Gilles St-Arnaud v. Minister of National Revenue, [1982] CTC 2697, 82 DTC 1723

Guy Tremblay [TRANSLATION]:—This case was heard at Montreal, Quebec on March 31, 1982.

1. Issue

According to the pleadings, it is necessary to determine principally whether the appellant correctly claimed the deductions of $3,158 and $9,217 for the 1977 and 1978 taxation years respectively as alimony paid to his wife pursuant to a judgment rendered on November 13, 1978 incorporating an agreement concluded on the same day. This agreement provided for the total payment of $12,000 to his spouse in amounts of $1,000 per month plus interest retroactive to October 15, 1977.

The respondent disallowed the deduction of all the payments, the last of which was made on September 15, 1978, on the ground that when payments were made no written agreement actually existed.

2. Burden of Proof

2.01 The appellant has the burden of showing that the respondent’s assessments are incorrect. This burden of proof results not from a single section of the Act but from several judicial decisions, including the judgment of the Supreme Court of Canada in Johnston v MNR, [1948] CTC 195; 3 DTC 1182.

2.02 The presumptions of fact by the respondent are set forth in subparagraphs (a) to (h) of paragraph 6 of the respondent’s reply to the notice of appeal. Paragraph 6 reads as follows:

6. In assessing the appellant for the 1977 and 1978 taxation years, the respondent Minister of National Revenue relied, inter alia, on the following presumptions of fact:

(a) During the taxation years in question the appellant was the spouse of Monique Miron;

(b) In a judgment dated November 13, 1978 the Honourable Benoit J of the Superior Court granted a decree nisi of divorce between the appellant and Monique Miron; in this decree the Honourable Benoit J incorporated the agreement concluded between the parties on the same day and gave the following reasons in part for the said judgment:

“GRANTS corollary relief in accordance with the agreement of November 13, 1978 signed by the parties and filed as Exhibit R-5, which reads as follows:

1. The petitioner shall have custody of the minor children PATRICE and STEPHANE;

2. The rights of the respondent to visit and take out the children shall be governed by agreement between the parties;

3. The petitioner agrees to pay the respondent total and final alimony of twelve thousand dollars ($12,000) payable in twelve consecutive instalments of one thousand dollars ($1,000) each from October 15, 1977. The balance due each month shall bear interest at the bank savings rate in force at the Bank of Montreal, receipt of which is hereby acknowledged;

4. It is further agreed that for the purposes of paragraph 2 of this agreement

the respondent shall retain the family allowance cheques;”

(c) During the 1977 and 1978 taxation years the appellant paid the following amounts by cheque to the order of his spouse:

Date		Amount
October 15,	1977	$1,000.00
November 15,	1977	1,052.00
December 15,	1977	1,047.26
January 16,	1978	1,043.95
February 15,	1978	1,035.29
March 15,	1978	1,034.18
April 15,	1978	1,028.36
May 15,	1978	1,024.42
June 15,	1978	$,018.90
July 10,	1978	1,015.92
August 15,	1978	1,010.62
September 15,	1978	1,005.20

(d) When these sums were paid by the appellant to his spouse, Monique Miron, there was no written agreement between the parties and no decree, order or judgment had been rendered by a court having jurisdiction over the corollary relief granted following the petition for divorce or an action for separation from bed and board;

(e) The appellant made his payments prior to the order of the Superior Court, and these amounts were accordingly not paid pursuant to this order of November 13, 1978;

(f) The appellant was not required by the decree nisi of divorce dated November 13, 1978 to pay alimony on a periodic basis in the taxation years in question, since the order required the appellant to pay a total and final sum of twelve thousand dollars ($12,000) and the arrangements for paying this total and final sum were for twelve consecutive instalments of one thousand dollars ($1,000);

(g) During the taxation years in question the appellant had custody of his minor children Patrice and Stephane, but following the decree of the Superior Court on November 13, 1978 the appellant paid the family allowance cheques to his spouse Monique Miron, during the taxation years in question;

(h) During the taxation years in question the appellant reported his two minor children as his own dependants in his income tax returns and accordingly claimed the amounts permitted by the Income Tax Act.

3. Facts

During the hearing no witness testified and counsel agreed on the filing of an Exhibit and on certain facts.

3.01 Counsel for the appellant filed as Exhibit A-1 a decree nisi of divorce dated October 5, 1977, in which the petitioner was the appellant and the respondent his spouse. This decree was granted by the Assistant Registrar and read as follows:

The Assistant Registrar, having heard the petitioner’s application for corollary relief

IN VIEW OF the agreement given in writing and filed as an Exhibit in the record;

GIVES OFFICIAL NOTICE of the said agreement and GRANTS the said petition as follows:

1. The petitioner shall have custody of the minor children Patrice and Stephane aged twelve and eight years respectively;

2. The right to visit and take out the two (2) children shall be settled by agreement between the parties;

3. The petitioner agrees to pay the respondent total and final alimony of twelve thousand dollars ($12,000), payable in twelve consecutive instalments of one thousand dollars ($1,000) each from October 15, 1977. The balance due each month shall bear interest at the bank savings rate in force at the Bank of Montreal;

This paragraph shall be conditional upon the obtaining of a decree of divorce between the parties;

4. It is further agreed that for the purposes of paragraph 2 of this agreement the respondent shall retain the family allowance cheques;

Without costs”.

