REASONS
FOR JUDGMENT
V.A. Miller J.
[1]
The issue in this appeal is whether Mr.
Leinweber is entitled to claim the tax credits for a wholly dependent person
and the child amount in respect of his daughter “S” in his 2012 taxation year.
[2]
Mr. Leinweber was the only witness at the
hearing.
Facts
[3]
Mr. Leinweber and his former spouse were married
in 2003 and they had two children during their marriage. They commenced living
separate and apart on December 11, 2011; and, on December 14, 2012, they
entered into a Separation Agreement.
[4]
According to the Separation Agreement, Mr.
Leinweber was to pay child support to his spouse in the amount of $472 monthly.
Paragraph 7.01 in the Separation Agreement read:
7.01 Commencing
July 1, 2012, the Husband shall pay child support to the Wife, pursuant to the
Manitoba Table of the Child Support Guidelines Regulation in the sum of $472.00
per month, payable in equal installments of $236.00 the first and fifteenth day
of each month thereafter, the foregoing representing offset child support based
on the parties’ estimated 2012 incomes based on their gross employment earnings
as at the 15th pay period of 26 pay periods in 2012.
[5]
The parties agreed that the Separation Agreement
would survive the dissolution of the marriage and that the terms of the
Separation Agreement would “continue in full force
notwithstanding the issuance of a Divorce Judgment”.
[6]
In 2012, Mr. Leinweber paid his former spouse
$472 each month as required by the Separation Agreement.
[7]
Mr. Leinweber and his former spouse were
divorced on March 11, 2013 and a Final Order was issued on that date by the
Manitoba Court of Queen’s Bench (Family Division). The Final Order reiterated
that Mr. Leinweber was to pay support of $472 monthly to his former spouse. The
relevant paragraph in the Final Order read:
7.0.13 JEFFREY
PAUL LEINWEBER pay JENNIFER IVY HOLLAND LEINWEBER having shared custody of S
born 2006, and M born 2008, JEFFREY PAUL LEINWEBER pay support to JENNIFER IVY
HOLLAND LEINWEBER in the sum of $472.00 per month in installments of $236.00 on
the first and fifteenth day of each month commencing December 15, 2012, until
further Order of the Court;
[8]
In his income tax return for the 2012 taxation
year, Mr. Leinweber claimed a dependant amount of $10,822 and a child amount of
$2,191 (the “Tax Credits”) in respect of one of his children.
[9]
By notice dated March 6, 2014, the Minister of
National Revenue (the “Minister”) reassessed Mr. Leinweber’s 2012 income tax
liability to disallow the Tax Credits. The reason given for the reassessment
was that Mr. Leinweber was required to pay support to his former spouse.
[10]
In an attempt to be eligible to claim the Tax
Credits, Mr. Leinweber and his former spouse, prepared an Addendum to
Separation Agreement (the “Addendum”) on March 17, 2014. In the Addendum, Mr.
Leinweber and his former spouse agreed to extinguish paragraph 7.01 of the
Separation Agreement. In its place, they agreed to the following terms with
respect to child support:
3.02 The
parties have considered all aspects of the shared custody provisions of the
Child Support Guidelines, including standards of living and that in order to
accord with the provisions of The Income Tax Act to permit each
party to claim a child as an equivalent to spouse in accordance with paragraph
7.14 of the parties’ Agreement, JEFFREY shall pay JENNIFER a sum each month,
based on the set off principles, which for the purposes of same shall be
defined as JEFFREY paying JENNIFER child support of $1,284.00 per month for
both children and JENNIFER paying JEFFREY $812.00 per month for both children,
for a net payment due and owing to JENNIFER of $472.00 per month, payable in equal
monthly installments of $236.00 each, on the 1st and 15th days of the month,
commencing July 1, 2012, until further agreement of the parties or court order.
[11]
The Minister confirmed the reassessment for the
2012 taxation year and made the following assumptions of fact:
a) Mr.
Leinweber’s former spouse is Jennifer Ivy Holland Leinweber (previously defined
as the Former Spouse);
b) Mr.
