Citation: 2013 TCC 88
Date: 20130327
Docket: 2011-1480(IT)I
BETWEEN:
ANDRÉE LARIVIÈRE,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent,
and
ROBIN DUPUIS,
Intervener.
[OFFICIAL ENGLISH
TRANSLATION]
REASONS FOR JUDGMENT
Favreau J.
[1]
The appellant is
appealing from a reassessment issued on June 10, 2010, under the Income Tax
Act, R.S.C., 1985, c. 1 (5th Supp.) as amended (the Act), in which the Minister
of National Revenue (the Minister) added to the appellant’s income the amount
of $21,871 that she received in the 2009 taxation year as support from the
intervener.
[2]
By Order dated June 13,
2012, the Court joined Robin Dupuis as a party to the appellant’s appeal from
the assessment made for the 2009 taxation year, in accordance with paragraph 174(3)(b)
of the Act.
[3]
In his 2009 federal
income tax return, the intervener claimed a deduction of $20,103.69 in
support amounts paid to the appellant.
[4]
The Minister relied on
the following findings and assumptions of fact to make and confirm the
assessment:
[Translation]
(a) The
appellant and Robin Dupuis married on May 4, 1985;
(b) The parties stopped living together on August 1, 2008,
and were granted a divorce on February [sic] 28, 2009;
(c) According to the draft agreement signed by the parties on
December 15, 2008, which was approved by the Superior Court of Quebec on
January 28, 2009, the parties agreed as follows:
·
The former spouse shall pay the appellant spousal
support in the amount of
$420 per week commencing November 10, 2008;
·
The parties shall reduce the support amount when
the family residence is sold as the wife’s housing expenses will be lower than
$1,700;
The
spouse shall use the family residence until it is sold and shall pay all
expenses related to the residence, namely municipal taxes ($166 per month),
hypothec payments ($1,200 per month), insurance ($39.45 per month),
Vidéotron ($130 per month) and Hydro‑Québec ($166 per month), as
she receives spousal support in which these expenses are accounted for.
(d) The payments were made to the appellant as an allowance on
a periodic basis for her maintenance;
(e) The
appellant had discretion as to the use of the amounts received.
[5]
The appellant and the
intervener testified at the hearing and a number of documents were filed. They
included the following: the divorce judgment, the draft agreement signed by the
parties, the intervener’s federal income tax return for the 2009 taxation year
with applicable schedules and various statements, a bank statement for the
month of March for the joint account used to make hypothec payments and the consent
signed by the parties to adjust the support amount following the sale of the
family residence on January 20,2010, which was homologated and given legal
effect by the Superior Court of Quebec on January 20, 2010.
[6]
The testimony and
documentary research revealed the following:
(a) The appellant and the
intervener were married under the legislative regime of partnership of acquests,
which was modified for the separation of property regime through a notarial
deed on October 2, 1985;
(b) The draft agreement concluded on December
15, 2008, provides as follows:
(i) The intervener shall
pay to the appellant spousal support in the amount of $420 per week (that
is, $1,806 per month) commencing November 10, 2008;
(ii) The spousal support
shall be reduced when the family residence located at 55 Lise Street in Saint‑Jean-sur-Richelieu
is sold as the appellant’s housing expenses will be less than $1,700 per
month;
(iii) Upon the sale of the
family residence, the parties shall share equally in the net proceeds of sale,
and the municipal and school tax adjustments shall be remitted to the intervener;
(iv) Until the family residence
is sold, the appellant shall be solely responsible for all costs related to the
residence totalling $1,701.45 per month, including the following:
-municipal and
school taxes ($166 per month);
-hypothec payments ($1,200 per
month);
-insurance ($39.45 per
month);
-Vidéotron’s cable and
telephone services ($130 per month);
- Hydro‑Québec
electricity bills ($166 per month)
(c) The family residence was sold in
January 2010, and on January 20, 2010, the parties entered into an
agreement in which the intervener agreed to pay the appellant support of $750 per
month for seventeen (17) months starting from the signing of the agreement until
June 20, 2011.
