Garon,
T.C.J.
[Orally]:
—In
this
case,
the
appellant
appeals
an
income
tax
reassessment
dated
April
25,
1989,
whereby
the
respondent
disallowed
the
deduction
in
the
amount
of
$7,500
claimed
by
the
appellant
in
computing
his
income
for
the
1986
taxation
year.
The
facts
are
not
in
dispute.
By
paragraph
3
of
a
Decree
Nisi
of
divorce,
dated
June
20,
1983,
issued
by
the
Queen's
Bench
of
Alberta,
the
appellant
was
ordered
to
pay
to
his
wife,
who
was
the
Petitioner
in
the
proceeding
which
led
to
the
issue
of
the
Decree
Nisi:
.
.
.
for
the
maintenance
and
support
of
the
aforesaid
children
the
sum
of
Two
Hundred
Dollars
($200.00)
per
month
per
child.
The
mention
in
paragraph
3
of
the
above
Order
of
"aforesaid
children”
is
a
reference
to
the
two
children
of
the
appellant's
marriage
with
his
former
spouse,
who
is
hereafter
referred
to
as
Mrs.
Leggett.
In
the
same
Decree
of
the
Court
it
was
"Further
Ordered
And
Adjudged
that
maintenance
for
the
Petitioner
is
reserved".
The
appellant
and
Mrs.
Leggett
were
divorced
later
in
1983.
Sometime
during
that
year
the
appellant
moved
to
the
Province
of
Ontario.
Less
than
two
months
after
the
date
of
the
above
Decree
Nisi,
the
solicitors
for
the
appellant
wrote
the
solicitors
for
Mrs.
Leggett
about,
amongst
other
things,
the
matter
of
the
maintenance
payments
for
the
two
children
of
the
appellant
and
Mrs.
Leggett.
The
letter
dated
July
26,
1983,
of
the
appellant's
solicitors,
reads
in
part
as
follows:
In
addition
my
client
is
presently
working
part-time
and
he
cannot
afford
to
pay
the
sum
of
$200.00
per
month
per
child.
He
is,
however,
prepared
to
pay
$100.00
per
month
per
child
and
he
asked
me
to
request
that
your
client
agree
to
an
amendment
of
the
original
Decree
Nisi
on
consent
to
reduce
the
amount
of
support
for
each
child
to
$100.00
per
month.
The
evidence
discloses
that
between
the
date
of
the
Decree
Nisi
of
June
20,
1983,
and
June
1986,
no
single
payment
was
made
by
the
appellant
to
Mrs.
Leggett
pursuant
to
the
subject
Order
of
the
Court.
The
appellant
explained
that
because
of
certain
disputes
with
Mrs.
Leggett
and
his
personal
financial
situation
the
maintenance
payments
fell
in
arrears.
The
appellant
elaborated
further
by
indicating
that
he
was,
during
a
portion
of
the
three-year
period,
unemployed
or
at
times
employed
on
a
part-time
basis.
He
went
on
to
say
that
he
had
to
obtain
the
financial
assistance
of
his
parents.
On
the
other
hand,
Mrs.
Leggett
was,
according
to
the
appellant's
best
recollection,
in
receipt
at
that
time
of
an
annual
income
of
about
$46,000.
As
alleged
in
the
notice
of
appeal
and
as
admitted
by
the
respondent
in
his
reply
to
the
notice
of
appeal,
a
settlement
was
arrived
at
between
the
appellant
and
Mrs.
Leggett
in
respect
of
the
maintenance
payments
for
the
children
and
other
matters.
The
minutes
of
such
settlement
not
having
been
located
could
not
be
filed
at
the
hearing
of
this
appeal
but
it
would
appear
they
were
incorporated
into
an
Order
of
the
same
Court
of
Queen's
Bench
of
Alberta
dated
August
1,
1986.
