either alone or as a partner". Furthermore, s. 63(1)(e) operates to cap the deduction with reference to "earned income", which is defined to include "incomes from all businesses carried on either alone or as a partner actively engaged in the business". To the extent that s. 63 intends to limit child care expense deductions to lower earning supporters, it would substantially undermine that intent if the appellant were allowed to take a complete deduction of the child care expenses, free from the consideration of whether or not she is the lower earning supporter. Section 4(2), which provides that no deductions permitted by ss. 60 to 63 are applicable to a particular source, may be further evidence that s. 63 is intended to be a complete legislative response to the child care expense issue. The proposals which led directly to the introduction of s. 63 support the view that s. 63 is such a response. Since s. 63 eliminates any question of ambiguity, it also eliminates the need for recourse to the values of the Canadian Charter of Rights and Freedoms as an interpretive aid.
There has been no violation of s. 15(1) of the Charter in this case. Since s. 63 constitutes a complete code with respect to child care expenses, it is the proper focus of the Charter argument. The appellant has not demonstrated a violation of s. 15(1) of the Charter with respect to s. 63 as she has not proved that s. 63 draws a distinction based upon the personal characteristic of sex. While it is clear that women disproportionately bear the burden of child care in society, it has not been shown that women disproportionately incur child care expenses. Although the appellant has overwhelmingly demonstrated how the issue of child care negatively affects women in employment terms, proof that women incur social costs is not sufficient proof that they incur child care expenses.
Per L'Heureux‑Dubé J. (dissenting): The determination of profit under s. 9(1) of the Income Tax Act is dependent upon the question of whether an expenditure is a proper business expense to be included in the calculation of such net gain. In order to arrive at a calculation of net profit, the all‑encompassing question one must ask is whether a deduction is prohibited because it is not incurred for the purpose of earning income as required by s. 18(1)(a), or because the expense is personal pursuant to s. 18(1)(h). There have been dramatic and fundamental changes in both the labour market and the family structure over the past 40 years. A majority of women, even those with very young children, are now in the labour force. The interpretation of a law may change over time in order to coincide with an altered and ever‑changing societal context. Furthermore, the respect of Charter values must be at the forefront of statutory interpretation. Statutes are deemed to be remedial and are thus to be given a fair, large and liberal interpretation. In the past, the scope of deductible business disbursements has been expanded constantly, and has been held to include a wide array of expenditures. Any legitimate expense incurred in relation to a business may be deducted as a business expense. The traditional interpretation of "business expense" was shaped to reflect the experience of businessmen and the ways in which they engaged in business. The present world of business is increasingly populated by both men and women, however, and the meaning of "business expense" must account for the experiences of all participants in the field. Child care is vital to women's ability to earn an income. It made good business sense for the appellant to hire child care. This expense was incurred "for the purpose of gaining or producing income" and is therefore not precluded by the wording of s. 18(1)(a) from deduction under s. 9(1).
Child care expenses should not be disallowed as a business expense under s. 18(1)(h) as being personal in nature. While for most men the responsibility of children does not impact on the number of hours they work or affect their ability to work, a woman's ability even to participate in the work force may be completely contingent on her ability to acquire child care. Many business deductions have been permitted in the past even though these expenditures have a personal element. The real costs incurred by businesswomen with children are no less real, no less worthy of consideration and no less incurred in order to gain or produce income from business. Finally, while there is a personal component to child raising, this "choice" is one from which all of society benefits, even though much of the burden remains on the shoulders of women.
