Citation: 2011 TCC 512
Date: 20111102
Docket: 2010-1(IT)I
BETWEEN:
JANICE DEHART,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Hershfield J.
Background
[1] The Appellant was
reassessed for her 2005, 2006 and 2007 taxation years. In reassessing the
Appellant, the Minister of National Revenue (the “Minister”) included in the
Appellant’s income child support amounts of $6,000, $7,200 and $7,200 payable
to her for each of those years, respectively.
[2] The Appellant
appeals such reassessments, asserting that such amounts should not have been included
in her income on the basis that the provisions of the Income Tax Act
(the “Act”) relied on by the Respondent do not apply to her case.
[3] In determining the
Appellant’s tax liability for the 2005, 2006 and 2007 taxation years, the
Minister relied on the following facts which were stated as assumptions of fact
in the Reply to the Amended Notice of Appeal (the “Reply”):
14. In determining the Appellant’s
tax and interest liability for the 2005, 2006 and 2007 taxation years, the
Minister made the following assumptions of fact:
Child Support Issues
(a)
the Appellant and the
Appellant’s ex-spouse have lived separate and apart due to a marriage breakdown
since at least the 1982 taxation year;
(b)
the Appellant and the
Appellant’s ex-spouse are the parents of one child, S., born January 23, 1979;
(c)
pursuant to a Decree
Nisi of the Supreme Court of Ontario, heard on January 25, 1982, and signed on
October 14, 1982 (“the 1st Order”), the Appellant’s ex-spouse was
required to pay to the Appellant Child Support for S., in the amount of $25 per
week;
(d)
pursuant to a
Judgment of the Supreme Court of Ontario, signed on October 13, 1988, made when
an Application was heard on June 10, 1988 (“the 2nd Order”), the 1st
Order was amended, requiring the Appellant’s ex-spouse to pay the Appellant
Child Support for S, in the amount of $80 per week (with Consumer Price
Indexing);
(e)
the periodic payments
of Child Support payable under the 2nd Order were never varied
subsequent to the date of that Order, in any manner or at any time;
(f)
as the Appellant’s
ex-spouse did not comply with the 2nd Order to make all of the
required Child Support payments, Default Court Orders dated December 17, 1997
and July 21, 2005, and Consents to Default Orders dated July 29, 2004 and
December 9, 2004, were issued, indicating that certain payments were to be paid
on account of arrears in respect of payments that were to have been made by him
under the 2nd Order;
(g)
the total Child
Support amounts paid to the Appellant and by the Appellant’s ex-spouse, in each
of the 2005, 2006 and 2007 taxation years, namely $6,000, $7,200 and $7,200, for
each of those years, respectively, were paid by him pursuant to the 2nd
Order, as a result of the issuance of the Default Orders, in respect of Child
Support that should have been paid by him to the Appellant in previous taxation
years (the years they were payable);
(h)
the Appellant failed
to include the payments she received for Child Support arrears, in the amounts
of $6,000, $7,200 and $7,200 for 2005, 2006 and 2007, respectively, in her
income, for those taxation years;
…
[4] Appellant’s counsel
submitted a book of documents which are itemized below with a brief description
of the contents of such documents:
·
Decree
Nisi issued by the Supreme Court of Ontario dated January 1982 – decreeing that
the Appellant was divorced from her husband, Robert DeHart. The Decree also
ordered that the Appellant be awarded the custody, care and control of the
infant child of the marriage born January 1979. The Decree further provided
that the former husband pay to the Appellant the sum of $25 per week for the
support and maintenance of the child for so long as the said child remained in
the custody of the Appellant and is a child as defined by the Divorce Act.
The Decree ordered judgment interest at a rate of 17.25%.
·
Order
of the Supreme Court of Ontario dated October 1982 which orders that the
maintenance and support to be paid by the Appellant’s ex-husband for the child
be increased to the sum of $55 per week.
·
Judgment
of the Supreme Court of Ontario dated June 1988 which orders that the Decree
Nisi dated January 1982, as amended by the Order dated October 1982, is further
amended to provide that the Appellant’s ex-husband pay to the Appellant for the
support of the child the sum of $80 per week. This 1988 Order provides that the
amount of support payable for the child is to be increased annually on the Order’s
anniversary date by a percentage determined by specified references to the
Consumer Price Index for Canada as published by Statistics Canada and contemplated by
section 34 of the Family Law Act, 1986. As well, the Order sets judgment
interest at the rate of 10%. The Order further goes on to provide that it shall
be enforced by the Director of Support and Custody Enforcement.
