Lazarescu-King v. The Queen

Lazarescu-King v. The Queen Court (s) Database Tax Court of Canada Judgments Date 2003-11-13 Neutral citation 2003 TCC 806 File numbers 2003-2294(IT)I Judges and Taxing Officers Georgette Anne Sheridan Subjects Income Tax Act Decision Content Docket: 2003-2294(IT)I BETWEEN: LINDA LAZARESCU-KING, Appellant, and HER MAJESTY THE QUEEN, Respondent. ____________________________________________________________________ Appeal heard on October 27, 2003 at Saskatoon, Saskatchewan Before: The Honourable Justice G. Sheridan Appearances: For the Appellant: The Appellant herself Counsel for the Respondent: Anne Jinnouchi ____________________________________________________________________ JUDGMENT The appeal from the assessment made under the Income Tax Act for the 2001 taxation year is dismissed in accordance with the Reasons for Judgment. Signed at Ottawa, Canada, this 13th day of November 2003. "G. Sheridan" Sheridan, J. Citation: 2003TCC806 Date: 20031113 Docket: 2003-2294(IT)I BETWEEN: LINDA LAZARESCU-KING, Appellant, and HER MAJESTY THE QUEEN, Respondent. REASONS FOR JUDGMENT Sheridan, J. [1] This is an appeal from an assessment for the 2001 taxation year in which the Minister of National Revenue (the "Minister") disallowed the deduction claimed by the Appellant for the interest she paid in respect of a student loan in her spouse's name. FACTS [2] The Appellant testified on her own behalf. No other witnesses were called. The facts of the case are not in dispute and appear in the Respondent's Reply to the Notice of Appeal as follows: (a) at all material times, the Appellant was married to Roland King (hereinafter the "spouse"); (b) the spouse applied for and received a student loan under the Canada Student Loans Act, the Canada Student Financial Assistance Act or a law of a province governing the granting of financial assistance to students at the post-secondary level; (c) the interest paid in the 2001 taxation year on the student loan made to the spouse amounted to $1,050.00; and (d) the interest claimed on a student loan by the Appellant in the amount of $1,050.00 in the 2001 taxation year was in respect of the student loan made to the spouse and not in respect of a student loan made to, or other amount owing by, the Appellant. [3] The Appellant was assessed for the 2001 taxation year on March 21, 2002. There followed three reassessments for the 2001 taxation year on May 9, 2002, September 3, 2002 and December 2, 2002. Only the third Notice of Reassessment dated December 2, 2002 ("the final reassessment") pertains to this appeal. Paragraph 3 of the final reassessment (Exhibit R-4) reads as follows: We have adjusted your total federal non-refundable tax credits [from $2,740.00] to $2,572.00 and your total Saskatchewan non-refundable tax credits [from $2,233.00] to $2,112.00." [4] On cross-examination, the Appellant agreed with counsel for the Respondent that this reduction reflected the disallowance of the deduction claimed by the Appellant for interest in the amount of $1,050 that she had paid in respect of her spouse's student loan. ISSUE [5] The issue for determination in this appeal is whether, pursuant to s. 118.62 of the Income Tax Act (the "Act"), the Appellant is entitled to a non-refundable tax credit in respect of the interest she paid on her spouse's student loan for the 2001 taxation year. ANALYSIS [6] The relevant legislative provision is s. 118.62 of the Act which reads as follows: Credit for interest on student loan. For the purpose of computing an individual's tax payable under this Part for a taxation year, there may be deducted the amount determined by the formula A × B where A is the appropriate percentage for the year; and B is the total of all amounts (other than any amount paid on account of or in satisfaction of a judgement) each of which is an amount of interest paid in the year (or in any of the five preceding taxation years that are after 1997, to the extent that it was not included in computing a deduction under this section for any other taxation year) by the individual or a person related to the individual on a loan made to, or other amount owing by, the individual under the Canada Student Loans Act, the Canada Student Financial Assistance Act or a law of a province governing the granting of financial assistance to students at the post-secondary school level. [7] Paraphrased and reduced to its key components, s. 118.62 reads as follows: For the purpose of computing an individual's tax, there may be deducted an amount equal to the appropriate percentage multiplied by the amount of interest paid in the year by the individual, or [by] a person related to the individual, on a loan made to the individual. [8] The Appellant's argument focussed on the meaning to be given to the words "by the individual or a person related to the individual". On her interpretation of the subsection, either of these entities i.e the