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Citation: 2003TCC96
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Date: 20030305
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Docket: 2002-2869(IT)I
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BETWEEN:
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LISE BOULAY,
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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
Miller J.
[1] This is an appeal
by way of Informal Procedure by Ms. Lise Boulay of her 2000
taxation year. The Minister of National Revenue included in Ms.
Boulay's income for that year support payments received from
John Carey in the amount of $4,800. Ms. Boulay maintains
that the support payments have been wrongly included in her
income.
[2] Ms. Boulay's
former common-law partner, Mr. Carey, likewise appealed
assessments, although for the 1994 and 1995 taxation years. He
sought deductibility of support payments made through garnishment
proceedings. He was successful in his appeals, but that decision
was centred more on the question whether subsections 60(b)
or 60(c) should apply. It does not appear that detailed
argument on the retrospective application of amending legislation
was presented in that case. That was, however, thoroughly
canvassed before me and leads me to the opposite conclusion from
Carey v The Queen.[1] While such an anomaly is never welcome,
it is not surprising in the application of tax laws in an area
which one judge has described as "faulty legislation, not
clearly representing the intent of Parliament".[2] Further, different
judges hear different arguments - inconsistencies may result.
[3] The facts are
straightforward. Ms. Boulay and Mr. Carey lived in a common-law
relationship from 1984 to 1987. A child, Alexander Thomas Carey
was born of the relationship on August 16, 1985. Since January
1988, Ms. Boulay and Mr. Carey have lived separate and
apart. On March 14, 1989, they signed a written separation
agreement in which Mr. Carey agreed to pay $400 a month
commencing January 1, 1988, for the support of Alexander.
Ms. Boulay received $4,800 in 2000 for the support of
Alexander.
[4] Ms. Boulay
reported the support payments as income for several years until
she read materials from Revenue Canada, who happens to be her
employer, suggesting those amounts were not taxable. She sought
and obtained a reassessment of the 1989 to 1995 taxation years
excluding the payments from income, although initially Revenue
Canada suggested the payments were to be included. From 1996 to
2000, Ms. Boulay did not report the support payments in her
income.
[5] Ms. Boulay relies
on the Bromley[3]v. The Queen and Skory v. The Queen[4] cases
to support her position that in circumstances of a common-law
relationship, which broke down in 1989, she and Mr. Carey should
not be considered spouses and, therefore, she is not caught by
the rules bringing support payments into income.
[6] The Respondent,
while acknowledging there appear to be cases going both ways in
the Tax Court of Canada, argues that the correct line of cases to
be followed are Hunter v. The Queen,[5] Scott v. The Queen[6] and
Girard v. The Queen,[7] and of course, the Carey decision
which is the flip side of Ms. Boulay's particular
circumstances.
[7] Once again, I am
faced with the daunting task of interpreting the support payment
provisions of the Income Tax Act. The rules are indeed
convoluted. It is not appropriate simply to analyze the
provisions as they stand for a particular year, in this case
2000, but it is imperative that the amendments to these
provisions over the years also be reviewed to ensure the correct
result. This entails not just a review of the particular amended
provision but also a review of the language amending the
provision. As soon as I attempt to explain this, I realize how
difficult the legislator's task is in implementing changes.
In implementing the amendments in 1997, the Government proceeded
on the basis that the existing tax treatment of a couple caught
up in support payments would not change unless the couple
themselves did something to bring themselves within the
parameters of the new regime. The 1993 amendments, depending on
the interpretation, may or may not unilaterally change a
couple's status quo. This is worrisome. On a full
retrospective interpretation of subsection 252(4), introduced in
1993, support payments would alter from being non-deductible to
deductible with no agreement of the parties. Such an
interpretation works against Ms. Boulay. I will explain why,
in this case, I prefer to rely on an alternate
interpretation.
[8] Notwithstanding
the taxation year in question is 2000, the analysis requires a
review of three time periods in Ms. Boulay's tax life. First,
prior to 1992; second, from 1992 to April 25, 1997; and third,
after 1997. Why? Because the laws in this area underwent
significant changes in 1992 and again in 1997. More importantly,
to determine Ms. Boulay's treatment in the latter period
requires an understanding of her treatment in each of the two
previous periods. I will explain why by starting with what I will
call the new regime of support payments, post-April 25,
1997. In the year 2000, paragraph 56(1)(b), the provision
on which the Respondent relies to tax these payments in Ms.
Boulay's hands, reads:
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;
[9] Off we start on
the tortuous legislative path as this provision requires looking
at the definition of 'support amount' and 'child
support amount' and, unfortunately, 'commencement
day', which all read as follows:
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.
"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.
