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Citation: 2003TCC803
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Date: 20031121
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Docket: 2003-732(IT)I
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BETWEEN:
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TOM NOWLAN,
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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
Sheridan, J.
[1] This is an appeal from the 1999,
2000 and 2001 taxation years.
PART 1- Preliminary Objection concerning the 1999 taxation
year.
ISSUE
Whether the Notice of Appeal that was filed by the Appellant
for the 1999 taxation year is a valid Notice of Appeal.
[2] Prior to the consideration of the
appeals on their merits, the Respondent objected to the hearing
of the appeal for the 1999 taxation year on the ground that the
Appellant had failed, prior to filing his Notice of Appeal, to
serve on the Minister a Notice of Objection to the reassessment
for that year as required by sections 165 and 169 of the
Income Tax Act (the "Act"). In support of
the application, the Respondent relied on the Affidavit of Tracey
Cooper, an official with the Toronto Tax Litigation Office of the
Canada Customs and Revenue Agency (the "CCRA").
[3] Attached as Exhibit "A"
to the Affidavit of Ms. Cooper is a copy of the Notice of
Reassessment for the 1999 taxation year. According to the
provisions in the Act, the Appellant had 90 days from
December 11, 2000, the date of mailing of the Notice of
Reassessment, in which to file his Notice of Objection. He missed
the March 11, 2001 deadline. The Appellant then had the option,
within the following one-year period, of seeking from the
Minister an extension of time within which to file a Notice of
Objection. Again, he failed to do so within the time permitted.
It wasn't until some eight months later in November 2002 that the
Applicant made his request to the Minister. By then, under
subsection 169(1), it was too late.
[4] Accordingly, because the Appellant
failed to file a Notice of Objection with the Minister as
statutorily required, the Respondent's Motion is granted and the
appeal for the 1999 taxation year is quashed.
PART 2
ISSUE
Whether the Appellant is entitled to a deduction for the child
support payments made in the taxation years 2000 and 2001.
FACTS
[5] The Appellant is appealing from
the assessments from the 2000 and 2001 taxation year In
computing his income for each of these years, the Appellant
sought to deduct child support payments in the amounts of $7,200
and $7,656, respectively.
[6] By Notices of Assessment dated
April 12, 2001 and May 13, 2002, respectively, the Minister
disallowed the deduction of the child support payments for these
years. The Appellant filed a Notice of Objection. In a Notice of
Confirmation dated November 28, 2002, the Minister confirmed the
2000 and 2001 assessments.
[7] The Appellant testified on his own
behalf. No other witnesses were called. Briefly summarized, his
uncontroverted testimony was as follows:
a) he and his
former spouse were married in 1979. There were two children born
during the marriage. By 1991, the Appellant and his former spouse
were living separate and apart;
b) in 1993, a
separation agreement (the "original 1993 agreement")
was signed by the Appellant and his former spouse pursuant to
which the Appellant was to pay $600 per month commencing January
1, 1993;
c) the
original 1993 agreement was filed with the Family Responsibility
Office;
d) sometime
during 1997, the Appellant encountered certain financial
difficulties which resulted in, among other things, the
accumulation of arrears;
e) in a letter
to the Family Responsibility Office dated January 7, 1998
("the 1998 agreement"), the Appellant and his former
spouse jointly agreed that they had "... been able to
resolve the situation by a friendly amendment to the [original
1993 agreement]" and that the Appellant agreed "to pay
child support on a monthly basis of $400 not taxable for the 1997
and 1998 years". The 1998 agreement further stated that
"if this agreement is broken, then the [original agreement]
will be initiated and refiled with the [Family Responsibility
Office]";
f) in
March, 1998, the Appellant and his former spouse signed a form
T1157 (97) prescribed by Revenue Canada (now "Canada Customs
and Revenue Agency") called "Election for Child Support
Payments" (the "joint election"). Pursuant to Part
B of the form, the joint election was to apply to child support
payments starting on May 1, 1997. It was filed with Canada
Customs and Revenue Agency where it remained at all times
pertinent to this case;
g) the
Appellant made child support payments of $400 per month pursuant
to the 1998 agreement until May, 1999. In May, 1999, his child
support payment cheque "bounced" thus triggering the
provision in the 1998 agreement which read "if this
agreement is broken, then the [original 1993 agreement] will be
initiated and refiled with the [Family Responsibility
Office]";
h) some time
after May, 1999 the original 1993 agreement was refiled with the
Family Responsibility Office and the Appellant returned to making
payments of $600 per month pursuant to that agreement. This
included the payment of arrears for the years 2000 and 2001 in
the amounts of $7,200 and $7,656 respectively.
