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Citation: 2004TCC680
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Date: 20041008
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Docket: 2004-2554(IT)I
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BETWEEN:
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GREGORY WHELAN,
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Appellant,
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and
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HER MAJESTY THE QUEEN,
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Respondent.
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REASONS FOR JUDGMENT
Beaubier,J.
[1] This appeal pursuant to the
Informal Procedure was heard at Saskatoon, Saskatchewan on
September 3, 2004. The Appellant was the only witness.
[2] Paragraphs 10 to 20 of the Reply
to the Notice of Appeal outline the matters in dispute. They
read:
10. The original Notices
of Assessment for the 2001 and 2002 taxation years were dated and
mailed to the Appellant on December 9, 2002 for 2001 and April 7,
2003 for 2002.
11. In assessing the
Appellant for the 2001 and 2002 taxation years, the Minister of
National Revenue (the "Minister"):
(a) allowed a
deduction for support payments in the amount of $18,200.00 as
claimed for 2001; and
(b) reduced the
deduction for support payments by $14,400.00 from $16,800.00 to
$2,400.00, for 2002.
12. In reassessing the
Appellant for the 2001 and 2002 taxation years on October 2, 2003
the Minister:
(a) reduced the
deduction for support payments by $1,400.00 from $18,200.00 to
$16,800.00, for 2001; and
(b) increased the
deduction for support payments by $13,000.00, from $2,400.00 to
$15,400.00, for 2002.
13. In reassessing the
Appellant for the 2001 and 2002 taxation years on November 3,
2003, the Minister:
(a) reduced the
deduction for support payments by $14,400.000 (sic), from
$16,800.00 to $2,400.00, for 2001; and
(b) reduced the
deduction for support payments by $14,4000.00 (sic), from
$15,400.00 to $1,000.00, for 2002.
14. The amount of
$14,400.00 that was disallowed for each year as stated in
paragraph 13 above was for child support that was paid in respect
of the children of the marriage. The child support was disallowed
as it was paid pursuant to an order made after April 1997.
15. On January 8, 2004,
the Appellant served on the Minister a Notice of Objection to the
reassessments for the 2001 and 2002 taxation years dated November
3, 2004.
16. By Notification of
Confirmation dated March 19, 2004, the Minister confirmed the
reassessments to the 2001 and 2002 taxation years dated November
3, 2003.
17. In so reassessing the
Appellant for the 2001 and 2002 taxation years and in so
confirming the reassessments, the Minister made the following
same assumptions of fact:
(a) the Appellant
and Dianne Whelan (the "former spouse") are the parents
of five children of their marriage as follows:
Alison Nicole Whelan, born July 10, 1985 ("Alison)
Andrea Renee Whelan, born July 10, 1987
("Andrea")
August Gregory Whelan, born November 16, 1989
("August")
Ashley Marianne Whelan, born March 20, 1991
("Ashley")
Andrew Jonathan Michael Whelan, born June 10, 1993
("Andrew")
(b) the Appellant
and the former spouse are divorced;
(c) pursuant to a
written agreement between the Appellant and the former spouse
dated August 31, 1993 (the "Written Agreement"):
(i) the
Appellant agreed to pay the former spouse child support in
respect of the children of the marriage in the amount of
$1,200.00 per month commencing January 28, 1993; and
(ii) the Appellant
agreed to pay his share of the consolidated debt in the amount of
$193.50 directly to the former spouse;
(d) the child
support required to be paid pursuant to the Written Agreement was
in respect of the five children of the marriage as stated in
paragraph 17(a) above;
(e) pursuant to a
judgment made in the Court of Queen's Bench, Judicial Centre
of Saskatoon, on November 27, 1997 (the
"Judgment"):
(i) the former
spouse was awarded custody of Andrea, August, Ashley and
Andrew;
(ii) the Appellant
was awarded custody of Alison;
(iii) the Appellant was
required to pay to the former spouse child support in respect of
the four children of the marriage in the amount of $1,200.00 per
month commencing the first day of December, 1997; and
(iv) the Appellant was
required to pay to the former spouse spousal support in the
amount of $200.00 per month commencing December 1, 1997;
(f) pursuant
to an Order made in the Court of Queen's Bench, Judicial
Centre of Saskatoon, on November 24, 2000 (the "Order")
it was ordered that the Judgment be amended to substitute
paragraph 2(d) in the Judgment dealing with the issue of child
support with the following paragraph:
"d. The parties
acknowledge and recognize a child support agreement entered into
between them and dated August 31, 1993 which agreement was to
have taken effect January 28, 1993 which provided that the
Petitioner was to make child support payments on the first day of
each month for so long as the children remain children of the
marriage within the meaning of the Divorce Act. The
parties acknowledge that all payments made since January 28, 1993
have been made pursuant to the provisions of that agreement and
their intention that payments will continue in accordance with
that agreement. This Judgment does not amend any of the child
support provisions of that agreement.
