Brian E. Morris v. Minister of National Revenue, [1987] 1 CTC 2064, 87 DTC 11

Taylor, T.C.J.:—This is an appeal against an income tax assessment for the year 1983 heard in Belleville, Ontario, on September 29, 1986 in which the Minister of National Revenue disallowed an amount of $25,000 claimed by the taxpayer as “maintenance” paid to Mrs. Morris. The significant facts regarding the matter were set out in the reply to notice of appeal, and were not challenged by the appellant at the hearing:

— the Appellant was separated from his wife in 1981;

— regarding the alimony payments for his ex-wife and child three different court orders for payments were issued;

— June 1, 1983, Order to pay $425. monthly for ex-wife and child;

— July 6, 1983, Order to pay $650. monthly for ex-wife and child;

— September 9, 1983, Order to pay $200. monthly for child and a lump sum payment of $25,000. to his ex-wife;

— during the said taxation year, the Appellant borrowed $15,000. and paid to

his ex-wife the $25,000. lump sum referred to in [the] paragraph [above].

— The Minister relied inter alia, upon sections 3, 18, 60(b), 60(c) and 165(3) of the Income Tax Act, R.S.C. 1952, c. 148 as amended by section 1 of S.C. 1970-71-72, c. 63 as it applies to the Appellant’s 1983 taxation year;

— . . . and that he had properly disallowed the sum of $25,000. claimed by the Appellant on the basis that the said sum was not an amount paid by the Appellant 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, pursuant to section 60 of the Income Tax Act.

In my view only one other relevant fact emergd from the hearing — that the $425 amount (above) had been for interim allowance; and that the change in the court order (July 6, 1983 to September 6, 1983) which reduced the monthly amount from $650 to $200 (above) was intended (according to the appellant’s understanding) to reflect the fact that he was paying the difference ($450) in one lump sum. But he contended it still should be “maintenance”, as it would have been if he had continued to pay the additional $450 monthly.

The Court reserved this matter, for the precise purpose of reviewing the relevant jurisprudence. Counsel for the Minister made reference to: Gaëtan Leclair v. M.N.R., [1982] C.T.C. 2715; 82 D.T.C. 1755, The Queen v. Barbara D. Sills, [1983] C.T.C. 48; 83 D.T.C. 5070, and Marvin Tanner v. M.N.R., [1983] C.T.C. 2700; 83 D.T.C. 605. I would also add The Queen v. Barbara D. Sills, [1985] 1 C.T.C. 49; 85 D.T.C. 5096 wherein the Federal Court of Appeal reversed the above Federal Court — Trial Division judgment, and Jean-Paul Gagnon v. The Queen, [1986] 1 C.T.C. 410; 86 D.T.C. 6179 a judgment of the Supreme Court of Canada.

Counsel for the Minister did not refer to the Federal Court of Appeal judgment in Sills (supra), but he did contend that that while Gagnon (supra) may have provided the lower courts with some better guidelines regarding the definition of “allowance”, that could not aid this taxpayer because he could not place himself (and the contested payment) within the provisions of the phrase . as alimony or other allowance payable on a periodic basis . . .” to be found in paragraph 60(b) of the Act.

The assertion of the appellant was in essence that the $25,000 “lump sum” payment was virtually the same as a calculation of the “present day value” of the $450 monthly difference, deleted from his “periodic” payment by the court order of September 9, 1983. To him it did seem illogical, and inequitable that similar tax treatment would not be accorded the two contrasted situations. To Mr. Morris, a “lump sum” payment, for the precise purpose of eliminating the requirement for continued monthly obligations, should be of the same deductible value to him as the monthly payments.

Analysis

As I see the situation, the amount at issue would appear to have been paid in order to extinguish, once and for all, any obligation from Mr. Morris to his wife, as contrasted with him assuming a continuing responsibility for her maintenance and support. In the simplest terms that is "capitalizing" the obligation, and as I read the jurisprudence, removing it from consideration as a deduction. While some relaxation of earlier jurisprudence may be seen in more recent judgments, Gagnon (supra) and Sills (supra), the requirement that the payments claimed for maintenance and support, should have some relationship to the earnings from which they are deducted, appears to remain intact. The payment by this taxpayer of $10,000 (see above) out of his accumulated savings would have little if anything directly to do with his income tax earnings in the year 1983. Nor would the payment of the $15,000 balance, borrowed from the bank (supra) have anything directly to do with his current earnings for the year 1983, although it could affect his available funds in future years as it was repaid. This appeal once again demonstrates the care which must be taken in setting up a process for payment of alimony, or maintenance payments when income tax impact is a consideration. The requirement of "periodic payments" is some reflection of the continuing and on-going responsibility for support.

The appeal is dismissed.

Appeal dismissed.