Date:
20021004
Docket:
2002-1052-IT-I
BETWEEN:
RICHARD
GORDON PYNE,
Appellant,
and
HER MAJESTY
THE QUEEN,
Respondent.
Reasons
for Judgment
Sarchuk
J.
[1]
This is an appeal by Richard Gordon Pyne from an assessment of
tax made by the Minister of National Revenue with respect to his
1999 taxation year. In computing his income for that year, the
Appellant, inter alia, deducted the amount of $10,300 as
support payments. The Minister by his assessment disallowed the
deduction on the basis that:
(a)
it was an amount paid by the Appellant to his former spouse,
Susan Mary Hilton (Hilton), in lieu of support payments and
was paid to release him from the liability of support
payments;
(b)
the lump sum payment of $10,300 deducted by him was not an amount
paid to Hilton by the Appellant pursuant to an Order of a
competent tribunal or written agreement as periodic support
payments; and
(c)
the lump payment of $10,300 deducted by the Appellant was not a
payment of the arrears of child support and spousal support owing
by the Appellant to Hilton pursuant to the judgment.
Facts
[2]
The Appellant was the common-law spouse of Hilton. The parties
separated in 1992 and the spousal relationship terminated in a
Judgment issued by O'Connell J. of the Ontario Court (General
Division) dated June 22, 1993. Paragraph 5 of
this Judgment provided:
THIS COURT ORDERS AND ADJUDGES pursuant to the Family Law
Act and pursuant to paragraph 3 of the Minutes of Settlement,
that the Defendant shall pay to the Plaintiff the sum of
$5,100.00 per month as spousal and child support commencing on
the 1st day of the month following the date the Plaintiff vacates
47 Thicket Road.
The Judgment
further provided, in paragraph 6, as follows:
THIS COURT FURTHER ORDERS AND ADJUDGES pursuant to the Family
Law Act and pursuant to paragraph 3 of the Minutes of
Settlement, that the quantum of spousal and child support will be
reviewed in two years.
[3]
At the conclusion of the two-year period, the Appellant attempted
to have the quantum reviewed but received no cooperation from
Hilton. As a result of her intransigence, he commenced an action
in 1995 and, in order to accelerate resolution of the issue,
unilaterally reduced the required spousal and child support
payments. Nonetheless, according to the Appellant, matters
progressed slowly and it was not until early 1997 that his
counsel was finally able to have the matter set down for a
pre-trial hearing, coincidentally before O'Connell J. During
the course of the appearance, a number of items were canvassed
including arrears, continuing spousal support and child support
and by the end of the pre-trial, the parties had reached an
agreement. A lengthy summary of the proposed Minutes of
Settlement were written out by counsel and were signed by each of
the parties. It was understood by counsel and the parties that
these Minutes would be typed and re-executed. In late
May 1997, the Minutes were signed by the Appellant and were
forwarded to Hilton's solicitor and where they languished
until April 28, 1998 when she signed them. In the interim, the
Appellant carried out the terms of the agreement as
required.
[4]
The portion of the Minutes of Settlement relevant to this
appeal are found in paragraphs 10 and 16 of the Minutes, which
read:
10.
(a)
The Applicant Richard Gordon Pyne shall pay to the Respondent
Susan Mary Hilton, in full and final satisfaction of all of her
claims for arrears of support payments under Paragraph 5 of the
Judgment, all claims arising under or pursuant to Paragraph 8 of
the Judgment and for costs in this Application and
Counter-Application, the sum of FORTY-FIVE THOUSAND ($45,000)
DOLLARS.
(b)
The said sum of $45,000 shall be paid in two (2) equal
instalments of TWENTY-TWO THOUSAND FIVE HUNDRED ($22,500) DOLLARS
each on or before the First day of July in each of the years 1998
and 1999.
(c)
Of each of the aforementioned instalments of $22,500 the sum of
TEN THOUSAND THREE HUNDRED ($10,300) DOLLARS shall be credited
and attributed by each of the Parties on account of arrears of
support owing under Paragraph 5 of the Judgment, the sum of TEN
THOUSAND ($10,000) DOLLARS shall be credited and attributed by
each of the parties on account of arrears of support owing under
Paragraph 8 of the Judgment and the balance of TWO THOUSAND TWO
HUNDRED ($2,200) DOLLARS shall be credited and attributed by them
on account of the Respondent's claims for costs in this
Application and Cross-Application and any partial payments on
account of an instalment shall be credited and attributed in the
same ratio.