Section 63 of the Act does not preclude the deduction of child care expenses as a business expense. Section 63 provides general relief to parents, but nothing in its wording implies that deductions available under s. 9(1) are abolished or restricted in this respect. In providing that none of the deductions permitted by ss. 60 to 63 are applicable to a particular source of income, s. 4(2) clearly provides for some deductions which may legitimately fall under two sections of the Act. At the very least, s. 63 is ambiguous in its effect on s. 9(1), and under the general rules of statutory interpretation, ambiguities are to be resolved in favour of the taxpayer. In the absence of precise and clear wording in the Act with regard to the effect of s. 63 on s. 9(1), general child care expenses which might be deductible under s. 63 may coexist with child care expenses deductible as a business expense. To conclude that s. 63 intends to limit the opportunity for a businesswoman to deduct child care expenses is antithetical to the whole purpose of the legislation, which was aimed at helping working women and their families bear the high cost of child care. The concern that employed persons and business people will not be treated in the same manner is a fact which stems from the rationale of the Act itself: business deductions generally are restricted to those in business and are not available to an employed person. The fact that the government has provided that a deduction for child care expenses be available to all parents, including employed persons, who ordinarily enjoy very few deductions, indicates governmental recognition that child care is a legitimate expense of working parents, in particular mothers. Further, since the Act either permits the deduction of child care expenses as a business expense or is ambiguous, that ambiguity must be examined through the prism of the values enshrined in the Charter , in particular ss. 15 and 28 , which encompass and embrace the importance and significance of equality between the sexes. To disallow child care as a business expense clearly has a differential impact on women. Consideration of the Charter values when interpreting the Act thus strengthens the conclusion that the appellant should be able to deduct her child care expenses as a business expense.
An interpretation which prevents the appellant from deducting her child care expenses as a business expense results in an infringement of her right to equality pursuant to s. 15 of the Charter . The appellant has proved that she incurred an actual and calculable cost for child care and that this cost is disproportionately borne by women.
Per McLachlin J. (dissenting): L'Heureux‑Dubé J.'s interpretation of ss. 9, 18 and 63 of the Income Tax Act and s. 15 of the Charter and her conclusion that the appellant's child care expenses are deductible as business expenses were agreed with.
Cases Cited
By Iacobucci J.
Considered: Olympia Floor & Wall Tile (Quebec) Ltd. v. Minister of National Revenue, [1970] Ex. C.R. 274; referred to: Bowers v. Harding (1891), 3 Tax Cas. 22; Andrews v. Law Society of British Columbia, [1989] 1 S.C.R. 143; Slaight Communications Inc. v. Davidson, [1989] 1 S.C.R. 1038; Hills v. Canada (Attorney General), [1988] 1 S.C.R. 513; Ontario Public Service Employees Union v. National Citizens Coalition Inc. (1987), 60 O.R. (2d) 26; Royal Trust Co. v. Minister of National Revenue, 57 D.T.C. 1055; Daley v. Minister of National Revenue, [1950] Ex. C.R. 516; The Queen v. MerBan Capital Corp., 89 D.T.C. 5404; Neonex International Ltd. v. The Queen, [1978] C.T.C. 485; Associated Investors of Canada Ltd. v. Minister of National Revenue, [1967] 2 Ex. C.R. 96; Canadian General Electric Co. v. Minister of National Revenue, [1962] S.C.R. 3; R. v. Salituro, [1991] 3 S.C.R. 654; Imperial Oil Ltd. v. Minister of National Revenue, [1947] C.T.C. 353; Minister of National Revenue v. Dominion Natural Gas Co., [1941] S.C.R. 19; Kellogg Co. of Canada Ltd. v. Minister of National Revenue, [1942] C.T.C. 51; Hudson's Bay Co. v. Minister of National Revenue, [1947] C.T.C. 86; Premium Iron Ores Ltd. v. Minister of National Revenue, [1966] S.C.R. 685; Mattabi Mines Ltd. v. Ontario (Minister of Revenue), [1988] 2 S.C.R. 175; Brooks v. Canada Safeway Ltd., [1989] 1 S.C.R. 1219; Impenco Ltd. v. Minister of National Revenue, 88 D.T.C. 1242; R. v. Big M Drug Mart Ltd., [1985] 1 S.C.R. 295; PSAC v. Canada, [1987] 1 S.C.R. 424; Tétreault‑Gadoury v. Canada (Employment and Immigration Commission), [1991] 2 S.C.R. 22; McKinney v. University of Guelph, [1990] 3 S.C.R. 229; Ontario Human Rights Commission v. Simpsons‑Sears Ltd., [1985] 2 S.C.R. 536; R. v. Turpin, [1989] 1 S.C.R. 1296; R. v. Swain, [1991] 1 S.C.R. 933; Janzen v. Platy Enterprises Ltd., [1989] 1 S.C.R. 1252; Schachtschneider v. Minister of National Revenue (1993), 154 N.R. 321; R. v. Oakes, [1986] 1 S.C.R. 103; Schachter v. Canada, [1992] 2 S.C.R. 679.
