Leduc v. The Queen, 2007 TCC 367 (Informal Procedure)

                                                                                              Court File No. 2006-3465(IT)I

                                                 TAX COURT OF CANADA

                                                IN RE:   the Income Tax Act

BETWEEN:

                                                         MARY J. LEDUC

                                                                                                                                Appellant

                                                                   - and -

                                              HER MAJESTY THE QUEEN

                                                                                                                            Respondent

                               HEARD BEFORE MR. JUSTICE E ROSSITER

                                          in the Court Administration Service,

                                              231 Dundas Street, Third Floor

                                                           London, Ontario

                                     on Wednesday, June 6, 2007 at 10.00 a.m.

                                        ORAL REASONS FOR JUDGMENT

APPEARANCES:

Ms Mary J. Leduc                                                                                                     for herself

Mr. Roger Leclaire                                                                                      for the Respondent

Also Present:

Ms Avril Mallows                                                                                              Court Registrar

Ms Andreena M. Brant                                                                                     Court Reporter

                                       A.S.A.P. Reporting Services Inc. 8 2007

200 Elgin Street, Suite 1004              130 King Street West, Ste 1800

Ottawa, Ontario K2P 1L5                              Toronto, Ontario M5X 1E3

(613) 564-2727                                               (416) 861-8720

REASONS FOR JUDGMENT

(Edited from the transcript of Reasons delivered

orally from the bench at London, Ontario on

                 June 6, 2007)

                                   London, Ontario

--- Upon commencing on Wednesday, June 6, 2007 at

    10:00 a.m.

--- Trial proceeds.

--- Court adjourns at 11:26 a.m.

--- Upon resuming at 12:35 p.m.

JUSTICE ROSSITER:  This matter comes before this Court as a result of an assessment of March 17th, 2005 in relation to the Appellant, wherein there was a deduction denied for $14,000 in the 2004 income tax year.

There was an objection filed on March 14th, 2006, confirmation by the Minister August 25th, 2006 and a notice of appeal, November 17th, 2006 and a reply filed by the Minister on February 26th, 2007.

The issue before the Court is whether the payments made in terms of support of $9,000 and $5,000, respectively by the Appellant in 2004 were periodic payments as required under section 56(1)(b) and 60(b) and 56.1(4) of the Income Tax Act.

Some of the facts which are particularly relevant are as follows:

The Appellant was married to Mr. Leduc on February 7th, 1970.  They separated November the 1st, 1999.  They divorced October 15th, 2002.  There was a trial conducted before Mr. Justice Heeney in January of 2004 which resulted in an endorsement of January 29th, 2004.

That endorsement contains four or five paragraphs which have some relevance to the proceedings here and I will review them in detail.

Paragraph 55 states as follows:

"Spousal support of $1,250 per month, coupled with the income I have imputed to the Husband, will leave him with more than $2,000 per month in net disposable income after tax, which is sufficient to meet his reasonable needs.  The Wife has the means to pay support in that amount.  Accordingly, spousal support is ordered to be payable by the Wife to the Husband in the amount of $1,260 per month."

Paragraph 56:

"The commencement date will be June 1, 2002, which is the same month when the Husband first put forward his claim for spousal support.  It is not appropriate to order retroactive support beyond that date, since the Husband effectively sat on his rights for 2.1/2 years."

Paragraph 57:

"This order creates arrears up to and including January 1, 2004, of $25,000.  As against that, the Wife is credited with the overpayment referred to above of $9,000, leaving a balance of $16,000.  That balance will be payable at the rate of $250 per month commencing February 1, 2004 until fully paid.  Further enforcement proceedings will be stayed so long as these monthly payments remain in good standing."

Finally, paragraph 58:

"Since periodic spousal support is deductible by the Wife and taxable in the Husband's hands, both parties will, presumably, have to refile their 2002 income tax returns to take account of the support paid relating to that year."

This was filed as Exhibit A-1 on behalf of the Appellant and forms part of the evidence of this Court.

