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Citation: 2003TCC195
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Date: 20030401
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Docket: 2001-3820(IT)I
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BETWEEN:
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WILLIAM A. MULLEN,
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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
Mogan J.
[1] The issue in these appeals is
whether the Appellant may deduct in computing income certain
payments made for the maintenance of a child. The facts are not
in dispute. In 1984-1985, the Appellant had a relationship with a
woman whom I will call "F". The Appellant was never the
spouse or common-law partner of F. After the relationship ended,
F gave birth to a child ("J") in December 1985. In
February 1986, the Appellant and F signed a "Paternity
Agreement" pursuant to certain legislation in the Province
of Alberta. Under that agreement, the Appellant was required to
pay $120 per month for the maintenance of J.
[2] In 1992, the Appellant and his
wife Barbara were divorced; and he was required to pay to Barbara
support with respect to their two daughters born in 1976 and
1978. Those support payments ended in 1998 when the Appellant
paid an aggregate amount of $6,560 with respect to the two
daughters. In each of 1998 and 1999, the Appellant paid an
aggregate amount of $1,440 (12 x $120) for the maintenance of J.
When computing his income, the Appellant deducted as maintenance
payments the amounts $8,000 ($6,560 plus $1,440) for 1998 and
$1,440 for 1999. By Notices of Reassessment, the Minister of
National Revenue disallowed the deduction of the $8,000 for 1998
and the $1,440 for 1999. The Appellant has appealed from those
assessments and has elected the informal procedure. The only
years under appeal are 1998 and 1999.
[3] In argument, counsel for the
Respondent conceded that, for 1998, the amount of $6,560 is
deductible as maintenance paid to Barbara for the two daughters.
Therefore, the only issue in each year is the amount of $1,440
(12 x $120) paid by the Appellant for the support of J. The basic
provision of the Income Tax Act which permits the
deduction of support payments is paragraph 60(b):
60 There may be
deducted in computing a taxpayer's income for a taxation year
such of the following amounts as are applicable:
(a)
...
(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 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;
The most important factor in the above formula is
"A" because, if a particular taxpayer cannot qualify an
amount as falling within "A", there is nothing at all
to deduct under paragraph 60(b). The essence of
"A" is the total of all amounts each of which is a
"support amount". Subsection 60.1(4) incorporates the
definitions from subsection 56.1(4) into sections 60 and 60.1.
Support amount is defined in subsection 56.1(4) as follows:
56.1(4)
"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.
[4] Having regard to the definition of
"support amount", the Appellant cannot qualify any
amount under paragraph (a) because it is an undisputed
fact that F never was the spouse or common-law partner of the
Appellant. Under paragraph (b), at first blush, the
Appellant cannot qualify the amounts in question because those
amounts were payable and receivable under the Paternity Agreement
and not under "an order made by a competent tribunal in
accordance with the laws of a province". I say at first
blush because counsel for the Respondent quite fairly brought to
my attention certain provisions of the Parentage and
Maintenance Act and the Maintenance Enforcement Act
(two Alberta statutes) which seem to favour the Appellant. For
convenience, I shall refer to the Parentage and Maintenance
Act as the "PMA" and to the Maintenance Enforcement
Act as the "MEA".
[5] In my view, the relevant
provisions of the PMA are as follows:
1 In
this Act,
(a)
"agreement" means an agreement under section 6, and includes a
variation of the agreement;
(b) "child"
means a child born of parents who are not married to each
other;
(c) "Court"
means the Court of Queen's Bench;
(k) "order"
means an order made under this Act, and includes a
variation of the order;
(l)
"parent" means a mother or a father.
6(1) A parent may enter into an
agreement in the form prescribed in the regulations with
(a) the
Director,
(b) the other
parent, or
(c) any other
person having the care and control of the parent's child,
whereby the parent agrees to pay any or all of the expenses
referred to in subsection (2).
6(2) An agreement may refer to
any or all of the following expenses:
(a)
reasonable expenses for the maintenance of the mother
(i)
...
(b)
reasonable expenses for the maintenance of the child before the
date of the agreement;
(c) monthly
or periodic payments for the maintenance of the child until the
child reaches the age of 18 years;
(d)
...