By L'Heureux‑Dubé J. (dissenting)
Andrews v. Law Society of British Columbia, [1989] 1 S.C.R. 143; PSAC v. Canada, [1987] 1 S.C.R. 424; Daley v. Minister of National Revenue, [1950] Ex. C.R. 516; Mattabi Mines 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; Edmonton Journal v. Alberta (Attorney General), [1989] 2 S.C.R. 1326; Murdoch v. Murdoch, [1975] 1 S.C.R. 423; Rathwell v. Rathwell, [1978] 2 S.C.R. 436; Canada (Attorney General) v. Mossop, [1993] 1 S.C.R. 554; Hills v. Canada (Attorney General), [1988] 1 S.C.R. 513; Slaight Communications Inc. v. Davidson, [1989] 1 S.C.R. 1038; Canadian National Railway Co. v. Canada (Canadian Human Rights Commission), [1987] 1 S.C.R. 1114; Olympia Floor & Wall Tile (Quebec) Ltd. v. Minister of National Revenue, [1970] Ex. C.R. 274; Impenco Ltd. v. Minister of National Revenue, 88 D.T.C. 1242; Kellogg Co. of Canada Ltd. v. Minister of National Revenue, [1942] C.T.C. 51; Royal Trust Co. v. Minister of National Revenue, 57 D.T.C. 1055; Friedland v. The Queen, 89 D.T.C. 5341; Brooks v. Canada Safeway Ltd., [1989] 1 S.C.R. 1219; Stubart Investments Ltd. v. The Queen, [1984] 1 S.C.R. 536; Johns‑Manville Canada Inc. v. The Queen, [1985] 2 S.C.R. 46; Ontario Public Service Employees Union v. National Citizens' Coalition Inc. (1987), 60 O.R. (2d) 26 (H.C.), aff'd (1990), 74 O.R. (2d) 260 (C.A.); R. v. Turpin, [1989] 1 S.C.R. 1296; R. v. Seaboyer, [1991] 2 S.C.R. 577.
Statutes and Regulations Cited
Canadian Charter of Rights and Freedoms, ss. 1 , 15 , 28 , 32 .
Constitution Act, 1982, s. 52(1) .
Criminal Code, R.S.C., 1985, c. C‑46, s. 215 .
Income Tax Act, R.S.C. 1952, c. 148 [am. 1970‑71‑72, c. 63], ss. 2(1), (2), 3, 4, 8(1)(f), (h), (2), (9), 9(1), 14, 18(1)(a), (h), (12), 20(1)(b), 60 to 62, 63, 67, 67.1, 118.1.
Income Tax Act, S.C. 1948, c. 52, s. 12(1)(a).
Income Tax Act (U.K.), 16 & 17 Vict., c. 34, s. 51.
Income Tax Regulations, C.R.C. 1978, c. 945, Schedule II, Class 8(i).
Income War Tax Act, R.S.C. 1927, c. 97, ss. 3, 6(a).
Authors Cited
Abella, Rosalie Silberman. Report of the Commission on Equality in Employment. Ottawa: Minister of Supply and Services Canada, 1984.
