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Citation: 2003TCC676
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Date: 20031009
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Docket: 2002-4743(IT)I
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BETWEEN:
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RICHARD RIVKIN,
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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
Paris, J.
[1] The Appellant is appealing the
assessment of his 2000 taxation year by which the Minister of
National Revenue (the "Minister") disallowed his claim
for deduction of $9,740 for expenses incurred for the maintenance
of two of his children.
[2] The facts upon which the Minister
relied in assessing the Appellant are not disputed. They are set
out in paragraph 11 of the Reply to the Notice of Appeal as
follows:
a) the
Appellant and his former spouse have three children, Joshua, born
May 3, 1978, Lauren, born May 3, 1978 and Jacob, born July 29,
1985;
b) on February
23, 1989 the Appellant and his former spouse entered into a
Voluntary Separation and Property Settlement Agreement (the
"Agreement");
c) the
Agreement was entered into in the state of Maryland,
United States;
d) the
Agreement required the Appellant to pay child support of $175
(US) per child per month until the child reached the age of 18 or
otherwise became disentitled;
e) the monthly
support payments were increased each year by the annual increase
in the Consumer Price Index;
f) the
Agreement also required the Appellant and his former spouse to
share equally in the cost of an undergraduate college education
for each child;
g) the
Agreement did not specify that subsections 56.1(2) and 60.1(2) of
the Income Tax Act would apply to the payments made by the
Appellant for the undergraduate college education of the
children;
h) during the
2000 taxation year, the Appellant made payments to his former
spouse of $5,831.69 (Canadian) for the support of Jacob;
i) in
the 2000 taxation year, the Appellant paid tuition to Colgate
College in the amount of $1,872.20 (Canadian) and rent to
Cooperative Collegiate Services (Mead Capital Properties, LLC) in
the amount of $2,522 (Canadian) for Joshua's undergraduate
education costs; and
j) in
the 2000 taxation year, the Appellant paid $4,663.76 (Canadian)
to the University of Maryland for Lauren's undergraduate
education costs.
[3] The issue in this case is whether
the amounts in subparagraphs (i) and (j) paid by the Appellant
for Joshua's and Lauren's education costs are deductible. This in
turn requires a finding of whether the separation agreement (the
"Agreement") entered into between the Appellant and his ex-spouse
provided that ss. 56.1(2) and 60.1(2) of the Income Tax
Act (the "Act") applied to those
payments.
[4] The Appellant gave evidence that
he and his ex-spouse were living in Maryland, U.S.A. when the
Agreement was drafted. He said that under U.S. tax law, support
payments are neither deductible to the payer nor included in the
income of the recipient, and therefore no reference was made in
the Agreement to the tax treatment of those payments. There is
however a reference in part four of the Agreement to his
ex-spouse being entitled to claim the children as
dependants for Federal, State and local tax purposes.
[5] The Appellant moved to
Newfoundland in 1991 and has filed tax returns as a Canadian
resident since 1992. In discussions with someone at Revenue
Canada he was advised that support payments were deductible in
Canada, and that it would be advisable to submit a copy of his
Agreement with his return, which he did. He submitted the
Agreement again to Revenue Canada in 1993 in support of an
application to vary his deductions at source.
[6] In 1996 he made a phone enquiry to
Revenue Canada about the deductibility of tuition fees paid on
behalf of his children and was told that he could deduct them. In
2001 he was asked by the Canadian Customs and Revenue Agency to
support his claim for the deductions claimed in his 2000 taxation
year, and upon review his claim was denied.
[7] The relevant portions of ss.
56.1(2) and 60.1(2) of the Act read:
Section 56.1
(2) Agreement. For the purposes of section
56, this section and subsection 118(5), the amount determined by
the formula
A - B
where
A is the total
of all amounts each of which is an amount ... payable by a person
in a taxation year, under an order of a competent tribunal or
under a written agreement, in respect of an expense ... incurred
in the year ... for the maintenance of a taxpayer, children in
the taxpayer's custody or both the taxpayer and those
children, ...
and
B is the
amount ...
(a) the total
of all amounts each of which is an amount included in the total
determined for A in respect of the acquisition or improvement of
a self-contained domestic establishment in which the taxpayer
resides...
is, where the order or written agreement, as the case may be,
provides that this subsection and subsection 60.1(2) shall apply
to any amount paid or payable thereunder, deemed to be an amount
payable to and receivable by the taxpayer as an allowance on a
periodic basis, and the taxpayer is deemed to have discretion as
to the use of that amount.
