Gibson v. The Queen, 95 DTC 749, [1996] 1 CTC 2105 (TCC) (Informal Procedure)

O’Connor J.T.C.C.:— These appeals, heard in Calgary, Alberta, on May 27, 1994 pursuant to the informal procedure of this Court, concern the appellant’s 1990 and 1991 taxation years.

Issue

The issue in these appeals was whether certain amounts were deductible by the appellant as alimony or maintenance payments pursuant to paragraph 60(b) or 60(c) of the Income Tax Act, R.S.C. 1952, c. 148 (am. S.C. 1970-71-72, c. 63) (the “Act”). Those provisions and a related provision in subsection 248(1) defining the word “amount” are as follows:

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;

(c) an amount paid by the taxpayer in the year, pursuant to an order of a competent tribunal, as an allowance payable on a periodic basis for the maintenance of the recipient thereof, children of the recipient, or both the recipient and children of the recipient if, at the time the payment was made and throughout the remainder of the year, he was living apart from his spouse to whom he was required to make the payment;

248(1) “amount” means money, rights or things expressed in terms of the amount of money or the value in terms of money of the right or thing ....

Facts

The facts are well set forth in the following extracts from the respondent’s reply to the notice of appeal:

4. In computing income for the 1990 and 1991 taxation years, the appellant deducted the amount of $3,600 for the 1990 and $6,000 for 1991 as maintenance payments.

6. In reassessing the appellant for the 1990 and 1991 taxation years, the Minister of National Revenue (the “Minister”) reduced the claim for maintenance by $3,030, from $3,600 to $570 for 1990 and by $4,900, from $6,600 to $1,700 for 1991.

7. In so reassessing the appellant, the Minister made the following assumptions of fact:

(a) pursuant to a Provisional Order of the Provincial Court of Alberta dated September 16, 1986, the appellant was ordered to make maintenance payments in the amount of $600 per month;

(b) an Order Confirming Provisional Order of the Unified Family Court Judicial Centre of Saskatoon dated February 26, 1987 confirmed the maintenance payments to be made in the Provisional Order referred to in paragraph 7(a) above;

(c) in accordance with a Divorce Judgment and Corollary Relief Order (hereinafter referred to as the “Divorce Judgment”) dated November 14, 1989, the appellant was required, inter alia, to pay to his spouse the amount of $150 per month per child, for a total of $300 per month, commencing February 1, 1990, and continuing on the first day of each and every month thereafter until further order;

(d) subsequent to the above divorce judgment, a Consent Judgment (hereinafter referred to as the “Judgment”) dated April 26, 1991 provided that in consideration for the transfer of the appellant’s equity in the matrimonial property referred to in the judgment, all maintenance arrears owing to the spouse shall be set in the amount of $5,100 as at August 31, 1991;

(e) at the date of the Judgment, the arrears maintenance was $25,045.99;

(g) during the 1990 taxation year the appellant made one payment in

respect of maintenance dated February 16, 1990 in the amount of $570;

(h) during the 1991 taxation year the appellant made payments in respect of maintenance totalling $1,700 as follows:

June 28: $250

June 28: 250

September 3: 300

October 1: 300

November 1: 300

December 2: 300

Total: $1,700

The figures in the notices of appeal, which correspond with those in the notices of confirmation by the Minister are different than the $3,030 and $4,900 mentioned in paragraph 6 of the Reply. This was not explained but in any event is immaterial as this judgment will apply to whatever were the actual amounts disallowed by the Minister.

The appellant submits that when he transferred title to the house and contents pursuant to the Consent Judgment he effectively made a payment of arrears of alimony or maintenance and is entitled to the deductions claimed. He refers, inter alia, to paragraph 13 of IT-118R3 dated December 21, 1990 which reads as follows:

An amount paid as a single lump sum will generally not qualify as being payable on a periodic basis and hence not be deductible. For example,

(a) a lump sum payment made in place of several periodic payments not yet due but imposed under a court order or agreement, and

(b) an amount paid pursuant to an order or agreement requiring that a payment be made in respect of a period prior to the date of that order or agreement,

would not qualify as periodic payments. However, a lump sum paid in a taxation year is regarded as qualifying as a periodic payment where it can be identified as being the payment of amounts payable periodically that were due after the date of the order and had fallen into arrears.