·
Order
of The Ontario Court (Provincial Division) dated November 1994, responding to
an application, made by the Director, Family Support Plan, for the benefit of the
Appellant in respect of a Notice of Default. The Order confirms and fixes arrears
in the amount of $39,808.77 (the “Default Order”). It goes on to provide that
the payer, the Appellant’s ex-husband, shall “keep the Order current, namely
$130.51 per week, payable on Fridays failing which the Payor shall be
incarcerated for seven (7) days.”
·
Order
of The Ontario Court (Provincial Division) dated December 1997 responding to an
application of the Director, Family Responsibility Office, for the benefit of
the Appellant, to discontinue a Warrant for Committal and amend the Default
Order dated November 1994 by deleting the reference to the payable time and
amount necessary to keep the Default Order current and providing simply that
the payer (the Appellant’s ex-husband) “shall keep the ongoing support order
current, failing which he shall be incarcerated for 7 days”.
·
A Record
of The Ontario Court (General Division) dated November 1998 showing a notation
by the Judge regarding an application of the Appellant’s ex-husband to vary the
support payments. This application was made days before further enforcement proceedings
were to be heard. The notation dismisses the application referring to previous
applications which had been languishing in the court system. The Judge notes
that it appears to him that the Applicant (the ex-husband) “is attempting to
play the Court system to his advantage when he should be paying his arrears
instead of paying his lawyers.” Costs of the failed application payable to the
Director were fixed at $500.
·
A
consent Order of The Ontario Court of Justice dated July 29, 2004, respecting
an application of the Director, Family Responsibility Office for the benefit of
the Appellant, requiring the ex-husband to pay the sum of $500 per month on
account of arrears commencing on the first day of September 2004. The Order
goes on to say that in default of any payment referred to, the ex-husband shall
be incarcerated for a period of 10 days for each and every default. Further, it
goes on to provide that in the event of default of any payment due, the
Director, Family Responsibility Office shall be at liberty to bring any future
motion for a Warrant of Committal upon a default, with notice to the Respondent
by serving him by pre-paid regular mail at his last known address on file with
the Director.
·
A
consent Order of The Ontario Court of Justice dated December 2004 in respect of
an application made by the Director, Family Responsibility Office providing that
the Appellant’s ex-husband provide certain required disclosures and that he
shall continue to pay $500 per month.
·
A
consent “final” default Order of The Ontario Court of Justice dated July 2005, requiring
the ex-husband to pay the sum of $600 per month on account of arrears
commencing on the first day of August 2005. Again, there is an incarceration
provision permitting the Director, Family Responsibility Office, to bring a
motion for a Warrant of Committal upon default. The ex-husband is also ordered
to notify the Family Responsibility Office of any new employment.
·
A
letter from the Ministry of Community and Social Services, Family
Responsibility Office, dated August 12, 2010 to the Appellant which confirms
that the July 2005 Order is a final default Order whereby the support payer was
ordered to make monthly payments of $600 at risk of incarceration. Confirmation
was made that the repayment terms under the July 2005 Order commenced on August
1, 2005 and that the support payer has been in compliance with this Order. Then
the letter goes on to confirm that the 1988 Order requiring child support payments
of $80 per week were enforced by the Family Responsibility Office until
they received written notice from the Appellant that the ongoing obligation had
terminated effective August 31, 2001. The Appellant confirmed that such ongoing
obligation had, in fact, terminated at that time when the daughter of the
marriage, for whose benefit the support amounts were paid, graduated from
university.
[5] The Appellant also submitted
as an exhibit a payment schedule sourced from the Family Responsibility Office detailing
the history of child support payments and tracked the amounts in arrears.
Included in this schedule were separate $400 amounts each reflecting enforcement
fees payable to the Family Responsibility Office which were added to the
account over time. The August 12, 2010 letter referred to above from the Family
Responsibility Office confirmed that such amounts totalling $1,600 were monies
owed to the Director for costs incurred while taking action to enforce the
Appellant’s case. The letter advises that the Family Responsibility Office had
not “deducted” the $1,600 from the arrears of child support owed to the
Appellant.
[6] Recent
correspondence from the Family Responsibility Office, submitted without objection
after the hearing, states that the payment schedule tendered at the hearing did
not include judgment interest but indicated that same would be added.
Statutory Provisions
[7] The relevant
provisions of the Act are as follows:
56(1)
Amounts to be included in income for year
-- Without restricting the generality of section 3,
there shall be included in computing the income of a taxpayer for a taxation year,
(b) [spousal
or child] support -- 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;
…
56.1(4) Definitions --
The definitions in this subsection apply in this section and section 56.