(g) pursuant to an
amended judgment made in the Court of Queen's Bench, Judicial
Centre of Saskatoon, on November 24, 2000 (the "Amended
Judgment"), the Judgment was amended pursuant to the Order
stated in paragraph 17(f) above;
(h) on November 11,
2001, the former spouse filed a Notice of Appeal with the Tax
Court of Canada;
(i) the issue
to be decided in the Notice of Appeal filed by the former spouse
was whether child support payments received by the former spouse
in the 1997, 1998 and 1999 taxation years were to be included
into income;
(j) on
February 27, 2003, Justice D.W. Beaubier of the Tax Court of
Canada issued his judgment in which he allowed the appeal of the
former spouse and referred the reassessments back to the Minister
of National Revenue for reconsideration and reassessment on the
basis that the child support payments were not to be included
into the income of the former spouse for the 1997, 1998 and 1999
taxation years;
(k) in making his
decision, Justice D.W. Beaubier held that the definition of
"support amount" under subsection 56.1(4) of the
Income Tax Act, R.S.C. 1985 (5th Supp.) c. 1, (the
"Act") must be read to mean an amount payable or
receivable per child. On the basis of this interpretation of the
definition of "support amount", Justice D.W. Beaubier
further reasoned that there was a "commencement day"
within the meaning of the definition under subsection 56.1(4) of
the Act since under the Written Agreement, the former
spouse received a total support amount of $1,200.00 or $240.00
per month for each of the five children, while under the November
27, 1997 Judgment, the former spouse had custody of only four
children and the support amount she received amounted to $300.00
per month per child.
B.
ISSUE TO BE DECIDED
18. The issue to be
decided is whether the Appellant is entitled to a deduction for
child support claimed in the amount of $14,400.00 for the 2001
and 2002 taxation years.
C.
STATUTORY PROVISIONS RELIED ON AND RELIEF SOUGHT
19. He relies on
subsections 56.1(4) and 60.1(4) and paragraph 60(b) of the
Act as amended for the 2001 and 2002 taxation years.
20. He submits that there
was a "commencement day" within the meaning of the
definition under subsection 56.1(4) of the Act since under
the Written Agreement the former spouse received a total support
amount of $1,200.00 or $240.00 per month for each of the five
children, while under the Amended Judgment, the former spouse had
custody of only four children and the support amount she received
amounted to $300.00 per month per child. Accordingly, he submits
that the Appellant is not entitled to a deduction in respect of
the child support disallowed in the amount of $14,400.00 for the
2001 and 2002 taxation years as child support payments made after
the commencement date are not deductible pursuant to paragraph
60(b) of the Act.
[3] None of the assumptions in
paragraph 17 of the Reply to the Notice of Appeal were refuted by
the evidence.
[4] The original agreement between the
husband and wife was filed as Exhibit A-1 and reads:
AGREEMENT
Agreed that Greg Whelan will pay Dianne Whelan a lump sum of
$1,200. per month in order to provide child support.
Agreed that this amount will be paid bi-monthly; the second and
fourth Thursday of each month. This agreement will take effect on
Thursday, January 28th, 1993.
This agreement was reviewed August 31, 1993.
Agreed that Greg Whelan will pay his share of the consolidated
debt, ($193.50) directly to Dianne Whelen.
It was agreed as well that this arrangement will be reviewed
October 31, 1993.
Signed: "Gregory Whelan"
Gregory Whelan
"Dianne Whelan"
Dianne Whelan
Date:
"August 31st/93"
It is not under seal and does not specify the names or number
of children. In view of that, and based upon assumptions 17(a)
and (e), the Court finds that on August 31, 1993 Gregory did not
have custody of Alison Nicole Whelan, born July 10, 1985, until
November 27, 1997, the date of the Judgment of Justice M.Y.
Carter (Exhibit A-2) which awarded custody of Alison to Gregory
(paragraph 2(b)) and which specified that the $1,200 per month
"maintenance for the four children of the marriage
..." and continuing "... for so long as the
children remain children of the marriage ..."
(paragraph 2(d)).