The appellant also refers to the Alberta Attorney General Maintenance Enforcement Program statement of account filed as part of Exhibit A-1. It indicates that there were arrears owing by the appellant as of May 1, 1991 of $25,045.99 but that these arrears were reduced on May 23, 1991 by $19,945.99 leaving a balance of $5,100. This reduction reflects the transfer of appellant’s equity in the house (and contents) and the actions taken pursuant to the consent judgment. The house transfer was effected on May 22, 1991. The appellant argued that if he had sold the house and contents and paid cash to cover the amounts the deductions would have been allowed. However he found that this would have been disruptive to the children and that he considered he made payment by directly transferring his equity in the assets in question.

The respondent’s submission is that the transfer is not payment of amounts as contemplated in paragraphs 60(b) and (c) of the Act because no amounts were actually paid.

Respondent’s counsel appeared to take the position that cash or cheques must pass, not other assets. She referred to a decision of this Court, Blais v. Minister of National Revenue, [1990] 2 C.T.C. 2005, 90 D.T.C. 1499. In that case the wife owed the husband $20,000 and after a period of time during which the husband did not make alimony payments the parties entered into an agreement and a consent judgment which had the effect of cancelling the arrears of $4,927.50 and reducing the $20,000 indebtedness by that amount to $15,072.50. The Court in holding against the deductibility of the arrears seems to rely on the proposition that the word “paid” must mean cash or cheques.

However I was also referred to another judgment of this Court, Armstrong v. Minister of National Revenue, [1988] 1 C.T.C. 2019, 88 D.T.C. 1015 (T.C.C.), where in circumstances similar to those in Blais, Bonner J. at page 2021 (D.T.C. 1016) stated:

As I understood the appellant’s argument, it rested on the premise that no amount can be said to be received unless there has been a payment by cash or by cheque. That premise, in my view, is incorrect. The set off arrangement did involve receipt by the appellant of an amount within the meaning of paragraph 56(1 )(b). The word “amount” is defined by subsection 248(1) of the Income Tax Act as follows:

248(1) In this Act,

“amount” means money, rights or things expressed in terms of the amount of money or the value in terms of money of the right or thing....

Analysis

The most important document is the consent judgment dated April 26, 1991. Its relevant provisions are:

1. THAT the Plaintiff, MARK ROBERT CRAIG GIBSON will deliver up to the Defendant, LINDA JANE GIBSON, the matrimonial home at 21 Bradburn Crescent, St. Albert, Alberta, and all contents thereof, and will execute a transfer of land in favour of the defendant, LINDA JANE GIBSON on or before the date of trial herein being May 2, 1991.

4. THAT in consideration for the transfer of the Plaintiffs equity in the matrimonial property referred to herein, all maintenance arrears owing to the defendant pursuant to the order of the Honourable Madam Justice Veit in action number 4803 75681, and in all prior Family Court actions shall be set in the amount of $5,100 as at August 31, 1991, and shall be dealt with in accordance with the consent order filed in action number 4803 75681.

The Court finds the effect of the consent judgment and the transfer effected pursuant thereto was that the appellant was released with respect to all arrears of his alimony payments except for a sum of $5,100. Surely therefore the transfer must be considered as a form of payment. The Court therefore concludes that for paragraph 60(b) or (c) to operate there need not necessarily be payment in cash or by cheque. Payment in kind, provided there has been an agreement or a binding determination of the value in money of the object given, will suffice. The Court adheres to the above quoted dicta of Bonner J. in this regard. To do otherwise would seem to run counter to the definition of “amount” in subsection 248(1).

Furthermore this case is distinguishable from another line of cases holding lump sum payments not deductible because they were made in consideration of the spouse granting a total release of all possible claims. The amounts here represented accumulated arrears of periodic maintenance payments. When the appellant paid the arrears (by transferring assets) he was entitled to claim the deduction, just as he could have done had he made the payments on time.

Consequently the appeals are allowed, with costs, and the assessments are referred to the Minister of National Revenue for reconsideration and reassessment accordingly.

Appeals allowed.