Leinweber and the Former Spouse are parents of the Children;
c) the
Children are “S” born in 2006 and “M” born in 2008;
d) in his
2012 personal income tax return, Mr. Leinweber claimed the Amounts in respect
of “S”;
e) by
agreement entered into on December 14, 2012 (the “Agreement”), Mr. Leinweber
was required to pay the Former Spouse child support in the amount of $472 per
month with respect to the Children, commencing July 1, 2012;
f) the
Former Spouse was not required to pay Mr. Leinweber support for the Children
under the Agreement;
g) by
addendum to the Agreement entered into on March 17, 2014 (the “Addendum”), no
change was made to Mr. Leinweber’s requirement to pay the Former Spouse child
support in the amount of $472 per month with respect to the Children,
commencing July 1, 2012; and
h) the
Former Spouse was not required to pay Mr. Leinweber support for the Children
under the Addendum.
[12]
On September 8, 2016, Mr. Leinweber and his
former spouse brought a Motion to Vary the Final Order which had been
pronounced on March 11, 2013. The Variation Order was granted on September 15,
2016 so that paragraph 7.0.13 of the Final Order was deleted and replaced with
the following:
7.0.13 JEFFREY
PAUL LEINWEBER pay to JENNIFER IVY HOLLAND LEINWEBER the sum of $1284.00 per
month for S, born 2006 and M, born 2008 and JENNIFER IVY HOLLAND LEINWEBER pay
to JEFFREY PAUL LEINWEBER the sum of $812.00 per month for S, born 2006 and M,
born 2008, for a net payment to JENNIFER IVY HOLLAND LEINWEBER of $472.00 per
month payable in equal monthly instalments of $236.00 each, on the 1st and 15th
days of each month commencing July 1, 2012 until further Order of the Court.
Law
[13]
For the purposes of the Tax Credits, a wholly
dependent person and a child amount are defined in subsection 118(1) of the Income
Tax Act (“ITA”) as follows:
118. (1) For the
purpose of computing the tax payable under this Part by an individual for a
taxation year,
Wholly
dependent person
(b) in the case
of an individual who does not claim a deduction for the year because of
paragraph 118(1)(a) and who, at any time in the year,
(i)
is
(A) a person who is unmarried and who does not
live in a common-law partnership, or
(B) a person who is married or in a common-law
partnership, who neither supported nor lived with their spouse or common
law-partner and who is not supported by that spouse or common-law partner, and
(ii)
whether alone or jointly with one or more other persons, maintains a
self-contained domestic establishment (in which the individual lives) and
actually supports in that establishment a person who, at that time, is
(A) except in the case of a child of the individual,
resident in Canada,
(B) wholly dependent for support on the
individual, or the individual and the other person or persons, as the case may
be,
(C) related to the individual, and
(D) except in the case of a parent or
grandparent of the individual, either under 18 years of age or so dependent by
reason of mental or physical infirmity,
an amount equal
to the total of
Child
amount
(b.1) if
(i) a
child, who is under the age of 18 years at the end of the taxation year, of the
individual ordinarily resides throughout the taxation year with the individual
together with another parent of the child, the total of
(A) $2,131 for each such child, and
(B) $2,000 for each such child who, by reason of
mental or physical infirmity, is likely to be, for a long and continuous period
of indefinite duration, dependent on others for significantly more assistance
in attending to the child’s personal needs and care, when compared to children
of the same age, or
(ii)
except where subparagraph (i) applies, the individual may deduct an amount
under paragraph (b) in respect of the individual’s child who is under
the age of 18 years at the end of the taxation year, or could deduct such an
amount in respect of that child if paragraph (4)(a) and the reference in
paragraph (4)(b) to “or the same domestic establishment” did not apply
to the individual for the taxation year and if the child had no income for the
year, the total of
(4) For the
purposes of subsection 118(1), the following rules apply:
b)
not more than one individual is entitled to a deduction under subsection (1)
because of paragraph (b) of the description of B in that subsection for
a taxation year in respect of the same person or the same domestic
establishment and where two or more individuals otherwise entitled to such a
deduction fail to agree as to the individual by whom the deduction may be made,
no such deduction for the year shall be allowed to either or any of them;
(b.1)
not more than one individual is entitled to a deduction under subsection (1)
because of paragraph (b.1) of the description of B in that subsection
for a taxation year in respect of the same child and where two or more
individuals otherwise entitled to such a deduction fail to agree as to the
individual by whom the deduction may be made, no such deduction for the year
shall be allowed to either or any of them;
(5) No amount may
be deducted under subsection (1) in computing an individual’s tax payable under
this Part for a taxation year in respect of a person where the individual is
required to pay a support amount (within the meaning assigned by subsection
56.1(4)) to the individual’s spouse or common-law partner or former spouse or
common-law partner in respect of the person and the individual. (emphasis
added)
Where
subsection (5) does not apply
(5.1) Where, if
this Act were read without reference to this subsection, solely because of the
application of subsection (5), no individual is entitled to a deduction under
paragraph (b) or (b.1) of the description of B in subsection (1) for a taxation
year in respect of a child, subsection (5) shall not apply in respect of that
child for that taxation year.
