Nahirney v. R., [1996] 1 CTC 2334

Sobier J.T.C.C.:— The appellant appeals from the assessment of the Minister of National Revenue (the “Minister”) for his 1992 taxation year whereby the Minister denied certain alimony or maintenance payments claimed by the appellant with respect to two former marriages. The appellant elected to have his appeal heard under the informal procedure.

With respect to the marriage to his first wife, Sandra Lynn Price, (“Sandra”) the payments in question were payments made to the Educational Savings Plans (the “Plans”) that had been established by Mr. Nahirney for his two children. The consent order (the “Order”) of the Court of Queen’s Bench of Alberta sets out the following dealing with the maintenance for Sandra:

CONSENT ORDER ORDER

UPON THE APPLICATION of the Applicant (Respondent); AND UPON noting the consent of Counsel for the Petitioner and Counsel for the Respondent:

1. IT IS HEREBY ORDERED AND ADJUDGED that the Respondent PAUL SAMUEL NAHIRNEY shall pay maintenance for CHRISTA NICOLE PRICE- NAHIRNEY and ANDREA ELLICE PRICE-NAHIRNEY, in the sum of TWO HUNDRED ($200) DOLLARS per child on the 1st day of each and every month and a further TWO HUNDRED ($200) DOLLARS per child on the 15th day of each month. Maintenance for CHRISTA NICOLE PRICE-NAHIRNEY and ANDREA ELLICE PRICE-NAHIRNEY shall commence on February 1, 1992, and shall continue each and every month thereafter until the earliest occurrence of the following events, at which time maintenance for the said date shall cease:

(a) The child attains the age of Eighteen (18) years unless the child continues her education on a full time basis and continues to reside with the Applicant, in which case maintenance shall continue for such child until she attains the age of Twenty-One (21) years;

(b) the child no longer resides with the Applicant;

(c) the child marries; or

(d) the child becomes self-supporting.

2. IT IS FURTHER ORDERED that SEVEN HUNDRED ($700) DOLLARS of the said maintenance shall be paid directly to SANDRA LYNN PRICE with the remaining ONE HUNDRED ($100) DOLLARS to be paid into the Educational Savings plans that have been set up by the Respondent for the said children. The Respondent shall provide the Applicant with proof that the ONE HUNDRED ($100) DOLLAR payments have been made to the said Plan on June 1 and December 1, 1992, and on the 1st day of June and December of each year thereafter until such time as maintenance is no longer payable pursuant to this order.

3. IT IS FURTHER ORDERED that the SEVEN HUNDRED ($700) DOLLARS which is payable to SANDRA LYNN PRICE shall be paid to the Director of Maintenance Enforcement, and shall be enforced by the Director unless the creditor files with the Court and the Director a notice in writing that she does not wish the order to be enforced by the Director pursuant to Section 7 of the Maintenance Enforcement Act.

It is only the $100 per month paid to the plans which is in issue with respect to Sandra.

In addition, the Minister denied the deduction as maintenance, payments with respect to his son Sean Nahirney (“Sean”) the child of the appellant’s subsequent marriage to Elaine Nahirney (“Elaine”). These payments were purportedly made pursuant to a written agreement dated September 10, 1991. This agreement was prepared by the appellant and Elaine, typed by her and signed by them both. The agreement reads as follows:

This statement is to verify that on August 28, 1991 Paul and Elaine Nahirney were separated. It is agreed that Sean Paul Nahirney, son of Paul and Elaine, shall spend and equal portion of time with each parent on the following schedule:

Monday / Tuesday with Paul

Wednesday / Thursday with Elaine

Friday I Sunday alternated between parents

Each party is to provide a reasonable notice to the other in the event that schedule changes are required. Special occasions (Sean’s birthday, Christmas, Family Celebrations) will be shared equally by both parties. Additional time with one parent or the other will be possible (up to 2 weeks) for vacation time. Each parent will be responsible for Sean’s expense (food, clothing, etc.) while Sean is in their care. In addition, Paul Nahirney agreed to pay Sean’s Family Say (sk?) [1] Home expenses (approx. $300/month).

