M. Hope Armstrong v. Minister of National Revenue, [1988] 1 CTC 2019, 88 DTC 1015

Bonner, T.C.J.:—This is an appeal from an income tax assessment for the appellant's 1984 taxation year. The issue is whether paragraph 56(1)(b) of the Income Tax Act requires the inclusion in the appellant's income of $4,797, as the respondent found on assessment, or $300, as the appellant contends. Paragraph 56(1)(b) provides:

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.

It was the appellant's position that the amount which she "received" in the year from her husband did not exceed $300.

The facts found by the respondent on assessment included the following [1] :

Pursuant to a written separation agreement entered into on October 28, 1980, Peter Tagieff (now the Appellant's ex-spouse) was to pay the Appellant and her children [2] the sum of $401.00 per month.

The separation agreement further provided that the Appellant was to pay to Peter Tagieff the lesser sum of $7,000 or 25% of the net proceeds from the sale of the matrimonial home (which sum turned out to be $5,700.00) unless the Appellant used the net proceeds to purchase a new home and remained unmarried and not cohabiting at that time.

The Appellant sold the matrimonial home and purchased a new home while living common-law and accordingly became indebted to Peter Tagieff in the sum of $5,700.00 pursuant to the separation agreement.

The respondent also found or assumed:

The Appellant and Peter Tagieff agreed to pay the $401.00 maintenance owed by Peter Tagieff to the Appellant by way of setoff on the debt of $5,700.00 and which setoff amounted to $4,497.00 in the 1984 year.

The appellant did not clearly say whether she did or did not dispute that finding or assumption.

The matrimonial home referred to in the separation agreement was sold at a time when there subsisted a relationship between the appellant and a friend. The appellant testified that she did not believe that her relationship with the friend involved cohabitation of the sort contemplated by the separation agreement and that, in consequence, she did not believe that she owed her husband $5,700 as a result of the sale of the matrimonial home. Accordingly, she said, she withheld payment of the $5,700. Further, she testified that her husband then told her that he was not going to make payment of the monthly allowance anymore in order to pay off the $5,700 debt. She stated that in response to her husband:

. . . I didn't agree per se, what I did was I acquiesced, I gave in because I, he just said he wasn't going to pay it and I couldn't afford to hire a lawyer at that time to try and dispute it.

Although the foregoing and other parts of the appellant’s testimony are self-contradictory, [3] I gather from all that the appellant said, taken in context, that she agreed, albeit reluctantly, to permit her husband to discharge his obligation to pay maintenance by way of set off against the appellant's obligation to pay the $5,700. This conclusion is supported by the statement, Exhibit A-2, in which the appellant recorded the set off process. [4] The appellant explained with respect to Exhibit A-2:

I just typed it up in a lunch hour just to, so I would have some kind of track, to keep track of how the payments were being deducted from the amount that I supposedly had owed him. That's all, there were no signatures, nothing. It was just for my benefit, I gave him a copy of it so he would know the the payments were decreasing, how the amount was decreasing.

The appellant did not assert for purposes of this appeal that she did not owe the $5,700 to her husband. Her argument was, ”. . . I am disputing the fact that I was charged income tax on money that I never received . . .” As I understood the appellant's argument, it rested on the premise that no amount can be said to be received unless there has been a payment by cash or by cheque. That premise, in my view, is incorrect. The set off arrangement did involve receipt by the appellant of an amount within the meaning of paragraph 56(1)(b). The word “amount” is defined by subsection 248(1) of the Income Tax Act as follows:

248(1) In this Act,

"amount" means money, rights or things expressed in terms of the amount of money or the value in terms of money of the right or thing, . . .

Each month the appellant received, by means of the set off arrangement, the amount by which her indebtedness to her husband was diminished. In Trinidad Lake Asphalt Operating Company, Limited v. Commissioners of Income Tax for Trinidad and Tobago, [1945] A.C. 1, the Privy Council considered the question whether there was a “transmission” of income derived from a source within the colony when a company within that colony agreed to set off a debt owing by a non-resident shareholder to the company for goods supplied by it against the amount of a dividend declared by the company on its shares. At page 10 Lord Wright said:

Was there, then, such a transmission? No actual money passed. If the dividend had been transmitted by a banker's draft sent by the appellant to Barber it could not have been questioned that the dividend had been transmitted, but the two companies might do their own banking transactions between themselves and dispense with the intervention of banking facilities. The transaction involved the sending to Barber by the appellant, and receipt by Barber from the appellant, of the dividend. This was effected by the agreement that payment should be made by cancellation of the debt for goods supplied. This method had been mutually agreed before the dividend was declared. The agreement was carried out by each party making corresponding entries in its books. These were not merely bookkeeping entries. They represented the actual receipt of the dividend by Barber, and the actual payment of it by the appellant to Barber, and concurrently, the actual receipt by the appellant from Barber of payment of his debt for goods supplied. The composite and joint transaction in principle satisfies the description of a payment by Mellish L.J. in /n re Harmony & Montagu Tin & Copper Mining Co., Spargo's Case (I). "Nothing is clearer,” he said, "than that if parties account with each other, and sums are stated to be due on the one side, and sums to an equal amount due on the other side of that account, and those accounts are settled by both parties, it is exactly the same thing as if the sums due on both sides had been paid. Indeed, it is a general rule of law, that in every case where a transaction resolves itself into paying money by A. to B., and then handing it back again by B. to A., if the parties meet together and agree to set one demand against the other, they need not go through the form and ceremony of handing the money backwards and forwards." This statement gives a description of what is often called a settlement in account or a set off, the word not being there used in the technical sense of the statutes of set off. There is actual, not merely notional or constructive payment of the indebtedness on either side.

For the foregoing reasons the appeal will be dismissed.

Appeal dismissed.