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Citation: 2003TCC632
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Date: 20031027
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Docket: 2002-3460(IT)I
2003-1140(IT)I
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BETWEEN:
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ROBERT WALKER,
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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
McArthur J.
[1] Robert Walker, the Appellant, paid
child support payments of $3,600 in 2000 and $1,500 in 2001. The
issue is whether he can deduct these amounts in computing his
income. The Appellant represented himself.
[2] The facts are not in dispute. The
Appellant was in a common-law relationship with Debra Erickson
(Debra) on September 15, 1991 when their daughter Katherine was
born. By Separation Agreement dated April 8, 1993.[1] Debra was given custody
and the Appellant was required to pay $300 per month commencing
March 1, 1994 for the support of Katherine.
[3] The Separation Agreement was filed
in the Provincial Court of British Columbia on May 25, 1993.
The Appellant has paid Debra for the support of Katherine,
pursuant to the Agreement since March 1994.
[4] The first question is whether a
valid joint election form was filed with the Minister of National
Revenue (the Minister). If this form is valid it would make
payments made by the Appellant no longer deductible after April
1997. A copy of an election agreement was presented in evidence
by Debra, which contained two signatures.[2] The Appellant denied having signed
it. Debra testified that she signed it and the Appellant signed
it in her presence. She added that she filed the form with her
1997 income tax return.
[5] Exhibit R-3[3] indicates that this election does not
appear to have been filed. Canada Customs and Revenue Agency
(CCRA) had no record of it having been filed. This contradicts
Debra's testimony. Her testimony further conflicted with that
of the Appellant. It boils down to a finding of credibility. I
accept the evidence of CCRA that it was never filed as required
by the Income Tax Act (the Act). This tips the
scale in the Appellant's favour and I find that the joint
election filed is invalid and give it no effect.
[6] The next determination to be made
is whether the Act provides for deduction of support
payments by a common-law spouse. The Respondent's counsel
very ably described the complex legislative scheme. The Appellant
relies on subsection 252(4) although his input was very limited.
This is not surprising given the confusing interconnecting
sections.
[7] Briefly, paragraph 60(b)
requires the support payments to meet the definition set out in
subsection 56.1(4). Support amount, relevant to the present
situation, requires the recipient to be a former common-law
partner with the amount receivable under an order of a competent
tribunal or under a written agreement. The conditions are met
except that the Respondent submits that Debra was not a
"spouse" or "former spouse". Eligibility of
current and former common-law partners was recently added in the
definition of subsection 56.1(4), effective 2001.
Previously, the eligibility of common-law partners was provided
in subsection 252(4) through an extended meaning of spouse
pursuant to a 1994 amendment applicable after 1992. This was
repealed for 2001 and subsequent years.
[8] Subsection 252(4) reads as
follows:
252(4) In this Act,
(a) words
referring to a spouse at any time of a taxpayer include the
person of the opposite sex who cohabits at that time with the
taxpayer in a conjugal relationship and
(i) has so
cohabited with the taxpayer throughout a 12-month period
ending before that time, or
(ii) would be a
parent of a child of whom the taxpayer would be a parent, if this
Act were read without reference to paragraph (1)(e) and
subparagraph (2)(a)(iii)
and, for the purposes of this paragraph, where at any time the
taxpayer and the person cohabit in a conjugal relationship, they
shall, at any particular time after that time, be deemed to be
cohabiting in a conjugal relationship unless they were not
cohabiting at the particular time for a period of at least 90
days that includes the particular time because of a breakdown of
their conjugal relationship;
(b)
references to marriage shall be read as if a conjugal
relationship between 2 individuals who are, because of paragraph
(a), spouses of each other were a marriage;
(c)
provisions that apply to a person who is married apply to a
person who is, because of paragraph (a), a spouse of a
taxpayer; and
(d)
provisions that apply to a person who is unmarried do not apply
to a person who is, because of paragraph (a), a spouse of
a taxpayer.
[9] Because the common-law
relationship ended before 1993 when the extended meaning of
spouse came into effect, counsel submits that the Appellant's
2000 payments are not considered support payments. She further
submits that the 2001 payments are not deductible according to
the transitional provisions.
