Taylor v. The Queen, docket 1999-2516-IT-I (Informal Procedure)

Date: 20000526

Docket: 1999-2516-IT-I

BETWEEN:

MARK SHAWN TAYLOR,

Appellant,

and

HER MAJESTY THE QUEEN,

Respondent.

Reasons for Judgment

Sarchuk J.T.C.C.

[1] In computing income for the 1994 and 1995 taxation years, the Appellant deducted the amount of $8,400 in each year as child support payments. The Minister of National Revenue disallowed the deduction in its entirety for taxation year 1994 and reduced the Appellant's claimed deduction for 1995 to $6,300. These appeals followed.

[2] The Appellant and his former spouse, Angela Maureen Bauer, separated on or about May 1, 1993. There are two children of the marriage. Both parties retained a solicitor to represent them in the negotiation of a separation agreement. Ultimately, following extensive negotiations an agreement was entered into dated April 13, 1995.[1] Paragraph 6.1 of the agreement provides:

6.1 Commencing on the first Friday in January 1994, and on the Friday of each week thereafter, the Husband shall pay to the Wife for the maintenance and support of both children, a total of $700 per month being total $350 per month for each child. Such support shall continue for each child until;

(a) ...

This paragraph remained in force and was not modified during the taxation years in issue.[2]

[3] Both the Appellant and his former spouse testified that at all relevant times it was their intention that the support payments of $700 monthly would be tax deductible to the Appellant and taxable to his former spouse. However, in the course of her testimony, the Appellant's former spouse admitted that she did not include any portion of the support payments in the computation of her income for the 1994 taxation year and that only the amount of $6,300 was included as "alimony" in her income for the 1995 taxation year.

[4] The Appellant's position is that the relevant clause of the separation agreement provides for the payment of child support commencing January 1994. Counsel argued that both parties unequivocally stated in their testimony that they intended the support payments would be tax deductible by the Appellant and taxable in the hands of his spouse and this fact is clear from the unambiguous wording of the agreement.

[5] The Minister's position is that the amounts in issue were not payments made pursuant to a written agreement within the meaning of subsections 56.1(3) and 60.1(3) of the Income Tax Act (the Act) and therefore, are not deductible. The Respondent further contends that only the child support payments made following the signing of the agreement on April 13, 1995 qualify as payments made pursuant to the terms of the written separation agreement and deductible from the Appellant's income in accordance with paragraph 60(b).

Conclusion

[6] The provisions of the Act relevant to these proceedings are subsections 56.1(1) and 60.1(3). They read

56.1(1) Where a decree, order, judgment or written agreement described in paragraph 56(1)(b) or (c), or any variation thereof, provides for the periodic payment of an amount

(a) to a taxpayer by a person who is

(i) the taxpayer's spouse or former spouse, or

(ii) where the amount is paid under an order made by a competent tribunal in accordance with the laws of a province, an individual of the opposite sex who is the natural parent of a child of the taxpayer, or

(b) for the benefit of the taxpayer, children in the custody of the taxpayer or both the taxpayer and those children,

the amount or any part thereof, when paid, shall be deemed for the purposes of paragraphs 56(1)(b) and (c) to have been paid to and received by the taxpayer.

60.1(3) For the purposes of this section and section 60, where a decree, order or judgment of a competent tribunal or a written agreement made at any time in a taxation year provides that an amount paid before that time and in the year or the preceding taxation year is to be considered to have been paid and received thereunder, the amount shall be deemed to have been paid thereunder.    [Emphasis added]

[7] In Joseph Chabros v. The Queen,[3] the Court had occasion to consider in what circumstances payments made prior to the execution of a separation agreement are deductible pursuant to subsection 60.1(3) of the Act. In that case, the amount in issue was mentioned in Minutes of Settlement signed by the spouses with the advice of counsel, clause 14 of which read:

14. The Petitioner acknowledges that the Respondent has paid to the Petitioner, as and by way of maintenance during the calendar year 1988, the sum of $18,200.

Hugessen J.A. speaking for the Court stated:

The only provision of the Income Tax Act which allows maintenance paid prior to a separation agreement to be treated as though it were paid pursuant thereto is subsection 60.1(3) which at the relevant time read:

(3) Prior payments - For the purposes of this section and section 60, where a decree, order or judgment of a competent tribunal or a written agreement made at any time in a taxation year provides that an amount paid before that time and in the year or the immediately preceding taxation year is to be considered as having been paid and received pursuant thereto, the following rules apply:

(a) the amount shall be deemed to have been paid pursuant thereto; and

(b) the person who made the payment shall be deemed to have been separated pursuant to a divorce, judicial separation or written separation agreement from his spouse or former spouse at the time the payment was made and throughout the remainder of the year.

We are all of the view that the plain meaning of this text requires that the agreement, unlike clause 14 (above), must provide that prior payments shall be considered as having been paid and received pursuant thereto. That is neither a strict nor a liberal interpretation of the Act: it is simply the only meaning the words can bear. We do not read the decision of the Supreme Court of Canada in Québec (Communauté urbaine) et autres v. Corporation Notre-Dame de Bon-Secours [95 DTC 5017] as giving warrant to courts to disregard the wording of the statute in tax cases; on the contrary, the Court was careful to state that "the ordinary rules of interpretation should apply".

It is clear that there must be something in the relevant agreement from which one could infer an intention that subsection 60.1(3) was to apply to the prior payments.

[8] Subsection 60.1(3) requires that the agreement must specifically provide that a prior amount paid is to be considered to have been paid and received thereunder. The subsection is framed in clear and unambiguous language which requires the agreement not only to refer to past payments but to refer to them in the context of having been paid and received thereunder. That was not the case here. As was observed by Beaubier J. in Dergousoff v. The Queen:[4]

... the reference to payments "commencing January 1, 1995 and continuing" etc. is in the nature of a recital. It is not a statement that they are considered to have been paid and received under the Order or, on July 12, 1995 under the Interim Agreement.

These comments apply to the present case. Accordingly, the appeals are dismissed.

Signed at Ottawa, Canada, this 26th day of May, 2000.

"A.A. Sarchuk"

J.T.C.C.

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