Citation: 2010 TCC 299
Date: June 2, 2010
Docket: 2009-1675(IT)I
BETWEEN:
RIC RUSSELL HUNGERSON,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Little, J.
[1]
The Appellant is an
elevator engineer who is employed by a large multi‑national company.
[2]
The Appellant entered
into a common-law relationship with Debra Shepherd (“Debra”) in 1989.
[3]
The Appellant had three
children with Debra:
(a) a daughter, born November 20,
1991;
(b) a daughter, born August 31, 1993;
and
(c) a daughter, born August 31, 1993.
[4]
Debra also had two
children from a previous relationship:
(a) a daughter, born March 20, 1979;
and
(b) a daughter, born September 20,
1980.
[5]
The Appellant and Debra
discontinued their common-law relationship in December, 1994.
[6]
On December 8, 1994 a
Court Order (the “First Order”) was issued requiring the Appellant to pay Debra
a total of $1,000.00 per month commencing on February 1, 1995 for the support
and maintenance of all five children (collectively, the “Children”). The First
Order indicated that the Appellant was to pay monthly support and maintenance
of the Children in the following amounts:
(a) $125.00 for the daughter born in
1979;
(b) $125.00 for the daughter born in
1980;
(c) $250.00 for the daughter born in
1991;
(d) $250.00 for the daughter born in
1993; and
(e)
$250.00 for the
daughter born in 1993.
(Exhibit A-1)
[7]
The Appellant testified
that he was unemployed after the First Order was issued and he was therefore
unable to pay the maintenance payments that were specified in the First Order.
[8]
On July 25, 1995 a
Court Order (the “Second Order”) was issued to vary the terms of the First
Order. The Second Order required the Appellant to pay Debra a total of $500.00
per month commencing July 15, 1995 for the support and maintenance of the
Children (Exhibit A-2).
[9]
On December 21, 2005 a
Court Order (the “Third Order”) was issued to vary the terms of the Second
Order. The Third Order required the Appellant to pay Debra a total of $1,417.00
per month commencing January 1, 2006 for the maintenance of the Children
(Exhibit A-4). (Note: Exhibit A-3 indicates that the Third Order only
applied to the three youngest children.)
[10]
During the 2006
taxation year, the Appellant did not live with Debra.
[11]
When the Appellant
filed his income tax return for the 2006 taxation year, he deducted child
support payments for the three children in the amount of $17,004.00.
[12]
The Minister of
National Revenue (the “Minister”) issued a Notice of Assessment dated June 5,
2008 to disallow the child support payments that were claimed by the Appellant.
[13]
The Appellant filed a
Notice of Objection to the Assessment and the Minister confirmed the Assessment.
ISSUE
[14]
The issue is whether
the Appellant is entitled to claim a deduction for the child support payments
of $17,004.00 that were paid to Debra in the 2006 taxation year.
ANALYSIS AND DECISION
[15]
The Appellant maintains
that the Third Order did not create a Commencement Date since the increased
maintenance payments provided for in the Third Order were prepared in
accordance with the cost of living index relied upon by the Provincial Court
Judge. In support of his position, the Appellant referred to the Canada Revenue
Agency (“CRA”) information guide entitled “Support Payments” (P102 (E) Rev. 07).
At page 3 of the document, the following comment is found:
We do not consider a cost of living adjustment to be a change.
[16]
Counsel for the
Respondent maintains that the Third Order issued in December 2005 initiated a
Commencement Date as defined in subsection 56.1(4) of the Income Tax Act
(the “Act”) and therefore the Minister determined that the Appellant was
not entitled to deduct $17,004.00 paid for child support payments in 2006.
[17]
Under what has
sometimes been described as the old tax régime (pre-May 1997) spouses making
payments to separated or ex-spouses for the support of children were allowed to
deduct those payments and the recipient was required to include the amount of
the payments in their income. Following the decision of the Supreme Court of
Canada in Thibaudeau v. Canada, [1995] 2 S.C.R. 627, the Act was
amended and new provisions were introduced to deal with child support payments.
[18]
The amended Act provided
that if a pre-May 1997 agreement or Court Order remained unchanged the
deduction/inclusion system as provided by the old régime prevailed. However, if
a new agreement was entered into by the parties or if a new Court Order was
issued, or an old agreement was changed in a particular way, the
deduction/inclusion régime would not apply and only payments made up to the Commencement
Date, as defined in the Act, were deductible from income by the
payor and included in income by the payee.
[19]
As noted above, the
Appellant argued that the payments provided for in the Third Order represented a
cost of living increase. A cost of living increase is defined as “the cost of
maintaining a certain standard of living”. I note that in this situation the
“increase” in the support payments amounts to close to three times the original
payments and with only three children involved rather than the original
five children that were provided for in the Second Order.
[20]
I have concluded that
the increase in support payments from $500.00 per month to $1,417.00 per month
was caused by the increased income received by the Appellant rather than by a
cost of living increase.
[21]
I have concluded that
there was a “commencement date” when the Third Order was issued to vary the
terms contained in the Second Order.
[22]
It therefore follows
that any child support payments paid by the Appellant in 2006 are not
deductible.
[23]
The appeal is dismissed
without costs.
Signed at Ottawa, Canada, this
2nd day of June 2010.
"L.M. Little"
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