This statement can be reviewed from time to time at the request of either party.

Paul Nahirney, Elaine Nahirney

The payments made in the penultimate paragraph of this agreement are in dispute. I will deal first with the Sandra issue. Prior to his separation and subsequent divorce from Sandra, the appellant established the plans for his two children. The plans were to assist in paying for the post secondary education of the those children. The payments were made by the appellant in accordance with the order. The issue is whether they are deductible under the provisions of the Income Tax Act (the “Act”). As to the deductibility of the payments made to the plans, paragraph 60(b), subsections 60.1(1) and (2) and subsection 56(12) are applicable and are as set forth below:

60. There may be deducted in computing a taxpayer’s income for a taxation year such of the following amounts as are applicable:

(b) an amount paid by the taxpayer in the year as alimony or other allowance payable on a periodic basis for the maintenance of the recipient, children of the recipient or both the recipient and the children, if the taxpayer, because of the breakdown of the taxpayer’s marriage, was living separate and apart from the spouse or former spouse to whom the taxpayer was required to make the payment at the time the payment was made and throughout the remainder of the year and the amount was paid under a decree, order or judgment of a competent tribunal or under a written agreement;

60.1(1) Where a decree, order, judgment or written agreement described in paragraph 60(b) or (c), or any variation thereof, provides for the periodic payment of an amount by a taxpayer

(a) to 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 person, children in the custody of the person or both the person and those children,

the amount or any part thereof, when paid, shall be deemed for. the purpose of paragraphs 60(b) and (c) to have been paid to and received by that person. 60.1(2) For the purpose of paragraphs 60(b) and (c), the amount determined by the formula

A-B

(and a definition of A and B follow)

shall, where the decree, order, judgment or written agreement, as the case may be, provides, that this subsection and subsection 56.1(2) shall apply to any payment made thereunder, be deemed to be an amount paid by the taxpayer and received by that person as an allowance payable on a periodic basis.

In the case at bar the payments to the plans are made pursuant to an order of a court of competent jurisdiction for the benefit of the children of the marriage but the order did not provide that subsection 60.1(2) applied. The appellant’s counsel stated that the payments were not necessarily made to a third party, i.e, the plans, but were made to trusts, the beneficiaries of which are the children and therefore the payments were made directly to the children. Unfortunately, this statement was made in argument without the benefit of any evidence of the nature of the plans. Counsel also referred to subsection 56(12) being the definition of “allowance” which reads:

56(12) Subject to subsections 56.1(2) and 60.1(2), for the purposes of paragraphs (l)(b), (c) and (c.l) (in this subsection referred to as the “former paragraphs”) and 60(b), (c) and (c.1) (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 the latter paragraphs as “the recipient”, unless that person has discretion as to the use of the amount.

Counsel’s purpose in referring to this subsection is to put forth the argument that what was paid to Sandra was an allowance and that by directing the amounts to be paid to the plans in the order, she exercised discretion over the use of the amount. However, this subsection is subject to subsection 60.1(2) which deals specifically with payments to third parties and requires that the order specifically provides that subsection 60.1(2) applies to any payments made under the order. For these reasons, the appeal with respect to the payments made to the plans is dismissed. Turning now to the issue of payments made in respect of Sean, reference is made again to subparagraph 60(b) (supra). The payments were made under a written agreement and were made to Elaine although the agreement states that “Paul agrees to pay Sean’s Family Say (sic) [2] Home expenses (approx. $300/month).” Although the words used were “approx. $300/month” I see no difficulty in interpreting this as being payable on a periodic basis. However, the question must be answered: Were the payments made to Elaine an allowance? (see paragraph 60(b)). That they were not made to a third party is clear. Therefore, in order to be deductible the payments must be an allowance.

