T-1626-75
The Queen (Plaintiff)
v.
Adolf Scheller (Defendant)
Trial Division, Cattanach J.—Ottawa, October 16
and 28, 1975.
Income tax—Deductions—Construction of exempting provi-
sions—Defendant claiming deductions for "wife", daughter
and brother in Communist country—Whether permissible—
Income Tax Act, S.C. 1970-71-72, c. 63, ss.
109(1)(a),(b),(d),W, 178(2), 252(1)—Canadian Bill of Rights,
S.C. 1960, c. 44, ss. 1(b), 2.
Due to political events, defendant was separated from the
woman with whom he had lived, the child of that union, his
brother, and other family members. Though unable to bring his
family to Canada, defendant continued to provide for their
support. While the Minister did not dispute that amounts
claimed were actually sent, he disallowed: (1) part of the claim
for the daughter, because she had not resided with defendant in
a self-contained domestic establishment maintained by him
(section 109(1)(b)); (2) the claim for the "wife" because she
was not related to defendant (section 109( I )(b)(ii)(B)) and (3)
the claim for the brother (section 109(I)(/)). The Tax Review
Board allowed the claim for the daughter only. The Minister
appeals this decision, and defendant appeals from the Board's
decision to disallow the other two claims.
Held, the Crown's appeal is allowed and the defendant's
appeals are dismissed. Taxation is the general rule; an exemp
tion is the exception, and exempting provisions must be strictly
construed. Every constituent element must be present and every
condition required by the exempting provision must be met.
Constituent elements are missing in all three cases. The Board
erred in that, having found a failure to comply strictly with the
exempting provisions in the three claims, it gave defendant the
maximum benefit of section 109(1)(b), in respect of the
daughter.
This Court is not the proper forum to advocate change in a
law. When the meaning of a statute is clear, the Court has
nothing to do with its policy or justice; it must simply apply the
law as it finds it. Defendant is being afforded equality before
the law in that others in similar circumstances are subject to
the same application of the Act.
Lumbers v. M.N.R. [1943] Ex.C.R. 202 and Harris v.
M.N.R. [1969] C.T.C. 562, followed.
INCOME tax appeal.
COUNSEL:
C. H. Fryers for plaintiff.
A. Scheller for defendant.
SOLICITORS:
Deputy Attorney General of Canada for
plaintiff.
Defendant for himself.
The following are the reasons for judgment
rendered in English by
CATTANACH J.: This is an appeal by the Minis
ter from a judgment of the Tax Review Board
whereby an amount claimed by the defendant as a
deduction in computing his income for his 1972
taxation year was allowed.
In computing his income for the 1972 taxation
year the defendant claimed deductions from
income as follows:
(i) $1,500.00 in respect of himself;
(ii) $1,350.00 in respect of his 28 year old
daughter Katrin, resident in the Union of Soviet
Socialist Republics;
(iii) $480.00 in respect of Liidia Palts, also
resident in the Union of Soviet Socialist
Republics;
(iv) $250.00 in respect of Evald Silvet, the
defendant's brother, also resident in the Union
of Soviet Socialist Republics;
(v) $300.00 in respect of Kaspar Kolk, the
defendant's one year old grandson and son of
Katrin; and
(vi) $300.00 in respect of Kaarel Kolk, the
defendant's grandson born to Katrin during the
1972 taxation year.
In assessing the defendant as he did, the Minis
ter of National Revenue disallowed as deductions
in computing the defendant's income the following
amounts for the reasons indicated:
(i) $800.00 in respect of the defendant's daugh
ter, Katrin, as she at no time during the 1972
taxation year resided with the defendant in a
self-contained domestic establishment main
tained by him; (Since the defendant had claimed
an amount of $1,350.00 in respect of his daugh
ter and the Minister reduced that amount by
$800.00, it follows that the Minister did allow
the deduction so claimed but in the amount of
$550.00. The Minister did so in accordance with
section 109 (1) (d) (v) of the Income Tax Act).
(ii) $480.00 in respect of Liidia Palts as she was
not connected to defendant by blood relationship
or adoption, in accordance with section
109(1)(b)(ii)(B) of the Income Tax Act; and
(iii) $250.00 in respect of Evald Silvet as not in
accordance with section 109(1)(f).
