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Citation: 2003TCC230
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Date: 20030414
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Docket: 2002-3277(IT)I
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BETWEEN:
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TRISHA LYNN LACK,
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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
Teskey, J.
[1] The Appellant, in her Notice of
Appeal wherein she appealed her reassessments of income tax for
the years 1999 and 2000, elected the informal procedure.
Issue
[2] The sole issue before the Court is
whether the Minister of National Revenue
(the "Minister") properly included into income
monies received by the Appellant as child support from her former
husband.
Facts
[3] It should be remembered that the
Income Tax Act (the "Act") was
changed effective on May 1, 1997, which provided that all
Court orders or support agreements dated on or after May 1,
1997 that the payor would not be able to deduct any support
payments from income and the recipient would not include any
support payments received as income.
[4] Mr. Justice Moore of the
Queen's Bench of Alberta, on Wednesday April 30, 1997,
made a divorce judgment and corollary relief order without oral
evidence.
[5] The formal order states that upon
the reading of the pleadings (in the action by the Appellant
against her husband) and the Affidavit of the Appellant, it was
adjudged that they were divorced in paragraph 1 thereof.
[6] Paragraph 4 of this document
reads:
4. IT IS
FURTHER ORDERED
THAT the Respondent shall pay to the Petitioner for the support
and maintenance of the child the sum of $400.00 per month
commencing on the first day of the month following the granting
of the Divorce Judgment and continuing on the first day of each
and every month thereafter until the child is no longer a child
of the marriage as defined in the Divorce Act, 1985.
[7] The formal Judgment and order was
entered by the clerk of the Court on May 2, 1997 and the
seal of the Court affixed thereto.
[8] The Judgment of the divorce did
not take effect until May 31, 1997 and only then if no
appeal by either party had been taken.
[9] There is a written document,
entitled "Minutes of Settlement". The top of this
document reads:
April
"This Agreement made this 30th day of March
1997."
The last sentence reads:
"In Witness thereof the Parties hereto have hereunto set
their hands and seals as of the day and year first above
written."
[10] Attached to the Minutes of Settlement
is an acknowledgment pursuant to section 38 of the
Alberta Property Act signed by the husband on May 5,
1997.
[11] Attached to the agreement is an
affidavit of the husband's lawyer that states he knows and
saw the husband sign the Minutes of Settlement. The affidavit,
which was sworn on May 5, 1997, does not state when the
agreement was actually signed by the husband.
[12] On March 21, 1997, the
husband's lawyer, by courier, sent the Minutes of Settlement
for execution by the Appellant on condition they be returned duly
signed, together with a release. Then, the letter states:
Upon compliance with the foregoing trust conditions, you are
at liberty to utilize the final divorce documents and proceed
with the divorce.
[13] The husband's lawyer, again on
April 30, by courier, further delivered to the
Appellant's lawyer, certain documents on a trust condition
that reads:
On the trust condition that prior to any use of these
documents or the document previously forwarded to you with our
consent to the divorce you return to this office the
following:
The fourth item therein being two copies of the Minutes of
Settlement duly executed by the Appellant herein.
[14] By courier, the same day, namely
April 30, 1997, as requested, the Minutes of Settlement duly
executed by the Appellant were couriered back to the solicitor
for the husband by the Appellant's solicitor.
[15] The husband's solicitor returned
two copies of the Minutes of Settlement duly executed by the
husband and mutual release duly executed on May 6, 1997.
The Law
[16] Paragraph 56.1(b) of the
Act defines the term "commencement day" and
reads:
"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.
Obviously, provisions (i), (ii) and (iii) are not
applicable.
[17] Although counsel for the Appellant
referred me to several different cases, I will only refer to
those assisting the issues herein.
[18] My colleague Rip, in Collins v. The
Queen, [2001] 3 C.T.C. 2456, said in paragraph 14
thereof:
14 The words
"commencement day" do not determine the coming into
effect of a judgment or order. The jurisprudence referred to
earlier is not of any great assistance in considering this appeal
other that it confirms that retroactivity is a fact of life and
is now well established in income tax law, and this with respect
to both the legislation and the jurisprudence. The power of a
court to provide for a "commencement day" stems from
the Act itself and not from the rules of a court. An agreement
may have a "commencement day" different from the day
the agreement is made. The definition of "commencement
day" clearly contemplates that an agreement or order can
specify the commencement day. Logically, this date could only be
retroactive in view of the words "is the earliest of"
in paragraph 56.1(4)(b). Otherwise, for example,
subparagraph (iv) of subsection 56.1(4) would have
virtually no meaning. The French version of "commencement
day", "date d'exécution" is just as
clear and subparagraph (iv) thereof refers to: "le jour
précisé dans l'accord ou
l'ordonnance".
[19] My colleague Associate Chief Judge
Bowman said in Kovarik v. The Queen, [2001] 2 C.T.C. 2503,
in paragraph 8 and 9 thereof:
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 S.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.
