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Citation: 2003TCC326
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Date: 20030516
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Docket: 2002-4572(IT)I
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BETWEEN:
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BRENDA MCNEIL,
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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
(Edited from transcript of Reasons delivered
orally at Vancouver, British Columbia on April 28,
2003.)
Hershfield, J.T.C.C.
[1] This is an appeal of the
taxpayer's 2000 taxation year, for which the Minister
included child support and maintenance payments in the amount of
$48,832.00. There is no dispute that this amount was received in
the year 2000 and that it was paid pursuant to one or more
orders.
[2] The Appellant, based on her
testimony, accepts that the amount of $41,132.10 was received as
a result of garnishment proceedings against Lottery Canada after
the Appellant's former spouse had won a lottery. I am
satisfied that this payment received on February 10, 2000
represents the amounts shown on page 2 of
Exhibit A-5, totaling arrears of $39,279.44 as at
September 24, 1999, plus $700.00 per month thereafter up to
and including January 15, 2000, plus interest, less payments
received after September 24, 1999 and up to February 9, 2000. The
balance of the amounts in issue in 2000 ($48,832.00-$41,132.00)
are monthly payments received in 2000 after February 10 also paid
pursuant to one or more orders.
[3] While I have been shown four
orders, two must be examined. The first of the four is an interim
order for one month in 1994 and is not relevant. The second of
the four (the "Second Order") is an interim order in
place until further order and is one of the two relevant orders.
It is the Order of Master Donaldson of the Supreme Court of
British Columbia dated January 27, 1995. I will quote from
the third paragraph of this order as follows:
This Court Further Orders that the Respondent shall pay to the
Petitioner for the benefit of the Children and the Petitioner,
interim maintenance in the amount of $700.00 per month,
commencing January 15, 1995, and continuing on the 15th day
of each and every month thereafter, until settlement of this
matter or further Order of the Court.
The third order is dated June 26, 1998 (the "Third
Order"). It is also a relevant order. It is the divorce
order and, as well, deals with custody of children and child and
spousal support. It declares the amount in arrears of support
payments under the Second Order at $27,065.00 as at April 21,
1998 and orders that the Appellant's former spouse shall pay
the Appellant such sum "in satisfaction of the said
arrears". As to ongoing support, I will quote from the first
three paragraphs of the Third Order at page 2:
This Court Further Orders that the Petitioner, Brenda June
Nicell, a.k.a. Brenda June McNeil, shall have sole custody of the
Children.
And upon This Court being unable to determine the
Respondent's Guideline income, due to the Respondent's
failure to file a Property and Financial Statement.
This Court Further Orders that the Order of Master Donaldson,
providing that the Respondent pay $700.00 per month as both child
and spousal support on the 15th day of each month, continue in
effect in satisfaction of the Respondent's obligation to pay
child support, commencing on the 15th day of June, 1998 and
continuing on the 15th day of each month thereafter.
The fourth order deals with security for payment of child
maintenance, dated July 26, 2000. The garnishment in
February 2000, of course, preceded the fourth order. The fourth
order is not relevant.
[4] The issue in this case is how to
attribute payments or a portion of them to a particular order. If
the payments in 2000 are, as the Respondent asserts, attributable
to or paid pursuant to or under the Second Order, there is no
commencement day under subsection 56.1(4) of the Act to
the effect that all such receipts are taxable under the formula
in paragraph 56(1)(b) of the Act.
[5] To the extent that payments are
attributable to or paid pursuant to or under the Third Order,
there is a commencement day. Determination of the question
requires close examination of the Second and Third Orders. I am
of the view that the payment in 2000, other than on account of
arrears under the Second Order, has been made pursuant to or
under the Third Order. The Second Order states expressly that it
is an interim order. It states expressly that its term is until
"further order of the Court". That interim order ends
upon issue of a further order. That is the basis upon which it is
properly described as an "interim order". In the same
way custody was interim in the Second Order and final in the
Third Order, it can be equally said that the payments under the
Second Order were interim and final in the Third Order.
[6] Respondent's counsel argues
that the wording of the Third Order maintains the Second Order by
its express language. The Third Order expressly orders that
the Second Order "continue in effect in satisfaction"
of the obligation to pay child support. The Respondent argues
this does not vary amounts or otherwise create a commencement day
under paragraph 56.1(4)(b).
[7] I disagree with Respondent's
counsel on this point. Under which order are the payments
commencing June 15, 1998 made? I think they are made under
the Third Order. That order replaces an interim order. As at
June 28, 1998 (the date of the Third Order) there is no
prior order pursuant to which payments can be made. That the
Third Order does not vary a payment obligation is not relevant.
That it continues the Second Order in respect of support payments
is not to say that payments are under the Second Order when it is
the Third Order under which the payments are ultimately required.
The payments are not required by virtue of the Second Order; they
are required by virtue of the Third Order.
