Date: 20001110
Docket: 98-9236-IT-I
BETWEEN:
CLAUDE DAVID,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasonsfor
Judgment
Tardif, J.T.C.C.
[1]
This appeal concerns the 1993, 1994 and 1995 taxation years, the
appellant having withdrawn his appeal for the 1992 taxation year.
The issue is the following:
[TRANSLATION]
in respect of the 1993, 1994 and 1995 taxation years, were the
amounts claimed by the appellant deductible as alimony or other
allowance payable on a periodic basis?
[2]
In preparing the notice of reassessment, the Minister of National
Revenue (the "Minister") made the following assumptions
of fact, which are reproduced in the Reply to the Notice of
Appeal (the "Reply"):
[TRANSLATION]
(a)
during the years at issue, the appellant and his former spouse,
Diane Lévesque, co-owned an immovable located at
218 chemin St-Bernard in Mont-Tremblant;
(b)
in the judgment on motion rendered by Mr. Justice Roland Durand
on February 1, 1993, the appellant was ordered to pay the
mortgage payments on the property referred to in (a) above;
(c)
the payments were made directly by the appellant to the financial
institution;
(d)
the said judgment did not indicate that the mortgage expenses
were deductible by the appellant and taxable in the hands of his
former spouse;
(e)
the amounts at issue that were disallowed to the appellant for
the 1993, 1994 and 1995 taxation years were payments to third
parties, that is, mortgage payments and municipal and school
taxes;
(f)
in computing the appellant's income for 1992, the Minister
allowed him the entire $4,800 deduction claimed as alimony or
other allowance payable on a periodic basis.
[3]
The evidence was relatively brief. The dispute arose primarily
from the interpretation of the exchanges between counsel and the
Superior Court judge prior to judgment. That judgment, rendered
by the Honourable Mr. Justice Durand, is very concise and reads
as follows (Exhibit A-2):
[TRANSLATION]
Total claimed by Ms. Lévesque: $1,590 a month;
amount awarded: $880 but Mr. David is to pay Ms.
Lévesque's share of the mortgage debt.
[4]
The $880 amount is not in dispute. The issue essentially concerns
the amounts paid on behalf of the appellant's former spouse
for mortgage expenses and other expenses relating to her
ownership of the Mont-Tremblant residence.
[5]
The amounts disallowed are, in particular, $7,368 for the 1993
taxation year, $5,285 for the 1994 taxation year and $7,938 for
the 1995 taxation year.
[6]
The above-quoted judgment resulted from a motion for interim
relief brought on October 26, 1992, and asking the Court to
(Exhibit A-2):
[TRANSLATION]
ALLOW this motion;
GRANT the applicant the physical and legal custody of the
minor child Julie;
GRANT the respondent the physical and legal custody of the
minor child Véronique;
ORDER the respondent to pay the applicant, for the minor child
Julie, support of $575.00 a week, payable on Friday each week at
the residence of the applicant, the whole to be indexed in
accordance with the provisions of the Act;
ORDER the respondent to pay the applicant, for herself,
alimony of $1,015.00 a week, payable on Friday each week at the
residence of the applicant, the whole to be indexed in accordance
with the provisions of the Act;
GRANT the applicant exclusive use of the personal property and
household effects furnishing and decorating
2300 rue St-Germain, Ville St-Laurent,
Montréal;
AUTHORIZE the applicant to reside at the secondary residence
located at 2300 rue St-Germain, Ville St-Laurent, District
of Montréal, and to do so to the exclusion of the
respondent;
ORDER provisional execution of the judgment on this motion,
regardless of any appeal and without any surety being
provided;
THE WHOLE WITHOUT COSTS, except in the event of a dispute.
[7]
The argument primarily concerned the exchanges between counsel
and the judge when the case came to court on February 1, 1993. It
is useful to reproduce an excerpt from the exchange between both
counsel and the judge (Exhibit I-2):
[TRANSLATION]
. . .
Durand
J.:
That is for Ms. Lévesque and the child.
Me
Fortin:
The non-taxable amounts of $685 that were asked for were only for
Ms. Lévesque. There was an amount of $220 for Julie's
basic expenses and also an amount allowed for Julie's skating
expenses.
Durand
J.:
Yes . . . Yes . . . The $685 excludes the skating but includes .
. . current expenses.
Me
Fortin:
No, My Lord, it did not include current expenses. If, My Lord, I
calculate only the current expenses for Ms. Lévesque, and
I take away . . .
Durand
J.:
Since the Mont-Tremblant house is part of the family assets, if I
ordered him to pay the mortgage on the Mont-Tremblant property,
would that help?
Me
Fortin:
He is already paying it, My Lord.
Durand
J.:
Yes, but if I order him to do so instead of its being a voluntary
payment.
