Bowman
J.T.C.C.:—This
is
an
appeal
from
an
assessment
for
the
1990
taxation
year.
The
issue
concerns
the
inclusion
by
the
Minister
of
National
Revenue
("the
Minister")
of
the
sum
of
$6,344
in
computing
the
appellant’s
income
from
alimony
pursuant
to
the
provisions
of
paragraph
56(1
)(b)
of
the
Income
Tax
Act,
R.S.C.
1952,
c.
148
(am.
S.C.
1970-71-72,
c.
63)
(the
"Act").
Paragraph
56(1
)(b)
read
as
follows
during
the
year
in
question:
56(1)
Without
restricting
the
generality
of
section
3,
there
shall
be
included
in
computing
the
income
of
a
taxpayer
for
a
taxation
year,
(b)
any
amount
received
by
the
taxpayer
in
the
year,
pursuant
to
a
decree,
order
or
judgment
of
a
competent
tribunal
or
pursuant
to
a
written
agreement,
as
alimony
or
other
allowance
payable
on
a
periodic
basis
for
the
maintenance
of
the
recipient
thereof,
children
of
the
marriage,
or
both
the
recipient
and
children
of
the
marriage,
if
the
recipient
was
living
apart
from,
and
was
separated
pursuant
to
a
divorce,
judicial
separation
or
written
separation
agreement
from,
the
spouse
or
former
spouse
required
to
make
the
payment
at
the
time
the
payment
was
received
and
throughout
the
remainder
of
the
year.
The
essential
facts
were
not
disputed.
The
appellant
and
her
husband
André
Gagnon
were
divorced
in
Baie-
Comeau,
province
of
Quebec,
pursuant
to
a
judgment
of
divorce
delivered
on
March
6,
1989
by
the
Superior
Court
of
Quebec.
The
judgment
ratified
the
provisions
of
two
agreements
entered
into
by
the
spouses.
In
light
of
the
importance
of
the
inclusion
of
these
two
agreements,
I
cite
the
relevant
passage
of
that
judgment
in
full:
By
These
Reasons,
The
Court:
Delivers
a
judgment
of
divorce
between
the
parties
whose
marriage
was
celebrated
on
July
21,
1978,
in
Trois-Pistoles,
District
of
Kamouraska,
which
will
take
effect
on
the
3
1
st
day
following
the
date
of
this
judgment;
Certifies
for
the
parties
to
the
agreement
on
corollary
relief
and
division
of
financial
interests
entered
into
by
them
on
February
13
and
15,
1989
(P-6),
as
well
as
the
supplementary
agreement
entered
into
by
them
on
February
24,
1989,
ratifies
them
and
renders
them
binding
to
stand
as
though
each
of
the
clauses
were
here
recited
in
full
and
Orders
the
parties
to
comply
therewith.
[Translation.]
The
agreement
on
corollary
relief
and
division
of
financial
interests
signed
on
February
15,
1989
provided
particularly
the
following:
2.
Monsieur
will
pay
madame
the
weekly
sum
of
$150
in
alimony
for
the
children
only,
that
alimony
being
indexable
pursuant
to
the
prescriptions
of
article
638
of
the
Civil
Code
of
Quebec;
5.
As
to
the
parties’
mobile
home
which
currently
constitutes
the
home
of
madame
at
56
Rue
Langelier,
Baie-Comeau,
the
parties
acknowledge
that
they
are
its
co-owners
and
that
it
is
at
present
offered
for
sale.
Once
its
sale
is
closed,
the
equity
therefrom,
that
is
the
selling
price
less
the
bank
loan
which
was
necessary
for
its
purchase,
will
be
divided
in
equal
shares
between
monsieur
and
madame;
6.
However,
until
that
mobile
home
is
sold,
the
present
situation
between
the
parties
remains;
that
is
to
say
madame
is
entitled
to
live
there
with
the
children
and
monsieur
is
obliged
to
pay
the
costs
pertaining
thereto,
it
being
agreed
that
the
weekly
alimony
of
$150
mentioned
above
will
begin
only
after
that
sale.
[Translation.]
The
supplementary
agreement
was
signed
on
February
24,
1989
and
quite
fundamentally
amended
the
parties’
obligations
in
respect
of
alimony
as
well
as
the
obligations
concerning
the
mobile
home.
I
cite
its
terms
and
conditions
in
full:
1.