Arnold, Brian J. "The Deduction for Child Care Expenses in the United States and Canada: A Comparative Analysis" (1973), 12 West. Ont. L. Rev. 1.
Arnold, Brian J., and Timothy W. Edgar, eds. Materials on Canadian Income Tax, 9th ed. Don Mills, Ont.: Richard De Boo, 1990.
Belcourt, Monica, Ronald J. Burke and Hélène Lee‑Gosselin. The Glass Box: Women Business Owners in Canada. Ottawa: Canadian Advisory Council on the Status of Women, 1991.
Benson, E. J., Minister of Finance. Proposals for Tax Reform. Ottawa: Queen's Printer, 1969.
Blumberg, Grace. "Sexism in the Code: A Comparative Study of Income Taxation of Working Wives and Mothers" (1971‑1972), 21 Buff. L. Rev. 49.
Brockman, Joan. "Social Authority, Legal Discourse, and Women's Voices" (1992), 21 Man. L.J. 213.
Brooks, Neil. "The Principles Underlying the Deduction of Business Expenses". In Brian G. Hansen, Vern Krishna and James A. Rendall, eds., Essays on Canadian Taxation. Toronto: Richard De Boo, 1978, 249.
Canada. House of Commons. Standing Committee on Finance, Trade and Economic Affairs. Minutes of Proceedings and Evidence, Issue No. 70, June 23, 1970, p. 70:145.
Canada. Royal Commission on Taxation. Report of the Royal Commission on Taxation, vols. 2 and 3. Ottawa: Queen's Printer, 1966.
Canada. Statistics Canada. "Who's Looking After the Kids? Child Care Arrangements of Working Mothers", by Susan Crompton. In Perspectives on Labour and Income, vol. 3, No. 2. Ottawa, Summer 1991, 68.
Canada. Status of Women Canada. Report of the Task Force on Child Care. Ottawa: Supply and Services Canada, 1986.
Canadian Bar Association. Task Force on Gender Equality in the Legal Profession. Touchstones for Change: Equality, Diversity and Accountability. Ottawa: Canadian Bar Association, 1993.
Côté, Pierre‑André. The Interpretation of Legislation in Canada, 2nd ed. Cowansville: Yvon Blais, 1991.
Driedger, Elmer A. Construction of Statutes, 2nd ed. Toronto: Butterworths, 1983.
Eichler, Margrit. Nonsexist Research Methods: A Practical Guide. Boston: Allen & Unwin, 1988.
Goodison, Don. "Nanny Means Business", CGA Magazine, September 1989, p. 15.
Grant, Isabel, and Lynn Smith. "Gender Representation in the Canadian Judiciary". In Appointing Judges: Philosophy, Politics and Practice. Toronto: Ontario Law Reform Commission, 1991, 57.
Gunderson, Morley, Leon Muszynski and Jennifer Keck. Women and Labour Market Poverty. Ottawa: Canadian Advisory Council on the Status of Women, 1990.
Harris, Edwin C. Canadian Income Taxation, 4th ed. Toronto: Butterworths, 1986.
Hershfield, J. E. "Recent Trends in the Deduction of Expenses in Computing Income". In Report of Proceedings of the Forty-First Tax Conference Convened by the Canadian Tax Foundation. Toronto: Canadian Tax Foundation, 1990.
Holmes, Oliver Wendell. The Common Law. Boston: Little, Brown, 1881.
Ish, Daniel, James A. Rendall and Catherine A. Brown. "Deductions". In B. J. Arnold and T. W. Edgar, eds., Materials on Canadian Income Tax, 9th ed. Don Mills, Ont.: Richard De Boo, 1990, 385.
Krasa, Eva M. "The Deductibility of Fines, Penalties, Damages, and Contract Termination Payments" (1990), 38 Can. Tax J. 1399.
Krishna, Vern. The Fundamentals of Canadian Income Tax, 4th ed. Scarborough, Ont.: Carswell, 1992.
