Stanley John McKimmon v. Minister of National Revenue, [1986] 2 CTC 2359, 86 DTC 1752

Sarchuk, T.C.J.:—The appellant Stanley John McKimmon (McKimmon) appeals from income tax reassessments for his 1982 and 1983 taxation years. In computing his income in those years the appellant deducted $27,000 and $31,757 respectively as alimony or other allowance paid by him to his former spouse. The respondent disallowed the deduction of those amounts.

The facts are not complex. The appellant married Betty McKimmon on August 23, 1952. He resided with his spouse until January 1, 1978 on which date the parties ceased to cohabit. On or about January 3, 1978 the appellant agreed to pay to her the sum of $600 per month as interim alimony and did so to the date of the divorce proceedings.

On November 12, 1978, Betty McKimmon filed a Petition for Divorce in the Supreme Court of British Columbia, claiming, inter alia, interim alimony and permanent maintenance for herself. The divorce proceedings and ancillary matters were contested and came on for trial in Vancouver, British Columbia. In a judgment by way of decree nisi dated February 5,1982 (Ex. A-1) the Supreme Court of British Columbia ordered that the appellant pay to Betty McKimmon:

.. . the lump sum maintenance of ONE HUNDRED THIRTY THOUSAND ($130,000.00) DOLLARS and periodic maintenance in the sum of ONE HUNDRED FIFTEEN THOUSAND ($115,000.00) DOLLARS in satisfaction of all financial relief under the Divorce Act and Family Relations Act, payable in the manner following, that is to say:

(b) Payment of the sum of ONE HUNDRED FIFTEEN THOUSAND ($115,000.00) DOLLARS in consecutive annual installments as follows:

$25,000.00 on the first day of April, 1982

$25,000.00 on the first day of January, 1983

$25,000.00 on the first day of January, 1984

$25,000.00 on the first day of January, 1985

$15,000.00 on the first day of January, 1986

together with and in addition to interest at the rate of TEN (10%) PERCENTUM per annum, on the balance of the said ONE HUNDRED FIFTEEN THOUSAND ($115,000.00) DOLLARS from time to time owing, such interest to commence accruing from and inclusive of the 1st day of April, 1982, and be computed half-yearly, not in advance, and become due and payable annually with the annual installments of principal as they become due and payable.

AND THIS COURT FURTHER ORDERS, by consent, that the Respondent shall have the privilege of prepaying the balance or any portion thereof owing under the aforesaid terms of payment, and collateral mortgage, without notice or bonus, subject nevertheless to the proviso that in the event of default of payment by the Respondent of the principal or interest herein or any portion thereof, at the times and in the amounts provided, then and in every such case the principal sum and every portion thereof at the option of the Mortgagee shall forthwith become due and payable without notice; and further subject to the proviso that there shall be no acceleration of payment in the event of sale.

The appellant testified that he complied with the terms of the decree nisi fully and completely and made the payments as specified together with interest as required. There was no default on any of the payments nor did McKimmon accelerate or prepay any portion of the amounts due.

McKimmon asserted that he believed that these payments were intended to provide for Betty McKimmon's personal living expenses and the cost of retraining.

In reassessing the appellant and disallowing the deductions claimed the respondent acted on the basis that these amounts were not amounts paid by the appellant in the year pursuant to a decree, order or judgment of a competent tribunal as alimony or other allowance payable on a periodic basis for the maintenance of the recipient thereof.

Counsel for the respondent contended that no distinction is made in the decree nisi between the amounts described as “the lump sum maintenance” and “periodic maintenance”. Both amounts were to be paid by the appellant to his former spouse in satisfaction of all financial relief under the Divorce Act and Family Relations Act.

Counsel urged the Court to find that certain terms of the decree nisi particularly paragraph (b) providing for the payment of interest on the balance of the $115,000 from time to time owing and the penultimate paragraph granting the appellant the right of prepayment and concurrently entitling Betty McKimmon to demand payment of the full amount in the event of default by the appellant were totally inconsistent with the concept of an allowance paid on a periodic basis. The amount, counsel contended, is more appropriately categorized as a capital sum which could be paid, and was paid, in instalments.

