Lise Gagnon-Chartrand v. Minister of National Revenue, [1983] CTC 2086, 83 DTC 77

Guy Tremblay [TRANSLATION]:—This case was heard in Quebec City, Quebec on October 12, 1982.

1. Point at issue

The question is whether the appellant was correct in not including in her income for the taxation years 1978 and 1979 the sums of $5,000 and $6,000 received from her former husband pursuant to a divorce decree, as liquidated alimony secured by a mortgage.

2. Burden of proof

2.01 The appellant has the burden of showing that the assessments of the respondent are incorrect. This burden of proof results not from any particular section of the Income Tax Act, SC 1970-71-72, c 63, as amended, but from several judicial decisions, including a judgment of the Supreme Court of Canada in Johnston v MNR, [1948] CTC 195; 3 DTC 1182.

2.02 The facts assumed by the respondent are stated in subparagraphs (a) to (f) of paragraph 4 of the reply to the notice of appeal by the respondent. This paragraph reads as follows:

4. In assessing the appellant for the taxation years 1978 and 1979, the respondent relied, inter alia, on the following presumptions of fact:

(a) the appellant was divorced from Mr Serge Chartrand as the result of a decree nisi of divorce made on July 6, 1978 by Maurice Jacques J of the Superior Court for the district of Quebec City;

(b) the said decree nisi of divorce makes executory an agreement concluded between the parties on July 5, 1978, which reads as follows:

1. as liquidated alimony, Mr Chartrand undertakes to pay Mrs Chartrand the sum of $17,000, $5,000 at the time of signature hereof and the balance of $12,000 as follows: $6,000 on June 1, 1979 and $6,000 on June 1, 1980;

2. the aforementioned sums of money shall bear interest at 10 per cent per annum from the dates on which they are due;

3. in order to guarantee the payment to Mrs Chartrand of the amounts stated in paragraphs 2 and 3 of this agreement, Mr Chartrand undertakes to make to Mrs Chartrand at the time of signature hereof a mortgage in the amount of $12,000 on his property located at 651 rue Francine, St-Louis de Pintendre, judicial district of Quebec City, known and designated as lots Nos ONE HUNDRED AND SEVENTY-TWO SIXTEEN (172-16); ONE HUNDRED AND SEVENTY-FOUR SIXTEEN (174-16); and a part of lot No ONE HUNDRED AND SEVENTY-TWO ONE (172-1 P) of the official cadastre of the parish of Notre-Dame de la Victoire, county of Lévis, the whole with buildings thereon constructed, and appurtenances;

4. in order to guarantee the payment of the amounts stated in paragraphs 2 and 3 of this agreement, Mr Chartrand undertakes to maintain an insurance policy on his life in the name of Mrs Chartrand, in the amount of $12,000, and to provide her with adequate proof that such insurance exists, so long as his debt to her has not been paid;

5. Mr Chartrand shall continue to be the exclusive owner of the goods and chattels furnishing the marital domicile located at 651 rue Francine, St-Louis de Pintendre, judicial district of Quebec City, with the exception of a new Toshiba 14-inch television set which Mr Chartrand undertakes to buy for Mrs Chartrand, a Filter Queen sweeper, a white refrigerator, a set of yellow dishes, and silver cutlery which Mr Chartrand acknowledges as being the property of Mrs Chartrand;

6. records and family photographs shall be divided between the parties by mutual agreement;

7. the parties waive any benefit that may accrue to them under the contract of marriage concluded between them on December 6, 1974 before Mr Paul- Emile Séguin, notary, in Montreal;

8. apart from the insurance referred to in paragraph 5 of this agreement, the parties waive the benefits of any insurance policy in their favour, that may result from insurance obtained on the life of the spouse;

9. each party shall pay his own costs in respect of these proceedings;

(c) a notarial deed of mortgage guarantee was also concluded between the said parties, on May 8, 1978, to provide the best possible protection for the alimony rights of the appellant. . .;

(d) the respondent added the sums of $5,000.00 and $6,000.00 respectively to the appellant’s income for the taxation years 1978 and 1979;

(e) the appellant in fact received the said sums of $5,000.00 (1978) and 6,000.00 (1979) during the taxation years on appeal;

(f) the aforementioned amounts were received pursuant to a written agreement or a judgment of a competent tribunal, as alimony or any other allowance payable on a periodic basis for the maintenance of the recipient thereof.

3. Facts

3.01 The facts are not in dispute. All the facts presumed by the respondent and described above are admitted by the appellant, except for paragraph (f), without which there would be no appeal.

3.02 The decree nisi of divorce dated July 6, 1978 was filed as Exhibit A-1. The notarial contract dated May 8, 1978, by which Mr Serge Chartrand gave a mortgage guarantee to the appellant, was filed as Exhibit A-2.

4. Act — case law — analysis

4.01 Act

The provision of the Income Tax Act involved in the case at bar is paragraph 56(1 )(b). It reads as follows:

(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.

4.02 Case law

The parties referred to the following case law:

1. Arthur Pitman v MNR, [1953] CTC 15; 53 DTC 1060;

2. Guay v Gabeourg-Guay, [1973] Court of Appeal of Quebec 720;

3. Takis P Veliotis v The Queen, [1974] CTC 237; 74 DTC 6190;

4. The Queen v Jean-Paul Gagnon, [1981] CTC 463; 81 DTC 5377;

5. The Queen v Louis Dorion, [1981] CTC 136; 81 DTC 5111;

6. MNR v Dori la Trottier, [1967] CTC 28; 67 DTC 5029;

7. Dorila Trottier, [1968] CTC 324; 68 DTC 5216;

8. MNR v William Albert Hansen, [1967] CTC 440; 67 DTC 5293;

9. Melvin Pisony v MNR, [1982] CTC 2010; 82 DTC 1023;

10. Guy Gagné v MNR, [1982] CTC 2655; 82 DTC 1672;

11. Richard L McWhirter v MNR, [1968] Tax ABC 225; 68 DTC 197;

12. Gaétan Leclair v MNR, [1982] CTC 2715; 82 DTC 1755;

13. Gilles St-Arnaud v MNR, [1982] CTC 2697; 82 DTC 1723.

4.03 Analysis

Most of the precedents cited above were examined by the undersigned in Gilles St-Arnaud (supra), in which the appeal was- dismissed, and in Gaétan Leclair (supra), in which the appeal was allowed.

In the case at bar, the conclusive point regarding the nature of the payments of $5,000 and $6,000 made is the mortgage guarantee given to the appellant by her husband.

Alimony is a personal right. It terminates with the death of either party. With a mortgage guarantee, however, it changes its nature, and becomes a real right. It may be claimed even after the husband’s death, so long as the mortgage condition has not been met. The payments can no longer be regarded as alimony.

The dismissal of the appeal in Dorila Trottier (supra) by the Supreme Court was partly on this basis. It was referred to by the Federal Court at first instance in dismissing the appeal of Takis P Veliotis (supra).

On the same basis, the Board is of the opinion that in the case at bar the amounts do not constitute alimony received by the appellant and that the reassessment issued by the respondent is incorrect.

5. Conclusion

The appeal is allowed and the matter referred back to the respondent for reassessment in accordance with the foregoing reasons for judgment.

Appeal allowed.