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Citation: 2003TCC2
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Date: 20030130
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Docket: 2002-1861(IT)I
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BETWEEN:
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MARVIN GLAZIER,
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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
Sarchuk J.
[1] This is an appeal
from an assessment of tax made by the Minister of National
Revenue with respect to the Appellant's 1998 taxation year.
At issue is the deductibility of the amount of $23,595 claimed by
him as support payments made in that taxation year.
[2] The basic facts
are not in dispute. The Appellant and his former spouse, Marsha,
were married on June 15, 1986. There were no children of the
marriage. In 1989, the parties agreed to live separate and apart
and have in fact so lived continuously since that date. A divorce
judgment was granted on September 16, 1991. Pursuant to this
judgment, the Appellant was required to make support payments to
his former spouse. At some point of time in 1997 the Appellant,
as a result of changed financial circumstances, discontinued
payment thereof and was sued by her. A Request for Garnishment
dated March 31, 1998[1] indicates that the arrears owing as of this date
amounted to $18,702.95. Throughout this period, the parties were
engaged in negotiations and in due course the various issues in
dispute were resolved and on July 6, 1998, minutes of settlement
were executed by both parties.[2] The provisions relevant to the issue before the
Court are as follows:
3
Payment of Arrears and Release of Spousal Support
(1)
On or before the 25th day of September, 1998, the Husband
shall pay to the wife (or to such person as she may direct in
writing) the sum of Twenty-Three Thousand Five Hundred and
Ninety-Five Dollars ($23,595) being costs of Seven Thousand
and Five Hundred ($7,500) and arrears of spousal support of
Sixteen Thousand and Nine-Five Dollars ($16,095) due under the
judgment of the Honourable Mr. Justice Walsh dated
September 16, 1991. This shall be the final payment due
under the said judgment. There shall be no obligation of the
Husband to pay any other spousal support to the Wife.
(2)
Except as provided in subparagraph 1 above, each party:
(a)
is financially independent;
(b)
does not require financial assistance from the other;
(c)
releases the other from all obligations to provide support or
interim support, pursuant to the Family Law Act or the
Divorce Act; and
(d)
releases all rights to claim or obtain support or interim
support, pursuant to the Family Law Act or the Divorce
Act, from the other.
(e)
The parties realize that their respective financial circumstances
may change in the future by reason of their health, the cost of
living, their employment, and otherwise. No change whatsoever,
even if it be material, profound, catastrophic, or otherwise,
whether casually connected to the marriage or not, will give
either party the right to claim or obtain interim or permanent
support pursuant to the Family Law Act or the Divorce
Act, or any other statute or law, from the other. Without
restricting the generality of the foregoing, the Wife
specifically agrees that she will not apply for indexing of any
support payment pursuant to section 34(5), (6) and 38 of the
Family Law Act and that she will not apply for variation
pursuant to 35(1),(2) and 37 of the Family Law Act or
section 17 of the Divorce Act.
4. Property
Division
(1)
Property division has been resolved by the Judgment of the
Honourable Mr. Justice Walsh dated September 16, 1991.
...
8. General
(a)
The Husband and the Wife accept the terms of this Agreement in
full satisfaction of all claims against the other except for
claims:
(i) arising under
this Agreement.
(Emphasis added)
[3] The Appellant was
permitted some period of time in order to make the payment
required pursuant to the separation agreement. This was done on
October 1, 1998[3]
and was followed shortly thereafter by the judgment issued by Mr.
Justice O'Connell on October 26, 1998.[4] The relevant portions of this
judgment are:
THIS APPLICATION made by the Applicant
for variation of the Judgement of the Honourable Mr. Justice
Walsh dated September 21, 1991, in action No. 169020/89, so as to
rescind arrears of spousal support and costs, to rescind the
obligation of the Applicant to pay any further spousal support to
the Respondent, and to obtain other relief was read this day at
Toronto, Ontario.
ON READING the said judgment, the affidavits and financial
statements of the parties, and the consent of the parties by
their solicitors, no party to this proceeding being a person
under disability;
1. THIS COURT
ORDERS AND ADJUDGES THAT the Applicant, having paid to the
Respondent the sum of Twenty-Three Thousand Five Hundred and
Ninety-Five Dollars ($23,595) on October 1, 1998, being the
amount owing as of June 26, 1998, by the Applicant to the
Respondent, for spousal support, interest and costs, pursuant to
the Judgment of the Honourable Mr. Justice Walsh dated September
21, 1991, in Action No. 169020/89 at Toronto, shall be and is
hereby discharged of any and all obligation or liability to pay
any other amount to the Respondent, including but not limited to
amounts in respect of spousal support to the Respondent, past,
present or future.
