Jack Coghlan v. Her Majesty the Queen (Informal Procedure), [1994] 1 CTC 2446, 94 DTC 1367

Archambault, J.T.C.C.:—In this appeal governed by the informal procedure, the appellant is contesting the assessment by the Minister of National Revenue (the "Minister") which disallowed a sum of $18,000 claimed as alimony for the 1989 taxation year.

Facts

The appellant was married to his wife Jill Collyer on February 11, 1972. They were married separate as to property by virtue of a marriage contract. They have two children: Jennifer born in 1975 and Katherine born in 1977. The appellant and his wife experienced marital difficulties in 1984 and separated for a few months and eventually reconciled and lived together. They were living together in the fall of 1988 but were still experiencing marital difficulties.

The appellant is an air pilot working for Canadian Airlines. A consolidation of Canadian Pacific with five other airlines was under was in 1989. To accept a promotion, he decided in January 1989 to move alone to Vancouver. He did not know whether he would be there for permanency. He lived with a fellow employee in Surrey, British Columbia. No bank account was open in B.C. He did his banking business through the InstaBank of the Bank of Montreal. Before he left for Vancouver, he was staying somewhere else in Montreal. On March 3, 1989, the appellant and his wife entered into another separation agreement pursuant to which the parties agreed that the wife would reside in the Pointe Claire residence, while the husband was free to establish his domicile wherever he saw fit in accordance with his employment. The agreement provided that the husband shall pay to his wife as an alimony allowance for her mainenance and the maintenance of the children a sum of $2,000 per month payable in advance on the first day of each and every month. The first payment was due and payable on April 1, 1989. In addition, the husband was to continue to be responsible for major expenses to be incurred with respect to the children including education, sport activities, music lessons and for the expenses relating to the Quebec residence.

For tax purposes, he declared that he was residing in British Columbia at the end of December 1989. He came to visit his family whenever he had the opportunity. It could vary between one to three times a month. He also spent holidays with them although there were no extended period. When he was visiting his family, he stayed in the family residence and even slept in the same bedroom as his wife. They sometimes did things together and had discussions together. They explored the possibilities of moving to Vancouver. However, the fact that both of their parents were sick in Montreal was a major factor for his wife's decision to stay there. The appellant was receiving some mail including T-4s and T-5s at her domicile.

The appellant was depositing his salary which was $145,000 per year into a joint account that he had with his wife. All the money that she needed to pay for her needs was drawn from this account. The appellant filed computer printouts showing all the expenses incurred by his wife from April to December 1989 broken down into three categories: house expenses, alimony and children expenses. The total for the house expenses was $10,645.20, $21,112.18 for the alimony and $1,897.20 for the children, for a total amount of $33,664.48. Both the appellant and his wife testified that there was no lack of trust between themselves and this is why no cheques were payable for the payment of his alimony.

Respondent's position

In its reply to the appeal of the appellant, the respondent stated that the Minister has made only the following two assumptions of fact: (a) the appellant has not shown that he disbursed payments amounting to $18,000 for alimony or separation allowance; (b) the appellant has not shown that alimony payments in question are deductible for the 1989 taxation year.

This is a poorly drafted reply. The only fact which I see supporting the assessment of the respondent is that there was no proof of payment of the $18,000. The second assumption to me is not a relevant fact in determining whether or not the assessment is well founded. It is more of an argument than a fact. For instance, the Minister could have assumed that the appellant was not living apart from his wife or that they had resumed cohabitation. However, no such facts are stated as having been assumed for the purpose of issuing the assessment. Therefore, the Minister does not benefit from the presumption of fact on this issue.

In her argument before me, the attorney for the respondent argued that the Act provides for four conditions to be met in order for the taxpayer to be entitled to deduct the alimony:

1. it must be paid pursuant to a written agreement;

2. as alimony for the maintenance of the wife and the children;

3, it must be payable on a periodic basis; and

4, the husband and wife must be living apart.

She admitted that the first two conditions were met. However, she argued that the amount was not paid on a periodic basis. She noted that the amount of alimony used from month to month as shown on the computer printout varied from $1,000 to $7,000. As for the fourth condition, she stated that he was not separated from his wife and stayed at home whenever he came to Montreal. If he lived in Vancouver, it was to pursue a job opportunity in becoming a supervisor.

Analysis

It is useful to cite the relevant provision of the Act dealing with deduction of alimony. Paragraph 60(b) reads as follows:

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, 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 he was living apart from, and was separated pursuant to a divorce, judicial separation or written separation agreement from, his spouse or former spouse to whom he was required to make the payment at the time the payment was made and throughout the remainder of the year

In order to be deductible as alimony, the Act provides for six conditions:

1. the amount must be paid pursuant to a decree order or judgment by a competant tribunal or pursuant to a written agreement;

2. the payment must be in the nature of alimony or other allowance payable on a periodic basis;

3. the amount must be paid to the taxpayer's spouse or former spouse;

4. the amount must be for the maintenance of the recipient, the children of the marriage or both;

5. the taxpayer must be living apart from the recipient at the time of the payment and throughout the remainder of the year;

6.. the taxpayer must be separated from the recipient pursuant to a divorce, judicial separation or written separation agreement.

The assessment issued by the Minister was based on the fact that no payment had been made of the $18,000 provided for in the separation agreement and therefore the condition that the alimony must be paid to the spouse as required by the third condition outlined above has not been met. I do not think that the evidence put before me supports this assumption of fact made by the Minister. The appellant paid his wife through the deposit of his salary into the joint bank account. Based on the agreement, the spouse had the right to withdraw the alimony that she was entitled to under the agreement. Although the payment of the alimony was made in this most unusual fashion, this does not prevent, in my view, the fact that the appellant paid money to his wife from a legal point of view.

However, I am troubled by this payment when this fact is considered with all the other facts put before me during the hearing of this case. Based on the overall evidence that I heard, I am not convinced that the appellant was separated from his wife at the time of payment of the alimony and throughout the remainder of the year. The Act does not allow a taxpayer to deduct alimony to their spouse because they are living apart by reason that the place of employment happens to be located far away From the residence of the other spouse. In this particular instance, the taxpayer decided to pursue an employment opportunity in Vancouver while his wife was not prepared to move due to the family circumstances and more particularly because of the health conditions of their parents. In other words, spouses must be separated because of marital difficulties and not because of employment opportunities. The other indicia that the appellant was not separated from his wife throughout the remainder of the year, is the fact that whenever he came to Montréal he lived with his wife, shared the same bedroom, and did activities together. After signing the separation agreement, the appellant continued to pay his salary into their joint bank account as before. The appellant did not acquire his own apartment, he lived with another fellow employee. No bank account was open in B.C. Although I realize that all these facts could be interpreted in a different light and are not conclusive that the appellant was living apart for purposes of paragraph 60(b) of the Act, I am left with the uncertainty as to whether or not the appellant was truly separated from his wife throughout the 1989 taxation year. In other words, I am not satisfied that the appellant has established on a balance of probabilities that he satisfied all the conditions set out in paragraph 60(b) of the Act in order to be successful in his appeal. For these reasons, I will dismiss the appeal and confirm the assessment for tne 1989 taxation year issued by the Minister.

Appeal dismissed.