Citation: 2006TCC261
Date: 20060704
Docket: 2005-3946(IT)I
BETWEEN:
ROGER THÉRIAULT,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
[OFFICIAL ENGLISH TRANSLATION]
REASONS FOR JUDGMENT
Tardif J.
[1] This is an appeal
from assessments made under the Income Tax Act for the 2000, 2001 and
2002 taxation years.
[2] The issues for
determination are whether the Minister of National Revenue ("the
Minister") properly added, to the Appellant's income, the amounts of
$35,984 for the 2000 taxation year, $37,368 for the 2001 taxation year and
$35,984 for the 2002 taxation year, and whether the Minister properly refused
to grant the Appellant support payment deductions of $35,984 for the 2000
taxation year, $37,368 for the 2001 taxation year and $35,984 for the 2002
taxation year.
[3] In making and confirming
the assessments under appeal, the Minister relied on the following assumptions
of fact:
[TRANSLATION]
(a) The Appellant
and Lyne Côté separated in 1998.
(b) The Appellant
is the president and sole shareholder of the corporation.
(c) The corporation
paid Lyne Côté the sums of $35,984 for the 2000 taxation year, $37,368 for the
2001 taxation year and $35,984 for the 2002 taxation year.
(d) During the
years in issue, Lyne Côté performed no services for the corporation.
(e) The Appellant
and his ex-wife have no written agreement specifying the amount of support to
be paid and the terms and conditions of payment.
[4] The following facts
were disclosed by the evidence. Firstly, subparagraphs (a), (b), (c), (d) and (e) are true,
[5] Secondly, the
testimony of the Appellant and his ex-wife disclosed that the amount that the
corporation paid to Ms. Côté was not discussed or
negotiated in any way.
[6] The amount was
simply established by the corporation's accountant based on the corporation's
ability to pay. It appears that the Appellant's ex-wife accepted this amount without asking any questions,
knowing full well that the amount was being paid to her by the corporation
controlled by her ex-husband.
[7] Although the
Appellant's ex-wife rendered no services to the corporation controlled by her
ex-husband, the corporation paid her the money; at the end of the year, a T4 was
prepared for her so that it would be considered employment income.
[8] Ms. Roy bore the
tax consequences as though the amount was employment income, and the
corporation controlled by the Appellant took advantage of the expense by
entering it in the corporation's books as a salary.
[9] Following an audit,
the Minister discovered that the amount was absolutely not a salary. He
immediately treated the amounts that the corporation paid Ms. Côté as a
benefit that the Appellant had received from the corporation.
[10] The Appellant
submitted that the amount was not taxable because it was actually support;
consequently, he objected to the assessment.
[11] Parliament has
specified the rules applicable to support. Over the years, the situation has
changed a few times because various important decisions have fashioned the tax
treatment of support payments.
[12] Since The Queen v.
Thibaudeau, [1995] 2 S.C.R. 627, the tax rules applicable to
support payments have significantly changed. Since April 30, 1997,
all written support judgments or agreements have been subject to new rules.
[13] Previously, the rule
applicable to both spousal and child support was that the payer could deduct
the periodic payments from his or her income. This is no longer the case.
[14] As of May 1, 1997, the
Department of Finance has removed child support payments from the tax system.
[15] Following the
amendments, amounts paid periodically for children cannot be deducted from the payer's
income and need not be included in the recipient's income.
[16] However, where the
support is for the payer's spouse, the system remains unchanged; thus, the payer
may deduct the support amount from his or her income and the recipient must
include it in his or her income.
[17] Where the agreement is
ambiguous as to whether the amount constitutes child support or spousal
support, or the portions allocated to the child and the spouse are not defined,
the support is considered a "child support amount" by virtue of the
definition of the term "child support amount" in subsection 56.1(4)
of the Act. In such an event, the support will not be deductible from the
income of the support payer, and will not be included in the support recipient's
income and therefore will not be taxable.
[18] It
is also interesting to consider the Court's decisions regarding the question
whether an amount is a "support amount" according to the criteria set
out in subsection 56.1(4) of the Act. It should be noted that if there is no
written agreement or Court order, it cannot be a support amount: see Rioux v.
Canada, 2005 TCC 217, per
Rip J., and Hodson v. The Queen, A‑146‑87, November 30, 1987,
88 DTC 6001 (F.C.A.).
[19] Similarly, payments made
before such an agreement came into existence are not deductible as support: see
D’Anjou v. M.N.R., 92 DTC 1326 (T.C.C.). In the
same vein, even if the parties' lawyers have negotiated the agreement but the
parties have no signed it, there is simply no agreement: Ardley v. M.N.R.,
80 DTC 1106 (Tax Review Board). Lastly,
an agreement must be in writing and cannot be oral: Knapp v. M.N.R.,
85 DTC 424 (T.C.C.). In other words, a person who does not obtain a
written agreement has only himself to blame when tax problems arise: Kostiner
v. M.N.R., 63 DTC 478 (Tax
Review Board). Informal agreements do not qualify.
[20] Moreover, amounts paid in
excess of what the agreement stipulates are not considered income for the recipient:
Marks v. M.N.R., 54 DTC 125 (Tax Appeal Board).
[21] In the case at bar,
the facts disclosed by the evidence clearly do not come within the provisions
of the Act, and I find that the amounts that the corporation paid to
Ms. Côté are in no way support payments, and were essentially amounts paid
to her based on the corporation's ability to pay so that she could take
appropriate care of the children of whom the Appellant is the father.
[22] The amounts in
question here cannot and must not be considered deductible support payments.
The amounts paid by the corporation were determined by the accountant based not
on the financial ability of the Appellant or the financial needs of
Ms. Côté, but rather, essentially, on the corporation's ability to pay.
[23] A support payment is
either determined by a court or determined by an agreement that generally
results from discussions or negotiations. In theory, this involves the
determination of an amount that strikes a balance between the economic needs of
the recipient and the payer's ability to pay, having regard to several factors
related to health, autonomy, lifestyle and so forth.
[24] Here, the Appellant
chose to come to his ex-spouse's aid and look after his children's needs by
means of a very unusual tactic that consisted in paying her a salary for no
consideration and no work. In no way does this approach comply with the
statutory provisions concerning the tax treatment of support payments.
[25] For all these
reasons, the appeals are accordingly dismissed.
Signed at Ottawa, Canada, this 4th day of July 2006.
"Alain Tardif"
Translation certified true
on this 5th day of July 2007.
Brian McCordick, Translator
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