Krishna, Vern. "Perspectives on Tax Policy". In Brian G. Hansen, Vern Krishna and James A. Rendall, eds., Essays on Canadian Taxation. Toronto: Richard De Boo, 1978, 1.
Law Society of Upper Canada. Transitions in the Ontario Legal Profession: A Survey of Lawyers Called to the Bar Between 1975 and 1990. Toronto: The Society, 1991.
Lero, Donna S., et al. Canadian National Child Care Study: Parental Work Patterns and Child Care Needs. Ottawa: Statistics Canada, 1992.
MacKinnon, Catharine A. "Reflections on Sex Equality Under Law" (1991), 100 Yale L.J. 1281.
Macklin, Audrey. "Symes v. M.N.R.: Where Sex Meets Class" (1992), 5 C.J.W.L. 498.
Mahoney, Kathleen. "Daycare and Equality in Canada". In Research Studies of the Commission on Equality in Employment. Ottawa: Minister of Supply and Services Canada, 1985, 157.
McCaffery, Edward J. "Taxation and the Family: A Fresh Look at Behavioral Gender Biases in the Code" (1993), 40 UCLA L. Rev. 983.
McIntyre, Michael J. "Evaluating the New Tax Credit for Child Care and Maid Service" (1977), 5 Tax Notes 7.
Smith, Dorothy E. "A Peculiar Eclipsing: Women's Exclusion From Man's Culture" (1978), 1 Women's Studies Int. Quart. 281.
Surrey, Stanley S. Pathways to Tax Reform: The Concept of Tax Expenditures. Cambridge, Mass.: Harvard University Press, 1973.
Surrey, Stanley S., and Paul R. McDaniel. Tax Expenditures. Cambridge, Mass.: Harvard University Press, 1985.
Thomas, Richard B. "No to Nanny Expense Deduction" (1991), 39 Can. Tax J. 950.
Wilson, Bertha. "Women, the Family, and the Constitutional Protection of Privacy" (1992), 17 Queen's L.J. 5.
Woodman, Faye. "A Child Care Expenses Deduction, Tax Reform and the Charter : Some Modest Proposals" (1990), 8 Can. J. Fam. L. 371.
Young, Claire F. L. "Case Comment on Symes v. The Queen", [1991] Brit. Tax Rev. 105.
Young, Claire F. L. "Impact of Feminist Analysis on Tax Law and Policy". In Feminist Analysis: Challenging Law and Legal Processes. 1992 Institute of Continuing Legal Education, January 31, 1992. Toronto: Canadian Bar Association ‑ Ontario, 1992.
APPEAL from a judgment of the Federal Court of Appeal, [1991] 3 F.C. 507, [1991] 2 C.T.C. 1, 91 D.T.C. 5397, 7 C.R.R. (2d) 333, 127 N.R. 348, reversing a decision of the Federal Court, Trial Division, [1989] 3 F.C. 59, [1989] 1 C.T.C. 476, 89 D.T.C. 5243, 40 C.R.R. 278, 25 F.T.R. 306, holding that the appellant could deduct child care expenses as business expenses. Appeal dismissed, L'Heureux‑Dubé and McLachlin JJ. dissenting.
Mary Eberts and Wendy M. Matheson, for the appellant.
John R. Power, Q.C., and Sandra E. Phillips, for the respondent.
Monique Rousseau, for the intervener the Attorney General of Quebec.
Raj Anand, for the intervener the Charter Committee on Poverty Issues.
J. J. Camp, Q.C., and Melina Buckley, for the intervener the Canadian Bar Association.
The judgment of Lamer C.J. and La Forest, Sopinka, Gonthier, Cory, Iacobucci and Major JJ. was delivered by
Iacobucci J. -- The basic issue in this appeal is whether child care expenses, on the facts of this case, are deductible as business expenses in the determination of profit under the Income Tax Act, R.S.C. 1952, c. 148, as amended (the "Act").