The appellant stated that the payments were made for the purpose of providing day care for Sean while Elaine worked. The agreement for the provision of the day care was between Elaine and the day care provider. According to the appellant at the time the agreement was signed, $300 per month was an estimate of the costs for providing day care. In fact of the twelve cheques paid to Elaine in 1992, one was for $295, three for $305 and eight for $285. There was evidence that Sean did not always go to day care but that the payments continued to be made regardless of whether day care was provided for him.

The appellant had no knowledge of how the day care was provided or who provided it. He was only interested in the program, 1.e., in-home day care. The amounts were paid by the appellant after discussions with Elaine who told him what was required. The appellant contends that it was an allowance, and that what is payable under the agreement is not neces- sarily to be precisely determined by the agreement but must only be ascertainable under the agreement. To support this position counsel referred to Monette v. Minister of National Revenue, [1992] 1 C.T.C. 234, 92 D.T.C. 1622 (T.C.C.). In Monette (supra) the appellant agreed to pay alimony of $2,300 a month “to cover among other things, taxes and mortgage on the house, car and house insurance, electricity, heating, telephone, food, college, tennis, vacation and other day-to-day expenses such as clothing, entertainment and upkeep.” Judge Garon of this Court examined the requirement that the alimony payments made must be precisely determined. At page 2345, (D.T.C. 1624) he said:

In my view, paragraph 60(b) does not require that the amount of the allowance be predetermined with mathematical precision. It is enough if the amount of the allowance is determinable. The terminology used or the formula applied must be sufficiently precise to permit the parties, and ultimately the courts, to determine the precise size, in monetary terms, of the obligation imposed by the courts or, in the case of a written agreement, contracted by one of the parties. I see nothing in paragraph 60(b) which requires that the amount of the alimony be rigorously defined. On this point, I believe that it is sufficient if the quantity of the obligation can be ascertained.

In dealing with ascertaining the amounts required with respect to principal and interest payments on a mortgage, municipal school taxes, medical and educational expenses he states at page, (D.T.C. 1625):

Such payments are not known in advance with mathematical precision, but they are easily determinable during the year in question or shortly thereafter. For example, monthly mortgage payments may fluctuate over a year as a result of refinancing the mortgage or simply a fluctuation in the rate of interest in applying a clause in the contract creating the mortgage and the manner in which the mortgage debt will be paid. In the case of indexed payments, the rates of indexation are not known in advance. Municipal and school taxes may also be increased during a given year or even be subject to challenge in the courts.

But how was one to determine with any degree of certainty under the separation agreement the amount required to be paid for day care expenses. Unlike mortgage interest which if not set out as a fixed rate in the mortgage may be set out as a formula which can be determined with certainty, the payments for day care under the agreement cannot so be determined with certainty. No provider is referred to. There may be many persons and organizations providing in-home day care at different prices. The appellant’s evidence was that the amount was never verified by himself or any other person. He merely asked Elaine what amount she wanted and he paid. There is no reasonable degree of certainty here. How does a court ascertain the amount which the appellant must pay? To say: “Ask Elaine” is not enough. It is not sufficient to add up the total amount of cheques written by the appellant during the year and say: “That is the amount.” One must know, based upon hard facts, numbers and other information what one’s exposure will be.

If the agreement would have said that the appellant would pay the day care costs for Sean provided by the ABC Home Day Care (approx. $300/month) or “such other provider agreed upon by the parties” one could look at the invoices or agreement with such a provider and determine the amounts required.

The agreement does not provide sufficient information upon which to determine what is to be paid. Monthly mortgage payments, property taxes and water rates are specific items and when the provider of these items invoices the person liable, it is easily determinable. Here we do not have the provider telling us what it charges. Elaine merely tells us what she wants. I find therefore that the amount is not readily ascertainable and therefore not eligible for deduction under paragraph 60(b) of the Act as an allowance. The appeal therefore with respect to this issue is also dismissed.

Appeal dismissed.