Citation: 2011 TCC 311
HER MAJESTY THE QUEEN,
REASONS FOR JUDGMENT
The appellant separated
from his former spouse, Nancy McClure, in June 2006. In 2006 and 2007, his
former spouse lived in the family residence.
In 2007, the appellant
paid $43,668.36 in expenses related to the family residence, which he deducted
as support when filing his 2007 income tax return. This amount had been paid to
The Minister of
National Revenue disallowed the deduction, and the dispute is about the disallowed
In filing his 2007
income tax return, the appellant also deducted an amount of $4,640 paid to his former
spouse as support in December 2007. The Minister allowed that deduction, which
is not at issue.
The appellant is
appealing from the Minister's assessment, which disallowed the deduction of
$43,668.36 in question.
The Minister deemed it
appropriate to ask the Court, under section 174 of the Income Tax Act (ITA),
to order that the appellant's former spouse, Ms. McClure, be bound by the
Court’s determination. That application was granted in an order dated August
The appellant and his
former spouse, Ms. McClure, the third party, testified.
The relevant provisions
of the ITA with regard to the deduction of support by the payer are paragraph 60(b)
and section 60.1, and with regard to the inclusion thereof in the income
of the person receiving the support, are paragraph 56(1)(b) and section
56.1 of the ITA.
It is not disputed that
the amount in question had been paid. There is no disagreement with respect to
the amount or to the time when it becomes deductable. The only issue is whether
the ITA allows for the deduction thereof.
As a result, after
removing all the words that cannot be applied to the facts at issue, the
applicable provisions can be edited as follows:
56.1 . . .
(4) The definitions in this subsection apply in this section and
. . .
“support amount” means an amount payable or receivable as an
allowance on a periodic basis for the maintenance of the recipient, children of
the recipient or both the recipient and children of the recipient, if the
recipient has discretion as to the use of the amount, and
(a) the recipient is the spouse or common-law partner or
former spouse or common-law partner of the payer, the recipient and payer are
living separate and apart because of the breakdown of their marriage or
common-law partnership and the amount is receivable under an order of a
competent tribunal or under a written agreement; or
. . .
“child support amount” means any support amount that
is not identified in the agreement or order under which it is receivable as
being solely for the support of a recipient who is a spouse . . . or former
spouse . . . of the payer . . . .
. . .
60. There may be deducted in computing a taxpayer’s income for a
taxation year such of the following amounts as are applicable
. . .
(b) the total of all amounts each of which is an amount
determined by the formula
A - (B + C)
A is the total of all amounts each of which is a support amount
. . . ,
B is the total of all amounts each of which is a child support
amount . . .
. . .
60.1 (1) For the purposes of paragraph 60(b) . .
. , where an order or agreement, or any variation thereof, provides for the
payment of an amount by a taxpayer to a person or for the benefit of the
person, children in the person’s custody or both the person and those children,
the amount or any part thereof
(a) when payable, is deemed to be payable to and receivable
by that person; and
(b) when paid, is deemed to have been paid to and received by
(2) For the purposes of section 60 [and] this section . . . , the
amount determined by the formula
A - B
A is the total of all amounts each of which is an amount . . . that
became payable by a taxpayer in a taxation year, under an order of a
competent tribunal or under a written agreement, in respect of an expense .
. . incurred . . . for the maintenance of a person, children in the person’s
custody or both the person and those children, . . .
. . .
is, where the order or written agreement, as the case may be,
provides that this subsection and subsection 56.1(2) shall apply to any
amount paid or payable thereunder, deemed to be an amount payable by the
taxpayer to that person and receivable by that person as an allowance on a
periodic basis, and that person is deemed to have discretion as to the use of
(3) For the purposes of this section and section 60, where a
written agreement or order of a competent tribunal made at any time in a
taxation year provides that an amount paid before that time . . . is to be
considered to have been paid and received thereunder,
(a) the amount is deemed to have been paid thereunder; and
. . .
(4) The definitions in subsection 56.1(4) apply in this section and
The effect of the
formula in paragraph 60(b) and the definitions in subsection 56.1(4)
is that support provided solely for the needs of a former spouse is made
60.1(1), when an order or agreement provides for a payment to a taxpayer or for
the benefit of the taxpayer, children in the taxpayer's custody or both, the
amount is deemed to have been paid to the taxpayer when paid.
Subsection 60.1(1) does
not in itself create a deduction; the other deductibility conditions must be
In particular, the
amounts must be paid "under an order of a competent tribunal or under a
written agreement" (i) in accordance with item A in the formula in
paragraph 60(b) and the definition of "support" in subsection
and also (ii) in the case of a payment to a third party under subsection
Subsection 60.1(2) in
itself does not create a deduction, but rather broadens the deduction in
paragraph 60(b): certain payments are deemed to be regular allowances
that the beneficiary may use at his or her own discretion, which makes those
However, for subsection
60.1(2) to apply, not only must the amounts be paid "under an order of a
competent tribunal or under a written agreement" but also "the order
or written agreement, as the case may be, [must provide] that subsection [60.1(2)]
and subsection 56.1(2) shall apply" to the amount in question.
According to these
provisions, it is clear that, in order to be deductible as support, the amounts
must necessarily be paid under a written agreement or order of a competent court.
In addition, if the payments are made to third parties, the agreement or order
must provide that subsections 56.1(2) and 60.1(2) of the ITA apply. I will
return to the issue of the manner in which the agreement or order must refer to
Finally, I note that
subsection 60.1(3) provides that the amounts paid before there is a written
agreement or order may be deductible but only if the written agreement or order
provides for it.