16.
The Respondent, Susan Mary Hilton, acknowledges and agrees that
payment to her of the sum of $20,600 referred to in subparagraph
10(c) hereof (comprised of two (2) amounts of $10,300 each) will
be in full and final satisfaction of all arrears of periodic
support payments due to her pursuant to paragraph 5 of the
Judgment and that the provisions of paragraph 7 of the Judgment
will apply to such payment.
Appellant's Position
[5]
The payments of $10,300 in each of 1998 and 1999 as required by
paragraph 10(c) of the Minutes of Settlement represented the
arrears of spousal and child support owing under paragraph 5 of
the Judgment which the Appellant had withheld in the period 1995
to 1997. He does not dispute that arising solely from the lump
sum payment of $110,000 to Hilton, he was relieved of making any
further "spousal support payments". However, he
maintains that this release has no relationship to or bearing on
the payment of the $10,300 which was "purely, wholly
attributable to arrears" and does not represent a release
from future payments of "spousal support" as suggested
by the Respondent. Relying on The Queen v. Sills and Soldera
v. M.N.R., the Appellant
argues that the payment in issue does not change in character
merely because it was not made on time and says that there is a
clear distinction between the facts in his case and those in
M.N.R. v. Armstrong, a decision relied
upon by counsel for the Respondent.
Respondent's Position
[6]
Counsel for the Respondent argued that it was irrelevant whether
a lump sum payment was made in respect of existing or future
support obligations, since the appropriate test is whether the
amount was paid in pursuance of a decree, order or judgment, and
not whether it was paid by a legal obligation imposed or
undertaken. In the present case, the Respondent contends that the
language in paragraph 16 of the Minutes of Settlement can only be
read as extinguishing an obligation relating to existing arrears.
More particularly, counsel argued that the phrase "in full
and final settlement" was necessary because the actual
amount of arrears was not specified in the Minutes of Settlement.
Thus, these provisions speak to the obligations vis à
vis the totality of the arrears that existed and released the
Appellant from any future liability with respect to any potential
unpaid amounts relating to the maintenance of the children. That
is so, counsel argued, because the language used in the Minutes
of Settlement suggests that additional amounts of arrears existed
over and above the amounts paid by the Appellant. Accordingly,
the release was necessary to prevent further action against the
Appellant. On this basis, counsel for the Respondent argued that
the present case comes within the scope of the decisions in
Armstrong and Groleau v. The Queen
and the Appellant's position must be rejected.
[7]
Furthermore, relying on the definition of "child support
amount" in subsection 56.1(4) of the Income Tax Act,
counsel for the Respondent also argued that the amount of $10,300
deducted by the Appellant, if considered to be a support payment,
is captured under paragraph 60(b) of the Act. The
substance of this submission is that the section of the
Act referred to applies retrospectively and affects
payments due and owing for a period of time prior to the
enactment of the sections relied upon.
Conclusion
[8]
The Appellant testified that the amounts of $10,300 paid in 1998
and 1999 were paid to satisfy the actual arrears of the periodic
amounts payable by him under paragraph 5 of the Judgment in
respect of spousal and child support. He further contends that
payment of arrears of support if such payment represents support
payable as an allowance on a periodic basis and otherwise
deductible, is paid by way of a lump sum, the amount so paid is
deductible in the year of payment.
[9]
I am satisfied that the Appellant's position is valid. In the
present case, the amounts of $10,300 were paid in 1998 and 1999
to carry out the terms of the separation agreement. The
Minister's contention that these payments were made in full
settlement of a larger amount of arrears than that reflected by
these amounts is not tenable. Notwithstanding the words "in
full and final satisfaction of all claims for arrears of support
payments", I am satisfied that these payments of $10,300
reflected no more than a crystallization of the amounts due
periodically under the original Judgment. Furthermore, it did not
relieve the Appellant of future "child support"
obligations, or of future "spousal support"
obligations, the latter aspect having been expressly dealt with
by virtue of the payment of $110,000.
