|
Citation: 2004TCC335
|
|
Date: 20040514
|
|
Docket: 2001-3264(IT)I
|
|
BETWEEN:
|
|
CORNELIUS PIEPER,
|
|
Appellant,
|
|
and
|
|
|
|
HER MAJESTY THE QUEEN,
|
|
Respondent.
|
REASONS FOR JUDGMENT
O'Connor,
J.
[1] The issue in this appeal is whether the
Appellant in the 1998 taxation year is entitled to deduct certain support
payments paid to his wife for the support of their three children. The Notice
of Appeal mentioned also the 1997 taxation year but it was agreed at the
hearing that the 1997 year was no longer an issue as the Minister had allowed
the deduction as claimed by the Appellant. The
appeal also mentioned the 1999 taxation year but the appeal for that year is
not properly before the Court as no Notice of Objection was filed on time with
respect to that year.
[2] The appeal was heard on the basis of a
Partial Agreed Statement of facts and on the basis of a Joint Book of Documents
which reads as follows:
PARTIAL AGREED STATEMENT OF FACTS
The Appellant and the Respondent, by their solicitors
agree to the following facts provided:
a) such admissions are made for the
purpose of this proceeding; and
b) the parties are permitted to
adduce additional evidence to supplement, but not to contradict, the facts herein
stated.
1. On April 3, 1995, the
Appellant's former spouse Helen Catarina Pieper ("Helen"), was
awarded interim custody of the three children of her marriage with the
Appellant pursuant to an Order of the Ontario Court (General Division) (the
"Interim Order").
2. In accordance with the Interim
Order, the Appellant was required to pay Helen child support of $2,490 per
month for the interim support and maintenance of the children ceasing on April
3, 1998.
3. On April 28, 1997, Helen and the
Appellant entered into Minutes of Settlement ("Minutes") to finally
resolve outstanding issues between them arising form the breakdown of their
marriage. The Minutes provided that the Appellant pay child support in the
amount of $535 per month in respect of each of the three children of the
marriage. The Minutes also expressly provided that the agreement between the
parties was "SUBJECT TO THE APPROVAL OF [THE] COURT".
4. On October 17, 1997, the Ontario
Court (General Division) issued an Order in respect of the matrimonial dispute
between the Appellant and Helen (the "Final Order"). The Final Order
recited that Helen and the Appellant had applied for judgment in accordance
with the terms of the Minutes of Settlement.
5. The Final Order provided for
payments of child support in the amount of $535 per month per child in
accordance with the Minutes agreed to by the Appellant and Helen. However, the
Final Order and the Minutes differed from each other as follows:
|
d
|
Minutes provide
for full and final release of all claims with no right to vary
|
4
|
Parties release
each other, but reference to waiver of right to variation is excluded
|
|
k
|
|
|
|
|
P
|
Each party
entitle to personal property in his/her possession except items in garage,
which are to be removed
|
14
|
Each party liable
for own debts and liabilities
|
|
|
Not in Minutes
|
15
|
Trail bike to be
sold and proceeds payable to Appellant
|
|
|
Not in Minutes
|
16
|
No further
equalization
|
|
|
Not in Minutes
|
17-22
|
Provisions
dealing with Appellant's pension
|
|
|
Not in Minutes
|
23
|
Retroactive Order
deeming payments made prior to Interim Order to be made pursuant to Final
Order to be includible and deductible for ITA purposes.
|
1997 Taxation Year
6. The Appellant, in computing
income for the 1997 taxation year deducted the amount of $23,725.35 as support
payments. In
assessing the Appellant for the 1997 taxation year, by Notice of Assessment
dated June 8, 1998, the Minister of National Revenue (the "Minister")
allowed the deduction for support payments in the amount of $23,725.35 as
claimed by the Appellant.
7. The Minister has not reassessed
the Appellant's tax liability in the 1997 taxation year. The Appellant did not
file a Notice of Objection at any time on or before September 8, 1998
8. The Appellant failed to apply to the Minister to extend the
time to file a Notice of Objection on or before September 8, 1999.
