Her Majesty the Queen v. Barbara D Sills (Formerly Barbara D La Brash), [1983] CTC 48, 83 DTC 5070

Jerome, ACJ:—This is an action by way of appeal from a decision of the Tax Review Board, made at Edmonton, Alberta, on May 29, 1980. I heard evidence and submissions of counsel at Edmonton on May 28, 1982 and held the matter under consideration. It appeared at that time that both evidence and arguments were substantially the same before the member of the Tax Review Board and it also appeared that his disposition of the matter was entirely in conformity with existing law. I now confirm those conclusions for the following reasons.

The assessment under appeal is for the year 1976 in which the Minister of National Revenue included in the plaintiff’s income the sum of $2,700 paid to her by her former husband as follows:

The Minister based his assessment upon paragraph 56(1 )(b) of the Income Tax Act, SC 1970-71-72, c 63 as amended:

56. Amounts to be included in income for the year.

(1) Without restricting the generality of section 3, there shall be included in computing the income of a taxpayer for a taxation year,

(b) Alimony— 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.

In this case, the taxpayer and her former husband, Paul Douglas LaBrash, entered into a separation agreement in 1974, which contained the following provisions as to maintenance for the appellant and for the two children of the marriage:

7. Maintenance—On December 1st, 1974, and on the 1st day of each and every month following, during the joint lives of the husband and wife, the husband shall pay to the wife:

(a) The sum of One Hundred Dollars (100.00) for maintenance until she remarries

or enters into a living arrangement with a man other than the husband; and

(b) One Hundred dollars ($100.00) for each child for the maintenance of that child until one or more of the following occur:

(i) The child becomes 16 years old and ceases to be in full time attendance at a school, college or university;

(ii) The child ceases to reside with the wife;

(iii) The child becomes 21 years old;

(iv) The child marries, or

(v) The child dies.

Since all other conditions of paragraph 56(1 )(b) are obviously present, the only issue is whether the payments made in the amounts and at the times indicated can be said to have been made pursuant to the separation agreement. Obviously, had the payments been made precisely in the amounts and at the times specified in the agreement, they would fall squarely within paragraph 56(1 )(b). Jurisprudence makes it equally clear that in situations where the obligation springs from such an agreement but is met in one lump sum payment in full settlement of obligations and all arrears, the payment is not considered to have been made “pursuant to the agreement” and is therefore not covered by paragraph 56(1 )(b).* [1]

In the present case, the application to pay is imposed by an agreement which is caught by paragraph 56(1 )(b), but the payments are in lump sums which are not referable to the terms of the agreement and are not made as a final settlement. The Court must therefore determine, as a question of fact, whether the payments bear sufficiently close relationship with the terms of the agreement to warrant the finding that they are made pursuant to the agreement. During argument, counsel referred to a number of cases in which the Tax Review Board has faced a similar problem and I note with approval the following comments of the assistant chairman, R S W Fordham, as part of his own decision in Stewart A MacDonald v MNR, [1968] Tax ABC 1271; 69 DTC 2:

In the present case, Mr Riddell relied particularly on Helmer v MNR, 32 Tax ABC 250; 63 DTC 532, decided by my colleague, J O Weldon, QC, wherein a payment of $420 was allowed to be deducted by the appellant, or husband, there concerned, although under the separation agreement involved monthly payments of $125 only were stipulated. That case appears to me to have been decided on its special facts and was not intended, I think, to be viewed as a precedent for the unusual proposition that lump sum payments for maintenance are deductible by the payer. I think it may be assumed that my colleague considered the $420 mentioned as being so little more, comparatively, than the amount ordinarily payable periodically, that it should be deductible.

Returning then to the facts of the present case, the 1974 agreement calls for payments of $300 per month while the situation remains as it was at the time of the agreement. The obligation to make the 1976 payments obviously springs from the 1974 agreement, but there is otherwise no relationship whatever between the terms of the agreement and these payments which were made at random times during 1976, and in varying amounts. I therefore confirm the disposition made in this matter by the Tax Review Board.

This action is dismissed and the matter is referred back to the Minister for reassessment of the defendant’s 1976 income on the basis that these amounts received by her in the 1976 taxation year are not properly included in income, as contemplated by paragraph 56(1 )(b).

The defendant is entitled to costs.