I.Facts
The appellant taxpayer, Elizabeth Symes, is a lawyer and a mother. During the relevant period, she practised law full‑time as a partner in a Toronto law firm. During that same period, she was initially the mother of one child (in taxation years 1982, 1983 and 1984), and was later the mother of two children (in taxation year 1985). The appellant is married.
The appellant employed a nanny, Mrs. Simpson (Simpson), during these taxation years. Simpson's only employment function was to care for the appellant's children in the appellant's home. During 1982, 1983 and 1984 respectively, the appellant paid Simpson $10,075, $11,200 and $13,173 to care for her one child. During 1985, the appellant paid Simpson $13,359 to care for her two children. The appellant deducted from Simpson's wages ‑‑ and remitted to Revenue Canada ‑‑ income tax payments, Canada Pension Plan contributions, and Unemployment Insurance premiums as required. The appellant also remitted the pension and unemployment insurance contributions required of employers. Simpson received a T‑4 slip from the appellant with respect to each of the taxation years.
In her personal income tax returns for 1982 to 1985, the appellant deducted the wages paid to Simpson as business expenses. In Notices of Assessment received by the appellant in 1983 and 1984, Revenue Canada allowed the deductions. However, in Notices of Reassessment dated December 9, 1985 and November 7, 1986, Revenue Canada disallowed the deductions for all four years. The appellant objected, but the disallowance was confirmed for the stated reason that the expenses were not outlays or expenses incurred for the purpose of gaining or producing income from business. The expenses were characterized as personal or living expenses. In place of the disallowed deductions, Revenue Canada allowed the appellant revised child care deductions of $1,000 for 1982, $2,000 for each of 1983 and 1984, and $4,000 for 1985, pursuant to s. 63 of the Act.
After the appellant's objection to, and Revenue Canada's confirmation of, the Notices of Reassessment, the appellant successfully challenged these notices in the Federal Court, Trial Division. The Trial Division held that the appellant could deduct the payments to Simpson as business expenses: [1989] 3 F.C. 59, [1989] 1 C.T.C. 476, 89 D.T.C. 5243, 40 C.R.R. 278, 25 F.T.R. 306. The Minister of National Revenue appealed and, in allowing the appeal, the Federal Court of Appeal restored the Notices of Reassessment: [1991] 3 F.C. 507, [1991] 2 C.T.C. 1, 91 D.T.C. 5397, 7 C.R.R. (2d) 333, 127 N.R. 348. This Court granted leave to appeal: [1992] 1 S.C.R. xi.
II.Relevant Constitutional and Statutory Provisions
A.Constitutional Provisions
1.Canadian Charter of Rights and Freedoms, ss. 1 , 15 and 32
1. The Canadian Charter of Rights and Freedoms guarantees the rights and freedoms set out in it subject only to such reasonable limits prescribed by law as can be demonstrably justified in a free and democratic society.
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.
(2) Subsection (1) does not preclude any law, program or activity that has as its object the amelioration of conditions of disadvantaged individuals or groups including those that are disadvantaged because of race, national or ethnic origin, colour, religion, sex, age or mental or physical disability.
32. (1) This Charter applies
(a) to the Parliament and government of Canada in respect of all matters within the authority of Parliament including all matters relating to the Yukon Territory and Northwest Territories; and
(b) to the legislature and government of each province in respect of all matters within the authority of the legislature of each province.
(2) Notwithstanding subsection (1), section 15 shall not have effect until three years after this section comes into force.
2.Constitution Act, 1982, s. 52(1)
52. (1) The Constitution of Canada is the supreme law of Canada, and any law that is inconsistent with the provisions of the Constitution is, to the extent of the inconsistency, of no force or effect.