7(1) Subject to subsection (5),
an application may be made to the Court for an order
(a) declaring
that the respondent is a parent for the purpose of this
Act; and
(b) directing
the payment of any or all of the expenses referred to in section
16(2).
7(2) An application under
subsection (1) may be made by
(a) a
parent,
(b) a
child,
(c) a person
who has the care and control of a child, or
(d) the
Director on behalf of the Government, where the Government has a
right of subrogation under section 14 of the Social
Development Act.
The above provisions of the PMA are the source of the
Paternity Agreement which was signed in February 1986 and entered
as Exhibit R-1. There is a link between the PMA and the
MEA. In my view, the relevant provisions of the MEA
are as follows:
1(1) In this Act,
(d)
"maintenance" means maintenance, support or alimony and
includes
(i) an amount
payable periodically, whether annually or otherwise and whether
for an indefinite or limited period or until the happening of a
specified event,
(ii) ...
(e)
"maintenance order" means an order or interim order of a court in
Alberta, a Queen's Bench protection order under the Protection
Against Family Violence Act or an order, other than a
provisional order that has not been confirmed, registered under
the Reciprocal Enforcement of Maintenance Orders Act that
has a provision requiring the payment of maintenance.
1(2) An agreement entered into
under section 6 of the Parentage and Maintenance Act or
section 51 of the Income Support Recovery Act is deemed to
be a maintenance order under this Act.
12(1) The Director or a creditor may file
with the Court of Queen's Bench a maintenance order that is not
otherwise filed with the Court and, on being filed, the parts of
the maintenance order that relate to maintenance are deemed to be
a judgment of the Court of Queen's Bench.
[6] Although section 7 of the
PMA permits a parent to apply to the Court of Queen's
Bench (Alberta) for an order declaring a named individual to be a
parent and directing the payment of certain expenses, there was
no such application to the Court in the circumstances of this
case. The child J was born in December 1985 and, in February
1986, the Appellant and F signed the Paternity Agreement (Exhibit
R-1) under section 6 of the PMA. According to
subsection 1(2) of the MEA, the Paternity Agreement
is deemed to be a "maintenance order" under the MEA. The
question logically arises whether the deeming provision of
subsection 1(2) of the MEA causes the Paternity Agreement
(Exhibit R-1) to be regarded as an "order made by a competent
tribunal in accordance with the laws of a province" within the
meaning of paragraph (b) of the definition of "support
amount" in subsection 56.1(4) of the Income Tax Act. See
paragraph 3 above. The question has already been considered in
other cases before this Court. I will review those other cases in
chronological order.
[7] In Fantini v. M.N.R. (Court
File 96-3863I, Judgment December 5, 1997), the taxpayer was the
mother of a little girl (T) born in January 1993. Ms. Fantini and
SW entered into a maintenance agreement in July 1993 under the
Alberta Parentage and Maintenance Act. SW acknowledged
that he was the father of T although he had never been the spouse
or common-law partner of Ms. Fantini. Under that agreement SW was
required to pay $300 per month to Ms. Fantini for the maintenance
of T. The amounts paid by SW to Ms. Fantini under the maintenance
agreement were included in her income for 1993 and 1994 by
Revenue Canada (as it was then known). She appealed under the
informal procedure claiming that the maintenance payments should
not be taxed in her hands. When allowing the appeal of Ms.
Fantini, Judge Bowman stated:
13 There was in fact
no court order that the father make the payments in question. The
fact that a provincial statute deems a maintenance agreement to
be an order made by court (obviously for the purposes of the
Maintenance Enforcement Act) does not make it an order for
purposes of the federal Income Tax Act. This is not a
constitutional matter of legislative competence. It is a simple
matter of statutory construction. As James L.J. said in Ex
parte Walton; In re Levy, 17 Ch. D. 746 at 756:
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When a statute enacts that something shall be deemed to
have been done, which in fact and truth was not done, the
Court is entitled and bound to ascertain for what purposes
and between what persons the statutory fiction is to be
resorted to.
