Cullen,
J.:—This
is
an
appeal
from
a
determination
of
a
question
of
law
by
the
Tax
Court
of
Canada,
pursuant
to
subsection
174(4.1)
of
the
Income
Tax
Act,
R.S.C.
1952,
c.
148
(am.
S.C.
1970-71-72,
c.
63)
(the
'Act").
The
appeal
concerns
certain
payments
of
$95,000,
$50,000,
and
$50,000
paid
by
the
plaintiff
to
his
spouse
in
1977,
1978
and
1979
respectively.
The
issue
is
whether
these
amounts
are
deductible
as
expenses
from
the
plaintiff's
income
by
virtue
of
paragraph
60(b)
of
the
Act.
Facts
The
plaintiff
is
an
independent
businessman
involved
in
the
oil
and
gas
industry.
He
married
Georgette
M.
Urichuk
in
1944,
and
separated
from
her
in
August
1972.
The
plaintiff
entered
into
a
written
separation
agreement
with
Mrs.
Urichuk
dated
September
1,
1972,
in
which
he
agreed
to
pay
maintenance
to
Mrs.
Urichuk
in
the
amount
of
$1,500
per
month.
In
addition,
the
agreement
provided
that
Mrs.
Urichuk
was
to
receive
the
matrimonial
home,
a
1970
Buick,
a
boat,
and
a
resort
property.
After
Mrs.
Urichuk
commenced
divorce
proceedings
in
March
1975,
they
entered
into
a
revised
separation
agreement
dated
January
11,
1977
which
provided
that
the
plaintiff
would
continue
to
pay
Mrs.
Urichuk
maintenance
of
$1,500
per
month,
and
“additional
maintenance"
in
the
amount
of
$200,000
to
be
paid
in
instalments.
The
relevant
terms
of
the
revised
separation
agreement
read
as
follows:
1.
The
Husband
and
Wife
shall
henceforth
live
separate
and
apart
from
each
other
as
if
each
were
unmarried
and
neither
of
them
will
molest
or
annoy
or
in
any
way
interfere
with
the
other,
or
make
any
demands
whatsoever
upon
the
other
arising
out
of
their
status
as
husband
and
wife,
and
neither
of
them
will
take
proceedings
of
any
kind
against
the
other
for
restitution
of
conjugal
rights
and
neither
of
them
will
attempt
in
any
manner
to
interfere
with
the
business
of
the
other.
2.
The
Wife
shall
discontinue
the
Petition
for
Divorce
filed
herein
and
any
and
all
other
Court
applications
presently
before
the
Court.
2
(a)
The
Husband
and
the
Wife
hereby
agree
that
the
previous
separation
agreement
between
them
dated
the
1st
day
of
September,
A.D.
1972,
shall
continue
in
full
force
and
effect,
and
that
the
Husband
shall
continue
to
pay
to
the
Wife
the
sum
of
One
Thousand
Five
Hundred
($1,500)
Dollars
by
way
of
maintenance
for
the
Wife.
3.
The
Husband
covenants
and
agrees
that
he
shall
pay
the
Wife
by
way
of
maintenance
the
following
additional
maintenance
and
support
in
the
following
manner:
(a)
$5,000
cash
on
November
18th,
1976
receipt
of
which
the
Wife
hereby
acknowledges
having
received.
(b)
$45,000
cash
on
December
15th,
1976,
receipt
of
which
is
hereby
acknowledged.
(c)
$50,000
cash
on
January
5,
1977
receipt
of
which
is
hereby
acknowledged.
(d)
$50,000
cash
on
January
5,
1978.
(e)
$50,000
cash
on
January
5,
1979.
12.
The
parties
hereto
hereby
mutually
covenant
and
agree
that
the
consideration
herein
expressed
is
intended
to
operate
and
be
and
shall
operate
and
be
as
a
satisfaction
and
extinguishment
of
each
and
every
claim
or
right
which
either
the
parties
otherwise
might
have
in
the
property
or
estate
of
the
other,
either
during
is
or
her
lifetime
or
after
his
or
her
decease.
15.
