Citation: 2010 TCC 244
Date: 20100504
Docket: 2008-2887(IT)I
BETWEEN:
OTEGBOLA OJO,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
McArthur J.
[1]
This appeal is from a reassessment
by the Minister of National Revenue (Minister) disallowing claimed support
payments of $51,800 (the amount) for the 2003 taxation year under the informal
procedure. The amount was paid by the Appellant to third parties for the
support and benefit of his former spouse, Mrs. Ojo, and children under a Court
Order of the Superior Court of Justice of Ontario (SCO) dated March 15th, 2002.
The issue is whether Mrs. Ojo had discretion over the amount pursuant to subsections 56.1(2)
and 60.1(2) of the Income Tax Act (the Act).
[2]
The Order provided that
the Appellant pay $7,380 monthly child support and $9,000 monthly for his
ex-spouse, Mrs. Ojo, who was also granted exclusive possession of the
matrimonial home.
[3]
In question is the
deductibility of the $51,800 paid by the Appellant to the mortgagee of the
matrimonial home, $2,415 monthly, and for insurance coverage and others all for
the benefit of Mrs. Ojo and the children. Third party car payments for Mrs. Ojo’s
car may have been accepted by the Minister. The Order does not specifically refer
to these third party payments.
[4]
The Appellant and Mrs.
Ojo separated in November 2000. I believe it was a second marriage for both of
them. Their acrimonious proceedings continue to this day. He is a successful
physician (kidney specialist) with related business activities that take him
frequently to the Caribbean
Islands.
[5]
He submits that the amount
is implied to be direct payments because the Family Responsibility Office of
Ontario (FRO) has accepted it as support payments under the 2002 Interim Order.
He adds, through his agent Ms. Wharram-Spry C.A.,
that he represented himself before the SCO and his third party payments were
for the benefit of his former wife and children pursuant to the Court Order. Taken
from the Notice of Appeal, his agent set out the following:
16. ... In the SCO [Order] in 2005 a schedule
of payments both to the Family Responsibility Office and direct withdrawals and
payments to third parties were documented on a schedule. This schedule has been
accepted and the amounts were considered support payments with no
differentiation between child and spousal support. It was concluded that child
support should be in the amount of $7,380 per month. A balance paid of
$459,690.53 was determined and agreed to by the courts.
17. FRO accepted the
Court Order and reported the third party payments on their schedule in
satisfaction of payment for spousal and child support. An adjustment was made
to the FRO schedule to agree to the support payments received.
18. In a letter dated
April 2, 2003, from Mrs. Ojo’s lawyer, it was accepted in general, that the
schedule format of third party and direct payments would be recognized as child
and spousal payments. Both parties worked towards a final schedule that was presented and
accepted by Justice DiTomaso and identified as child and spousal support
payments. It is reasonable to assume that the acceptance of these payments as
child and spousal support would also be deductible under the Income Tax Act.
19. CRA has denied any third party payments for
spousal support as it concludes from S60.1(2), that no mention is made in the
orders of the tax consequences and no mention is made of the relevant income
tax sections, being S56.1(2) and S60.1(2). However, CRA did allow deductions
for spousal support payments when they concluded the payments were made
directly to FRO. The reasoning seeming to be that it was a direct payment and
therefore it is deductible. It is the Appellant’s position that the balance of
payments is implied to be direct payments due to the fact that FRO has accepted
the full amount as payment on their statements.
[6]
She also refers to the
decision in Veilleux v. Her Majesty the Queen and Bailey v.
Her Majesty the Queen.
[7]
The Minister relies on
the grounds set out in the Reply to the Notice of Appeal submitting that:
18. ... the Third Party Payments do not represent
amounts over which the Appellant’s former spouse had discretion. The
requirements of subsections 56.1(2) and 60.1(2) of the Act were not met
by the terms of any written agreement or by the Order of a competent tribunal.
[8]
The assumption of facts
upon which the Minister relied in arriving at its decision includes paragraph
15(e).
The Appellant’s former spouse did not have discretion as to the use
of the Third Party Payments.
This, of course, is not a fact but a question of law
for me to decide.
[9]
The Respondent’s
counsel emphasizes that the third party payments did not give Mrs. Ojo
“discretion as to the use of the amount”. Subsection 56.1(4) includes the
following.
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 the children of the recipient if the
recipient has discretion as to the use of the amount, and (a) specifically the
amount is receivable under an order of a competent tribunal or under written
agreement.
(Emphasis added)
[10]
The Respondent
concludes there was no written agreement or court order with respect to third
party payments and Mrs. Ojo did not have discretion as to the use of these
payments. She adds that the payments went directly from the Appellant’s bank
account to the mortgagee of her home and to insurance companies, for the health
coverage and that of the children and Mrs. Ojo was not aware of the tax
consequences.
Court Orders
[11]
A March 15, 2002 Court
Order of Hatton J. reads in part:
...
3. Effective February 1st, 2002,
the Applicant shall pay child support for the three children, namely, James
Adeola (“Ade) Ojo, born July 16th 192, Elizabeth Bonesede Ojo, born
November 22nd, 1995 and Paige Julia Peeters, born February 21st,
1985, in the amount of $7,380.00 per month, based on an income of $530,400.00
pursuant to the Child Support Guidelines.
5. Effective February 1st, 2002,
the Applicant shall pay to the Respondent, spousal support in the amount of
$9,000.00 per month.
8. The Respondent shall be granted exclusive
possession of the matrimonial home, located at 7925 Cedarbrook Trail, Brooklin, ON L0B 1C0.
9. The Applicant’s request to sell the
matrimonial home or have the Respondent purchase the Applicant’s interest in
same is dismissed.