A number of cases were cited by counsel which, although distinguishable on their facts, were contended to be supportive of the respondent's position. These are: M.N.R. v. Dorila Trottier, [1967] C.T.C. 28; 67 D.T.C. 5029; Dorila Trottier v. M.N.R., [1968] C.T.C. 324; 68 D.T.C. 5216; The Queen v. Louis Dorion, [1981] C.T.C. 136; 81 D.T.C. 5111; Guy Gagné v. M.N.R., [1982] C.T.C. 2655; 82 D.T.C. 1672; Takis P. Veliotis v. The Queen, [1974] C.T.C. 237; 74 D.T.C. 6190; David Franklin v. M.N.R., [1981] C.T.C. 2518; 81 D.T.C. 468; Lise Gagnon-Chartrand v. M.N.R., [1983] C.T.C. 2086; 83 D.T.C. 77 and George Douglas Allen and Muriel Allen v. M.N.R., [1975] C.T.C. 2248; 75 D.T.C. 200.

In Dorila Trottier, the taxpayer and his wife decided to separate and discussed the financial arrangements to be made to facilitate the separation. Trottier, apparently accepting his wife’s claim that she was entitled to half the value of a hotel he owned, agreed to pay her $45,000. A number of documents were executed to implement the agreement reached including a separation agreement and a second mortgage on the hotel property given by Trottier to his wife. The mortgage was for the principal sum of $45,000 of which $12,000 was payable immediately and the balance payable in monthly instalments of $350, it being stated that the monthly payments included interest on the outstanding balance. Trottier sought to deduct as alimony under the provisions of the Income Tax. Act the total of the monthly payments he made in the year to his wife. The respondent disallowed the deduction. Cattanach, J. held that the payments in issue were made by Trottier to his wife pursuant to the second mortgage and not pursuant to a written agreement as an allowance payable on a periodic basis for her maintenance. A comment of Cattanach, J. at 37 (D.T.C. 5034) warrants consideration:

Further maintenance is payable for the support of the wife and as such is not assignable by her and neither do such payments, from their very nature, bear interest. The payments here under consideration are both assignable and interest bearing under the terms of the second mortgage. [Emphasis added.]

The Supreme Court of Canada confirmed the decision of the Trial Court. In so doing the Chief Justice stated at 327 (D.T.C. 5219):

The giving of the mortgage was analogous to the payment of a lump sum by which once and for all the husband was released from liability to support his wife. The mortgage was given because the husband was not in a position to pay the lump sum in cash. While the facts differ from those in M.N.R. v. Armstrong, [1956] S.C.R. 446; [1956] C.T.C. 93, the case at bar appears to me to fall within the principle on which that case was decided. [Emphasis added.]

Similar conclusions were reached in the Dorion and Takis P. Veliotis cases. In Dorion, Décary, J. was required to consider an order of the Superior Court of Québec directing the taxpayer to pay his ex-wife a weekly sum and a lump sum of $4,000 each year for five years. In 1976 the taxpayer paid $8,000 to his ex-wife pursuant to the lump sum provision. The Minister disallowed the deduction. In the course of the trial evidence was adduced before Décary, J. that the Superior Court judgment had been appealed to the Court of Appeal of Québec and that Owen, J. speaking for that Court stated :

The judgment provides, in effect, that the sum of $20,000.00 represents payment in full of all amounts which the former wife might be able to claim in virtue of the marriage contract.

and

With respect to the award of $20,000.00 I am of the opinion, after reading the judgment as a whole, that it was granted in full and final settlement of all claims by the former wife against the former husband under the marriage contract.

Décary, J. accepting these findings, held that the consideration for the payment of the amount of $20,000 over a period of five years was the waiver of benefits resulting from the marriage contract, and it followed that such payments could not be either “alimony” or any “other allowance payable on a periodic basis for the maintenance of the recipient thereof” as required by paragraph 60(b) of the Act.

In M.N.R. v. John James Armstrong, [1956] C.T.C. 93; 56 D.T.C. 1044 the sum of $44,000 was paid by Armstrong “in full settlement” of all payments due or to become due under a decree nisi which obligated him to pay his former wife the sum of $100 a month for maintenance of the infant child of the parties until the latter should attain the age of 16 years. In consideration Of this payment Armstrong was released by the wife “from any further liability” under the said judgment. In this case the Court held that the taxpayer was not entitled to deduct the $4,000 lump sum payment from his income.

