Rannelli v. MNR, 91 DTC 816, [1991] 2 CTC 2040 (TCC)

Sobier, T.CJ.:— The appellant appeals from reassessments of the respondent for the 1986 and 1987 taxation years whereby the respondent disallowed as medical expenses certain tuition and other fees paid by the appellant to the Fraser Academy.

The appellant claims they are properly deductible as medical expenses under subparagraph 110(1)(c)(vi) of tne Income Tax Act, R.S.C. 1952, c. 148 (am. S.C. 1970-71-72, c. 63) (the 'Act") as then applicable. Subparagraph 110(1)(c)(vi) reads as follows:

110. (1) For the purpose of computing the taxable income of a taxpayer for a taxation year, there may be deducted such of the following amounts as are applicable:

(c) Medical expenses.— an amount equal to that portion of medical expenses in excess of 3% of the taxpayer's income for the year paid either by the taxpayer or his legal representative,

(vi) for the care, or the care and training, at a school, institution or other place of the taxpayer, his spouse or any such dependant, who has been certified by an appropriately qualified person to be an individual who, by reason of a physical or mental handicap, requires the equipment, facilities or personnel specially provided by that school, institution or other place for the care, or the care and training, of individuals suffering from the handicap suffered by that individual.

The evidence given by Dr. Carl L. Kline, a child psychiatrist specializing in learning disabilities, including dyslexia, makes it clear that dyslexia is a medical problem and that at present the only treatment for this problem is of the type given by the Fraser Academy using the Orton Gillingham Method of Teaching Language Arts and that this method is absolutely essential if any progress is to be made in treating dyslexia.

Mr. Wayne Kuypers, headmaster of the Fraser Academy, gave detailed evidence as to the school's operating methods being those used by the Kildonan School of New York State. The regime of the Fraser Academy is patterned after the Kildonan School. The Academy does not admit into its enrolment any children except those suffering from dyslexia. Indeed should a child be incorrectly diagnosed as dyslexic and this is discovered, the child will not be permitted to return in the next academic year.

At the Fraser Academy, the emphasis is on treating and dealing with the whole child. The child's problem, while having as a foundation a learning disability, may also include severe low self-esteem, expectation of failure and in some instances, suicidal tendencies.

The Orton Gillingham Method is a structured and highly organized method and uses the multi-sensory method in teaching. It uses all of the senses to educate. Medically, this method is essential to treating the disorder.

The Fraser Academy is also a highly structured institution as evidenced by the daily schedule described by Mr. Kuypers, ranging from the dress code and emphasis on punctuality to sports and other activities whereby the children are made to realize that they have the ability to learn and therefore do in fact learn. By discovering that they can learn, the children do learn. A child is allowed to develop self-confidence and a strategy for organizing everything including his or her entire life.

At all steps and at all times, the child must organize where his or her thought process is going. Tutors are used on a one-on-one basis for those areas of treatment which are over and above pure academic subjects. The tutors make themselves privy to every aspect of the child's life especially in selfdevelopment.

There is a close and empathic relationship fostered between the tutor and the child. The tutor is constantly with the child endeavouring to instill this selfconfidence as well as overcoming the learning disability.

This close relationship extends to teachers, tutors, parents, medical advisors and the child. The school is non-residential and provides no psychological or medical consultants. Those are brought in by the parents and become involved with the others in developing programs.

Either by admission or by the evidence, the fact is that the appellant's children were certified by an appropriately qualified person, as individuals who by reason of mental handicaps, i.e., dyslexia, required the equipment facilities or personnel specially provided by the Fraser Academy.

The Court is satisfied that all of the requirements, but one set forth in subparagraph 110(1 )(c)(vi), have been met. The only area in issue is whether the payments to the school were paid by the appellant for the care, or the care and training of the children, at the Fraser Academy. [Emphasis added.]

The respondent's position is that there must be either care, or care and training, but not care or training. If it were "care or training", there would be no issue since it was conceded that training was provided.

The Minister's position on care is that care should be read and interpreted by other uses of that word in section 110 which have a residential or custodial flavour such as “full-time care in a nursing home", or full-time attendant for a "cared-for-person".

At the outset, it must be remembered that each of the matters set out in paragraph 110(1)(c) is a definition of a medical expense which, if not for its inclusion, might not be readily recognized as a medical expense; such as travel and lodging expenses of an individual who is required to live away from home because of attendance at a school where blind or deaf persons are trained to handle dogs to assist them. Therefore, each of the subparagraphs of paragraph 110(1)(c) must be examined individually.

In the cases on this subparagraph and its predecessors such as: Stewart, Dr. B.G. v. M.N.R., [1972] C.T.C. 2097; 72 D.T.C. 1092 (T.R.B.); Somers v. M.N.R., [1979] C.T.C. 2001; 79 D.T.C. 21 (T.R.B.) and Lawson v. M.N.R., [1971] Tax A.B.C. 833; 71 D.T.C. 572 (T.A.B.) the Board was struggling to give relief to taxpayers under the former paragraph 27(1)(c) of the Act whereby to qualify for the deduction the payment must have been paid to a "licensed private hospital". Whereas, in the cases above cited, the payments were made to schools which were not themselves "licensed private hospitals" nor part of a hospital and the effort was made to notionally convert them into "licensed private hospitals”. For the most part the taxpayers were unsuccessful.

Yet, with the enactment of the present subparagraph 110(1)(c)(vi), the concept of a school has been introduced hopefully for the purpose of overcoming those earlier decisions under paragraph 27(1)(c).