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14 That observation
was made in the context of the interpretation of one statute. It
applies a fortiori in this case. Here we have the Minister
of National Revenue seeking to transpose a provincial statutory
fiction into a federal statute. That cannot be done. Of course
Parliament could by appropriate language in a federal statute
adopt, for the purposes of that statute, a provincial statutory
fiction. That is not however what happened here. The point seems
self-evident.
15 I am not
unmindful of the decision of the Federal Court of Appeal in
Hillis v. The Queen, 83 DTC 5365 where the effect of a
deeming provision in a Saskatchewan statute was considered in
relation to when an estate became indefeasibly vested. This I
think is an illustration of the principle, as stated in Dale
v. The Queen, 97 DTC 5252, that the Minister takes legal
relationships between subjects as he finds them and they are in
most cases governed by provincial law. It does not follow from
that case that something that is deemed to by something that it
is not for the purposes of a provincial statute can have that
artificial meaning apply for the purposes of the Income Tax
Act.
[8] In Dale v. The Queen, 97
DTC 5252, the case which Judge Bowman referred to, a father and
son decided to "roll" certain property into a corporation under
section 85 of the Income Tax Act and receive, as
consideration, assumption of the mortgage and certain shares of
the corporation. The rollover was executed in 1985 but, in 1988,
it was discovered that the charter of the corporation had not
been amended to permit the issuing of the shares. In 1992, an
order was obtained from the Supreme Court of Nova Scotia
retroactively confirming the issuance of the shares in question.
Revenue Canada assessed tax on the transfer of the property
assuming that the section 85 rollover had not been effective
because the shares had not been validly issued in 1985. The
Federal Court of Appeal, by a majority judgment, allowed the
taxpayers' appeal. Robertson J.A. writing for the majority stated
in paragraph 18:
18 On the facts of
this appeal, the Nova Scotia court granted the June 25, 1992
order on the basis of section 44 of the Nova Scotia Companies
Act. In my view, any objection that the court lacked
jurisdiction to issue that order is without foundation. If the
legislature of a province authorizes its courts to deem something
to have occurred on a date already past, then it is not for the
Minister to undermine the legislation by refusing to recognize
the clear effect of the deemed event. In any case I am not
prepared to concede that section 44 has the revisionist effect
advanced by the Minister. This is not a case where a court order
deems shares to have been issued when in fact they were not. This
is a case where shares were issued, but not validly so until such
time as either supplementary letters patent were obtained in
Prince Edward Island or the Nova Scotia court granted the June
25, 1992 order. After all, no one has argued that the share
issuance constituted a nullity, nor could it be so argued.
(Emphasis added)
[9] In Hollands v. The Queen,
[2001] 4 C.T.C. 2755, Judge Teskey was faced with a similar fact
situation in the Province of Alberta. Mr. Hollands signed a
paternity agreement with MM acknowledging that he was the father
of MM's child and agreeing to pay a fixed sum per month for the
maintenance of the child. When Mr. Hollands deducted the
maintenance payments in computing income for 1998 and 1999,
Revenue Canada disallowed the deductions. When allowing
Mr. Hollands' appeal, Judge Teskey stated:
12 The Respondent
directed the Court to the decision of Fantini v. The
Queen, [1998] 2 C.T.C. 2256. The facts in that case are
almost identical to the case at hand. In that case my colleague
Bowman J. (as he then was) decided that the Alberta statute,
which deemed a maintenance agreement to be an order by a court
did not make it a court order for the purposes of the Income
Tax Act. Bowman J. in his reasons for judgment stated:
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... Here we have the Minister of National Revenue
seeking to transpose a provincial statutory fiction into a
federal statute. That cannot be done. Of course Parliament
could by appropriate language in a federal statute adopt,
for the purposes of that statute, a provincial statutory
fiction. That is not however what happened here. ...
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13 I respectfully
disagree with this position. By using the phrase "an order
made by a competent tribunal in accordance with the laws of a
province" in paragraph 56.1(4)(b) of the Act,
Parliament has decided to transpose the laws of a province
concerning orders into a federal statute. If the laws of a
province operate to create a statutory fiction then it is not for
the Minister to decide otherwise. The agreement therefore is a
court order.
