Date: 20020517
Docket:
2001-2568-IT-I
BETWEEN:
GORDON
BARTHELS,
Appellant,
and
HER MAJESTY THE
QUEEN,
Respondent.
Reasonsfor
Judgment
Hershfield,
J.T.C.C.
[1]
This is an appeal under the Informal Procedure of a reassessment
of the Appellant's 1999 taxation year. The subject
reassessment denied the Appellant's claim for an
equivalent-to-spouse tax credit claimed pursuant to paragraph
118(1)(b).
[2]
By way of an Order of the Supreme Court of British Columbia dated
December 4, 1997 the Appellant was ordered to pay child
support in respect of two children of the marriage of the
Appellant and Diane Barthels. The Appellant and Diane separated
in May 1994. The Appellant ceased making payments in respect of
one of his children, Stephanie, in 1998 when she came to live
with him on a full-time basis. The Order requiring the Appellant
to pay ongoing support to Diane in respect of Stephanie was not
varied until 1999 when the requirement to pay for her support
since coming to live with her father was set aside. The later
Order set aside arrears of payments for the support of Stephanie
that had accumulated since Stephanie came to live with the
Appellant in 1998. The issue in this case is whether the Order
setting aside the arrears is sufficient to permit the Appellant
to claim the equivalent-to-spouse tax credit in respect of
Stephanie. The Respondent asserts that notwithstanding that the
arrears were set aside, the Appellant was required in 1999 to
make a support payment and that such requirement results in the
subject credit not being available to the Appellant in the
subject year pursuant to subsection 118(5).
[3]
The assumptions relied on by the Minister more fully set out the
factual background in respect of this appeal. Such assumptions
are as follows:
8.
In so reassessing the Appellant for the 1999 taxation year, the
Minister relied on the following assumptions of fact:
(a)
the Appellant and Diane Barthels (the "Ex-Spouse")
separated in May 1994;
(b)
in accordance with a Separation Agreement dated April 19,
1995 (the "Agreement"), the Appellant and the Ex-Spouse
agreed to live separate and apart and that they would have joint
custody of the two children of the marriage, Jennifer Barthels
("Jennifer") and Stephanie;
(c)
the Agreement also provided that the Ex-Spouse would receive the
Child Tax Benefit and that the Appellant would make payments to
the Ex-Wife for the support of Jennifer and Stephanie
(hereinafter referred to collectively as the
"Children") as follows:
-
if the Children are with the Ex-Spouse half time, $400.00 per
month per child
-
if the Children are with the Ex-Spouse three quarters of the
time, $500.00 per month per child
-
if the Children are with the Ex-Spouse full time, $600.00 per
month per child
-
if the Children are with the Appellant three quarters of the
time, $300.00 per month per child
-
if the Children are with the Appellant full time, the payments
will cease
(d)
the Agreement also provided for a cost of living increase the
payments each year;
(e)
by way of an Order of the Supreme Court of British Columbia dated
December 4, 1997 (the "First Order"), the Appellant and
the Ex-Wife were stated to be joint guardians of the Children,
access was granted to the Appellant for Stephanie and the
Appellant was ordered to pay to the Ex-Wife $963.00 per child per
month commencing on January 1, 1998;
(f)
the First Order also provided that the Ex-Wife was to pay to the
Appellant an amount of $29,880.00, being his interest in the
matrimonial home but that the Ex-Wife shall deduct from the
payment an amount of $4,373.57 which was owing to her by the
Appellant pursuant to the terms of the Agreement;
(g)
on or about October 7, 1998, Stephanie began to live with the
Appellant, having visitations with the Ex-Spouse every Wednesday
and every second weekend;
(h)
on November 1, 1998, the Appellant paid an amount of $595.00 to
the Ex-Wife for the support of Jennifer;
(i)
on December 1, 1998, January 1, 1999 and February 1, 1999, the
Appellant paid the Ex-Wife $394.00 for the support of
Jennifer;
(j)
from March 1, 1999 to August 1, 1999, the Appellant paid the
Ex-Wife $201.00 per month for the support of Jennifer;
(k)
by way of an Order of the Supreme Court of British Columbia dated
August 4, 1999 (the "Second Order") amending the
First Order, the Ex-Wife is given sole custody of Jennifer, the
Appellant and the Ex-Wife are given joint custody of Stephanie,
Stephanie's primary residence will be with the Appellant and
the Appellant is ordered to pay to the Ex-Wife $199.00 per month
for the support of Jennifer;
(l)
the Second Order also amended the First Order by adding, inter
alia, the following paragraph:
THIS COURT FURTHER ORDERS that the child maintenance arrears in
the amount of $5,123.00 sought by the Respondent through the
Family Maintenance Enforcement Program (FMEP case no. 35651, FMEP
personal ID no. 70592), shall be set aside.