Exhibit A-2 was an order which followed up from Mr. Justice Heeney's indorsement.  A-2 has two dates on it.  It is dated January 29th, 2004, Mr. Justice Heeney of the Ontario Superior Court of Justice and the signature of the Judge/Clerk of February 9th, 2004.  

There are a couple of paragraphs in there which are relevant.  Paragraphs 3, 4 and 5, respectively, as follows:

"THIS COURT ORDERS THAT the Applicant Mary James Leduc shall pay spousal support to the Respondent Joseph Thomas Eucher Leduc in the sum of $1,2500.00 per month commencing June 1, 2002."

Number 4:

"THIS COURT ORDERS THAT arrears of spousal support shall be set at the sum of $25,000.00 up to and including January 1, 2004 and the arrears are reduced by $9,000.00 in periodic support to be credited to the 2002 support obligation as a result of the Respondent Joseph Thomas Eucher Leduc receiving all of the proceeds of the sale of the matrimonial home."

Paragraph number 5:

"THIS COURT ORDERS THAT the Wife shall pay the balance of arrears of $16,000.00 at the rate of $250.00 per month commencing February 1, 2004."

Finally, Exhibit A-3 is an additional court order of June 2nd, 2004.  Paragraph 1, 2 and 3 are relevant.

Paragraph 1 states:

"THIS COURT ORDERS THAT the respondent, Joseph Thomas Eucher Leduc shall pay to the applicant, Mary James Leduc costs fixed at $5000.00 inclusive of GST.

2.   THIS COURT ORDERS THAT this

amounts shall be credited against the arrears of spousal support owing of $16,000.00 as fixed in the Judgment of the Honourable Mr. Justice Heeney dated January 29, 2004, reducing the arrear to $11,000.00 less any monthly payment made in the interim.

3.   THIS COURT ORDERS THAT the

balance of $11,000.00 shall continue to be paid by the applicant, Mary James Leduc at the rate of $250.00 per month in accordance with the Judgment of the Honourable Mr. Justice Heeney dated January 29, 2004."

Now the position of the Appellant is they are periodic payments by way of credit.  The position of the Respondent is these are not periodic payments.  They are not regular intermittent payments.  Although the payments do not have to be the same amount they just have to have a certain regularity.

I have reviewed sections 56(1)(b), 60(b) and 56.1(4) and I have reviewed the authorities presented by the Appellant as well as some other cases with which I was familiar.

Referring to the authorities provided by the Respondent, Tossell v. Her Majesty the Queen and Peterson, 2005 DTC 5365(Fed CA), the Respondent relies on paragraph 31.

“[31]  There is no doubt that the $36,000 payment was intended as child support, and that it was made pursuant to a written agreement, the Minutes of Settlement.  However, an amount does not come within the scope of paragraph 56(1)(b) and paragraph 60(b) of the Income Tax Act unless it is payable on a periodic basis. An amount is payable on a periodic basis if the payment obligation occurs at intervals. Although section 6 of the Minutes of Settlement describes the $36,000 payment as “periodic”, it refers to a single payment in the amount of $36,000. It does not describe an obligation to make payments on a periodic basis”.

I have reviewed this decision thoroughly and I agree I am bound by the decision, if it may apply to this particular case with these particular peculiar facts that I am concerned with here.

I also refer to the decision of Chief Justice Bowman, Tax Court of Canada, in Galbraith v. Her Majesty the Queen, (2006) TCC 536 in particular paragraph 18 which was brought to my attention.

“Is it payable on a periodic basis?  The support amount of $2,500 per month is obviously payable periodically.  The tax amount is calculated and payable annually since the income tax is a phenomenon of annual incidence the requirement of periodicity is therefore met.”

Now what a judge or a court may or may not say in any decision or judgment or order in terms of deductibility is really neither here nor there and in many cases amounts to interesting trivia.

The fact of the matter is that whatever a judge says, the judge does not have the authority to amend the terms of the Income Tax Act.

In order for something to be deductible it has to come within the confines and four corners of the Income Tax Act of Canada.

If it does, it is deductible, if it does not, it is not deductible, regardless of what the judge says or what attempts they have made to make something that is not otherwise deductible – deductible or make something deductible not deductible.