[10] The most recent decisions in this area
of the law are Fraser v. The Queen and Hewko v. The
Queen, two cases heard by Judge Bowie involving similar fact
situations in the province of Alberta. Judge Bowie heard the
cases separately but issued his judgments simultaneously, having
re-opened the hearing in each case to receive argument on a
constitutional point. His decisions are summarized at 2002 DTC
3905 and 3924-3925. Judge Bowie required argument on the
constitutional point only because he found against the taxpayers
on the interpretation of the Maintenance Enforcement Act
("MEA"). In his decisions delivered on July 2, 2002, Judge
Bowie stated:
5
Counsel for the Respondent referred me to two earlier decision of
this Court in which exactly the same issue has been decided. In
Fantini v. The Queen, Bowman J. (as he then was) held that
the Alberta statute could have no such effect.
...
6 The
same point came before Judge Teskey in Hollands v. The
Queen. He took a different view of the matter from Judge
Bowman. ...
7 A
provincial legislature may, as to subject matters assigned to the
provinces by section 92 of the Constitution Act, 1867,
deem a thing to be that which in reality it is not. Provided that
deeming is not a colourable intrusion upon the legislative field
assigned to Parliament, it can be effective for all purposes, if
that is what the legislature intends. In such a case, the legal
status of the thing deemed is established by the provincial law,
for purposes of both federal and provincial statutes. However, as
Bowman A.C.J. pointed out in Fantini, the extent to which
the deeming applies must be ascertained as a matter of
construction of the provincial legislation. It is quite clear, in
my view, from both the context and the language of subsection
1(2) of the MEA, that its operation is limited to the
confines of that act. First, it is found in a section which deals
with definitions. That suggests that its operation is limited to
the act in which it is found. Second, the agreement is deemed to
be a maintenance order "under this Act".
That, too, suggests that the operation of the deeming provision
is limited to the purposes of the MEA. Its purpose is to
bring an agreement within the expression "maintenance
order", which is defined immediately above to mean one of a
number of types of orders there referred to, including orders of
courts outside the province that have been registered under the
Reciprocal Enforcement of Maintenance Orders Act. The
MEA creates an office called the Director of Maintenance
Enforcement. Its whole purpose is to provide for the enforcement
of certain types of court orders by the Director, for the benefit
of children, spouses and former spouses who are the beneficiaries
of those orders. For that purpose, the Director is given certain
powers, and it is only for that purpose that the agreement here
in question, as well as agreements made under the Income
Support Recovery Act and the Child Welfare Act, are
deemed to be within the expression "maintenance order" when it is
used in the MEA.
8 Does
section 12, which deems a maintenance order filed with the Court
of Queen's Bench to be a judgment of that Court, have effect
beyond the confines of the MEA? I do not believe it does.
Standing alone, it might appear to, but it must be read with
section 1. If the deeming of the agreement to be a
maintenance order is limited to the
purposes of the MEA,then the operation of section 12 on
that Order must equally be limited. I conclude, therefore, that
the agreement pursuant to which the Appellant made the
maintenance payments is not "¼ an order made by a
competent tribunal in accordance with the laws of a province
¼" for purposes of the Income Tax Act.
[11] It seems obvious that the purpose of
the Maintenance Enforcement Act ("MEA"), as its
name implies, is to recognize certain obligations to provide for
the maintenance of a parent or child, and to facilitate the
enforcement of those obligations. The definition of a
"maintenance order" in the MEA includes three different
kinds of orders one of which is an order "registered under the
Reciprocal Enforcement of Maintenance Orders Act ...
requiring the payment of maintenance". Most provinces have
legislation with respect to the reciprocal enforcement of
maintenance orders so that a maintenance order issued in any one
province may be enforced, with a minimum of difficulty, in
another province. Having regard to financial obligations in
family law, there is a very real and desirable social policy in
provincial legislation like the MEA.