The
Wife
hereby
covenants
and
agrees
that
she
fully
understands
that
this
agreement
is
in
full
and
final
settlement
of
any
claim
whatsoever
that
she
may
have
or
will
ever
have
in
the
future
against
the
husband
and
the
Wife
hereby
acknowledges
that
she
is
aware
that
Section
11
of
the
Divorce
Act
1967-68
(Canada)
Chapter
24
gives
the
Court
power
to
override
a
settlement
covenant
not
to
seek
further
maintenance,
but
the
Wife
hereby
covenants
and
agrees
and
commits
upon
her
word
of
honour
that
the
settlement
agreed
upon
herein
and
the
covenants
and
agreements
contained
herein
are
in
absolute
and
final
settlement
of
any
past,
present,
or
future
claim
she
will
ever
have
or
make
against
the
husband.
The
payments
were
not
made
in
accordance
with
the
dates
outlined
in
the
agreement,
but
as
follows:
(1)
$5,000
on
November
18,
1976;
(2)
$95,000
on
January
18,
1977;
(3)
$50,000
on
May
1,
1978;
(4)
$50,000
on
May
24,
1979.
(The
plaintiff
has
acknowledged
that
the
payment
of
$5,000
was
not
deductible
from
income
as
it
was
paid
before
the
revised
separation
agreement
was
signed
in
January
1977.)
It
should
also
be
noted
that
the
divorce
proceedings
initiated
by
Mrs.
Urichuk
in
1975
were
not
discontinued
in
accordance
with
clause
2A
of
the
revised
agreement.
Mrs.
Urichuk
did
not
formally
discontinue
the
divorce,
but
she
took
no
further
steps
to
pursue
the
action.
In
1980,
Mrs.
Urichuk
petitioned
for
divorce
again,
but
again
did
nothing
to
advance
the
action.
In
1991,
Mr.
Urichuk
obtained
a
court
order
discontinuing
the
divorce
actions
started
by
Mrs.
Urichuk,
and
petitioned
for
divorce
himself.
Mr.
Urichuk's
petition
was
still
pending
at
the
time
of
this
trial.
In
filing
his
income
tax
returns
for
the
years
1976,
1977,
1978
and
1979,
the
plaintiff
deducted
from
his
income
the
amounts
of
$9,000,
$59,000
and
$68,
000
respectively
as
alimony
payments.
Mrs.
Urichuk,
however,
only
reported
$9,000
of
the
money
received
pursuant
to
the
two
separate
agreements
in
each
of
her
returns
for
1976,
1977,
1978
and
1979.
She
did
not
report
as
income
any
of
the
$200,000
received
pursuant
to
the
revised
separation
agreement.
The
Minister
of
National
Revenue
initially
determined
that
the
“additional
maintenance"
should
have
been
included
in
Mrs.
Urichuk's
income
as
alimony
or
another
allowance
payable
on
a
periodic
basis
for
her
maintenance,
pursuant
to
paragraph
56(1)(b)
of
the
Act.
The
plaintiff
was
also
reassessed
by
the
Minister.
On
April
18,
1980,
the
Minister
initially
allowed
the
$95,000
alimony
deduction
for
1977.
Subse-
quently,
however,
by
notice
of
reassessment
dated
August
26,
1981,
the
Minister
reassessed
the
plaintiff's
1977,
1978
and
1979
taxation
years
to
disallow
alimony
deductions
of
$95,000,
$50,000
and
$50,000
respectively,
as
well
as
$9,000
for
1976
paid
pursuant
to
the
original
separation
agreement
in
1972.
The
plaintiff
then
filed
notices
of
objection
to
the
reassessments
for
the
1977,
1978
and
1979
taxation
years.
The
Minister
and
the
Urichuks
agreed
that
the
monthly
maintenance
of
$1,500
was
clearly
alimony
or
another
allowance
within
the
meaning
of
the
Act
and
therefore
income
in
the
hands
of
Mrs.
Urichuk
and
an
allowable
deduction
to
Mr.
Urichuk.
With
respect
to
the
payments
totalling
$200,000,
the
issue
was
whether
the
payments
constituted
alimony
within
the
meaning
of
the
Act
and
this
taxable
income
to
Mrs.
Urichuk
and
an
allowable
deduction
to
Mr.
Urichuk.
On
June
2,
1983,
the
Minister
made
an
application
to
the
Tax
Review
Board
pursuant
to
section
174
of
the
Act
for
determination
of
the
following
questions
(i)
What
are
the
total
amounts
of
the
$1,500
monthly
maintenance
payments
made
by
Nicholas
P.
Urichuk
to
Georgette
M.