3.02 Having considered the presumptions of fact made by the respondent and set out in paragraph 2.02 above, counsel for the appellant admitted (a), (b), (c), (g) and (h). However, because of Exhibit A-1, subparagraphs (d), (e) and (f) were denied.

1. ACT, CASE LAW, ANALYSIS

4.01 Act

The provisions of the Income Tax Act involved in this case are subsections 56(5) and (7) and paragraph 60(b), which read as follows:

[56] (5) Subject to subsection (6), a taxpayer who is deemed by subsection (7) to have supported a child in a taxation year, in respect of whom

(a) a family allowance under the Family Allowances Act, 1973, or

(b) an allowance under a law of a province that provides for payment of an allowance similar to the family allowance provided under the Family Allowances Act, 1973

has been paid in a taxation year, shall include in computing his income for the taxation year, an amount equal to the said allowance

(7) For the purposes of subsection (5),

(a) a taxpayer who, in computing his taxable income for a taxation year, deducts an amount under section 109 in respect of a child in respect of whom an allowance described in subsection (5) has been paid in the taxation year, or

(b) if paragraph (a) does not apply, a taxpayer to whom an allowance described

in subsection (5) has been paid in a taxation year in respect of a child,

shall be deemed to have supported the child in the taxation year.

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.

4.02 Case law

Counsel for the parties referred the Board to the judgments rendered in the following cases:

1. No 67 v MNR, 7 Tax ABC 53; 52 DTC 308;

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

3. Dorila Trottier v MNR, [1968] CTC 324; 68 DTC 5216;

4. Phyllis Rose Slater v MNR, [1968] Tax ABC 753; 68 DTC 607;

5. No 107 v MNR, [1953] Tax ABC 321; 53 DTC 222;

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

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

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

9. David Franklin v MNR, [1981] CTC 2518; 81 DTC 468.

4.03 Analysis

4.03.1 Having admitted subparagraphs (g) and (h) of the presumptions of fact (paragraph 3.02) relating to the family allowances, and in view of subsections 56(5) and (7) of the Act, quoted supra, the Board upholds the inclusion in the appellant’s income of the sum of $460 in 1977 and $539 in 1978 as family allowance payments.

4.03.2 It is clear that with the filing of the decree nisi (Exhibit A-1) dated October 5, 1977 the principal allegation of fact (paragraph 2.02, 6(b) ) by the respondent in support of his assessment is rebutted. The respondent based his assessment only upon the decree granted in late November 1978. This decree referred to the agreement of November 13, 1978 and was thus subsequent to the payments that had been made. The decree nisi of October 5, 1977 accordingly also rebuts the respondent’s principal argument that the payments had been made when there was no written agreement.

The Board, however, must reach a decision on the evidence it has before it, namely, the decree nisi of October 5, 1977.

4.03.3 The appellant was required to pay a total final sum of $12,000, and the arrangement for the payment of this total and final sum was 12 consecutive instalments of $1,000 each. The only issue is whether such payments constituted payments of alimony within the meaning of paragraph 60(b) of the Income Tax Act.

In support of his argument the appellant referred to Hansen, supra, a decision of Jackett, J of the former Exchequer Court. The parties in that case had concluded a separation agreement on September 27, 1960 which contained various terms, including:

(a) arrangements for settlement of their property rights;

(b) arrangements for the support and maintenance of the wife; and

(c) arrangements in respect of other rights and obligations arising from the marriage.

Paragraph 7 of the agreement read as follows:

Payment. In full and final settlement of the husband’s obligation to support and maintain the wife during their joint lives, the husband agrees to pay the wife the sum of $20,000 in lawful currency of Canada, as follows:

(1) The sum of $6,000 in lawful Canadian currency upon execution of this agreement;

(2) The sum of $14,000 by equal consecutive monthly instalments of $100 each, payable on the first day of each and every month, in each and every year, the first of such payments to become due and paid on November 1, 1960;

(3) The deferred payments shall be made payable to the wife by deposit to her account in the Royal Bank of Canada; and,

(4) In the event of any other payments made by the husband to the wife, the balance due and owing will be reduced proportionately.

Jackett, J held that paragraph 7 interpreted in the light of the agreement as a whole, was a term relating to the maintenance of the wife and nothing more.

