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Citation: 2004TCC89
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Date: 20040505
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Docket: 2003-639(IT)I
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BETWEEN:
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DENIS DUFRESNE,
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Appellant,
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and
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HER MAJESTY THE QUEEN,
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Respondent,
and
LOUISE NOBERT,
Third Party.
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[OFFICIAL ENGLISH TRANSLATION]
REASONS FOR JUDGMENT
Bédard J.
[1] This is a reference under section 174 of the Income Tax Act (the "Act").
[2] The assessments for which the Minister of National Revenue (the "Minister") is seeking a decision are as follows:
i) The reassessments dated September 6, 2002, for Mr. Dufresne for the 1999, 2000 and 2001 taxation years.
ii) The reassessments dated September 6, 2002, for Ms. Nobert for the 2000 and 2001 taxation years. The Minister is not seeking a decision regarding the reassessment dated September 6, 2002, for Ms. Nobert for the 1999 taxation year, as the normal reassessment period for that year has expired.
[3] The taxpayers bound by the judgment in this case are Denis Dufresne and Louise Nobert.
[4] The issues on which a decision is sought by the Respondent are as follows:
(i) The issue is whether, in calculating his income for the 1999, 2000 and 2001 taxation years, Mr. Dufresne can deduct the following child support amounts paid to Louise Nobert during those taxation years:
1999 $6,080
2000 $7,771
2001 $8,782
(ii) Another issue is whether Ms. Nobert, in calculating her income for the 2000 and 2001 taxation years, must include the following child support amounts received from Mr. Dufresne during those taxation years:
2000 $8,633
2001 $8,380
[5] The following facts put forth by the Respondent at Section D of her application for a reference to section 174 of the Act are not contested by Mr. Dufresne and Ms. Nobert:
[translation]
4. Denis Dufresne and Louise Nobert were married on December 22, 1989.
5. Two children were born of this marriage, Audray-Anne on October 5, 1990, and Bruno-Pierre on July 9, 1992.
6. Denis Dufresne and Louise Nobert were divorced on November 17, 1995.
7. On March 21, 1997, Denis Dufresne and Louise Nobert signed a document entitled "agreement on an application for variation of corollary relief" that, among other things, stated that Denis Dufresne was to make support payments to Louise Nobert for Audray-Anne and Bruno-Pierre.
8. On May 20, 1997, Robert Legris, J. confirmed the agreement on an application for variation of corollary relief dated March 21, 1997, and ordered Denis Dufresne and Louise Nobert to comply therewith.
9. Denis Dufresne claimed no deduction on his income tax returns for the 1997 and 1998 taxation years for the support paid to Louise Nobert for Audray-Anne and Bruno-Pierre for each taxation year.
10. Louise Nobert did not include any amount in her income tax returns filed for the 1997 and 1998 taxation years for the payment received from Denis Dufresne for Audray-Anne and Bruno-Pierre during each taxation year.
11. On September 30, 1999, Denis Dufresne filed applications for relief with the Minister of National Revenue for the 1997 and 1998 taxation years, for which he claimed deductions of $5,082 and $6,318 for those taxation years respectively for the support payments to Louise Nobert for Audray-Anne and Bruno-Pierre.
12. In reassessments dated December 29, 1999, made for Denis Dufresne for the 1997 and 1998 taxation years, the Minister of National Revenue allowed the following deductions for support payments to Louise Nobert for Audray-Anne and Bruno-Pierre for each of those taxation years:
1997 $5,082
1998 $6,318
13. In reassessments dated December 29, 1999, for Louise Nobert for the 1997 and 1998 taxation years, the Minister of National Revenue added to her income the following support amounts received from Denis Dufresne for Audray-Anne and Bruno-Pierre during each taxation year:
1997 $5,082
1998 $6,318
14. On March 28, 2000, Louise Nobert served the Minister of National Revenue with a Notice of Objection for the 1997 and 1998 taxation years.
15. On May 31, 2000, the Minister of National Revenue confirmed the reassessments of Louise Nobert for the 1997 and 1998 taxation years.
16. On August 16, 2000, Louise Nobert filed in the Registry of the Tax Court of Canada a Notice of Appeal, No. 2000-3534(IT)I, for the 1997 and 1998 taxation years.
17. The Louise Nobert's appeal was heard before Tardif, J. at Bécancour on February 25, 2002.
18. In a ruling dated March 19, 2002, Tardif, J. found that the support amounts received by Louise Nobert from Denis Dufresne for Audray-Anne and Bruno-Pierre were payable under the terms of the order by Robert Legris, J. on May 20, 1997.
19. Tardif, J. thus allowed Louise Nobert's appeal on the grounds that the amounts in question were not taxable income under paragraph 56(1)(b) of the Income Tax Act, as they were child support pursuant to a court order after April 1997, i.e., payable on or after the date of execution of the order.