Urichuk
in
each
of
the
1976,
1977,
1978
and
1979
taxation
years?
(ii)
Whether
or
not
the
payments
totalling
$200,000
set
out
in
an
agreement
made
January
11,
1977
between
Nicholas
P.
Urichuk
and
Georgette
M.
Urichuk
constitute
alimony
or
other
allowance
payable
on
a
periodic
basis
for
the
maintenance
of
the
recipient
within
the
meaning
of
sections
5(1)(b)
and
section
60(b)
of
the
Income
Tax
Act.
On
February
3,
1984,
Sarchuk,
T.C.J.
made
the
following
determinations:
(a)
the
$1,500
monthly
alimony
payments
made
by
Nicholas
P.
Urichuk
to
Georgette
M.
Urichuk
are
to
be
added
to
Georgette
M.
Urichuk's
income
for
the
1977,
1978,
and
1979
taxation
years
and
allowed
as
a
deduction
from
Nicholas
P.
Urichuk’s
income
for
those
years;
and
(b)
the
payments
totalling
$200,000
do
not
constitute
alimony
payments
and
are
not
to
be
added
to
Georgette
M.
Urichuk’s
income
for
the
1976,
1977,
1978
and
1979
taxation
years
or
allowed
as
a
deduction
from
Nicholas
P.
Urichuk’s
income
for
the
1977,1978
and
1979
taxation
years.
The
plaintiff
appealed
the
second
determination
to
the
Federal
Court
of
Canada
pursuant
to
subsection
174(4.1)
of
the
Act.
Position
of
the
Plaintiff
The
plaintiff
states,
in
his
amended
statement
of
claim,
that
the
Tax
Court
of
Canada,
in
concluding
that
the
$200,000
did
not
constitute
alimony,
"misapprehended
the
nature
and
intent
of
the
1977
agreement
and
failed
to
make
a
reasonable
appraisal
of
all
the
evidence".
He
submits
that
the
payments
met
all
the
requirements
of
paragraph
60(b)
of
the
Act
and
should
therefore
be
considered
deductible.
Position
of
the
Defendant
The
defendant
states
simply
that
the
payments
by
the
plaintiff
of
the
$200,000
did
not
constitute
alimony
within
the
meaning
of
paragraph
60(b)
of
the
Act
and
are
therefore
not
deductible
by
the
plaintiff.
The
Evidence
at
Trial
In
order
to
determine
if
the
payments
in
question
may
be
characterized
as
alimony,
it
is
necessary
to
examine
all
the
circumstances
surrounding
the
making
of
the
payment:
5.].
McKimmon
v.
Canada,
[1990]
1
C.T.C.
109;
90
D.T.C.
6088
(F.C.A.)
at
112
(D.T.C.
6090-91).
For
that
reason,
it
is
necessary
to
look
behind
the
agreement
and
examine
the
evidence
of
the
plaintiff
and
his
wife
which
was
given
at
trial
as
to
the
circumstances
surrounding
the
execution
of
the
agreement.
The
plaintiff
at
trial
submitted
that
the
second
separation
agreement
clearly
referred
to
the
payments
as
maintenance,
and
that
the
agreement
should
be
allowed
to
speak
for
itself,
especially
as
both
Mr.
and
Mrs.
Urichuk
were
represented
by
counsel
when
the
agreement
was
signed.
He
submitted
that
to
look
behind
the
agreement
would
violate
the
parol
evidence
rule.
In
support
of
this
proposition,
the
plaintiff
refers
to
Sopinka
and
Lederman's
text,
The
Law
of
Evidence
in
Civil
Cases
(Toronto,
Butterworths,
1974),
who
quote
Denman,
C.J.'s
statement
in
Goss
v.
Nugent
(1833),
110
E.R.
713
at
716
as
a
classic
statement
of
the
parol
evidence
rule:
By
the
general
rules
of
the
common
law,
if
there
be
a
contract
which
has
been
reduced
into
writing,
verbal
evidence
is
not
allowed
to
be
given
of
what
passed
between
the
parties,
either
before
the
written
instrument
was
made,
or
during
the
time
that
it
was
in
a
state
of
preparation,
so
as
to
add
to
or
subtract
from,
or
in
any
manner
to
vary
or
qualify
the
written
contract.
.
.
However,
parol
evidence
is
admissible
to
determine
the
real
nature
of
a
transaction:
see
Cross
on
Evidence
(1990,
Butterworths,
7th
ed.
at
701).