The member of the Tax Review Board dismissed
the defendant's appeal with respect to the amounts
of $480.00 and $250.00 referred to in paragraphs
(ii) and (iii) immediately above, respectively, but
allowed as a deduction from income the amount of
$800.00 referred to in paragraph (i) immediately
above.
It is from the decision of the Tax Review Board
allowing the deduction in the amount of $800.00 in
respect of the defendant's daughter Katrin that
Her Majesty the Queen appeals.
The defendant, by appropriate amendment to
his statement of defence, supports the decision of
the Tax Review Board on the deduction in the
total amount of $1,350.00 with respect to defend
ant's daughter Katrin, which the Board_ allowed,
which is the sole matter with respect to which Her
Majesty has appealed, but the defendant, in his
turn, also appeals from the decision of the Board
in those aspects in which the Board's decision was
adverse to him, that is to say, with respect to the
amount of $480.00 claimed by the defendant with
respect to Liidia Palts and an amount of $250.00
paid by the defendant to his brother, Evald Silvet.
This is tantamount to a counterclaim by the
defendant in these two latter respects and is treat
ed as such by Her Majesty who has pleaded
thereto by filing a "defence to the counterclaim".
In the result, therefore, there are three items
placed in dispute by the pleadings:
(1) the amount of $800.00 with respect to the
defendant's daughter Katrin, which the Minister
disallowed as a deduction in assessing the
defendant as he did for the 1972 taxation year,
which deduction the Tax Review Board allowed
and from the Board's decision in this respect
Her Majesty appeals;
(2) the amount of $480.00 with respect to
Liidia Palts, which was disallowed by the Minis-
ter as a deduction by the defendant in comput
ing his income for his 1972 taxation year and
the assessment in this respect was confirmed by
the Tax Review Board, which decision is
appealed by the defendant; and
(3) the amount of $250.00 with respect to the
defendant's brother, Evald Silvet, claimed as a
deduction by the defendant and disallowed by
the Minister, which disallowance was confirmed
by the Tax Review Board and from which deci
sion the defendant appeals.
The tragic situation in which the defendant
finds himself is the direct aftermath of political
forces and events over which the defendant had no
control. The defendant's native land, Estonia, was
invaded by the German armies in 1943 followed by
the expulsion of those armies by the Russian
armed forces and the subsequent incorporation of
Estonia into the Union of Soviet Socialist
Republics.
The German occupation explains the difference
in the surnames of the defendant, which is Schell-
er, and that of his brother, which is Silvet. The
family name was originally Silvet but the policy of
the German occupation authorities was that the
inhabitants should adopt names of German origin.
The defendant and his mother, Emilie Scheller,
complied with that direction but the defendant's
brother did not.
The inevitable result of this invasion and coun-
ter-invasion was chaos and turmoil to the inhabi
tants of the disputed territory and utter disruption
of their normal lives. The defendant made his way
to Finland, an ally of Germany and an enemy of
Russia. Upon Finland being overrun by the Rus-
sian armies the defendant returned to Estonia,
both countries being occupied by the Russians.
There he met and fell in love with Liidia Palts.
She had been married previously but both she and
the defendant were morally certain that her
former husband had been killed. However, it was
impossible to establish their moral certainty as a
fact because that death, if it occurred, had hap
pened in territory occupied by enemy forces.
Therefore, the defendant and Liidia Palts, both
devout Christians, were precluded from being legal
ly married in Estonia either by a church or civil
ceremony. The adage is that marriages are made
in Heaven and in compliance with that adage the
defendant and Liidia Palts considered themselves
married and lived together in that state for a short
time. The parties then became separated due to
the exigencies of the time. On June 22, 1944, a
daughter, Katrin, was born to this union.
The spiritual and temporal authorities do not
accept this adage. The stark and irrefutable fact
remains that the defendant and Liidia Palts were
not married to each other. The defendant made his
way to Sweden and despite frantic efforts to do so
he was unable to find Liidia Palts, who had
become a refugee, and a search elsewhere was
virtually impossible.
In 1951 the defendant immigrated to Canada
where he has achieved success as a scholar. He
earned a doctorate in philosophy, specializing in
mathematics, a subject he now teaches in a
college.