They sometimes might say things that are not really in compliance or within the four corners of the Income Tax Act or they might not say things which do not necessarily take it outside the Income Tax Act.

So what I am trying to say is that it is really neither here nor there how a judge classifies the deductibility of something, it still has to come within the four corners of the Income Tax Act and that is where my hands are tied.  I have to deal with it within the four corners of the Income Tax Act.

Now having said that, I note with interest the comments of the Federal Court of Appeal in the Tossell case, particularly paragraph 31 where it says:

"An amount is payable on a periodic basis if the payment obligation occurs at intervals."

It does not say an amount is payable on a periodic basis if the payment obligation is a regular payment obligation recurring at regular intervals.

I understand the position of the Respondent to be, that the payments can be different payments but they have to be made with some sort of regularity.

I do not see that particularly said in this particular judgement.  It just has to be made on a periodic basis and that is what I am bound by.

Now, turning to the facts of this particular case, the important documents are documents A-2 and A-3 because they are the court order or the written agreement that any payments are made from and you have to look to those particular documents.

I think it is important that what you do is you look to the entire document, not a particular paragraph here or a particular paragraph there, you look at the entire document to get the entire intent of the court and what the directions of the court are.

Briefly, what occurred here on the facts of this case, and I emphasize the facts of this case, only is the following.

You have a court order of January the 29th, 2004.  That court order provides for three types of payments in different periodic manners.

Number 1, it provides for $1,250 per month from June 1st, 2002.  Number 2, it provides for a $9,000 payment, deemed payment, a one-shot deal.  Number 3, it provides for an additional $250 per month ongoing from February 1st, 2004.

Taking those three obligations together I find that the order for maintenance on that aspect is periodic in nature.  You have a periodic in nature $1,250 a month.  You have a one-shot $9,000 and you have an ongoing $250 obligation.

All are made pursuant to a written order or agreement.  Taken as a whole they are all periodic.  Albeit not the same amount.  Albeit at different times.  Albeit in some cases monthly, in some cases a one-shot deal.

There are some aspects of repetitive nature in the entire three aspects.  In one single one there is not, but I do not think that takes it outside the periodic nature and the intent.

This is coupled with what is basically an amendment to that order.  The amendment to that order is found in A-3, paragraphs sub 2 and 3, whereby there is an additional change to the periodic nature of the order by an additional lump sum of $5,000.

So what I find is on the facts of this particular case, unusual as they are, I find that the payments that are in dispute, taken with the other payments provided in the order meet the periodic test and are deductible within the meaning of section 56(1)(b), 60(b) and 56.1(4) of the Income Tax Act and as a result I will allow the appeal and have the matter referred back to the Minister for recalculation accordingly.

Mr. Leclaire, having said all that, Ms Leduc asked for costs.  Can you speak to that for a moment, please?

Under the informal rules, I can just refer you to section 10:

"Costs on appeal shall be at the discretion of the judge by whom the appeal is disposed of in accordance with section 18.2(6) of the Act."

Which reads as follows.  An appeal is referred to in section 18 is allowed, section 18 of the Act.

MR. LECLAIRE:  It's the informal.

JUSTICE ROSSITER:  It's the informal.

MR. LECLAIRE:  That's right.

JUSTICE ROSSITER:  The informal, there's no costs.  Am I right there?

MR. LECLAIRE:  I think you are correct.

JUSTICE ROSSITER:  I'm just looking at section 18 because I didn't have the Act.  This particular rules is the informal procedure one.  I can show you.  Do you have it there?

MR. LECLAIRE:  I am being advised by my colleague that there are no costs to the Crown in the informal procedure.

JUSTICE ROSSITER:  No costs to the Crown and no costs against the Crown?

MR. LECLAIRE:  No costs to the Crown but there may be costs granted to the Appellant.  Is that correct, Mr. Aitken?

JUSTICE ROSSITER:  May be costs granted to the Appellant.

MR. LECLAIRE:  Yes.  Well, it's discretionary.

MS DEVEAU:  Look at the amount --

JUSTICE ROSSITER:  I'll get to you in a minute.

