Citation: 2008 TCC 608
Date: 20081107
Docket: 2007-4754(IT)I
BETWEEN:
RICHARD E. BOITTIAUX,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Mogan D.J.
[1]
The Appellant and his
wife (Dianne) separated in September 2003. After the separation, Dianne
obtained an interim order and, later, a final order for spousal support. When
the Appellant filed his income tax return for 2005, he deducted the amount of
$20,250 as spousal support. By Notice of Assessment dated June 27, 2006, the
Minister of National Revenue allowed the Appellant to deduct only $9,250 as
spousal support; and disallowed the deduction of the remaining $11,000. The Appellant
has appealed from that assessment, and has elected the informal procedure.
[2]
The Appellant and Dianne
were married in 1995. They separated in September 2003. In the various 12
documents which became exhibits in this appeal, there is no indication that
there were any children born of the marriage. The tale of the separation is
told in those documents as amplified by the oral testimony of the Appellant.
[3]
After the Appellant and
Dianne separated, she continued to reside at the marital home while the Appellant
resided with his mother. In the months immediately following the separation,
the Appellant paid all mortgage and utility amounts with respect to the marital
home but he was not paying any spousal support directly to Dianne. In June
2004, Dianne applied to the Court of Queen’s Bench, Family Division, Winnipeg for interim spousal support. Her application came on
for hearing before Madam Justice Allen on July 21, 2004.
[4]
Exhibit R-1 is a copy
of the Interim Order issued by Madam Justice Allen dated July 21, 2004 with her
oral reasons attached. Paragraph 5.1 of the Interim Order required the Appellant
pay to Dianne “spousal support in the sum of $1,750 per month on the 1st day of
each month, commencing August 1, 2004”. The Appellant started paying the $1,750
per month to Dianne on August 1, 2004 but there were continuing negotiations
between the parties, through their respective lawyers, with a view to settling
all outstanding disputes.
[5]
Exhibit A-6 is a copy
of a letter dated February 18, 2005 from Mr. Zazelenchuk (the Appellant’s
lawyer) to Ms. Walder (Dianne’s lawyer) making an offer of settlement. It is relevant
to set out the terms of the Appellant’s proposed settlement:
1. The net sale proceeds of the marital home will be split 50-50;
2. From Mr. Boittiaux’s share, he will pay to
Ms. Boittiaux an M.P.A. equalization payment of $4,940.82 (being
$8,820.82 less $3,808.00);
3. From Mr. Boittiaux’s share, he will pay
Ms. Boittiaux the costs ordered by Madam Justice Allen in the amount of $1,435.00;
4. From Mr. Boittiaux’s share, he will pay
Ms. Boittiaux the sum of $11,000.00 which will represent both a lump sum
payment and a payment in lieu of splitting pension benefits. In December of
2003 the difference in the value of the pension benefits was about $12,000.00
and that has, of course, changed as both pensions have added interest to them,
but the difference should remain roughly the same and we must bear in mind that
we are talking about present value, non‑taxable, as opposed to future
value taxable when we look at the numbers;
5. Ms. Boittiaux will receive spousal
maintenance in the amount of $1,000.00 per month for the months of March, 2005
to February 2007, both months inclusive;
6. Mr. Boittiaux will forthwith prosecute a
divorce and bear all the costs of obtaining same.
[6] Exhibit A-5 is a
copy of a letter dated February 28, 2005 from Ms. Walder to Mr. Zazelenchuk
replying to the letter which is Exhibit A-6 in this appeal. In her letter, Ms. Walder
responds to each of the six items put forward in the Appellant’s proposed
settlement. I will set out only items 4 and 5 from Ms. Walder’s letter
because they are the only items relevant to the issue in this appeal.
4. Ms. Boittiaux
will accept the sum of $11,000.00 as a lump sum payment of spousal support and
payment in lieu of splitting benefits. By my calculations, and after
determining the after-tax value of the difference between our clients’
respective pensions, the lump sum payment has a value of only approximately
$6,600.00. Later in your proposal, you suggest that Ms. Boittiaux should be
receiving $750.00 per month in gross spousal support payments less than she is
currently receiving from your client. On that basis, you can see that the lump
sum payment of approximately $6,600.00 is not a significant amount given what
you are asking Ms. Boittiaux to forego in monthly spousal support payments.