[5] On November 24, 2000, Laing, J.
made an order, (Exhibit A-3), which reads:
UPON hearing counsel for the Applicant and the Respondent and
having read the Affidavits filed by the parties hereto, and the
pleadings and proceedings had and taken in the within action and
upon beings (sic) satisfied that the only reason that the
amounts were included in the original Judgment was simply through
inadvertence, I am satisfied the child support payments were
intended to continue according to the terms of the Agreement of
August 31, 1993 and that the Judgment should reflect this
intention.
THEREFORE IT IS ORDERED THAT:
1. Pursuant to
Queen's Bench Rule 343A, the Judgment in the within matter
dated November 27, 1997 be amended to substitute the following
paragraph 2d:
d. The parties acknowledge and recognize a child
support agreement entered into between them and dated August 31,
1993 which agreement was to have taken effect January 28, 1993
which provided that the Petitioner was to make child support
payments on the first day of each month for so long as the
children remain children of the marriage within the meaning of
The Divorce Act. The parties acknowledge that all payments
made since January 28, 1993 have been made pursuant to the
provisions of that agreement and their intention that payments
will continue in accordance with that agreement. This Judgment
does not amend any of the child support provisions of that
agreement.
2. The issue
of spousal support is adjourned to January 26, 2001.
3. The
Application for Variation by Ms. Whelan for variation of child
support to reflect the guideline amounts is adjourned sine
die to be returned on three days notice by either side.
[6] It is noteworthy that Laing,
J.'s order which is exhibited states that both parties'
lawyers appeared before him. This fact is an important difference
from my finding in paragraph [3] in this Appellant's former
wife's case, Dianne Kim Whelan and the Queen 2002-32(IT)I in
which I stated that "there is no clear evidence before this
Court that the Appellant or her lawyer were served with the
proceedings which led to the amendment" which is quoted in
full in Exhibit A-3. Thus the evidence in this case is vitally
different than the evidence in Dianne Kim Whelan's case.
[7] Laing, J.'s order amends
Carter, J's judgment to state that "this Judgment does
not amend any of the child support provisions of that
agreement." Reading that for what it says, the agreement
(Exhibit A-1) does not refer to the number of children; it simply
describes "a lump sum of $1,200 per month in order to
provide child support." There is no reference to the number
of children for whom the $1,200 is paid in the agreement (Exhibit
A-1) or Laing, J.'s Order (Exhibit A-3).
[8] Paragraph 56.1(4)(b) of the
Income Tax Act reads:
56.1(4) The definitions in this subsection apply in
this section and section 56.
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"child support amount" means any support
amount that is not identified in the agreement or order
under which it is receivable as being solely for the
support of a recipient who is a spouse or common-law
partner or former spouse or common-law partner of the payer
or who is a parent of a child of whom the payer is a
natural parent.
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[9]"commencement day" at any time of an
agreement or order means ...
(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
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[10](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 amounts 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.
[11] On the evidence before the Court the
"child support provisions" of the agreement of August
31, 1993 were not amended; they remained $1,200. However, as
described herein, the number of children in the custody of the
recipient of child support fell from five to four. Therefore the
annual amount per child changed from $2,880 per year to $3,600
per year on the date of Carter, J.'s Judgment, November 27,
1997 while the annual lump sum of child support paid by Gregory
remained the same.
[12] In Miller v. The Queen, [2003]
DTC 1449, Mogan, J. stated in paragraphs 9, 10 and 11:
[9] In the
definition of "commencement day", this appeal falls
under paragraph (b) because the basic order was not made
after April 1997 but on November 15, 1996 (Exhibit R-1). There
are four alternatives under paragraph (b). I will consider
the first and the last alternative because they are easy to
eliminate. If the payor and the payee execute a joint election
filed with the Minister in a prescribed form they can elect a
commencement day under subparagraph (b)(i). The Appellant
and Lola Marie did not execute a joint election. Under
subparagraph (b)(iv), the agreement or order can specify a
day as the commencement day for the purpose of the Income Tax
Act. There is no commencement day specified in the second
order. Subparagraphs (b)(i) and (b)(iv) do not
apply.
[10] I am left with the two
remaining subparagraphs (b)(ii) and (b)(iii):
(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 amounts payable to the
recipient by the payor, the commencement day of the first such
subsequent agreement or order, ...