While communication between persons resident
in Canada and those in the Union of Soviet Social
ist Republics has improved, as has travel, never
theless both remain difficult by reason of political
barriers raised. The defendant has learned of the
whereabouts of Liidia Palts, their daughter Katrin,
and his mother and his brother. They are resident
in Estonia, which is now a province of the
U.S.S.R.
It is not the defendant's choice that Liidia Palts
and their daughter Katrin remain in the U.S.S.R.
He has made every effort through every avenue
available to him (and he has explored all avenues)
to have Liidia Palts and their daughter reunited
with him in Canada but without success, again
because of political obstacles over which he has no
control nor can he circumvent.
The defendant's attitude, for which he is to be
commended, is that he is obligated to support
Liidia Palts as well as his daughter and other
members of his family resident in the U.S.S.R. less
fortunate than he to the best of his ability. Having
so assumed that responsibility his discharge of it
has also been fraught with difficulty. Recourse to
remittances through financial institutions result in
less monies being received by the donee than that
transmitted by the donor due to a rate of exchange
being set which is unfavourable to the recipient. If
I recall the defendant's evidence correctly the
recipient realized less than 54% of the amount
sent. Accordingly the defendant resorted to other
methods, such as sending cash through friends who
might travel to the U.S.S.R., and by sending
articles which are readily marketable in the
U.S.S.R. at an enhanced price. In one instance the
defendant sent a copy of an English dictionary to
his brother.
The Minister did not dispute that monies in the
amounts claimed by the defendant as deductions
were actually sent by him to the persons in the
U.S.S.R. For the purposes of this matter, I, in
turn, accept that the amounts were actually sent
by the defendant and received by the various
members of his family to whom they were
destined.
The question which remains for determination is
whether these amounts are permissible as deduc
tions by the defendant in computing his taxable
income for his 1972 taxation year. In so consider
ing and in construing a taxation statute it must be
borne in mind that taxation is the general rule. An
exemption from taxation is the exception and an
exempting provision must be strictly construed. A
taxpayer cannot succeed in claiming an exemption
from income tax unless his claim falls precisely
within the four corners of the exempting provision.
The taxpayer must show that every constituent
element is present in his case and that every
condition required by the exempting section has
been complied with. (See, Lumbers v. M.N.R.' at
page 211). With those well established premises in
mind, I therefore turn to each of the three claims
for deductions made by the defendant and the
applicable provisions of the Income Tax Act under
which the claims so made must be considered.
I turn first to the claim of $480.00 as a deduc
tion made by the defendant with respect to Liidia
Palts. The incontrovertible fact is that the defend
ant is not legally married to Liidia Palts. That
being so the defendant is not a married person and
is not within section 109(1)(a) of the Income Tax
Act. Therefore the exempting provision upon
which the defendant must rely is section 109(1)(b)
of the Act. That section provides an exemption to
an individual who is unmarried, as the defendant
is, who maintains a self-contained domestic estab-
[1943] Ex.C.R. 202.
lishment in which he lives, which the defendant
does, in which he actually supported a person,
Liidia Palts, which the defendant did not do, who
was during the year wholly dependent upon the
taxpayer for support and who was connected by
blood relationship, marriage or adoption with the
taxpayer. The defendant cannot establish two of
the constituent elements required by the section.
He admits in the pleadings that Liidia Palts is not
connected with him by blood relationship or adop
tion. He is not married to her. Neither did Liidia
Palts live with the defendant in a self-contained
establishment supported therein by the defendant.
I made no findings on the other constituent ele
ments as are required by section 109(1)(b) as
conditions precedent to the exemption sought by
the defendant.
Accordingly the Minister was not in error in
disallowing this particular amount as a deduction
in computing the defendant's taxable income for
his 1972 taxation year. Similarly, the Tax Review
Board was also correct in dismissing the defend
ant's appeal to that Board from the assessment by
the Minister. For the foregoing reasons I dismiss
the defendant's appeal by way of counterclaim
from the decision of the Tax Review Board in this
particular respect.
