Christof v. The Queen, docket 2001-1477-IT-I (Informal Procedure)

Date: 20011221

Docket: 2001-1477-IT-I

BETWEEN:

PAVEL F. CHRISTOF,

Appellant,

and

HER MAJESTY THE QUEEN,

Respondent.

Reasonsfor Judgment

Watson, D.J.T.C.C.

[1]            This appeal was heard at Toronto, Ontario, on December 11, 2001.

[2]            The Minister of National Revenue (the "Minister") assessed the Appellant for the 1997 and 1998 taxation years by Notices of Assessment mailed on April 20, 1998 and April 15, 1999 respectively. In response to the Appellant's T1 adjustment requests for support payment deductions of $4,000 and $2,000 respectively for the 1997 and 1998 taxation years, the Minister allowed the claimed support payment deductions. In reassessing the Appellant for these two taxation years on July 31, 2000, the Minister disallowed the deduction of the claimed support payments.

[3]            In so reassessing and confirming the reassessments for the two years, the Minister relied on the following assumptions of fact:

(a)            the Disallowed Amounts were in respect of third party payments made by the Appellant for property taxes, insurance and major repairs in respect of the matrimonial home;

(b)            the Disallowed Amounts were not payable on a periodic basis and the Appellant's former spouse had no discretion as to the use of the Disallowed Amounts;

(c)            the Disallowed Amounts, in respect of third party payments made by the Appellant in the 1997 and 1998 taxation years, were not made on account of support payments for his former spouse.

[4]            At the hearing, the Appellant denied paragraphs (a) to (c).

[5]            The Appellant submits that as set out in the separation agreement dated January 23, 1996, he agreed to allow his spouse and two children to have the exclusive possession of the matrimonial home instead of paying child support. The mortgage on this home was paid off; the separation agreement provided that the Appellant was to pay to his spouse an amount equal to half of the realty taxes, half of the household insurance and further contribute half of the amount necessary for any cost of major repair that might be required to be done to the home. The Appellant made three payments for 1997 and two for 1998 totalling $4,000 for the 1997 taxation year and $2,000 for the 1998 taxation year. The Appellant made the payments to his spouse and the separation agreement does not stipulate that the amounts paid to his spouse must actually be used to pay the realty taxes, household insurance and repairs; the separation agreement provides that an amount equal to such costs is to be paid to his spouse not to third parties or in respect of third party payments by the Appellant.

[6]            The relevant provisions of the Income Tax Act (the "Act") are set out as follows:

SECTION 60. Other deductions.

There may be deducted in computing a taxpayer's income for a taxation year such of the following amounts as are applicable:

...

(b)            [spousal or child] 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; (underlining mine)

[7]            Subsection 56.1(4) contains the definition of a "support amount":

"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 former spouse of the payer, the recipient and payer are living separate and apart because of the breakdown of their marriage 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. (underlining mine)

[8]            In order for the payments of the support amounts claimed by the Appellant to be deductible, they must have been an allowance made on a periodic basis.

[9]            The Court has considered the case of McKimmon v. M.N.R., [1990] 1 F.C. 600 (F.C.A.) in which Mr. Justice Hugessen outlined eight factors that should be considered when determining whether payments are made as periodic payments or lump sum payments. In the present appeal, the payments were not paid weekly or monthly but on the following dates: January 25, 1997, July 4, 1997, September 5, 1997, April 29, 1998 and October 16, 1998. Each payment was for an indefinite period until the matrimonial home is not sold; the payments do not bear interest, cannot be accelerated or pre-paid, do not allow for capital accumulation, are not assignable and do not release the Appellant from future obligations to pay maintenance.

[10]          The Court has also considered the case of Arsenault v. Canada, [1995] 2 C.T.C. 2168 (TCC) at paras. 20-21. Subsection 11(3) of the separation agreement states as follows:

During the period of exclusive possession, the Husband shall pay to the Wife an amount equal to half of the realty taxes; half of the household insurance for the building and further, contribute half of the amount necessary for any items of major repair that are required to be done to the matrimonial home. The Husband and the Wife further agree that no such repairs shall be done without the consent in writing of both of them and which consent will not be unreasonably withheld. In 1995 the realty taxes total $3,303.87; the insurance is $596.00 and there have been no major repairs to the date of the Agreement.

[11]          The agreement does not state that the amount paid by the Appellant to his spouse has to be used for the subscribed costs, only that the amount shall be equal to the subscribed costs. The Court is satisfied that the Appellant's spouse had discretion as to the use of the payments received.

[12]          Having regard to all of the circumstances of this appeal, including the testimony of the Appellant and the documentary evidence, the Court is satisfied that the Appellant has succeeded in his onus of establishing on a balance of probabilities that the Minister's reassessment for the 1997 and 1998 taxation years dated July 31, 2000 disallowing the amounts of $4,000 and $2,000 respectively was ill-founded in fact and in law.

[13]          The appeal is allowed and the matter is referred back to the Minister for reconsideration and reassessment on the basis that the amounts claimed by the Appellant as deductions for support payments were amounts paid by the Appellant as support payments pursuant to paragraph 60(b) and section 60.1 of the Act and are deductible in computing the Appellant's income for the 1997 and 1998 taxation years.

Signed at Ottawa, Canada, this 21st day of December 2001.

"D.R. Watson"

D.J.T.C.C.

COURT FILE NO.:                                                 2001-1477(IT)I

STYLE OF CAUSE:                                               Pavel F. Christof and H.M.Q.

PLACE OF HEARING:                                         Toronto, Ontario

DATE OF HEARING:                                           December 11, 2001

REASONS FOR JUDGMENT BY:                      the Honourable Deputy Judge D.R. Watson

DATE OF JUDGMENT:                                       December 21, 2001

APPEARANCES:

For the Appellant:                                                 The Appellant himself

For the Respondent:                             Eric Sherbert (Student-at-law)

COUNSEL OF RECORD:

For the Appellant:                

Name:                               

Firm:                 

For the Respondent:                             Morris Rosenberg

                                                                Deputy Attorney General of Canada

                                                                                Ottawa, Canada

2001-1477(IT)I

BETWEEN:

PAVEL F. CHRISTOF,

Appellant,

and

HER MAJESTY THE QUEEN,

Respondent.

Appeal heard on December 11, 2001 at Toronto, Ontario, by

the Honourable Deputy Judge D.R. Watson

Appearances

For the Appellant:                                The Appellant himself

For the Respondent:                            Eric Sherbert (Student-at-law)

JUDGMENT

          The appeal from the assessments made under the Income Tax Act for the 1997 and 1998 taxation years is allowed and the assessments are referred back to the Minister of National Revenue for reconsideration and reassessment in accordance with the attached Reasons for Judgment.

Signed at Ottawa, Canada, this 21st day of December 2001.

"D.R. Watson"

D.J.T.C.C.