[10] The primary position of counsel for the
Respondent is that subsection 252(4) should not be read
retroactively. In brief summary, counsel supports her position
with the following. When the taxpayer and his former common-law
partner signed their support agreement in 1993, the
tax-deductibility provisions now referred to did not exist and
were not contemplated by them. To interpret the provisions
retroactively would be to change the rights of the parties
without their consent and therefore be unjust. A transitional
Rule 144 explicitly allows common-law couples to opt into the new
tax treatment of common-law relationships for the 1998, 1999 and
2000 taxation years if they file an election prior to April 2001
- which suggests subsection 252(4) was not intended to apply
retrospectively. Transitional Rule 145 also allows other
common-law relationships to opt into the new tax treatment for
2000 and subsequent taxation years if they file an election form
prior to the changes receiving Royal Assent - which again
suggests subsection 252(4) is not retrospective or everyone would
already be considered a common-law partner. The amendment in 1993
adding subsection 252(4) states that the new subsection is
to "apply after 1992". It is well known in statutory
construction that legislation is not presumed to be
retroactive.
[11] Counsel states that subsection 140(4)
of Income Tax Amendments Revision Schedule VIII, C.7,
p.645, demonstrates the clear intent of the legislature that
subsection 252(4) is to apply after 1992 and ignoring these words
is to give it retroactive effect. To the contrary, the
preponderance of the case law concludes that to accept
counsel's argument is to ignore the words "at any
time" in subsection 252(4) or as Bowman J. stated in
Hunter v. R.,[4] at least seeks to amend the phrase to read "at
any time after 1992".
[12] Counsel referred to several cases, most
of which were carefully reviewed by Bowman J. in Hunter,
supra. I have relied on his comments in the following
brief summaries: In Carey v. R.,[5] Bowie J. applied
subsection 252(4) to permit the deduction under circumstances
similar to the present case. In Bromley v. R.,[6]Bell J.
declined to follow Carey deciding somewhat reluctantly,
that subsection 252(4) applies only to taxation years after
1992. In Scott v. Canada,[7] the issue was the deductibility of payments made
in 1997 under a 1992 agreement, and Hershfield J. permitted the
deduction. In Girard v. R.,[8] Miller J. explicitly
mentions the date of the agreement as being highly relevant on
the issue of retrospectivity. In Hollands v. Canada[9], Teskey J.
interpreted subsection 252(4) to be retrospective. Both
Hollands and Scott were decided on the basis of
giving meaning to the words "at any time". In Skory
v. R.,[10]
Judge Miller cited his decision in Girard in
acknowledging that subsection 252(4) was retrospective in its
application.
[13] In Hunter, Bowman J. allowed a
retrospective application of subsection 252(4). In doing so,
he commented on the difference between retroactive and
retrospective. Retroactive is to change the law as it existed at
a prior time. To be retrospective is to merely attach new
consequences to a prior event. A subtle difference to be sure. I
agree with the majority of the case law. Subsection 252(4) is
retrospective. Counsel for the Respondent used the words
retroactive and retrospective interchangeably. The provision in
subsection 252(4) is retrospective, not retroactive.
[14] Of the cases referred to, only
Bromley did not give retrospective effect to
subsection 252(4). The majority gave meaning to the phrase
"at any time". This is the crux of my decision. The
amending statute provided that it "apply after 1992". I
interpret this to simply authorize the use of the new provision
as of 1993 even though it was not proclaimed until 1994.
[15] In Girard, supra, Miller
J. noted the difference between judges. Judges Bell and Judge
Bowie allowed the deduction in 1998 under a separation agreement
made in 1995 arising out of a common-law relationship that ended
in 1991. I agree with his following comments at paragraphs 9, 10,
11 and 12:
9 Pursuant to this section
[252(4) I have no hesitation in finding the Appellant and Ms.
Johnstone were spouses and qualify as such for purposes of
determining "support amounts". There is nothing in
section 252(4) of the Act that indicates the section is
not to apply to relationships before a certain period of time.
This was the law in 1998, the year in which the deduction is
sought. The Respondent contends I must look at the law at the
time the couple separated. I do not accept that argument. She
cited the decision of this Court in Bromley v. R. 2000
CarswellNat 3033, [2001]
1 C.T.C. 2468. In that case Judge Bell found
section 252(4) "applies only to taxation years after
1992". I find that the taxation year in question in this
case is the Appellant's 1998 taxation year. In 1998 section
252(4) was part of our legislation and it defined
"spouse" for all purposes of the Act to include
someone who fits Ms. Johnstone's description. Section 140(4)
of the Act Amendment Revisions introducing this amendment
did not state that the conjugal relationship referred to in
section 252(4) must have existed after 1992; it simply stated
that the subsection applies after 1992. I contrast this to
subsection 20(11) of the Amendment Revisions, which differs
significantly: it states most exactly that the section
refers to a breakdown of marriage after 1992. If the legislators
had used such exact language in introducing section 252(4), my
conclusion would differ.