[14]
A support amount is defined in subsection
56.1(4) as follows:
56.1 (4) 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 common-law partner or former spouse or
common-law partner of the payer, the recipient and payer are living separate
and apart because of the breakdown of their marriage or common-law partnership
and the amount is receivable under an order of a competent tribunal or under a
written agreement; or
(b)
the payer is a legal 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. (pension alimentaire)
Analysis
[15]
Mr. Leinweber and his former spouse have
attempted to avoid the application of subsection 118(5) of the Act so
that subsection 118(5.1) would apply to their circumstances. They altered their
Separation Agreement by including the Addendum and when that proved not to be
effective to avoid the application of subsection 118(5), they had the Final
Order varied.
[16]
It is my view that Mr. Leinweber did not succeed
in avoiding the application of subsection 118(5). Neither the Addendum nor the
Variation Order required the former spouse to pay a “support amount” within the
meaning of subsection 56.1(4).
[17]
The Addendum clearly stated that Mr. Leinweber “shall pay” his former spouse an amount based on the
set-off principle. The parties defined “the set off
principles” as “Jeffrey paying Jennifer”
and “Jennifer paying Jeffrey”. That is not
sufficient to meet the definition of support amount in subsection 56.1(4).
[18]
The recipient of a support amount must have the
discretion to use the amount as he pleases. According to the terms of the
Addendum, only Mr. Leinweber actually paid an amount. Therefore, only
Jennifer received a support amount because only she had discretion as to the
use of the amount in accordance with subsection 56.1(4).
[19]
Although the Variation Order required each of
Mr. Leinweber and his former spouse to pay an amount, it required that Mr.
Leinweber make a “net payment” to his former
spouse. Again only Mr. Leinweber is required to pay a support amount. Only his
former spouse has discretion as to the use of the amount she received in
accordance with subsection 56.1(4).
[20]
In addition, the Variation Order does not have
retroactive effect. It is effective from the date of the Variation Order which
was September 15, 2016. There is nothing in the Variation Order which states
that the Order itself is retroactive to and effective on July 1, 2012.
[21]
As in Verones v The Queen, 2013 FCA 69,
the real issue in this appeal is not the principle of set-off. It is whether
Mr. Leinweber was the only parent making a “child
support payment” by virtue of “an order of a
competent tribunal or an agreement”. It is clear that the answer to that
question is yes. Both parents may have an obligation to support their children
but according to the wording of the Addendum and the Variation Order, that
obligation translated into only Mr. Leinweber making a payment to his
former spouse. He made the net payment of their two obligations.
[22]
Subsection 118(5.1) is not applicable because
both parents did not agree or were not ordered to pay a support amount.
[23]
Unfortunately, I must dismiss Mr. Leinweber’s
appeal.
[24]
The appeal is dismissed.
Signed at Ottawa, Canada, this 7th day of November 2016.
“V.A. Miller”
Email this Content