Gavin Wood v. Minister of National Revenue, [1986] 1 CTC 2506, 86 DTC 1389

Tremblay, T.C.J.:—This case was heard on August 30, 1985 at the City of Victoria, British Columbia.

1. The Point at Issue

Pursuant to the pleadings, the point is whether the appellant is correct in the computation of his income in respect of the 1981 taxation year in deducting $2,880 that he paid for mortgage payments. The payment was made by order of His Honour Judge L. C. Brahan, December 13, 1979, pursuant to the maintenance provisions of the Family Relations Act of the Province of British Columbia. It was ordered that he make the said mortgage payments on behalf of his former spouse, Beverly Ann Wood, in the amount of $240 per month.

The respondent disallowed the expense on the basis that such payment did not constitute alimony pursuant to paragraphs 60(b),(c) and section 60.1 of the Income Tax Act.

2. The Burden of Proof

2.01 The burden of proof is on the appellant to show that the respondent’s assessment is incorrect. This burden of proof results particularly from several judicial decisions, including the judgment delivered by the Supreme Court of Canada in Johnston v. M.N.R., [1948] S.C.R. 486; [1948] C.T.C. 195; 3 D.T.C. 1182.

2.02 In the same judgment, the Court decided that the assumed facts on which the respondent based his assessment or reassessment are also deemed to be correct. In the present case, the assumed facts are described in the reply to notice of appeal as follows:

6. In so reassessing the Appellant for his 1981 taxation year, the Respondent assumed, inter alia, that:

(a) the mortgage payments made by the Appellant did not constitute alimony or other allowance payable on a periodic basis for the maintenance of the recipient.

3. The Facts

3.01 The facts are not in dispute. They are well described by the appellant in his statement of facts:

1. In 1973, the taxpayer was separated from his first wife, Beverly Ann Wood.

2. In 1974, the taxpayer and Mrs. Wood were divorced by Order of the Supreme Court of British Columbia.

3. By Order of His Honour Judge D. K. McAdam in the Provincial Court of British Columbia, March 28, 1974, the taxpayer was ordered to pay mortgage payments on a former family home in the amount of $255.60 per month, such home being 134 Moss Street, in the City of Victoria, Province of British Columbia, by way of maintenance in favour of Mrs. Wood [Exhibit A-1].

4. By written separation agreement dated June 1974, the former spouses consented inter alia to the provisions of the Order of His Honour Judge McAdam [Exhibit A-2].

The provisions of the said order read as follows:

The Husband further agrees to pay the Agreement for Sale of 134 Moss Street, Victoria, British Columbia, including principal, interest and taxes and will make the said payments notwithstanding the completion of the payments on the Agreement for Sale on the Surrey property, and will do so until the Agreement for Sale on the matrimonial premises at 134 Moss Street, Victoria, British Columbia, has been paid in full, or until the property is sold by the Wife, or until the last dependent child ceases to reside in the said premises, whichever event shall first occur.

5. By Order of His Honour Judge D. K. Campbell made October 28, 1976, in the Provincial Court of British Columbia, the taxpayer was compelled to make pay- ments to a mortgagee on behalf of Mrs. Wood in the amount of $251.85, by way of maintenance to her [Exhibit A-3J.

6. By Order of His Honour Judge L. C. Brahan dated December 12, 1979, pursuant to the maintenance provisions of the Family Relations Act, Province of British Columbia, the taxpayer was compelled to make mortgage payments on behalf of the former spouse, Beverly Ann Wood, in the amount of $240.00 per month, by way of maintenance to her [Exhibit A-4].

7. A Judge of the Provincial Court of British Columbia only has jurisdiction under the Family Relations Act, R.S.B.C. 1979, c. 20, to order payments by way of maintenance.

3.02 Reasons for judgment of Mr. Justice L. C. Brahan were filed as Exhibit A-5. The paragraph concerning the mortgage reads as follows:

Mrs. Wood further applies pursuant to Section 20 of The Family Relations Act (supra) to vary the said Order by increasing the support and maintenance ordered on her behalf from $1.00 per year to $300.00 per month and by decreasing the mortgage payment from $251.85 per month to $240.00 per month.

3.03 A certified true copy of the Deed of Land on file in the Land Title Office in Victoria, British Columbia, under number £44805, was filed as Exhibit A-6.

3.04 A certified true copy of Mortgage on file in the Land Title Office in Victoria, British Columbia, under number 073096, was filed as Exhibit A-7.

3.05 State of Title Certificate, under number 26867, issued under the Land Title Act, was filed as Exhibit A-8.

3.06 In his 1981 taxation year, the appellant, pursuant to the court order referred to, made mortgage payments totalling $2,880 on a home owned and occupied by his former spouse.

3.07 In a return of income for his 1981 taxation year, the appellant claimed a deduction from income for the said amount of $2,880 as alimony or other allowance paid on behalf of his former spouse for her maintenance.

3.08 By notice of reassessment dated June 28, 1983, the respondent disallowed the deduction of $2,880 claimed as maintenance payments on the basis that the payments did not constitute alimony or other allowance payable on a periodic basis for the maintenance of the recipient.

4. Law — Cases at Law — Analysis

4.01 Law

The main provisions of the Income Tax Act (the Act) involved in this case are paragraph 60(b) and section 60.1. They read 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;

60.1 Where, after May 6, 1974, a decree, order, judgment or written agreement described in paragraph 60(b), (c) or (c.1), or any variation thereof, has been made providing for the periodic payment of an amount by the taxpayer to or for the benefit of a person who is his spouse, former spouse, or an individual within a prescribed class of persons described in the laws of a province, or for the benefit of children in the custody of such a person, the amount or any part thereof, when paid, shall be deemed, for the purposes of paragraphs 60(b), (c) and (c.1), to have been paid to and received by that person if, at the time the payment was received and throughout the remainder of the year in which the payment was received the taxpayer was living apart from that person.

