Citation: 2011 TCC 314
Date:20110622
Docket: 2010-3541(IT)I
BETWEEN:
Scot A. Ladell,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Lamarre J.
[1]
This is an appeal from a
reassessment made by the Minister of National Revenue (Minister) under
the Income Tax Act (ITA) for the appellant’s 2008 taxation year.
In computing his income for that year, the appellant claimed, among other
things, a deduction for an eligible dependant in the amount of $9,600 and a
child amount of $2,038 for children born in 1991 or later, pursuant to paragraphs
118(1)(b) and (b.1) of the ITA. The Minister disallowed those deductions
pursuant to paragraph 118(5) of the ITA on the basis that the appellant was
making support payments in that year for the child he was claiming.
Statutory provisions
56.1(4)
Definitions.
The
definitions in this subsection apply in this section and section 56.
“support
amount”
“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 legal parent of a child of the recipient and the amount is
receivable under an order made by a competent tribunal in accordance with the
laws of a province.
118. (1)
Personal
credits.
For the
purpose of computing the tax payable under this Part by an individual for a
taxation year, there may be deducted an amount determined by the formula
A
× B
where
A is the
appropriate percentage for the year, and
B is the total
of,
. . .
Wholly
dependent person
(b) in the case of an individual who does not claim a
deduction for the year because of paragraph (a) and who, at any time in
the year,
(i) is
(A) a person who is unmarried and who does not live in a common-law
partnership, or
(B) a person who is married or in a common-law partnership, who
neither supported nor lived with their spouse or common law-[sic] partner
and who is not supported by that spouse or common-law partner, and
(ii) whether alone or jointly with one or more other persons,
maintains a self-contained domestic establishment (in which the individual
lives) and actually supports in that establishment a person who, at that time,
is
(A) except in the case of a child of the individual, resident in Canada,
(B) wholly dependent for support on the individual, or the individual
and the other person or persons, as the case may be,
(C) related to the individual, and
(D) except in the case of a parent or grandparent of the individual,
either under 18 years of age or so dependent by reason of mental or physical
infirmity,
an amount
equal to the total of
(iii) $10,320, and
(iv) the amount determined by the formula
$10,320
– D
where
D is the dependent person’s income for the year,
Child
amount
(b.1) where
(i) a child of the individual ordinarily resides throughout the
taxation year with the individual together with another parent of the child,
$2,000 for each such child who is under the age of 18 years at the end of the
taxation year, or
(ii) except where subparagraph (i) applies, the individual may deduct
an amount under paragraph (b) in respect of the individual’s child who
is under the age of 18 years at the end of the taxation year, or could deduct
such an amount in respect of that child if paragraph 118(4)(a) did not
apply to the individual for the taxation year and if the child had no income
for the year, $2,000 for each such child.
. . .
Support.
(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 (within the
meaning assigned by subsection 56.1(4)) to the individual’s spouse or common-law
partner or former spouse or common-law partner in respect of the person and the
individual
(a) lives separate and apart from the spouse or common-law
partner or former spouse or common-law partner throughout the year because of
the breakdown of their marriage or common-law partnership; or
(b) claims a deduction for the year because of section 60 in
respect of a support amount paid to the spouse or common-law partner or former
spouse or common-law partner.
Where
subsection (5) does not apply.
(5.1) Where, if this Act were read without reference to this
subsection, solely because of the application of subsection (5), no individual
is entitled to a deduction under paragraph (b) or (b.1)
of the description of B in subsection (1) for a taxation year in respect of a
child, subsection (5) shall not apply in respect of that child for that
taxation year.
Facts
[2]
It is not disputed that the
appellant and his former spouse have been living separate and apart since
December 26, 2003 due to the breakdown of their marriage. They have
two children, one born May 6, 1994 and the other
July 26, 1995, of whom they share custody.
[3]
In 2006, they signed a divorce and
property agreement (Agreement) in which they agreed that they would have
joint custody of the children and that they would share equally the time with
the children and would alternate “primary residential care and control” of the
children (Exhibit A‑1, par. 2.1). The relevant child support provisions
in the Agreement are reproduced hereunder:
Child Support
13.1 The Husband and the Wife acknowledge that at the time of
execution of this Agreement, the Husband is employed with Chinook Chiropractic
as a Chiropractor and the parties acknowledge that for the purposes of
specifying child support, it is acknowledged that the Husband earns
approximately $90,000.00 while the Wife is self-employed as a realtor with Sutton
Group/Alta-West and earn approximately $35,000.00. As their income may
fluctuate, the parties are to provide each other by June 1st of each
year, commencing June 1, 2007, with a statement of their annual income, as well
as future anticipated Section 7 expenses, provided the information is available
at that time. The parties shall modify the child support payment and Section 7
expenses, if applicable, in accordance with updated disclosure.