It
is
mentioned
in
particular
in
this
1986
Order
that
it
was
issued
upon
the
ex
parte
application
of
Mrs.Leggett
and
upon
reading
her
affidavit
and
the
minutes
of
settlement
attached
thereto.
The
body
of
the
Order
of
August
1,
1986,
reads
as
follows:
It
Is
Hereby
Ordered:
1.
That
paragraph
3
of
the
Decree
Nisi
be
and
is
hereby
varied
by
deleting
the
same
and
substituting
therefore
the
following:
3.
It
Is
Further
Ordered
And
Adjudged
that
the
respondent
shall
pay
to
the
Petitioner
for
the
maintenance
and
support
of
the
child
Adrian
Charles
Soldera
the
sum
of
$100.00
per
month
until
the
31st
day
of
May,
1987,
following
which
there
shall
be
no
further
support
payable,
and
all
obligations
for
the
support
of
the
said
child
by
Norman
Soldera
shall
cease;
and
for
the
support
of
Talitha
Ann
Soldera
the
sum
of
$100.00
per
month
until
the
month
immediately
preceding
her
eighteenth
birthday,
following
which
there
shall
be
no
further
support
payable,
and
all
obligations
for
the
support
of
the
said
child
by
Norman
Soldera
shall
cease.
2.
That
paragraph
4
of
the
Decree
Nisi
be
and
is
hereby
varied
by
deleting
the
same
and
substituting
therefore
the
following:
4.
And
It
Is
Further
Ordered
And
Adjudged
that
the
Petitioner's
claim
for
maintenance
is
dismissed.
3.
That
the
arrears
of
maintenance
as
of
May
31,
1986
by
and
the
same
are
hereby
fixed
at
$7,500.00.
In
anticipation
of
the
Order
of
August
1,
1986,
a
cheque
dated
June
19,
1986,
in
the
amount
of
$7,900
was
drawn
by
the
appellant
to
the
order
of
his
solicitors.
This
cheque
was
held
in
trust
by
the
appellants
solicitors
for
some
time
and
forwarded
later
to
Mrs.
Leggett’s
solicitors
in
the
latter
part
of
July
1986.
It
is
not
disputed
that
out
of
the
amount
of
$7,900
the
sum
of
$400
represented
the
maintenance
payments
in
respect
of
the
two
children
for
the
months
of
June
and
July
1986.
It
was
also
brought
in
evidence
that
the
appellant
made
the
monthly
payments
of
$200
to
Mrs.
Leggett
during
the
balance
of
1986
and
in
1987
until
June
5.
At
that
point
the
appellant
began
to
make
monthly
remittances
of
$100
in
respect
of
his
younger
child
and
continued
doing
so
until
she
attained
the
age
of
18
years.
All
these
monthly
payments
of
$200
or
$100
as
the
case
may
be,
were
made
in
accordance
with
the
terms
of
the
Order
of
August
1,
1986.
It
is
the
appellant's
position,
in
light
of
these
facts,
that
the
$7,500
deduction
should
be
allowed
because
it
was
a
lump
sum
payment
for
maintenance
made
on
account
of
amounts
payable
periodically
that
were
due
after
the
Order
of
June
20,
1983,
and
that
had
fallen
in
arrears.
In
expressing
in
this
way
the
appellant's
position
I
was
paraphrasing
the
wording
of
the
notice
of
objection,
dated
October
31,
1989,
served
by
the
appellant
in
response
to
the
reassessment
of
April
25,
1989,
that
has
been
attacked
in
this
appeal.
That
notice
of
objection
reflects
better
than
the
notice
of
appeal
the
position
adopted
by
the
appellant's
representative
in
the
course
of
the
hearing
of
this
appeal.
For
his
part
the
respondent
submitted
that
the
sum
of
$7,500
was
in
full
and
final
satisfaction
of
all
liabilities
outstanding
as
at
May
31,
1986,
under
the
Decree
Nisi
and
consequently,
in
his
view,
the
subject
amount
was
not
an
allowance
payable
on
a
periodic
basis
for
the
maintenance
of
the
children
of
the
marriage.
