Antaya v. The Queen, 2005 TCC 31 (Informal Procedure)

Appeal heard on November 16, 2004 at Nanaimo, British Columbia

JUDGMENT

          The Appellant advised the Court at the commencement of the hearing that he wished to withdraw his appeal of the assessment made under the Income Tax Act for the 2001 taxation year; accordingly, that appeal is dismissed.

Although the Appellant included in his Notice of Appeal the assessment made under the Income Tax Act for 2003, that assessment is currently being reconsidered by the Minister under subsection 165(7) of the Act; accordingly, under subsection 169(1) of the Act, the Appellant may not appeal that assessment to this Court and it is therefore quashed.

          The appeal from the reassessment made under the Income Tax Act for the 2002 taxation year is allowed, without costs, and the assessment is referred back to the Minister for reconsideration and reassessment on the basis that in the 2002 taxation year, the Appellant:

1.        was not entitled to a deduction for a support amount in respect of either the 2001 Separation agreement or the 1983 Separation Agreement;

2.        was not required to pay and did not pay a support amount in respect of either of his two children named in the 2001 Separation Agreement; and

3.        did not claim a deduction for a support amount in respect of the 2001 Separation Agreement.

Signed at Ottawa, Canada, this 10th day of January 2005.

Sheridan, J.

REASONS FOR JUDGMENT

Sheridan, J.

[1]      The Appellant, Yves Antaya, filed a Notice of Appeal in respect of reassessments by the Minister of National Revenue for the 2001, 2002 and 2003 taxation years. As preliminary matters, at the hearing, Mr. Antaya advised this Court that he wished to withdraw the appeal of the reassessment for the 2001 taxation year. Accordingly, that appeal is dismissed. He further confirmed a representation by counsel for the Respondent that, although he had filed a Notice of Objection in relation to the 2003 reassessment, as of the hearing date, it was still under consideration by the Minister. Having not satisfied the conditions for appealing set out in subsection 169(1), Mr. Antaya was unable at this hearing to appeal the 2003 reassessment; accordingly, that appeal is quashed.

[2]      Turning now to the 2002 reassessment, Mr. Antaya is appealing the Minister's disallowance of his claim for an Equivalent to Spouse tax credit[1] for one of his two children on the basis that Mr. Antaya was required to pay a support amount for that child; accordingly, under subsection 118(5)[2] of the Income Tax Act, he was not eligible to claim that deduction.

[3]      There is no question that Mr. Antaya's situation in 2002 fell within the threshold criteria in paragraph 118(1)(b): he did not claim a deduction under paragraph 118(1)(a), he was unmarried and, with his former spouse, had joint custody of their two children. It is not disputed that the children spent an equal amount of time with him and their mother, rotating on a more or less weekly basis between their parents' respective residences in Courtenay, British Columbia. Thus, during alternating periods during 2002, Mr. Antaya maintained a self-contained domestic establishment in which he actually supported his children who were under 18 and wholly dependent upon him for support.

[4]      In reassessing the 2002 taxation year, however, the Minister disallowed the deduction on the assumption that Mr. Antaya was "required to pay a support amount" of $300 per month for the two children of the marriage to his former spouse pursuant to a Separation Agreement dated May 17, 2001. Accordingly, he was precluded by subsection 118(5) of the Act from claiming the Equivalent to Spouse tax credit.

[5]      Mr. Antaya has the onus of rebutting the Minister's assumption. He did not dispute that on May 17, 2001 he and his former spouse executed a Separation Agreement[3] pursuant to which he was required to pay to her $300 per month in respect of their two children. He testified, however, that effective November 1, 2001, he and his former spouse had verbally agreed to terminate his child support obligations. He explained that when they signed the Separation Agreement in May 2001, his former spouse was about to resume her career in real estate. Given the unpredictable nature of such work, it was agreed that Mr. Antaya would pay child support on the understanding that after a few months, they would review the situation. This contingency was contemplated by subclause 11(a) of the Separation Agreement which provided for a "... review Child Support every six months, beginning in November 2001...". As it turned out, by October 2001 his former spouse was earning more than Mr. Antaya and as agreed, his former spouse released him from his child support obligations under the Separation Agreement. This situation continued throughout 2002 and it was on that basis that Mr. Antaya claimed the Equivalent to Spouse tax credit for that taxation year.

[6]      It was not until that deduction was disallowed that Mr. Antaya gave any thought to putting their oral agreement in writing. He put in evidence a document entitled "Amended Separation Agreement" dated November 10, 2004[4] which had been prepared only a few days before the hearing. He acknowledged that he had had it prepared after receiving the Minister's response to his Notice of Objection to the 2002 reassessment. In his letter to Mr. Antaya of May 4, 2004[5], the appeals officer referred to the terms of the May 17, 2001 Separation Agreement and went on to say that "Unless there has been a subsequent ... written agreement to amend or cancel [the support amount], you are not entitled to the amount for an eligible dependent". It was with this advice in mind that he requested and obtained from his former spouse her agreement to put in writing the changes agreed to verbally, dating back to November 2001. Reflecting the wording in the "material change in circumstances" clause in paragraph 11(b)(i) of the 2001 Separation Agreement, clause C of the Amended Separation Agreement states:

The parties acknowledge and agree that circumstances since the [2001 Separation Agreement] have changed such that by mutual agreement Yves ceased to pay [his former spouse] child support for the Children of the marriage effective November 1, 2001.

