Case Number
CA 4243/08
Date Decided
4-30-2009
Decision Type
Appellate
Document Type
Full Opinion
Abstract
Facts: The respondent (the counter-appellant) is the mother of two children, and a lawyer in private practice. The respondent requested to deduct from her taxable income expenditures for her children’s pre-school and day care, as well as payments for afternoon day care for her daughter after she began attending elementary school. The respondent did not request a tax deduction for clubs that the children participated in during the afternoon, nor for day camps during the vacation summer months when the day care center was closed. The respondent argued that had her two children not been looked after in these frameworks, she could not have continued to work as a lawyer in private practice. The appellant refused to allow the deduction of the disputed expenses, and the issue was brought before the District Court. The District Court granted the respondent’s appeal in part, ruling that the part of the expenses incurred for her children’s care should be allowed as a deduction from income This is an appeal against its decision.
Held: In denying the appeal, Deputy President E. Rivlin (Justices M. Naor, E. Arbel, E. Rubinstein and E. Hayut concurring) held that in the absence of a statutory provision specifically addressing the possibility of deducting childcare expenses, the question of whether such an expense is deductible must be examined in accordance with s. 17 of the Income Tax Ordinance, similar to the examination of other expenses for which there is no special arrangement. The purpose that guides the interpretative task is the purpose of the provisions of s. 17 itself, i.e., the obligation to pay true tax. Charging tax for an amount that does not reflect a person’s real income cannot be defined as “income tax”. If an assessee is not permitted to deduct an expense incurred in the production of his income, it is tantamount to “over taxation”, because the income taken into account for purposes of determining his tax liability is higher than his real income.
Standard accounting practices mandate a direct connection between the expense and the production of items of income. They also require reliable measurement of the expense. They do not require that the expense “arise from the natural course and structure” of the income producing source. This leads to the conclusion that there must be a real, direct connection between the expense and the production of income as a condition for allowing the deduction of the expense. The “incidentality test” is an auxiliary test which is not exclusive, and particular expenses may be permitted for deduction even they does not “arise from the natural course and structure” of the income producing source, if the expenses bears a real, direct connection to the production of income. The childcare expense bears a real, direct connection to the production of income. It is expended to enable the parent to produce income. Placing the children under supervision is a necessity, the absence of which renders the parent unable to produce income.
Where a mixed expense may be separated into its components, the part constituting an expense in the production of income will be permitted for deduction and the assessee bears burden of proof for identifying the income producing portion and if proved to the required degree, the relative part that should be regarded as an income producing expense should be allowed as a deduction
With respect to the question of whether the ruling was prospective or retrospective, Deputy President Rivlin ruled that the change in the manner in which tax is collected affects the protected interest of reliance on the part of the tax collector and, hence with the exception of the present case, the ruling of this case should only be applied prospectively. Justice Naor on the other hand opined that since the question raised was a new one, it could not be said that any previous law had been changed and hence there doctrine of protecting an interest of reliance did not apply,. On the other hand there were numerous assesses who have an interest in retrospective application. Given that the case cuts both ways it is preferable that no rulinhould be made at this stage on the question of the date from which the ruling should apply, and it should be left open. pending independent examination.
Keywords
Administrative Law -- Judicial review, Courts -- Retrospective Judgment, Tax -- Income Tax Ordinance, Tax -- Deductions
Recommended Citation
Rivlin, Eliezer; Rubinstein, Elyakim; Arbel, Edna; Naor, Miriam; and Hayut, Esther, "Assessment Officer - Dan Region v. Vered Peri" (2009). Translated Opinions. 53.
https://larc.cardozo.yu.edu/iscp-opinions/53