13.2 In consideration for a retroactive claim for child and
spousal support, the Husband shall provide the Wife with a $5,000.00 lump sum
settlement, which sum combines retroactive child and spousal support arising
since the date of separation. The parties acknowledge that the Husband has
provided the Wife with the settlement payment and the Wife acknowledges receipt
of same.
13.3 The parties acknowledge that pursuant to the parenting
arrangement, and the Federal Child Support Guidelines, that the Husband
shall pay the Wife monthly child support in the amount of $784.00, such
payments to commence on the first day of the month following the execution of
this agreement and to continue on the first day of each month thereafter for so
long as the children are dependent children of the marriage as defined by the Divorce
Act, 1985, as amended. The parties acknowledge that the child support in
the amount of $784.00 is derived [sic] at considering the difference
between the Husband’s child support obligation of $1290.00 and the Wife’s child
support obligation of $506.00.
. . .
13.9 The parties agree that the children will be considered to be
resident with the Wife for tax purposes and the Wife shall be entitled to
receive any available deductions for the children, including the full income
tax deduction permitted for child care expenses.
. . .
Variation of child Support
18.1 If a material change occurs in the condition, means, needs or
other circumstances of either the Husband, or the Wife, or any of them, as contemplated
in Section 17 of the Divorce Act, 1985, either the Wife or the Husband
may apply for a variation of the child support, custody and access provisions
of this Agreement.
. . .
Income taxes
20.1 The Wife is entitled to receive the Child Tax Benefit for
both children.
20.2 The Wife and Husband may claim any child care expenses she
and or he pay for the child and or children as a deduction pursuant to the Income
Tax Act, S.C. 1970-71-72, c-63, as amended.
[4]
The appellant is of the view that
he and his former spouse were both paying child support and that, by virtue of
subsection 118(5.1), subsection 118(5) does not apply to prevent him from claiming
the deduction for an eligible dependant and the child amount. The appellant
submits that, under the Agreement, each parent has an obligation towards the
other with regard to financial support for the children. The transfer of money
was simplified through the higher wage earner paying the difference to the
lower wage earner, but that did not alter the fact that each parent was paying the
other child support, as they were sharing the children equally (see Notice of
Appeal).
[5]
The appellant acknowledged that he
paid his former spouse $784 per month in 2008 and that she did not pay him any
amount of money in that year. However, he insisted that he was in fact paying a
net amount, and that that did not mean she was not paying him child support.
[6]
This is a case of joint custody
where the parents share equally the time spent with their children. The support
amount under the Agreement was calculated pursuant to the Federal Child
Support Guidelines (Guidelines). Sections 8 and 9 of the Guidelines
read as follows:
Federal Child Support Guidelines
Split custody
8. Where each spouse has custody of one or more
children, the amount of a child support order is the difference between the
amount that each spouse would otherwise pay if a child support order were
sought against each of the spouses.
Shared custody
9. Where a spouse exercises a right of access to,
or has physical custody of, a child for not less than 40 per cent of the time
over the course of a year, the amount of the child support order must be
determined by taking into account
(a) the amounts set out in the applicable tables for each of
the spouses;
(b) the increased costs of shared custody arrangements; and
(c) the conditions, means, needs and other
circumstances of each spouse and of any child for whom support is sought.
[7]
In a case of shared custody, it is
section 9 of the Guidelines that is applicable. In Contino v.
Leonelli-Contino, [2005] 3
S.C.R. 217, [2005] S.C.J. No. 65 (QL), 2005 SCC 63, the Supreme Court of Canada stated that section 9 of the Guidelines
expressly provides for a particular regime in cases of shared custody. The
first factor set out in paragraph 9(a) requires that the court take into
account the financial situation of both parents. In the Supreme Court’s view, although
the set-off approach in section 8 of the Guidelines may be a useful starting
point for arriving at a reasonable solution taking into account the separate
financial contribution of each parent, adjustments will be made to the set-off
amount in light of the factors considered under paragraphs 9(b) and (c)
of the Guidelines. As stated by Bastarache J. at paragraph 41, “[t]he set-off
amount must therefore be followed by an examination of the continuing ability
of the recipient parent to meet the needs of the child, especially in light of
the fact that many costs are fixed . . . this is a problem in many cases where
there is a great discrepancy in the incomes of the parents . . . .”
