Citation: 2007TCC578
Date: 20070928
Docket: 2007-543(IT)I
BETWEEN:
MARK WARBINEK,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
AMENDED REASONS FOR JUDGMENT
Bowie J.
[1] This case raises
once more the question whether an order made by a judge relating to the payment
of child support has the effect of creating a commencement day within the
definition of that expression found in subsection 56.1(4) of the Income
Tax Act (the Act), with the result that child support payments made
after that time are governed for tax purposes by the Act as it was
amended by S.C. 1997 c. 25. The appellant accepted at the hearing that his
purported appeals for 2005 and 2006 were not properly before the Court, and
that the only properly constituted appeals were those for the 2003 and 2004
taxation years. The appeals for 2005 and 2006 will therefore be quashed.
[2] There is no dispute
about the facts of the case. The Appellant and his spouse separated in 1994,
and under a written separation agreement (“the agreement”) executed in May 1994
he was obliged to pay support for their three children in the amount of $450
monthly for each child, a total of $1,350 per month. On March 14, 1997, a judge
of the Supreme Court of British Columbia granted a divorce and ordered the appellant
to pay child support of $125 per month for each child, a total of $375 per
month (“the March Order”).
[3] The next relevant
order was made on July 23, 1997 (“the July Order”). The appellant was
temporarily unemployed at that time, and unable to make the payments required
by the agreement as amended by the March Order. The relevant part of the July
Order for present purposes reads:
THIS COURT ORDERS that [the March
Order] shall be varied with respect to interim child maintenance, such that
the Petitioner shall be excused from his obligation to pay interim child
maintenance and [sic] for a one year period from the 1st day
of May, 1997 until the 1st day of April, 1998 inclusive subject to
the Respondent’s right to claim maintenance on behalf of the children of the
marriage relating to any income the Petitioner receives during that one-year
period, BY CONSENT;
(emphasis added)
[4] The appellant now
finds himself reassessed under the Act, the Minister of National Revenue
having taken the position that the July Order created a “commencement day” on
the day it was made — July 23, 1997. The effect of
creating a commencement day is to bring the payments of child support made by
the appellant after that date under the post-April 1997 statutory regime whereby
payments of child support amounts are neither taxable in the hands of the
recipient nor deductible by the payor in computing income.
[5] The child support
payments made by the appellant are not deductible in computing his income for
the year in question (and are not included in the income of his former spouse)
if they became payable under an agreement or order on or after its commencement
day and before the end of the year, in respect of a period that began on or
after its commencement day. That is the effect of paragraph 60(b) of the
Act, as amended. As was pointed out in Holbrook v. The Queen, there are two questions to be
considered:
Under what
agreement or order was the amount payable?
Does that
agreement or order have a commencement day?
[6] Initially, the
payments of child support were required to be paid by reason of the 1994
agreement. The March Order provided as follows:
THIS COURT FURTHER ORDERS that the child
maintenance payable pursuant to the Separation Agreement shall be varied such
that the Petitioner shall pay to the Respondent towards the interim support and
maintenance of the children of the marriage the sum of $125 per month per child
commencing the 1st day of February, 1997 and continuing on that 1st day of each
and every month thereafter;
(emphasis added)
[7] The July Order
varied the March Order in the following way:
THIS COURT ORDERS that [the March
Order] shall be varied with respect to interim child maintenance, such that
the Petitioner shall be excused from his obligation to pay interim child
maintenance and [sic] for a one year period from the 1st day
of May, 1997 until the 1st day of April, 1998 inclusive subject to
the Respondent’s right to claim maintenance on behalf of the children of the
marriage relating to any income the Petitioner receives during that one-year
period, BY CONSENT;
(emphasis added)
The answer to the first question,
therefore, is that in 2003 and 2004, the payments were required to be made by
the agreement, as varied by the March and July Orders.
[8] Did the 1994
agreement, in 2003 and 2004, have a commencement day?
[9] The definition of
“commencement day” is found in subsection 56.1(4) of the Act, and by
reason of subsection 60.1(4) it applies as well to section 60 of the Act.
"commencement day" at any time of an agreement or
order means
(a) where the agreement or order is made
after April 1997, the day it is made; and
(b) where the agreement or order is made
before May 1997, the day, if any, that is after April 1997 and is the earliest
of
(i) the day specified as the commencement day of
the agreement or order by the payer and recipient under the agreement or order
in a joint election filed with the Minister in prescribed form and manner,
(ii) where the agreement or order is varied after
April 1997 to change the child support amounts payable to the recipient, the
day on which the first payment of the varied amount is required to be made,
(iii) where a subsequent agreement or
order is made after April 1997, the effect of which is to change the total
child support amounts payable to the recipient by the payer, the commencement
day of the first such subsequent agreement or order, and
(iv)
the day specified in the agreement or
order, or any variation thereof, as the commencement day of the agreement or
order for the purposes of this Act.