9. In computing income for the 1997 taxation year, Helen
included the amount of $23,725.35 on account of support payments received. The Minister by Notice of Assessment
dated June 8, 1998, assessed Helen's tax liability as filed. The Minister has not reassessed
Helen's tax liability in the 1997 taxation year.
1998 Taxation Year
10. The Appellant in computing income
for the 1998 taxation year deducted the amount of $26,520 as support payments. In assessing the Appellant for the
1998 taxation year, by Notice of Assessment dated June 10, 1999, the Minister
allowed the deduction of $26,520 for support payments as claimed by the
Appellant.
11. By Notice of Reassessment dated
November 22, 1999, the Minister reduced the deduction initially allowed for
support payments form $26,520 to $6,600 the difference being child support
payments paid to Helen in the amount of $19,260 as specified in both the
Minutes and the Final Order. The amount of $6,600 allowed by the Minister was
in relation to support payments made to Geeske Maan, the Appellant's former
common-law spouse, which is not in dispute in this appeal.
12. The Appellant duly filed a Notice
of Objection for the 1998 taxation year. By Notice of Confirmation dated
December 8, 2000, the Minister confirmed the reassessment of the Appellant's
tax liability in the 1998 taxation year.
13. In computing income for the 1998
taxation year, Helen included the amount of $20,160 on account of support
payments received.
The Minister by Notice of Assessment dated June 3, 1999, assessed Helen's tax
liability as filed.
The Minister has not reassessed Helen's tax liability in the 1998 taxation
year.
1999 Taxation Year
14. The Appellant, in computing income
for the 1999 taxation year deducted the amount of $30,000 as support payments. In assessing the Appellant's tax
liability for the 1999 taxation year, by Notice of Assessment dated June 8,
2000, the Minister reduced the allowable deduction for support payments from
$30,000 to $13,2000 the difference being child support payments paid to Helen
in the amount of $16,800 pursuant to the Minutes and the Final Order. The
amount of $13,200 allowed by the Minister was in relation to support payments
made to Geeske Maan, the Appellant's former common-law spouse which is not in
dispute in this appeal.
15. The Minister has not reassessed
the Appellant's tax liability in the 1999 taxation year. The Appellant did not
file a Notice of Objection at any time on or before September 8, 2000. The Appellant failed to apply to the
Minister to extend the time to file a Notice of Objection on or before
September 8, 2001.
16. In computing income for the 1999
taxation year, Helen included the amount of $16,800 on account of support
payments received.
The Minister by Notice of Assessment dated June 3, 1999, assessed Helen's tax
liability as filed.
The Minister has not reassessed Helen's tax liability in the 1999 taxation
year.
AGREED to by the parties to be the facts of their
dispute, as represented by their respective counsel.
|
Date: April 23, 2004
|
|
|
|
R. Gary McLister
|
|
|
Solicitor for the Appellant
|
|
|
309 – 251
Goyeau Street,
|
|
|
Westcourt Place
|
|
|
Windsor, Ontario N9A 6V2
|
|
|
Tel: (519) 258-6545
|
|
|
Fax: (519) 258-9133
|
|
Date: April 23, 2004
|
|
|
|
Ifeanyichukwu Nwachukwu
|
|
|
Solicitor for the Respondent
|
|
|
Department of Justice
|
|
|
Tax Law Service Section
|
|
|
Bank of Canada, East Tower
|
|
|
234 Wellington Street, Room 946
|
|
|
Ottawa, ON, K1A 0H8
|
|
|
Tel: (613) 946-9991/Fax: (613) 941-2293
|
[3] The Respondent's Written Submissions read
as follows:
PART I – STATEMENT OF FACTS
1. The Statement of Facts is setout
in the Partial Agreed Statement of Facts jointly filed by the parties with the
Court and dated April 23, 2004.
PART II – POINTS IN ISSUE
2. Were the child support payments
made in the 1998 taxation year made pursuant to the Final Order or the Minutes?
3. If the payments were payable
pursuant to the Final Order, what, if any, is the commencement day of the Final
Order?
4. If the payments were payable
pursuant to the Minutes, what, if any, is the commencement day of the Minutes?