Me
Dubé:
That's interesting, My Lord. Will Your Lordship allow me to
break off here and check with his tax lawyer? Very good
suggestion, My Lord.
Durand
J.:
5 minutes . . . well, 10 minutes.
[Break]
Me
Dubé:
Well, I checked, My Lord; that could indeed be tax deductible; I
also spoke with my client, My Lord, and what we're prepared
to offer is $800, that is, $41,500, I think that's right:
$800 per week, $41,500, and indeed your suggestion was very
brilliant, My Lord, that the husband be ordered to pay the
mortgage on the residence at . . .
Durand
J.:
$800 per week does not include the skating.
Me
Dubé:
Yes, everything . . . everything included; that amounts, it comes
to $41,500, My Lord.
Durand
J.:
That is $4,000 less than [. . .]
Me
Dubé:
Yes, but based, My Lord, on what we have been able to check and
calculate, My Lord, because of the duplication and overlap,
exaggerated claims, absolutely useless amounts—I
haven't come to my argument yet—but, My Lord, that is
what justifies in our opinion . . . it's more than enough for
the needs of Ms. Lévesque and Julie.
Durand
J.:
I think perhaps not . . .
Me
Fortin:
My Lord, I also redid the calculation, as it happens, taking
overlap and duplication into account, and what I came up with is
the net non-taxable amount that Julie and Ms. Lévesque
require for current expenses, not including anticipated expenses,
and it is $3,317.08. And that does not include the skating, and
it's net. So . . .
Durand
J.:
And you will be able argue that point when the case is heard on
the merits. As regards the interim relief, I . . .
Me
Fortin:
It's the amount I arrived at, just to respond to my
colleague's submission. And that is without counting a
provision for expenses.
Durand
J.:
So, that was your application of October 26, 1992.
Me
Fortin:
In which we requested $1,600, since it is a taxable amount,
$1,600 per week.
Durand
J.:
Yes, but there has not been any decision except an interim one,
so now I have to rule on the motion itself.
Me
Fortin:
That's right.
Durand
J.:
Very well. So the applicant's motion is allowed in part.
Me
Dubé:
Excuse me, My Lord, it's just that I have not had a chance to
present argument and to make my submissions; I understand my
colleague.
Durand
J.:
I am telling you that what you are offering is not enough.
Me
Dubé:
Yes, but I have not attacked the statement of income and expenses
for Ms. Lévesque. I have not had the chance to . . .
Durand
J.:
I am not giving her $1,600 per week either.
Me
Dubé:
I agree, but there is really some exaggeration there.
Durand
J.:
I am giving her $3,250 per month gross, on which she will
pay tax.
Me
Dubé:
Very well.
Durand
J.:
And that is what . . . on the merits, she is going to get
more.
Me
Fortin:
I understand, My Lord, that you are ruling only on the motion for
. . .
Durand
J.:
That's right.
Me
Fortin:
But I would have submissions to make on the motion for a
provision for expenses, of course.
[8]
The appellant argued that the payments in question were alimony,
which was deductible because the payments had been applied
against a debt owed by his former spouse arising from the
purchase of a residence; the appellant also pointed out that
these payments were made for her benefit. In other words,
according to the appellant, his former spouse waived her rights
with respect to those amounts and at the same time gave him an
explicit and specific mandate to assume responsibility for the
debt.
[9]
Taking that interpretation as his starting point, the appellant
referred to the judgment of January 15, 1999, rendered by the
undersigned in Raymond Marquette v. Her Majesty the Queen,
[1999] T.C.J. No. 35. I held in that case that the recipient of
the alimony had herself expressly waived her right to dispose of
the amounts at issue; in addition, it was she who had determined
the payments' destination and chosen their recipient. It was
not at all a matter of interpreting the intention of the
recipient of the alimony and the payer thereof since the evidence
was clear and unambiguous regarding the parties' wishes, as
expressed both in the pre-judgment proceedings and in the
judgment itself.
[10] The case
at bar does not exhibit a similar degree of transparency,
especially since the appellant's interpretation is no doubt
not shared by his former spouse.
[11]
Determining alimony is not a simple exercise. In the first place,
a balance must be struck between the recipient's needs and
the payer's ability to pay. In the second place, what is
involved is basically a mathematical exercise. A fundamental
component of the mathematical formula is an evaluation of the tax
consequences, and these have a major impact with regard to the
basis on which the amount of alimony is established.
[12] I do not
believe that, in this case, this Court can assume the
jurisdiction to determine or set the amount of the alimony; that
falls within the exclusive jurisdiction of the Superior Court of
Quebec.
[13] The
parties to an alimony dispute before the Superior Court must
submit evidence which includes all relevant factors that will
enable the judge hearing the case to determine the amount of the
alimony.
