Citation: 2013 TCC 112
Date: 20130429
Docket: 2012-2690(IT)I
BETWEEN:
PAULINE I. DOUCETTE,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Angers J.
[1]
This is an appeal of
the appellant's 2010 taxation year. By Notice of Assessment dated October 31,
2011, the appellant was reassessed to include payments in the total amount of
$27,000 pursuant to an Interim Agreement entered into by the appellant with her
former spouse on April 7, 2009. The appellant duly objected on January 27, 2012
but the Minister confirmed the reassessment on May 4, 2012. Hence, this
appeal.
[2]
The appellant and her
former spouse have been living separate and apart since February 2009. On April
7, 2009, through mediation, they executed an Interim Agreement where the former
husband was required to pay to the appellant the amount of $2,250 per month for
spousal support in two equal instalments commencing April 15, 2009 until the
sale of the matrimonial home or until a more comprehensive agreement is entered
into. Another paragraph of the Interim Agreement reads that the support
payments would be reviewed.
[3]
The Interim Agreement
included no requirements for payments in respect of any child.
[4]
The Interim Agreement
was registered for enforcement by the Ontario Ministry of Community and Social
Services under the Family Responsibility and Support Arrears Enforcement Act
at the Ontario Court of Justice and filed on record with a supporting
affidavit, in the registry of the court on April 17, 2009. The Interim
Agreement was later registered with the Minister of National Revenue on April
21, 2009 with an accompanying CRA Form T1158 "Registration of Family
Support Payments". The Interim Agreement, as registered with the Minister,
included no termination date for the monthly payments but the appellant
continued to receive the support payments beyond 2010.
[5]
According to the
Interim Agreement, none of the support payments were payable directly to any
creditor of either the appellant or her former spouse or any agent of any
creditor. The appellant was required though to make the mortgage, insurance and
property tax payments for the matrimonial home and to indemnify her former
spouse for any non-payment of these obligations.
[6]
The appellant and her
former spouse entered into a written agreement for the sale of the matrimonial
home on July 16, 2010 with a closing date of July 30, 2010. The appellant
continued to receive the support payments after the closing and has, in fact,
admitted at trial that the support payments beyond the closing date should have
been included in her income. She has also admitted having received a total
amount of $27,000 for the entire 2010 taxation year pursuant to the Interim
Agreement. Her appeal therefore only rests on whether the support payments
prior to the closing date should have been included in her income for her 2010
taxation year.
[7]
The appellant's
position is that she and her former spouse had a legal responsibility to pay
off the mortgage and as such she had no choice but to make the mortgage
payments with the support payments she received. She submits that the mortgage
payments should at least be deducted from the support payments for taxation
purposes. The appellant also submits that upon the sale of the matrimonial
home, the equity in the home was divided equally such that half of the mortgage
payments for 2010, that were payments on the capital, were returned to her
former spouse. No evidence was lead by the appellant as to the actual mortgage
payments or what that total amount would be.
[8]
The respondent's
position is that the entire $27,000 paid to the appellant during the 2010
taxation year was a support amount within the meaning of subsection 56.1(4) of
the Income Tax Act (the "Act") and was therefore
properly assessed pursuant to paragraph 56(1)(b) of the Act in
computing the appellant's income for her 2010 taxation year.
[9]
Paragraph 56(1)(b)
of the Income Tax Act reads as follows:
Without
restricting the generality of section 3, there shall be
included in computing the income of a taxpayer for a taxation
year,
(a) […]
(b) the total
of all amounts each of which is an amount determined by the formula
A - (B + C)
where
A is the total
of all amounts each of which is a support amount received
after 1996 and before the end of the year by the taxpayer from a
particular person where the taxpayer and the
particular person
were living separate and apart at the time the amount was received,
B is the total of all amounts each of
which is a child support amount that became receivable by
the taxpayer from the particular person under an
agreement or order on or after its commencement day and
before the end of the year in respect of a period that began on or after its commencement
day, and
C is
the total of all amounts each of which is a support amount received
after 1996 by the taxpayer from the particular person
and included in the taxpayer's income for a preceding taxation
year;
[…]
[Emphasis
added]
[10]
In subsection 56.1(4)
of the Act, "support payment" is defined as follows:
"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
(b) the payer is a legal parent
of a child of the recipient and the amount is receivable
under an order made by a competent tribunal in accordance with the laws of a province.
[11]
Subsection 56.1(1) is
also relevant in that:
For
the purposes of paragraph 56(1)(b) and
subsection 118(5), where an order
or agreement, or any variation thereof, provides for the payment of an amount
to a taxpayer or for the benefit of the taxpayer,
children in the taxpayer's custody or both the taxpayer
and those children, the amount or any part thereof
(a) when payable,
is deemed to be payable to and receivable by the taxpayer; and
(b) when paid,
is deemed to have been paid to and received by the taxpayer.
[12]
The appellant and her
former spouse have been living separate and apart since February 2009 because
of a breakdown in their marriage. They both executed an Interim Agreement on
April 7, 2009 that provided what was termed "spousal support" that
the former spouse was required to pay to the appellant in the amount of $2,250
per month commencing April 15, 2009 in two equal instalments per month. Those
payments were made directly to the appellant in consecutive series of
post-dated cheques. The Interim Agreement was filed with the Ontario Court of
Justice giving the agreement the same force and effect as an order of that
Court. That being said, the only remaining issues in this appeal are whether
these pre-determined and periodic payments were made for the maintenance of the
appellant and whether she had discretion as to their use.
[13]
The term used in the
Interim Agreement for the monthly payments is "spousal support" and I
believe it speaks for itself. It is an amount that the appellant has received
as an allowance for her maintenance and to which she has agreed and
acknowledged that she should have included that amount in her income. Her only
objection is for the first six months of taxation year 2010 where she says she
had no discretion as to the use of these amounts as she had agreed to pay the
mortgage, insurance and taxes for the matrimonial home. No evidence was adduced
as to what these actual payments were.
[14]
The clause in the
Interim Agreement wherein the appellant agrees to pay the mortgage, insurance
and taxes is there for the reason that the appellant continued to reside in the
matrimonial home after their separation and the support payments were in fact
made to her as an allowance for maintenance. In fact, after the sale of the
house, the spousal support payments were maintained and they allowed the
appellant to pay her other maintenance costs such as rent and utilities.
[15]
The increase in the
equity of the matrimonial home as a result of the appellant paying the mortgage
does not change the status of the "spousal support" in that it is an
allowance for the maintenance of the appellant. I agree with
Justice Hugessen of the Federal Court of Appeal in McKimmon v. M.N.R.,
[1990] 1 C.T.C. 109, at paragraph 15, where he writes that "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".
[16]
The circumstances of
this case lead me to the conclusion that the appellant had full discretion with
respect to the use of these amounts. She chose and agreed to pay the mortgage,
insurance and taxes because she occupied the matrimonial home.
[17]
The appellant also
suggested that her former spouse had actually agreed to pay 50% of the house
expenses as per an e-mail sent prior to the Interim Agreement. That may well be
but the Interim Agreement is what was eventually signed and agreed to by the
appellant and her former spouse.
[18]
As a result, the total
amount of $27,000 received by the appellant in her 2010 taxation year was a
"support amount" within the meaning of the Act and should have
been included in the appellant's income for that year.
[19]
The appeal is
dismissed.
Signed at Ottawa, Canada, this 29th day of April 2013.
"François Angers"
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