Accordingly, there are,
inter alia, two very important conditions to be met:
(a) Support cannot be
deductible without a written agreement or an order of a competent court.
(b) Payments to third
parties may be considered deductible support only if the order explicitly
provides for the application of subsections 56.1(2) and 60.1(2) of the ITA
(that is to say that the payer may deduct the amounts and that the recipient
must include them in his or her income).
The appellant submits
(a) an agreement was
concluded between him and his former spouse whereby he would continue to pay the
house expenses directly to third parties;
agreement was kept alive by the exchange of correspondence between his lawyer
and his former spouse's lawyer; and
safeguard order dated December 4, 2007, among other things, confirmed that
In regard to the
agreement allegedly concluded between the appellant and his former spouse before
the exchange of letters between the lawyers, the appellant himself described it
as an oral agreement.
I am of the view that
there was no oral agreement between the parties. The evidence shows rather that
the appellant paid for the house expenses before the separation and continued
to pay for them after the separation. The former spouse did not object to this,
and so there was, at most, an implicit consent to his paying for those expenses
while waiting to resolve the financial aspects of the separation, but there was
no agreement between the appellant and his former spouse.
In paying for these
expenses before there was an order or written agreement between the parties,
the appellant acted reasonably and responsibly, but there was no written
agreement and certainly no agreement explicitly providing for the application
of subsections 56.1(2) and 60.1(2) of the ITA.
Did the correspondence
between the appellant's and his former spouse's lawyers lead to an agreement
relating to payments to third parties?
There is no such agreement
signed by the appellant and his former spouse.
The appellant filed in
evidence some passages from the correspondence between his lawyer and his
former spouse's lawyer.
The third party filed
in evidence the same letters in full as well as additional letters between the
Each letter must be
read in its entirety if the context is to be understood.
I read the correspondence.
There is no agreement in the letters.
It is a long negotiation during which many details are brought up. Despite the
lawyers' efforts, they did not succeed in negotiating an agreement before the
order made by the Superior Court of Québec dated December 4, 2007.
Finally, there is the
which reads as follows:
Orders Mr. Poirier to pay as support to Ms. McClure, a support amount
of $4,640 per month, retroactive to December 1, 2007. In addition, Mr. Poirier
will have to continue to assume all of the expenses for the family home, which
he is currently assuming. He will also have to pay as child support . . . .
The amount of $4,640 is
the amount that was deducted by the appellant and allowed by the Minister,
which is not at issue.
In that order, the
Superior Court of Québec ordered the appellant to pay the family home expenses,
but there is nothing in the order that provides for the application of
subsections 56.1(2) and 60.1(2) of the ITA or that provides that the amount
will be deductible by the payer and included in the recipient's income with
respect to the family home expenses.
The appellant cited Veilleux
v. Canada, a Federal Court of Appeal decision. In Veilleux,
the appellant and his former spouse had signed an agreement on corollary relief
dated December 1, 1989, which provided, among other things, that the appellant
undertook to pay the expenses for the family residence, which his former spouse
and his children continued to live in. That agreement did not mention the tax
treatment of the amounts paid to third parties with respect to the family
residence. On March 13, 1990, the appellant and his former spouse signed a supplementary
agreement providing for the following:
[TRANSLATION] All amounts that
Gaston Veilleux agrees to pay to Louise Ouellette are net of tax; accordingly,
Gaston Veilleux agrees to pay any federal and provincial taxes that may be owed
by Louise Ouellette arising from the payment of the said support.
All amounts paid to Louise
Ouellette or to third parties on her behalf shall be deemed to be part of the
support; those amounts shall include the expenses relating to the family
residence (i.e. mortgage payments, municipal and school taxes, home insurance,
electricity, heating, maintenance and cable), expenses relating to the various
family insurance plans (i.e. life insurance for dependants, survivor pension,
hospitalization, medical expenses, paramedical expenses, dental insurance),
provincial and federal income tax and any other amount that may be agreed on by
the two parties (automobile repairs, children's activity fees, etc.).
The Federal Court of
Appeal decided that the obligation to explicitly provide for the application of
subsections 56.1(2) and 60.1(2) had been fulfilled in the supplementary
agreement; the most important this is that it must be clear from the agreement
that the parties' intention is that the payer will be able to deduct the amounts
in his income tax returns and that the recipient must include them. It is not
necessary for the agreement to refer to ITA provisions. That intention of the
parties can be expressed in a document other than the agreement on payments.
However, such an agreement
is still essential, and the evidence does not show that such an agreement was
concluded between the appellant and his former spouse.
Finally, it is
important to note that the Superior Court safeguard order dated December 4,
2007, is not retroactive except for the fact that it is ordered that the
payment of support be retroactive to December 4, 2007.
The appellant has
claimed that it would be unfair if the amounts in question were not deductible.
I have already said that the appellant had acted reasonably and responsibly in
making the payments before there was an agreement or an order, and, as stated
by counsel for the respondent, it is to his credit that he did so.
However, I am not in a
position to determine whether the result of the non-deductibility is fair or
not. That issue is not before the Court. However, regardless of what that
finding might be, I must apply the ITA.
conditions required to permit the deduction of the amount in question are not
fulfilled, and the Minister was correct to state that the appellant could not
deduct that amount in computing his income.
The appeal is dismissed
with costs to the respondent and the third party under Tariff B of Schedule II.
Signed at Ottawa, Ontario, this
21st day of June 2011.
on this 17th day
of October 2011