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Docket: 2002-4586(IT)I
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BETWEEN:
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DAVID O'CONNOR,
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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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and
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DIANNE STEPHANIE O'CONNOR,
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Added Party.
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____________________________________________________________________
Appeals heard on December 17, 2003, at Toronto,
Ontario
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By: The Honourable Justice E.A. Bowie
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Appearances:
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For the Appellant:
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The Appellant himself
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Counsel for the Respondent:
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Jason J. Wakely
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For the Added Party:
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Dianne Stephanie O'Connor
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____________________________________________________________________
AMENDED DETERMINATION OF QUESTIONS AND
JUDGMENT
By
Order dated August 14, 2003, Dianne Stephanie O'Connor was
joined to the appeals of David O'Connor, for the purpose
of determining the following questions:
1. Whether any amounts
paid by David O'Connor to Dianne O'Connor were paid
pursuant to a written agreement;
2. Whether any amounts
paid by David O'Connor to Dianne Stephanie O'Connor are
deductible against David O'Connor's income in respect of
his 1997, 1998, 1999 and 2000 taxation years pursuant to
paragraph 60(b) and subsections 60.1(1) and 60.1(2)
of the Act; and
3. Whether any amounts
paid by David O'Connor to Dianne Stephanie O'Connor ought
be included in computing the income of Dianne Stephanie
O'Connor's 1999 and 2000 taxation years in accordance
with section 56 of the Act.
Upon
hearing the Appellant, the Added Party and counsel for the
Respondent;
The
questions are answered as follows:
1. Some amounts paid after
December 1997 may have been paid pursuant to a written
agreement.
2. No amounts paid by
David O'Connor to Dianne Stephanie O'Connor are
deductible by David O'Connor in computing his income for
1997, 1998, 1999 or 2000.
3. No amount paid to her
by David O'Connor ought to be included by Dianne Stephanie
O'Connor in computing her income for 1997, 1998, 1999 or
2000.
The
appeal from the assessment of tax made under the Act for
the 1999 taxation year is allowed and the assessment is
referred back to the Minister of National Revenue for
reconsideration and reassessment on the basis that the Appellant
is entitled to tuition and education credits transferred to him,
to be computed in accordance with the facts as set out in
subparagraphs 7(i) and (j) of the Amended Reply to the Notice of
Appeal, filed herein.
The
appeals from assessments of tax made under the Act for the
1997, 1998 and 2000 taxation years are dismissed.
Signed at Ottawa, Canada, this 21st day of April,
2004.
Bowie J.
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Citation: 2004TCC217
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Date: 20040421
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Docket: 2002-4586(IT)I
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BETWEEN:
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DAVID O'CONNOR,
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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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AMENDED REASONS FOR JUDGMENT
Bowie J.
[1] These are informal appeals from
assessments for income tax for the taxation years 1997, 1998,
1999 and 2000. By those assessments, the Appellant was denied the
deductions that he claimed in respect of child support and
spousal support for the years in question. On appeal to this
Court, he limited his claims for support payments to $6,000 for
each of the years in question, based upon a sum of $500 per month
for the support of his younger son. He also claims tuition and
education credits under sections 118.5 and 118.6 of the Income
tax Act (the Act) transferred to him by his children
under section 118.9 for the taxation year 1997.
[2] On the application of the
Minister, the Appellant's former spouse, Dianne Stephanie
O'Connor, was added as a party to the appeals under section 174
of the Act. The questions that I am to answer are:
1. Whether any
amounts paid by David O'Connor to Dianne O'Connor were
paid pursuant to a written agreement;
2. Whether any
amounts paid by David O'Connor to Dianne Stephanie
O'Connor are deductible against David O'Connor's
income in respect of his 1997, 1998, 1999 and 2000 taxation years
pursuant to paragraph 60(b) and subsections 60.1(1) and
60.1(2) of the Act; and
3. Whether any
amounts paid by David O'Connor to Dianne Stephanie
O'Connor ought be included in computing the income of Dianne
Stephanie O'Connor's 1999 and 2000 taxation years in
accordance with section 56 of the Act.
[3] During the course of the hearing,
counsel for the Respondent conceded that the Appellant is
entitled to the tuition and education credits that he claims,
computed in accordance with the facts assumed by the Minister in
assessing as they are set out in subparagraphs 7(i) and (j) of
the Amended Reply to the Notice of Appeal, filed.
Dianne O'Connor did not contest that entitlement. The
Appellant's appeal for 1997 will be allowed, at least to that
extent.
[4] I turn now to the contested issue,
which is the Appellant's claim that he is entitled to deduct
$6,000 in each of the years under appeal as a "child support
amount" in accordance with paragraph 60(b) of the
Act. That paragraph reads:
60 There may be
deducted in computing a taxpayer's income for a taxation year
such of the following amounts as are applicable:
(b) the total
of all amounts each of which is 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;
[5] Mr. O'Connor and his wife
separated in August 1996. They had two children, one of whom was
20, and the other 17. Mr. O'Connor made certain payments to
Dianne O'Connor for the support of their younger son following
their separation. He also made certain payments directly to their
son for the same purpose. The evidence of Mr. O'Connor and Ms.
O'Connor differs as to the extent of these payments, but I do not
find it necessary to determine their extent. In my view, none of
the payments that the Appellant made may be deducted from his
income under the provisions of the Act. It is trite that
an amount paid and received after 1996 for support of a child is
deductible from income by the payor only if it falls within the
definition of a support amount that is found in subsection
56.1(4) of the Act, which reads:
56.1(4)
The definitions in this subsection apply in this section and
section 56.
...