[20] My colleague Herschfield's decision
of Dangerfield v. The Queen, 2002 CarswellNet 990, [2002]
3 C.T.C. 2086, deals with some of the same problems as in
this appeal. Paragraph 3 thereof describes what was before
the Court therein:
3 There
was an Agreed Statement of Facts filed with the Court at the
outset of the hearing that narrowed the issue in this matter to
whether a judgment of the Court of Queen's Bench (Family
Division) Winnipeg Centre ordering the subject child support
payments was "made" on April 21, 1997 (or on a
later date after April 30, 1997) and, if it was made on April 21,
1997, whether it was made with a commencement day, for the
purposes of the Income Tax Act (the "Act"), of May 1,
1997. If it was "made" on April 21, 1997
without a specified "commencement day" for the
purposes of the Act of May 1, 1997, the support payments would,
as asserted by the Respondent, be taxable and the appeal would
fail; otherwise, the appeal would be allowed.
He says in paragraphs 24, 25, 26, 27 and 28:
24 Q. B. Rule 1.04.1
prescribes that an order is "made" when it is
pronounced and the May Estate case is sufficient authority, in my
view, to confirm a finding that the pronouncement date of an
order or judgment is the date it is spoken or uttered from
the mouth of the judge. Any other finding would disrupt
the interaction of the applicable provisions of the Q. B. Rules
referred to and set out above and would seem to fly in the face
of the overall scheme of those Rules as they deal with the making
and issuance of judgments and orders by the Court of Queen's
Bench in Manitoba. For example, pursuant to subsection 59.02(1)
of those Q.B. Rules, an order is to be endorsed by the judge
making it on a disposition sheet "at the time made". I
accept that the disposition sheet bearing the date "April
21, 1997" was signed by the judge on that date. According to
the Q.B. Rules, such endorsement further evidences that the order
must have been made on that date since the endorsement is to be
made at the time the order is made. Even if the utterance from
the judge's mouth on April 21, being in the future tense,
does not yet constitute an order made at that time, the signing
of the disposition sheet on that date is sufficient to fix the
"made" date of the order as April 21. Further, Q.B.
Rule 59.03(3) provides that the order shall include the name of
the judge who made it and the date on which it was made. The
particular judge and that date (April 21, 1997) appear on the
front page of the subject judgment.
25 The
Appellant's counsel argues that the made date or
pronouncement date of the order should be when it takes effect,
which in this case is May 1, 1997. He argues that there is no
aspect of the order that needs to be effective prior to that
date; everything in respect of the order moves forward from that
date.
26 The Q.B. Rules do
not support this argument. Firstly, there is no reason to
assert that an order cannot have an earlier "made"
date, even if not effective until after the made date, and
secondly, the subject order cannot likely be said to have a later
effective date just because the only aspect of it that is date
sensitive, namely the first payment date for child support
payments, is a future date. The start date of a monthly payment
requirement under the order does not fix the effective date of
the order itself. In any event, the "made" date governs
in this case which is not the same date as when an order takes
effect. The "made" date of the subject order is
April 21, 1997. That is the end of the matter, then, unless there
is a "commencement day" under subparagraph (b)(iv) of
the definition of "commencement day". That subparagraph
provides that the "commencement day" is the day, if
any, after April 1997, that is "specified" in the
order, or in a variation thereof, as the "commencement
day" of the order "for the purposes of this
Act". The Respondent argues no such day is
"specified" in the order "for the purposes
of" the Act or at least not expressly specified.
27 The Appellant
counsel's second argument seeks to draw a necessary inference
from the effective date argument which is that since nothing
happens under the order until May, 1997 and since all the parties
including the judge intended or understood that the tax
consequences to flow from the order were that the child support
payments were not to be taxable to the recipient, there is a
commencement day effectively specified in the order for the
purposes of the Act. Put another way, the Appellant argues that
Q.B. Rule 59.01 permits, in the circumstances, recognition of an
effective commencement day of the order as of May 1, 1997 for tax
purposes even though the order does not expressly say that and
even though the Act makes no reference to the "effective
date" of an order for tax purposes. This approach has merit
but relies in this case on too many inferences having to be
drawn. If I accept that a date can be
"specified" in the order by virtue of its intended
effective date then this appeal might succeed provided I also
found that such intended effective date was intended to ensure
that the payments under the order were not taxable to the
recipient pursuant to the post April 1997 child support
regime embraced by the Act. This would be to find that there
was an effective date for tax purposes that was meant to
be the "commencement day" of the order without
that terminology being used. While this is an attractive
approach to giving effect to apparent intentions, it is not one
that readily fits within the express terms of the Act and not one
that can, in my view, be used where the party relying on the
approach not only has to rely on a series of inferences but has
failed to establish that they are in fact necessary inferences.
There is in the case at bar no necessary inference that
the order was intended to have an effective date of May 1.
The payment commencement date alone draws no such necessary
inference. The order does not specify an effective date or
mention tax consequences. The judge asked about a
"commencement day" and was told one was not required.