[14] In a case
before the Tax Court of Canada, which is generally initiated by
the payer and concerns the characterization of the amounts he has
paid, the appellant would have the Court review, as it were, the
decision of the Superior Court. Such is not the mission of this
Court.
[15] The Tax
Court of Canada must essentially decide, on the basis of the
Income Tax Act and the various principles laid down by the
case law, whether or not the amounts were paid as periodic
payments or alimony.
[16] In
reaching that decision, it is quite a delicate matter to analyse
the discussions preceding the signing of an agreement or the
obtaining of a Superior Court judgment since there is a danger
that this could amount to a review of the agreement or judgment.
An exercise of this kind is all the more hazardous and
inappropriate since generally only one of the parties presents
his or her interpretation to the Tax Court of Canada.
[17] I think
that this Court must basically stick to the strict terms of the
agreement that established the parties' rights and
obligations or to the formal wording of the judgment that laid
down their rights and obligations.
[18] Should
the judgment of the Superior Court not meet the parties'
expectations, they should either rewrite the agreement or return
to that Court to have their rights and obligations clarified in
order to ensure that the alimony awarded fulfills its primary
function of striking a balance between need and ability to
pay.
[19] In the
case at bar, the terms of the judgment that established the
appellant's obligations to his former spouse in no way
support the conclusion that the former spouse had any discretion
with respect to the payments or had explicitly waived her power
to dispose of them as she saw fit. Based on the judgment, then,
there is nothing to justify a conclusion that the former spouse
had waived her right to dispose of the amount as she saw fit, or
that she had given a third party an express mandate for the
payment of the amount in question.
[20] When
drafting and signing an agreement or pleading a case involving
alimony, the parties have all the relevant information they need
to reach an agreement or obtain a judgment whose tax consequences
should normally be known to and accepted by them. Where such is
not the case, the judgment of this Court could create an
imbalance that is neither desired nor desirable.
[21] In the
instant case, the appellant would like this Court to give the
judgment of the Honourable Mr. Justice Durand of the Superior
Court a meaning that it does not have. A reading of that judgment
does not allow of the appellant's interpretation. As
formulated, the judgment has two different components:
· one
is a fixed amount of $800, and there is no doubt about the former
spouse's freedom to use this amount as she sees fit;
· the
other is fixed and specific:
"Mr. David is to pay Ms. Lévesque's share of the
mortgage debt";
thus there is no discretion or latitude in the recipient with
regard to the payments ordered.
[22] I believe
it would be appropriate and relevant to present a brief overview
of the case law.
Andrews v. Canada, [1995] T.C.J. No. 1113,
paragraph 25:
25. .
. .
He thinks he's giving the Appellant some tax relief
because he says it permits some relief to the husband, but
without a specific mention of the sections I referred to, the
amount does not become deductible to the Payor, who's the
husband. It does not become includable in the income of the
Payee. And I regret to say it's one of those gaps that keeps
cropping up in the income tax appeals that come before this
Court, where there seems to be a real gap in knowledge between
the professional people engaged in family law and the specific
provisions of the Income Tax Act as they have an impact on the
amounts paid and the amounts received upon the break up of a
marriage from one spouse to the other.
Armstrong v. Canada, [1996] F.C.J. No. 599, paragraphs
10, 12 and 15:
10.
The view that subsection 60.1(2) applies can be dealt with
shortly. In my view, the deeming provision employed by Parliament
at the end of this subsection applies only "where the
decree, order, judgment or written agreement...provides that this
subsection and section 56.1(2) shall apply to any payment made
pursuant thereto." No such statutory language appears in
either of the court orders. It follows, therefore, that
subsection 60.1(2) can have no application in allowing the
amounts to be deducted from the respondent's income.
. . .
12. .
. .
I fail to understand how one can attack the conclusion of
Collier J. that the restriction concerning discretion in the
recipient spouse cannot apply to payments made to third parties
under section 60.1. The separated spouses have presumably agreed
or in any event are bound by an Order directing that mortgage
payments be made to the creditor. In such a case how can the
supported spouse ever be said to have discretion? She may have
had it prior to the Order and even may be considered to have
exercised . . . it by agreement before the Order. After the Order
however it is impossible for her to have a discretion. To insist
that third Pascoe condition must be met, even for third party
payments, is to render section 60.1 non-existent in many cases
such as the present.
. . .
15.
It is to be observed that this descriptive language is absent
from subsection 60.1(1). Furthermore, the definition of
"allowance" contained in subsection 56(12) was adopted,
inter alia, expressly "for the purposes of
paragraph...60(b), (c) and (c.1)". Subsection 60.1(1) does
not itself provide for the deduction of an amount paid and
received. Instead, it enlarges the right of deduction made
available under paragraphs 60(b), (c) or (c.1) by deeming
"for the purposes of paragraphs 60(b), (c) and (c.1)"
an amount "to have been paid and received by that
person". In my view, the subsection 56(12) definition of
"allowance" is to be read together with subsection
60.1(1) of the Act and the latter subsection construed
accordingly. Accordingly, as the former spouse had no discretion
as to the use of the moneys they cannot be deducted by the
respondent from his income for the taxation years in
question.
