Date: 20010816
Docket: 2000-4203-IT-I
BETWEEN:
ALAN R. COLLINS,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Amended Reasons for Judgment
Rip, J.T.C.C.
[1]
This is an appeal by Alan R. Collins, a barrister and solicitor,
practising in Edmonton, Alberta, from income tax assessments for
1997 and 1998 in which the Minister of National Revenue
("Minister") disallowed the deduction of support
amounts within the meaning of subsection 56.1(4) of the Income
Tax Act ("Act"). Mr. Collins appeals on the
basis that "the maintenance payments for the child were made
under a court order dated in 1983, and are therefore exempt from
tax by the payor".
[2]
Generally, the issue arises as a result of the decision of the
Supreme Court of Canada in Thibaudeau v. The Queen;[1] the government
felt compelled to reconsider what was commonly known as the
"inclusion/deduction system" in which the parent paying
maintenance for a child may deduct the amount of maintenance and
the receiving parent would include the amount in income.
Parliament eliminated the "inclusion/deduction system"
for all support payments made pursuant to an order or agreement
made after April 30, 1997 that contemplated a commencement
day.
[3]
In 1981 the appellant was separated from his wife at the time,
Laura Lee Collins, and Mrs. Collins obtained an order
from the Court of Queen's Bench of Alberta ordering the
appellant to pay to Mrs. Collins the sum of $450 monthly for
interim maintenance of their infant child, such maintenance to
commence on September 1st, 1981 and to continue
on the 1st day of each and every month until further
order of the court. On July 25, 1983 the Court of Queen's
Bench of Alberta issued a decreenisi pursuant to the
Divorce Act[2]in favour of Mrs. Collins. The decree
nisi provided that she and the appellant be divorced,
ordered that she have sole custody of the child of the marriage
and ordered that Mr. Collins pay to Mrs. Collins for the
maintenance of the child the sum of $500 per month, the first
monthly payment in the amount of $500 being due and payable on
July 1st, 1983.
[4] Throughout 1997
and at least until April 1, 1998 Mr. Collins paid monthly to his
former wife the sum of $500 for the maintenance of their child
pursuant to the court order of July 25, 1983.
[5] Apparently
sometime prior to March 1998, Mrs. Collins applied to vary the
terms of the decree nisi to increase the maintenance for
the child of the marriage because on April 17, 1998, after five
days of trial in March 1998, Marceau J. of the Court of
Queen's Bench of Alberta issued a judgment that provided, in
part,
. . . . .
4. The Respondent shall pay to
the Applicant as retroactive child support for the period from
September 1, 1994 to and including April 1, 1998, the
sum of $811.00 per month with a credit for the $500.00 per month
paid by the Respondent during that period for a total due of
$13,684.00.
. . . . .
7. It is deemed that the
commencement date of this Order is May 1, 1997.
8. The
Respondent shall pay to the Applicant for ongoing child support
commencing the 1st day of May, 1998, and continuing
for 16 months thereafter, the following:
a. $811.00 per month;
. . . . .
[6]
In his Reasons for Judgment,[3] Marceau J. considered, among other things, the
Federal Child Support Guidelines of May 1, 1997, retroactive
maintenance, and written argument submitted to him on the tax
consequences of his judgment.
[7]
The support amount that may be deducted by a taxpayer in
computing income in a taxation year is determined by the formula
set out in paragraph 60(b) of the Act. However, the
amount deductible by a taxpayer in computing income is reduced by
child support amounts:
that became payable by a taxpayer to a 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.
[8]
Subsection 56.1(4) contains the relevant definitions which
also apply to section 60 pursuant to subsection 60.1(4).
"Commencement day" at any time in 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.
[9]
In his judgment of April 17, 1998, Marceau J. deemed the
commencement date of his order to be May 1, 1997, the day the new
regime of child support payments took effect. It is clear that
the intent of Marceau J. was that Mr. Collins not be
permitted to deduct the amounts he paid to Mrs. Collins for child
support after April 1997 and that Mrs. Collins not be required to
include these amounts in her income. However, subject to
paragraph 60(b), the amounts Mr. Collins paid to Mrs.
Collins in January, February, March and April 1997 may be
deductible by him.
[10] There is
no question that in recent years the courts have made retroactive
orders for payments of child support that have affected the
taxability of the payer and payee. For example, in LeGroulx v.
R.,[4] the
appellant was ordered in 1995 to pay increased child support for
her two children effective December 1, 1992. These amounts were
paid in 1995 and the Minister disallowed her corresponding
deduction for the said amounts. The issue was whether the 1995
court order was made nunc pro tunc (now for then). In that
case, Rule 59.01 of the Ontario Rules of Civil Procedure[5]permitted a
court to insert a date in an order other than the date on which
it is made. In LeGroulx, the distinguishing feature was
that the court was permitted to make a retroactive order and this
court relied on paragraph 17(1)(a) of the Divorce
Act to permit the deduction.
[11] In The
Queen v. Larsson,[6] the Federal Court of Appeal found that a court order
providing that the mortgage payments made in earlier years were
made pursuant to subsections 56.1(2) and 60.1(2) of the
Act was made nunc pro tunc. McDonald J.A.
stated at page 5428 that:
. . . While one must assume that a court order is effective
from the date on which it is entered, it is equally reasonable to
assume that when courts make orders, those orders are intended to
be of some force or effect at the time they are made. In the case
at bar, the fourth order specifically contemplates the nature of
mortgage payments made since 1989 by the taxpayer. At the time
the fourth order was made in 1993, though, the matrimonial home
had been sold and no more mortgage payments would be made by the
taxpayer. It is clear on these facts that if the fourth order
were not intended to be of retroactive effect, it would be moot.
