Symes v. Canada [1993] 4 S.C.R. 695: -- 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

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.

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