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Citation: 2003TCC603
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Date: 20031015
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Docket: 2003-1052(IT)I
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BETWEEN:
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CHARLES W. MILLER,
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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
Mogan J.
[1] The taxation years under appeal
are 1999, 2000, and 2001. In each of those years, the Appellant
made certain payments to his former wife for the support of their
children. The deduction of those payments in computing income was
disallowed by Canada Customs and Revenue Agency (CCRA) by Notices
of Reassessment sent to the Appellant. The Appellant has appealed
from those reassessments and has elected the Informal Procedure.
The only issue is whether the amounts paid by the Appellant to
his former wife as child support are deductible in computing the
Appellant's income.
[2] The Appellant was married in 1973
to a woman named Lola Marie who adopted his family name and
became Lola Marie Miller. There were three children born of the
marriage: Heather in 1977, Erin in 1979 and Sarah in 1981. The
Appellant and Lola Marie separated and were divorced in 1985.
Around the time of the divorce, the Appellant was ordered to pay
child support to his former wife at the rate of $200 per month
per child for a gross amount of $600 per month. He made those
payments from 1985 until 1996.
[3] In 1996, Lola Marie made an
application to the court to change the amounts of child support.
On November 15, 1996, Judge Holmes of the Supreme Court of
British Columbia issued an order (Exhibit R-1) which stated in
part:
THIS COURT DECLARES THAT HEATHER MAY MILLER, born June 30, 1977
is, at this time, a child of the marriage as defined in the
Divorce Act, 1985.
THIS COURT ORDERS that the Petitioner shall pay to the Respondent
for the support of the children of the marriage, namely HEATHER
MAE MILLER, born June 30, 1977; ERIN FERN MILLER, born June 5,
1979 and SARAH LINDSEY MILLER, born June 1, 1981 (collectively
the "Children") maintenance in the sum of $475.00 per
month per child for a total of $1,425.00 per month commencing
November 1, 1996 (the "Monthly Child Maintenance") and
continuing monthly thereafter pending further order of this
Court.
[4] The Appellant and Lola Marie were
back in court on what apparently was a joint application in
December 1999 before Judge MacKenzie. I say
"apparently" because the order commences:
THE
APPLICATIONS of the Plaintiff, CHARLES WESLEY MILLER, and the
Defendant, LOLA MARIE MILLER, coming on for hearing before me at
New Westminster, British Columbia on today's date ...
The operative part of Judge MacKenzie's order states:
THIS COURT ORDERS that the order of the Honourable Judge Holmes
made November 15, 1996 is varied as follows:
a) by
terminating child support payable by the Plaintiff to the
Defendant for Heather Mae Miller, born June 30, 1977 effective
October 5, 1999; and
b) the
Plaintiff shall pay to the Defendant for the interim support of
the children of the marriage, namely Erin Fern Miller, born June
5, 1979 and Sarah Lindsey Miller, born June 1, 1981 (collectively
the "Children") the sum of $475.00 per month per child
for a total of $950.00 per month commencing October 5, 1999 and
continuing monthly thereafter pending further order of the court
with the payments being made by the Plaintiff to the Defendant in
the sum of $438.48 every two weeks thereafter.
[5] According to the evidence of the
Appellant, he and his former wife have lived in accordance with
Judge MacKenzie's order of December 16, 1999 (the
"second order"). He has made the payments at the rate
of $475 per month per child to his former wife since
October 5, 1999 and throughout 2000 and 2001. The order of
Madam Justice MacKenzie was entered as Exhibit R-2.
[6] In 2002, the question arose as to
whether the second order changed the Appellant's right to
deduct the child support payments he had been making since
October 5, 1999. CCRA decided that it was a fresh order; and that
there was a "commencement day" under the relevant
legislation. If there was a commencement day under subsection
56.1(4) of the Income Tax Act, the payments for child
support would no longer be deductible to the Appellant. I
understand that CCRA gave effect to that decision in the
reassessments which are under appeal disallowing the deduction of
child support payments from and after October 5, 1999.
[7] The issue in this case is
deceptively simple. Did the second order create a
"commencement day" within the meaning of subsection
56.1(4)? The definitions in subsection 56.1(4) are incorporated
into section 60 and 60.1 by subsection 60.1(4).
56.1(4)
The definitions in this subsection apply in this section and
section 56.
"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.
[8] There was a significant change to
the relevant legislation which took effect on May 1, 1997.
Associate Chief Judge Bowman of this Court set out a good
description of that change in Kovarik v. The Queen,
[2001] 2 C.T.C. 2503:
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. R., [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.
That change between the old régime and the new
régime depended upon whether there was a
"commencement day" as defined above.
[9] In the definition of
"commencement day", this appeal falls under paragraph
(b) because the basic order was not made after April 1997
but on November 15, 1996 (Exhibit R-1). There are four
alternatives under paragraph (b). I will consider the
first and the last alternative because they are easy to
eliminate. If the payor and the payee execute a joint election
filed with the Minister in a prescribed form they can elect a
commencement day under subparagraph (b)(i). The Appellant
and Lola Marie did not execute a joint election. Under
subparagraph (b)(iv), the agreement or order can specify a
day as the commencement day for the purpose of the Income Tax
Act. There is no commencement day specified in the second
order. Subparagraphs (b)(i) and (b)(iv) do not
apply.
[10] I am left with the two remaining
subparagraphs (b)(ii) and (b)(iii):
(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 payor, the commencement day of the first such
subsequent agreement or order, ...