This is at least an indicator of retroactivity, and may even
defeat the presumption against retroactivity.
In my view, it would be perverse to interpret a court's
ruling in such a way as to render it moot from its inception. In
the case at bar, if the fourth order is not interpreted
retroactively, it is of no force or effect from the day it was
entered. In such a situation, I can see no other reasonable
interpretation than to assume that the British Columbia Supreme
Court intended the fourth order to have been made nunc pro
tunc.
[12] Rule 322
of the Alberta Rules of Court[7] permits the court to insert a
retroactive date on which a judgment or order may take effect.
The Court of Queen's Bench of Alberta also has the power
pursuant to subsection 17(1) of the Divorce Act to
vary, rescind or suspend, prospectively or retroactively, a
support order. Clearly, the Alberta court has the discretion to
do what it did.[8]
[13] In
paragraph 56.1(4)(b) of the Act the
"order" that was made before May 1997 is the decree
nisi of July 25, 1983 and the order of April 17, 1998 is
the variation of the decree nisi. The May 1, 1997 date
specified in the variation of the decree nisi as the
commencement day, as defined in paragraph 56.1(4)(b), is
the earliest of all the possible commencement days specified in
subparagraphs 56.1(4)(b)(i) to (iv), inclusive. The
"commencement day" on the facts at bar is
May 1, 1997, the date specified in Marceau J.'s
judgment of April 17, 1998.
[14] The words
"commencement day" do not determine the coming into
effect of a judgment or order. The jurisprudence referred to
earlier is not of any great assistance in considering this appeal
other that it confirms that retroactivity is a fact of life and
is now well established in income tax law, and this with respect
to both the legislation and the jurisprudence. The power of a
court to provide for a "commencement day" stems from
the Act itself and not from the rules of a court.
An agreement may have a "commencement day" different
from the day the agreement is made. The definition of
"commencement day" clearly contemplates that an
agreement or order can specify the commencement day. Logically,
this date could only be retroactive in view of the words "is
the earliest of" in paragraph 56.1(4)(b). Otherwise,
for example, subparagraph (iv) of subsection 56.1(4) would
have virtually no meaning. The French version of
"commencement day", "date
d'exécution" is just as clear and subparagraph
(iv) thereof refers to: "le jour précisé dans
l'accord ou l'ordonnance".
[15] The
appellant's arguments that the payments made by him in 1997
and up to April 1, 1998 were paid pursuant to an order of 1983
cannot stand. The new child support scheme in the Act
provides the formula for inclusion/deduction of amounts. The
appellant's argument only takes a portion of the formula into
account. Paragraph 60(b) provides for the amount that may
be deducted, if any. The parties agreed that with respect to 1998
no amount should be deductible by Mr. Collins, even if he were
successful in his appeal from the 1998 assessment. With respect
to 1997, the formula set out in paragraph 60(b)
apparently permits Mr. Collins to deduct the amount of
$2,000, representing the amounts paid before the
"commencement day", that is, in the months of January,
February, March and April 1997.
[16] The
appeal for 1997 is allowed only to permit Mr. Collins to
deduct an amount in computing his income for the year
as determined by the formula in paragraph 60(b). The
"commencement date" is May 1, 1997. The appeal from
the assessment for the 1998 taxation year is dismissed.
Signed at Ottawa, Canada, this 16th day of August 2001.
"Gerald J. Rip"
J.T.C.C.
COURT FILE
NO.:
2000-4203(IT)I
STYLE OF
CAUSE:
Alan R. Collins and
Her Majesty the Queen
PLACE OF
HEARING:
Edmonton, Alberta
DATE OF
HEARING:
May 7, 2001
AMENDED REASONS FOR JUDGMENT
BY:
The Hon. Judge Gerald J. Rip
DATE OF AMENDED JUDGMENT: August 16, 2001
APPEARANCES:
For the
appellant:
The appellant himself
Counsel for the
respondent:
Gwen Mah
COUNSEL OF RECORD:
For the appellant:
Name:
Firm:
For the
respondent:
Morris Rosenberg
Deputy Attorney General of Canada
Ottawa, Canada
2000-4203(IT)I
BETWEEN:
ALAN R. COLLINS,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Appeals heard on May 7, 2001, at Edmondon,
Alberta, by
the Honourable Judge Gerald J. Rip
Appearances
For the
Appellant:
The Appellant himself
Counsel for the
Respondent:
Gwen Mah
AMENDED Judgment
This judgment is issued in substitution for the judgment signed
on June 1, 2001.
The appeal from the assessment made under the Income Tax
Act ("Act") for the 1997 taxation year is
allowed, without costs and the assessment is referred back to the
Minister of National Revenue for reconsideration and reassessment
on the basis that the Appellant is permitted to deduct
amounts as support amounts in computing his income for the
year as determined by the formula in
paragraph 60(b) of the Act.
The appeal from the assessment made under the Act for the
1998 taxation years is dismissed.
Signed at Ottawa, Canada, this 16th day of August 2001.
J.T.C.C.
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