Clauses
2,
5
and
6
of
the
said
agreement
concerning
the
payment
of
alimony
to
madame
for
the
children
is
suspended,
having
regard
to
the
situation
described
in
the
following
paragraphs;
2.
Ownership
of
the
parties’
mobile
home
located
at
56
Rue
Langelier,
Baie-Comeau,
is
transferred
in
full
to
Madame;
3.
Madame
will
pay
all
the
costs
pertaining
to
that
mobile
home,
more
particularly
the
repayment
to
the
Caisse
Populaire
of
the
balance
of
the
loan
that
was
necessary
for
its
purchase;
4.
The
present
equity
of
the
said
mobile
home
is
set
at
$28,000,
that
is
$14,000
for
each
of
the
parties.
As
madame
has
become
its
sole
owner,
she
shall
reimburse
monsieur
for
his
equity
by
suspending
the
amount
of
the
alimony
which
she
is
to
receive
for
a
period
of
115
weeks,
commencing
on
March
13,
1989
and
ending
on
June
15,
1991;
5.
It
is
understood
that
the
above-mentioned
alimony
determined
in
the
agreement
on
corollary
relief
signed
by
the
parties
is
suspended
until
June
15,
1991;
after
that
date,
it
will
begin
accruing
again
for
all
purposes
of
law;
6.
This
agreement
is
duly
signed
by
the
parties
to
enable
madame
to
retain
ownership
of
the
mobile
home
and
it
is
signed
freely
and
willlingly
by
both
monsieur
and
madame.
[Translation.]
Having
regard
to
these
facts,
the
point
for
determination
is
whether
the
Minister’s
claim
that
Mrs.
Pelletier
received
alimony
within
the
meaning
of
paragraph
56(1
)(b)
is
correct.
This
argument
is
based
on
the
assumption
that
the
appellant
received
’’alimony
or
other
allowance
payable
on
a
periodic
basis”.
In
the
supplementary
agreement,
the
appellant
waived
the
alimony
of
$150
per
week
provided
by
the
first
agreement
and
in
return
accepted
the
right
to
retain
the
second
half
of
the
selling
price
of
the
mobile
home.
Two
fundamentally
different
situations
may
be
considered:
(a)
that
in
which
there
is
an
obligation
to
pay
a
weekly
sum
as
alimony
which,
for
whatever
reason,
is
not
paid
and
the
cumulative
obligation
is
in
fact
met
by
a
lump
sum
or
a
sum
paid
as
compensation;
(b)
that
in
which
the
agreement
itself
between
the
parties
provides
for
the
transformation
of
what
in
other
circumstances
could
have
been
an
obligation
to
make
periodic
payments
into
an
obligation
to
pay
a
lump
sum.
Counsel
for
the
respondent
referred
to
the
decisions
of
the
Tax
Review
Board
delivered
by
F.J.
Dubrule
Q.C.
in
Crosby
v.
M.N.R.,
[1977]
C.T.C.
2306,
77
D.T.C.
219,
and
Thiessen
v.
M.N.R.,
[1977]
C.T.C.
2079,
77
D.T.C.
59.
It
appears
that
the
situation
considered
in
both
these
decisions
as
well
as
in
The
Queen
v.
Sills,
[1985]
1
C.T.C.
49,
85
D.T.C.
5096
(F.C.A.),
falls
within
the
first
category,
whereas
the
facts
at
issue
in
the
instant
case
fall
within
the
second.
The
case
law
relating
most
directly
to
the
circumstances
of
the
instant
case
includes
two
judgments
of
the
Supreme
Court
of
Canada:
Trottier
v.
M.N.R.,
[1968]
S.C.R.
728,
[1968]
C.T.C.
324,
68
D.T.C.
5216,
and
M.N.R.
v.
Armstrong,
[1956]
S.C.R.
446,
[1956]
C.T.C.
93,
56
D.T.C.
1044.
See
also
Dubreuil
v.
M.N.R.,
[1993]
2
C.T.C.
2004,
93
D.T.C.
542
(T.C.C.).
These
judgments
set
forth
that
a
lump
sum
which
replaces
the
obligation
to
make
periodic
payments
is
not
deductible
in
computing
the
payer’s
income.
It
must
be
recognized
that
paragraph
60(b),
which
permits
the
deduction
of
the
amount
of
alimony
payable
on
a
periodic
basis,
is
the
complement
of
paragraph
56(1)(b).