[8]
Bastarache J. explained
the basis on which the support amount is calculated in joint custody situations
as follows at paragraph 49 et seq. in Contino, supra:
49 Hence, the simple set-off serves as the starting
point, but it cannot be the end of the inquiry. It has no presumptive value.
Its true value is in bringing the court to focus first on the fact that both
parents must make a contribution and that fixed and variable costs of each of
them have to be measured before making adjustments to take into account
increased costs attributable to joint custody and further adjustments needed to
ensure that the final outcome is fair in light of the conditions, means, needs
and other circumstances of each spouse and child for whom support is sought.
Full consideration must be given to these last two factors (see Payne, at
p. 263). The cliff effect is only resolved if the court covers and regards the
other criteria set out in paras. (b) and (c) as equally important
elements to determine the child support.
50 It should be noted here that the Table amounts are
an estimate of the amount that is notionally being paid by the non‑custodial
parent; where both parents are making an effective contribution, it is
therefore necessary to verify how their actual contribution compares to the
Table amount that is provided for each of them when considered payor parents.
This will provide the judge with better insight when deciding whether the
adjustments to be made to the set-off amount are based on the actual sharing of
child-related expenses.
51 This is where discretion comes into play. The
court retains the discretion to modify the set-off amount where, considering
the financial realities of the parents, it would lead to a significant
variation in the standard of living experienced by the children as they move
from one household to another, something which Parliament did not intend. As I
said in Francis v. Baker, one of the overall objectives of the
Guidelines is, to the extent possible, to avoid great disparities between
households. It is also necessary to compare the situation of the parents
while living under one roof with the situation that avails [sic] for
each of them when the order pursuant to s. 9 is sought. As far as possible, the
child should not suffer a noticeable decline in his or her standard of living.
Still, it is not a discretion that is meant to set aside all rules and
predictability. The court must not return to a time when there was no real
method for determining child support (Paras v. Paras, [1971] 1 O.R. 130 (C.A.)).
. . .
2.2.2 Section 9(b)
— Increased Costs of Shared Custody Arrangements
.
. .
53 A change in the actual amount of time a payor parent
spends with a child will therefore give rise under s. 9(b) to an inquiry
in order to determine what are, in effect, the additional costs incurred by the
payor as a result of the change in the custodial arrangement. I say this
because not all increases in costs will result directly from the actual amount
of time spent with the child. One parent can simply assume a larger share of
responsibilities, for school supplies or sports activities for example. For
these reasons, the court will be called upon to examine the budgets and actual
child care expenses of each parent. These expenses will be apportioned between
the parents in accordance with their respective incomes.
2.2.3 Section 9(c)
— Conditions, Means, Needs and Other Circumstances
.
. .
68 Section 9(c) vests the court [with]
a broad discretion for conducting an analysis of the resources and needs of
both the parents and the children. As mentioned earlier, this suggests that the
Table amounts used in the simple set‑off are not presumptively applicable
and that the assumptions they hold must be verified against the facts, since
all three factors must be applied. Here again, it will be important to keep in
mind the objectives of the Guidelines mentioned earlier, requiring a fair
standard of support for the child and fair contributions from both parents. The
court will be especially concerned here with the standard of living of the
child in each household and the ability of each parent to absord [sic] the
costs required to maintain the appropriate standard of living in the
circumstances.
[9]
It is clear from the
Agreement that the child support was calculated in accordance with section 9 of
the Guidelines. Section 18.1 of the Agreement specifically states that if a
material change occurs in the condition, means, needs or other circumstances of
either the husband or the wife, either the wife or the husband may apply for a
variation of the child support (this refers to the third factor, set out in paragraph
9(c) of the Guidelines, to be considered in determining the child
support amount).
[10]
It can be inferred from
Contino that although each parent may have a financial obligation
towards the children in a shared custody situation, the child care expenses
will be apportioned between the parents in accordance with the ability of each
parent to absorb the costs required to maintain the appropriate standard of
living in the circumstances. The support amount in section 9 of the Guidelines
is not the result of a simple “mathematical calculus” (Contino, par. 88)
or set-off whereby the support payment amount is calculated by determining the
Table amount for each of the parents as though each was seeking child support
from the other, as is the case for split custody (section 8 of the Guidelines).
The child support amount in shared custody calls for the acknowledgment of the
overall situation of the parents (their conditions and means) and the needs of
the children. The weight of each factor under section 9 will vary according to
the particular facts of each case (Contino, par. 39).