Also,
in
light
of
the
clear
direction
by
the
Federal
Court
of
Appeal
to
examine
the
circumstances
surrounding
the
separation
agreement
to
resolve
the
issue
of
whether
a
payment
is
to
be
characterized
as
alimony
or
maintenance,
I
feel
justified
in
referring
to
the
extrinsic
evidence
of
the
plaintiff
and
Mrs.
Urichuk
to
aid
in
determining
the
true
nature
of
the
payments.
I
would
also
note
that
it
is
a
well-established
practice
in
tax
law
to
look
behind
the
form
of
an
agreement
to
determine
its
substance:
see
Front
&
Simcoe
v.
M.N.R.,
[1960]
C.T.C.
123;
60
D.T.C.
1081
(Ex.
Ct.),
and
M.N.R.
v.
Import
Motors
Ltd.,
[1973]
C.T.C.
719;
73
D.T.C.
5530
(F.C.T.D.).
Therefore,
I
do
not
view
the
language
of
the
agreement
as
being
conclusive
of
the
substantive
legal
issue
of
whether
the
payments
constitute
alimony
or
maintenance.
The
revised
agreement
raises
more
issues
than
it
settles,
and
for
that
reason
the
evidence
of
the
plaintiff
and
Mrs.
Urichuk
will
have
to
be
examined
in
some
detail.
In
his
testimony-in-chief,
the
plaintiff
said
that
he
entered
the
revised
separation
agreement
in
1977
to
ensure
that
Mrs.
Urichuk
would
have
no
further
monetary
claims
against
him.
The
plaintiff
stated
that
he
was
living
with
his
secretary
at
this
time,
and
that
this
prompted
Mrs.
Urichuk
to
file
for
divorce
in
1975.
He
stated
that
since
the
signing
of
the
first
separation
agreement
in
1972,
Mrs.
Urichuk
had
been
constantly
requesting
money
for
expenses
such
as
gasoline
for
her
car,
and
for
trips
to
Québec
to
visit
her
relatives.
He
stated
that
he
allowed
her
to
use
his
credit
card
for
her
automobile
expenses,
and
paid
for
numerous
trips
to
Québec.
The
plaintiff
said
that
in
order
to
end
such
requests
for
money,
he
offered
Mrs.
Urichuk
$200,000
in
satisfaction
of
any
future
claims
against
him,
over
and
above
the
$1,500
monthly
maintenance.
His
evidence
was
that
when
he
made
this
offer,
he
was
not
certain
whether
the
maintenance
of
$1,500
was
adequate
to
meet
Mrs.
Urichuk's
needs,
but
that
he
assumed
that
it
was.
With
respect
to
the
provision
in
the
agreement
to
discontinue
the
divorce
proceedings,
the
plaintiff's
evidence
was
that
he
had
asked
Mrs.
Urichuk
to
alt
the
divorce
proceedings
temporarily
while
he
was
negotiating
the
sale
of
his
company,
Grand
Prix
Natural
Gas
Ltd.
He
stated
that
he
advised
Mrs.
Urichuk
that
he
needed
the
proceeds
of
this
sale
to
meet
his
obligations
under
the
revised
agreement,
and
that
he
did
not
want
the
prospect
of
a
divorce
at
the
same
time
to
distract
him
from
the
sale
negotiations.
The
transcript
states:
Q.
Now,
sir,
did
you
at
any
time
ask
your
wife
to
not
divorce
you?
A.
Yes.
I
asked
her
to
withhold
it
for
the
simple
reason
as
this:
In
1976,
I
sold
close
to
$7
million
worth
of
properties
of
which
I
owed
more
than
six-and-a-quarter
million
dollars
to
the
Royal
Bank
of
Canada
who
had
financed
the
property.
I
asked
that—a
divorce
at
that
particular
time
during
the
time
that
I
am
awaiting
this
deal,
I
didn't
want
anything
to
interfere
with
it.
Q.
So
did
you
ask
her
to
discontinue
the
divorce
proceedings?
A.
I
just
told
her
to
hold
off.
Q.
For
any
period
of
time?
A.
In
order
for
me
to
meet
the
sums
that
I
said
I
would
give
her,
I
had
to
get
the
sale
through.
The
$200,000
was
to
be
paid
in
instalments
based
on
the
plaintiff's
ability
to
pay.
