Citation: 2007TCC605
Date: 20071015
Docket: 2006-3872(IT)I
BETWEEN:
BRENT CHIN,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Little J.
A. Facts
[1] The Appellant and
Annie Isabelle Castello ("Isabelle")
were married on August 10, 1986.
[2] The Appellant and
Isabelle had two children, a son born February 21, 1993 (the "Son")
and a daughter born September 12, 1997 (the "Daughter").
The Son and Daughter are collectively referred to as the "Children".
[3] The Appellant and
Isabelle separated in 2005.
[4] The Appellant and
Isabelle negotiated a Draft Separation Agreement (the "Draft Agreement")
which provided that the Appellant would pay Child Support and Spousal Support on the following basis:
CHILD SUPPORT
15. Commencing on the 15th of
March 2005, Brent will pay to Isabelle for the support of the children, the sum
of $1124.12 each month, payable in two equal instalments on the 15th
and last day of each and every month, in accordance with the child support
guidelines differential between their incomes, as set out in the parties
schedule attached, until he has no further child support obligation. The
support amount attributed to the children shall be 15% of both Brent’s base
salary and bonus. (Support amounts based on bonus amounts payable
at time bonus is paid to Brent once per quarter.)
16. If Brent dies, the obligation to pay
support shall continue and be a first charge against his estate and shall be
satisfied by the estate providing security for payment in a form satisfactory
to Isabelle prior to the distribution of the estate. Brent agrees to maintain a
current Will including a clause consistent with the provision. (Child support
ending should be written in – should be age of majority – 18 or after
attendance in post secondary school, death of either husband or wife within
terms of life insurance, child marries)
TIME LIMITED SPOUSAL SUPPORT
17. Brent acknowledges that it will be
necessary for Isabelle to re-establish herself financially because of their
separation. In order to assist her in this re-establishment, Brent agrees to
pay Isabelle for support, the sum of $* per month for 48 months as set
out in the parties schedule attached. The support amount attribute to Isabelle
shall be 15% of Brent’s base salary and 20% of his bonus.
18. Once this 48 month time period is
complete, Brent will pay Isabelle support for an additional 36 months until the
earlier of the following:
(a) she remarries;
(b) she cohabits in a relationship or
relationships resembling marriage;
(c) her income reaches $* per year,
or
(d) she dies.
(We discussed that these conditions would
still be part of the first 4 years. The others were dropped but these should
remain.)
Note – The Appellant said that the
Draft Agreement was not signed although he and Isabelle agreed to all of the
points dealing with Child Support and Spousal Support. (Exhibit A-2)
[5] The Appellant and
Isabelle negotiated and signed a document on February 24, 2005 that was
referred to as the Temporary Separation Agreement. ("Separation Agreement")
(See Exhibit A-1)
[6] Paragraph 6 of the
Separation Agreement provided as follows:
TEMPORARY SUPPORT
6. Commencing on the March 15th,
2005, Brent will pay Isabelle for the support of the children and herself, on a
without prejudice basis to any final amount agreed on, the sum of $4,225.00
each month, payable in two equal instalments on the 15th and last
day of each and every month, while this agreement is in effect.
[7] When the Appellant
filed his income tax return for the 2005 taxation year he claimed an amount for
an eligible dependent in the amount of $7,344.00 and he claimed spousal support
in the amount of $29,392.73.
Note –The Appellant indicated in his
income tax return that he had claimed the Daughter as an eligible dependent and
that Isabelle had claimed the Son as an eligible dependent.
[8] By Notice of
Assessment dated July 31, 2006, the Minister of National Revenue (the "Minister")
disallowed the amounts of $7,344.00 and $29,392.73 as claimed by the Appellant
for the 2005 taxation year.
B. Issue
[9] Whether the
Appellant is allowed to deduct an amount of $29,392.73 for spousal support and
an amount of $7,344.00 for an eligible dependent in determining his income for
the 2005 taxation year.
C. Analysis and Decision
I Spousal Support
[10] Under the former
rules contained in the Income Tax Act (the "Act")
(pre‑May 1997) a spouse making support
payments to the ex-spouse or for the support of children could deduct those
payments and the recipient was required to include the payments as income.
Following the decision of the Supreme Court of Canada in Thibaudeau v. Canada, [1995] 2 S.C.R. 627,
the legislation was amended. The revised legislation provided that so long as a
pre-May 1997 agreement remained unchanged, the deduction/inclusion system that was
contained in the former legislation applied.
[11] The revised
legislation provided that if a new agreement was entered into after April 30,
1997 the deduction/inclusion regime for child support payments ceased and any
child support payments made after April 30, 1997 were not deductible by the taxpayer
and not included in the income of the payee.
[12] The amendments to
the Act that took effect on May 1, 1997 left the treatment of spousal
support payments unchanged.
[13] The Minister has
determined that in the 2005 taxation year the Appellant is not entitled to
claim an amount of $29,392.73 for spousal support pursuant to sections 60.1 and
60(b) of the Act, since the Separation Agreement did not
specifically distinguish between child support and spousal.
[14] In reaching this
conclusion the Minister relied upon subsection 56.1(4) of the Act. Subsection
56.1(4) reads as follows:
56.1 (4) "child
support amount" means any support amount that is not identified in the
agreement or order under which it is receivable as being solely for the support
of a recipient who is a spouse or common-law partner or former spouse or
common-law partner of the payer or who is a parent of a child of whom the payer
is a legal parent.