If she had been properly informed of the need for a commencement
day we can only speculate as to what she would have done as
nowhere in her order does she refer to the tax treatment of the
child support payments. While the letter to the child's
father said the child support payments were to be tax free to the
recipient, that letter was not referred to by the judge in the
transcript of proceedings. Further, that letter said payments
were to commence January 1997 and was thereby wrong in the tax
consequences it purported to describe. [See Note 2 below] It
seems everyone was being misinformed and to draw necessary
inferences from such circumstances is dangerous at best. I would
be attracted to this approach if the judge had expressly said
anything that confirmed her intent or understanding that the
payments ordered were to be tax free payments under the new tax
regime for child support. If she had intended this result and
would not be inclined to put responsibility for achieving it on
counsel who drafted the signed order, I suggested to counsel for
the Appellant that the better forum to pursue a just result in
this case might have been to go back to that judge who made the
order. This was apparently not pursued.
Note 2: It is not possible under the definition of
"commencement day" to have a commencement day prior to
May 1, 1997. Accordingly the letter stating that child
support payments to commence in January 1997 were tax free to the
recipient and non-deductible to the payer was incorrect if
it suggested there would be an earlier order.
28 As to the third
argument of the Appellant's counsel, it requires me to find
that the payment commencement date of the child support payments
should be taken as the commencement day of the order
"specified" for the purposes of the Act. It was argued
that there was a presumption that commencing the payments on May
1 would bring it into the new system which I accept was the
Appellant's intention. I accept the probability that
Appellant's then counsel thought the payment commencement
date being May 1, 1997, was sufficient to meet the requirements
of the Act to bring the Appellant into the new system and that
she believed the judge in making the order was making a new
system order. It is even possible that the judge thought this was
the case as well in spite of having been dissuaded from pursuing
questions on the commencement day issue. [See Note 3 below]
This is not sufficient however to cause this Court to read in
words in an order that the Act requires to be specified in the
order itself. Further, subparagraph (b)(ii) of the definition
of "commencement day" speaks of the day on which the
first payment is made under a varied order as the
"commencement day". This focus on the first payment
date is absent in both paragraph (a) and subparagraph (b)(iv) of
the definition of "commencement day". Such change in
focus must be taken as intentional. Accordingly, the date
support payments commence cannot be taken to be a
"commencement day" in respect of the order itself under
subparagraph (b)(iv) of the definition of "commencement
day".
Note 3: Given the context of the judge's
question on the commencement day issue in the transcript, it
seems she was perhaps intending only to refer to the quantum of
the required support payments but even that issue is necessarily
tied to an assumed tax position. That is, scheduled child support
payments under the new system are assumed to be non-tax
deductible to the payer and non taxable to the recipient and
quantums are set with that in mind. Advising the Court that there
were no quantum issues might have suggested that the new tax
regime did not apply to the payments. Ultimately, then I have no
basis to determine what the judge was thinking in respect of the
tax position of the child support payments. The Appellant's
representative had the responsibility to clearly and expressly
deal with this issue for the benefit of the parties and for the
CCRA as well.
[21] I am satisfied that the Judgment and
Order of Mr. Justice Moore was made on April 30, 1997.
Thus, it is a court order made before May 1997 and since it does
not contain a commencement day, the payments made pursuant to
that order are taxable in the hands of the Appellant and the
order does not fall within the provisions of
subparagraph 56.1(b)(iv).
The Minutes of Settlement
[22] The Appellant argues that this is a
stand-alone document and that I should conclude that the husband
executed the document on May 5, 1997 and that since it is an
agreement entered into after April 1997, the Appellant
should not be taxed on the support payments. She also submits
that the wording at the top of the agreement and at the end is
only legalese and ought to be ignored.
[23] The Minutes of Settlement is a very
formal document and without express clear unambiguous evidence to
the contrary, I find that it was executed by both parties on its
purported date of April 30, 1997.
[24] The Appellant obtained on
April 30, 1997 a divorce and order for support based on a
consent (letter dated April 30, 1997) and the delivery to
the husband's solicitor of the Minutes of Settlement duly
executed by her.
[25] The only difference between the order
and the Minutes of Settlement in regards to the support payments
is the following paragraph:
The amounts paid by The Husband to The Wife for the support of
the said infant child shall be included in The Wife's income
for all tax purposes, notwithstanding any legislative changes to
the Income Tax Act of Canada. The Husband and Wife agree that The
Wife shall pay the income tax, if any on the child support and
The Husband shall be entitled to deduct from his income the
amounts of the child support paid to The Wife.
This paragraph would obviously not be included in the court
order.
[26] Thus, there was an agreement on
April 30 and even if I had not found that it was signed on
April 30, 1997, it is immaterial if the husband signed the
Minutes of Settlement on May 5, 1997. The Appellant acted on
the terms thereof to obtain her divorce based on the terms of the
Minutes of Settlement. The court order makes the terms of the
support as agreed upon a judgment of the court.
[27] For these reasons, the 1999 appeal is
dismissed. During the hearing, the parties agreed that the
Appellant only received $4,000 in support payments i652000. Thus,
that appeal is allowed without costs and that assessment is
referred back to the Minister for reconsideration and
reassessment on the basis that the Appellant's income is to
be reduced by $800 as the total support payments received in the
year 2000 only totalled $4,000.
Signed at Toronto, Ontario this 14th day of April 2003.
J.T.C.C.
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