20. In her income tax returns file for the 1999, 2000 and 2001 taxation years, Louise Nobert included the following support amounts received from Denis Dufresne for Audray-Anne and Bruno-Pierre during these taxation years:
1999 $6,500
2000 $8,633
2001 $8,380
21. In his income tax returns filed for the 1999, 2000, and 2001 taxation years, Denis Dufresne deducted the following support amounts paid to Louise Nobert for Audray-Anne and Bruno-Pierre during these taxation years:
1999 $6,080
2000 $7,771
2001 $8,782
22. In reassessments dated September 6, 2002, for Louise Nobert for the 1999, 2000 and 2001 taxation years, the Minister of National Revenue reduced the latter's income by the following amounts included in her income as support from Denis Dufresne for Audray-Anne and Bruno-Pierre during each of these taxation years:
1999 $6,500
2000 $8,633
2001 $8,380
23. In reassessments dated September 6, 2002, for Denis Dufresne for the 1999, 2000 and 2001 taxation years, the Minister of National Revenue disallowed the following deductions by the latter for support paid to Louise Nobert for Audray-Anne and Bruno-Pierre during each of these taxation years:
1999 $6,080
2000 $7,771
2001 $8,782
24. On October 9, 2002, Denis Dufresne served the Minister of National Revenue with a Notice of Objection for the 1999, 2000 and 2001 taxation years.
25. On December 3, 2002, the Minister of National Revenue confirmed the reassessments of Denis Dufresne for the 1999, 2000 and 2001 taxation years.
26. On February 14, 2003, Denis Dufresne filed in the Registry of the Tax Court of Canada a Notice of Appeal, No. 2003-639(IT)I, for the 1999, 2000 and 2001 taxation years.
[6] The agreement dated March 21, 1997, reads as follows:
[translation]
. . .
AGREEMENT ON APPLICATION
FOR VARIATION OF COROLLARY RELIEF,
The parties hereto have entered into the following agreement:
1) TO VARY the judgment of January 22, 1996;
2) TO ORDER the applicant to pay the respondent the amount of $325 in respect of support arrears for the period from July 1996 to the date hereof;
3) TO ORDER the applicant to pay the respondent, for the minor children Audray-Anne and Bruno-Pierre, support of $100 a week when the applicant is receiving employment insurance and $150 a week when the applicant is employed; the applicant is not required to pay the respondent support when he is receiving no income;
4) THE WHOLE with each party paying his or her own costs.
. . .
[7] The agreement was confirmed by Robert Legris, J., the whole as appears in the judgment dated May 20, 1997, which reads as follows:
[translation]
. . .
The Court has before it an application for variation of corollary relief.
Whereas the parties have entered in the record an agreement that should be confirmed;
FOR THESE REASONS, THE COURT:
RECEIVES, CONFIRMS AND RENDERS ENFORCEABLE the agreement entered into between the parties on March 21, 1997, appended to this judgment, and ORDERS the parties to comply therewith.
. . .
[8] Ms. Nobert testified that she and her spouse had agreed on the terms and conditions relating to the amounts payable in respect of support obligations. She explained both had been represented at the time by counsel and that both parties had wanted the content of the agreement to be subject to the new provisions of the Act respecting the non-taxation which came into force in May 1997.
[9] Ms. Nobert explained that the agreement had been deliberately held back so that when submitted to the Court it would bear a date subsequent to the coming into force of the provisions of the Act relating to non-taxation. In support of her claims, Ms. Nobert submitted that the agreement provided for a significant reduction in the amount that had till then been payable to her, precisely because the amounts to be paid were no longer to be taxable in her hands. She added that her former spouse subsequently changed his mind, as he had initially said he would not claim the deduction for two years.
[10] It was admitted that the parties to the agreement abided by its contents from the moment it was signed.
[11] I must determine whether child support payments were made under the March 21, 1997 agreement or under the May 20, 1997 decision.
Analysis
[12] It is obvious that, if the child support payments were made under the March 21, 1997 agreement, the former inclusion/deduction rules regarding child support would apply to this case, as none of the conditions listed at paragraph (b) of the definition of "commencement day" in paragraph 56.1(4) of the Act were not met in this case. Indeed, for an agreement prior to May 1997 to be non-taxable, one of the following conditions must be met:
(i) A joint election must have been filed, by which the child support payable on or after a specific date is neither taxable nor deductible.
(ii) The order or agreement is varied after April 1997 to change the child support amounts.
(iii) A subsequent agreement or order is made after April 1997, the effect of which is to change the total child support amounts.
(iv) A change was made to the agreement or order stating that the child support payable on or after a specified date is no longer taxable or deductible.
[13] However, I am convinced that the parties wanted the May 20, 1997 order to be the commencement day as defined in subsection 56.1(4) of the Act. I am of the opinion that the parties' intention in having the March 21, 1997 agreement confirmed was to comply with the new rules regarding non-taxation. Ms. Norbert's explanations in this regard, which were not truly contradicted by Mr. Dufresne, seem credible and likely, particularly as the latter had agreed to such tax treatment for two years. I am convinced that the parties believed that the agreement only became enforceable when confirmed by the Court and that they had simply complied with it on a voluntary basis when it was signed. They did not believe they were bound by the agreement.
[14] I therefore find that the May 20, 1997 order, not the March 21, 1997 agreement, changed the amount of the child support that was initially payable to Ms. Norbert under the June 22, 1996 judgment.
[15] For these reasons, I am of the opinion that the new provisions of the Act that came into force in May 1997 regarding non-taxation of child support apply and that, as a result:
(i) Mr. Dufresne, calculating his income for the 1999, 2000 and 2001 taxation years, could not deduct the following child support amounts paid to Ms. Nobert:
1999 $6,080
2000 $7,771
2001 $8,782
(ii) Ms. Nobert, in calculating her income for the 2000 and 2001 taxation years, was not required to include the following child support amounts received from Mr. Dufresne:
2000 $8,633
2001 $8,380
Signed at Ottawa, Canada, this 5th day of May 2004.
Bédard J.
Translation certified true
on this 24th day of August 2004.
Gerald Woodard, Translator
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