Date:
20020801
Docket:
2002-158-IT-I
BETWEEN:
KAREN
BOLT,
Appellant,
and
HER MAJESTY
THE QUEEN,
Respondent.
Reasonsfor Judgment
O'Connor, J.T.C.C.
[1]
The issue in this appeal is whether the Appellant must include in
her taxable income an amount of $17,683 in the 1999 taxation
year, which amount represents child support payments paid to her
by her former spouse, Robert Brian Campbell,
("Former Spouse").
[2]
References were made in the Notice of Appeal and the Reply to the
Notice of Appeal to the 1997 and 1998 taxation years dealing with
the same issue. However, neither of those years were properly
before the Court for the following reasons.
[3]
With respect to 1997 the Appellant had applied to this Court for
an extension of time to file a Notice of Appeal but this
application was dismissed because the application was filed too
late. The Order of this Court dismissing that application was
signed on July 15, 2002.
[4]
With respect to 1998, the assessment for that year was a nil
assessment and since, as a general rule, there can be no appeal
to this Court with respect to a nil assessment, the 1998 year is
not before this Court.
[5]
The Reply to the Notice of Appeal made the following assumptions
of fact in paragraph 14:
a)
the Appellant and her former spouse, namely Robert Brian Campbell (the "Former Spouse") married on
October 1, 1977 and separated on or about
November 7, 1991;
b)
at all relevant times, the Appellant and the Former Spouse were
living separate and apart;
c)
at all relevant times, the Appellant and the Former Spouse had
two children, namely Brian John Campbell born
April 22, 1980 and Jennifer Ellen Campbell born
April 18, 1982;
d)
pursuant to a separation agreement dated March 23, 1995
(the "Agreement"), the Former Spouse was required to
pay $600.00 bi-weekly to the Appellant with respect to the
Children subject to indexing related to the Former Spouse's
salary and said payments commenced on
May 1, 1995;
e)
on May 5, 1997, the Appellant attended the Ontario Court
(Provincial Division) and filed the Agreement with the Ministry
of the Attorney General of Ontario, Office of the Director of the
Family Support Plan;
f)
the amount of child support payable by the Former Spouse was
withheld from his salary and remitted to the Appellant under the
terms of the Family Support Plan referred to in
subparagraph 14(e) herein;
g)
the Appellant and Former Spouse did not complete, sign and file
form T1157 - ELECTION FOR CHILD SUPPORT
PAYMENTS;
h)
the purpose of the form referred to in subparagraph 14(g)
herein is to elect to have child support payments made under a
court order or separation agreement entered into before May 1,
1997 be not taxable to the recipient and not deductible to the
payer;
i)
the action taken by the Appellant as stated in subparagraph 14(e)
herein did not result in or otherwise constitute a variance in
the quantum of child support paid pursuant to the Agreement;
and
j)
the Former Spouse paid and the Appellant received child support
in the amount of ... $17,683.00 for the 1999 taxation
year.
ANALYSIS
[6]
The Appellant's main ground of appeal is stated in the Notice
of Appeal as follows:
The main
reason for my appeal is that the taxation of child support laws
changed on May 1st, 1997. It is and was my
understanding that because I already had a written agreement with
my ex-husband for child support that the only way the new rules
would apply to my situation was to go to court and my agreement
changed.
I proceeded
to file in court for this change. I went to court on the day of
the hearing and was told by the Judge that because my
ex-husband was notified and chose not to appear in court
that my current agreement was okay and that the new rules could
apply to it. He said that because it was a written agreement
between the two of us and it had never been filed in a court of
law, all I needed to do to have the new rules apply was to file
the agreement with the court. He said once it was filed with the
court it was then considered a "new agreement" and the
new rules regarding taxation of child support would apply to it.
I understood this and believed it to be fact.
I filed the
agreement with the court on May 5th, 1997
and thought that to be the end of it. ...
[7]
The separation agreement between the Appellant and the former
spouse was dated March 23, 1995 and was filed as Exhibit R-1. For
the purposes of this appeal its principal provision is paragraph
5 which reads as follows:
Commencing May 1st, 1995 Bob shall pay to Karen for the support
of the children the sum of $300.00 per child bi-weekly
(total $600.00 bi-weekly) payable in the case of each child
until the earliest of the following times:
(a)
the child becomes 18 years of age and ceases to be in full time
attendance at the educational institution (normal vacations and
work periods in connection with school are not to be interpreted
as ceasing to be in full time attendance at school).
(b)
the child attains the age of 24 years;
(c)
the child attains his or her first post secondary degree or
diploma;
(d)
the child marries;
(e)
the child dies.
