Guy Gagné v. Minister of National Revenue, [1982] CTC 2655, 82 DTC 1672

D E Taylor [TRANSLATION]:—This appeal, heard at Quebec City on February 2, 1982, was brought following tax assessments for 1977 and 1978. This decision, rendered on May 18, 1982, is the result.

The appellant stated the following in his Notice of Appeal dated January 25, 1981:

Dear Sir:

After filing a notice of objection for 1977 and 1978 with respect to the sums of $4,500 and $1,375 claimed as deductions, a notification from the Minister dated December 11, confirmed that my objection had been dismissed. I am accordingly appealing to the Board for the following facts and reasons:

Facts:	1. On the fourth day of October 1976, I was ordered by a decree of the
	Superior Court (Federal Side) to pay Françoise Arcand alimony of $30
	per week. You have a copy of this decree on file.
	2. On January 25, 1977 I was ordered by the same court to pay F Ar
	cand a lump sum of $10,000, which the Court hastened to define as
	being, in its view, alimony, because it was of the opinion that the peti
	tioner’s income and state of health had not changed. Moreover, the
	Court laid down the method of payment; you have a copy of this on file.

Grounds: 1. It appears to me as a citizen that my application is in accordance

with the Income Tax Act;

2. Paragraph 11 of Interpretation Bulletin IT-118R dated August 30, 1976 clearly sets forth the circumstances in which a sum is deductible as alimony, so that I find it difficult to see why there should be any misunderstanding between the tax authorities and myself.

With respect to my situation, subparagraphs (A), (B) and (C) of paragraph 11 read in part: “the total sum . . . is stated to be an allowance for the purpose of support and maintenance of the spouse . ..” As evidence, see the decrees of October 4, 1976 and January 25, 1977.

ONe of your officials from Quebec City told me that it was principally the wording of the paragraph containing the words “lump sum” that was disputed. I replied that it was for that very reason that the judge defined the purpose of his judgment so that there should be no ambiguity with respect to the nature of the sum of $10,000 and the reason why it was paid.

Moreover, you cannot be unaware that these matters, these divorce settlements, are serious and that they are negotiated on the basis of the income and status of each of the partners. See the judgment of October 4, 1976.

Following the judgment of October 4, 1976, in view of the fact that the person in question might be tempted to live at my expense until the end of her life, it was I who suggested that the words “lump sum” be included in the wording to prevent that person from applying for indexation of the amount or even for a review of the alimony, since five years’ alimony was sufficient to enable her to reestablish herself, or to recover from her ordeal, if it was an ordeal .. . The two party (sic) reached agreement in this way through their lawyers; you have a copy of this and the explanation given in the decree of January 25, 1977. See the written agreement of the parties.

In his Reply to the Notice of Appeal the respondent made the following arguments concerning the decree nisi of divorce dated January 25, 1977:

— Guy Gagné shall pay Françoise Arcand a total lump sum of $10,000;

This sum constitutes a valid payment of all alimony, present, past and future;

This sum shall be payable as follows:

(a) $4,500 on January 28, 1977;

(b) $1,250 on February 1, 1978, 1979, 1980 and 1981;

The parties mutually release each other completely and finally from all gifts and benefits by contract of marriage and agree to regard the said contract as being null and void .. .

— the appellant has not established that the sums of $4,500 in 1977 and $1,375 in 1978, claimed by the appellant as a deduction from his income for the said years, were paid as alimony or other allowance payable on a periodic basis for the maintenance of the recipient thereof, pursuant to the provisions of section 60(b) of the Income Tax Act, so that the said sums are accordingly not deductible from the said income.

The facts in this case are not disputed, either by the appellant or by the respondent. The issue consists simply in determining whether the amounts in question represent a “total sum” or “alimony”.

In summary, Counsel for the respondent referred to Takis P Veliotis v The Queen, [1974] CTC 237; 74 DTC 6190, and added:

. . . if Mrs Arcand had died in 1978, 1979 or 1980, her heirs would have been entitled to that amount. Now that, I can tell you, is not at all the idea of alimony. An alimony payment is connected with a person.

That sum of $10,000, if there had been children — there are none — but it could go to the lady’s heirs.She could remarry, she could perhaps, she has relatives; now, that sum — and this was the argument made in Veliotis — alimony is something connected with a person and it can cease.

In that case, howeve, in Veliotis the amount of $8,333 had to be paid and would also have continued to be paid to the heirs, even if the lady had died. I can refer you to civil law precedents on this subject; if necessary, I shall do so. Now, there is a distinction and this may help the Board to determine whether it is in the nature of alimony or rather whether it is merely a lump sum.

For this reason, and this is very important, not only the fact that it is paid at regular intervals or in instalments, but it is also important to know whether there is a connection with the needs of the person in question. In this case, I can tell you, there is no connection; $10,000 was paid and this was a lump sum. Mr Gagné may take issue with this later, but I am giving an interpretation of the judgment.

In addition to that, this sum of $10,000, Mr Arcand’s heirs were entitled to it. That is why it is a lump sum. It may well have been paid in a number of instalments, there may well have been a certain periodic basis; the fact nonetheless remains that this sum was never paid as alimony.

Thus, this is a kind of total settlement that became part of a decree, and it is in this sense that I believe the Department’s position is correct.

Counsel for the respondent correctly noted the fact that the question of the “duration” of the alimony (for life) was mentioned in David Franklin v MNR, [1981] CTC 2518; 81 DTC 468, which reads as follows at 2520 [469]:

There is no doubt that it is not necessary for an alimony payment to continue for the lifetime of the recipient before it can be deemed an alimony payment . . .