I now turn to the claim by the defendant for a
deduction from income in the amount of $1,350.00
with respect to his daughter Katrin. As previously
indicated, the Minister in assessing the defendant
to income tax reduced the amount of $1,350.00
claimed by the defendant to $550.00. The Minister
allowed the defendant the amount of $550.00 in
accordance with section 109(1)(d) in that Katrin
was a child of the defendant, as she undoubtedly
is, within the extended meaning of the word
"child" as set out in section 252(1), that she was
over 21 years of age in 1972 but that she was in
full time attendance at a University.
In my view the Minister in so assessing the
defendant must be taken as having admitted that
Katrin was wholly dependent upon the defendant
and that Katrin did not have income in excess of
$1,050.00, otherwise the constituent elements of
section 109(1)(d) would not have been present. On
appeal by the defendant to the Tax Review Board
the Board allowed the full amount claimed by the
defendant, that is $1,350.00, and did so because
that was the maximum benefit under section
109(1)(b). Put another way, the Board restored
the amount of $800.00 which was disallowed by
the Minister. The Minister has appealed the deci
sion of the Board in respect of this item only.
Section 109(1)(b) is the section which was con
sidered with respect to the defendant's claim for
deduction for Liidia Palts. Clearly the defendant is
unmarried, he maintained a self-contained domes
tic establishment in which he himself lived but he
did not actually support therein his daughter
Katrin who is connected with him by blood rela
tionship. Thus a constituent element required by
section 109(1)(b) has not been complied with and
that failure standing alone is sufficient reason for
allowing the Minister's appeal from the decision of
the Tax Review Board whereby the additional
amount of $800.000 was allowed.
Accordingly, I allow the Minister's appeal in
this respect for the reason stated.
The defendant, in his reply to the statement of
claim, asked that the whole amount claimed by
him be restored or to confirm the decision of the
Tax Review Board. Counsel for Her Majesty,
therefore, submitted that the question whether
Katrin was "wholly dependent for support upon"
the defendant, which is also a constituent element
for exemption under section 109(1)(6), was in
issue and invited me to make a finding of fact in
this respect. This I decline to do for three reasons:
(1) another constituent element required for
exemption is not present, as I have indicated
above, for which reason the appeal by Her
Majesty in this particular respect has been
allowed and therefore it is not necessary for me
to make the finding of fact which counsel has
invited me to do;
(2) the evidence before me in this particular
respect was not satisfactory upon which to base
such a finding, and it is not necessary for me to
rely on the failure of the defendant to discharge
the onus cast upon him in view of my first
reason for allowing the appeal; and
(3) to do so would be tantamount to allowing
the Minister to appeal from his own assessment.
The Minister is bound by his own assessment. If
I were to find that Katrin was not wholly
dependent upon the defendant for the purposes
of section 109(1)(b), then in all logic I must also
find that she was not wholly dependent upon the
defendant for the purposes of section 109(1)(d),
and in this respect the Minister must be taken as
admitting that Katrin was wholly dependent
upon her father otherwise the deduction of
$550.00 under section 109(1)(d) should not
have been allowed by him, as he did, and that
would then result in increasing the assessment
by the Minister, which I do not think that I can
do.
Authority for the proposition 1 have advanced as
the third reason for not making this particular
finding of fact is to be found in the remarks of
Thurlow J. in Harris v. M.N.R. 2
The third item in dispute between the parties is
the deductibility by the defendant in computing
his income for his 1972 taxation year of an amount
of $250.00 which he sent to his brother, Evald
Silvet, in that year.
It was established in the defendant's testimony
that for a number of years his mother, Emilie
Scheller, had supported herself by working. With
her advancing years she became ill and was no
longer able to work. I understand that the defend
ant's brother took over the apartment which had
formerly been maintained by their mother. He and
his family moved in but they also afforded shelter,
food and care to his mother. The brother had only
modest means and those means have been reduced
by his retirement. During her lifetime, the defend
ant felt that it was his filial duty to contribute to
the support of his mother. I am in complete agree
ment with the defendant so feeling and in doing so.
It is my understanding that claims for support of
his mother were allowed by the Minister in prior
taxation years and if that is so the Minister was
right in doing so by virtue of section 109(1)(f) to
the extent of $550.00 provided that the defendant's
mother did not have income in excess of $1,050.00,
in which event the allowable deduction in the
amount of $550.00 would be reduced by the
amount his mother's income exceeded $1,050.00.