B.Statutory Provisions
Income Tax Act, R.S.C. 1952, c. 148, as amended and applicable in taxation years 1983 to 1985. ss. 4, 9(1), 18(1), 63 and 67
4. (1) For the purposes of this Act,
(a) a taxpayer's income ... for a taxation year from an office, employment, business, property or other source ... is the taxpayer's income ... computed in accordance with this Act on the assumption that he had during the taxation year no income ... except from that source ... and was allowed no deductions in computing his income for the taxation year except such deductions as may reasonably be regarded as wholly applicable to that source ... and except such part of any other deductions as may reasonably be regarded as applicable thereto ...
...
(2) Subject to subsection (3), in applying subsection (1) for the purposes of this Part, no deductions permitted by sections 60 to 63 are applicable either wholly or in part to a particular source ...
...
(4) Unless a contrary intention is evident, no provision of this Part shall be read or construed to require the inclusion or to permit the deduction, in computing the income of the taxpayer for a taxation year or his income or loss for a taxation year from a particular source or from sources in a particular place, of any amount to the extent that that amount has been included or deducted, as the case may be, in computing such income or loss under, in accordance with or by virtue of any other provision of this Part.
9. (1) Subject to this Part, a taxpayer's income for a taxation year from a business or property is his profit therefrom for the year.
18. (1) 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 travelling 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;
63. (1) Subject to subsection (2), in computing the income of a taxpayer for a taxation year the aggregate of all amounts each of which is an amount paid in the year as or on account of child care expenses in respect of an eligible child of the taxpayer for the year may be deducted
...
(b) by the taxpayer or a supporting person of the child for the year ...
to the extent that
(c) the amount is not included in computing the amount deductible under this subsection by an individual (other than the taxpayer), and
(d) the amount is not an amount (other than an amount that is included in computing a taxpayer's income and that is not deductible in computing his taxable income) in respect of which any taxpayer is or was entitled to a reimbursement or any other form of assistance,
and the payment of which is proven by filing with the Minister one or more receipts each of which was issued by the payee and contains, where the payee is an individual, that individual's Social Insurance Number; but not exceeding the amount, if any, by which
(e) the least of
(i) $8,000,
(ii) the product obtained when $2,000 is multiplied by the number of eligible children of the taxpayer for the year in respect of whom the child care expenses were incurred, and
(iii) 2/3 of the taxpayer's earned income for the year
exceeds
(f) the aggregate of all amounts each of which is an amount deducted, in respect of the eligible children of the taxpayer that are referred to in subparagraph (e)(ii), under this subsection for the year by an individual (other than the taxpayer) to whom subsection (2) is applicable for the year.
...
(3) In this section,
(a) "child care expense" means an expense incurred for the purpose of providing in Canada, for any eligible child of a taxpayer, child care services including baby sitting services, day nursery services or lodging at a boarding school or camp if the services were provided
(i) 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,
...
(b) "earned income" of a taxpayer means the aggregate of
(i) all salaries, wages and other remuneration, including gratuities, received by him in respect of, in the course of, or by virtue of offices and employments, and all amounts included in computing his income by virtue of sections 6 and 7,
(ii) amounts included in computing his income by virtue of paragraph 56(1)(m), (n) or (o), and
(iii) his incomes from all businesses carried on either alone or as a partner actively engaged in the business.
(c) "eligible child" of a taxpayer for a taxation year means
(i) a child of the taxpayer or of his spouse, or
(ii) a child in respect of whom the taxpayer deducted an amount under section 109 for the year,
if, at any time during the year, the child was under 14 years of age or was over 13 years of age and dependent on the taxpayer by reason of mental or physical infirmity; and
(d) "supporting person" of an eligible child of a taxpayer for a taxation year means
(i) a parent of the child,
(ii) the taxpayer's spouse, or
(iii) an individual who deducted an amount under section 109 for the year in respect of the child,
if the parent, spouse or individual, as the case may be, resided with the taxpayer at any time during the year and at any time within 60 days after the end of the year.