He
did
not
want
to
pay
the
$200,000
in
a
lump
sum
because
he
needed
some
cash
on
hand
for
further
purchases
and
investments.
The
plaintiff
stated
that
he
had
no
objection
to
his
wife
proceeding
with
the
divorce
after
the
sale
had
been
completed.
In
cross-examination,
however,
the
plaintiff
admitted
that
it
was
Mrs.
Urichuk
who
had
requested
the
$200,000,
in
response
to
his
request
to
delay
the
divorce
proceedings.
The
plaintiff
insisted,
though,
that
the
$200,000
was
in
consideration
for
both
the
discontinuance
of
the
divorce,
and
in
satisfaction
of
any
future
claims
against
him
(page
43,
transcript).
The
plaintiff
also
stated
that
he
did
not
question
Mrs.
Urichuk
as
to
how
she
had
arrived
at
that
sum.
The
plaintiff
stressed
again
that
his
main
concern
in
delaying
the
divorce
was
that
he
did
not
want
the
divorce
to
distract
him
from
the
sale
of
Grand
Prix
(page
42).
The
plaintiff
also
said
that
sometime
in
1982,
Mrs.
Urichuk
came
to
him
to
ask
for
more
money,
as
she
was
supporting
some
of
their
adult
sons,
who
had
been
working
for
the
plaintiff's
company
until
he
fired
them.
He
then
increased
the
monthly
maintenance
to
$2,000,
which
he
reduced
back
to
$1,500
in
December
1990.
The
evidence
of
Mrs.
Urichuk
contradicted
that
of
the
plaintiff
in
several
respects.
She
stated
that
she
never
asked
the
plaintiff
for
money
over
and
above
the
agreed
maintenance.
In
particular,
she
denied
that
the
plaintiff
paid
for
her
automobile
expenses,
and
stated
that
he
only
paid
for
one
trip
to
Québec,
not
several.
Her
evidence
was
that
the
maintenance
of
$1,500
was
adequate
for
her
needs.
As
for
the
increase
in
maintenance
from
$1,500
to
$2,000
per
month,
she
denied
requesting
it,
stating
that
it
was
only
made
as
a
result
of
one
of
their
sons
suggesting
to
the
plaintiff
that
things
would
be
somewhat
easier
for
Mrs.
Urichuk
if
her
maintenance
was
increased.
While
the
divorce
papers
filed
in
1975
clearly
indicate
that
she
was
seeking
additional
maintenance,
I
accept
Mrs.
Urichuk's
evidence
that
the
amount
she
received
was
sufficient.
With
respect
to
the
$200,000,
Mrs.
Urichuk
was
firm
in-her
evidence
that
it
was
a
Cash
gift
paid
to
her
in
consideration
for
not
pursuing
the
divorce,
and
that
Mr.
Urichuk
had
expressed
no
other
reason
for
the
payment.
She
stated
repeatedly
that
the
money
was
to
be
paid
to
her
tax-free,
and
that
Mr.
Urichuk
had
agreed
to
assume
the
responsibility
for
tax.
She
also
stated
that
she
did
not
need
the
$200,000
to
meet
her
needs,
and
that
it
was
deposited
in
the
bank
when
it
was
received.
It
is
true
that
the
revised
agreement
states
that
the
$200,000
is
"maintenance".
Mrs.
Urichuk's
evidence,
however,
was
that
she
had
instructed
her
lawyer,
who
drafted
the
agreement
with
the
plaintiff's
lawyer,
that
the
plaintiff
was
to
bear
the
responsibility
for
taxes.
I
accept
Mrs.
Urichuk’s
testimony
that
she
did
not
need
the
$200,000
to
meet
her
living
requirements,
and
that
it
was
therefore
not
intended
to
be
in
satisfaction
for
future
maintenance
claims.
I
would
note
that
the
money
was
deposited
into
the
bank,
and
was
not
used
for
living
expenses.
I
also
accept
her
evidence
that
she
did
not
make
requests
for
money
from
the
plaintiff.
While
the
plaintiff
voluntarily
increased
the
monthly
maintenance
from
$1,500
to
$2,000,
this
was
not
in
my
opinion
a
significant
increase,
especially
after
ten
years
at
the
lower
amount.
It
is
a
reasonable
inference
from
this,
in
my
view,
that
the
plaintiff
must
have
considered
the
previous
maintenance
of
$1,500
per
month
to
be
adequate.