However, the defendant's mother died in Janu-
ary 1971. Her death caused additional expense to
the defendant's brother for her funeral. It was to
2 [ 1964] C.T.C. 562 at page 571.
relieve the burden so cast upon his brother that the
defendant sent his brother an amount of $250.00
in his 1972 taxation year. There are records of
remittances by the defendant to his brother of
$7.48 in March 1972, in August 1972 in the
amount of $50.00 and a further $50.00 in October
1972. These total $107.48 and I assume that fur
ther remittances were sent by the defendant total
ling $142.52 on dates approximately coincident
with the three remittances of which there is writ
ten record. That means that the remittances by the
defendant took place some three to nine months
plus a full year after his mother's death. When
viewed realistically in the light of these facts what
the defendant did was to make a contribution to
his brother to lighten the burden cast upon his
brother by their mother's death. To pragmatize,
therefore, the amounts the defendant sent to his
brother in 1972 were for the relief of his brother
and not for the support of his mother who died in
January 1971. Furthermore, I fail to see how there
can be support given to a person who is deceased in
the ordinary dictionary meaning of that word
which is to supply the necessities of life. The
defendant's brother is not dependent upon the
defendant for support, he is over 21 years of age,
he is not mentally or physically infirm nor is he
attending school or university full time. Therefore
the defendant's brother does not fall within section
109(1)(f).
For these reasons I disallow the appeal by the
defendant by way of counterclaim from the deci
sion of the Tax Review Board with respect to this
item.
The argument advanced by the defendant was
simply that by virtue of circumstances beyond his
control, and through no choice of his, his family
could not be with him in Canada. That being so,
he then suggested that the Minister through the
officers or employees of the Department of Na
tional Revenue should exercise a discretion and
allow the three deductions claimed by him and
which are here in dispute. What the defendant
asks is a waiver of the provisions of the Income
Tax Act. The legislature did not confer in the
Income Tax Act either authority or discretion to
do so, and accordingly the Minister properly
applied the law as it is. For the reasons which I
have expressed this is what the Minister did as it is
his duty and function to do and he was not in error
in doing so.
As I have stated previously an exempting provi
sion in a taxing statute must be construed strictly.
When the meaning of those provisions in a statute
is clear, as sections 109(1)(a),(b),(d) and (f) are
and which are the applicable sections referred to
herein, then the Courts have nothing to do with
their policy or impolicy, their justice or injustice.
When the meaning of the legislature is plain and
clear, my function is to apply the law as I find it.
In this appeal and cross appeal this is what I have
done. To do otherwise is to abandon the office of
judge and assume the office of the legislative
branch of government.
This is the error into which the learned member
of the Tax Review Board fell. In allowing the
defendant the full amount of $1,350.00 claimed by
the defendant with respect to his daughter Katrin
he said:
After hearing the evidence the Board is of the opinion that
the appellant should be allowed to deduct the full amount of
money he paid to support his daughter who, in 1972, was in her
last year of study at a university in Russia. Even if the
appellant does not comply strictly with section 109(1)(b) of the
Income Tax Act and there is no equity in income tax, I think,
in the circumstances, the appellant should get the maximum
benefit of section 109(1)(b) of the Income Tax Act.
In the passage quoted the learned member
acknowledges that the defendant "does not comply
strictly with section 109(1)(b) of the Income Tax
Act". That being so, and I have found to the same
effect, then it follows upon the authority of Lum
bers v. M.N.R. (supra) that the defendant is not
entitled to the exemption provided in that section.
The learned member, after having referred to
the failure of the defendant to comply strictly with
the section and stating that there is no equity in
the Income Tax Act, continued to say "I think, in
the circumstances, the appellant (the defendant
herein) should get the maximum benefit of section
109(1)(b) of the Income Tax Act". He therefore
allowed the defendant's appeal to the Board and
referred the matter back to the Minister for reas
sessment accordingly. In my opinion and for the
reasons expressed he was wrong in doing so. I am
certain that the learned member entertained great
sympathy for the defendant in his unfortunate
predicament, for which sympathy there is ample
justification, but that he permitted that sympathy
to overrule his judgment. He fell prey to the
age-old maxim that hard cases make bad law.
