Date:
20021105
Docket:
2002-46-IT-I
BETWEEN:
SARAH
HALLETT,
Appellant,
and
HER MAJESTY
THE QUEEN,
Respondent.
Reasons
for Judgment
Bowie
J.
[1]
The Appellant was married at one time to Rodney Hallett, whom I
shall call Rodney. They separated in July 1994, and in September
1995 she obtained a court order requiring Rodney to pay her
maintenance of $200 per month for their two children, who were in
her custody. She remained in possession of the mobile home in
which they had been living, and which they owned jointly. Rodney
did not fulfill his payment obligation, and by February 1999, the
arrears that he owed amounted to $5,592.70. At that time he had a
job and was able to make payments monthly. However, Rodney's
pattern was to avoid payment of the arrears, and he had
previously left jobs as soon as his wages were attached to pay
them, and so the Appellant proposed to him that he should convey
to her his interest in the mobile home, and she would forgive the
arrears. He could then simply make the current monthly payments
as they fell due. For her part, the Appellant would benefit by
having full ownership of the home for herself and her children,
and also by receiving the future monthly maintenance payments
regularly. He agreed to this proposal, and the transaction took
place in November 1999.
[2]
They executed an agreement whereby Rodney sold
his interest in the mobile home to the Appellant for $6,200. The
Appellant had previously estimated that the value of his interest
was $6,000, and the exact amount of $6,200 was fixed between them
by negotiation. He insisted that the written agreement show that
amount, as some nine months had elapsed since February 28, 1999,
when she had advised the Family Maintenance Enforcement Office of
their agreement and it had cancelled the arrears then owing. The
Appellant testified that in spite of this, no money changed hands
between them in November, so the real consideration was the exact
amount of the arrears that were forgiven in February. In her
income tax return for that year, the Appellant did not include
the amount of $5,592.70 in her income. The Minister took the view
that she should have done so, and he has reassessed her
accordingly. She now appeals from that reassessment.
[3]
There has been no variation of the support that
the Appellant is entitled to be paid since the original order was
made in 1995. It is not in dispute, therefore, that the Appellant
is obliged to take into income the maintenance payments received
by her. The only issue between the parties is whether that amount
includes the value of the half interest in the trailer that
Rodney conveyed to her. The legislative scheme is complex;
however for present purposes it is only necessary to determine if
the interest in the trailer falls within the meaning of the
phrase "support amount" as it appears in paragraph
56(1)(b) of the Income Tax Act. That paragraph
defines the amount that a recipient of support must bring into
income through an elaborate formula. Under that formula the total
of all support amounts received must be included in the
calculation. The expression is defined in subsection
56.1(4):
"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 natural parent of a child of the recipient and the
amount is receivable under an order made by a competent tribunal
is accordance with the laws of a province.
The Appellant argued
that the half interest in the mobile home that she received does
not fall within that definition for three reasons: it is not an
"amount"; it was not paid on a periodic basis; and she did not
have discretion as to the use of it.
[4]
The first of these arguments requires an
examination of the definition of the word "amount" which is found
in subsection 248(1) of the 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,
except that,
(a
...
There can be no doubt
that the interest in the mobile home that passed to the Appellant
is a "right or thing", and the value of it is established by the
transaction between the Appellant and Rodney. The Appellant
herself estimated the value at $6,000, and the transaction
between them was certainly at arm's length. The same result has
been reached in the past by Bonner J., and by O'Connor
J. If the value of
payments in kind were not payments for purposes of the
Act, the profits derived from a great many business
transactions would be immune from taxation; it is for that reason
that Parliament defined "amount" the way that it did. The
Appellant's first argument cannot succeed.
[5]
As to the argument that the "payment" is not
periodic, it has been held many times that when periodic payments
of maintenance fall into arrears and are later paid in a lump
sum, that lump sum satisfies the requirement that payments must
be periodic to qualify for deduction and to be subject to
inclusion. That argument also fails.