"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 common-law partner or
former spouse or common-law partner of the
payer or who is a parent of a child of whom the payer is
a legal parent.
…
"commencement day" at any time of an agreement or order means
(a)
where the agreement or order is made after April 1997, the day it is made; and
(b) where the agreement or order is
made before May 1997, the day, if any, that is after April 1997 and is
the earliest of
(i) the day specified as the commencement day of the
agreement or order by the payer and recipient under the agreement or order in a
joint election filed with the Minister in prescribed form and manner,
(ii) where the agreement or order is varied
after April 1997 to change the child support amounts
payable to the recipient, the day on which the first payment of the varied
amount is required to be made,
(iii) where a subsequent agreement or order
is made after April 1997, the effect of which is to change the total child support amounts
payable to the recipient by the payer, the commencement day of the
first such subsequent agreement or order, and
(iv) the day specified in the agreement or
order, or any variation thereof, as the commencement day of the
agreement or order for the purposes of this Act.
…
"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.
Issues
[8] There is no dispute that the
amounts payable under the 1988 Order, and in arrears, were payable as an
allowance on a periodic basis for the maintenance of the child of the recipient
and that the recipient is the former spouse of the payer from whom she was
living separate and apart because of a breakdown of their marriage. Further,
the amount was receivable under an order of a competent tribunal. These meet
all of the requirements to constitute the payments a “support amount” as
defined in subsection 56.1(4).
[9] As well, it is noted that
there is no question that the amounts are “child support amounts” as defined in
that subsection. That is, the support amounts identified in the Order under
which it was receivable did not identify the payments as solely for the support
of a recipient former spouse.
[10] On that basis, the inclusion of
the subject payments under paragraph 56(1)(b) in the income of the Appellant falls on a determination of
whether any child support amounts became
receivable by her in the years in question on or after a commencement day.
Whether a payment became receivable on or after the commencement day is
dependant on the date of the order requiring the payment. The commencement day
in respect of a payment made under a post-April 1997 order is the day it is
made. The commencement day in respect of an order made before May 1997, is the
day, if any, that is after April 1997 and is, failing specified dates being
included in the order, the earliest of: the day on which the first payment of a
varied child support amount is
required to be made under a variation order made after April 1997; and the date
a subsequent order is made after April 1997, the effect of which is to change
the total child support amounts
payable to the recipient.
Arguments
Appellant’s Arguments
[11] Appellant’s counsel has advanced several positions which she argues
require a finding that the payments received by the Appellant in the subject
years were not taxable amounts under subsection 56(1).
[12] She maintains that the child support amounts receivable
by the Appellant in the subject years were receivable by her under an order
made after its “commencement day”. She makes this argument on the basis that the
consent
Orders of The Ontario Court of Justice dated July 2004 and July 2005, requiring
the ex-husband to pay on account of arrears the sum of $500 per month
commencing on the first day of September 2004 and then $600 per month commencing
on the first day of August 2005, were orders varying the child support amounts
receivable.
[13] The Appellant relies on the Federal Court of Appeal
decision of Canada v. Sills
where Justice Heald speaking for the majority
said: “The payments do not change in
character merely because they are not made on time.” Relying on this statement
of law, Appellant’s counsel takes the position that the fact that the payments
are payments of arrears does not change their character as child support
amounts.
[14] She goes on to argue that the July 2004 Order,
following the termination in 2001 of the pre-May 1997 Orders, was a fresh or
new Order or a varied Order of child support amounts. That is, being a new or
varied order for arrears, it is, applying the principle in Sills, a new
or varied order made post-April 1997 for the payment of child support amounts. That
they were formerly owing under a different payment regime does not change the
fact that the regime was varied. Accordingly, the payments, the child support
amounts, were receivable by the taxpayer under an order made after its
commencement day. Similarly, payments received under the July 2005 final Order were
payments received under an order made after its commencement day.
[15] Appellant’s counsel also argued that the total amounts
of support received had increased by virtue of the orders for costs and appearance
fees added to the Appellant’s support amount account maintained by the Family
Responsibility Office.
[16] It was also argued that the July 2004 consent Order
constituted a new “agreement” which is to argue that the payment was pursuant to
or under an agreement as opposed to a former order. Since there had never been
an agreement before 2004, and since “commencement day” refers to payments under
“an agreement or order”, we have a fresh starting point for the determination
of the commencement day.
[17] A potential argument was also raised concerning the
question as to whether a statement of arrears that failed to show judgment
interest in any way reflected a change in the support amount.