Finally, I reject the contention that paragraph 7 provides for a “lump sum payment” of $20,000 and that the monthly payments in question are merely payments on account of that lump sum. Quite the contrary, in my view, paragraph 7 provides for a number of payments totalling $20,000 and the monthly payments in question are some of the payments so provided for. A reference to the words of the paragraph makes it quite clear. It says “The husband agrees to pay the wife the sum of $20,000 as follows”, and then it sets out the actual payments that are to be made. The real question is, of course, whether the payments were made pursuant to a provision for payment on a periodic basis and in my view, paragraph 7(2), pursuant to which the payments in question were made, is precisely that.

4.03.3 The instant case prima facie meets the conditions listed in Hansen, supra, and those laid down in paragraph 60(b):

(1) the judgment rendered (Exhibit A-1); (2) the periodic basis of the payments; (3) for the maintenance of the spouse; and (4) the separation of the parties.

4.03.4 In the instant case, on the other hand, a careful reading of paragraph 3 of Exhibit A-1 (paragraph 3.01 of the facts) shows that there is a total and final sum of $12,000 divided into twelve payments and not of several sums that together total $12,000. In essence, however, is the difference as great as all that?

It should be noted, moreover, that after the 1967 judgment of Jackett, J in Hansen, supra, the Supreme Court of Canada clearly laid down in 1968 that a lump sum payment made once and for all cannot be considered a payment of alimony. In Veliotis, supra, Pratte, J of the Federal Court, Trial Division Stated: “a divorce decree which ordered a husband to pay his spouse the sum of $100,000 in four monthly instalments of $25,000 would not . . . be a judgment ordering the payment of a periodic allowance ...” within the meaning of the Income Tax Act, because “alimony is a periodic allowance not only in the sense that the payer must make payments at regular intervals but also in the sense that at regular intervals the payer must provide a sum adequate to maintain the payee until the next payment”.

However, it has long been established that it is not necessary for alimony to continue throughout the recipient’s lifetime in order to be considered alimony (No 67 v MNR, supra).

Moreover, if a payment is made in order to prevent payment of alimony in the future, it may be considered to be compensation in lieu of the alimony lost by the spouse or, as was stated by Mr St-Onge in David Franklin v MNR, supra, to “discharge the husband to support his wife, which is the reverse of alimony.”

It is clearly necessary then to consider the amount paid and other circumstances.

4.03.5 Counsel for the appellant explained that, depending on the circumstances, courts now often grant alimony that is limited in time and thus force the beneficiary spouse to work and meet her own needs. Foreseeing this possibility, the parties also conclude agreements to this effect.

It is true that in Hansen, supra, Jackett, J allowed the appeal on the ground that “the purpose of the agreement was to make arrangements for the support and maintenance of the wife . . . ”, and that is the main point. There is a danger, however, that the wording of the duty to pay alimony will change the nature of the duty. Thus it is that by providing in the instant case for interest in paragraph 3 of Exhibit A-1 (paragraph 3.01) on the sum of $12,000, the parties seem to have created a duty other than that to pay alimony and one that would even be owed to the spouse’s heirs if she should die (or would even be owed by the husband’s heirs if he should die). Consequently, this is not alimony.

On the other hand, the insertion in the agreement of the proviso that paragraph 3 was “conditional upon the obtaining of a divorce decree between the parties” seems to confirm, on the one hand, that this was alimony and, on the other hand, that if the payments had been made in whole or in part and the divorce was not obtained subsequently, the spouse would have to repay the sums received.

Although counsel for the appellant contended that this paragraph may be found in all decrees nisi and is only collateral, it strangely complicated his interpretation, which was designed to establish the nature of the payment made and its application under the Income Tax Act.

Finally, this proviso appended to the provision governing the payment of interest does not permit an interpretation to the effect that this was alimony, even though the expression “alimony” is used in the agreement. The substance of the agreement was to the contrary. The appeal cannot be allowed.

4.03.6 The Board is, however, bound to point out that frequently in disputes about a specific word used in a separation agreement and incorporated into the decree by the court, a party is refused a deduction under the Income Tax Act. It is quite understandable that because of the particular situation in which the parties to a divorce case find themselves, it is not always easy to foresee the tax consequences of the separation, that is to say, all the conditions laid down by the Act and the case law.

The Board is of the view that a normal periodic allowance paid by the husband to the wife for a given period to enable the wife to adjust and subsequently to work and provide for her own needs should be considered to be a deductible alimony payment regardless of the fact that it is a final or “once and for all payment” and of the fact that the payment follows a decree nisi containing a proviso that the allowance is conditional upon the obtaining of a divorce decree.

In short, the expressions “final” and “once and for all” merely restrict the number of payments. The same is true of the proviso that is simply designed to prevent the decree nisi from binding the parties permanently unless a divorce is obtained in the meantime.

The Act should be amended in this way in order to concur with new realities in the law and in society. In this way the Act and equity might once again be rejoined.

5. Conclusion

The appeal is dismissed in accordance with the above Reasons for Judgment.

Appeal dismissed.