[8] Where payments are made under an
order dated after April 1997, there is a commencement day under
paragraph 56.1(4)(a) regardless that a further
commencement day cannot be found under paragraph
56.1(4)(b). Counsel for the Respondent argues that this
construction renders paragraph 56.1(4)(b) meaningless
if a further commencement day cannot be found under paragraph
56.1(4)(b). She argues where a subsequent order (after
April 1997) such as the Third Order makes no changes to a prior
order (before May 1997) of the type referred to in subparagraphs
56.1(4)(b)(ii) through (iv), it, the subsequent order,
cannot be considered to be an order creating a commencement day
under paragraph 56.1(4)(a).
[9] Paragraph 56.1(4)(b)
acknowledges the existence of a subsequent order after April
1997, but still lists conditions as a requirement for there to be
a commencement day. If such conditions, it is argued, are
not met, there cannot be a commencement day by virtue of that
subsequent order. I would agree with Respondent
counsel's argument, except where there is a pre-May 1997
order that by its own terms cannot survive the post-April 1997
order.
[10] Paragraph 56(1)(b) excludes from
the income inclusion amount the subject child support amounts if
they become receivable "under an agreement or order on or
after its commencement day". The definition of
"commencement day" refers to two orders where there are
two orders. In this case the support payments commencing June
15th, 1998 are only receivable under the Third Order. There is no
earlier order under which payments on and after that date are
receivable. While that might be said of all cases involving a
subsequent order, in this case, the earlier order had an express
term that ended when the Third Order was made. That is, in this
case, prior to the Third Order, we have an interim order with a
specified term. By its terms it died on the issue of the Third
Order. That the support amount was unvaried by the Third Order is
not relevant in this case.
[11] That the Third Order states that it
continues the Second Order does not advance the Respondent's
position in my view. Continuing the terms of a prior order as a
term of a later order underlines that the payments are a
requirement of the later order. The later order does not
resurrect the prior order. In the case at bar the Third Order is
the only relevant order. That an irresponsible parent frustrated
a variation does not change that fact. The Third Order is the
only order under which payments are required after the date of
that order. The date of the Third Order is the "commencement
day" under paragraph 56.1(4)(a).
[12] Accordingly, there is in this case a
distinction between the payment of arrears of amounts due prior
to the Third Order and arrears of amounts due after that Order.
The former are taxable; the latter are not.
[13] Also I note there is likely a June 26,
1998 commencement day under
subparagraph 56.1(4)(b)(iii) in this case. The
arrears under the interim order as declared by the Third Order,
according to the Appellant's testimony, cannot be reconciled
with actual arrears at that time. Further, the May 15, 1998
payment seems to have been omitted. If that is the case, the
Third Order has the effect of varying total child support. That
arrears can't be reconciled is the uncontradicted testimony
of the Appellant corroborated or borne out by a simple
calculation. That is likely sufficient to satisfy the onus in
this case.
[14] The Crown cannot simply say we
don't know what the judge did in calculating arrears, so we
must assume that the arrears calculation is correct. Clearly the
judge intended a correct statement of arrears based on affidavits
and documents before him, and surely his calculation is prima
facie evidence that the arrears were correctly calculated.
But that prima facie position can be undermined by
testimony and simple mathematics.
[15] Subparagraph 56.1(4)(b)(iii)
provides a commencement day where an order varies total child
support payments. It does not consider intent. That is, it does
not consider the intent of the judge calculating the arrears and
payment obligation. It looks to the effect or result of the
order. In this case the Third Order seems to have varied total
payment requirements. As such it seems to follow that from the
date of the Third Order, amounts receivable under it are not
taxable. Admittedly this resolve of the issue would raise
questions around disputed arrears that I have not fully
considered. There is still, of course, the omitted maintenance
for May 1998 which by itself seems to invoke a commencement day
under subparagraph 56.1(4)(b)(iii). However, it is
not necessary for me to decide this appeal on the basis of
finding a commencement day under paragraph 56.1(4)(b)
as I have already concluded that there was a commencement day
under paragraph 56.1(4)(a) on the making of the Third
Order, there being no prior order to then consider so that all
receipts in 2000 are excluded from income under
paragraph 56(1)(b) excepting the $27,065.00 which
represents the arrears
receivable under the interim order. Interest, if any, received
on that arrears amount would also be excepted.
[16] The appeal, therefore, is allowed to
this extent and costs are allowed to the Appellant.
Signed at Ottawa, Canada, this 15th day of May 2003.
"J.E. Hershfield"
_____________________________
J.T.C.C.
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CITATION:
COURT FILE NO.:
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2003TCC326
2002-4572(IT)I
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STYLE OF CAUSE:
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Brenda McNeil and
Her Majesty the Queen
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PLACE OF HEARING:
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Vancouver, British Columbia
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DATE OF HEARING:
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April 28, 2003
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REASONS FOR JUDGMENT BY:
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The Honourable Judge J.E. Hershfield
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DATE OF JUDGMENT:
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May 16, 2003
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For the Appellant:
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The Appellant herself
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Counsel for the Respondent:
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Amy Francis
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For the Respondent:
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Morris Rosenberg
Deputy Attorney General of Canada
Ottawa, Canada
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