At
this
juncture,
I
should
state
that
it
is
common
ground
that
all
the
requirements
for
the
application
of
paragraph
60(b)
of
the
Income
Tax
Act,
R.S.C.
1952,
c.
148
(am.
S.C.
1970-71-72,
c.
63)
(the
"Act")
are
met
in
the
present
case
with
the
exception
of
the
element
relating
to
the
nature
of
the
payment
of
$7,500.
Before
entering
into
a
discussion
of
the
facts
involved
in
the
present
case
and
proceeding
with
an
analysis
of
the
terms
of
the
Orders
respectively
dated
June
20,
1983,
and
August
1,
1986,
I
find
it
convenient
to
study
the
principles
laid
down
in
the
judgment
of
the
Supreme
Court
of
Canada
in
the
case
of
the
M.N.R.
v.
Armstrong,
[1956]
C.T.C.
93;
56
D.T.C.
1044,
and
in
the
decision
of
the
Federal
Court
of
Appeal
in
the
case
of
The
Queen
v.
Sills,
[1985]
1
C.T.C.
49;
85
D.T.C.
5096.
These
decisions
deal
with
deductibility
of
lump
sum
payments
made
by
a
taxpayer
to
a
spouse,
or
his
former
spouse,
in
the
context
of
the
provisions
of
the
Income
Tax
Act
that
were
either
identical
with
or
similar
to
the
present
paragraph
60(b)
of
the
Income
Tax
Act
which
paragraph
is
relevant
to
the
present
litigation.
In
the
Armstrong
case,
supra,
the
facts
are
well
summarized
in
headnote
of
the
referenced
reports.
The
relevant
part
of
this
headnote
reads
as
follows:
The
Respondent
was
divorced
by
his
wife
in
1948.
The
divorce
decree
provided
the
payment
of
$100.00
monthly
to
his
wife
for
the
maintenance
of
their
daughter
until
she
reached
the
age
of
sixteen
years.
The
payments
ordered
were
made
until
the
summer
of
1950.
At
that
time
his
wife
accepted
a
lump
sum
of
$4,000.00
in
full
settlement
of
all
amounts
payable
in
the
future.
The
Chief
Justice
in
that
case,
speaking
for
himself
and
two
other
judges
of
the
five-member
Court
said
this
at
page
94
(D.T.C.
1045):
The
test
is
whether
it
was
paid
in
pursuance
of
a
decree,
order
or
judgment
and
not
whether
it
was
paid
by
reason
of
a
legal
obligation
imposed
or
undertaken.
There
was
no
obligation
on
the
part
of
the
respondent
to
pay,
under
the
decree,
a
lump
sum
in
lieu
of
the
monthly
sums
directed
thereby
to
be
paid.
Justice
Kellock
who
wrote
separate
reasons
in
that
case,
but
concurring
in
the
result,
made
an
interesting
observation
at
page
95
(D.T.C.
1045)
of
the
reference
report:
In
my
opinion,
the
payment
here
in
question
is
not
within
the
statute.
It
was
not
an
amount
payable
"pursuant
to"
or
"conformement
à"
(to
refer
to
the
French
text)
the
decree
but
rather
an
amount
paid
to
obtain
a
release
from
the
liability
thereby
imposed.
The
comments
of
Justice
Locke
at
page
97
(D.T.C.
1046)
are
worth
noting:
It
was
for
the
purpose
of
obtaining
what
purported
to
be
a
release
of
the
appellant's
liability
to
maintain
his
infant
child
to
the
extent
that
it
was
imposed
by
the
decree
nisi
that
the
$4,000
was
paid.
It
cannot,
in
my
opinion,
be
properly
said
that
this
lump
sum
was
paid,
in
the
words
of
the
section,
pursuant
to
the
divorce
decree.
