Citation: 2008 TCC 323
Date: 20080611
Docket:
2007-3782(IT)I
BETWEEN:
LOUISE BOISVERT,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent,
and
MAURICE DESILETS,
Third Party.
[OFFICIAL ENGLISH
TRANSLATION]
REASONS FOR JUDGMENT
Favreau
J.
[1]
Louise Boisvert appealed from the
notices of reassessment dated June 4, 2007, in which the Minister of National
Revenue ("the Minister") added, in computing the Appellant's income
for the 2002, 2003, 2004 and 2005 taxation years, the respective amounts of
$10,192, $11,819, $11,612 and $3,668 as unreported income for support or other allowance
paid on a periodic basis by her former spouse, Maurice Désilets.
[2]
The initial notices of assessment with
respect to the Appellant's 2002 and 2003 taxation years are dated April 3, 2003,
and April 22, 2004, respectively. The Minister determined that the Appellant,
in filing her income tax returns for the 2002 and 2003 taxation years, made
misrepresentations that were attributable to neglect, carelessness or wilful
default, considering the importance of the additional income added.
[3]
On June 8, 2007, the Appellant
served the Minister with a notice of objection for the 2002, 2003, 2004 and
2005 taxation years with respect to the notices of reassessment dated June 4,
2007.
[4]
On July 10, 2007, the Minister confirmed
the notices of reassessment dated June 4, 2007.
[5]
Counsel for the Respondent served
the parties with a reference under section 174 of the Income Tax Act, R.S.C.
1985, c. 1 (5th Supp.) as amended ("the Act"), dated March 20, 2008,
in order to join Maurice Désilets to Louise Boisvert's appeal. With the
parties' consent to the reference, when the hearing began the Court ordered
Maurice Désilets to be joined to Louise Boisvert's hearing in order to determine
the following issues:
(a)
in computing her income for the
2002 to 2005 taxation years, is Louise Boisvert required to include the amounts
of support received from Maurice Désilets in these years?
(b) similarly, in computing his income for the 2002 to 2005
taxation years, can Maurice Désilets deduct the amounts of support paid to
Louise Boisvert?
[6]
Louise Boisvert and Maurice
Désilets were married on August 24, 1974, and were the parents of two
daughters, Patricia, born on March 22, 1978, and Constance, born on April 27,
1982.
[7]
Ms. Boisvert and Mr. Désilets ceased
to live together on September 13, 1993, and a divorce judgment of the Quebec
Superior Court dated July 24, 1995, was handed down by the Honourable Justice Édouard Martin ("the divorce judgment").
[8]
The divorce judgment confirms and makes
enforceable an [TRANSLATION]
"agreement for corollary relief relating
to the divorce and for the division of the family patrimony" dated
December 4, 1994 ("the agreement for corollary relief").
[9]
Paragraph 4 of the agreement for corollary
relief provides the following:
[TRANSLATION]
The male applicant will pay monthly support of $750.00 for the
children, to be paid into a trust account in their names to be administered by the
female applicant until each of them reaches the age of majority; the male
applicant will also pay for their clothing and their tuition.
[10]
Paragraph 6 of the agreement for corollary
relief provides the following:
[TRANSLATION]
The children Patricia and Constance must include these amounts
in their income tax returns and the male applicant will deduct the amounts paid
as support from his income.
[11]
Paragraph 7 of the agreement for corollary
relief provides the following:
[TRANSLATION]
The parties declare that they are financially independent and
mutually waive all remedies for support.
[12]
During the years in dispute, Ms.
Boisvert received support payments from Mr. Désilets under the Act to
facilitate the payment of support, and the agreement for corollary relief
was not fully complied with by the former spouses.
[13]
Ms. Boisvert testified and pointed
out that the agreement for corollary relief had been prepared by Raynald
D’auteuil. She also indicated that on November 3, 1997, she applied to the clerk
of the court responsible for the application of the Act to facilitate the payment
of support because her former husband had not been making the support payments.