(m)
by way of an Order of the Supreme Court of British Columbia dated
January 19, 2000 (the "Third Order"), amended the
Second Order by amending the paragraph set out in paragraph (h)
above as follows:
THIS COURT FURTHER
ORDERS that the child maintenance arrears in the amount of
$5,123.00 established June 9, 1999, as well as any subsequently
accumulated arrears and interest thereon between June 9,
1999 and the date of this order, over $199.00 per month, sought
by the Respondent through the Family Maintenance Enforcement
Program (FMEP case no. 35651d, FMEP personal ID no. 70592), be
set aside.
(n)
from January 1, 1999 to August 1, 1999, the Appellant was
required, pursuant to the First Order, to pay to the Ex-Wife
$963.00 for the support of Stephanie.
[4]
The Appellant did not take issue with these assumptions except as
to the assumption in paragraph (n). I also note that the
assumptions are somewhat misleading in that the First Order
granted sole custody of both children to Diane and charged her
with the primary responsibility for their day-to-day care. Indeed
the Appellant's access to the children was quite limited and,
like most of the provisions of that order, had been arrived at by
consent. That is, the First Order contemplated a consent regime
that required payments on the basis that both children would be
living with and provided for by Diane. Similarly, the earlier
agreement between the parties expressly provided that support
payments were conditional on where the children
resided.
[5]
The assumptions also failed to mention that after setting out the
child support obligations, the First Order goes on to
state:
THIS COURT FURTHER ORDERS
that the quantum of child maintenance shall be reviewable upon a
material change in circumstances of the parties ...
[6]
The Appellant asserts that the Second and Third Orders setting
aside his arrears for 1999, effectively and retroactively
vitiated his requirement to make the support payments in respect
of Stephanie at any time in the 1999 taxation year. While the
Respondent did not take issue that the arrears in respect of 1999
were set aside, he maintains, as set out in paragraph (n) of the
assumptions, that the Appellant was from January 1, 1999 to
August 1, 1999 required, pursuant to the First Order, to pay his
ex-wife child support in respect of Stephanie.
STATUTORY
PROVISIONS
[7]
Paragraph 118(1)(b) permits the deduction from an
individual's tax payable an amount calculated by a formula
where the individual supports another person, who is wholly
dependent on that individual, in a home maintained by that
individual. That the requirements of that paragraph have been met
in respect of the Appellant's claim for supporting Stephanie
are not in dispute, so there is no need to set out such
requirements in detail. The issue is in respect of the
application of subsection 118(5) which provides as
follows:
118. (5) No amount
may be deducted under subsection (1) in computing an
individual's tax payable under this Part for a taxation year
in respect of a person where the individual is required to pay a
support amount (as defined in subsection 56.1(4)) to the
individual's spouse or former spouse in respect of the person
and the individual
(a) lives
separate and apart from the spouse or former spouse throughout
the year because of the breakdown of their marriage;
or
(b) claims a
deduction for the year because of section 60 in respect of a
support amount paid to the spouse or former spouse.
ANALYSIS
[8]
The Respondent seeks
to deny the credit pursuant to subsection 118(5) on the basis
that the Appellant was, in 1999, until the Second Order, required
to pay support in respect of the person (his daughter) that he
was claiming as his dependent. The Respondent argues that the
fact that the Appellant never made any payments under the First
Order in 1999 and that his requirement to do so was relieved by
the Second and Third Orders do not change the fact that there was
in 1999 a requirement to pay and as such the limitation in
subsection 118(5) applies. The Second and Third Orders setting
aside the 1999 arrears in respect of the payments for
Stephanie's support do not on the terms of such Orders
expressly attempt to vitiate the requirement on a retroactive
basis. By setting aside the arrears for the period in 1999 for
which the First Order imposed a requirement to pay, the Second
and Third Orders acknowledged the requirement but extinguished
the liability arising from it as at the date of such
Orders.
[9]
While the
Respondent's position is correct as to the Second and Third
Orders not being expressly retroactive, I am not satisfied that
they need be retroactive in this case to ensure the
Appellant's claim for the subject tax credit.
[10]
Firstly, I point out
that the Act seems to suggest that the custodial parent of
a child wholly dependent on that parent for support is entitled
to the credit provided that that parent does not pay support. The
Appellant's situation in the subject year fits within this
general scheme. More particularly, the scheme of these credit
provisions have been purposefully integrated with the new child
support regime that ensures that child support payments are not
deductible to the payer and are not taxable in the hands of the
recipient. The budget introducing this new regime included
materials that described, in part at least, the interrelationship
between the entitlement to the equivalent-to-spouse credit and
the new child support regime as follows:
The
equivalent-to-married credit is provided to a single parent of a
child under the age of 18. Currently, the Income Tax Act provides
that the recipient of child support, not the payer, is eligible
to claim the credit.