With
respect
to
the
$200,000,
in
my
view
Mrs.
Urichuk's
petition
for
divorce
was
the
catalyst
which
moved
Mr.
Urichuk
to
go
to
his
wife
and
accept
her
terms
of
$200,000
to
stop
the
divorce
action
while
he
was
in
the
process
of
negotiating
a
complicated
business
transaction.
Mr.
Urichuk
struck
me
as
a
man
who
is
primarily
interested
in
his
business,
with
everything
else
being
secondary.
While
the
agreement
states
that
Mrs.
Urichuk
was
to
discontinue
the
divorce
action,
in
my
opinion
the
plaintiff's
real
goal
in
paying
the
$200,000
was
only
to
have
the
divorce
delayed
so
as
not
to
jeopardize
what
was
to
the
plaintiff
an
all-important
transaction.
I
accept
his
evidence
that
he
did
not
object
to
Mrs.
Urichuk
obtaining
a
divorce
after
the
deal
had
closed.
At
this
time,
he
was
living
with
his
secretary,
and
had
no
reason
not
to
want
a
divorce
after
the
sale
was
complete.
Having
reviewed
the
evidence,
I
will
now
proceed
to
apply
the
applicable
law.
Analysis
Under
paragraph
60(b)
of
the
Income
Tax
Act,
alimony
and
maintenance
payments
are
deductible
by
the
person
making
them
if
certain
conditions
are
met:
60.
There
may
be
deducted
in
computing
a
taxpayer's
income
for
a
taxation
year
such
of
the
following
amounts
as
are
applicable:
(b)
an
amount
paid
by
the
taxpayer
in
the
year,
pursuant
to
a
decree,
order
or
judgment
of
a
competent
tribunal
or
pursuant
to
a
written
agreement,
as
alimony
or
other
allowance
payable
on
a
periodic
basis
for
the
maintenance
of
the
recipient
thereof,
children
of
the
marriage,
or
both
the
recipient
and
children
of
the
marriage,
if
he
was
living
apart
from,
and
was
separated
pursuant
to
a
divorce,
judicial
separation
or
written
separation
agreement
from,
his
spouse
or
former
spouse
to
whom
he
was
required
to
make
the
payment
at
the
time
the
payment
was
made
and
throughout
the
remainder
of
the
year.
In
Klement
v.
The
Queen,
[1987]
2
C.T.C.
27;
87
D.T.C.
5284
(F.C.T.D.),
the
Court
set
out
the
following
criteria
which
must
all
be
met
in
order
for
payments
made
to
a
spouse
or
former
spouse
to
be
deductible:
1.
The
amount
must
be
paid
pursuant
to
a
decree,
order,
or
judgment
of
a
competent
tribunal
or
pursuant
to
a
written
agreement;
2.
The
payment
must
be
in
the
nature
of
alimony
or
other
allowance
"paid
on
a
periodic
basis";
3.
The
amount
must
be
paid
to
the
taxpayer's
spouse
or
former
spouse;
4.
The
amount
must
be
for
the
maintenance
of
the
recipient,
the
children
of
the
marriage
or
both;
5.
The
taxpayer
must
be
living
apart
from
the
recipient
at
the
time
of
the
payment
and
throughout
the
remainder
of
the
year;
6.
The
taxpayer
must
be
separated
from
the
recipient
pursuant
to
a
divorce,
judicial
separation
or
written
separation
agreement.
As
a
preliminary
point,
it
is
clear
that
the
fact
that
the
payments
were
not
made
precisely
in
accordance
with
the
schedule
set
out
in
the
agreement
is
not
fatal
to
their
possible
characterization
as
maintenance.
It
is
clear
that
they
were
still
payable
“pursuant
to
a
written
agreement”:
The
Queen
v.
Sills,
[1985]
1
C.T.C.
49;
85
D.T.C.
5096
(F.C.A.).
In
the
present
case,
the
issue
is
whether
the
payments
of
the
$200,000
were
"in
the
nature
of
alimony
or
other
allowance
paid
on
a
periodic
basis”,
all
the
other
requirements
apparently
having
been
met.
Periodic
payments
to
a
spouse
or
former
spouse
may
be
characterized
either
as
an
allowance
for
maintenance
or
alimony,
and
therefore
deductible
by
the
payer,
or
as
instalments
of
a
capital
sum,
and
therefore
not
deductible.
