REASONS
FOR JUDGMENT
Visser J.
OVERVIEW
[1]
Roger Glasel and Lisa Glasel were married in
2000 and had three children before separating on July 3, 2011. All three children
are under the age of 18. Mr. Glasel, who is a law student and lives in
Edmonton, Alberta, filed for a divorce and paid support amounts to, or for the
benefit of, Ms. Glasel and their children and deducted amounts in respect
thereof in his 2011, 2012 and 2013 taxation years pursuant to paragraph 60(b)
of the Income Tax Act
(the “Act”). The Minister of National Revenue (the “Minister”)
disallowed the deductions claimed by the Appellant in respect of his support
payments in each of those years, and also reassessed the Appellant to increase
his T4 earnings in 2009 and to decrease his professional income in 2011.
PRELIMINARY MOTION
[2]
Mr. Glasel has appealed the Minister’s assessments
and reassessments of his 2009, 2011, 2012 and 2013 taxation years. These
appeals are being heard on common evidence. As a preliminary matter, the
Respondent brought a motion to quash the appeals with respect to the
Appellant’s 2009 and 2011 taxation years on the basis that the Appellant did
not file notices of objection with respect thereto pursuant to section 165 of
the Act within the time permitted,
and they are thus not properly before this Court pursuant to section 169 of the
Act. On consent of the parties, I have agreed to quash the 2009 and 2011
appeals as this Court lacks the jurisdiction to hear them having regard to the
Appellant’s failure to file notices of objection with respect thereto.
Therefore, only the Appellant’s 2012 and 2013 appeals remain to be considered.
ISSUES
[3]
The sole remaining issue in these appeals is
whether the Appellant is entitled to deduct support amounts in his 2012 and
2013 taxation years pursuant to paragraph 60(b) of the Act. The support
amounts claimed by the Appellant and disallowed by the Minister were $15,576 in
2012 and $25,961 in 2013.
BACKGROUND FACTS
[4]
Mr. Glasel testified and submitted evidence
in the hearing of these appeals. I found him to be a credible witness. He did
not call any other witnesses, and the Respondent did not call any witnesses.
[5]
The Appellant filed a Statement of Claim for
Divorce and Division of Matrimonial Property in Edmonton, Alberta, on
August 30, 2012.
At such time, he and Ms. Glasel did not have any written agreements or
court orders relating to the payment of support between them. There are three Orders
from the Court of Queen’s Bench of Alberta which were pronounced in 2012 which
provide for the payment of support by Mr. Glasel to Ms. Glasel. In
summary, the three Orders provide as follows:
(a) On
November 8, 2012, Justice Goss of the Court of Queen’s Bench of
Alberta ordered that Mr. Glasel pay:
(i)
child support to Ms. Glasel in the amount
of $2,736 per month commencing on July 1, 2012, provided that
Mr. Glasel be given a credit of $2,292 in respect of child support paid by
him in August, September and October 2012, which resulted in arrears in the
amount of $8,652 owing at the time of the Order;
(ii)
$1,500 per month, commencing on November 15, 2012
and continuing until the $8,652 of child support arrears are paid in full; and
(iii) Spousal
support to Ms. Glasel in the amount of $2,598 per month commencing
November 1, 2012.
(b) On December 19, 2012, Justice Goss of the Court of Queen’s
Bench of Alberta ordered that Mr. Glasel pay $8,472 by 4 p.m. on December 20, 2012
to counsel for Ms. Glasel in respect of child support and child support
arrears;
and
(c) On December 21, 2012, Justice Moreau of the Court of
Queen’s Bench of Alberta ordered that the November 8, 2012 Order be
varied, together with a number of other measures, which are summarized as
follows:
(i)
Commencing January 1, 2013, child
support in the amount of $2,736 per month and child support arrears in the
amount of $1,500 per month shall be paid by Mr. Glasel through his counsel
to counsel for Ms. Glasel until such time as Ms. Glasel has
registered her Orders with the Office of the Director of Maintenance
Enforcement, following which payments shall be made to the Director of
Maintenance Enforcement;
(ii)
Commencing January 1 2013, spousal
support in the amount of $2,598 per month shall be varied to be $2,561.57 per
month and shall be paid directly by Mr. Glasel to the Royal Bank in
payment of four specified mortgages and credit lines;
(iii)
By December 28, 2012, Mr. Glasel
shall pay $3,805.24 directly to Ms. Glasel, being the balance of spousal
support payable in November and December 2012;
(iv)
Paragraph 6 of the Order provides that amounts
owing under the Order be paid to the Director of Maintenance Enforcement, which
appears to conflict in part with other provisions within the Order requiring
payment directly to Ms. Glasel or her counsel; and
(v)
Paragraph 7 of the Order provides that each of
Mr. Glasel and Ms. Glasel are to annually provide to the other a copy
of their income tax return filed with the Minister as well as a copy of any
notices of assessment or reassessment received from the Minister, provided that
if either of them has not filed a tax return with the Minister for a taxation
year, that person shall provide the other person with copies of T4, T4A and any
other relevant tax slips and statements for the purpose of disclosing all
sources of income.