There is an obvious similarity between the provisions in (ii)
and (iii) because (ii) states "to change the child
support amounts" and (iii) states "to change the total
child support amounts". Subparagraph (b)(ii) depends
on an agreement or order being "varied" whereas
subparagraph (b)(iii) depends on a subsequent agreement or
order. In this appeal, we have what appears to be a variation
because, in the second order, Madam Justice MacKenzie states:
THIS COURT ORDERS that the order of the Honourable Judge
Holmes made November 15, 1996 is varied as
follows:
(emphasis added)
Assuming that the order of November 15, 1996 is only
"varied", the Appellant is under subparagraph
(b)(ii). The second order did not change the child support
amounts payable per month per child. The terminology of the two
orders is almost the same. The first order of November 1996 used
the words "in the sum of $475 per month per child for a
total of $1,425 per month". The second order stated
"the sum of $475 per month per child for a total of $950 per
month". It is perfectly obvious that, if one of the three
children has dropped off as no longer a person in respect of whom
child support is required, the aggregate amount is going to drop.
But that is not what subparagraph (b)(ii) of the
definition of "commencement day" is aimed at.
Subparagraph (b)(ii) is aimed at whether the varied order
will "change the child support amounts payable to the
recipient".
[11] In my view, subparagraph (b)(ii)
applies only if a prior agreement or order is varied to change
the amount payable per child. In the second order, because
Heather (the oldest child) had reached a certain age, or level of
education, or had married, or moved out, or whatever, the
Appellant was no longer required to pay $475 per month for her
after October 5, 1999. He was, however, required by the
second order to continue to pay the precise same amount for each
of the two younger children that he was ordered to pay by the
prior court order of November 15, 1996. As I read the two
court orders of November 15, 1996 and December 16, 1999, there is
no commencement day with respect to the Appellant and the
payments he made to his former wife in 1999, 2000 and 2001.
Because there is no commencement day, his entitlement to deduct
the monthly payments continues as it was before December 16,
1999.
[12] Counsel for the Respondent brought to
my attention the decision of Bowman A.C.J. in Kovarik v.
The Queen,supra. I have already quoted above
Judge Bowman's succinct summary of the old régime and
the new régime. I must now consider the facts in that
case. Mr. Kovarik and his wife ("JV") were divorced in
December 1979. They had two sons: Garrett born in 1971 and
Ray born in 1973. On January 15, 1990, Mr. Kovarik and JV entered
into a written agreement which stated in part:
1. Effective
January 1, 1990, Kovarik will pay to Velensky for the maintenance
of Garrett George Kovarik who was born on the 6th day of
September, 1971 and Ray Paul Kovarik who was born on the 26th day
of March, 1973, the sum of $450.00 per month for each child, a
total of $900.00 per month.
In 1998, the younger son received an MBA and became
self-sufficient but the older son was a medical student and
continued to need parental support. On February 12, 1998, Mr.
Kovarik and JV entered into a new written agreement which
provided in part:
AND WHEREAS the parties have agreed that child support for the
said RAY PAUL KOVARIK may be discontinued effective the 1st of
February, 1998.
AND WHEREAS the parties have mutually agreed that the existing
child support agreement for the support of GARRETT GEORGE KOVARIK
born on the 6th of September, 1971, be continued in the sum of
$450.00 per month.
NOW THIS INDENTURE WITNESSETH and the parties hereby covenant
and agree as follows:
1. The parties
further mutually agree that child support for RAY PAUL KOVARIK
born on the 26th of March, 1973 be cancelled and rescinded
effective the 1st of February, 1998.
2. The parties
further agree that the existing child support order continue
insofar as GARRETT GEORGE KOVARIK is concerned until such time as
he is no longer a child as defined under the Divorce
Act.
[13] Judge Bowman dismissed Mr.
Kovarik's appeal holding that there was a "commencement
day" as a result of the February 12, 1998 agreement, and
stating at page 2510:
16 The liability for
one child - the older one - remains admittedly the same but the
total changes.
17 Counsel contends
that the 1998 agreement was unnecessary because the obligation to
pay support for Ray Paul Kovarik would have expired upon his
moving out. I do not think that the Divorce Act supports
such an automatic cessation. Without the agreement of the
appellant's ex spouse he would have needed a court order or
some similar sanction for a variation of the 1990 agreement and
this would have brought him into the definition of
"commencement day" one way or another.
In the Kovarik case, the agreement of February 12, 1998
was "a subsequent agreement" and therefore fell within
subparagraph (b)(iii) of the definition of
"commencement day". Judge Bowman concluded that he was
bound by the plain words of subparagraph (b)(iii):
"to change the total child support amounts payable to the
recipient by the payor" even though the amount payable per
child did not change.
[14] I am not inclined to interpret
subparagraph (b)(ii) of the definition to find a
commencement day only because one of two or more children became
ineligible for child support payments. In my opinion, a
commencement day would be established after April 1997 under
subparagraph (b)(ii) only if there were a change in the
support amount payable per child. When there are two or more
children all eligible for child support payments, and when one
child becomes ineligible for child support because of age,
educational achievement, marriage, moving out, etc., the gross
amount payable to the recipient by the payor will, of course, be
reduced but such reduction is not, in my view, a
"change" in the child support amounts for the purposes
of subparagraph (b)(ii).
[15] Returning to the facts in this appeal,
the second order varied the prior order of Judge Holmes only by
terminating the child support payable for Heather. Otherwise, the
second order confirmed the former child support amount ($475 per
month) as being still payable for the two younger children (Erin
and Sarah). On these facts, I conclude that there was no
"commencement day" established by the second order of
December 16, 1999. The appeals for the years 1999, 2000 and 2001
are allowed, without costs.
Signed at Ottawa, Canada, this 15th day of October, 2003.
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