MR. LECLAIRE:  I think that you are limited to filing fees.  In fact I question whether counsel fees were available for a successful Appellant in the informal division.

JUSTICE ROSSITER:  I think the costs are specifically limited.  I want to fix the amount.  If I'm going to award costs I want to fix the amount.

MR. LECLAIRE:  Filing fees and disbursements, in my submission.

JUSTICE ROSSITER:  Thank you very much.

MR. LECLAIRE:  That's my view.

JUSTICE ROSSITER:  I think if the appeal is successful they receive the filing fee back in any event.

MR. LECLAIRE:  That's my understanding.

JUSTICE ROSSITER:  Did you have something to say on the issue of costs?

MS DEVEAU:  Well, we read that as well and because I have been named as an assistant, not that I'm counsel, but I am an expert witness, that I would be allowed some of the costs, half of what would normally be allowed counsel.

MS LEDUC:  The document that it's in, it's called the Tax Court of Canada Rules, Informal Procedure.

JUSTICE ROSSITER:  Yes, I have them here.

MS LEDUC:  18.26.

JUSTICE ROSSITER:  Pardon?

MS DEVEAU:  11.1 is the section.

JUSTICE ROSSITER:  Yes, I have it here.

MR. LECLAIRE:  Are we looking at section 10.  Rule 10, sorry.

JUSTICE ROSSITER:  Rule 10.  Rule 11 applies for services of counsel.  Then if you look to rule 11.1:

"Unless otherwise directed by the court, and the appellant is represented or assisted by an advisor other than counsel, disbursements in respect to the services referred to in section 1."

MR. LECLAIRE:  Yes.  It limits the amount to one half.

MS DEVEAU:  It does limit the amount.

MR. LECLAIRE:  The amounts listed in section 11.

JUSTICE ROSSITER:  Yes, I realize that.  The Appellant here, in my view, was not represented but was rather assisted.

MR. LECLAIRE:  Yes.

JUSTICE ROSSITER:  Give me a moment, please.

MR. LECLAIRE:  I'm sorry, Your Honour.  Could I ask you to inquire whether Mrs. Leduc obtained any assistance in the preparation of the Notice of Appeal just so that 11(a) is thereby triggered.  There is no indication of that so far.

JUSTICE ROSSITER:  Ms Leduc, what if any assistance did you have in preparation of the Notice of Appeal?

MS LEDUC:  Actually, Ms Deveau actually filled it out and it's part of the record.

JUSTICE ROSSITER:  What about for this hearing?

MS LEDUC:  She also sat down with me and helped me and provided court cases and led me through how I needed to proceed with it.

JUSTICE ROSSITER:  Just give me a moment then, please.

Did you have any disbursements, Ms Leduc?  No disbursements?

MS LEDUC:  No, nothing.  Just lunch today but really, no.

JUSTICE ROSSITER:  We all have to eat.

Do you have anything further, Mr. Leclaire, on the issue of costs?

MR. LECLAIRE:  I make it at eight-ten, Your Honour, half of which, according to 11.1, half of which would be four-oh-five.

JUSTICE ROSSITER:  Thank you.  Do you have anything further, Ms Leduc, on the issue of costs?

MS LEDUC:  No.

JUSTICE ROSSITER:  On the issue of costs, the Court awards costs to the Appellant in the following fixed amount, under section 11(a) of the Rules of the Informal Proceedings, considering 11.1, under 11(a) the sum of $92.50.  Under 11(b) the sum of $100.  Under 11(c) the sum of $150.  For a total of $342.50.  There being no disbursements.      I am not sure if taxes were applicable on top of that, if they are, they would also be payable.

Anything else, Mr. Leclaire, in this particular matter?

MR. LECLAIRE:  Thank you, Your Honour, no.

JUSTICE ROSSITER:  Ms Leduc?

MS LEDUC:  Would you mind just going over those, I didn't --

JUSTICE ROSSITER:  What you have is under 11(a), considering 11.1, $92.50.  Under 11(b) $100.  Under 11(c) $150.  For a total of $342.50.

Thank you.

--- Whereupon this matter is concluded

at 12:58 p.m.