Mambo v. Canada, [1995] T.C.J. No. 931, paragraph
13:
13.
The requirement that there be specific reference to these
subsections in writing has two valid purposes. The first is to
confirm that both parties know that there are tax consequences to
such an order or agreement. The second is to comply with what
provincial statutes across Canada now enact: that the parties
participating in such a Court Order or signing such agreements
each have independent legal advice due to their serious and
permanent consequences. An oral agreement or consent by the
Appellant's former wife in 1979 does not fulfill the criteria
of the Income Tax Act or meet the principles described above.
Monette v. M.N.R., [1991] T.C.J. No. 609:
. . .
I would add as well that the interpretation advanced by
counsel for the respondent does not seem to me to take into
account the provisions of subsections 56.1(2) and 60.1(2). These
paragraphs deal with, inter alia, principal and interest payments
on mortgages on the building where the recipient of the
allowances in question resides, municipal and school taxes,
medical expenses and educational expenses. All such expenditures,
subject to certain restrictions, may be paid to third parties,
for the benefit of the other spouse or former spouse or of
children in that person's custody. Such payments are not
known in advance with mathematical precision, but they are easily
determinable during the year in question or shortly thereafter.
For example, monthly mortgage payments may fluctuate over a year
as a result of refinancing the mortgage or simply a fluctuation
in the rate of interest in applying a clause in the contract
creating the mortgage and the manner in which the mortgage debt
will be paid. In the case of indexed payments, the rates of
indexation are not known in advance. Municipal and school taxes
may also be increased during a given year or even be subject to
challenge in the courts.
. . .
Assaf v. Canada, [1992] T.C.J. No. 46:
. . .
In interpreting subs. 56(12) it should be noted that, for
amounts received for example by a spouse or former spouse to be
an allowance within the meaning of this subsection, it does not
matter that the person paying the alimony does not control or
attempt to control the use of the money in question. However, the
judgment or agreement, as the case may be, must not specify the
use to be made of these amounts. If there is such an indication,
it follows that if the spouse or former spouse receiving the
money in question does not use it in the way specified in the
judgment or agreement, he or she will be failing to perform the
obligation contained in the judgment or agreement. It is in this
sense that the recipient of the amounts in question does not
legally have discretion as to their use under subs. 56(12).
. . .
Tremblay v. Canada, [1999] T.C.J. No. 39, paragraph
11:
. . .
11.
Given the wording of paragraph 60(b), subsection 56(12) and
section 60.1 of the Act, it is clear that specific amounts paid
to third parties generally cannot be deducted under paragraph
60(b) of the Act. However, Parliament exempts taxpayers from this
general rule if both parties to an agreement on support payments
agree that those amounts-which are not allowances (for example,
the housing expenses in the case at bar)-will be deductible by
the payer and taxable in the recipient's hands. Likewise, a
judge may decide that this will be the case in his or her order.
However, it is important that the parties' agreement or the
court order provide that subsections 56.1(2) and 60.1(2) of the
Act apply to any payment provided for in the agreement or order.
If the term "alimony" had to be given the broad meaning
of any amount paid under a written agreement or order, what would
have been the point of enacting subsections 56(12), 56.1(2) and
60.1(2) of the Act? I think that adopting the narrow meaning of
"alimony" is more in keeping with those provisions of
the Act.
. . .
[23] I must
dispose of this appeal solely on the basis of the judgment that
has been rendered; I have no jurisdiction to interfere in the
process that led up to that judgment.
[24] For these
reasons, the appeal must be dismissed.
Signed at Ottawa, Canada, this 10th day of November 2000.
"Alain Tardif"
J.T.C.C.
Translation certified true on this 28th day of December
2001.
[OFFICIAL ENGLISH TRANSLATION]
Erich Klein, Revisor
[OFFICIAL ENGLISH TRANSLATION]
98-9236(IT)I
BETWEEN:
CLAUDE DAVID,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Appeal heard on June 9, 2000, at
Montréal, Quebec, by
the Honourable Judge Alain Tardif
Appearances
Counsel for the Appellant:
Jean Richard
Counsel for the
Respondent:
Yanick Houle
JUDGMENT
The
appeal from the assessments made under the Income Tax Act
for the 1993, 1994 and 1995 taxation years are dismissed in
accordance with the attached Reasons for Judgment.
Signed at Ottawa, Canada, this 10th day of November 2000.
J.T.C.C.
Translation certified true
on this 28th day of December 2001.
Erich Klein, Revisor
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