Having said that, if your client is prepared to waive any claim to the
difference in the parties’ RRSPs, Ms. Boittiaux will accept the sum of
$11,000.00 as a lump sum payment of spousal support and a payment in lieu of
splitting pension benefits.
5. … We are
already entering the month of March and cannot start the reduction as of March
1, 2005. As you know, the Interim Order pronounced by the Honourable Madam Justice
Allen will have to be varied or substituted with a Final Order.
[7] The Appellant and
Dianne did finally settle their differences close to the terms set out in their
lawyers’ letters (Exhibits A-5 and A-6). Exhibit A-1 is a copy of the Final
Order issued by Madam Justice Rivoalen on consent dated March 25, 2005. I will
set out only those parts of the Final Order (Exhibit A-1) which are relevant to
the issue in this appeal:
5.1 RICHARD EUGENE
BOITTIAUX pay DIANNE ELIZABETH BOITTIAUX lump sum spousal support in the sum of
$11,000.00 payable from RICHARD EUGENE BOITTIAUX’s share of the net sale
proceeds of the former marital home as 942 Polson Avenue, Winnipeg, Manitoba;
5.2 RICHARD EUGENE
BOITTIAUX pay DIANNE ELIZABETH BOITTIAUX spousal support in the sum of
$1,000.00 per month on the 1st day of each and every month,
commencing on the 1st day of April, 2005, and concluding with the
final payment on the 1st day of February, 2007, at which time
spousal support shall terminate absolutely.
6.1 None of the
pension benefit credit or pension payments, as the case may be, to which DIANNE
ELIZABETH BOITTIAUX may be or may become entitled under the Winnipeg Civic
Employees’ Benefits Program pension plan shall be divided between DIANNE ELIZABETH
BOITTIAUX and RICHARD BOITTIAUX;
6.2.1 None of the
pension benefit credit or pension payments, as the case may be, to which
RICHARD EUGENE BOITTIAUX may be or may become entitled under the pension plan
through his employment with CP Rail shall be divided between RICHARD EUGENE
BOITTIAUX and DIANNE ELIZABETH BOITTIAUX.
[8] After the Final
Order was issued, the Appellant and Dianne signed an “Order To Pay” (Exhibit
A-2) directed to the law firm of Dianne’s lawyer (Ms. Walder) instructing
that firm to pay certain amounts out of “the net sale proceeds” of the marital
home. From the Appellant’s one-half of the net sale proceeds, one of the
amounts which he paid to Dianne was “The sum of $11,000.00 as a lump sum
payment of spousal support”. The Order to Pay was dated March 26 and April 1,
2005. There is no doubt that the lump sum amount was paid to Dianne in 2005.
[9] On August 1, 2005,
the Appellant stopped paying to Dianne the $1,000 per month referred to in
Exhibit A-1 on the basis that he was not working because of some disability.
There were further proceedings in the Manitoba Court in October 2005 (See
Exhibits A-3 and A-4) concerning the Appellant’s motion to vary his spousal
support payments. The result of those proceedings is not relevant to this
appeal because it does not affect the issue under appeal.
[10] There is no dispute
between the Appellant and Dianne as to the amounts of money involved in this
appeal. For 2005, the Appellant deducted in computing income the amount of
$20,250 as spousal support. For 2005, Dianne reported income of $9,250 as
spousal support but she did not include the lump sum payment of $11,000. See
Exhibits R-2 and R-3. The only issue in this appeal is whether the $11,000 may
be deducted by the Appellant as spousal support.