Each of these judgments can be distinguished on its facts. In Armstrong, for example, the Court found that the amount was not paid pursuant to the divorce decree but rather was an amount paid by arrangement between the respondent and his former wife to obtain a release from the liability imposed by the decree. Notwithstanding that fact a common rationale exists in these judgments, that being when the consideration for any payment is the release of future obligations or liability for “alimony” or “maintenance” then any such amount paid does not come within the meaning of paragraph 60(b) of the Act.

Counsel for the appellant relied upon M.N.R. v. William Albert Hansen, [1967] C.T.C. 440; 67 D.T.C. 5293. In this case Jackett, J. considered a property settlement and separation agreement made by the taxpayer and his wife which provided, among other things, that he would pay her (in full and final settlement of his obligation to support and maintain her) the sum of $20,000 of which the sum of $6,000 was payable upon execution of the agreement and the sum of $14,000 by way of equal consecutive monthly instalments of $100 each. The Minister disallowed the deductions, arguing that the $20,000 figure was a lump sum payment payable in instalments and that the payments were outlays on account of capital, being payments to the wife to forego certain rights growing out of their marriage relationship, and that the payments were not paid by the taxpayer as alimony or an allowance payable on a periodic basis.

Jackets J. ruled that the monthly payments were deductible on the basis that one of the prime purposes of the agreement was to make arrangements for "the support and maintenance of the wife”. In so doing Jackett rejected submissions made on behalf of the Minister of National Revenue that the payments could not be regarded as allowances for maintenance because they lacked certain characteristics of provisions for the maintenance of a wife, inasmuch as the amounts were not expressed to be payable during the wife's life, the husband was permitted to make pre-payments and the payments were assignable.

It is difficult to reconcile this decision with the judgment in Trottier (supra). As Bonner, J. noted in Melvin Pisony v. M.N.R., [1982] C.T.C. 2010 at 2011; 82 D.T.C. 1023 at 1024:

The decision in Hansen must be approached with caution. There is nothing in the Reasons for Judgment which suggests that the attention of the Court was drawn to the earlier decision of the Court in M.N.R. v. Dorila Trottier, [1967] C.T.C. 28; 67 D.T.C. 5029.

The Hansen decision appears to be based on that Court's appreciation of the separation agreement read as a whole and on the acceptance by Jackett, J. of certain evidence adduced relating to the circumstances giving rise to the agreement in issue.

The circumstances in the case at bar are not on all fours. This Court has before it not an agreement entered into by the parties but an order of a court of superior jurisdiction. In the case at bar the decree nisi unequivocally provides that in consideration of the payment of the sum in issue by McKimmon to his wife he is to be relieved of any further liability under the Divorce Act and the Family Relations Act. It is both logical and desirable in all cases to give to the words of a judgment that sense which is their natural import in the order in which they are placed. There is no basis upon which the judgment by way of decree nisi should be read as though the learned trial judge intended something other than what was actually expressed.

Counsel for the appellant further argued that a question exists as to the jurisdiction of the Supreme Court of British Columbia to make the order that it did. In particular it was alleged that the Supreme Court had no authority to charge the lands of a limited company with a “maintenance order” as was done in this case even though the limited company was fully in the control of McKimmon. Counsel contended that this aspect of the decree nisi was "probably a nullity at law” and should not be considered by this Court. Counsel also contended, in the same vein, that although the decree nisi provided that all payments were made "in satisfaction of all financial relief under the Divorce Act and Family Relations Act” such an arrangement was not binding in law; that the jurisdiction of the Supreme Court was not necessarily "foreclosed” and that the appellant’s spouse was not precluded from seeking a variation of the maintenance provisions in the decree nisi.

I do not propose to express an opinion as to the effect of the order as between the parties. The question as to whether the decree nisi does in fact act to relieve the appellant of the possibility of being liable for the further support of his wife at some time in the future under the provisions of the Divorce Act and the Family Relations Act is not a question which should be determined by this Court.

I have concluded that the amounts payable pursuant to the decree nisi were granted to the appellant’s spouse in full and final settlement of claims by her against the appellant. By virtue of making these payments the husband was once and for all released from any further liability to support his wife. Therefore I conclude that the payments were not paid by the appellant as alimony or other allowance payable on a periodic basis and the appeal is dismissed.

Appeal dismissed.