PART III – SUBMISSIONS
5. The Respondent's submissions are as
follows:
(a) The payments in question were
made pursuant to the Final Order and not pursuant to the Minutes;
(b) The Final Order was a stand
alone Order; it did not vary the pre-existing Interim Order or Minutes;
(c) The Commencement Date of the
Final Order was October 17, 1997;
(d) Even if the payments had been
made pursuant to the Minutes, the Minutes themselves had a Commencement Date of
May 31, 1997.
Legislative Framework
6. Prior to May 1, 1997, child
support payments were deductible from the income of the payor and taxable in
the hands of the recipient. However, in 1997, new child support guidelines were
introduced by Parliament along with new income tax legislation that was
intended to bring to an end the system of inclusion and deduction. That
legislation included a series of transitional provisions that were intended to
exempt pre-existing child support arrangements but govern all new arrangements
and all variations of existing arrangements. The relevant provisions of the Income
Tax Act as they apply to the Appellant are the following:
56.1(4) Definitions – The definitions in this
subsection apply in this section and section 56.
"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.
"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 amounts payable to the recipient by the payer, the commencement
date 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.
"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 natural parent of a child of the
recipient and the amount is receivable under an order made by the competent
tribunal in accordance with the laws of a province.
60. Other deductions – There may be deducted in computing a
taxpayer's income for a taxation year such of the following amounts as are
applicable:
(b) [spousal or child] support –
the total of all amounts each of which is an amount determined by the formula
A – (B + C)
where
A is the total of all amounts each of which is a support
amount paid after 1996 and before the end of the year by the taxpayer to a
particular person, where the taxpayer and the particular person were living
separate and apart at the time the amount was paid,
B is the total of all amounts each of which is a child support amount
that became payable by the taxpayer to the particular person under an agreement
or order on or after its commencement day and before the end of the year in
respect of a period that began on or after its commencement day, and
C is the total of all amounts each of which is a
support amount paid by the taxpayer to the particular person after 1996 and
deductible in computing the taxpayer's income for a preceding taxation year;
Income Tax Act, R.S.C. 1985 (5th Supp) as amended,
subsection 56.1(4) and paragraph 60(b), Respondent's Book of Authorities, TAB 1
7. The requirement for
deductibility that apply to this case can be summarized as follows:
(a) In order to have a support
amount, there must be an amount payable under an agreement or court order;
(b) The amount cannot become payable
under the agreement or court order, on or after the commencement day of the
agreement or order;
(c) The commencement day of an
agreement or order made after April 1997 is the day that it is made;
(d) An agreement or order made
before the end of April 1997 may have a commencement day if the child support
payment are varied or if the agreement or order is subject to a subsequent
agreement or order or if the agreement or order specifies a commencement day.
Income Tax Act, s.56.1(4), par. 60(b), Respondent's
Book of Authorities, TAB 1
8. In this case, the Appellant
argues that he was obliged to make payments pursuant to the Minutes; the
Minutes were made before the end of April 1997 and do not specify a
commencement day; the amount in item "B" of paragraph 60(b) is
therefore nil and the amount in item "A" is fully deductible.
Payments in 1998 were made pursuant to the
Final Order
9. The payments in question were
made pursuant to the Final Order and not pursuant to the Minutes. The Appellant
was obliged by the Interim Order to pay child support of $2,490 per month for
the three children of the marriage until April 3, 1998. The Interim Order
remained in force until October 17, 1997 and any reduction in child support
payments made without judicial sanction would have constituted a breach of the
Interim Order. Thus the approval of the Ontario Court was a condition precedent
to the coming into existence of a binding obligation to pay the child support
amount in dispute.
Family Law Act, R.S.O. 1990, c. F.3 as amended s.33,
34, 37, Respondent's Book of Authorities, TAB 2.
Nature and Effect of a Condition Precedent
10. The essential features of a true
condition precedent are the following:
(a) The condition is
fundamental to the existence of the agreement between the parties; until the
condition is satisfied there is no binding agreement;
(b) The condition is
contingent on the will of a third person who is not a party to the contract;
(c) A true condition precedent
cannot be waived by either party, even if it exists for the sole benefit of a
party, because, without the fulfilment of that condition, there can be no
enforceable agreement between the parties.