4.02 Cases at Law

The cases at law referred by the parties are:

1. Gordon A. Bryce v. M.N.R., [1978] C.T.C. 3144; 78 D.T.C. 1833 (T.R.B.);

2. The Queen v. Gordon A. Bryce, [1981] 1 F.C. 587; [1980] C.T.C. 401; 80 D.T.C. 6304 (F.C.T.D.);

3. The Queen v. Gordon A. Bryce, [1982] 2 F.C. 581; [1982] C.T.C. 133; 82 D.T.C. 6126 (F.C.A.);

4. The Queen v. Morton Pascoe, [1976] 1 F.C. 372; [1975] C.T.C. 656; 75 D.T.C. 5427 (F.C.A.);

5. Attorney General of Canada v. lames C. Weaver and Freda J. Weaver, [1976] 1 F.C. 423; [1975] C.T.C. 646; 75 D.T.C. 5462 (F.C.A.);

6. Robert lames Smallman v. M.N.R., [1980] C.T.C. 2326; 80 D.T.C. 1293 (T.R.B.);

7. Michel Fortin v. M.N.R., [1979] C.T.C. 2907; 79 D.T.C. 751 (T.R.B.);

8. Jean-Paul Gagnon v. The Queen, [1981] 1 F.C. 249; [1980] C.T.C. 324; 80 D.T.C. 6256 (F.C.T.D.);

9. The Queen v. lean Paul Gagnon, [1982] 2 F.C. 255, [1981] C.T.C. 463; 82 D.T.C. 6318 (F.C.A.);

10. Marvin Tanner v. M.N.R., [1983] C.T.C. 2700; 83 D.T.C. 605 (T.C.C.).

4.03 Analysis

4.03.1 The crux of the matter is the interpretation of section 60.1 of the Act quoted above. Despite the fact that the word “allowance” does not appear in the said section, the meaning of this word, however, is the basis of this section. The payment of maintenance indeed is an allowance.

The Federal Court of Appeal, in the Pascoe case referred above in paragraph 4.02(4), gives a definition of allowance at 374 F.C. (C.T.C. 658):

An allowance is, in our view, a limited predetermined sum of money paid to enable the recipient to provide for certain kinds of expense; its amount is determined in advance and once paid, it is at the complete disposition of the recipient who is not required to account for it. A payment in satisfaction of an obligation to indemnify or reimburse someone or to defray his or her actual expenses is not an allowance; it is not a sum allowed to the recipient to be applied in his or her discretion to certain kinds of expense.

In the Jean-Paul Gagnon case (supra), the same Court based its decision on this definition.

The facts in this case are described as follows in the headnote of the Canada Tax Cases at page 463:

The respondent was required to pay some $360 per month under an Order of the Court granting his divorce which embodied an agreement between the parties. The amount was specifically to pay mortgage interest and principal and taxes on a property which had been held in community of property but was given to the wife in full ownership in the same agreement. The respondent claimed a deduction under paragraph 60(b) for the amounts as an allowance for maintenance. He succeeded in the Trial Division and the Crown appealed.

In giving its decision, the Court made the following comment at 257 F.C. (C.T.C. 464):

In the case at bar the Trial Judge held that payment of the sums in question constituted payment of an allowance within the meaning of Pascoe, because he was of the view that the sums were at the complete disposition of respondent’s former spouse, who was not required to account for them. I cannot share this view. In my opinion respondent’s former spouse was entitled to these payments of $360 only if she paid the sums owing under the deeds of hypothec registered against her property. This was consequently not an allowance within the meaning of Pascoe.

As it appears from this decision, the complete disposition of the money in the hands of the receiver is very important.

To explain this element, Interpretation Bulletin IT-118R2 issued on March 22, 1985 gives the following illustrations and comments in paragraph 18:

— Agreement A requires a husband to pay $300 a month to his separated wife as an allowance for the maintenance of the wife and children and also to pay $200 a month directly to a private school attended by the children in respect of their fees.

— Agreement B requires a husband to pay $500 a month to his separated wife as a maintenance allowance. This agreement provides that, initially, payment of this amount will consist of $300 paid directly to the wife and $200 paid directly to a private school attended by the children in respect of their fees, but that the wife may, at any time, change this arrangement and require that the $500 be paid directly to her to do with as she wishes.

— Under Agreement A, the monthly amount of $200 paid directly to the school does not qualify as an allowance . This is a payment of specific expenses. Under Agreement 8, however, the $200 paid directly to the school is considered to be constructively received by the wife . . . and the entire $500 is considered to be an allowance since it is at the complete disposition of the wife . . . .

In the instant case, the appellant paid the mortgage directly to the mortgagor and obviously the amount of $240 was not at the complete disposition of the appellant's former spouse.

4.03.2 The Supreme Court of Canada in a judgment rendered on March 27, 1986, reversed the decision of the Federal Court of Appeal in the Jean-Paul Gagnon case reported at [1986] 1 C.T.C. 410. According to the said decision, an amount to be at the complete disposition of the beneficiary, it is sufficient that the said amount of money be completely at the beneficiary's profit. In my opinion, this is the case in the instant appeal.

5. Conclusion

For these reasons, the appeal is allowed and the matter referred back to the respondent for reconsideration and reassessment. The appellant is entitled to party and party costs.

Appeal allowed.