The
problem
of
distinguishing
between
such
payments
has
generated
considerable
litigation.
Recently,
the
Federal
Court
of
Appeal,
in
S.J.
McKimmon
v.
Canada,
supra,
has
considered
this
issue.
In
this
case,
the
taxpayer
was
ordered
in
a
divorce
decree
to
pay
his
former
spouse
$115,000
in
five
annual
instalments,
with
interest.
He
attempted
to
deduct
the
payments
under
paragraph
60(b).
The
Court
ruled
that
the
payments
were
not
deductible.
Hugessen,
J.
reviewed
the
case
law
in
this
area,
particularly
Larivière
v.
Canada,
[1989]
2
F.C.
104;
[1989]
1
C.
T.C.
297;
89
D.T.C.
5176;
M.N.R.
v.
Hansen,
[1967]
C.T.C.
440;
67
D.T.C.
5293;
M.N.R.
v.
Trottier,
[1967]
2
Ex.
C.R.
268;
[1968]
S.C.R.
728;
[1968]
C.T.C.
324;
68
D.
T.C.
5216;
Gagnon
v.
The
Queen,
[1986]
1
C.T.C.
410;
86
D.T.C.
6179;
and
The
Queen
v.
Dorion,
[1981]
C.T.C.
136;
81
D.T.C.
5111.
His
Lordship
condensed
from
this
prior
jurisprudence
eight
considerations
to
be
applied
in
determining
whether
such
payments
are
deductible.
Hugessen,
J.
stated,
at
112-13
(D.T.C.
6090-91)
(footnotes
omitted):
The
problem
of
distinguishing
between
periodic
payments
made
as
an
allowance
for
maintenance,
which
are
deductible
for
income
tax
purposes,
and
periodic
payments
made
as
instalments
of
a
lump
or
capital
sum,
which
are
not
so
deductible,
is
one
which
has
given
rise
to
considerable
discussion
and
jurisprudence.
It
is
not
dissimilar,
and
is
indeed
related
to
the
problem,
common
in
income
tax
law,
of
determining
if
sums
of
money
expended
or
received
are
of
an
income
or
capital
nature.
As
with
that
problem
there
can
be
very
few
hard
and
fast
rules.
On
the
contrary,
the
Court
is
required
to
look
at
all
the
circumstances
surrounding
the
payment
and
to
determine
what,
in
the
light
of
those
circumstances,
is
its
proper
characterization.
Because
of
the
correlation
between
paragraphs
60(b)
and
56(1)(b),
a
finding
that
a
payment
is
deductible
by
the
payer
will
normally
result
in
its
being
taxable
in
the
hands
of
the
recipient.
Conversely,
a
determination
that
a
payment
is
not
so
deductible
will
result
in
the
recipient
having
it
free
of
tax.
The
following
are,
as
it
seems
to
me,
some
of
the
considerations
which
may
properly
be
taken
into
account
in
making
such
a
determination.
The
list
is
not,
of
course,
intended
to
be
exhaustive.
1.
The
length
of
the
periods
at
which
the
payments
are
made.
Amounts
which
are
paid
weekly
or
monthly
are
fairly
easily
characterised
as
allowances
for
maintenance.
Where
fhe
payments
are
at
longer
intervals,
the
matter
becomes
less
clear.
While
it
is
not
impossible,
it
would
appear
to
me
to
be
difficult
to
envisage
payments
made
at
intervals
of
greater
than
one
year
as
being
allowances
for
maintenance.
2.
The
amount
of
the
payments
in
relation
to
the
income
and
living
standards
of
both
payer
and
recipient.
Where
a
payment
represents
a
very
substantial
portion
of
a
taxpayer's
income
or
even
exceeds
it,
it
is
difficult
to
view
it
as
being
an
allowance
for
maintenance.
On
the
other
hand,
where
the
payment
is
no
greater
than
might
be
expected
to
be
required
to
maintain
the
recipient's
standard
of
living,
it
is
more
likely
to
qualify
as
such
an
allowance.
3.
Whether
the
payments
are
to
bear
interest
prior
to
their
due
date.
It
is
more
common
to
associate
an
obligation
to
pay
interest
with
a
lump
sum
payable
by
instalments
than
it
is
with
a
true
allowance
for
maintenance.
4.