Turney v. Zilka, [1959] S.C.R. 578, Respondent's Book of
Authorities, TAB 13
See also Barnett v. Harrison, (1975), 57 D.L.R. (3d) 225 (S.C.C.)
at page 230, Respondent's Book of Authorities, TAB 9.
See also G.H.L. Friedman, The Law of Contract in Canada, 4th ed.(Scarborough: 1999, Carswell) pages 457-471
Respondent's Book of Authorities, TAB 3.
11. In Imperial General Properties
Ltd. v. R., the taxpayer argued that a sale of land took place in 1968,
when the closing occurred. However, the taxpayer was assessed on the basis that
no sale took place until 1970 when the last of the conditions precedent were
satisfied. The Federal Court of Appeal for the Crown on the basis that at least
one of the conditions, obtaining consent under the Planning Act, for a
sale of the subject lands was a true condition precedent that was not fulfilled
until 1970. Until that condition was fulfilled, it was legally impossible to
have a conveyance of the subject property.
Imperial General Properties Ltd. v. R, [1985] 1 C.T.C. 40 (F.C.A.) reversing [1983] C.T.C. 42
(FCTD), Respondent's Book of Authorities, TABS 10 and 11.
12. The facts in this case are even
more compelling than those in Imperial. In Imperial third party
approval was necessary but not sufficient to create an enforceable obligation
to sell the subject property. That is, the parties still looked to their
agreement to define and enforce the obligations. In this case, the Final Order
not only approves of the agreement between the parties, it becomes the
enforceable instrument that defines the obligations of the parties. Thus, the
Minutes are not the legal authority requiring the Appellant to pay child
support, much less to reduce the amount of those payments.
13. Alternatively, even if the
Minutes rather than the Final Order could be construed as authority for the
payment of child support, it is submitted, that the Final Order was
sufficiently different from the Minutes so as to rescind those Minutes. As a
result, the Final Order became the document that provided the authority for the
payment of child support.
Mossman v. R., [2002] 4 C.T.C. 2101 (TCC) at para. 19 and
21, Respondent's Book of Authorities, TAB 7
Katsoras v. R. [2002] CarswellNat 1091 (TCC) at para. 9,
Respondent's Book of Authorities, TAB 4
14. Since the payments were made
under the authority of the Final Order and not the Minutes, it is the
commencement day, if any, of the Final Order, that governs the Appellant's
entitlement to deduct the payment in dispute. This follows from item
"B" of paragraph 60(b) which bars the deduction of all child
support amounts that became payable under an agreement or order,
after its commencement day.
Determining the Commencement Day of the
Order
15. The Final Order was made on
October 17, 1997 and paragraph (a) of the definition of "commencement
day" defines commencement day as the day on which an Order is made, if it
is made after April 1997. The Final Order was a stand-alone order made on
October 17, 1997. Therefore, the commencement day of the Final Order is October
17, 1997.
16. Subparagraph (b)(ii) of the
definition of commencement day does not apply to the Final Order. The Final
Order does not vary the Interim Order, it is a stand alone Order that rescinds
the Interim Order (and Minutes). In any event, the commencement day of the
Final Order under paragraph (b)(ii) would be the date that the first varied
payment is made or May 31, 1997. A commencement day of May 31, 1997 does not
assist the Appellant.
Income Tax Act, Respondent's Book of Authorities, TAB 1
Mossman, supra.
17. Subparagraph (b)(iii) of the
commencement day definition applies when a subsequent order such as the Final
Order has the effect of changing the total child support payments made under
the Interim Order. This applies to the case at bar but is unhelpful to the
Appellant because paragraph (b)(iii) defines the commencement day in such
circumstances as the commencement day of the first such subsequent order or
agreement. This effectively refers back to paragraph (a) of the definition of
commencement day, being the day the subsequent agreement or order is made. That
is, the date of the Final Order being October 17, 1997.
Determining the Commencement Day of the
Minutes
18. In the alternative, if the
Minutes are the authority under which child support was paid in this case, it
is submitted that the commencement day of the Minutes is after April 30, 1997.