It
was,
it
is
true,
paid
in
consequence
of
the
liability
imposed
by
the
decree
for
the
maintenance
of
the
infant,
but
that
does
not
fall
within
the
terms
of
the
section.
In
the
Sills
case,
supra,
the
taxpayer
was
entitled,
pursuant
to
the
terms
of
her
separation
agreement,
to
receive
specific
monthly
payments
from
her
husband.
Although
the
taxpayer's
former
spouse,
in
that
case,
made
certain
payments
to
the
taxpayer
arrears
had
accumulated
by
the
end
of
1975
and
in
1976
the
taxpayer
received
three
lump
sum
payments
of
$1,000
each
at
random
times
during
that
year.
The
following
passages
in
the
judgment
of
Justice
Heald,
speaking
for
the
Federal
Court
of
Appeal,
are
particularly
interesting.
At
page
52
(D.T.C.
5098)
he
said
this:
On
these
facts
the
$3,000
received
by
the
respondent
from
LaBrash
was
clearly
paid
by
him
and
received
by
her
to
carry
out
the
terms
of
the
separation
agreement.
Some
of
the
money
was
payable
to
the
respondent
as
alimony,
the
remainder
was
payable
to
her
as
maintenance
for
the
dependant
children.
All
of
it
was
payable
on
a
monthly
basic
as
stipulated
in
the
separation
agreement.
Where
the
trial
judge
erred,
in
my
view,
was
in
not
having
due
regard
to
the
use
of
the
word
“payable”
in
the
subsection.
So
long
as
the
agreement
provides
that
the
moneys
are
payable
on
a
periodic
basis,
the
requirement
of
the
subsection
is
met.
The
payments
do
not
change
in
character
merely
because
they
are
not
made
on
time.
The
learned
Tax
Review
Board
member
made
the
same
error,
in
my
view,
when
he
said
that
the
amounts
to
be
included
in
income
“must
be
received
exactly
according
to
the
terms
of
the
agreement".
The
subsection
does
not
say
that.
Later
on,
the
same
learned
judge
added,
beginning
at
page
53
(D.T.C.
5098-99)
the
following
comments:
There
is
a
clear
distinction
between
the
facts
in
Armstrong
and
those
in
the
present
case.
In
Armstrong
the
respondent
was
divorced
by
his
wife
in
1948.
The
divorce
decree
provided
for
monthly
$100
payments
to
the
wife
for
maintenance
of
their
daughter
until
she
became
15.
The
payments
so
ordered
were
made
until
the
summer
of
1950
when
the
wife
accepted
a
lump
sum
settlement
of
$4,000
in
full
settlement
of
all
amounts
payable
in
the
future.
Thus
clearly
the
$4,000
was
not
paid
pursuant
to
the
divorce
decree
but
in
lieu
thereof.
However,
in
the
case
at
bar,
all
moneys
were
paid
to
carry
out
the
terms
of
the
separation
agreement.
The
consequence
and
result
of
these
payments
was
not
to
finally
release
the
husband
from
his
liabilities
to
his
wife
and
children
under
the
separation
agreement
as
was
the
case
in
Armstrong
and
in
Trottier
another
decision
of
the
Supreme
Court
of
Canada
where
the
principle
enunciated
in
Armstrong
was
followed.
Having
regard
to
the
foregoing
principles,
I
shall
now
proceed
with
the
consideration
of
the
factual
situation
in
the
present
case
and
the
terms
of
the
two
Orders
referred
to
above
providing
for
certain
payments
to
be
made
by
the
appellant
to
Mrs.
Leggett
in
respect
of
the
maintenance
of
their
children.
First
of
all,
in
the
1986
Order
there
is
no
provision
whereby
the
appellant
is
released
in
express
terms
from
any
existing
or
future
liability
in
respect
of
the
maintenance
of
his
children.
On
the
other
hand,
the
effect
of
the
1986
Order
is
that
from
the
time
it
became
operative
the
matter
of
both
the
existing
or
future
liability
is
no
longer
governed
by
the
1983
Order
as
it
stood
at
the
time
of
its
issue
in
June
1983.