[8]
A succinct summary of the applicable provisions of the Income
Tax Act (the "Act") is contained in
Volume 2 of CCH Canadian Tax Reporter (at page 9058 and
following):
Payments
made for child and spousal support were previously included in
the recipient's income under former
paragraph 56(1)(b) or (c), and such payments
were previously deductible from income for the payer under
paragraph 60(b) or 60(c). The
"inclusion-deduction" system in respect of child
support payments was challenged in The Queen v.
Thibaudeau, 95 DTC 5273 (SCC). In that case, the taxpayer
argued that the system violated her right to equality under
section 15 of the Charter of Rights and Freedoms, because
it imposed a burden on her which was not imposed on other
individuals who were not divorced or separated custodians of
their children.
The Supreme
Court of Canada allowed the Crown's appeal and upheld the
constitutionality of the inclusion/deduction system for child
support payments under former paragraphs 56(1)(b) and
(c) and 60(b) and 60(c). However, strong
lobbying from various groups persuaded the government to study
the area with the view of amending the system. That study
culminated in an announcement in the 1996 federal budget that the
old system of taxation of child support payments was to be
replaced by a new system of non-taxation. Under the new system,
child support payments would not be deductible to the payer nor
included in the recipient's income.
Accordingly, under the current rules found in
paragraphs 56(1)(b) and 60(b), child support
payments are neither included in the recipient's income nor
deductible to the payer. The current rules apply after 1996, and
affect child support amounts payable after April, 1997. The
current rules apply to all child support payments made pursuant
to court orders or written agreements made after
April, 1997. For orders or agreements made before
May, 1997, the previous inclusion/deduction generally
applies, but the current system applies where
(1)
the payer and recipient file a joint election stating that the
current rules are to apply to payments made after a specified
dated after April, 1997;
(2)
the agreement or order is varied after April, 1997, or
another order or agreement made after April 30, 1997,
which changes the amount of child support provided in the
original order or agreement; or
(3)
the order or agreement specifies that the current rules will
apply to payments made after a specified date after
April, 1997.
...
"Support
amount" is defined in subsection 56.1(4). It means an amount
which is an allowance payable on a periodic basis for the
maintenance of the recipient, children of the recipient, or both
the children and the recipient, where the recipient has
discretion as to the use of the amount, and either
(a)
the recipient and payer are spouses or common-law partners
or former spouses or common-law partners 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
...
"Child support
amount" is defined in subsection 56.1(4), and is basically
any support amount that is not identified in the agreement or
order as being solely for the support of the spouse,
common-law partner or parent (the "recipient"). Therefore,
if an order or agreement provides for support for both the
recipient and children but does not identify which amount is for
the benefit of the recipient, the entire support amount is
considered a child support amount.
[9]
In my opinion the assumptions contained in the Reply and quoted
above have not been proven to be untrue and the legal analysis
contained in those assumptions is correct. The Separation
Agreement is dated before May 1, 1997 and
none of the three conditions cited above which would cause the
current system to apply exist. Moreover, it is clear that the
child support payments provided for in the Separation Agreement
are clearly contemplated in subsection 56(1)(b). The
registering of the Agreement with the Ontario Court
(Provincial Division) and the filing of the Agreement with
the Ministry of the Attorney General of Ontario, Office of the
Director of the Family Support Plan do not operate to change the
date of the Agreement nor to make the post April 1997 rules
applicable.
[10] For all of
the above reasons the Appeal is dismissed.
Signed at
Ottawa, Canada, this 1st day of August,
2002.
"T. O'Connor"
J.T.C.C.
COURT FILE
NO.:
2002-158(IT)I
STYLE OF
CAUSE:
Karen Bolt v. The Queen
PLACE OF
HEARING:
Belleville, Ontario
DATE OF
HEARING:
July 4, 2002
REASONS FOR
JUDGMENT BY: The Honourable Judge T.
O'Connor
DATE OF
JUDGMENT:
August 1, 2002
APPEARANCES:
Counsel
for the Appellant: The Appellant herself
Counsel
for the
Respondent:
Marlyse Dumel
COUNSEL OF
RECORD:
For the
Appellant:
Name:
Firm:
For the
Respondent:
Morris Rosenberg
Deputy Attorney General of Canada
Ottawa, Canada
2002-158(IT)I
BETWEEN:
KAREN BOLT,
Appellant,
and
HER MAJESTY THE
QUEEN,
Respondent.
Appeal heard on July 4,
2002 at Belleville, Ontario, by
the Honourable Judge
Terrence O'Connor
Appearances
For the
Appellant:
The Appellant herself
Counsel for the
Respondent:
Marlyse Dumel
JUDGMENT
The
appeal from the reassessment made under the Income Tax Act
for the 1999 taxation year is dismissed in accordance with the
attached Reasons for Judgment.
Signed at Ottawa, Canada, this
1st day of August, 2002.
J.T.C.C.
Email this Content