The Income Tax Act should be redrafted so that divorced people aren't deprived of a popular tax credit available to married couples, a Tax Court of Canada judge says.
"It may be time to create a better mousetrap," Judge Campbell J. Miller said.
The act grants a credit to people who support a spouse who has a low income. In an effort at fair play, it also allows a comparable credit for a divorced individual who can show that he or she supports a relative, including a child. However, only one ex-spouse can claim it, and neither of them gets it without the other's agreement.
Judge Miller said that ex-partners - already in the throes of discord - stand to lose a $10,320 tax credit if they cannot agree which of them ought to benefit from it.
It cannot be the law that one hostile party, acting unreasonably, can exercise a veto on the lawful entitlement of another party. Toronto lawyer Stephen Krashinsky
The judge's comments came after a Toronto lawyer, Stephen Krashinsky, launched a constitutional challenge to the equivalent-to-spouse tax credit based on the fact that his ex-wife had refused to endorse his receiving it.
"It cannot be the law that one hostile party, acting unreasonably, can exercise a veto on the lawful entitlement of another party," Mr. Krashinsky told the court. "Instead of resolving the dispute, the Canada Revenue Agency simply throws up its hands and denies the deduction to everyone, thereby enriching itself."
Representing himself in court, Mr. Krashinsky argued unsuccessfully that the provision is discriminatory because married partners do not need a spouse's approval to obtain their benefit.
Judge Miller said the measure is not as discriminatory as it is "awkward." He warned legislators that forcing one ex-spouse to obtain the endorsement of the other can, in certain circumstances, "create a harsh and unfair result contrary to their intention of providing relief."
Figures from the last national census, in 2006, show that 2,087,390 people were separated or divorced. A spokeswoman for the Canada Revenue Agency, Caitlin Workman, said that in 2008, 952,020 people claimed the equivalent-to-spouse credit.
Mr. Krashinsky and his former wife, Alexandra Dagg, separated in 2007 after a 14-year marriage. Their separation agreement specified joint custody and equal shared access to their 14-year-old son. Ms. Dagg waived child and spousal support in favour of a lump-sum payment.
However, the agreement made no mention of extra costs for private school, summer camp and recreational pursuits such as hockey - for which Mr. Krashinsky said he has been paying about $40,000 annually.
When he approached Ms. Dagg about the matter, he said, she refused to agree to him receiving the credit.
"Since I pay most of his expenses, I believe I am morally entitled to the credit," Mr. Krashinsky said in an interview. "As I argued, I may be entitled to some, all or none of the deduction, but it cannot be right that it is my ex-spouse that gets to decide that. Yet that is the current state of the law."
Mr. Krashinsky attempted to use the tax credit anyway, but the Canada Revenue Agency barred him from doing so.
A lawyer at the firm of Sack Goldblatt Mitchell, Mr. Krashinsky argued in his brief that married persons have no similar requirement to reach an agreement. "It is not justifiable that one person's entitlement to the deduction can effectively be denied by one's ex-spouse unreasonably exercising a veto," he said.
However, Judge Miller said Mr. Krashinsky's problem stemmed from the fact that his separation agreement had omitted any mention of the credit. "Had this matter been addressed in November, 2007 - at the time he and Ms. Dagg settled all their other differences - we would not be here today," he said.
"It is indeed an unfortunate comment on the complexity of our taxation laws that senior, capable family lawyers would not have this item on their checklist of items to cover off in a separation agreement."
Judge Miller urged family lawyers to make sure they address the problem when negotiating separation agreements on behalf of their clients.
Mr. Krashinsky said that the provision can be particularly damaging to single parents on low incomes.
"As I said to the court, I am not personally a member of a disadvantaged group," he said. "But this case can impact on single mothers - who are a disadvantaged group - and whose ex-husbands decide to be vindictive and simply refuse to consent to the entitlement to the tax credit of the single mom."