Date: 20000802
Docket: 2000-226-IT-I
BETWEEN:
GORDON W. SKERTCHLY,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasons for Judgment
Rip, J.T.C.C.
[1]
This is an appeal, filed under the informal procedure, from an
income tax assessment made by the Minister of National Revenue
("Minister") under the Income Tax Act
("Act") in respect of the appellant's 1997
taxation year in which the Minister did not permit the appellant
to deduct the sum of $9,168 in computing his income since the
amounts were not paid or payable to his spouse on a periodic
basis for her support or the support of the spouse or the
children of the appellant and his spouse within the meaning of
section 60.1 and paragraph 60(b) or in accordance
with subsection 60(0.1) of the Act.
[2]
The facts are not in issue:
b)
the Appellant and Jayne Yvonne Skertchly (the "Spouse")
were married in 1982;
c)
the Appellant and the Spouse had two children, James and Sarah
(the "Children"), from their marriage to each
other;
d)
the Appellant was living separate and apart from the Spouse since
January 21, 1995;
e)
the Appellant and the Spouse signed a Separation Agreement on
June 6, 1995 (the "Agreement");
f)
pursuant to the Agreement, the Appellant was required to pay
child support to the Spouse of $500.00 per month per child, for a
total of $1,000.00 per month, commencing July 1, 1995;
[3]
The Agreement also provided that:
5.1
The Husband will pay $30,000.00 to the Wife as a lump sum support
payment in complete satisfaction of his obligation to pay spousal
support as follows:
a.
$20,000.00, to be paid immediately upon transfer of the Family
Residence to the Husband; and
b.
$10,000.00 pursuant to Clause 9.6(c) of this Agreement.
(the "Spousal Support").
. . .
5.4
The Husband understands that he is not entitled to deduct the
lump sum Spousal Support or any part of it in calculating his
income under the Income Tax Act (Canada) except those
periodic payments made pursuant to Clause 9.10.
5.5
The Wife understands that she is not required to include the
Spousal Support or any part of it in calculating her income under
the Income Tax Act (Canada) except to the extent of
interest paid under clause 9.9 of this Agreement.
. . .
9.6
The Wife will transfer her entire interest in the Family
Residence to the Husband upon:
a.
payment of the $100,000.00;
b.
payment of the $20,000.00 Spousal Support pursuant to
clause 5.1(a.) of this Agreement; and
c.
Promissory Note against the Family Residence in favour of the
Wife in the amount of $10,000.00 (the "Promissory
Note") in the form as indicated in Schedule
"E".
. . .
9.10 Should it
be the case that the Wife obtains employment during the
twenty-four month period commencing October 1, 1995 and ending
September 30, 1997, which pays her in excess of $1,200.00
per month gross, the pay out amount to the Wife shall be reduced
by $416.66 per month for each month the Wife earns in excess of
$1,200.00 gross during the twenty-four month period.
9.10(a)
There shall be no payments for 2 years from October 1, 1995
through to September 30, 1997 on the Promissory Note. October 1,
1997 the Wife shall provide the Husband with proof of her monthly
income for the last 2 years, and the Husband will pay $416.66 for
each month the Wife's income was less than $1,200.00.
9.10(b)
The Wife must use her best efforts to obtain steady
employment.
9.11 The Wife
agrees to provide the Husband with a discharge of the Promissory
Note upon payment to her of the $10,000.00 minus any reduction as
specified in paragraph 9.10 of this Agreement.
[4]
There is also no dispute that:
g)
the Appellant and the Spouse signed an amendment to the Agreement
on July 7, 1997 (the "Amended Agreement");
h)
the Appellant and the Spouse were divorced from each other on
September 23, 1997;
i)
pursuant to the Agreement, the Appellant made the Support
Payments to the Spouse for the support of the Children;
j)
the Support Payments were for the period January 1, 1997 to July
31, 1997;
. . .
m)
the Payments were $3,056.00 each, paid on July 6, 1997, August
15, 1997 and October 1, 1997.
[5]
Mrs. Skertchly earned $1,200 only two months during the two-year
period. During each of the other 22 months during the period
October 1, 1995 to September 30, 1997, Mr. Skertchly
"accrued" $416.66 so that at the end of the period he
owed her $9,168 (that is, $416.66 times 22 months). Mr. Skertchly
testified that in 1995, when separated from his wife, he was
under severe financial difficulty and this arrangement permitted
him to defer making any periodic payment to his wife but at the
same time accommodating her requirements to obtain support during
the 24 months. A Promissory Note in the principal amount of
$10,000, subject to adjustments for the months
Mrs. Skertchly earned more than $1,200, secured his
obligation to her. The parties agreed that if Mrs. Skertchly
had earned over $1,200 in each of the 24 months, Mr.
Skertchly would owe her nothing at the end of the 24-month period
and she would discharge the Promissory Note.
[6]
In 1997, Mrs. Skertchly had some financial difficulties: she was
in arrears with several of her creditors, including B.C. Hydro.
On advice of his solicitor and in order to assist Mrs. Skertchly
and their children, Mr. Skertchly paid her $3,056 on each of July
6, 1997, August 15, 1997 and October 1, 1997. Under the Agreement
the $9,168 was not due and payable until October 1, 1997.
[7]
Mr. Skertchly's position is that pursuant to clauses 5.4,
9.10 and 9.10(a) of the Agreement the "periodic payments
[were] accrued over a maximum of 4 months". He also
infers that the three payments of $3,056 in July, August and
October 1997 were periodic payments eligible for deduction in
computing income.
[8]
Mr. Skertchly acted on his own behalf and was the only
witness.
[9] I
cannot agree with the appellant. There is no provision in the
Agreement compelling him to make periodic payments to his wife at
the time. He agrees in clause 5.1 to pay a lump sum payment to
his wife in the amount of $30,000, of which $20,000 is to be paid
when he receives title to the family residence and the balance of
$10,000, pursuant to clause 9.6(c) of the Agreement.
Clause 9.6(c) simply states that Mrs. Skertchly will
transfer her interest in the family residence to the appellant
upon various payments to her and the delivery of a
"Promissory Note" in her favour in the amount of
$10,000, which is the amount specified in clause 5.1(b).
[10] There is
no clause 9.9 in the Agreement that is referred to in clause 5.5.
No part of the amount of the $9,168 in issue appears to represent
any interest.
[11] What
clause 9.10 states is that the amount Mr. Skertchly is to pay his
wife – which I assume from reading all of clause 9 is the
sum of $10,000 – is to be reduced in the event in any month
she is employed she receives gross pay in excess of $1,200.
Clause 9.10 does not compel Mr. Skertchly to pay his wife
anything on a monthly basis. Clause 9.10 simply formulates how
much of the $10,000 Mr. Skertchly will pay his wife on September
30, 1997. The Promissory Note does not provide for any monthly or
other periodic payment of the $10,000. The Promissory Note is to
be paid in accordance with clause 9.10 and the sum of $10,000
bears no interest. Clause 9.10(a) specifically provides that
"there shall be no payments" during the period from
October 1, 1995 to September 30, 1997. The payments Mr. Skertchly
made in 1997 were not accrued because there was nothing to
accrue: the sum of $10,000 was due on September 30, 1997, subject
to any reduction in accordance with clause 9.10.
[12] The
assessment is a good assessment. The appeal is dismissed.
Signed at Ottawa, Canada, this 2nd day of August 2000.
"Gerald J. Rip"
J.T.C.C.
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