Considering
the
other
side
of
the
coin,
it
seems
to
me
inconceivable
that
the
appellant’s
husband
could
deduct
the
amount
which
the
Minister
included
in
the
appellant’s
income.
The
situation
of
a
former
spouse
who
would
try
to
deduct
any
amount
in
the
present
circumstances
is
much
closer
to
that
in
The
Queen
v.
McKimmon,
[1990]
1
C.T.C.
109,
90
D.T.C.
6088
(F.C.A.),
than
that
in
Lariviere
v.
The
Queen,
[1989]
1
C.T.C.
297,
89
D.T.C.
5176
(F.C.A.).
It
must
be
emphasized
that
the
issue
in
the
instant
case
is
neither
the
principle
of
"compensation”
as
it
exists
in
civil
law
nor
the
principle
of
"set-off'
in
common
law
(cf.
Armstrong
v.
M.N.R.,
[1988]
1
C.T.C.
2019,
88
D.T.C.
1015
(T.C.C.);
Blais
et
al.
v.
M.N.R.,
[1990]
2
C.T.C.
2005,
90
D.T.C.
1499.
Rather
it
is
a
question
of
an
obligation
which
forms
an
integral
part
of
agreements
reached
between
the
spouses
and
ratified
in
the
terms
and
conditions
of
the
judgment
of
divorce
itself.
The
conclusion
which
I
have
reached
may
be
tested
by
computing
the
assessed
amount.
Mrs.
Pelletier’s
income
taxed
by
the
Minister
was
$6,344.
Counsel
for
the
respondent
argued,
however,
that
the
amount
on
which
he
should
have
assessed
it
was
$7,800,
that
is
to
say
payments
of
$150
per
week
over
52
weeks.
Counsel
for
the
respondent
did
not
inform
me
where
the
amount
of
$6,344
came
from
and
schedules
A
and
B
of
the
reply
to
the
notice
of
appeal,
which
were
supposed
to
explain
the
figures,
were
not
appended.
However,
it
is
not
very
difficult
to
reconstruct
the
figures
on
which
the
assessment
was
probably
based:
115
x
$150
$17,250
$14,000
x
$7,800
=
$6,330
$17,250
The
figure
is
the
fraction
of
the
maximum
amount
of
weekly
payments
which
would
otherwise
have
been
made
in
1990,
that
is
$7,800,
which
half
the
selling
price
of
the
house,
that
is
$14,000,
represents
of
the
total
amount
of
weekly
payments,
that
is
$17,250,
which
would
otherwise
have
been
made
during
the
115
weeks
during
which
the
periodic
payments
were
suspended.
This
calculation
yields
a
capitalized
amount
which
represents
more
or
less
the
present
value
of
all
the
payments.
This
analysis
leads
fairly
conclusively
to
a
firm
inference
that
the
purpose
of
the
supplementary
agreement
from
the
outset
was
to
avert
the
periodic
alimony
completely
and
to
replace
it
with
the
lump
sum
which
half
the
price
of
the
mobile
home
would
represent.
It
follows
that
Mrs.
Pelletier
did
not
receive
"alimony
or
other
allowance
payable
on
a
periodic
basis"
in
1990.
The
rights
and
obligations
that
follow
from
paragraphs
56(1
)(b)
and
60(b)
depend
in
large
part,
if
not
totally,
on
the
obligations
agreed
to
by
the
parties
in
the
agreements
which
they
signed
and
which
were
incorporated
in
the
judgment
of
divorce.
If
spouses
choose
to
enter
into
arrangements
the
effect
of
which
is
to
set
aside
these
provisions,
they
are
entitled
to
do
so.
Nothing
permits
the
Minister
of
National
Revenue
to
choose
between
the
legal
relationships
which
he
wishes
to
recognize
and
those
which
he
does
not
wish
to
take
into
account.
He
is
obliged
to
accept
them
as
they
exist.
The
appeal
is
allowed
and
the
assessment
is
referred
back
to
the
Minister
of
National
Revenue
for
reconsideration
and
reassessment,
taking
into
account
the
fact
that
the
amount
of
$6,344
which
the
Minister
included
in
computing
the
appellant’s
income
pursuant
to
the
provisions
of
paragraph
56(1
)(b)
must
not
be
included
therein.
Appeal
allowed.
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