[OFFICIAL ENGLISH TRANSLATION]
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Citation: 2003TCC148
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Date: 20030318
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Docket: 2002-3299(IT)I
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BETWEEN:
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KEVORK KOULADJIAN,
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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
Lamarre, J.T.C.C.
[1] This is an appeal under the informal procedure from an assessment made by the Minister of National Revenue ("Minister") reducing the support amount deductible by the appellant by $9,000 for the 2000 taxation year.
[2] The support amount the appellant was thus denied corresponds to the $750 a month the appellant must pay his former spouse for housing expenses under a divorce judgment dated September 15, 1997.
[3] In her Reply to the Notice of Appeal, the respondent stated that the appellant could not deduct that amount because it did not qualify as a support amount, since the former spouse did not have discretion as to its use. In support of his arguments, the Minister is relying on the definition of "support amount" in subsection 56.1(4) of the Income Tax Act ("Act"). At the hearing, counsel for the respondent added a second argument, namely, that even if the said amount paid by the appellant qualifies as a support amount, it is a child support amount within the meaning of subsection 56.1(4) and, as such, is not deductible under paragraph 60(b) of the Act.
[4] The appellant specifically told the Court that he had no objection and that he wanted the Court to rule on the two arguments raised by the respondent, notwithstanding the fact that the second argument had not been raised in the Reply to the Notice of Appeal.
[5] The expressions "support amount" and "child support amount" are defined as follows in subsection 56.1(4) of the Act:
"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.
[6] Paragraph 60(b) read as follows during the taxation year at issue:
(b) Support - 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;
[7] In my opinion, it is clear from the divorce judgment that, in addition to the $868.33 a month in support the appellant must pay for his children and the $433.33 a month he must pay for his former spouse, the appellant must also pay his former spouse an additional $750 a month in support to be used for housing. Thus, under the heading that concerns the family residence, the divorce judgment of September 15, 1997 (Exhibit A-1), states the following:
[TRANSLATION]
9. The FORMER WIFE shall continue living in the family residence at 1205 O'Brien in Montréal, which is co-owned by the parties, and therefore:
(a) the FORMER WIFE shall have a right of habitation in the property for a period of one year;
(b) the FORMER WIFE shall receive an additional $750.00 a month in support, paid by direct deposit into her above account, to be used by her as follows:
- to pay half of the mortgage payments, taxes, insurance and cost of heat, electricity, maintenance and basic telephone service, all of which amount to $1,500.00, which the FORMER WIFE undertakes to deposit in the account designated for that purpose;
(c) after that one-year period, the property shall be listed for sale and the net proceeds of the sale shall be divided between the parties;
(d) on September 1, 1998, the FORMER WIFE shall move within 3 months of the acceptance of the offer to purchase by the purchaser and, for that purpose, shall agree as of June 1998 to allow visits of the residence and to sign the offer of sale at the market price presented to her by the broker;
(e) the FORMER HUSBAND shall, in such a case, pay $2,000.00 in moving and settling-in expenses;
(f) the FORMER WIFE shall see to finding a dwelling that corresponds to the children's needs, at a reasonable price;
(g) since the FORMER WIFE will have left the family residence on September 1, 1998, the FORMER HUSBAND undertakes to pay the FORMER WIFE $750.00 a month in support for housing expenses.
[8] The evidence showed that the appellant's former spouse moved into a new dwelling in 1999 with her three children after the disposition of the family residence. The appellant testified that he paid his former spouse a monthly lump sum that included all the amounts he was required to pay under the divorce judgment. Louise Mallette, the former spouse, confirmed that she received a lump sum from the appellant and that she used $750 thereof every month to pay for housing (including rent, heat, telephone and maintenance). The appellant did not contest this, although he did not have an opportunity to verify whether the amounts he paid were so allocated. Moreover, the subsequent judgment of November 17, 1997, on the appellant's motion to vary corollary relief did not change the support amount stated in the divorce judgment, as the appellant had initially requested.
[9] According to Badeau v. Canada, [2000] T.C.J. No. 387 (Q.L.), 2000 DTC 2300, and Assaf v. Canada, [1992] T.C.J. No. 46 (Q.L.), both of which are decisions rendered by Judge Garon of this Court, if the divorce judgment specifies the use to be made of the amounts to be paid by a taxpayer to the taxpayer's former spouse, it follows that the former spouse does not legally have discretion as to the use of the amounts. According to these cases, such payments therefore do not qualify as support amounts within the meaning of subsection 56.1(4) of the Act and are not deductible by the payer under paragraph 60(b) of the Act.
[10] In Nagy v. Canada, [2000] T.C.J. No. 45 (Q.L.), Judge Lamarre Proulx, relying on Hamer v. Canada, [1998] F.C.J. No. 829 (Q.L.), concluded as follows:
... the fact that the amounts received may have been intended for the education of the appellants' daughters does not deprive the recipient of the requisite discretion for these payments to be considered as allowances within the meaning of subsection 56(12) of the Act....
[11] As mentioned by counsel for the respondent, there seems to be two approaches followed by the courts on this point. However, I note that, in Nagy, Judge Lamarre Proulx seemed to state that the wording of the judgment or agreement in that case did not specify the use to be made of the amounts.
[12] In this case, the judgment clearly states that the $750 a month in support must be used to pay for housing. This means that the appellant's former spouse has no discretion as to the use of that amount and, consequently, it is not a support amount within the meaning of the Act. As a result, it is not deductible by the appellant.
[13] Moreover, even if an otherwise different conclusion could be reached and it could be said that the former spouse did have discretion as to the use of the amount since the appellant had no control over how she used it, this support amount clearly falls within the definition of child support amount. The $750 a month paid by the appellant is not identified in the divorce judgment as being solely for the support of the recipient who is the appellant's former spouse. The judgment provides that the former spouse must find a dwelling that corresponds to the children's needs and that the $750 a month will be used to pay the housing expenses. It is therefore clear that that amount was not provided solely for the support of the former spouse but was also for the support of the children.
[14] As a result, it is indeed a child support amount within the meaning of the Act and is not deductible under paragraph 60(b) of the Act.
[15] Accordingly, the appeal is dismissed.
Signed at Ottawa, Canada, this 18th day of March 2003.
J.T.C.C.
Translation certified true
on this 10th day of June 2003.
Sophie Debbané, Revisor
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