19. According to subparagraph (b)(iv)
of the definition of commencement day, the commencement day set out in the
agreement or order for the purposes of the Income Tax Act is the commencement
day. There is some case law to suggest that an agreement or order that uses the
word "commencing" rather than "continuing" triggers a
commencement day. However, there is contrary authorities that require an
express reference to the Income Tax Act to create a commencement day.
20. In this case, the Minutes do not
expressly refer to a commencement day for the purpose of the Income Tax Act.
However, the Minutes do provide for child support to be paid
"commencing" on May 31, 1997. The Minutes do not use the word
"continues". As such, it is submitted that the use of the word
"commencing" in the Minutes is sufficient to create a commencement
day in accordance with the definition of commencement day found in subparagraph
(b)(iv).
Krutko v. R., [2003] CarswellNat (TCC) at para. 14 and
16, Respondent's Book of Authorities, TAB 5.
Mossman, supra
Taylor v. Taylor [1998] CarswellNat (Ont. Gen. Div) at
para. 38, Respondent's Book of Authorities, TAB 8
Lack v. R [2003 CarswellNat (TCC) at para. 20,
Respondent's Book of Authorities, TAB 6
PART IV – ORDER SOUGHT
1. The Respondent respectfully
requests that the Appeal be dismissed.
[4] Reference was also made to a Respondent's
Book of Authorities which was filed. In fact it is a Joint Book of Authorities
as some of the cases support the position of the Appellant and some support the
position of the Respondent.
[5] Counsel
for the Appellant submitted that the governing instrument was the Minutes of
Settlement signed on April 28, 1997. He pointed out that the Appellant and his
wife having learned and or having been advised of the change in the law which
is analyzed in the Respondent's Written Submissions entered into the Minutes of
Settlement so that the inclusion deduction treatment of support payments would continue.
He argued further that the Order of October 17, 1997 was not a stand-alone
Order and in fact the gist of that Order was to ratify the minutes of
settlement of April 28, 1997. He stated that the changes in the final Order
were not substantive and were merely in the nature of resolving other issues
not dealt with in the Minutes of Settlement. He adds that the Minutes of
Settlement governed the support payments and the Final Order did not change
anything with respect to support payments. He states that none of the four
possible commencement days provided for in subsection 56.1(4) are contemplated
in Minutes of Settlement. Consequently, the 'B' in section 60 is nil and
consequently all of the support payments made in 1998 are deductible to the
Appellant. He adds that the parties clearly intended to have the previous
inclusion deduction regime apply to them and they filed their income tax
returns for 1998 on that basis.
ANALYSIS
AND DECISION
[6] In my opinion the appeal should be
allowed for the following principal reasons:
1.
A dramatic change was made in 1997 in the law
governing support payments and the critical date is something defined as the
commencement day. The Appellant and his wife were aware of the change in the
law and clearly wished the existing regime between them of inclusion deduction
to continue. To find that the commencement day was after April 30, 1997 would
not only frustrate the intentions of the Appellant and his wife, it would also
result in tax payable by the Appellant and tax refundable to the wife, a result
clearly not intended and one which would be justified only by a very strict
interpretation of the relevant provisions of the Act.
2.
I do not find that the October 1997 Order was a
stand-alone Order. In my view it merely ratified and echoed the support payment
provisions in the Minutes of Settlement and added other provisions not dealing
with those support provisions.
3.
It is further my view that stipulating a payment
date in the Minutes of Settlement as being May 31, 1997 is not sufficient to
establish that as the commencement day. There is nothing in the Act that
dictates that. The obligation to make the support payments arose with the
Minutes of Settlement and the Final Order in my opinion merely ratified the
Minutes of Settlement. In other words the obligation to make the payments arose
upon execution of the Minutes of Settlement.
4.
With respect to the original Interim Order of
1995, I do not find that the April 1998 date was sufficient to cause a new
regime of no inclusion and no deduction to govern when the law was dramatically
changed in 1997. The parties were free to change that April 1998 date and they
did so in the Minutes of Settlement of April 28, 1997.
[7] In conclusion the appeal is allowed with
costs.
Signed at Ottawa, Canada, this 14th day of May 2004.
O'Connor,
J.
Email this Content