[7]      Counsel for the Respondent argued that the Amended Separation Agreement was essentially too little, too late - that if the parties wanted to make changes to the 2001 Separation Agreement, they were required to make them at the time in accordance with that document. She quite correctly pointed out that the 2001 Separation Agreement contains a clause stating that the parties "may vary this Agreement only by a written agreement executed in the same manner as this Agreement".[6] I do not accept, however, that this clause precluded Mr. Antaya and his former spouse from amending the agreement in some other mutually agreeable fashion. Clause 40 is intended to protect the other party where one party seeks unilaterally to change the terms agreed to. Notwithstanding the opinion of the appeals officer as expressed in Exhibit A-5, I share the view of certain other members of this Court[7], that there is nothing in subsection 118(5) that requires an agreement to amend the original written agreement to be in writing. I accept Mr. Antaya's evidence that in 2002 he was not required to pay a support amount in regard to the two children named in the 2001 Support Agreement.

[8]      In addition to the assumptions, the Respondent alleged that "[i]n computing income for ...the 2002 taxation year, the Appellant deducted support payments of $3,600".[8] At the hearing, the Respondent attempted to show that Mr. Antaya had claimed a deduction for child support for one of the children provided for under the 2001 Separation Agreement. In that case, paragraph 118(5)(b) of the Act would apply to preclude him from also claiming Equivalent to Spouse tax credit for that child. On cross-examination, Mr. Antaya freely admitted that he had claimed such a deduction. He went on to explain, however, that it was not in relation to support amounts paid under the 2001 Separation Agreement. When challenged on this assertion, he stated that he was aware that the deduction/inclusion rules had changed in 1997 and that he knew he could not deduct anything for support amounts paid pursuant to an agreement made in 2001. Furthermore, he said, he hadn't paid any support in 2002, so he could hardly claim a deduction for it. Finally - and only when asked if he had any children other than the two named in the 2001 Separation Agreement - he advised the Court that he had another child, now 22, from an earlier marriage to a woman in Quebec. Pursuant to their 1983 separation agreement[9], he had been paying child support of $300 per month and claiming a deduction (as was then permitted) for that amount. It was in respect of this child that he had claimed as a deduction in 2002.

[9]      Counsel for the Respondent challenged this explanation citing the terms of the 1983 Separation Agreement: how could he have deducted $3,600 for 2002 under that agreement when it provided for monthly payments of $250 per month? His answer was that over the years, they had verbally agreed to increase that amount to $300. Even if that were true, counsel continued, how was it possible for him to have claimed a child support deduction under the 1983 Separation Agreement for 2001 when his obligations terminated in 2001 upon his son's having turned 19? Acknowledging that he ought not to have done so, he explained that he continued to make the monthly payments, not to his former spouse, but to his son directly. His tax preparer had been routinely claiming this amount for several years and merely continued that practice in 2002. Mr. Antaya stated he "now" realized he wasn't eligible for the deduction in 2002, but he hadn't thought about it at the time.

[10]     In argument, counsel for the Respondent attacked Mr. Antaya's general credibility. I must say that I was troubled by his failure to disclose in a more timely fashion the existence of his son from an earlier marriage and the 1983 Separation Agreement. It would have simplified the hearing process if this Court had had the benefit of all the relevant facts in his direct evidence. I am mindful, however, that Mr. Antaya was self-represented at the hearing and cannot reasonably be expected to have a perfect understanding of how and when to present the facts upon which he relies. Accordingly, I am prepared to give him the benefit of the doubt. I accept his admission that he claimed, albeit erroneously, a child support deduction under the 1983 Separation Agreement in 2002. Thus, the allegation in paragraph 14 (not included in the Minister's assumptions) that the $3,600 deduction had been claimed in regard to a child named in the 2001 Separation Agreement has not been proven. The fact that Mr. Antaya claimed that amount in respect of a child named in the 1983 Separation Agreement is not a bar to his entitlement to an Equivalent to Spouse deduction for a child covered by the 2001 Separation Agreement. It is clear, however, from the termination provisions of the 1983 Separation Agreement and his admission that in 2002 he paid support directly to his son that Mr. Antaya was not eligible to deduct any amount for child support in 2002.

[11]     On a balance of probabilities, I am satisfied that Mr. Antaya has successfully answered the assumptions upon which the Minister based his decision to disallow the Equivalent to Spouse tax credit claimed in 2002. In reaching this conclusion, I note that the claim was made in respect of only one of the two children for whom Mr. Antaya shares custody with his former spouse. There was no evidence before this Court that she had claimed an Equivalent to Spouse tax credit in respect of the other child or, for that matter, both children. I can only assume that had the latter been the case, the Minister would have sought, as is his exclusive right, to join her as a party under section 174 of the Income Tax Act. That was not done. It would have assisted the Court to have heard from Mr. Antaya's former spouse and counsel for the Respondent suggested that a negative inference should be drawn from Mr. Antaya's failure to call her. His answer was that relations between them had been strained and calling her as a witness was not a realistic expectation. In my view, it was equally open to the Respondent to call the former spouse, especially given its resources, its duty to the proper administration of justice and the absence of any of the personal relationship issues that may have hampered Mr. Antaya. I accept Mr. Antaya's explanation as reasonable and draw no negative inference from his not having called his former spouse to testify.

[12]     The appeal is allowed, without costs, and the assessment for the 2002 taxation year is referred back to the Minister for reconsideration and reassessment on the basis that in the 2002 taxation year, Mr. Antaya:

1.        was not entitled to a deduction for a support amount in respect of either the 2001 Separation Agreement or the 1983 Separation Agreement;

2.        was not required to pay and did not pay a support amount in respect of either of his two children named in the 2001 Separation Agreement; and

3.        did not claim a deduction for a support amount in respect of the 2001 Separation Agreement.

Signed at Ottawa, Canada, this 10th day of January 2005.

Sheridan, J.