individual to whom the loan was made or the person related to the individual should be eligible to deduct the interest paid on a student loan. In support of this proposition she referred the Court to certain sections of the Interpretation Act and to a Supreme Court of Canada decision Rizzo and Rizzo Shoes [1998] 1 SCR 27. She concluded with the opinion that s. 118.62 is "confusing" as drafted and wondered aloud why the drafters would have included a reference in the subsection to "a person related to the individual" if that person was not meant to be entitled to the deduction. [9] There is no question that the Appellant feels frustrated in her attempts to seek clarification of s. 118.62 from Canada Customs and Revenue Agency. By her own admission, however, she had received timely responses from officials at Canada Customs and Revenue Agency to each of her written queries and had had numerous telephone discussions with them as well. What brought her to Court, she stated, was that in spite of their efforts, the Appellant couldn't see why she wasn't entitled to claim the deduction under s. 118.62. [10] Counsel for the Respondent argued that s. 118.62 is not ambiguous and therefore, its words must be given their plain meaning. Clearly, she argued, s. 18.62 contemplates two separate and distinct entities: the "individual" and the "person related to the individual". Reading through to the end of the subsection reveals that the "individual" is the one to whom the loan has been made, in this case, the Appellant's spouse ("Roland"). From this it follows that the "person related to the individual" is the Appellant ("Linda"). [11] To illustrate the operation of the subsection, Counsel for the Respondent substituted, for each of the entities identified in s.118.62, the names of the Appellant and her spouse as shown below: For the purpose of computing [Roland's] tax payable ... under this Part for a taxation year, there may be deducted the amount determined by the formula A × B where A is the appropriate percentage for the year; and B is ... the interest paid in the year [$1,050] ...by [Roland] or [Linda] on a loan made to...[Roland] under the Canada Student Loans Act, the Canada Student Financial Assistance Act or a law of a province governing the granting of financial assistance to students at the post-secondary school level. [12] The opening words of s. 118.62, "for the purpose of computing an individual's tax payable...there may be deducted", specify who may claim the deduction. That is the "individual". [13] The rest of the subsection has to do with what may be deducted. The reason for the reference to the "person related to the individual" is to permit the individual to claim the deduction even in those case where the "individual" has not paid the interest on the student loan himself - as long as the interest has been paid by a "person related to the individual". The use of the disjunctive "or" in the phrase "... by the individual or [by] a person related to the individual ..." is limited in its application to which of them has actually paid the interest. By contrast, the opening words of the subsection defining who is entitled to the deduction refer exclusively to the individual. [14] From this it follows that it is not possible to read s. 118.62 in the manner urged by the Appellant. The Appellant is not the "individual" referred to in the opening line of the subsection since she is not the one to whom the loan was made. As the individual's spouse, the Appellant is "a person related to the individual" who paid the interest on that individual's student loan. Counsel for the Respondent argued quite rightly that the Appellant cannot be both. Finally, as only the individual referred to in the opening line of the subsection is eligible to claim the deduction, the Appellant's argument cannot succeed. [15] The Appellant argued that even in the event that she was not successful in her appeal, she ought to be awarded costs in the amount of two days' pay for her preparation time and one day's pay for her court appearance. Section 10 of the Tax Court of Canada Rules restricts the awarding of costs to an appellant to those case where the appeal is allowed and the judgment reduces the aggregate of all amounts in issue by more than one half. [16] Accordingly, the appeal is dismissed without costs. Signed at Ottawa, Canada, this 13th day of November 2003. "G. Sheridan" Sheridan, J. CITATION: 2003TCC806 COURT FILE NO.: 2003-2294(IT)I STYLE OF CAUSE: Linda Lazarescu-King and H.M.Q. PLACE OF HEARING: Saskatoon, Saskatchewan DATE OF HEARING: October 27, 2003 REASONS FOR JUDGMENT BY: The Honourable Justice G. Sheridan DATE OF JUDGMENT: November 13, 2003 APPEARANCES: For the Appellant: The Appellant herself Counsel for the Respondent: Anne Jinnouchi COUNSEL OF RECORD: For the Appellant: Name: Firm: For the Respondent: Morris Rosenberg Deputy Attorney General of Canada Ottawa, Canada