This treatment will
continue to apply under the new rules. This approach is
consistent with the new federal child support guidelines, under
which award levels are set based on the assumption that it is the
recipient spouse who claims the equivalent-to-married credit.
Consistency with the
new child support guidelines would not be advanced by denying the
equivalent-to-spouse credit to the supporting custodial parent.
Clearly in the case at bar, Diane is not an individual entitled
to the credit in respect of Stephanie. Diane has not supported
Stephanie at any time in 1999 in a home maintained by her
(Diane). The scheme of these provisions cannot be taken to intend
that the supporting custodial parent be denied the
equivalent-to-spouse credit.
[11]
Secondly, I note that subsection 118(5) has a potential ambiguity
in that one might ask the relevance of it not expressly stating
when the requirement to pay a support amount needs to be in
place. It is somewhat unusual that that subsection denies the
credit "for a taxation year" where there is "a
requirement to pay a support amount" but makes no mention
of when that requirement must have come into existence or have
been extinguished. More typically, exhaustive drafting styles
evidenced in the Act might have said the credit is denied
where there is "in the year" or "at anytime in
the year" or "in respect of the year or any part of
the year" a requirement to pay a support amount. While I
hesitate to suggest that these cumbersome provisions be made more
cumbersome by adding further language, I am inclined in this case
to suggest that by not adding a time reference as to when the
requirement to pay must be in existence, an extinguishment, at
any time, of the requirement to pay any support amount "in
respect of the year" might well be sufficient to escape the
limitation imposed by that subsection. Certainly in this case I
see no mischief in such a statutory construction
approach.
[12]
Thirdly, I
find that the First Order payment requirement was inherently
conditional on the custody situation set out in that order. That
situation changed in the year preceding the subject year and
remained changed throughout the subject year. The First Order was
not meant to apply to such case. The Second and Third Orders
setting aside the arrears was, in my view, perfunctory and must
be given the same effect as setting aside the order that gave
rise to the arrears. The Second and Third Orders acknowledged the
state of affairs, the legal arrangement, as agreed to when the
First Order was made. They acknowledged the inherently
conditional nature of the First Order and clarified that the
requirement to pay child support for Stephanie was not to have
effect when the premises on which that requirement was imposed
ceased to exit. These Orders, while not expressly retroactive in
vitiating that requirement, have that effect nonetheless, in my
view.
[13]
While I do not wish to dwell on the force, effect or validity of
an order that appears to be inherently conditional, it is
important at least to acknowledge what I believe to be a
fundamental aspect of judgments and orders. They have full force
and effect until set aside.
That is, the process for rectifying an order based on certain
premises is to set it aside or vary it if and when those premises
fail or change. Understanding the meaning then of "setting
aside" orders or setting aside prescriptions contained in
orders, is of some considerable importance in dealing with orders
or judgments that are, as in many family court judgments it
seems, inherently conditional. The issue in cases where judgments
are inherently conditional on the maintenance of the status
quo at the time the order is given, is identifying, and
accepting, the process by which they are set aside and
determining what the setting aside of such judgments means in any
given situation.
[14]
Consider the case of Biggs v. Canada .
The facts and issues in that case were similar to the case at bar
except the order of the Court requiring child support payments be
made by the Appellant in that case expressly provided that such
payments continued only for as long as the child resided with the
Appellant's ex-spouse or until further order of the Court.
The child ceased to reside with the Appellant's spouse and,
although there was no further order of the Court, the parents
entered into an agreement, terminating the child support
requirement, to supersede the order of the Court. While such
agreement could not settle the issue or supersede the order of
the Court, Judge Beaubier found, for the purposes of
subsection 118(5) of the Act at least, that the
requirement to pay the child support ceased at the time the child
ceased to reside with the ex-spouse. Given that a finding was
required for the purposes of the Act and given the intent
of the subject provisions of the Act, I have no difficulty
accepting that a Judge of this Court can make the necessary
determination, that the child's residence with the
ex-spouse had ceased, in order to find that the order of the
Supreme Court of British Columbia did not thereby impose a
requirement to pay child support during the relevant
period.
