Not long after the birth of his first child in August, 1988, Walter Schachtschneider learned that having a baby would be even more expensive than he had thought. While preparing his 1988 tax return, Schachtschneider discovered that he and his wife, Elaine, were ineligible for tax credits worth $1,200, but could have claimed them if they were unmarried and living together. He contends that their tax bills for the past two years have been $4,200 higher than they would have been as single people living together. Last week, the Hamilton couple appeared in court to challenge, under the Charter of Rights and Freedoms, the legality of what the Schachtschneiders claim is Revenue Canada’s discriminatory treatment of married couples.
The Schachtschneiders began their battle two years ago, shortly after they filed their 1988 tax returns. Having exhausted Revenue Canada’s normal avenues of appeal, the couple are now claiming that the federal Income Tax Act treats married and unmarried couples dif-
ferently, contrary to the charter’s provision of equal treatment under the law. At the hearing before the Tax Court of Canada, Marvin Huberman, the lawyer representing the Schachtschneiders, argued that 3.6 million Canadian couples are paying an average of $1,305 extra in taxes every year simply because they are married. Said Schachtschneider: “We’re asking that the burden be shared equally by all couples who are capable of paying. I’m going to stand up for my rights no matter how much it costs me.”
The specific section of the Income Tax Act that the Schachtschneiders are challenging is the so-called equivalent-to-married tax credit. It allows a person who is single, separated, divorced or widowed to claim the $890 tax credit for every child or adult he supports, if the dependant has an income of less than $6,000. Married couples are unable to claim the credit.
According to Schachtschneider, there are two other sections of the Income Tax Act that discriminate against married people. One is the
child tax credit, which reduces federal tax by up to $585 per child for people earning $25,515 or less. The other is the Goods and Services Tax credit, which provides for refunds of up to $100 of the GST paid by individuals whose income is below $24,300. In both cases, a married couple must report the combined income of both partners when determining whether they qualify for these credits, while common-law partners face no such requirement. Tax experts say that if the partners in a common-law relationship were required to report combined income, many would be ineligible for the tax credits because total household income would exceed the level beyond which they are not entitled to claim the credits. Schachtschneider claims that this discriminatory treatment of married couples could cost him and his wife $204,000 by the time his two children, who are now one and three years old, reach the age of 18.
During an all-day hearing before Judge Robert King, who is expected to issue his decision in several weeks, Huberman presented an article from a Statistics Canada publication to support the Schachtschneiders’ case. The article, in the summer, 1991, issue of Canadian Social Trends, says: “Most married-couple families have lower disposable incomes than unmarried couples living together in similar circumstances. On average, unmarried couples appear to fare better under the income tax system than married couples.” Written by Richard Morrison, a policy analyst with Health and Welfare Canada, and Jillian Oderkirk, an assistant editor of the publication, the article argues that the different methods of calculating the equivalent-to-married credit, the child tax credit and several other credits, including the guaranteed income supplement, create discrepancies in disposable income.
In a three-hour argument on behalf of Revenue Canada, federal justice department lawyer David Chodikoff maintained that the tax credits are designed to assist lower-income Canadians, particularly single parents. He argued that the benefits accruing to common-law couples were an incidental side effect and that the size of those benefits has not been determined. He also argued that some tax credits are available only to married couples.
For his part, David Perry, senior research associate with the Toronto-based Canadian Tax Foundation, says that the benefits to common-law couples appear to be a loophole in the law. He added that the unintended benefits contradict the purpose of the tax credits, which is to help less affluent Canadians. But he also noted that the Income Tax Act does not recognize common-law relationships, largely because they are too hard to define for legal purposes. He added that a legal definition of common-law relationships would have to deal with siblings, unrelated individuals and homosexual couples who are sharing the same residence. “Life gets hair-raising when you make all those changes,” he said. Still, MPs may face just such a complex task if the disputed provisions are ruled unconstitutional.
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