There is an obvious similarity between the provisions in (ii)
and (iii) because (ii) states "to change the child support
amounts" and (iii) states "to change the total child
support amounts". Subparagraph (b)(ii) depends on an
agreement or order being "varied" whereas subparagraph
(b)(iii) depends on a subsequent agreement or order. In
this appeal, we have what appears to be a variation because, in
the second order, Madam Justice MacKenzie states:
THIS COURT ORDERS that the order of the Honourable Judge
Holmes made November 15, 1996 is varied as
follows:
(emphasis added)
Assuming that the order of November 15, 1996 is only
"varied", the Appellant is under subparagraph
(b)(ii). The second order did not change the child support
amounts payable per month per child. The terminology of the two
orders is almost the same. The first order of November 1996 used
the words "in the sum of $475 per month per child for a
total of $1,425 per month". The second order stated
"the sum of $475 per month per child for a total of $950 per
month". It is perfectly obvious that, if one of the three
children has dropped off as no longer a person in respect of whom
child support is required, the aggregate amount is going to drop.
But that is not what subparagraph (b)(ii) of the
definition of "commencement day" is aimed at.
Subparagraph (b)(ii) is aimed at whether the varied order
will "change the child support amounts payable to the
recipient".
[11] In my view, subparagraph
(b)(ii) applies only if a prior agreement or order is
varied to change the amount payable per child. In the second
order, because Heather (the oldest child) had reached a certain
age, or level of education, or had married, or moved out, or
whatever, the Appellant was no longer required to pay $475 per
month for her after October 5, 1999. He was, however, required by
the second order to continue to pay the precise same amount for
each of the two younger children that he was ordered to pay by
the prior court order of November 15, 1996. As I read the two
court orders of November 15, 1996 and December 16, 1999, there is
no commencement day with respect to the Appellant and the
payments he made to his former wife in 1999, 2000 and 2001.
Because there is no commencement day, his entitlement to deduct
the monthly payments continues as it was before December 16,
1999.
(emphasis added)
[11] Using Mogan, J.'s analysis, these
subparagraphs of 56.1(b) which are in question in this
case are (ii) and (iii). Laing, J.'s November 24, 2000 order
is nunc pro tunc to the judgment of Carter, J. made
November 27, 1997.
[14] This same matter was dealt with by my
judgment in Dianne Kim Whelan v. The Queen, 2002-32(IT)I,
in which paragraphs [5] to [9] inclusive read as follows:
[5] The Forms of
Order for child support in this case are similar (but not
identical) to those for most such Court Orders. They order the
monthly amounts to be paid to the Appellant. Subsection 56.1(4)
refers to "amounts". The Court interprets the word
"amounts" to refer to the monthly payments which are
usual in such support Orders and which are which are made on a
calendar year basis. However, subsection 56.1(4) refers to a
total of individual "child" support amounts. The
pre-April 1997 provisions dealt with five children in this case
at $1,200 per month equals $240 per month per child. The November
24, 2000 amendment and the November 27, 1997 judgment dealt with
four children at $1,200 per month equals $300 per child per
month.
[6] In the
Court's view, subsection 56.1(4) must be read by individual
"child". Therefore, the monthly payments for the child
may vary, but if at the end of the year the total is the same for
each individual child, there is no change.
[7] In this case,
however, the total per child changed to $300 times 12 equals
$3,600 per year. That has to be the meaning of the Court Orders
after April 1997, otherwise the Appellant would continue to
receive $1,200 per month when she only had two children or just
Andrew, who was born on June 10, 1993, in her custody and all of
the other children had gone. Such a meaning is not logical and
cannot be the meaning of the Court Orders or the application of
subsection 56.1(4).
In support of this interpretation, it should also be noted
that the amending Order of November 24, 2000 refers to the plural
"children". Despite its other phraseology, the word
"children" in such a Court Order has to refer to the
number of children then in the Appellant's custody, namely
four.
[8] As a result, the
Court Orders of November 27, 1997 and November 24, 2000
constitute a change and a new Order after April 1997.
[9] Therefore, the
amounts received by the Appellant commencing December 1, 1997 are
not to be included by her in computing her income.
[15] Mogan, J.'s finding in the first
sentence of paragraph [11] corresponds with my finding in Dianne
Kim Whelan's case. That is, that subparagraph
56.1(4)(b)(ii) applies if the prior agreement is
"varied to change the amount payable per child". That
is what Carter, J.'s judgment did. Carter, J. reduced the
number of children in Dianne's custody from five to four. The
lump support amount remained the same - $1,200 per month. But
Carter, J.'s judgment, read in total, increased the amount
payable per child from $240 per month to $300 per month.
[16] For this reason the appeal is
dismissed.
Signed at Saskatoon, Saskatchewan, this 8th day of October
2004.
Beaubier, J.
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