[10] I am
satisfied that the position adopted by the Federal Court of
Appeal in Sills is applicable to the present case. In that
case, Heald J. observed as follows at page 5098:
... So
long as the agreement provides that the monies are payable on a
periodic basis, the requirement of the subsection is met.
The payments do not change in character merely because they
are not made on time. The learned Tax Review Board member
made the same error, in my view, when he said that the amounts to
be included in income "must be received exactly according to
the terms of the agreement". The subsection does not say
that.
...
(emphasis added)
In his
resumé, the Judge distinguished the decision in
Armstrong stating at page 5099:
...
The payments so ordered were made until the summer of 1950 when
the wife accepted a lump sum settlement of $4,000 in full
settlement of all amounts payable in the future. Thus clearly the
$4,000 was not paid pursuant to the divorce decree but in lieu
thereof. However, in the case at bar, all monies were paid to
carry out the terms of the separation agreement. The consequence
and result of these payments was not to finally release the
husband from his liabilities to his wife and children under the
separation agreement, as was the case in Armstrong and in
Trottier, another decision of the Supreme Court of
Canada where the principle enunciated in Armstrong was
followed.
(emphasis added)
It is clear
from the Minutes of Settlement that the payment of $10,300 was
not a release-oriented payment made to settle a claim and/or made
in lieu of paying arrears. The circumstances in which the Minutes
of Settlement were agreed upon and the manner in which the
amounts were characterized and payment made clearly indicate that
they were made on account of arrears. No release was intended
with respect to child support nor did the payment of these
amounts in any way anticipate some future final settlement with
respect to child support payments. I am satisfied on the evidence
as a whole that the payment of $10,300 was not a "settlement
payment" for anything, but rather represented accumulated
arrears of periodic support payments. Such payments that fall
into arrears and are subsequently paid in lump sum form remain
deductible in the hands of the payor.
[11] As for the
Respondent's supplementary argument, I adopt the comments of
Bowman A.C.J. at page 2769 in Hunter v. The Queen as
follows:
The
presumption against the retroactive operation of statutes is one
that is intended to protect a subject from the retroactive
removal of accruing or accrued rights.
In my view,
the payments of $10,300 made and to be made by the Appellant were
clearly in respect of arrears and accordingly, the right to the
deduction was an accrued right which continued to
exist.
[12] For the
foregoing reasons, the appeal is allowed and the assessment is
referred back to the Minister for reconsideration and
reassessment on the basis that in computing income for 1999, the
Appellant is entitled to deduct $10,300 as spousal support
payments.
Signed at
Ottawa, Canada, this 4th day of October, 2002.
J.T.C.C.
COURT FILE
NO.:
2002-1052(IT)I
STYLE OF
CAUSE:
Richard Gordon Pyne and
Her Majesty the Queen
PLACE OF
HEARING:
Toronto, Ontario
DATE OF
HEARING:
August 7, 2002
REASONS FOR
JUDGMENT BY: The Honourable Judge A.A.
Sarchuk
DATE OF
JUDGMENT:
October 4, 2002
APPEARANCES:
For the
Appellant:
The Appellant himself
Counsel
for the
Respondent:
A'Amer Ather
COUNSEL OF
RECORD:
For the
Appellant:
Name:
N/A
Firm:
N/A
For the
Respondent:
Morris Rosenberg
Deputy Attorney General of Canada
Ottawa, Canada
2002-1052(IT)I
BETWEEN:
RICHARD
GORDON PYNE,
Appellant,
and
HER MAJESTY
THE QUEEN,
Respondent.
Appeal heard
on August 7, 2002, at Toronto, Ontario, by
the
Honourable Judge A.A. Sarchuk
Appearances
For the
Appellant:
The Appellant himself
Counsel
for the
Respondent:
A'Amer Ather
JUDGMENT
The appeal from the assessment of tax made under the Income
Tax Act for the 1999 taxation year is allowed and the
assessment is referred back to the Minister of National Revenue
for reconsideration and reassessment on the basis that in
computing income, the Appellant is entitled to deduct $10,300 as
spousal support payments.
Signed at
Ottawa, Canada, this 4th day of October, 2002.
J.T.C.C.
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