In
effect,
the
appellant's
obligation
with
regard
to
the
payments
to
be
made
in
the
future
for
the
maintenance
and
support
of
the
children
of
the
marriage
was
set
out
in
paragraph
1
of
the
1986
Order
which
varies
paragraph
3
of
the
1983
Order
which
reduces
inter
alia
the
monthly
payments
to
be
made
in
respect
of
the
maintenance
of
the
children
to
$100.
Furthermore,
the
matter
of
the
appellant's
existing
liability
prior
to
the
issue
of
the
1986
Order
in
respect
of
the
maintenance
payment
that
had
fallen
in
arrears,
was
expressly
dealt
with
in
paragraph
3
of
the
1986
Order
which
provides
that,
leaving
out
certain
expletive
words:
”.
.
.
the
arreas
of
maintenance
as
of
May
31,
1986
.
.
.
are
hereby
fixed
at
$7,500.00.”
In
my
view,
the
effect
of
paragraph
3
of
the
1986
Order
was
simply
to
reduce
to
$7,500
the
appellant's
liability
as
of
May
31,
1986,
in
respect
of
the
maintenance
payments
that
were
then
in
arrears.
In
this
connection
it
must
be
recalled
that
the
total
amount
owing
by
the
appellant
as
of
May
31,
1986,
under
paragraph
3
of
the
1983
Order
was
approximately
$14,000.
It
then
becomes
apparent
that
paragraph
3
of
the
1986
Order
in
fixing
the
arrears
of
maintenance
payments
at
$7,500
as
of
May
31,
1986,
in
effect
reduced
the
appellant's
liability
roughly
by
half.
Paragraph
3
of
the
1986
Order
does
not
alter
or
change
the
nature
of
the
appellant's
liability
but
simply
reduces
it.
This
is
made
clear
By
an
express
reference
in
that
paragraph
to
the
“arrears
of
maintenance
as
of
May
31,
1986”.
If
need
be,
the
point
that
the
nature
of
the
appellant's
liability
fixed
by
paragraph
3
of
the
1986
Order
is
not
affected
is
reinforced
by
the
fact
that
the
payment
of
$7,500
is
roughly
in
line
with
what
the
appellant
indicated
he
was
willing
to
pay
in
terms
of
maintenance
payments
for
his
children
in
his
solicitor's
letter
of
July
26,
1983,
to
Mrs.
Leggett's
solicitors.
As
well,
the
sum
of
$7,500,
if
broken
down
to
monthly
payments,
represents
approximately
what
the
appellant
was
required
to
pay
under
paragraph
1
of
the
1986
Order
and
actually
paid
to
Mrs.
Leggett
in
respect
of
the
maintenance
of
their
children.
From
another
angle,
the
payment
or
$7,500
could
be
viewed
as
part
payment
of
all
arrears
owing
under
the
1983
Order,
which
part
payment
was
in
a
sense
accepted
by
Mrs.
Leggett
since
provision
for
the
$7,500
payment
in
settlement
of
the
appellant's
liability
as
of
May
31,
1986,
is
contemplated
in
paragraph
3
of
the
1986
Order
for
which
Mrs.
Leggett
had
applied
ex
parte.
The
soundness
of
the
position
I
have
adopted
respecting
the
the
nature
and
character
of
the
$7,500
payment
by
the
appellant
becomes,
I
believe,
more
apparent
if
the
hypothetical
situation
that
follows
is
considered.
If,
for
instance,
the
appellant
here
had
during
the
currency
of
the
first
Order
made
monthly
payments
of
$100
to
Mrs.
