Date: 20080403
Docket: A-209-07
Citation: 2008 FCA 120
CORAM: SEXTON
J.A.
SHARLOW
J.A.
PELLETIER
J.A.
BETWEEN:
TRACEY
CALLWOOD
Appellant
and
HER MAJESTY
THE QUEEN
Respondent
and
ESTATE OF
JOHN G. CRAWFORD
Respondent
REASONS FOR JUDGMENT
SHARLOW J.A.
[1]
Ms.
Tracey Callwood is appealing the judgment of Justice Bowie of the Tax Court of
Canada (2007 TCC 232). That judgment determined certain questions under section
174 of the Income Tax Act, R.S.C. 1985 c. 1 (5th Supp.), dismissed
Ms. Callwood’s income tax appeal for 2000, and allowed her income tax appeal
for 2001 but only to the extent of requiring her income to be reduced by $533
rather than $20,533, which was the amount of the reduction she had claimed.
[2]
This
issue arises because of the 1997 amendments to section 56.1 of the Income
Tax Act, which provide that certain child support payments made after May
1, 1997 are not taxable.
[3]
Prior
to the 1997 amendments, an amount paid by one parent of a child to another
after their separation or divorce, as an allowance payable on a periodic basis,
was deductible by the payer and taxable to the recipient if the payment was
made pursuant to a court order or written agreement and certain other statutory
conditions (not relevant to this case) were met.
[4]
Under
the 1997 amendments, if a written agreement or court order is varied after
April 1997 to change a “child support amount” payable to the recipient, a
“commencement day” is established on the day on which the first payment of the
varied “child support amount” is required to be made, and a “child support
amount” paid after the “commencement day” is not deductible by the payer or
taxable to the recipient. The terms “child support amount” and “commencement
day” are defined in subsection 56.1(4) as amended in 1997.
[5]
It
is not necessary to recount the relevant facts and litigation history of this
appeal. It is enough to say that all but one of the issues raised in Ms.
Callwood’s income tax appeals for 2000 and 2001 were determined against her in
a previous decision of this Court (2006 FCA 188). That one remaining issue was
to be determined at a new hearing of the Tax Court of Canada. The new hearing
resulted in the judgment that is now under appeal.
[6]
The
only issue on the reconsideration was whether a particular child support
obligation of Ms. Callwood’s former spouse, Mr. Crawford, was an obligation to
pay an “allowance” within the meaning of that term as established by Gagnon
v. Canada, [1986] 1 S.C.R. 264 and Rosenberg v. Canada, 2003 FCA
363. Ms. Callwood’s income tax appeals for 2000 and 2001 would succeed if, but
only if, that obligation was an obligation to pay an allowance.
[7]
The
obligation in issue, referred to as the “Shared Expense Obligation”, arises
from the following words in a separation agreement made by the parties in
January of 1997:
It
is also understood that the Husband [Mr. Crawford] will share the burden of
expenses for clothing, medical insurance and other necessary expenses of said
children.
[8]
The
January 1997 separation agreement also required Mr. Crawford to pay child
support to Ms. Callwood in the amount of $133 per week for each of their three
children.
[9]
In
October 2000, Ms. Callwood and Mr. Crawford entered into an agreement that
amended the January 1997 separation agreement. The 2000 amending agreement did
not alter the provisions of the original agreement requiring Mr. Crawford to
pay $133 per week per child. However, it deleted the Shared Expense Obligation.
[10]
As
indicated above, the issue before Justice Bowie was whether the Shared Expense
Obligation was an “allowance”. If it was not an allowance, then it did not
come within the statutory definition of “child support amount”. It would follow
that the 2000 amending agreement terminating the Shared Expense Obligation did
not vary an obligation to pay a “child support amount” and therefore did not
establish a “commencement day”. As a result, the weekly child support payments
received by Ms. Callwood in 2000 and 2001 were not subject to the provisions of
56.1 as amended in 1997 and were properly taxable to Ms. Callwood (except, for
reasons that are not now relevant, $533 received after December 14, 2001).
[11]
Justice
Bowie concluded that the Shared Expense Obligation was not an allowance. It is
argued for Ms. Callwood that this conclusion is wrong in law and in fact.
[12]
According
to Gagnon and Rosenberg (cited above), an amount is an allowance
only if the following conditions are met:
(a)
The
amount is limited and predetermined by an agreement specifying the amount or an
agreement as to how the amount is to be ascertained.
(b)
The
amount is paid to enable the recipient to discharge a certain type of expense
(in this case a child care expense).
(c)
The
recipient is able to dispose of the amount completely.
[13]
Justice
Bowie held that the first condition was not met because the amount of the
Shared Expense Obligation was not limited and predetermined. On that basis, he
found that the Shared Expense Obligation was not an allowance.
[14]
It
is undisputed that the 1997 separation agreement does not stipulate the amount
of the Shared Expense Obligation. However, Justice Bowie accepted that in
principle, an amount is predetermined if the parties have agreed on how it is
to be ascertained.
[15]
In
the Tax Court, Ms. Callwood submitted evidence that Mr. Crawford had paid
certain expenses of the children in years prior to 2000. It was argued for Ms.
Callwood that this evidence established that the parties had agreed on how the
amount of the Shared Expense Obligation would be ascertained. Justice Bowie did
not accept that argument. He found no evidence that Ms. Callwood and Mr.
Crawford had directed their mind to the question of how the amount of the
Shared Expense Obligation would be ascertained. That conclusion must stand
absent an error of law or a palpable and overriding error of fact. In my view,
no such error is disclosed by the record before this Court.
[16]
In
submissions made on behalf of Ms. Callwood in this appeal, it was explained
that the Shared Expense Obligation was deliberately drafted in general terms so
that Mr. Crawford would be obliged to contribute to the children’s expenses
even though it was not possible to determine in advance what those expenses
would be. In my respectful view, that submission supports the conclusion of
Justice Bowie that the parties did not agree in advance as to how the amount of
the Shared Expense Obligation would be ascertained.
[17]
It
was also argued for Ms. Callwood that Justice Bowie was misled by perjured
testimony given by Mr. Crawford’s witness. The same argument was made in the
previous appeal in this Court, and was rejected as unsubstantiated. It is
unsubstantiated in this case as well. In any event, it would not have helped
Ms. Callwood if Justice Bowie had rejected the evidence of that witness,
because the record would still be incapable of establishing the existence of an
agreement as to how the amount of the Shared Expense Obligation would be ascertained.
[18]
It
was suggested that Justice Bowie did not approach this case with an open mind.
That is an unsubstantiated allegation of bias and must be rejected.
[19]
I
would dismiss this appeal with costs.
“K.
Sharlow”
“I
agree
J.
Edgar Sexton J.A.”
“I
agree
J.D.
Denis Pelletier J.A.”
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