2. THIS COURT
ORDERS AND ADJUDGES THAT the Judgment of the Honourable Mr.
Justice Walsh dated September 21, 1991, in Action No. 169020/89
at Toronto, shall be and is hereby varied to rescind any and all
obligations of the Applicant to pay to the Respondent any sum or
sums of money beyond the amounts paid, or deemed to have been
paid by the Respondent to the Applicant, on or before June 26,
1998, or beyond the arrears of spousal support as of June 26,
1998, together with interest and costs, which comprise the sum
specified in paragraph 1 above.
(Emphasis added)
Appellant's position
[4] The Appellant
maintains that the amount of $23,595 represents nothing other
than the full amount of arrears of spousal support. He relies on
the Request for Garnishment dated March 31, 1998 which he says,
established that the amount of arrears as of that date to be
$18,702.95. Furthermore, since the periodic payments of support
were to be $1,630.64 on a monthly basis, a quick calculation
would indicate that the inclusion of the withheld payments for
April, May and June would bring that amount to $23,594.87. The
conclusion he draws therefrom is that the amount of $23,595
referred to in both the minutes of settlement and the subsequent
Court Order issued by O'Connell J. related entirely to
arrears of spousal support and no portion thereof related to the
satisfaction of future obligations.
[5] The
Appellant's representative contends that the jurisprudence
relating to circumstances such as those before the Court makes it
clear that the portion of a lump sum payment which relates to
making arrears of periodic support current is fully deductible.
In support, he referred to Soldera v. M.N.R.[5] in which case the
taxpayer was allowed a deduction on account of a lump sum payment
to his former spouse, which payment represented past liabilities
which had fallen into arrears. He relies specifically on the
Court's comment that "so long as the agreement provides
that the monies are payable on a periodic basis, the requirement
of the subsection is met. The payments do not change in character
merely because they are not made in time". The
representative distinguished the cases cited on behalf of the
Respondent arguing that they reflected situations in which the
lump sum payment was in full settlement of all support amounts
payable in the future. That, he says, is not the case in the
present appeal.
Respondent's position
[6] Counsel submitted
that the payment in issue was not alimony or other allowance
payable on a periodic basis for the maintenance of the
Appellant's spouse. Furthermore, the payment released him
from any future obligation to pay spousal support. Therefore, it
did not meet the requirements of section 60.1 and paragraph
60(b) of the Income Tax Act and accordingly was not
deductible in the taxation year in issue.
Conclusion
[7] It is generally
accepted that periodic payments which have fallen into arrears
and were accumulating and subsequently paid in lump sum are
nonetheless deductible in the hands of the payor and in
appropriate circumstances, taxable in the hands of the recipient.
This is consistent with the position set out by the Federal Court
of Appeal in The Queen v. Sills[6] that "the payments do
not change in character merely because they are not paid on
time". On the other hand, where a lump sum in an amount
substantially less than the amount owing is agreed to be paid so
as to release the payor from any future obligations, the
character of the payments is altered and the lump sum payment is
not deductible.[7]
[8] In the present
appeal, there is no question that the amount of $16,095 to be
paid "as arrears of spousal support" did not represent
the full amount of arrears due and owing at that particular time.
There is equally no question that the amount agreed to formed
part of the consideration paid so as to release the Appellant
from any future obligations. That this is so, is clearly
established by paragraph 10 of the minutes of settlement which
reads:
10.
Full and Final Settlement
(a)
The Husband and Wife agree that the support and property
provisions of this agreement are inextricably intertwined and
constitute a full and final financial settlement.
One need only to refer to the unambiguous
language in both the separation agreement and the Order to the
effect that the Appellant was "discharged of any and all
obligation or liability to pay any other amount to the
Respondent, including but not limited to amounts in respect of
spousal support to the Respondent, past, present or future",
to reach that conclusion.[8]
[9] This
Appellant's reliance on Soldera is not well-founded
since in that case the lump sum payment represented what Soldera
was required to pay under a previous Order and, more importantly,
there was no extinguishment of present or future obligations. In
my view, it is not possible to consider the lump sum payment in
the present case as anything other than an amount paid to obtain
a release from a liability imposed by an Order or agreement
whether such liability be in respect of arrears of maintenance
payments, future payments or both. Accordingly, the appeal is
dismissed.
Signed at Ottawa, Canada, this 30th day of
January, 2003.
J.T.C.C.
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