13. Unless this Order is withdrawn from the
Director’s office, it shall be enforced by the Director of the Family
Responsibility Office, and the amounts owing under this Order, except in regard
t the disbursements payable pursuant to paragraph 10 hereof shall be paid to
the Director, who shall pay them to the Respondent.
[12]
In 2005, DiTomaso J.
dealt with an application to vary the March 15, 2002 Order and ordered (in
part):
3. The amount of child support remains the
same as that ordered by Justice Hatton, in the amount of $7,380.00 a
month, based on three children and an income of $530,400 a year, pursuant to
the Child Support Guidelines.
4. The amount of spousal support remains the
same as that ordered by Justice Hatton, in the amount of $9,000.00 a
month.
The March 15, 2002 Order provides in paragraph 13 “it
shall be enforced by the Director of the Family Responsibility Office ...” The
FRO’s enforcement provided for the third party payments to be included in as
amounts ordered in paragraphs 3 and 5 of the Order. This should not be ignored.
I interpret this as the Court Order giving the FRO discretion on behalf of Mrs.
Ojo in deciding whether the payments comply with the Order. The SCO did not
consider the tax liability in question and left allocation of payments to the
FRO. I infer that the FRO, on behalf of Mrs. Ojo was aware of the tax
consequences.
[13]
The following words of
Cory J. of the Supreme Court of Canada in the decision of Thibaudeau v. The
Queen
are of assistance:
... If there is any disproportionate displacement of the tax
liability between the former spouses ( as appears to be the situation befalling
Ms. Thibaudeau), the responsibility for this lies not in the Income Tax Act,
but in the family law system and the procedures from which the support orders
originally flow. This system provides avenues to revisit support orders that
may erroneously have failed to take into account the tax consequence of the
payments. …
(Emphasis added)
This statement is of assistance presently as it points
me in the direction of the FRO that has accepted the payments as spousal support
in complying with the 2002 Order.
[14]
The requirements that
the amounts must have been paid to and received by the former spouse are
subject to two exceptions found in subsections 56.1(1), 60.1(1), 56.1(2)
and 60.1(2) of the Act, and these exceptions are available only if the
recipient has discretion at any time to have the payments paid to his or
herself.
[15]
First dealing with
“paid under an agreement order” I find that the correspondence from Mrs. Ojo’s
lawyer, Allison M. Kotler to the Appellant’s lawyer, Gene C. Colman, forms an
“agreement” as required. The author, Allison Kotler was of adverse
interest in a contentious dispute and her written acknowledgment forms an
agreement between Mrs. Ojo and the Appellant. This agreement stated in part in
pages 2 and 3:
... Mrs. Ojo is prepared to give Dr. Ojo credit for the first
mortgage payment in the amount of $2,415.15 per month that he has continued to
pay on her behalf and on behalf of the children. Mrs. Ojo is prepared to accept
that these mortgage payments in respect of the first mortgage are payments that
are properly subsumed within the monthly amounts of support received by Dr.
Ojo. Accordingly, Mrs. Ojo is prepared to give Dr. Ojo credit in the amount of
$36,227.25 on account of this first mortgage. . .
Mrs. Ojo is prepared to accept that the car lease payments and the
car insurance payments that were paid on her behalf by Dr. Ojo be credited to
him. . .
...
Mrs. Ojo is prepared to give credit to Dr. Ojo for the life
insurance payments paid on her behalf in the amount of $83.19.
...
Mrs. Ojo is prepared to give Dr. Ojo credit for the dental expenses
that he paid on behalf of Mrs. Ojo and the children.
...
[16]
She also refers to Veilleux
v. The Queeen
amd Bailey v. The Queen.
I find by inference that these acknowledgments apply
to the entire 2003 taxation year and are an agreement within the meaning
of the Act. I accept that the lawyers were aware on behalf of their
clients of the tax implications of the agreement.
[17]
Subsections 56.1(2)
and 60.1(2) deal with payments for support that are paid directly to third
parties such as a mortgage company and an insurance company. These subsections
deal with amounts that are specified in an agreement or order to be payable to
a third party and deems them to have been paid and received as an allowance on
a periodic basis over which the recipient has discretion. In fact, the
recipient may not have discretion at all. This exception is available if the
agreement or order states that these subsections are to apply.
[18]
In Veilleux, the
issue was whether the Appellant was justified under section 60 and
subsection 60.1(2) in deducting payments made to third parties pursuant to
an agreement. The Federal Court of Appeal found that an express reference to
the numbers of subsections 56.1(2) and 60.1(2) is not required in the
written agreement; it need only be apparent from the written agreement that the
parties have understood the tax consequences of the agreement.
[19]
Mrs. Ojo had the
discretion to demand and enforce that the third party payments be paid directly
to her and using her discretion whether she paid the mortgagee and other
creditors or made alternate arrangements. This discretion, of course, is
subject to the spousal amount limit not exceeding $9,000 monthly in 2003. In
conclusion, I find that Mrs. Ojo chose to have exclusive possession of the
matrimonial home. She and her lawyer chose to have the mortgage payments paid
indirectly. She did not testify and these findings are the facts presented.
Further, there was a contractual agreement between the parties’ lawyers who
were aware of the tax consequences. Finally, the FRO accepted the third party
payments on Mrs. Ojo’s behalf, and it can be inferred that the FRO was
aware of the tax consequences.
[20]
In allowing the entire
appeal, I have considered the limited grounds contained in the Minister’s Reply
and the limiting monetary restrictions that apply under the informal procedures
of this Court.
[21]
The appeal is allowed,
with costs to the Appellant set at $1,000.
Signed at Ottawa, Canada, this 4th day of May, 2010.
“C.H. McArthur”
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