¶ 10 The
interpretation put on the timing of the applicability of
section 252(4) is either:
1. For taxation years after 1992 I am to interpret
"spouse" in accordance with section 252(4); or
2. I am to interpret "spouse" in
accordance with section 252(4) for only those conjugal
relationships existing after 1992.
¶ 11 I favour
the former approach. For the taxation year 1998 I rely on section
252(4) and find the Appellant's relationship with Ms.
Johnstone falls within that definition notwithstanding that
relationship concluded prior to 1993.
¶ 12 In
Bromley v. R. Judge Bell recognized that Judge Bowie also
came to a different conclusion in Carey v. R., 1999 CarswellNat
562, [1999]
2 C.T.C. 2677, D.T.C. 3502 allowing the deductibility of
amounts paid in 1994 and 1995 by a common law husband in
connection with a relationship which had ended in 1988. It is
cause for some uncertainty in the tax community and public
generally when the introduction of amending legislation is open
to differing interpretations by a Court. Judge Bell put it as
follows in paragraph 10 of his Judgment:
10 ... Lack of precision in the legislation in this regard is
extremely unfortunate because faulty legislation, not clearly
presenting the intent of Parliament, causes taxpayers concern,
time and expense in pursuing objection and appeal procedures.
[16] The new section 60(b) (Canadian
Income Tax Act, Part I 2000) applies to amounts received
under a decree, order or judgment of a competent tribunal or
under a written agreement, "with respect to a breakdown of a
marriage occurring after 1992". From an absence of a
specified time period for eligible common-law relationship
breakdowns within the amending statute, it can be inferred that
Parliament intended the words "at any time" apply in
the same way.
[17] The Respondent would agree that the
Appellant is entitled to deduct the amounts he claims in 2001, my
having found that he is entitled to deduct his amounts claimed
for 2000. Page 26 of the Transcript reads as follows:
... The analysis for the 2001 year, the Respondent submits
that if your Honour found that the Appellant was entitled to
deduct these amounts in 2000, then for the transitional rules for
the 2001 definition of support payments he would be allowed to
deduct in 2001. Conversely, if Your Honour found that he was not
able to deduct in 2000, the transitional rules would say that he
would not be able to have the benefit of the 2001 common-law
partner definition until both parties filed a joint election,
which has not been filed - that type of election, in any event -
which has not been filed and therefore should not be allowed, the
deduction in 2001, until such time an election is filed.
[18] The last submission from the Respondent
is that the agreement filed in the Provincial Court of British
Columbia (Exhibit R-1) does not constitute an order contemplated
by paragraph 56.1(b) definition of "support
amount".
[19] There are several Tax Court decisions
dealing with legislation similar to that of British Columbia in
the present instance. The decisions are evenly split on the
question of whether such orders are orders "made by a
competent tribunal" under the Act. Decisions in
Fantini v. R.,[11] Fraser v. R.[12] and Hewko v. R.[13] have ruled no. They
concluded that what the provincial legislation is doing is making
the agreements court orders only for internal provincial
enforcement purposes and that does not make them court orders for
income tax purposes.
[20] The decisions in Hollands[14] and
Mullen v. R.[15] found that the provincial orders were
court orders for income tax purposes. The most recent is
Judge Mogan's decision in Mullen which carefully
reviews the other cases. In all of these cases, there was no
spousal relationship involved. In this appeal, there was a
common-law relationship.
[21] The basic provision of the Act
which permits the deduction of support payments is paragraph
60(b) - Formula A, where the essence is the total of all
amounts, each of which is a "support amount" that is
deductible. Support amount is defined in subsection 56.1(4)
as follows:
"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.
[22] The Appellant comes under the
"support amount" definition in
paragraph 56.1(4)(a) and not paragraph
56.1(4)(b). The cases referred to by the Respondent deal
with the definition of paragraph 56.1(4)(b) and do not
apply. The recipient is a former common-law partner of the payer
(the Appellant) living separate and apart because of a breakdown
of their common-law partnership and the amount is receivable
under a written agreement.
[23] The amounts are deductible by the
Appellant and the appeals are allowed, without costs.
Signed at Ottawa, Canada, this 27th day of October 2003.
McArthur J.
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