[10] The definition of
"support amount" was introduced by S.C. 1997,
chap. 25, subsection 9(6) and modified by S.C. 1998,
chap. 19, subsection 307(1), which reads:
Subsection 9(6) applies after 1996, except
that
(a) a support
amount, as defined in subsection 56.1(4) of the Act, as
enacted by subsection (6), does not include an amount
(i) that was
received under a decree, order or judgment of a competent
tribunal, or under a written agreement, that does not have a
commencement day (within the meaning assigned by that subsection
56.1(4)), and
(ii) that if paid and
received would, but for this Act, not be included in
computing the income of the recipient of the amount; ...
As I indicated in the Skory[8] decision,
despite the quadruple negative in this amending provision, it is
decipherable and indeed, is eminently sensible. It means that if
the recipient was not subject to bringing the payments into
income before the amendments introducing the new regime, she is
not subject to bringing the payments into income after the
introduction of the new regime. She and Mr. Carey could
agree to bring themselves within the new regime by establishing a
commencement day, but they did not, as no subsequent agreement
was entered into between them.
[11] So, it becomes
necessary to determine whether Ms. Boulay's receipts were to
be included in income prior to 1997. If so, then she is caught by
the new definitions and the receipts should be included in her
income post-1997. If not, then the new definitions do not
apply and she need not bring the receipts into income.
[12] In the middle period
of the three time periods, how is Ms. Boulay to be treated? In
fact, despite some to-ing and fro-ing by the Department, she was
not required to bring these payments into income. The question,
however, is "should she have been so required?".
[13] Subsection 252(4) was
introduced to "apply after 1992". It reads in part:
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) is a parent of a
child of whom the taxpayer is a parent
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;
[14] I accept those cases,
most recently reviewed in Associate Chief Judge Bowman's
decision in Hunter,[9] which determine that this provision does
apply retrospectively in certain situations. As I indicated in
Girard, there are two possible interpretations of the
application of subsection 252(4):
(a) For taxation years after 1992, I am to
interpret "spouse" in accordance with subsection 252(4)
or
(b) I am to interpret "spouse" in
accordance with subsection 252(4) for only those conjugal
relationships existing after 1992.
[15] There is, however, a
third interpretation that this case demands; that is, for
payments made pursuant to agreements (or orders) made prior to
the legislation enacting subsection 252(4), the expanded
definition in subsection 252(4) of spouse does not apply. Put
conversely, subsection 252(4) only acts retrospectively to
relationships prior to 1993 in connection with payments made
pursuant to agreements or orders made after 1992; that is, made
after the new legislation was in effect.
[16] Associate Chief Judge
Bowman summarized the difficulty with interpreting these
provisions as follows:
[20] I have set
out the conflicting interpretations arrived at after careful
analysis by experienced and respected judges of this court. No
one could be criticized for adopting one as opposed to the other.
I think, however, that the preferable interpretation is that
subsection 252(4) has the effect, in its application to a payment
made in 1995, pursuant to an agreement made in 1994
arising out of a common-law relationship that commenced and ended
before 1993, of deeming that relationship to be a marriage and
the parties to the relationship to have been spouses and
therefore, in 1995, to be former spouses for the purposes of
paragraph 60(b).
[21] To say
that a new provision "applies after 1992" is not to say
that the effect of its application cannot extend to before 1993.
Here we have a provision, subsection 252(4), that in effect deems
a particular relationship to be a marriage. It prospectively
attributes to an event that existed prior to its effective date
(the common-law relationship that existed up to February 1992) a
legal effect on events that occurred after its effective date
(the support payments in 1995, 1996 and 1997 made under the 1994
agreement). This description is in accordance with the analysis
made by Mr. Elmer A. Driedger, Q.C., the renowned authority on
statutory interpretation.
...
[25] Before
proceeding any further with this analysis we should be clear on
two points. The agreement between the appellant and Charlotte
Olson was entered into in 1994 and the payments were made after
the date, after subsection 252(4) was enacted and after the date
on which it was said to apply. ... [Footnote 3: I do not imply by
referring to the date of the agreement that had it been entered
into in 1992 the payments under it in 1994 would not necessarily
have been deductible. The relevant date is the date of the
payments.]
[17] Associate Chief Judge
Bowman has identified the situation before me which was not
before him, that is a pre-1993 break up and a pre-1993
agreement.
[18] The matter becomes
complicated in determining whether Ms. Boulay should have brought
payments into income in the middle period (1992 to 1997) due to
the manner in which paragraph 56(1)(b) was amended in
1993, as the then new paragraph 56(1)(b) only applies to
marriage breakdown occurring after 1992. Recall Ms. Boulay's
and Mr. Carey's relationship broke down prior to 1993. The
amending legislation introducing the changes to paragraph
56(1)(b) made this quite clear. Subsection 17(1) of S.C.