« date d'exécution » Quant à un accord ou une ordonnance:
a) si l'accord ou l'ordonnance est établi après avril 1997,
la date de son établissement;
b) si l'accord ou l'ordonnance est établi avant mai 1997, le
premier en date des jours suivants, postérieur à avril 1997:
(i) le jour précisé par le
payeur et le bénéficiaire aux termes de l'accord ou de l'ordonnance dans un
choix conjoint présenté au ministre sur le formulaire et selon les modalités
prescrits,
(ii) si l'accord ou l'ordonnance
fait l'objet d'une modification après avril 1997 touchant le montant de la
pension alimentaire pour enfants qui est payable au bénéficiaire, le jour où le
montant modifié est à verser pour la première fois,
(iii) si un accord ou une
ordonnance subséquent est établi après avril 1997 et a pour effet de changer le
total des montants de pension alimentaire pour enfants qui sont payables au
bénéficiaire par le payeur, la date d'exécution du premier semblable accord ou
de la première semblable ordonnance,
(iv) le jour précisé dans l'accord
ou l'ordonnance, ou dans toute modification s'y rapportant, pour l'application
de la présente loi.
Clearly paragraph (a) has no application as the
agreement was made before 1997. Did a subsequent event create a commencement
day under subparagraph (b)(i), (ii), (iii) or (iv)?
[10] Subparagraph (b)(i)
does not apply, as there has been no joint election filed. Nor can subparagraph
(b)(iv) apply, as none of the agreement, the March Order or the July
Order has specified a commencement day.
[11] Subparagraph (b)(ii)
cannot apply. The March Order varied the agreement to change the support
amounts from $1,350 to $375, but it did so before, not after, April 1997. The
July Order varied the agreement by varying the March Order, but it did not
“change the child support amounts payable to the recipient”. I understood Ms.
Sit to submit that the July Order changed the child support amounts payable for
one year to $0, but that is not a change in the amount payable within the
meaning of subparagraph (b)(ii). No commencement day could arise from
that variation by reason of subparagraph (b)(ii), because there is no
date that could satisfy the concluding words “the day on which the first
payment of the varied amount is required to be made”. There is no date on
which a payment of an amount other than $375 is required to be made.
[12] Subparagraph (b)(iii)
specifies a number of elements that, if present, will create a commencement
day.
(i) There
must be an agreement or order that is subsequent in time to that under which
the payments are required to be made;
(ii) That
agreement or order must have been made after April 1997;
(iii) That
agreement or order must have the effect of changing the total child support
amounts payable to the recipient by the payer.
The July Order was made subsequent
to the agreement by which the appellant was obliged to make the payments, and
it was made after April 1997. Counsel for the Respondent argues that its effect
is to change the “total child support amounts payable”, because it changes the
number of payments to be made over the life of the agreement, thereby reducing
the “total child support amounts payable” by 12 months x $375 per month =
$4,500. Since the July Order is the first subsequent agreement or order after
April 1997 to vary the “total child support amount payable”, the commencement
day of the July Order becomes the commencement day of the agreement. The
commencement day of the July Order is the day it was made, July 23 1997,
pursuant to paragraph (a) of the definition of “commencement day”. The
commencement day of the agreement then, by operation of the definition, is July
23, 1997, as that is “… the commencement day of the first such subsequent
agreement or order …”.
[13] As I understood the
appellant, his position is that the expression “total child support amounts
payable” (le total des montants de pension alimentaire pour enfants qui sont
payables) refers only to the total amounts payable per month. He argued that as
the amount of the monthly payments to be made after the one year period ended
on April 1, 1998 remained unchanged from that payable before, it could not be
said that the July Order had the effect of changing the total child support
amounts payable. In my opinion the former interpretation is the correct
one.
[14] The purpose of the
amendments to the Act in 1997, as is well known, is to put in place a
system of taxation that will treat child support payments as neither includable
in income by the recipient nor deductible by the person paying them. At the
same time, the Federal Child Support Guidelines were put in place
pursuant to the Divorce Act
to regulate the amount of child support. The Guidelines, of course,
were established having regard to the new rules of non-taxation and
non-deduction of the payments. Obviously it would not have been fair to apply
the new rules to payments to be made under pre-May 1997 agreements and orders,
because they were the product of negotiations and adjudications that assumed
the former taxation regime. Parliament therefore grandfathered those payments
under a transitional provision that is embodied in the “commencement day”
definition, with the intention that they be treated under the old law for tax
purposes until either the parties elect in writing to bring them under the new
law, or there is a post-April 1997 agreement or order, including a post-April
1997 variation of the pre-May 1997 agreement or order, the subject matter of
which is, or includes, child support payments, at which time the effect of the
transitional provisions is to bring all future payments of child support under
the new provisions. It is, of course, implicit in the transitional scheme that
when a new or an amending agreement or order comes into being the parties in
negotiating, or the judge in adjudicating, will have taken into account both
the change in the incidence of taxation and the Guidelines.
Unfortunately, in many cases that does not happen.
[15] For these reasons,
the appeals must be dismissed.
Signed at Ottawa, Canada, this 30th day
of October, 2007.
“E.A. Bowie”
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