Leggett
in
respect
of
the
maintenance
of
each
child,
after
having
informed
his
ex-wife
that
he
could
not
afford
to
pay
more,
as
he
said
in
his
solicitor's
letter
of
July
26,
1983,
referred
to
above,
instead
of
making
monthly
remittances
of
$200
per
child
as
required
by
the
1983
Order,
and
if
his
former
wife
had
accepted
these
payments
by
cashing
the
cheques
absent
any
other
relevant
facts,
there
is
no
doubt
that
these
monthly
payments
in
this
hypothetical
situation
would
have
been
deductible
by
the
payer
under
subsection
60(b)
of
the
Income
Tax
Act
and
includable
by
the
payee
in
her
income
under
paragraph
56(1)(b)
of
the
Income
Tax
Act.
In
effect
these
payments
would
be
viewed
as
a
partial
payment
of
an
allowance
payable
on
a
periodic
basis
for
the
maintenance
of
his
children.
Otherwise,
any
payment
of
an
allowance
which
is
in
any
degree
lesser
than
the
total
amount
provided
under
an
Order
of
the
Court
or
separation
agreement
could
not
be
deducted
from
the
income
of
the
payer
and
would
not
have
to
be
included
in
the
income
of
the
payee.
This
result
is
certainly
not
intended
for
the
smooth
operation
of
the
statutory
provisions
relating
to
the
deduction
from
and
inclusion
in
income
of
alimony
and
maintenance
payments.
I
am
fortified
in
this
approach
by
the
reasoning
adopted
by
Mr.
Davis
of
the
Tax
Appeal
Board
in
the
case
Bertram
v.
M.N.R.,
[1970]
Tax
A.B.C.
759;
70
D.T.C.
1510
when
he
expressed
himself,
as
follows,
at
page
764
(D.T.C.
5153):
Counsel
for
the
appellant
argued
that,
because
certain
of
the
arrears
of
alimony
were
forgiven
when
the
agreement
of
December
1,
1965,
was
entered
into
and
the
appellant
agreed
to
accept
the
lesser
sum
of
$8000
in
satisfaction
of
arrears
greatly
in
excess
thereof,
the
entire
situation
had
changed,
and
the
original
periodic.
payments
had
thereby
lost
their
character
as
such.
I
have
great
difficulty
in
following
this
line
of
reasoning.
Moreover,
this
contention
was
never
raised
in
the
appellants
notice
of
objection
or
in
her
notice
of
appeal,
nor
was
it
raised
in
the
correspondence
between
the
appellants
solicitor
and
the
taxation
officials.
I
regard
the
agreement
of
December
1,
1965,
as
a
confirmation
of
Eadie's
legal
responsibility
to
make
the
original
periodic
payments,
embodying
therein
a
new
schedule
setting
out
when
the
respective
payments
of
the
compromised
amount
were
to
be
made.
This
agreement
was
in
no
sense
a
final
or
general
release
to
the
appellants
husband
of
any
liability
to
continue
to
make
payments
which
were
not
yet
in
arrears.
It
is
arguable
that,
if
Eadie
had
defaulted
on
the
agreement
of
December
1,
1965,
the
appellant
would
have
been
free
to
bring
an
action
for
whatever
was
actually
owing
to
her
on
the
original
separation
agreement.
I
am
therefore
of
the
view
that
the
payment
of
$7,500
made
by
the
appellant
under
paragraph
3
of
the
1986
Order
represents
a
portion
of
the
arrears
of
maintenance
payments
that
were
an
allowance
payable
on
a
periodic
basis
under
the
1983
Order.
Consequently,
this
payment
of
$7,500
is
deductible
in
full
in
computing
the
appellant's
income
for
the
1986
taxation
year.
For
these
reasons,
the
appeal
is
allowed
with
costs
and
the
reassessment
dated
April
25,
1989,
is
referred
back
to
the
Minister
of
National
Revenue
for
reconsideration
and
reassessment
on
the
basis
that
the
subject
payment
of
$7,500
is
deductible
in
full
in
the
computation
of
the
appellant's
income
for
the
1986
taxation
year.
Appeal
allowed.