"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 a competent tribunal in
accordance with the laws of a province.
This definition applies as well to sections 56 and 60 of the
Act.
[6] Either an order of a competent
tribunal or a written agreement is an indispensable element of a
support amount. There is no suggestion in the evidence that there
was ever an order of a Court or tribunal that required Mr.
O'Connor to make the payments in issue. The question, then, is
whether he made the payments pursuant to a written agreement.
[7] Mr. O'Connor based his claim to
the deductions on a marriage contract that he and Ms. O'Connor
entered into on October 30, 1991.[1] This contract contemplates marriage breakdown in
a number of its provisions, and for that reason the Appellant
characterizes it as a marriage contract and separation agreement.
It makes the following provision for support of their children in
the event that they should separate:
9(b) In the event that the
parties should separate and they cannot agree on the amounts to
be contributed by each of the parties, the issue of the
contribution payable by the parties to the support and
maintenance of the children and to other costs at that time shall
be submitted to a single arbitrator who will conduct the
arbitration in accordance with the Arbitrations Act of
Ontario and whose decision will not be subject to appeal. This
paragraph shall constitute the submissions thereto. Among other
factors the arbitrator shall look at the provisions of this
Agreement as they relate to contributions by both spouses toward
household expenses before separation and that the Husband and
Wife bore such expenses in a three-quarters (¾)
one-quarter (¼) ratio respectively; and that the costs of
such expenses were, as at the date of this Agreement,
approximately $8,000 per month in total and expected to increase
or decrease in accordance with the Consumers' Price Index
(all items - Toronto Area) as published by Statistics Canada.
(c) Child support
and family maintenance in accordance with this paragraph shall be
payable until the first of the following occurs:
(i) each child
ceases to have his primary residence with both parents or either
of them;
(ii) each child
becomes 19 years of age and ceases to be in full-time attendance
at an educational institution;
(iii) each child attains the
age of 23 years;
(iv) the child marries;
(v) the child dies.
[8] Mr. O'Connor argues that this
support obligation is a written agreement sufficient to satisfy
the definition of "support amount". However, it does not specify
any dollar amount that would become payable, but instead provides
for either a future agreement or arbitration to fix the amount.
Nor does it fix a formula by which a precise obligation could be
arrived at by an arithmetic calculation based on objective
criteria, although it does give the arbitrator certain factors to
consider, among others. Mr. O'Connor takes the position that he
gave Ms. O'Connor monthly cheques for $500 for the support of
their younger son following the separation, and that by accepting
and cashing those cheques she agreed, in writing, to $500 per
month as her entitlement for that purpose under the marriage
contract.
[9] I do not agree that those cheques
had any such effect. An identical question arose in Grant v.
Canada.[2] Cheques for $1,000 were given by Mr.
Grant to his estranged wife for support of their children each
month following their separation, and before any written
agreement or court order was made. Mogan J. rejected the
proposition that by cashing these cheques Ms. Grant entered into
a written agreement fixing $1,000 per month as the child support
amount to be paid by him. I agree with his view that cashing the
cheques does not imply agreement. A mother supporting children in
those circumstances would be likely to need the funds and could
be expected to negotiate the cheques even if she felt they were
inadequate. In Grant, there was a subsequent letter from
Ms. Grant's lawyer to Mr. Grant's lawyer that referred to
"the agreement to receive $1,000 per month", from which
Mogan J. inferred a written agreement when it was read with the
cheques. Here we have no such letter, or anything like it, and no
written agreement can be inferred.
[10] The only other significant document
that is before me is the Minutes of Settlement that Mr. and Ms.
O'Connor entered into to conclude proceedings between them
for divorce and ancillary relief that were begun in the Ontario
Court (General Division) in 1997. That document provided that Mr.
O'Connor was to provide $6,000 on account of retroactive
child support, and then went on to make provision for future
payment by him of $500 per month for the younger of their
children. There are additional complex provisions for payment of
certain expenses by the husband, and for the wife to pay child
support if their child decided to live with his father. The copy
of this document that was produced at the trial, and which became
Exhibit A-2, is dated December 1, 1997 and is unsigned. Mr. and
Mrs. O'Connor both agreed, however, that they had both
executed the original. This document makes no provision for
spousal support, so any support amount paid under it must be
child support. As it has a commencement date after April 30,
1997, no child support paid under it can be deductible.
[11] Mr. O'Connor's position in
argument was that the marriage contract became a separation
agreement when he and his wife separated in August 1996, and that
they agreed orally at that time that he should pay $500 per month
for support of their younger child. This agreement, he said,
related back to feed the written agreement, effectively making it
a written agreement to pay $500 monthly. This argument is
untenable, however. It is clear from Grant, and from many
earlier cases as well, that the amount of support to be paid must
be specified in writing in order for there to be a written
agreement to pay child support. Recent confirmation of the
principle can be found in the decision of the Federal Court of
Appeal in Milliron v. Canada.[3]
[12] The questions referred under section
174 will be answered as follows:
1. Some amounts paid after
December 1997 may have been paid pursuant to a written
agreement.
2. No amounts paid by
David O'Connor to Dianne Stephanie O'Connor are
deductible by David O'Connor in computing his income for
1997, 1998, 1999 or 2000.
3. No amount paid to her
by David O'Connor ought to be included by Dianne Stephanie
O'Connor in computing her income for 1997, 1998, 1999 or
2000.
[13] The appeal for 1999 is allowed
only to the extent of the agreement of the parties referred to
above. The appeals for 1997, 1998 and 2000 are
dismissed.
Signed at Ottawa, Canada, this 21st day of April,
2004.
Bowie J.
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