[12] In federal law, the Income Tax
Act attempts to encourage the payment of certain financial
obligations in family law by permitting a deduction of the amount
paid in the income of the payor and requiring an inclusion of the
amount paid in the income of the payee on the basis that the
payor usually has a higher income than the payee. Those
provisions of the Income Tax Act which operate in this
area have a purpose similar to provincial legislation like the
MEA. I will therefore attempt to construe the relevant
provisions of both federal and provincial legislation in a manner
which would accommodate what may be broadly perceived as a common
purpose.
[13] In my opinion, the important words to
construe are "an order made by a competent tribunal in accordance
with the laws of a province" as those words appear in paragraph
(b) of the definition of "support amount" in
subsection 56.1(4) of the Income Tax Act. See
paragraph 3 above. Under paragraph (b), the amount must be
receivable under such an order if it is to be a "support amount".
Under paragraph (a) of the same definition, the amount may
be receivable "under an order of a competent tribunal or under a
written agreement" and still be a "support amount".
[14] If the natural parents of a child have
never been spouses or common-law partners, an amount must be paid
under an "order" if it is to qualify as a "support amount". An
amount paid under a written agreement will not qualify. There is
a fundamental difference between an order and a written
agreement, particularly in the area of family law. An order has
the advantage of reciprocal enforcement among provinces but an
agreement, standing alone, does not.
[15] Returning to the definition of "support
amount" in subsection 56.1(4), an amount will qualify under
paragraph (b) only if it is "receivable under an order
...". Section 6 of the PMA provides for a paternity
agreement like Exhibit R-1. Subsection 1(2) of the MEA
states that an agreement entered into under section 6 of the
PMA is "deemed to be a maintenance order under this
Act". And a "maintenance order" is defined in the
MEA to mean, inter alia, "an order ... of a
court in Alberta". It is within the competence of the Alberta
Legislature to deem a paternity agreement under section 6 of the
PMA to be a maintenance order. Indeed, to fulfil the
purposes of the PMA and the MEA, it is desirable
that a paternity agreement be conclusively regarded as a
maintenance order.
[16] Because a paternity agreement under
section 6 of the PMA is deemed to be "an order ... of
a court in Alberta" under subsection 1(2) of the MEA, and
because the Appellant's payments of $1,440 in 1998 and 1999 were
made under such a paternity agreement, I conclude that the
amounts in dispute in these appeals were receivable "under an
order made by a competent tribunal in accordance with the laws of
a province" within the meaning of paragraph (b) of the
definition of "support amount" in subsection 56.1(4) of the
Income Tax Act. I am encouraged to reach this conclusion
by the decision of the Federal Court of Appeal in Dale
(see paragraph 8 above) from which I would paraphrase a sentence
in the majority judgment as follows: If the legislature of a
province deems a particular agreement to be a court order, it is
not for the Minister of National Revenue to undermine the
provincial legislation by refusing to recognize the agreement as
an order of a competent tribunal.
[17] I am also influenced by an observation
of Judge Bowie in his decisions in Fraser and Hewko
delivered on October 28, 2002 where he stated at paragraph 6:
6. ... I
cannot help but observe that it is a peculiar legislative policy
that leads Parliament to provide a deduction in the computation
of income to the non-custodial parents of children, where no
spousal relationship is involved, if they resist fulfilling their
responsibility and are later required to do so by a court order,
while denying the deduction to those who volunteer to carry their
share of the financial burden of parenthood by entering into a
support agreement. It must be a rare individual who is
sufficiently astute, or well advised, to insist upon having a
consent order made to implement his voluntarily assumed
obligation.
In my view, it is not a legislative policy of Parliament to
grant a deduction to the irresponsible parent who fails to pay
maintenance and requires a court order, but to deny a deduction
to the parent who honours a written agreement. I would circumvent
any such result by accepting for all purposes the Alberta
legislation which deems an agreement under section 6 of the
PMA to be a court order under the MEA.
[18] I have read with care the decisions of
my colleagues Judge Bowman (as he then was) in Fantini and
Judge Bowie in Fraser and Hewko. I regret that I do not
view the relevant provincial legislation in the same way as Judge
Bowman and Judge Bowie on facts which are so similar to the facts
in these appeals. The appeals are allowed with costs (if
any).
Signed at Ottawa, Canada, this 1st day of April, 2003.
J.T.C.C.
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