Ullah v. R. – TCC: Taxpayer Allowed Dependent Credit for Mother – Father Had Made the Claim But Got No Tax Benefit

Bill Innes on Current Tax Cases

http://decision.tcc-cci.gc.ca/site/tcc-cci/decisions/en/item/65050/index.do New Window

Ullah v. The Queen[1] (December 5, 2013) involved a claim by the taxpayer for a wholly dependent person credit for her mother.  The Minister denied the claim because her father, who was disabled and bankrupt, had made a claim for his wife and his trustee in bankruptcy had not sought to amend the claim.  The father obtained no tax reduction by virtue of the claim:

[7]             In this case, the appellant seeks to deduct a wholly dependent person credit in respect of her mother, with whom she lived (along with her father) and whom she supported in the years in question. The respondent maintains that the appellant is not entitled to the credit because her father deducted a spousal credit in respect of her mother for the same years.

[8]             The appellant’s father gave evidence that while he did claim the spousal credit in respect of his spouse when he filed his tax returns for the years in issue, he attempted in February 2011 to have the Minister adjust his returns for those years to delete his claim for the spousal credit in order to permit the appellant to claim the wholly dependent person credit. The appellant’s father is disabled and had little income in those years, and the deletion of his claim for the spousal credit would not have resulted in any tax payable by him. However, since the appellant’s father had declared bankruptcy in August 2010, the Minister refused to accept his request for the adjustment because the request had not been made by the trustee-in-bankruptcy.

[9]             Shortly afterwards, the appellant’s father asked the trustee in bankruptcy to make the request. According to the Minister, the trustee in bankruptcy never made a request for the adjustment, and therefore the appellant’s father’s returns continued to show that he had claimed the spousal credit for the years in issue. However, the trustee in bankruptcy testified that she did send a request for the adjustment to the CRA, along with a request to adjust the appellant’s father’s claim for the disability amount. She produced a copy of the request, and I accept that it was received by the CRA, because the adjustment to the disability amount that was requested by the trustee was in fact made.

The Crown claimed that even if the trustee had made a request for an adjustment it was too late since the years were statute barred.  The court did not accept the Crown’s position:

[11]        I see a number of difficulties with the respondent’s position.

[12]        First, according to paragraph 118(4)(a.1), no wholly dependent person credit may be deducted in the computation of a person’s tax payable if another person has deducted a spousal credit in respect of the same individual, in computing tax payable. In my view, where a person claims a spousal credit on his or her tax return, but that claim does not in fact reduce or affect tax payable in any way, it cannot be said that there has been any deduction of an amount in computing tax payable. The credit would have to have an impact on tax otherwise payable in order to say the credit has been deducted in computing tax.

[13]        Therefore, since no deduction of the spousal credit was allowed to the appellant’s father in computing his tax payable under Part I of the Act for the years in issue, there is no bar to the appellant deducting wholly dependent person credits for those years. No reassessment of the appellant’s father’s 2006 to 2009 taxation years is required.

[14]        Furthermore, there is also authority for the proposition that the Minister may make adjustments to a taxpayer’s returns after the normal reassessment period even if those adjustments do not result in a reduction to an amount payable under Part I of the Act. In Clibetre Exploration Ltd. v The Queen, 2003 FCA 16, the taxpayer had reported non-capital losses on its tax returns for its 1980 to 1995 taxation years. In 1996 it had income in excess of its available non-capital loss carry forward amounts from previous years. It sought to recharacterize the expenses that created the non-capital losses in the earlier years as Canadian exploration expenses (CEE) in order to reduce its 1996 income to nil. The Minister refused the taxpayer’s request on the basis that the previous years had become statute barred and therefore that he was prohibited from reassessing the taxpayer for those years to recharacterize the expenses as CEE. The Federal Court of Appeal rejected the Minister’s position, saying at paragraph 6:

We are all of the view that the Minister’s interpretation of subsection 152(4) is wrong, and the Tax Court Judge erred in accepting it. If in fact Clibetre reported non-capital losses for every year from 1980 to 1995, there is no need for the Minister to reassess Clibetre for those years in order to characterize as Canadian exploration expenses the amounts that gave rise to the non-capital losses initially claimed for those years. That is because the taxable income and thus the tax payable for each of those years would be nil whether the expenses for the year are claimed as deductions in computing a non-capital loss, or treated as Canadian exploration expenses. We conclude that there is no statutory bar to the requested recharacterization.

[15]        Although it is not necessary for me to decide the point given, my decision that no deduction was taken by the appellant’s father, I would also have held in this case that it would not be necessary for the Minister to reassess the appellant’s father in order to delete the spousal credit claim, since it had no effect on his tax payable. As in Clibetre, his tax payable would have been nil whether the spousal credit was claimed or not.

[16]        Finally, I also note that at the time the trustee in bankruptcy made the request to the CRA to delete the spousal credit claim by the appellant’s father, the normal reassessment period for his 2008 and 2009 taxation years had not yet expired. According to Exhibits R-3 and R-4 those years were initially assessed on March 23, 2009 and April 29, 2010 respectively. Therefore, even if the Minister had been required to reassess to delete the spousal credit claim, the request for the 2008 and 2009 tax years would have been made in time.

Accordingly the taxpayer’s appeal was allowed.

Comment:  The court’s decision appears to be an appropriate response to an unreasonable position taken by the Minister.

[1] 2013 TCC 387.