STATUTORY PROVISIONS
[8] Subsection 56.1(4) defines
"commencement day" as follows:
"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 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.
ANALYSIS
I.
Joint Election
[9] The Appellant did not deny that he
and his former spouse had signed the joint election. He further
admitted that he understood the effect of signing the joint
election was to render the child support payments he was making
non-deductible after May 1, 1997. The Appellant argued,
however, that he was entitled to the deduction of his child
support payments because the reinstatement of the original 1993
agreement had the effect of revoking the joint election and of
reinstating the pre-1997 regime.
[10] While I do not doubt the sincerity of
the Appellant's belief in his argument, there was no evidence
before the Court to support the revocation, either express or
implied, of the joint election. There was no evidence of the
intentions of the other signatory to the joint election, the
Appellant's former spouse. It is not open to the Appellant to
revoke unilaterally the election he and his former spouse jointly
signed.
[11] Once Form T1157 was signed and filed
with CCRA, the genie was out of the bottle. Under subparagraph
56.1(4)(b)(i), the "commencement day" became the
date specified in the joint election form: May 1, 1997. Any
child support payment amounts paid after May 1, 1997 were paid
"on or after the agreement's commencement day in respect
of a period that began on or after its commencement day"
within the meaning of paragraph 60(b). From this it
follows that the child support paid in 2000 and 2001 cannot be
deductible from the Appellant's income.
II. Change of Original Agreement or
Subsequent Agreement Variation
[12] The Appellant argued in the alternative
that the reinstatement and refiling the original 1993 agreement
with the Family Responsibility Office in 1999 had the effect of
restoring the pre-1997 deduction/inclusion rules that had
originally applied to it. Counsel for the Respondent
disputed this saying no such effect was possible. She
argued that the various changes brought about by the 1998
agreement and the Appellant's subsequent default under that
agreement fell squarely within paragraph 56.1(4)(b).
In her view, the 1998 agreement was either a variation of the
original 1993 agreement, or a subsequent agreement replacing the
original 1993 agreement. In either case, a
"commencement day" was triggered under paragraph
56.1(4)(b) and paragraph 60(b) of the Act
applied to make the child support payments non-deductible.
[13] In Kovarik v. Canada,
[2001] T.C.J. No. 181, Bowman, A.C.J. explained the impact of the
new legislation on pre-1997 agreements:
[8] Under what I may
describe as the old régime (pre May 1997) spouses making
payments to separated or ex spouses for the support of children
could deduct those payments and the recipient had to include them
in income. Following the decision of the Supreme Court of Canada
in Thibaudeau v. Canada, [1995] 2 C.R. 627, the
legislation changed. So long as a pre May 1997 agreement remained
unchanged the deduction/inclusion system under the old
régime prevailed.
[9] If a new
agreement were entered into, or an old agreement was changed in a
particular way, the deduction/inclusion régime ceased and
only payments made up to the "commencement day", as
defined, were deductible by the payor and includible by the
payee.
[14] The fact is that the 1998 agreement
changed the child support from the $600 per month agreed to in
the original 1993 agreement to a new child support amount of $400
per month. After the Appellant's default under the 1998
agreement, the child support changed again, reverting to the 1993
amount. Accordingly, whether these changes were a variation of
the pre-1997 agreement pursuant to subparagraph
56.1(4)(b)(ii) or resulted in a new agreement, the outcome
is the same. A commencement day is triggered and paragraph
60(b) applies to make the child support payments for the
taxation years 2000 and 2001 non-deductible.
[15] Accordingly, this Court has no
alternative but to dismiss these appeal
Signed at Ottawa, Canada, this 21st day of November 2003.
Sheridan, J.
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