[11]
I therefore cannot agree with the
appellant when he states that the transfer of money was simplified by the
higher wage earner paying the difference to the lower wage earner and that he
and his former spouse were paying each other a support amount. The support
amount to be paid by the appellant is the result obtained after adjusting the
starting set-off amount, taking into account, for adjustment purposes, the
financial realities of the parents that may lead to a significant variation in
the standard of living experienced by the children as they move from one
household to the other (Contino, par. 51).
[12]
In Melnyk v. The
Queen, 2007 TCC 733, Webb J. concluded as follows after referring to Contino,
supra (at paragraph 7):
7 In
my opinion in determining the amount of support payable under paragraph 9 of
the Federal Child Support Guidelines, the factors set out in section 9
of these Guidelines are to be analyzed to determine the amount of child
support that will be payable by one parent to the other. While it is
recognized that in situations where both spouses are earning income that each
will contribute to the support of the child, the contributions are not made
from one parent to the other. While Graeme was with Kaila Melnyk the amount that she would be
paying for his food, clothing, shelter and other items that would be purchased
for him would not be made by payments made from Kaila to the Appellant, but
rather would be paid directly by Kaila to the provider of these goods and
services. Kaila had an obligation to contribute towards the support of Graeme
but not by making payments to the Appellant, but by making payments directly to
the persons who were providing the goods and services to Graeme while Graeme
was with her. Her contributions to the support of Graeme would not be income to
the Appellant.
[Emphasis
added.]
[13]
In Melnyk, the affidavit
of the taxpayer which had been filed with the Supreme Court of British Columbia
indicated that only one amount was contemplated as a child support amount, and
that was the amount payable by the taxpayer to the former spouse. The order
issued confirmed that only one amount was payable. The same can be said in the
case before me. The Agreement provides only that the husband (the appellant)
shall pay the wife monthly child support, and there is no mention of the wife having
to pay a child support amount to the appellant. The wife’s child support
obligation referred to in section 13.3 of the Agreement is not a child support
amount payable to the husband (the appellant).
[14]
In Perrin v. The
Queen, 2010 TCC 331, Woods J. was presented with exactly the same issue as that
before me. At paragraphs 11 to 15, she stated:
11 Mr. Perrin
also submits that s. 118(5)
does not apply because both he and his spouse pay child support to each other
pursuant to federal support guidelines. The reason for this, it is submitted,
is that each parent earns income which gives rise to a child support obligation
which is netted under the guidelines.
12 The
circumstance of both spouses paying child support is specifically contemplated
by subsection 118(5.1) of the Act, which came into force beginning in
2007. It would provide the relief sought by the appellant if in fact both
spouses paid child support. Neither party referred to this provision at the
hearing, and it is reproduced below.
118(5.1) Where, if this Act were read without reference
to this subsection, solely because of the application of subsection (5), no
individual is entitled to a deduction under paragraph (b) or (b.1)
of the description of B in subsection (1) for a taxation year in respect of a
child, subsection (5) shall not apply in respect of that child for that
taxation year.
13 This
provision is intended to avoid the harsh application of s. 118(5) where both
spouses pay child support for the same child in the relevant year. It is
designed to enable one of the spouses to claim the tax credit under paragraph
118(1)(b) in these circumstances.
14 This
provision has no application here, however, because only Mr. Perrin was
required to pay child support in the 2007 taxation year. The relevant clauses
in the Separation Agreement are set out below:
10.1 Commencing
on the sale of the matrimonial home, and on the 1st day of each
subsequent month thereafter, the husband shall pay to the wife, for the support
and maintenance of the children, the sum of $376.50 per month per child, for a
total of $753.00 (based upon a salary of $50,000) per month [...].
10.2 The
husband and the wife agree to use the Federal Guidelines to establish child
support.
10.3 (1) The
husband acknowledges that he will pay the full child support figure outlined in
the Federal Guidelines despite the fact that there is an equal shared access
schedule. This clause will apply to any variation for child support based on a
change in the husband's income.
15 These
provisions strongly suggest that only Mr. Perrin was required to
pay child support for the two children in the 2007 taxation year. I am not
satisfied based on the evidence presented that the Federal Guidelines would
provide for a different result.
[15]
I therefore conclude
that the appellant alone was required to pay child support for the children and
that, by virtue of subsection 118(5) of the ITA, he was not entitled either to
a deduction for an eligible dependant in
the amount of $9,600 or to the deduction of a child amount of $2,038 for
children born in 1991 or later, pursuant to paragraphs 118 (1)(b) and (b.1)
of the ITA.
[16]
The appeal is
dismissed.
Signed at Ottawa, Canada, this 22nd day of June 2011.
“Lucie Lamarre”
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