At the time of her application to the clerk of the court, the capital balance
of the arrears was $8,395.
[14]
Ms. Boisvert also explained that
she had never opened a trust bank account for her daughters. The support
cheques were payable to her and she deposited them in her own bank account. She
stated that each of her daughters has had a credit card since the month of
March 1998. A single monthly statement was obtained for the three outstanding
credit cards, including Ms. Boisvert's. The allocation of the expenses on the
monthly statement to each holder was done monthly.
[15]
Ms. Boisvert also confirmed that
she had never included the support payments from her former husband in the computation
of her income.
[16]
Mr. Désilets testified and
explained that he had continued to pay support even after his daughters had reached
the age of majority, namely, on March 22, 1996, for Patricia and April 27, 2000,
for Constance, because he believed he was required to do so. In
addition, he wanted to act responsibly since his daughters were still at
school.
[17]
Mr. Désilets also confirmed that
he had never deducted, in computing his income, the support payments to his former
wife. He decided to claim this deduction for the 2002 to 2005 taxation years
after an assessment he received in 2005 or 2006 which required him to pay income
tax. Mr. Désilets believes that he is entitled to claim the deduction for
support payments retroactively up to 10 years.
Analysis
[18]
The first issue that must be
addressed relates to the tax status of the support payments by Mr. Désilets to
Ms. Boisvert. The obligation to pay the support arises from the agreement
for corollary relief and the divorce judgment dated December 4, 1994, and July
24, 1995, respectively, or before the addition of the definition of "child
support amount" to the Act by the 1996 Budget Statement.
[19]
The terms and conditions for the
support payments, as described in the agreement for corollary relief and the
divorce judgment, were not complied with to the letter (for example, no trust
account was opened), but they have not been changed and the amount of the
support payments to meet the children's needs has not been varied.
[20]
As there is no "commencement
day" within the meaning of subsection 56.1(4) of the Act that was after
April 1997, the support payments made by Mr. Désilets remain subject to the
former taxation rules, that is, they are deductible by the payer and taxable in
the hands of the recipient. The definition of the expression "commencement
day" found in subsection 56.1(4) of the Act reads as follows:
Définitions. The
definitions in this subsection apply in this section and section 56.
"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 payments 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.
[21]
In order to be deductible in the computation
of income, the payments by Mr. Désilets must satisfy the requirements of the
definition of "support amount" in subsection 56.1(4) of the Act,
which reads as follows:
"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 the 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.
[22]
The support payments made by Mr.
Désilets satisfy the requirements of the definition of "support
amount" in subsection 56.1(4) of the Act because they were payable to the
recipient (the cheques were payable to Ms. Boisvert) as an allowance on a
periodic basis for the maintenance of the children of Ms. Boisvert and because
Ms. Boisvert had discretion as to the use of the said payments (the support
cheques were payable to her and were deposited into her personal bank account
and not into a trust bank account in the children's names). The conditions set
out in paragraphs (a) and (b) of the definition of "support
amount" are also satisfied in this case, since Ms. Boisvert is the former
spouse of Mr. Désilets and they are living separate and apart from each other
because of the breakdown of their marriage, since the support amount is payable
under an order of a competent tribunal or under a written agreement, and since
Ms. Boisvert is the mother of the children whose natural father is Mr.
Désilets, and the support amount is payable under an order made by a competent
tribunal in accordance with the laws of a province or territory.
[23]
During the 2002 to 2005 taxation
years, Ms. Boisvert administered the support payments received from Mr.
Désilets. As each child reached the age of majority, Ms. Boisvert lost the
administration of the trust bank account. In fact, she never lost the administration
of the support payments because the trust bank account had never been opened. For purposes of the Act, no trust
had been created. In her testimony, Ms.