1993, c. 24 repeals former paragraphs 56(1)(b) and
(c). Subsection 17(7) of that legislation reads:
(7)
Subsection (1) 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.
[19] In effect, the former
paragraph 56(1)(b) is only repealed for certain situations
- post-1992 breakdown of marriage. It is not repealed for
pre-1993 breakdown of marriage. Therefore, in Ms. Boulay's
case, the former paragraph 56(1)(b) governs in the
post-1992 period.
[20] Clearly, prior to
1993, the first period, prior to the introduction of subsection
252(4), Ms. Boulay, being in a common-law arrangement, was not
subject to paragraph 56(1)(b). Did the enactment of
subsection 252(4) change that? If so, Ms. Boulay is in the
unfortunate position of being taxed in accordance with a
provision which is no longer part of the main body of the
published Income Tax Act but is referenced only in the
History section of the CCH version. It really seems too much to
ask a taxpayer to have to delve so deeply into the inner workings
of legislative amendments only to find out that her position has
possibly been completely reversed from how she was previously
taxed - contrary to her agreement. But that would be the impact
of a full retrospective interpretation of subsection 252(4) to
Ms. Boulay's situation.
[21] I am not at all
satisfied this is what was intended by the 1993 amendments. I am
not satisfied, firstly, because of the manner in which the 1997
amending legislation was introduced. This confirmed that the
status quo would not change unless the parties agreed. Why
would this legislative approach not have been the same in 1993?
Secondly, the only relationship in which this legislative result
works its unilateral harm is the common-law breakdown prior to
1993 with payments made pursuant to an order or agreement entered
into prior to 1993. For common-law breakdown prior to 1993, with
an agreement entered into after 1992, the parties would be well
aware of the new definition of "spouse" and would be
subject to such provisions. This was the situation in both
Girard and Hunter: the parties entered into an
agreement after 1992 when the new laws were fully in effect. The
retrospectivity of subsection 252(4) does not work any hardship;
the parties could arrange their affairs accordingly. Only to the
unsuspecting parties to a pre-1993 order or agreement arising
from a common-law breakdown does this legislative approach
devastate the recipient's position.
[22] It strikes me I have a
choice. I can rely on a full retrospective application of
subsection 252(4) or I could find that, in this particular case,
the right approach is the third alternative interpretation
suggested earlier. As Associate Chief Judge Bowman stated in
Hunter, no one could be faulted for following a different
interpretation. He went on to say:
[28] Subsection
252(4) changes the consequences of a common-law relationship that
existed prior to its enactment, but only insofar as that
relationship was a necessary ingredient in a claim to deduct a
payment made under an agreement that came into existence after
its enactment.
[23] In Ms. Boulay's
case, her agreement was in place prior to the enactment. To
follow an interpretation that reverses her tax treatment is
tantamount to a retroactive application, not simply
retrospective, as it effectively retroactively alters Ms.
Boulay's agreement. I do not believe this was the intention
of Parliament in introducing the 1993 amendments.
[24] The original paragraph
56(1)(b) (pre-1993), applicable to this situation, refers
to being separated "pursuant to a written separation
agreement from the spouse or former spouse". The written
separation agreement in issue here was entered into before the
subsection 252(4) enactment. The agreement does not contemplate a
spouse. The law at that time did not contemplate Ms. Boulay as a
spouse. In effect, there is no written agreement subject to
paragraph 56(1)(b). The amending enactment in 1993 should
not be read to impose an interpretation on to an agreement that
was not caught by paragraph 56(1)(b), with the effect that
agreement is now caught by that very same section. That would be
retroactive. For agreements, such as in Girard and
Hunter, which were entered after the enactment of
subsection 252(4), the section can work retrospectively to find
those parties' relationship constituted a marriage. No harm
is done by this retrospective interpretation. Without deviating
from the result in Girard or Hunter, I find
subsection 252(4) applies retrospectively in determining the
deduction or inclusion of support payments only to payments made
pursuant to agreements or orders entered after 1992 in connection
with breakdowns of marriage prior to 1993. It does not apply to
make agreements entered prior to 1993 which were not caught by
paragraph 56(1)(b), to now be caught by that
provision.
[25] The appeal is allowed
and the assessment is referred back to the Minister for
reconsideration and reassessment on the basis that Ms. Boulay is
not required to include $4,800 into her income in the 2000
taxation year.
Signed at Ottawa, Canada, this 5th day of
March, 2003.
J.T.C.C.
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