[11] Under the Income
Tax Act (the “Act”), the Appellant’s right to deduct in computing
income amounts paid as spousal support is contained in paragraph 60(b):
60 There may be deducted in computing a taxpayer’s
income for a taxation year such of the following amounts as are applicable
(a) …
(b) the total of all
amounts each of which is an amount determined by the formula
A - (B + C)
where
A is the total of all amounts each of which is a support
amount paid after 1996 and before the end of the year by the taxpayer to a
particular person, where the taxpayer and the particular person were living
separate and apart at the time the amount was paid,
B is the total of all amounts each of which is a child
support amount that became payable by the taxpayer to the particular person
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,
and
C is the total of all amounts each of which is a support
amount paid by the taxpayer to the particular person after 1996 and deductible
in computing the taxpayer’s income for a preceding taxation year;
[12] The important words
in part A of paragraph 60(b) are “support amount”. Those words are
defined as follows in subsection 56.1(4) of the Act:
56.1(4) 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) he 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.
Under subsection 60.1(4) of the Act,
the definitions in subsection 56.1(4) apply in section 60.
[13] The Appellant claims
the right to deduct the $11,000 amount in 2005 because it is called “lump sum
spousal support” in the Final Order (Exhibit A-1) and because it was paid to
reduce future monthly payments from $1,750 to $1,000 after March 2005. The
Minister of National Revenue has disallowed the deduction of the $11,000 amount
because it was not paid on a periodic basis. That is the basic issue in this
appeal.
[14] Throughout the
calendar year 2005, the Appellant was obliged to pay monthly spousal support to
Dianne under the terms of either the Interim Order (Exhibit R-1) or the Final
Order (Exhibit A-1). Monthly payments of $1,750 under the Interim Order were
made up to and including March 2005. Monthly payments of $1,000 under the Final
Order commenced in April 2005 and ended in February 2007. In addition to those monthly
payments, the Appellant paid to Dianne in April 2005 the lump sum amount of
$11,000 which is the subject of this appeal. See Exhibit A-2; the Order to Pay.
[15] The question in this
appeal is not new. Over the years, many cases have come before this Court
concerning the question whether one spouse (usually a husband) may deduct in
computing income a lump sum amount paid to his separated spouse. In The
Queen v. McKimmon, 90 DTC 6088, the Federal Court of Appeal set out helpful
guidelines for the determination of this question. The guideline which seems
most relevant to this appeal is number 8 in the McKimmon reasons:
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.
[16] In argument, the
Appellant relied on Interpretation Bulletin IT-530R dated July 17, 2003 and published
by the Canada Revenue Agency. The subject of the Bulletin is “Support Payments”.
In particular, the Appellant referred to paragraphs 21 and 22 of the Bulletin
under the heading “Payments on a Periodic Basis”. Paragraph 21 refers to the McKimmon
decision and sets out certain criteria which include item (d):
(d) Whether the
payments purport to release the payer from any future obligations to pay
maintenance — If there is such a release the payments will normally not be
considered an allowance for maintenance.
The Appellant argues that he comes within
the terms of subparagraph 22(b) of the Bulletin:
22. An amount paid
as a single lump sum will generally not qualify as being payable on a periodic
basis. However, there may be circumstances where a lump sum amount paid in a
taxation year will be regarded as qualifying as a periodic payment where it can
be identified that:
(a) …
(b) the lump sum
amount is paid pursuant to a court order and in conjunction with an existing
obligation for periodic maintenance, whereby the payment represents the
acceleration, or advance, of future support payable on a periodic basis, for
the sole purpose of securing the funds to the recipient.
In either of the above situations, the
lump sum payment will not, in and of itself, change the nature of the
underlying legal obligation of periodic maintenance payments.
[17] Having reviewed all
of the documents in evidence, I am not persuaded that the payment of $11,000
represented an “acceleration, or advance, of future support payable on a
periodic basis” for the purpose of securing any funds to Dianne. First, there
was continuing unsecured spousal support of $1,000 per month after the payment
of the $11,000. Second, there was no stated link between the $11,000 lump sum
and the $750 monthly reduction from $1,750 to $1,000. And third, the letters between
the two lawyers set out a different and more reasonable explanation for the
payment of $11,000.