The appellant, on the other hand, stated:

First of all, one argument, when he says, the first argument he put forward. There is no comparison between the $4,500 and the $1,375 in the following years, questions were asked concerning that. Well, with all due respect for Mr Massé’s skills as counsel, he knows very well that when a woman or anybody approaches a lawyer to submit a petition for divorce or anything else, there are costs; the costs are rather high, they sometimes tend perhaps to be too high. In any case, all those things did not begin in 1976; they began before that.

Well, she needed money and this explains perhaps that for the whole of 1976, when there had been a lot of expenses, she received a higher amount. That is one factor that could explain, or in any case give an answer to the questions raised by him.

Second argument! When he says that that seems to be a complete settlement and so on, I should like to make clear here that I reaffirmed in my evidence that in Our marriage contract there was in fact $6,000 allocated for furniture and all that, and that is an agreement — clearly, even if it’s written, it’s an agreement — that I think anybody would make on getting married so as not to leave the spouse with financial problems in case of death; she would have debts to pay, even if it’s only the funeral expenses so that there was a gift made in contemplation of death for $10,000. That is not a subject, I feel, on which one would wish to speak at great length.

In addition, the alimony, to return to the argument on alimony, I do not deny and I have always defended it whenever I met people from the Department, that is, in my profession, we were perhaps one of the first union bodies to demand indexation of wages; and from the experience that I have of that, I knew that when the employer did not want to go along with it, with indexing, he would insert a lump sum contractual term and from my personal experience, I did not want, I repeat, I did not want to be taken or to have the obligation of keeping this person for thirty years until the end of her life. What is more, since the fact remains that for the years in question, you still have to realize, the person was not in a normal state — and talking of nervous depression, when he says, the other side says that there is no connection, then, let us go back to four months previously, to the month of October 1976; between October and January, about four or five months. Nonetheless, we shouldn’t exaggerate on this topic! The connection does exist, it is very relevant and the lady in question suffered from depression; you can’t cure a depression in less than two months! Look at people who suffer from depressions. I think that without any knowledge of medicine, it is well known that people aren't cured in under three or four years; there are several ways of treating the problem.

So if we take into consideration that she needed financial assistance and that such assistance, to my mind, I was quite prepared to give her, because there is, when you’ve lived with a person for a number of years, that person is no longer a stranger and they don’t have only faults, they also have good qualities, and taking all these circumstances into consideration, well, I was prepared to help her supplement her income until 1981. And that explains those little words “total global lump sum” and that also explains why it was later explained in the judgment; what was he trying to say in the judgment? That’s what he was trying to say!

As I said, we shouldn’t exaggerate in any case; five months when you have a nervous depression is not a very long time. Things hadn't changed.

In my view, the solution to the problem before the Board may be found in the recent decision in Pisony v MNR, [1982] CTC 2010; 82 DTC 1023, where reference is made at 2011-2012 and 1024-1025 respectively, to MNR v Dorila Trottier and Dorila Trottier v MNR as follows:

His Lordship stated:

Alimony or maintenance continues through the joint lives of the husband and wife but terminates upon the death of either.

and

The result might be different if paragraph 2 of the separation agreement, Schedule D, were a specific covenant by the respondent to pay to his wife a sum certain by way of periodic instalments during her lifetime and the second mortgage had been given to Mrs Trottier as collateral security for those payments. But such is not the case. The second mortgage was not given by way of collateral security but rather in discharge of the respondent’s obligation to support his wife. (Emphasis added)

An appeal was taken to the Supreme Court of Canada (68 DTC 5216). The Chief Justice, speaking for the Court, expressed “substantial agreement with the Reasons of Cattanach, J.”. His Lordship said at page 5219:

I agree that these documents which were prepared contemporaneously and relate to the same transaction should be read together; but, so reading them, it appears that the agreement between the parties was not that the husband should pay his wife a periodic allowance for maintenance and that his agreement to do so should be collaterally secured by a second mortgage; it was rather a release by her of all her claims for an allowance and the giving by her (in paragraph 4 of the agreement) of an irrevocable power of attorney to bar her dower in her husband’s lands in exchange for a single consideration, the giving of the mortgage for $45,000. The obligation to make the payments under the mortgage was not dependent on the wife continuing to live.She was free to assign it at any time.

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 payment in question here was, in my view, plainly an instalment of a “lump sum once and for all maintenance award”. The $40,000 was, again in the words of the Minutes, taken by the former spouse . . in full satisfaction of all her past, present, and future claims to maintenance”. I can see no basis for a finding that the appellant’s obligation to pay the instalments subsisted only during the joint lives of himself and his former spouse. In the circumstances the payment cannot be found to fall within paragraph 60(b) of the Income Tax Act.

The sum of $10,000 (mentioned in the decree of January 25, 1977) is described as follows:

This sum constitutes a valid payment of all alimony, present, past and future.

However, the fact remains that it is still a “total sum”, and it can be defined in the words to be found in Franklin, supra, at 2520 and 469:

... the payment is specifically made to prevent the payment of alimony in the future. In other words, it is a payment in satisfaction of an obligation to indemnify the wife for the loss of her alimony, or to put it the other way, to discharge the appellant to support his wife, which is the reverse of alimony.

Decision

The appeal is dismissed.

Appeal dismissed.