Section 60.1
(2) Agreement. For the purposes of section
60, this section and subsection 118(5), the amount determined by
the formula
A - B
where
A is the total of all
amounts each of which is an amount ... payable by a taxpayer in a
taxation year, under an order of a competent tribunal or under a
written agreement, in respect of an expense ... incurred in the
year ... for maintenance of a person ...
and
B
is the amount ...
(a) the total of all amounts
each of which is an amount included in the total determined for A
in respect of the acquisition or improvement of a
self-contained domestic establishment in which that person
resides...
is, where the order or written agreement, as the case may be,
provides that this subsection and subsection 56.1(2) shall apply
to any amount paid or payable thereunder, deemed to be an amount
payable by the taxpayer to that person and receivable by that
person as an allowance on a periodic basis, and that person is
deemed to have discretion as to the use of that amount.
[8] The Appellant's representative
admitted that the Agreement does not make any reference to the
application of ss. 56.1(2) or 60.1(2) of the Act to the
payments he was required to make for his children's education.
However, he argued that because of the unique circumstances of
this case, allowing the Appellant to deduct the amounts would not
offend the policy underlying those particular provisions of the
Act. The Appellant's representative submitted
that the reference made in the separation agreement in this case
to the Appellant's ex-spouse claiming the children as
dependants was the only relevant tax consequence that arose from
their agreement and therefore the Agreement fulfilled the spirit
of ss. 56.1(2) and 60.1(2) of the Act.
[9] The Appellant's representative
also argued that the Minister was estopped from denying the
deductions, firstly because Revenue Canada had a copy of the
Agreement since 1992 and had allowed the Appellant the deductions
up until 1999, and secondly because he had been advised that the
tuition fees were deductible. After 1996, it was no longer
possible, because of the changes to the tax treatment of support
payments, to amend the Agreement to make the tuition fees
deductible by including a specific reference to ss. 56.1(2) and
60.1(2) of the Act.
[10] I will deal firstly with the estoppel
argument. It has been held repeatedly by the Courts that estoppel
will not lie in cases where the representation in issue is one of
law rather than one of fact. The question of whether amounts are
deductible under the Act is one of law and therefore the
representations in this case could not prevent the Minister from
reassessing in accordance with the law (see Hawkes et al. v.
The Queen, 97 D.T.C. 5060 (F.C.A.)). The fact that the
Minister had allowed the deductions in earlier years does not
prevent him from taking a different assessing position for the
year in issue. He is not bound by his previous assessments (see
Schumaker v. The Queen, [2002] 3 C.T.C. 2206).
[11] I am of the view that the
Appellant's first argument must fail as well. There have been
several recent cases dealing with ss. 56.1(2) and 60.1(2) of the
Act and the condition that the order or agreement provide
that those subsections apply to any payment required to be made
to a third party. These cases were reviewed extensively by Mogan,
J. of this Court in Carmichael and Her Majesty the Queen,
2003 TCC 379. He noted that the Federal Court of Appeal in
Veilleux v. Canada, [2002] F.C.J. 737, had adopted a
more flexible approach in determining whether wording in an
agreement had met the condition in ss. 56.1(2) and 60.1(2)
of the Act but added:
There is a limitation, however, in the application of
Veilleux because the support agreement or court order, if
it does not contain a specific reference to subsections 56.1(2)
and 60.1(2), must demonstrate from its terms that the parties
understand the tax consequences of one party making certain
payments. In other words, it must be apparent from the terms
of the document that both parties understand that one party
paying a particular amount will deduct that amount in computing
income, and the other party will include that same amount in
computing income. That, after all, is the practical effect of
the "deeming" provision in subsections 56.1(2) and
60.1(2): "be deemed to be an amount paid ... and received
... as an allowance payable on a periodic basis".
(emphasis added)
[12] In this case the parties never turned
their minds to the question of deductibility and inclusion of the
education expenses paid to third parties in the calculation of
their income because the Agreement was never intended to be
operative in Canada. I do not agree that the Appellant falls
within the spirit of the legislative provisions as was suggested
by his representative. It is irrelevant that the Appellant and
his ex-spouse dealt with other tax implications that their
separation would have in the United States. There is nothing in
the Agreement in this case that deals with the inclusion and
deduction of the education expenses paid by the Appellant and
there is no basis for allowing the Appellant to deduct the
amounts in issue.
[13] The appeal is therefore dismissed.
Signed at Ottawa, Canada, this 9th day of October 2003.
Paris, J.
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