[15]
While the wording of the child support order in the Biggs
case suggests an argument that the payment requirement was for a
determinable duration and thereby did not need to be set aside, I
fail to see any practical difference between the order dealt with
in Biggs and the Orders I am facing in the case at bar. In
both cases it is absolutely clear that the requirements to pay
were premised and conditioned on the supported child living with
the ex-spouse. I would find it difficult therefore to defend the
judgment in Briggs without affording the Appellant in the
case at bar a similar outcome. That the order and payment
requirement in Biggs were judicially recognized by this
Court as having ceased, should not give a better result than in
the case where a judge of the Court making the order sets it
aside or sets aside a requirement imposed under it. This takes me
to consider the meaning of the term "set
aside".
[16]
Black's Law Dictionary defines "set aside" as
"to reverse, vacate, cancel, annul, or revoke a judgment,
order, etc.".
There are no Canadian legal dictionary definitions available to
my knowledge but there is one case reference to the term
"set aside" used in defining "rescind" as
"primarily means to annul, abrogate, set aside, or
extinguish".
This suggests that "setting aside" has the same
meaning as "annul". It also suggests that
"setting aside" has the same meaning as
"extinguish" which I would have thought has a
different meaning than "annul". Other cases have
suggested it means "quash".
The Canadian Oxford Dictionary defines "quash" to
mean "to declare no longer valid" which is a
definition of "setting aside" that the Respondent in
this case might favour.
On the other hand the derivation of the word "quash"
from Middle English, Old French and Late Latin all suggest it
derives from words meaning null or void.
One English definition found in "A Dictionary of Modern
Legal Usage" states "This phrase meaning 'to
vacate' is sometimes misunderstood by non-lawyers."
The commentary goes on to suggest the phrase is misinterpreted as
having the more common meaning of being set to the side as if on
a temporary basis. It suggests too that the American legal usage
that holds the phrase to mean "to annul, to make
void" is an extraordinary meaning that has laid a trap for
the unwary. It seems then that "setting aside" might
have a range of meanings depending on the context.
[17]
I do not mean in this informal procedure case to define or adopt
a particular definition of the phrase "set aside". I
am satisfied however that setting aside arrears arising from an
order does more than suggest that the requirement under that
order giving rise to such arrears is "no longer
enforceable". It vitiates that aspect of the order or
judgment that gave rise to the payment requirement in the sense
of giving it no effect even during the period it purported on its
own terms to have effect. While it might be going too far in some
circumstances to say that setting aside a judgment or order or
aspect of it voids it ab initio, I have no difficulty in
the context of the case at bar in finding that setting aside the
arrears was to vitiate the requirement to make any support
payments for Stephanie in 1999 and that at law there was no time
in 1999 that the Appellant was required to make such payment.
Whether the Second and Third Order were expressly said to have
retroactive effect or not, that was the result in setting aside
the arrears for 1999. The payment requirement was, adopting the
regime consented to by the parties, intended to be conditional on
custody. In this context, treating the "setting
aside" of the arrears arising from such requirement, as
vitiating the requirement as at the time that condition failed,
seems appropriate. Further, even an extinguished requirement to
pay is not, in my view, a requirement to pay as contemplated in
subsection 118(5) where that provision has not expressly or, in
my view, even implicitly, placed relevance on whether the
requirement was a requirement at a particular time before it was
extinguished. As noted, (see paragraph 11 above) such
indication of relevance is absent from the subject provision of
the Act.
[18]
Accordingly, the
appeal is allowed with costs.
Signed at Ottawa, Canada, this 17th day of May
2002.
"J.E. Hershfield"
J.T.C.C.
COURT FILE
NO.:
2001-2568(IT)I
STYLE OF
CAUSE:
Gordon Barthels and
Her Majesty the Queen
PLACE OF
HEARING:
Vancouver, British Columbia
DATE OF
HEARING:
February 20, 2002
REASONS FOR JUDGMENT
BY: The Honourable Judge J.E.
Hershfield
DATE OF
JUDGMENT:
May 17, 2002
APPEARANCES:
For the
Appellant:
The Appellant himself
Counsel for the
Respondent:
D. Friday (Student-at-Law)
COUNSEL OF RECORD:
For the
Appellant:
Name:
Firm:
For the
Respondent:
Morris Rosenberg
Deputy Attorney General of Canada
Ottawa, Canada
2001-2568(IT)I
BETWEEN:
GORDON BARTHELS,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Appeal heard on February 20, 2002 at
Vancouver, British Columbia, by
the Honourable Judge J.E.
Hershfield
Appearances
For the
Appellant:
The Appellant himself
Agent for the
Respondent: D.
Friday (Student-at-Law)
JUDGMENT
The appeal from the assessment made under the Income Tax
Act for the 1999 taxation year is allowed, with costs, and
the assessments are referred back to the Minister of National
Revenue for reconsideration and reassessment in accordance with
the attached Reasons for Judgment.
Signed at Ottawa, Canada,
this 17th day of May 2002.
J.T.C.C.
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