Whether
the
amounts
envisaged
can
be
paid
by
anticipation
at
the
option
of
the
payer
or
can
be
accelerated
as
a
penalty
at
the
option
of
the
recipient
in
the
event
of
a
default.
Prepayment
and
acceleration
provisions
are
commonly
associated
with
obligations
to
pay
capital
sums
and
would
not
normally
be
associated
with
an
allowance
for
maintenance.
5.
Whether
the
payments
allow
a
significant
degree
of
capital
accumulation
by
the
recipient.
Clearly
not
every
capital
payment
is
excluded
from
an
allowance
for
maintenance;
common
experience
indicates
that
such
things
as
life
insurance
premiums
and
blended
monthly
mortgage
payments,
while
they
allow
an
accumulation
of
capital
over
time,
are
a
normal
expense
of
living
which
are
paid
from
income
and
can
properly
form
part
of
an
allowance
for
maintenance.
On
the
other
hand,
an
allowance
for
maintenance
should
not
allow
the
accumulation,
over
a
short
period
of
time,
of
a
significant
pool
of
capital.
6.
Whether
the
payments
are
stipulated
to
continue
for
an
indefinite
period
or
whether
they
are
for
a
fixed
term.
An
allowance
for
maintenance
will
more
commonly
provide
for
its
continuance
either
for
an
indefinite
period
or
to
some
event
(such
as
the
coming
of
age
of
a
child)
which
will
cause
a
material
change
in
the
needs
of
the
recipient.
Sums
payable
over
a
fixed
term,
on
the
other
hand,may
be
more
readily
seen
as
being
of
a
capital
nature.
7.
Whether
the
agreed
payments
can
be
assigned
and
whether
the
obligation
to
pay
survives
the
lifetime
of
either
the
payer
or
the
recipient.
An
allowance
for
maintenance
is
normally
personal
to
the
recipient
and
is
therefore
unassignable
and
terminates
at
death.
A
lump
or
capital
sum,
on
the
other
hand,
will
normally
form
part
of
the
estate
of
the
recipient,
is
assignable
and
will
survive
him.
8.
Whether
the
payments
purport
to
release
the
payer
from
any
future
obligations
to
pay
maintenance.
Where
there
is
such
a
release,
it
is
easier
to
view
the
payments
as
being
the
commutation
or
purchase
of
the
capital
price
of
an
allowance
for
maintenance.
Applying
the
guidelines
of
Hugessen,
J.
to
the
facts
of
this
case,
I
conclude
that
the
instalments
of
the
$200,000
should
be
considered
to
be
payments
made
on
account
of
capital,
and
not
as
alimony.
The
payments
in
this
case
are
made
on
a
yearly
basis,
which
lean
against
a
finding
that
they
are
in
respect
of
maintenance.
It
is
clear
from
the
evidence
of
Mrs.
Urichuk
that
the
payments
were
not
necessary
in
order
to
maintain
her
standard
of
living.
There
was
no
nexus
between
the
need
of
Mrs.
Urichuk
and
the
amount
paid.
When
Mrs.
Urichuk
suggested
the
amount
of
$200,000,
Mr.
Urichuk
did
not
ask
why
she
needed
that
particular
amount,
or
make
any
other
inquiries,
but
simply
agreed
to
pay
the
requested
amount.
The
payments
also
allowed
for
a
substantial
capital
accumulation
relatively
quickly.
As
Mrs.
Urichuk
testified,
she
deposited
the
instalments
in
the
bank,
and
did
not
need
to
draw
on
the
principal
for
living
expenses.
The
instalments
are
also
to
be
paid
over
a
fixed
term,
which
indicates
that
the
payments
are
capital
in
nature.
It
is
true
that
there
are
no
provisions
in
the
agreement
concerning
interest,
prepayment
or
penalty
clauses,
assignability,
or
whether
the
responsibility
to
make
the
payments
would
have
bound
the
husband's
estate,
which
provisions
are
commonly
associated
with
capital
payments.
However,
the
fact
that
a
specific
provision
was
inserted
that
the
previous
maintenance
agreement
would
remain
in
force
leads
me
to
conclude
that
the
additional
payments
of
the
$200,000
were
for
something
other
than
maintenance
as
that
term
is
normally
understood.
Based
on
the
foregoing,
I
will
dismiss
the
plaintiff's
case,
and
affirm
the
reassessment.
Appeal
dismissed.
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