[6]
The Appellant's position was that she did not
have discretion as to the use of the "amount" in this case
because it was not in the form of cash, and so she could not
spend it. That argument fails for two reasons. First, the
question whether the recipient has discretion with respect to the
use of the payment is a matter to be determined from the terms of
the order or agreement under which the payment is required to be
made. The question is whether the judge in ordering the payment
earmarked it for a particular purpose such as school fees,
mortgage payments or the like. If not, then the recipient has
discretion as to its use. In any event the Appellant did have
discretion in the legal sense, although not perhaps in the
practical sense. There was no legal impediment to her selling the
mobile home and using the proceeds for any purpose that she
chose. I appreciate that she felt she could not do that because
she and her children needed the home to live in. However, she
could have used the proceeds of a sale to buy a different home,
or to rent a home for them. While she may have felt that she had
no alternative, it would be more accurate to say that she had no
preferable alternative course of action.
[7]
The Appellant relied on the decision of Mogan
J. in Fisher v. The Queen. Although
superficially similar to this one, that case must be
distinguished. There the Appellant owed some $12,000 to her
former spouse as an equalization payment upon the distribution of
the family assets, as she had retained their jointly owned house,
while the former spouse owed her some $7,558 in arrears of
support payments. When the final divorce judgment was granted,
the Court ordered a set-off of the one debt against the other,
and also reduced the support payments to be made by the former
husband for a period to offset the balance of the equalization
payment. There is a significant difference between an amount
being set off as part of the order of the Court, and the parties
entering into a transaction of purchase and sale. The judge in
Fisher was exercising powers under the Family Law
Act of Ontario that enabled him both to cancel the arrears
that had accumulated under the interim Order, and to order a
lesser amount of maintenance than he otherwise would have in view
of the imbalance in the distribution of family assets. There is
no similar order in this case and, as has been said many times by
the Federal Court of Appeal and the Supreme Court of Canada, I
must decide the case according to the facts that actually
occurred, not according to what the facts might have been had the
parties acted differently. I cannot deal with this case on the
basis of an order that was never made.
[8]
I appreciate that the Appellant has suffered a
good deal of hardship over a period of years as a result of her
former husband's refusal to meet his support obligations as they
fell due. She also found herself in a difficult financial
position as a result of taking a non-cash asset in payment of the
arrears that were due to her. She is required not only to pay the
income tax, but the increase in her income as a result of the
reassessment has resulted in a decrease in her entitlements to
both the child tax benefit under the Act and family bonus
payable to her under British Columbia law. She is required
now to make repayment of these overpayments, as well as paying
the additional income tax. However, she would have had the same
amount of income tax to pay, and the same lower benefits payable
to her, if she had been paid the arrears in cash. In the
meantime, she has had the benefit of the full ownership of the
mobile home, equivalent to the cash she did not receive. The law
has not dealt more harshly with her than it would have if she had
received cash; she simply finds that she has less liquid assets
to live on because she has purchased a 50% interest in a mobile
home at a time when she was attending college and so having
difficulty making ends meet.
[9]
The appeal must be dismissed.
Signed at
Ottawa, Canada, this 5th day of November, 2002.
J.T.C.C.
COURT FILE
NO.:
2002-46(IT)I
STYLE OF
CAUSE:
Sarah Hallett and
Her Majesty
the Queen
PLACE OF
HEARING:
Regina, Saskatchewan
DATE OF
HEARING:
October 23, 2002
REASONS FOR
JUDGMENT BY: The Honourable Judge E.A.
Bowie
DATE OF
JUDGMENT:
November 5, 2002
APPEARANCES:
For the
Appellant:
The Appellant herself
Counsel
for the
Respondent:
Anne Jinnouchi
COUNSEL OF
RECORD:
For the
Appellant:
Name:
--
Firm:
--
For the
Respondent:
Morris Rosenberg
Deputy Attorney General of Canada
Ottawa, Canada
2002-46(IT)I
BETWEEN:
SARAH
HALLETT,
Appellant,
and
HER MAJESTY
THE QUEEN,
Respondent.
Appeal heard
on October 23, 2002, at Regina, Saskatchewan, by
the
Honourable Judge E.A. Bowie
Appearances
For the
Appellant:
The Appellant herself
Counsel
for the
Respondent:
Anne Jinnouchi
JUDGMENT
The appeal from the assessment of tax made under the Income
Tax Act for the 1999 taxation year is dismissed.
Signed at
Ottawa, Canada, this 5th day of November, 2002.
J.T.C.C.
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