Cases dealing with the interpretation of the new subparagraph such as Johnston v. M.N.R., [1988] 1 C.T.C. 2476; 88 D.T.C. 1300 (T.C.C.) and Avery v. M.N.R. (unreported) (T.R.B.) taxpayers' appeals were also disallowed since payments were to ordinary private schools and not to ones which provided equipment facilities or personnel for the training of individuals with handicaps. In the present instance, the Fraser Academy is a school which qualifies in all respects if the "care and training" hurdle can be overcome.

Recent developments in the interpretation of taxing statutes such as Lor- Wes Contracting Ltd. v. The Queen, [1985] 2 C.T.C. 79; 85 D.T.C. 5310 (F.C.A.) and McClurg v. M.N.R., [1991] 1 C.T.C. 169; 91 D.T.C. 5001 (S.C.C.) emanated from Stubart v. The Queen, [1984] 1 S.C.R. 536; [1984] C.T.C. 294; 84 D.T.C. 6305 (S.C.C.). The Courts have made it clear that they were "wedded neither to the rule of ‘strict construction' nor to an all encompassing test of 'independent business purpose'". (McClurg, supra, at 182 (D.T.C. 5010)).

These cases also included the “object and spirit" test of Estey, J. in Stubart, supra, at page 315 (D.T.C. 6323; S.C.R. 576) whereby he said:

It seems more appropriate to turn an interpretation test which would provide a means of applying the Act so as to affect only the conduct of a taxpayer which has the designed effect of defeating the expressed intention of Parliament. In short, the tax statute, by this interpretative technique, is extended to reach conduct of the taxpayer which clearly falls within the “object and spirit” of the taxing provisions.

In McClurg, supra, Dickson, C.J.C. went on to say at page 182 (D.T.C. 5011):

Estey, J. expanded upon this test of “object and spirit in his majority judgment in The Queen v. Golden, [1986] 1 S.C.R. 209; [1986] 1 C.T.C. 274; 86 D.T.C. 6138 (at 277 (D.T.C. 6140; S.C.R. 214-215)):

. . . the law is not confined to a literal and virtually meaningless interpretation of the Act where the words will support on a broader construction a conclusion which is workable and in harmony with the evident purposes of the Act in question. Strict construction in the historic sense no longer finds a place in the canons of interpretation applicable to taxation statutes in an era such as the present. . .

More recently, in Bronfman Trust v. The Queen, [1987] 1 S.C.R. 32; [1987] 1 C.T.C. 117; 87 D.T.C. 5059, I described the approach in terms of the need to discern the commercial reality of a taxpayer's transaction (at 128 (D.T.C. 5066-67; S.C.R. 52-53)):

I acknowledge, however, that just as there has been a recent trend away from strict construction of taxation statutes so too has the recent trend in tax cases been towards attempting to ascertain the true commercial and practical nature of the taxpayer's transactions. There has been, in this country and elsewhere, a movement away from tests based on the form of transactions and towards tests based on . . . a common sense appreciation of all the guiding features of the events in question . . .

This is, I believe, a laudable trend provided it is consistent with the text and purposes of the taxation statute.

In Lor-Wes, supra, MacGuigan, J. referred to Estey, J. in Stubart, supra, in quoting him when he stated at page 83 (D.T.C. 5312):

Professor Willis, accurately forecast the demise of the strict interpretation rule for the construction of taxing statutes. Gradually, the role of the tax statute in the community changed, as we have seen, and the application of strict construction to it receded. Courts today apply to this statute the plain meaning rule, but in a substantive sense so that if a taxpayer is within the spirit of the charge, he may be held liable . . .

While not directing his observations exclusively to taxing statutes, the learned author of “Construction of Statutes”, 2nd ed., (1983) at p. 87, E.A. Dreidger, (sic) put the modern rule succinctly:

Today there is only one principle or approach, namely, the words of an Act are to be read in their entire context and in their grammatical and ordinary sense harmoniously with the scheme of the Act, the object of the Act, and the intention of Parliament.

It seems clear from these cases that older authoritiesare no longer to be absolutely relied upon. The only principle of interpretation now recognized is a words-in-total-context approach with a view to determining the object and spirit of the taxing provisions.

Section 12 of the Interpretation Act, R.S.C., c. 1-23 states as follows:

Every enactment is deemed remedial, and shall be given such fair, large and liberal construction and interpretation as best ensures the attainment of its objects.

The enactment of subparagraph 110(1)(c)(vi) was remedial in that it broadened the scope of medical deductions to include payments to certain types of schools and institutions. The evidence of Mr. Kuypers and Dr. Kline made it clear that for the treatment to be successful, care, in its broadest sense, was absolutely necessary. This care was not custodial but of a nurturing or solicitous nature.

It is too narrow an interpretation of the word to limit it to a structured type of care. Care in a custodial sense, or a structured sense, is not the only meaning which the word is capable of having. Applying The Queen v. Golden, [1986] 1 S.C.R. 209; [1986] 1 C.T.C. 274; 86 D.T.C. 6138 the word care “will support on a broader construction a conclusion which is workable and in harmony with the evident purposes of the Act in question."

Using the “words-in-a-total context" or “object and spirit" approach an interpretation of "care" in a solicitous, nurturing, sympathetic or empathic sense is not out of the question but it is indeed the proper interpretation to be applied. It is that type of care which the Fraser Academy provides to its students.

Accordingly, the appeals are allowed, with costs, and the matter referred back to the Minister for reconsideration and reassessment on the basis that the appellant was entitled to the deductions for medical expenses in the 1986 and 1987 taxation years under subparagraph 110(1)(c)(vi) of $23,780 in 1986 and $8,314.50 in 1987.

Appeals allowed.