Boisvert admitted that she was unfamiliar with the concept of a trust and that
she had not considered it advisable to deposit the support payments in a
separate and distinct bank account from her own because she did not think it
was necessary and it was needlessly complicated.
[24]
The divorce judgment and the
agreement for corollary relief do not contain any specific provisions applicable
to the time after the children reached the age of majority, except for the loss
of the administration of the trust bank account by Ms. Boisvert. On the other
hand, no reduction of the support payments nor any date for their cessation is
provided for. The obligation to pay support therefore remained after the children
reached the age of majority.
[25]
During the 2002 to 2005 taxation
years, Ms. Boisvert's children had already reached the age of majority, namely,
on March 22, 1996, for Patricia and April 27, 2000, for Constance. During this
period, Ms. Boisvert no longer had legal custody of her two daughters. Legal
custody of a child ceases when he or she reaches the age of majority but the
obligation to support a child does not necessarily cease at that time (see article
599 of the Civil Code of Québec). One of the most common reasons given
to justify continuation of the payment of support to a child who has reached
the age of majority is that the child is pursuing studies, even undergraduate
and sometimes more advanced university studies. Another example is the pursuit
of competitive sporting activities, as was the case for Constance who was a
competitive snowboarder.
[26]
Subsections 56.1(1), 60.1(1) and 60.1(2)
of the Act refer to the concept of "children in the recipient's
custody" in terms of payments made to third parties to ensure that these
payments are taxable in the hands of a recipient and deductible by the payer. These
provisions do not apply in the present case because all the support payments
were paid directly to Ms. Boisvert (the recipient).
[27]
For the reasons mentioned above, I
am of the opinion that
(a) in
computing his income for the 2002 to 2005 taxation years, under paragraph 60(b)
of the Act, Maurice Désilets is entitled to deduct the support amounts paid to
Louise Boisvert;
(b) in
computing her income for the 2004 and 2005 taxation years, under paragraph
56(1)(b) of the Act, Louise Boisvert must include the amounts
received from Mr. Désilets for support or any other allowance payable on a
periodic basis as a result of the divorce judgment and the agreement for
corollary relief;
(c) in
computing her income for the 2002 and 2003 taxation years, under paragraph
56(1)(b) of the Act, Louise Boisvert does not have to include the
amounts received from Maurice Désilets for support or any other allowance
payable on a periodic basis as a result of the divorce judgment and the
agreement for corollary relief because the Minister has not established the
validity of the notices of reassessment dated June 4, 2007, for the 2002 and
2003 taxation years.
[28]
Contrary to what is asserted by
counsel for the Respondent, Louise Boisvert has not, pursuant to subsection
152(4) of the Act, made a misrepresentation that was attributable to neglect,
carelessness or wilful default in filing her income tax returns for the 2002
and 2003 taxation years because the tax status of the support payments made to
Louise Boisvert by Maurice Désilets had not been established with certainty, and
hence the need for the present appeal, and because Maurice Désilets had not
originally claimed a deduction relating to the support payments made in 2002
and 2003 and for previous years.
[29]
The fact that Maurice Désilets has
been joined to Louise Boisvert's appeal as a result of a reference under
section 174 of the Act cannot cause Louise Boisvert to lose the benefits of the
limitation period with respect to the years 2002 and 2003, and conversely, cannot
cause Maurice Désilets to lose the benefit of these deductions for the support
payments he paid to Louise Boisvert in 2002 and 2003.
[30]
Louise Boisvert's appeal is
allowed with respect to the 2002 and 2003 taxation years and dismissed with
respect to the 2004 and 2005 taxation years.
[31]
The assessments of Maurice
Désilets under the Act for the 2002 to 2005 taxation years must be reassessed
to allow for the deduction of support payments made to Louise Boisvert.
Signed
at Ottawa, Canada, this 11th day of June 2008.
"Réal Favreau"
Translation certified true
on this 2nd day of September 2008.
Susan Deichert, Reviser
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