Analysis
[7]
The Minister relies on paragraph 56(1)(b),
subsection 56.1(1) and the definition of the expression “support amount” in
subsection 56.1(4) of the Act to justify adding to the appellant’s income the
amount of $21,871 that she received as support. The provisions read as
follows:
56(1) (b) 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 received after 1996 and before the end of the year by
the taxpayer from a particular person where the taxpayer and the particular
person were living separate and apart at the time the amount was received,
B is the
total of all amounts each of which is a child support amount that became
receivable by the taxpayer from 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 received after 1996 by the taxpayer from the
particular person and included in the taxpayer’s income for a preceding
taxation year;
56.1(1) For the purposes of
paragraph 56(1)(b)
and subsection 118(5), where an order or agreement, or any variation thereof,
provides for the payment of an amount to a taxpayer or for the benefit of the
taxpayer, children in the taxpayer’s custody or both the taxpayer and those
children, the amount or any part thereof
(a) when payable, is deemed to be payable to and receivable by the
taxpayer; and
(b)
when paid, is deemed to have been
paid to and received by the taxpayer.
56.1 (4) The definitions in this
subsection apply in this section and section 56.
.
. .
“support amount”
— “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.
[8]
The purpose of these
statutory provisions is to define the support amount received by the taxpayer over
the course of a year, which must be included in computing the taxpayer's income for the year.
[9]
Prior to 1997, all
amounts received as support payments had to be included in the taxpayer's income. Since 1997, child support amounts have been non taxable.
Therefore, only amounts received that are not attributable to child support
must be included in the recipient’s income. It should be noted that, under
subsection 56.1(4) of the Act, support is considered a child support amount if
it is not identified as being
solely for the support of a recipient who is a former
spouse. In the case at bar, the
support amount received by the appellant was paid solely for her maintenance, that
is, it was used almost entirely to allow her to live in the family residence until
it was sold.
[10]
For an amount receivable
to be considered a support amount, it is necessary, according to the definition
of subsection 56.1(4) of the Act, that the amount be payable or receivable as an allowance on a periodic
basis for the maintenance of the recipient if the
recipient has discretion as to the use of the amount, and if the conditions of paragraph (a) or paragraph
(b) of the definition are met. The conditions of said paragraphs (a)
and (b) have been met in the appellant and intervener’s situation in
this case.
[11]
Indeed, the sole issue
here is to determine whether the appellant had discretion as to the use of the support amount she received from the intervener.
[12]
At the hearing, the
appellant submitted that she had no discretion as to the use of the support amount she received from her former spouse. She had an obligation to comply
with the divorce judgment, which confirmed the draft agreement signed by the parties
on December 15, 2008, and which was attached to the divorce judgment as an
integral part. Failure to pay the amounts provided for in section 9 of the draft
agreement could have resulted in the appellant being charged with contempt of
court.
[13]
The appellant also
argued that the hypothec payments of $1,200 per month (principal and
interest) would become deductible in computing the intervener’s income if the
payments were considered as support amounts in respect of which the appellant
could exercise discretion. In Canada, it is well-established that mortgage payments
representing the repayment of the mortgage principal cannot be deducted in
computing the payer’s income. Interest payments cannot be deducted if they are
incurred for the purpose of earning income.
[14]
Finally, the appellant noted
that the invoices from Vidéotron and Hydro‑Québec were in the intervener’s
name and that she could not change them to her name. Since the family residence
belonged to both former spouses, the appellant could not make any changes to
the hypothec on it.
[15]
Counsel for the respondent
referred to the following decisions to argue that the appellant had discretion as
to the use of the support amount:
-Canada v. Pascoe [1975]
F.C.J. No. 139
-Fontaine v. Canada [1993] T.C.J. No.
587
-Fry v. Canada [1995] T.C.J. No. 223
-Robert J. Byers v. The Minister of
National Revenue 85 DTC 129
-Arsenault v. Canada [1995] T.C.J. No.
241 and [1996] T.C.J. No. 202
-Hak v. Canada [1998] T.C.J. No. 921
-McNeely v. The Queen, 2008 TCC 450
(CanLII)
[16]
In Pascoe, supra,
the Federal Court of Appeal set out the following principle at paragraph 7:
. .
. An allowance is, in our view, a limited
predetermined sum of money paid to enable the recipient to provide for certain
kinds of expense; its amount is determined in advance and, once paid, it is at
the complete disposition of the recipient who is not required to account for
it. A payment in satisfaction of an obligation to indemnify or reimburse
someone or to defray his or her actual expenses is not an allowance; it is not
a sum allowed to the recipient to be applied in his or her discretion to
certain kinds of expense.
