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Citation: 2003TCC846
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Date: 20031125
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Docket: 2003-2309(IT)I
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BETWEEN:
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MICHELLE PILON,
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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
Lamarre, J.
[1] This is an appeal under the
informal procedure from an assessment made by the Minister of
National Revenue ("Minister") under the Income Tax
Act ("Act") for the appellant's 2000
taxation year. The Minister included in her income for that year
child support arrears payments in the amount of $23,200 received
by her in 2000 from her former spouse. The appellant takes issue
with this tax treatment as she is of the view that child support
payments made after 1997 should not be included in income under
the new rules implemented by the Act.
[2] The facts are straightforward. The
appellant and her former spouse are divorced and have been living
separate and apart since 1980. On May 30, 1986, the Supreme Court
of Ontario, on consent of the parties, issued an order
("1986 Order"), filed herein as part of Exhibit A-1,
granting the appellant custody of her two children born on March
7, 1971 and August 6, 1973, and requiring that the former spouse
pay to the appellant child support in the amount of $300 per
month for the benefit of each child (for a total of $600 per
month), with the said amount to be payable on the first day of
each and every month until such time as one or more of the
following events should occur:
2(B) . . .
i/ the child
becomes sixteen (16) years of age and ceases to be in full-time
attendance at a school, college or university (with the exception
of school holidays or breaks);
ii/ the child
ceases to reside with . . . [the appellant], except for the
purpose of attending school, college or university;
iii/ the child
becomes twenty-one (21) years of age;
iv/ the child
marries;
v/ the child
dies.
[3] The 1986 Order also stated:
2(D) Payments of child support shall be
adjusted annually in accordance with the percentage increase in
the Consumer Price Index for the City of Ottawa.
[4] The former spouse had been in
chronic arrears of child support payments for the period from
1987 to 1994.
[5] On November 3, 1999, the Ontario
Superior Court of Justice issued the following order ("1999
Order"), which is also part of Exhibit A-1:
1. THIS COURT
ORDERS that the Father's Application for a declaration that
the child support obligation under Justice Mercier's Order
dated May 30, 1986 terminated on July 1, 1987 is dismissed.
2. THIS COURT
FURTHER ORDERS that the Father (or his estate in the event of his
death), shall pay to the Mother child support arrears, inclusive
of increases in the Consumer Price Index, in the amount of
TWENTY-THREE THOUSAND TWO HUNDRED ($23,200.00) DOLLARS.
3. THIS COURT
FURTHER ORDERS that only post-judgment interest on the arrears of
TWENTY-THREE THOUSAND TWO HUNDRED ($23,200.00) DOLLARS is to be
paid.
4. THIS COURT
FURTHER ORDERS that all funds, plus accumulated interest, held in
the trust account of . . ., Barristers & Solicitors, be paid
out forthwith to the credit of the Mother in partial satisfaction
of this Order.
5. THIS COURT
FURTHER ORDERS that brief (i.e. maximum two pages each party)
written submissions as to costs are able to be made by each party
before November 26, 1999.
6. THIS COURT
ORDERS AND ADJUDGES that unless the support order is withdrawn
from the office of the Director of the Family Responsibility
Office, it shall be enforced by the Director and amounts owing
under the support order shall be paid to the Director who shall
pay them to the person to whom they are owed.
7. THIS ORDER
BEARS INTEREST at the rate of 6% per cent per year
commencing on November 3, 1999.
[6] The appellant concedes that the
amount of $23,200 is the amount of arrears owed by her former
husband pursuant to the 1986 Order. As a matter of fact, she
filed as part of Exhibit A-1 a statement of child support due and
paid by the father from July 1987 to July 1994 inclusive. The
youngest child having reached the age of 21 years in August 1994,
from that time on, in accordance with the 1986 Order, the former
husband's legal obligation to pay child support was
extinguished. The appellant testified that the total due for the
period referred to above came to $16,992, which amount had to be
adjusted in accordance with the percentage increase in the
Consumer Price Index ("CPI"), as provided in the 1986
Order. She concedes that the amount of $23,200 reflects the total
of $16,992 plus the CPI adjustment. She argues, however, that the
payment was made by her former spouse not pursuant to the 1986
Order but in conformity with the 1999 Order and therefore becomes
a child support amount paid after 1997, which in her view is no
longer taxable under the Act.
[7] The provisions of the Act
applicable with respect to the tax treatment of child support
payments are the following:
56. (1) Without restricting the generality of section 3,
there shall be included in computing the income of a taxpayer for
a taxation year,
. . .
(b) 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 received after 1996 and before the end of the year by the
taxpayer from a particular person where the taxpayer and the
particular person were living separate and apart at the time the
amount was received,
B is the total of all amounts each of which is a child support
amount that became receivable by the taxpayer from 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 received after 1996 by the taxpayer from the particular
person and included in the taxpayer's income for a preceding
taxation year;
56.1. . . .
(4) 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 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.
"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.
[8] Arrears payments made in
compliance with the terms of an order providing that amounts are
payable on a periodic basis for the maintenance of the children
of the recipient are to be considered as the payment of an amount
payable or receivable as an allowance on a periodic basis when,
of course, the recipient has discretion as to the use of the
amounts (this last point not being at issue here). The payments
do not change in character merely because they are not made on
time (see The Queen v. Sills, 85 DTC 5096 (F.C.A.)).
[9] Here, the evidence disclosed
that the amount of $23,200 received by the appellant in 2000
represents the amount owed by her former husband pursuant to the
1986 Order. Such a payment fits within the definition of
"support amount" in subsection 56.1(4) of the
Act.
[10] Because this support amount is a
child support amount, I have to determine whether, as regards the
1986 Order, the 1999 Order created a commencement day within the
meaning of "commencement day" in
subsection 56.1(4) of the Act such that the payment
in question is not taxable in the hands of the appellant.
[11] Unfortunately, I do not so find.
The 1999 Order did not change the total child support amount
payable by the former spouse pursuant to the 1986 Order. On the
contrary, the 1999 Order confirmed the father's child support
obligation under the 1986 Order and ordered him to pay to the
appellant child support arrears, which amounted to $23,200
inclusive of increases in the CPI. The fact that the 1999 Order
bore interest commencing on the date of that Order does not
change the amount of the child support payable by the father
pursuant to the 1986 Order.
[12] There was no order made after
April 1997 with respect to the child support amount. Indeed, in
1999 the children were adults and not in the appellant's
custody anymore. There consequently could not have been an order
concerning the child support amount. The sole purpose of the 1999
Order was to force the father to meet his child support
obligation towards the appellant, as per the 1986 Order. The 1999
Order did not have the effect of creating a commencement day with
respect to the 1986 Order.
[13] Therefore, the arrears of child
support payments were not receivable by the appellant under an
order on or after its commencement day in respect of a period
that began on or after its commencement day, within the meaning
of the Act. The amount of $23,200 is a support amount
received in 2000 which is taxable in the appellant's hands in
that year pursuant to paragraph 56(1)(b) of the
Act.
[14] The appeal is dismissed.
Signed at Ottawa, Canada, this 25th day of November 2003.
Lamarre, J.
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