[6]
By letter dated January 17, 2013,
Mr. Glasel was advised by the Alberta Maintenance Enforcement Program (“MEP”) that a
court order was registered with MEP on January 17, 2013 and that he
was required to make monthly payments to MEP in the amount of $2,736 for
maintenance and $2,598 for support, commencing on February 1, 2013.
The MEP letter also noted that MEP had no record of any arrears claim at that
time (or any such claim had not yet been processed).
LAW AND ANALYSIS
[7]
Paragraph 60(b) of the Act provides for a
deduction in computing a taxpayer’s income in respect of support amounts paid
in a taxation year as follows:
60. Other deductions — There may be deducted in computing a taxpayer's income for a
taxation year such of the following amounts as are applicable:
. . .
(b) [spousal or child] support — the
total of all amounts each of which is an amount determined by the formula
A – (B + C)
where
A is the total of all amounts each of which is a support amount paid
after 1996 and before the end of the year by the taxpayer to a particular
person, where the taxpayer and the particular person were living separate and
apart at the time the amount was paid,
B is the total of all amounts each of which is a child support
amount that became payable by the taxpayer to the particular 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, and
C is the total of all amounts each of which is a support amount paid
by the taxpayer to the particular person after 1996 and deductible in computing
the taxpayer's income for a preceding taxation year;
[8]
Pursuant to subsection 60.1(4), the definition
of “support amount” in subsection 56.1(4) applies to sections 60 and 60.1 of the Act.
Subsection 56.1(4) defines “support
amount” as follows:
“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.
[9]
Where an amount is paid to a third party, it
will generally not qualify as a support amount as it is not paid to the
recipient spouse and the spouse does not have discretion over its use. However,
subsection 60.1(2) of the Act, which provides as follows, deems certain
amounts paid to third parties to qualify as a support amount:
60.1(2) Agreement [to make third-party
support payments] — For the purposes of section 60,
this section and subsection 118(5), the amount determined by the formula
A – B
where
A is the total of all
amounts each of which is an amount (other than an amount that is otherwise a
support amount) that became payable by a taxpayer in a taxation year, under an
order of a competent tribunal or under a written agreement, in respect of an
expense (other than an expenditure in respect of a self-contained domestic
establishment in which the taxpayer resides or an expenditure for the
acquisition of tangible property, or for civil law corporeal property, that is
not an expenditure on account of a medical or education expense or in respect
of the acquisition, improvement or maintenance of a self-contained domestic
establishment in which the person described in paragraph (a) or (b) resides) incurred
in the year or the preceding taxation year for the maintenance of a person,
children in the person's custody or both the person and those children, if the
person is
(a) the taxpayer's
spouse or common-law partner or former spouse or common-law partner, or
(b) where the
amount became payable under an order made by a competent tribunal in accordance
with the laws of a province, an individual who is a parent of a child of whom
the taxpayer is a legal parent,
and
B is
the amount, if any, by which
(a) the total of
all amounts each of which is an amount included in the total determined for A
in respect of the acquisition or improvement of a self-contained domestic
establishment in which that person resides, including any payment of principal
or interest in respect of a loan made or indebtedness incurred to finance, in
any manner whatever, such acquisition or improvement
exceeds
(b) the total of
all amounts each of which is an amount equal to 1/5 of the original principal
amount of a loan or indebtedness described in paragraph (a),
is, where the order or written agreement,
as the case may be, provides that this subsection and subsection 56.1(2) shall
apply to any amount paid or payable thereunder, deemed to be an amount payable
by the taxpayer to that person and receivable by that person as an allowance on
a periodic basis, and that person is deemed to have discretion as to the use of
that amount.
[10]
The Appellant argues that he made support and
maintenance payments substantially in excess of those required under the three
Alberta Court of Queen’s Bench Orders discussed above, and that the support amounts
he claimed in each of 2012 and 2013 are deductible pursuant to the Act.
