Canadian Tax Haiku of the Week: (Tax Court)

Tax Court is not Fair?

There’s no Equity in tax

Either you owe or not

These three cases were all handed down on the same day a couple of weeks ago. Each one of them is a snapshot of the way that Canada’s tax law and the Tax Court of Canada works. There is an old saying “There is no Equity in tax”. It means “tax law and tax courts do not care if the tax is not “fair” or “just” that you should have to pay, tax law is what it is, says what it says and does what it does”. So there is nothing that usual about these three cases other than they highlight just how unfair the Income Tax Act (the Act) is in certain, surprisingly common, circumstances.

Poot v The Queen, 2014 TCC 295 [Poot]

In Poot, the applicant applied to the Tax Court for relief from the Minister’s denial of an extension of time to file notices of objection for the 2000 taxation year. The only issue for the Tax Court to consider was whether it was whether an extension of time should be granted. The other forms of relief the applicants sought were beyond the jurisdiction of the Court.[1]

The Tax Court does not have the authority to direct the Canada Revenue Agency (CRA) to allow a notice of objection unless a proper appeal to the Tax Court has been instituted. Furthermore, the Tax Court has no authority to allow a taxpayer relief request for a waiver of interest and penalties. It is the Federal Court that has jurisdiction over taxpayer relief requests.[2]

The requirements that must be met in order to obtain an extension:[3]

the application for an extension of time must be made within one year after the 90-day period for objecting has expired; and
the taxpayer must demonstrate that
it was unable to act within the 90-day period for objecting or had a bona fide intention to object within the 90-day period for objecting;
it is just and equitable to grant the application for an extension; and
the application for an extension was made as soon as practicable.
It was submitted that that the applicants had a bona fide intention to object, that it would be just and equitable to grant the application, and that there are reasonable grounds for the appeals. However, the Tax Court held that the applicants must also satisfy the timing requirement of the rule as well (i.e., making an application for an extension of time one year after the 90-day period requirement), which they did not.[4]

Although the applicants and their accountant engaged in correspondence with the CRA before the deadline, the Tax Court held that none of the correspondence can reasonably be viewed as applications to extend time, or as notices of objection. The accountant for the applicants was unable to testify at trial because he had passed away. Mr. Poon also sent a letter to the CRA, but the Tax Court did not consider that to be a notice of objection either.[5]

We’ve previously blogged about the importance of receiving proper legal counsel when navigating the objections and appeals process. In this case, despite sending letters to the CRA, the applicants were unable to receive an extension of time because they not meet the rigid rules of the Income Tax Act. It was an unfortunate result.

Zanatta v The Queen, 2014 TCC 293 [Zanatta]

The appellant was denied a medical expense tax credit for compensation to a surrogate and for medical expenses incurred by the surrogate on the basis that such fees are not described in the Income Tax Act.[6]

The appellant also argued that gay male couples are being discriminated against by the application of paragraph 118.2(2)(a) of the Income Tax Act and alleged that it infringed on section15 of the Canadian Charter of Rights and Freedoms.

The Tax Court concluded that surrogacy fees are non-deductible for anyone, whether heterosexual couples, female gay couples or male gay couples. For example, a woman who (because of infertility) requires the services of either a surrogate or an egg donor in order to have a child is not allowed to deduct the surrogacy or the egg donor fees.

Further, the Charter challenge was unsuccessful because the appellant did not demonstrate that he was unable to receive a benefit under the law that is provided to others, and also that the he was not saddled with a burden that the law did not impose on someone else. The Tax Court held that the burden imposed by the law on male gay couples is no greater than that imposed on any other couples.

However, there is nothing really fair about this at all. It is just the Act as it is written, and given the deductions and expenses allowed for taxpayers who adopt, one would think that surrogate motherhood would also be equally tax advantaged, but it is not.

Grenon v The Queen, 2014 TCC 265 [Grenon]

The appellant separated from his former spouse in 1998. In 1999 his former spouse commenced family law proceedings concerning custody, child support, spousal support and the division of property. The appellant’s deduction of these legal expenses was denied by the Minister. As a result, the appellant appealed the denial of his deductions and challenged the denial of the deductions under section15 of the Canadian Charter of Rights and Freedoms. Both were unsuccessful.

For the appellant to be able to deduct the fees, they would have to be an expense that he had incurred for the purpose of gaining or producing income from a business or property. There is no provision in the Income Tax Act that specifically permits the appellant to deduct the legal fees the same way that paragraph 60(o) permits the deduction of legal fees incurred disputing an income tax assessment in court (this provision is a huge boon for tax lawyers!). Moreover, the Federal Court of Appeal held that the courts have never recognized any right to the deduction of these expenditures.[7]

The Tax Court held that the recipients of child support payments are able to deduct legal fees relating to establishing child support payments because they have a source of property income in the form of their right to child support payments. The appellant, and all payers of child support, do not have this source. The Tax Court made it clear that the gender of the payer and the recipient have nothing to do with the determination of deductibility. In fact, the distinction between people who do and do not earn income from property is commonplace under the Income Tax Act.[8]


None of these cases would appear to be too unusual on their facts, and we could have picked any other day of the year and found just as many varied and equally unfair cases. In each case the tax court judge made it clear that, he or she was unable to do anything but colour inside the lines of the law. Which means Parliament has to step in to deal with it because the tax court won’t. Indeed, the judges in each of the above cases, to a greater or lesser extent, included in their judgments a plea to parliament to fix what is clearly an area of unfairness in the Act. However, the current government seems to have other priorities on its mind, and will not deal with some fairly obvious problems with the Act. The hypocrisy here is obvious; the current Conservative government is constantly complaining about “activist judges” making up the law to suit their perception of what is fair or just with little regard to the authority of parliament to make law, but if judges refuse to solve obvious problems themselves, the issue is ignored. So my suggestion is this: rather than spending time and money on income splitting and providing other tax breaks to the middle class (effectively trying to bribe people with their own money…) and then advertising their campaign promises during the Grey Cup using tax dollars, how about the government gets off its duff and address some real issues of unfairness for a change?

By Jonathan N. Garbutt, Barrister & Solicitor and Raminder Pandher, Student-at-law

The above is provided on an “For Your Information” basis only and may not and should not be considered to be legal or tax advice.

[1] Poot at para 4.

[2] Ibid.

[3] Income Tax Act, s.166.2(5)

[4] Income Tax Act, s. 166.2(5)(a)

[5] Poot at paras 10-16.

[6] Income Tax Act, s. 118.2(2)(a).

[7] Nadeau v The Queen, 2003 FCA 400.

[8] Grenon at para 16.