[17]
The term “allowance” was
defined in subsection 56(12) of the Act by the introduction of subsection
34(6) of chapter 55 of the Statutes of Canada, 1988. Subsection 34(6)
read as follows:
34(6)
Section 56 of the said Act is further amended by adding thereto,
immediately after subsection (11) thereof, the following subsection:
56(12)
Subject to subsections 56.1(2) and 60.1(2), for the purposes of paragraphs (1)(b),
(c) and (c.1) (hereinafter in this subsection referred to as the
“former paragraphs”) and 60(b), (c) and (c.1) (hereinafter
in this subsection referred to as the “latter paragraphs”), “allowance” does
not include any amount that is received by a person, referred to in the former
paragraphs as “the taxpayer” and in the latter paragraphs as “the recipient”,
unless that person has discretion as to the use of the amount.”
[18]
Subsection 56(12) of
the Act re-established the concept of allowance, as defined by the Federal Court
of Appeal in Pascoe, supra.
[19]
The definition of the
term “allowance” stopped being used in the Act following the repeal of subsection
56(12) by subsection 8(3) of chapter 25 of the Statutes of Canada, 1997,
but the requirement that the recipient can exercise his or her discretion as to
the use of the support amount was included in the definition itself of the
expression “support amount” in subsection 56.1(4) of the Act.
[20]
This means that the case
law decided under the former Pascoe regime, supra, while
subsection 56(12) of the Act was in existence continue to be applicable in
determining whether a payment received by a recipient qualifies as a “support
amount” within the meaning of subsection 56.1(4) of the Act.
[21]
The facts described in Fontaine
v. Canada, supra, and the arguments that were made therein are very
similar to the facts of the present case and to the arguments made by the
appellant. In Fontaine, clauses 2 and 5 of a judgment approving certain clauses
of a consent signed by the parties read as follows:
2. The respondent agrees to
pay for the plaintiff and her two children alimony of $255 a week payable in
advance on the fifteenth of each month at the plaintiff's home, the said
alimony to be indexed each year on the anniversary date of the judgment, the
whole pursuant to section 638 of the Civil Code;
5. The plaintiff will pay
the mortgage, tax and heating costs and all expenses relating to her home as
long as she shall live in the matrimonial home.
[22]
The appellant in Fontaine
claimed, as does the appellant here, that the expenses related to the matrimonial
home were not, according to her, fully at her disposal and should not therefore
have been considered as a taxable allowance.
[23]
In Fontaine, the
Tax Court Judge did not accept the appellant’s argument and dismissed her appeal.
[24]
In Arsenault v.
Canada, supra, the Federal Court of Appeal held that Mr. Arsenault’s
former spouse retained the discretion to decide how the sum of money was paid
pursuant to the separation agreement and judgment and, as such, had discretion as to its use, even though the amount paid to her was in
the form of cheques made payable to a third party that could not be used for
any other purpose.
[25]
A close reading of clauses
2, 3 and 9 of the draft agreement of December 15, 2008, reveals that the
spousal support of $420 per week was determined by taking into account
expenses related to the principal residence but that the obligation to pay the spousal
support was not subject to any condition. Accordingly, the appellant had discretion
as to its use.
[26]
The obligation to pay the
expenses related to the family residence was exclusively linked to the use of
the residence until it was sold. It is, of course, understood that if the
appellant had not paid the expenses related to the residence, the intervener would
have had the right to take legal action against the appellant to receive
indemnification for the damages and losses he may have suffered.
[27]
The fact that the
appellant was unable to make changes to either the ownership of the family residence
or the hypothec on it, or the accounts with Hydro-Québec and Vidéotron Ltd., did
not prevent the
appellant from exercising her
discretion as to the use of the support amount she received
from the intervener.
[28]
The
appellant’s tax policy argument that the deduction granted to the intervener for
the support amount that he paid to her would amount to allowing a deduction for
hypothec payments, principal and interest, is not relevant to this case.
[29]
For
these reasons, the appellant’s appeal in respect of the 2009 taxation year is
dismissed.
Signed at Ottawa, Canada, this 27th day of March 2013.
“Réal Favreau”
Translation certified true
on this 9th day of May 2013
Daniela Guglietta,
Translator
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