[15] In considering the
application of the Act to this situation it will be noted that the
Separation Agreement provides that commencing on March 15, 2005, the Appellant
will pay to Isabelle for the support of the children and herself the sum of $4,225.00
each month payable on the 15th and last day of each and every month.
[16] The Appellant filed
Exhibit A-6 which contains a summary of various cheques issued by the Appellant
to Isabelle plus copies of the cheques.
[17] Exhibit A-6
indicates that commencing on March 15, 2005 the Appellant issued cheques to
Isabelle totalling $50,456.59 in the 2005 taxation year.
[18] The Appellant also
filed a calculation prepared by him showing how he had determined the Support Payments pursuant to the
Federal Child Support Guidelines. (Exhibit A-3)
[19] I have considered
the uncontradicted testimony of the Appellant with respect to the payments made
by the Appellant to Isabelle and I have concluded that there is an ambiguity in
the words contained in paragraph 6 of the Separation Agreement.
[20] Canadian courts have
stated that where a document or a provision contained in a statute is ambiguous,
it is possible to resort to extrinsic evidence to ascertain the intention of
the parties.
[21] In Noranda Metal
Industries Ltd. and I.B.E.W. Local 2345 et al., 44 0.R. (2d)
529, Mr. Justice Dubin writing for the Court stated at pages 535/536:
… I agree with Mr. Justice White that the
clause was patently ambiguous and the arbitrator was entitled to resort to
extrinsic evidence to assist him in ascertaining the true intentions of the
parties, but, in any event, he was entitled to resort to extrinsic evidence to
determine whether there was any latent ambiguity, or in applying it to the
facts.
That proposition was stated by Gale
C.J.O. in Leitch Gold Mines Ltd. et al. v. Texas Gulf Sulphur Co.
(Inc.) et al., [1969] 1 O.R. 469 at p. 524, 3 D.L.R. (3d) 161, wherein he
stated:
Extrinsic evidence may be admitted to
disclose a latent ambiguity, in either the language of the instrument or in its
application to the facts, and also to resolve it, but it is to be noted that
the evidence allowed in to clear up the ambiguity may be more extensive than
that which reveals it. Thus, evidence of relevant surrounding circumstances can
be accepted to ascertain the meaning of the document and may clarify the
meaning by indirectly disclosing the intention of the parties.
[22] I have concluded
that in order to resolve this ambiguity we should review the other evidence
filed by the Appellant including the terms of the Draft Agreement.
[23] The Appellant
testified that he and Isabelle met with Colin Brannigan, a Mediator, in an
attempt to resolve various issues concerning their separation.
[24] The Appellant also
testified that he and Isabelle agreed to the recommendation of Mr. Brannigan
concerning the Child Support Payments in the amount of $1,124.12 per month commencing
on March 15, 2005.
[25] The Appellant also
testified that he and Isabelle agreed to the recommendations of Mr. Brannigan
with respect to Spousal Support Payments.
[26] With respect to
Spousal Support the Appellant testified
that he had agreed to pay Isabelle and Isabelle had agreed to accept Spousal
Support Payments equal to 15% of the Appellant’s salary plus 20% of the
Appellant’s bonus.
[27] It will be noted
that the Appellant testified that after discussions with Colin Brannigan he
agreed to pay and Isabelle agreed to accept Spousal Support for the 2005 year determined as
follows:
15% of
the Appellant’s salary $15,870.00
20% of
the Appellant’s bonus $12,480.00
Total
Spousal Support $28,350.00
[28] According to Exhibit
A-6 the Appellant actually paid Isabelle the sum of $29,401.53 as Spousal Support in 2005.
[29] I found the
Appellant’s testimony regarding the Spousal Support Payments to be clear and
uncontradicted.
[30] After carefully
considering the testimony of the Appellant and there being no evidence
submitted by or on behalf of Isabelle, I have concluded that the Appellant paid
Spousal Support payments to Isabelle in
the amount of $29,401.53 in 2005.
[31] I have also
concluded that in determining his income for the 2005 taxation year the
Appellant is entitled to deduct Spousal Support Payments in the amount of $28,350.00.
In reaching this conclusion, I have determined that the words “in the
agreement” found in subsection 56.1(4) of the Act mean “in the
agreement as interpreted using extrinsic aids”.
Note: The amount of $28,350.00 is
based on the Draft Agreement (Exhibit A-1 the Separation Agreement
(Exhibit A-2) and the Calculation (Exhibit A‑3).
[32] Because of the
amendment to section 60 of the Act effective May 1, 1997, I
have concluded that the Appellant is not entitled to deduct any Child Support Payments that he made
to Isabelle in the 2005 taxation year.
II Eligible Dependent
[33] The Appellant
maintains that in determining his income for 2005 he is entitled to claim the
amount of $7,344.00 for an eligible dependent (his daughter) pursuant to subsection
118(5) of the Act. Subsection 118(5) reads as follows:
118(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.
[34] I have concluded
that subsection 118(5) applies in this situation because:
1. the
Appellant was required to pay a "support amount"
as defined;
2. the
Appellant lived separate and apart from the spouse;
and
3. the
Appellant claimed a deduction for the year because of section 60 in respect of
a support amount paid to the spouse.
[35] In my opinion the Appellant
is not allowed to claim the Daughter as an eligible dependent in determining
his income for the 2005 taxation year.
[36] The appeal will be
allowed, without costs, and the Minister will reassess in accordance with the
Reasons for Judgment.
Signed at Toronto, Ontario, this 15th day of October 2007.
“L.M. Little”
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