[18] In the letter from
the Appellant’s lawyer (Exhibit A-6) quoted in paragraph 5 above, Mr. Zazalenchuk
states that the $11,000 amount “will represent a lump sum payment and a payment
in lieu of splitting pension benefits”. In the letter from Dianne’s lawyer
(Exhibit A-5) quoted in paragraph 6 above, Ms. Walder states that “… if your
client is prepared to waive any claim to the difference in the parties’ RRSPs,
(Diane) will accept the sum of $11,000 as a lump sum payment of spousal support
and a payment in lieu of splitting pension benefits”.
[19] Although the Final
Order (Exhibit A-1) described the $11,000 amount as “lump sum spousal support”,
those words are not conclusive as to whether the amount is deductible for
income tax purposes when it was paid in addition to ongoing monthly support
payments. At the time of the separation (2003), the Appellant’s annual income
was in the range of $80,000 and Dianne’s was in the range of $35,000. Therefore,
I assume that the Appellant would have higher pension benefits than Dianne. Accordingly,
it would be in the Appellant’s interest to pay some amount (perhaps $11,000)
to ensure that Dianne would not make any present or future claim against his
pension benefits. It is important to note that the Final Order (Exhibit A-1),
issued on consent of both the Appellant and Dianne, included specific provisions
(quoted in paragraph 7 above) which prevented any pension benefits from being
divided between the two parties.
[20] The Appellant also
relied on a recent decision of the Federal Court of Appeal in Ostrowski v.
The Queen, [2002] 4 C.T.C. 196. In that case, Mr. Ostrowski was ordered
by Judge O’Connell (Ontario) in November 1994 to pay interim support as follows:
(i) $800 per month
per child for each of four children; making a total of $3,200 per month for
child support; and
(ii) $500 per month for
spousal support.
A number of subsequent court orders
in Ontario and British Columbia continued the support
amounts set by Judge O’Connell.
[21] After the sale of
the Ostrowski family home, Judge Drake (British Columbia) in September
1995 ordered that, from Mr. Ostrowski’s one‑half of the proceeds of sale,
the sum of $88,800 be set aside and held by the wife’s lawyer to secure payment
of the support amounts for the 24-month period commencing in October 1995 and
ending in September 1997. Mr. Ostrowski deducted $44,400 as support payments in
each year 1995 and 1996.
[22] The Minister
disallowed Mr. Ostrowski’s deductions; he appealed; and the case ended in the
Federal Court of Appeal. That Court dismissed Mr. Ostrowski’s appeal for
1996 because he did not pay any amount in that year; but allowed his appeal for
1995 increasing his deductible amount to $112,200 on the basis that (i) he paid
in September 1995 the amount of $88,800 with respect to the 24-month period
commencing October 1995; (ii) he also paid in 1995 $23,400 with respect to
months before October 1995; and (iii) all amounts allowed could be identified
as periodic at the rate of $3,700 per month in the sense that they were either
prepaid or late paid. When delivering judgment for the Federal Court of Appeal,
Madam Justice Sharlow stated in paragraph 25 of her reasons:
… All the orders made after the O’Connell
order were intended to enforce the maintenance obligation imposed by the
O’Connell order because Mr. Ostrowski had proven to be unreliable in meeting
that obligation.
[23] In my opinion, the
decision in Ostrowski is easily distinguished from this appeal because,
in Ostrowski, there were no periodic support payments other than the
prepaid or late paid lump sum amounts. In the present appeal, there were
ongoing support payments at the rate of $1,750 per month or $1,000 per month
when the $11,000 amount was paid. There is no evidence that the $11,000 amount was
paid to secure any future payments. The $11,000 amount is more easily linked to
the separation of pension benefits. And finally, even though the $11,000 amount
is called “lump sum spousal support” in the Final Order (Exhibit A-1), it
was clearly not periodic.
[24] It is not necessary
to review the cases cited by counsel for the Respondent. The appeal for the
2005 taxation year is dismissed.
Signed at Ottawa, Canada, this 7th
day of November, 2008.
“M.A. Mogan”
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