In the course of the hearing I indicated to the
defendant that this Court is not the proper forum
in which to advocate a change in the law which he
considers unjust. The proper forum to do so is the
legislative branch of government and that avenue
remains open to him. In his argument the defend
ant went further and submitted that because
through no choice of his own he was precluded
from having his family with him in Canada and
because he could not he was placed in a disadvan
tageous position compared to other residents of
Canada who are fortunate to have their families
with them. Accordingly he says that the law is bad
because it is discriminatory.
In so saying I think the defendant, without
realizing that he was doing so, was invoking the
Canadian Bill of Rights (S.C. 1960, c. 44).
Section 1 of that statute provides for certain
fundamental rights, including in paragraph (b)
"the right of the individual to equality before the
law and the protection of the law". Section 2
provides that every law of Canada shall be so
construed and applied as not to abrogate, abridge
or infringe any rights or freedoms recognized and
declared in section 1 which includes, of course, the
right of equality before the law.
The defendant is being afforded equality before
the law in that other persons in the same circum
stances as the defendant are subject to the same
application of the Income Tax Act and accordingly
there is no discrimination in the application of the
Income Tax Act. If discrimination, in the sense of
that word as used by the defendant, results, it
results from the different circumstances of differ
ent taxpayers but that is not discrimination any
more than the result that a taxpayer with a higher
income must pay a greater tax than a taxpayer
with a lesser income who pays a smaller tax is
discriminatory. For these reasons this submission
aci anced by the defendant is wholly untenable.
By virtue of section 178(2) of the Income Tax
Act where on an appeal by the Minister from a
decision of the Tax Review Board the amount of
the tax that is in controversy does not exceed
$2,500.00, the Federal Court, in delivering judg
ment disposing of the appeal, shall order the Min
ister to pay all reasonable and proper costs of the
taxpayer in connection therewith. As pointed out
at the outset, the Minister appealed only that
portion of the decision of the Tax Review Board
whereby the Board allowed the full amount
claimed as a deduction by the defendant with
respect to his daughter Katrin. It was the defend
ant who appealed those portions of the decision of
the Board whereby the defendant's claim for
deductions with respect to Liidia Palts and Evald
Silvet were disallowed.
While I have doubt if the defendant is exempt
from the costs of his appeal by way of counter
claim launched by him and that Her Majesty
should not be entitled to costs with respect to the
defendant's own appeal, since the three matters
were so interwoven as to be virtually one appeal,
the fact that the defendant acted on his own behalf
from which it follows that the defendant's taxable
costs would be so minimal as to be almost negli
gible, and because counsel for the Minister has not
asked for costs, I have concluded that I should
exercise the discretion vested in me by virtue of
Rule 344 and order the Minister to pay the
defendant's costs. In so doing I do not mean to be
construed as deciding that a defendant is invari
ably to be entitled to all costs by virtue of section
178(2), and if that question should arise before
any of my brother judges or a court of first
instance, they are to be untrammelled by the
manner in which I have exercised my discretion in
this particular instance and by any remarks I may
have made incidental thereto.
To recapitulate in summary form:
(1) the appeal by Her Majesty from the deci
sion of the Tax Review Board with respect to
the allowance of the claim by the defendant for
a deduction in computing his taxable income for
his 1972 taxation year with respect to his daugh
ter Katrin to the full amount of the claim made
is allowed;
(2) the appeal by the defendant from the disal-
lowance of the claim made by him as a deduc-
tion in computing his taxable income for his
1972 taxation year with respect to an amount of
$480.00 paid by the defendant to Liidia Palts is
dismissed;
(3) the appeal by the defendant from the disal-
lowance of the claim made by him as a deduc
tion in computing his taxable income for his
1972 taxation year with respect to an amount of
$250.00 paid by him to Evald Silvet is
dismissed;
(4) the assessment made by the Minister is
restored; and
(5) the Minister shall pay all reasonable and
proper costs of the taxpayer in connection with
the appeal by the Minister from the decision of
the Tax Review Board and the cross appeal by
the defendant from that decision.
You are being directed to the most recent version of the statute which may not be the version considered at the time of the judgment.