As the Minister denied the deduction of support amounts in each of 2012 and
2013 on a different basis, I will deal with each year separately.
2012 Taxation Year
[11]
As noted above, paragraph 60(b) of the Act
provides for a deduction in respect of the payment of support amounts equal to
the formula A - (B+C). The Respondent argues that the Appellant is not entitled
to deduct amounts pursuant to paragraph 60(b) of the Act in the
Appellant’s 2012 taxation year because the amount for “B” in the
formula exceeds the amount for “A” in the formula, in essence because
the Appellant was in arrears in making child support payments. While the
Appellant argued to his detriment that the value for “C” in the
formula in paragraph 60(b) was not zero for his 2012 taxation year, the
Respondent’s position was that the value for “C” in the formula in paragraph 60(b)
was zero for the Appellant’s 2012 taxation year. The Appellant also argues that
he made other substantial payments in 2012 which should be considered as
support payments and included in “A” in the formula. For the reasons
that follow, I agree with the Respondent.
[12]
For an amount to be included in “A” in the
formula in paragraph 60(b) of the Act, it must be a support amount, and
pursuant to subsection 56.1(4) therefore must be an allowance payable on a
periodic basis over which the recipient has discretion and receivable pursuant
to either a written agreement or an order of a competent tribunal, depending on
the circumstances. In this case, there was no written agreement between
Mr. Glasel and Ms. Glasel. As such, only amounts paid pursuant to the
three 2012 Orders from the Alberta Court of Queen’s Bench can be considered
support amounts.
[13]
Pursuant to the three Orders, Mr. Glasel
was obligated to make child support payments to Ms. Glasel of $16,416 in
2012.
This is the amount for “B” in the formula in paragraph 60(b). In determining the amount of “A” in the
formula in paragraph 60(b), the November 8, 2012 Order provides
Mr. Glasel with a credit of $2,292 in respect of amounts already paid. Based
on the evidence presented at the hearing of this matter, Mr. Glasel also
made additional payments totalling $13,668
pursuant to the three Orders before the end of 2012, for a total of $15,960. As there were no written
agreements or court orders before 2012 relating to this matter, “C” in the
formula must be zero as there were no support amounts deductible in previous
taxation years. As the amount for “B” exceeds the amount for “A”, the
Appellant is not entitled to any deduction for the payment of support amounts
in his 2012 taxation year.
2013 Taxation Year
[14]
The Respondent argues that the Appellant is not
entitled to deduct amounts pursuant to paragraph 60(b) of the Act in
2013 because the amounts were paid to a third party and therefore they were not
received by his spouse and she did not have discretion over the use of the amounts.
In addition, the Respondent argues that subsection 60.1(2) does not assist the
Appellant because the three Orders pursuant to which support payments were paid
by the Appellant in 2013 do not provide that subsections 56.1(2) and 60.1(2)
apply to such amounts payable. For the reasons that follow, I agree with the
Respondent.
[15]
Pursuant to the December 21, 2012 Order
of Justice Moreau of the Alberta Court of Queen’s Bench, commencing
January 1, 2013, Mr. Glasel was ordered to pay child support of
$2,736 per month to Ms. Glasel (and subsequently to MEP once the order was
registered) and $2,561.57 per month to the Royal Bank in payment of various
specified mortgages and lines of credit. With respect to the 2013 child support
payments, assuming Mr. Glasel paid these amounts and further assuming they
otherwise qualify as support amounts, I note that they are generally equally
included in both “A” and “B” in the formula in paragraph 60(b), and therefore set each other
off and do not provide for a deduction under paragraph 60(b) of the Act.
[16]
With respect to the spousal support payments, I
note that they were required to be paid directly to the Royal Bank and that
therefore Ms. Glasel did not have any discretion over their use. As such,
they are not a support amount unless they fall within subsection 60.1(2) of the
Act. In this case, the three Orders do not make any reference to that
section or subsection 56.1(2) of the Act or otherwise address the
taxation of the payment and receipt of the spousal support payments. As such,
the spousal support payments are not saved by subsection 60.1(2) of the Act,
and Mr. Glasel is not entitled to any deduction in 2013 pursuant to
paragraph 60(b) of the Act.
CONCLUSION
[17]
Based on all of the foregoing, the appeals are
dismissed, without costs.
Signed at Toronto,
Ontario, this 8th day of June 2016.
“Henry A. Visser”
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