67. In computing income, no deduction shall be made in respect of an outlay or expense in respect of which any amount is otherwise deductible under this Act, except to the extent that the outlay or expense was reasonable in the circumstances.
III.Judgments Below
A.Federal Court, Trial Division, [1989] 3 F.C. 59 (Cullen J.)
1.Child Care as a Business Expense
Dealing first with issues of statutory interpretation, Cullen J. noted that "[t]he 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" (p. 66). Based upon his review of case law, he then held that, in determining what constitutes a legitimate business expense, the proper approach is to "ascertain whether the expense or disbursement was consistent with ordinary principles of commercial trading or well accepted principles of business practice" (pp. 66-67). For Cullen J. (at p. 67), a "business test" was to be applied in order to determine the legal meaning of "profit".
In addition to satisfying a business test, Cullen J. noted that a business expense must be made or incurred for the purpose of gaining or producing income from the business in order to satisfy s. 18(1)(a) of the Act. He reviewed several cases which have interpreted this requirement, before suggesting (at p. 71) that courts have given a "progressive interpretation" to s. 18(1)(a). For Cullen J., the concept of a business expense has been "adapted to reflect the changing ways of doing business" (p. 71).
In a similar vein, Cullen J. discussed an argument of the respondent founded upon the concept of a business or revenue-producing "circle". According to this concept, only expenses incurred within a revenue-producing circle are deductible; expenses incurred in order to approach a revenue-producing circle are not. The respondent characterized the payments to Simpson "as an expense which enabled the plaintiff to go out and practise her profession but was not incurred in the practice of her profession" (p. 70, emphasis in original). Cullen J. rejected this argument and the concept itself, since the concept "would seem to suggest that the business or revenue‑producing circle has a fixed content" (p. 70).
Cullen J. proceeded to examine the child care expenses in light of his analysis of the profit concept. He noted that several cases had been cited by the respondent in which child care expenses were held to be personal in nature. Cullen J. dismissed the relevance of these, however, stating that they were all ultimately founded upon Bowers v. Harding (1891), 3 Tax Cas. 22 (Q.B.), a case which "came from another age, from another system dealing with a tax question that related to employment rather than profits from a business" (p. 72). He also considered the expert evidence of Dr. Patricia Armstrong (Armstrong), which described an influx of women of child‑bearing age into business and the workplace during the late 1970s and into the 1980s.
In the result, Cullen J. was satisfied that the taxpayer had used good business and commercial judgment in dedicating part of her resources from the practice of law to the provision of child care. He stated (at p. 73):
This decision was acceptable according to business principles which include the development 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 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 therefore lowering the barrier by arriving at a satisfactory means of dealing with the costs of child care, would make good business sense.
Having thus found that the nanny expenses satisfied ss. 9 and 18(1)(a), Cullen J. examined whether s. 18(1)(h) prohibited their deduction as personal or living expenses. On this question, he stated that, on the facts of the case, "a distinction has been made between 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" (p. 74). According to Cullen J., only the latter are discretionary personal living expenses. Cullen J. distinguished the appellant's child care expenses from other expenses which might be characterized as personal or living expenses, principally because of the appellant's legal obligation to care for her children.
For these reasons, as a matter of statutory interpretation, and based upon the facts of the case, Cullen J. concluded that the nanny expenses qualified as business expenses deductible in the computation of a taxpayer's profit. It is noteworthy that in so doing, Cullen J. stated the following (at p. 75): "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". Finally, Cullen J. quickly indicated that there was no question as to the reasonableness of the sums expended within the meaning of s. 67 of the Act.
2.Section 15(1) of the Charter
Despite his conclusions on the interpretive issue, Cullen J. considered the taxpayer's Charter argument in the alternative. He recognized that, since s. 15(1) did not come into effect until April 17, 1985, and since that section does not operate retrospectively, the taxpayer could not make a Charter claim respecting child car