Citation: 2009TCC556
Date: 20091029
Docket: 2008-352(IT)I
BETWEEN:
RICHARD BENNETT,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
V.A. Miller, J.
[1]
The issue in this
appeal is whether the Appellant can deduct the amount of $50,000 which he paid
to his spouse in his 2006.
[2]
The Appellant and his
spouse, Gwyneth Bennett, have been living separate and apart since May 7, 2002.
[3]
On April 5, 2005, Mr.
Justice Flynn of the Ontario Superior Court of Justice, Family Court, made a
Temporary Order that the Appellant was to pay spousal support in the amount of
$792 per month effective January 1, 2005.
[4]
On November 21, 2006,
Justice D.S. Crane of the Superior Court of Justice, Family Court made a Final
Order. The terms of the Order were that the Appellant was to pay the sum of
$50,000 within 60 days to his spouse’s solicitors. If the amount was not paid
within the time ordered, then the Appellant was to prepare and register a
mortgage against his home in favour of his spouse to secure payment of $50,000.
The mortgage was to bear interest at the rate of 6% per annum with monthly
payments of $125 per month until the mortgage was paid. The Appellant was to
continue to pay monthly spousal support in the amount of $792 per month until
the $50,000 was paid in full. The Order also included this provision:
Forthwith upon payment by the Applicant to the Respondent of the sum
of $50,000:
a)
The Respondent shall release the Applicant of
all claims to spousal support, maintenance of extended health care coverage for
her benefit and designation as the irrevocable beneficiary of the Applicant’s
life insurance policies;
b) The Applicant and the Respondent shall
execute mutual releases of all claims made to this date of any kind whatsoever;
…
[5]
The Appellant was the
Applicant in the matter before Justice D.S. Crane. The Appellant paid $50,000
to his spouse’s solicitor on November 30, 2006.
[6]
In this appeal, the
amount of $50,000 can be deducted by the Appellant only if it is a support
amount as that term is defined in subsection 56.1(4) of the Income Tax Act.
That provision reads as follows:
56.1 (4) Definitions
-- The definitions in this subsection apply in this section and section 56.
"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.
[7]
Counsel for the Respondent
referred to the Federal Court of Appeal decision in McKimmon v. Minister of
National Revenue[1]
where the Court listed some of the factors to consider when determining
whether a lump sum amount is a support amount or a capital amount. The Court
stated:
10 The following are, as
it seems to me, some of the considerations which may properly be taken, into
account in making such a determination. The list is not, of course, intended to
be exhaustive.
11 1.
The length of the periods at which the payments are made. Amounts which are
paid weekly or monthly are fairly easily characterised as allowances for
maintenance.2 Where the payments are at longer intervals, the matter
becomes less clear. While it is not impossible, it would appear to me to be
difficult to envisage payments made at intervals of greater than one year as
being allowances for maintenance.
12 2.
The amount of the payments in relation to the income and living standards of
both payer and recipient. Where a payment represents a very substantial portion
of a taxpayer's income or even exceeds it, it is difficult to view it as being
an allowance for maintenance. On the other hand, where the payment is no
greater than might be expected to be required to maintain the recipient's
standard of living, it is more likely to qualify as such an allowance.
13 3.
Whether the payments are to bear interest prior to their due date. It is more
common to associate an obligation to pay interest with a lump sum payable by
instalments than it is with a true allowance for maintenance.3
14 4.
Whether the amounts envisaged can be paid by anticipation at the option of the
payer or can be accelerated as a penalty at the option of the recipient in the
event of default. Prepayment and acceleration provisions are commonly
associated with obligations to pay capital sums and would not normally be
associated with an allowance for maintenance.
15 5.
Whether the payments allow a significant degree of capital accumulation by the
recipient. Clearly not every capital payment is excluded from an allowance for
maintenance: common experience indicates that such things as life insurance
premiums and blended monthly mortgage payments,4 while they allow an
accumulation of capital over time, are a normal expense of living which are
paid from income and can properly form part of an allowance for maintenance. On
the other hand, an allowance for maintenance should not allow the accumulation,
over a short period, of a significant pool of capital.5
16 6.
Whether the payments are stipulated to continue for an indefinite period or
whether they are for a fixed term. An allowance for maintenance will more
commonly provide for its continuance either for an indefinite period or to some
event (such as the coming of age of a child) which will cause a material change
in the needs of the recipient. Sums payable over a fixed term, on the other
hand, may be more readily seen as being of a capital nature.
17 7.
Whether the agreed payments can be assigned and whether the obligation to pay
survives the lifetime of either the payer or the recipient. An allowance for
maintenance is normally personal to the recipient and is therefore unassignable
and terminates at death. A lump or capital sum, on the other hand, will
normally form part of the estate of the recipient, is assignable and will
survive him.6
18 8.
Whether the payments purport to release the payer from any future obligations
to pay maintenance. Where there is such a release, it is easier to view the
payments as being the commutation or purchase of the capital price of an
allowance for maintenance.7
[8]
In the present appeal, the amount
of $50,000 was a one time payment. It had to be paid within 60 days or the
Appellant had to mortgage his home in favour of his spouse. Once the Appellant
paid the amount of $50,000, he was released from all future claims for spousal
support. The payment represented 45% of the Appellant’s annual income and it
allowed a significant capital accumulation in his spouse’s hands.
[9]
As a result, I conclude that the
amount of $50,000 was not paid as an “allowance on a periodic basis” within
subsection 56.1(4) of the Act. It was not a support amount but was a
capital payment which cannot be deducted by the Appellant.
[10]
At the hearing of the appeal, the
Appellant stated that the Act should not be interpreted in an inflexible manner
as he always paid the amounts to his spouse on time. He felt that he was being
penalized because he acted responsibly. He would have continued to make
periodic payments if he had known that the capital amount was not deductible.
[11]
In essence, the Appellant is
asking for equitable relief.
[12]
This Court does not have the
jurisdiction to set aside an assessment on equitable grounds. If, on a
consideration of all relevant facts, the Court determines that the assessment
is correctly made in accordance with the Act, the Court has to dismiss the
appeal. As stated by Justice Tardif in Dubois v. The Queen[2] at paragraphs 5 and
12:
5. Unfortunately,
this Court must take all relevant facts into consideration in order to verify
whether the assessment was correctly made in accordance with the provisions of
the Act, in which case the assessment must be confirmed;
the Tax Court of Canada does not have the legal authority to set
aside or vary an assessment for reasons based essentially on equity. In other
words, the role of a judge is to decide whether or not the assessment is well
founded, not to make or change law.
…
12. Our
Court does not have the power to do what the Appellant is asking of it. It
merely has the power to consider whether an assessment complies with the
provisions of the Act, and this assessment does.
[13]
For all of the above reasons, the
appeal is dismissed.
Signed at Halifax, Nova Scotia, this 29th day of October 2009.
“V.A. Miller”
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