Date: 20020318
Docket: 2000-3807-IT-I
BETWEEN:
FRANCINE RIENDEAU,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasonsfor
Judgment
Tardif, J.T.C.C.
[1]
This appeal concerns the 1997 taxation year.
[2]
The issue is whether a monthly amount of $2,200 is taxable in the
hands of the appellant as support or other allowance payable on a
periodic basis.
[3]
The facts assumed and alleged in the Reply to the Notice of
Appeal (the "Reply") were admitted. The clauses of the
agreement that are in dispute are the following:
[TRANSLATION]
(a)
the respondent herself shall make the mortgage payments
(including municipal and school taxes) directly for the residence
at 755 De La Bolduc Crescent, in Ville Ste-Catherine, by
direct deposit to the applicant's bank account with the
Caisse Populaire de Kateri in Ville Ste-Catherine, the said
deposits to be made on the 13th day of every month and in monthly
amounts of approximately $800;
(b)
the respondent shall also pay such things as the
Hydro-Québec, Bell Canada and cable bills and the
homeowner's insurance for the residence at 755 De La
Bolduc Crescent in Ville Ste-Catherine;
(c)
the respondent shall be responsible for current maintenance costs
for the residence located at 755 De La Bolduc Crescent in Ville
Ste-Catherine;
. . .
[4]
The facts are not contested. The source of the dispute basically
involves the interpretation or meaning to be given to the
agreement between the parties, which was confirmed by the
Superior Court in a judgment dated December 11, 1996.
[5]
In arguing that a portion of the amount received from her former
spouse should not be characterized as taxable support, the
appellant relied on the following: Interpretation Bulletin IT-530
of January 11, 1999, a publication of the Minister of National
Revenue (the "Minister") identified as P102(F)
Rev. 96, a document headed 2000-0007667,
May 04 2000, the decisions Renée Badeau v.
The Queen, 2000 DTC 2300 (English version: [2000]
T.C.J. No. 387 (Q.L.)), Antoine Assaf v. Her Majesty the
Queen, [1992] T.C.J. No. 46 and The Queen
v. Armstrong, 96 DTC 6315, and on the definition of
the French word "devoir" in Le
Nouveau Petit Robert.
[6]
The appellant maintained that all amounts in respect of the
commitments that she had to meet under the agreement using the
lump sum amount received from her former spouse should be
excluded from the support that was taxable in her hands.
According to her, those were amounts over which she had no
discretion, being required to pay them to third parties pursuant
to very clear and well-defined instructions.
[7]
For her part, the respondent maintained that the total amount was
taxable because the agreement did not specifically and explicitly
provide that the payments were to be made from the lump sum
amount. The respondent argued, in other words, that, since the
agreement had not specifically and explicitly provided that the
payments were to be made from the amount identified as support,
she retained the right to dispose as she saw fit of the entire
amount received by her.
[8]
According to the respondent, once received, the amount of $2,200
became a part of the appellant's patrimony; the payments to
third parties were subsequently taken out of that patrimony and
consequently she in fact did have discretion over the use of the
amounts paid by her former spouse. In other words, the respondent
would have liked the appellant to make note of the serial numbers
on the bills received from her former spouse and to give the
bills so identified directly to the third parties referred to in
the agreement.
[9]
This is obviously another case where the lawyers in the divorce
proceedings cunningly arranged matters so that the support
amounts would be deductible on the one hand and not taxable on
the other hand.
[10] The tax
impact is a significant factor in balancing the support needs of
one spouse against the other spouse's ability to pay.
[11] Over the
years, the Superior Court has developed extensive expertise in
this area and has equipped itself with sophisticated tools for
setting appropriate support amounts while at the same time taking
the tax consequences into account.
[12] Despite
the clarity of the statutory provisions relating to support,
lawyers consciously or unconsciously draft support agreements so
as to favour their respective clients with the obvious result
that the agreements lack the desirable transparency and
coherence.
[13] The
strategy is often a very poor one as the effects are of no
benefit to the spouses concerned. The Minister in fact quickly
becomes aware of the scheme and takes another look at the
file.
[14] The
exercise frequently gives rise to a reassessment, thus forcing
the support recipient to return to the Superior Court in order to
make up for the shortfall arising from the reassessment.
[15] The Tax
Court of Canada has no jurisdiction to interfere in the support
amount determination process; essentially, it must decide whether
the agreement meets and complies with the prescribed requirements
for deductibility or taxability.
[16]
Unfortunately, the effect of a decision of this Court is often to
alter the parameters taken into consideration by the Superior
Court, the only court having full jurisdiction to set, vary or
cancel support.
[17] In the
case at bar, the lawyers for the support payer no doubt wanted to
give their approval to the agreement in the conviction that the
amounts paid would be deductible. On the other hand, the
appellant doubtless gave her assent to the agreement in the
belief that a significant portion of the lump sum amount received
by her would not be taxable.
[18] As a
consequence, the parties to the agreement at the centre of this
dispute will likely have to recommence the exercise in order to
reach either a negotiated outcome or one imposed by the
courts.
[19] At this
time, I must determine whether the agreement meets the
requirements for full taxability in the appellant's
hands.
[20] The
wording of the agreement is clear and unequivocal: from the lump
sum amount received from her former spouse, the appellant was to
take off specific or well-defined amounts to meet payment
obligations toward third parties.
[21] To state
the matter clearly, the appellant acted as an intermediary or
agent for the support payer. The fact that a portion of the
amount received by the appellant was to be used in a specific way
in order to meet explicitly defined obligations meant that she
had no discretion or latitude in respect of the enjoyment of that
portion.
[22] Despite
this clarity, the Minister apparently would have wanted the
appellant to have acted as the bearer or deliverer of cheques
made out by her former spouse to the order of the third-party
creditors before he would admit that the appellant had no
discretion over the amounts in question.
[23] My
understanding of the wording used in the agreement is that the
appellant had no discretion regarding the money for the payments
for which she was made responsible under the agreement.
[24] With
regard to the amount involved, there is no dispute; the amount of
$13,130 admittedly reflected the total disbursed by the appellant
to fulfil the obligations flowing from the agreement.
[25] The
appeal from the assessment for the 1997 taxation year is allowed
and the assessment is referred back to the Canada Customs and
Revenue Agency for reconsideration on the basis that the amount
of $13,130, which is part of an overall amount of $26,400
received by the appellant, should not be included in her income
for the 1997 taxation year.
Signed at Ottawa, Canada, this 18th day of March 2002.
"Alain Tardif"
J.T.C.C.
Translation certified true on this 10th day of May
2002.
[OFFICIAL ENGLISH TRANSLATION]
Erich Klein, Revisor
[OFFICIAL ENGLISH TRANSLATION]
2000-3807(IT)I
BETWEEN:
FRANCINE RIENDEAU,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Appeal heard on September 6, 2001, at Montreal,
Quebec, by
the Honourable Judge Alain Tardif
Appearances
Counsel for the
Appellant:
Martin Fortier
Counsel for the
Respondent:
Claude Lamoureux
JUDGMENT
The
appeal from the assessment made under the Income Tax Act
for the 1997 taxation year is allowed in accordance with the
attached Reasons for Judgment.
Signed at Ottawa, Canada, this 18th day of March 2002.
J.T.C.C.
Translation certified true
on this 10th day of May 2002.
Erich Klein, Revisor
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