[18] Appellant’s counsel also sought to distinguish cases
such as McNeely v. The Queen
and Adat v. The Queen on
the basis of factual differences. She relied, as well, on the following cases: Gill
v. The Queen, Nowlan
v. The Queen, and
Roy v. The Queen. I
did not find her reference to these authorities as providing any persuasive
insight that assisted her client.
Respondent’s Arguments
[19] Relying on Wilson v. The Queen, Respondent’s counsel argued that
the relevant date in respect of the determination of the commencement day is
the date the child support amount is payable and receivable, not the date when
paid and received. The child support amounts in the case at bar were all
payable before 2001, pursuant to or under orders made before May 1997.
[20] The Sills decision is also relied on by the Respondent.
It is argued that that decision confirms that the payments in question are
payments of amounts that have not lost their character as taxable support
payments paid under the 1988 Order that required them to be paid. Variations in
the amount of the arrears installments could not be seen as a variation in the
support payment amounts payable under the pre-May 1997 Orders.
[21] Respondent’s counsel also argued the $400 appearance
fees added to the Appellant’s support amount account maintained by the Family
Responsibility Office were not a change in the child support amounts receivable
by the Appellant. Further, it was argued that the child support payments were
made under the 1988 Order and not under or pursuant to any subsequent agreements.
[22] In respect of the question as to whether judgment
interest has any impact or relevance in the determination of a support amount,
the Respondent relied on Whelan v. The Queen
and Pilon v. The Queen.
[23] The Respondent also relied on the decision in Roy.
Analysis
[24] Appellant’s counsel has raised some novel, interesting
and clever arguments in an attempt to assist a mother whose former husband
might well fit the description of a dad who shirked his financial
responsibilities to his daughter for well over a decade and who, as one judge
commented, spent money on his lawyers to play the system when he should have
paid his wife for child support. If these arguments had been raised when
commencement day cases were first being considered, they might have been
persuasive if the scheme of the subject provisions had been interpreted to give
consideration to cash flow variations in child support payments. However, given
a consistent and long history of cases dealing with how payment of arrears must
be treated under the subject provisions, I cannot see my way clear to
re-formulate the statutory scheme as those authorities have applied them.
[25] In short, I agree with the arguments of Respondent’s
counsel. Payments of arrears are payments of amounts required to be made under an
earlier order that imposed that requirement. The last child support order
fixing the child support amount payable was the 1988 Order requiring payments
of $80 per week. As per Wilson the
relevant date in respect of the determination of the commencement day is the
date the child support amount is payable and receivable, not the date when paid
and received.
[26] Appellant’s argument that the Sills decision can
be taken to stand for a different principle does not have legs. She argues that
if arrears are child support payments, then when the amount and periodic basis of
arrears installments that is receivable are varied, then the child support
amount has varied. A clever argument that is not void in logic. However, such
variation only makes changes that affect the cash flow timing between the
parties. The amounts receivable under the enforcement orders match the amounts
receivable under the 1988 Order, and would not be receivable but for the 1988
Order. That is, there is no evidence that either the monthly amount or total
amounts required to be paid, and thereby receivable, under the 1988 Order were varied.
The decision in Whelan makes it clear that in such cases no commencement
day has come into being.
[27] Further, that unpaid amounts required to have been paid
under the 1988 Order are being enforced by subsequent orders that necessarily
adapt a new installment regime as circumstances require from time to time, does
not suggest that child support amounts payable under the 1988 Order have changed.
I am satisfied, in spite of my understanding of the injustice the Appellant
feels she is suffering, that this finding has necessarily been imposed on me by
a consistent line of cases that I am not at liberty to undermine. If the
payments had been timely made, they would have been taxable. That they were
late and enforced by new court orders or new agreements does not change that
result. Further, if the child support obligations ended in 2001, the subsequent
enforcement orders which do not reduce the amount in arrears could only be
enforcing obligations arising under a prior order: namely in this case, the 1988
Order.
[28] As to the judgment interest issue, I am satisfied that
the obligation to pay the relevant amount arose prior to May 1997, was not varied.
Further, even if it had been varied after April 1997, the Respondent’s reliance
on Whelan and Pilon as being decisive on that issue is well
founded. Lastly, that the record of arrears has omitted the judgment interest
has no bearing on the issue.
[29] As well, I note that the orders for costs and
appearance fees cannot under the subject provisions of the Act be found
to affect the child support amount payable and receivable. They are not,
directly at least, for the maintenance of the child and more certainly are
neither an allowance payable nor a support amount payable on a periodic basis.
[30] Accordingly, the appeals are
dismissed, without costs.
Signed at Toronto, Ontario this 2nd day of November 2011.
"J.E. Hershfield"
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