Muriel Anne McGuire v. Minister of National Revenue, [1982] CTC 2830, 82 DTC 1813

D E Taylor [ORALLY]:—This is an appeal from Muriel Anne McGuire with respect to her 1979 and 1980 income tax returns.

The manner at issue, which has a direct bearing on the 1979 year and has a subsidiary bearing on the 1980 year by virtue of the general averaging provisions of the Income Tax Act, is the receipt by the appellant of an amount of $4,000 which, it is alleged by the Minister of National Revenue, has to be taxed under paragraph 56(1 )(b) of the Income Tax Act as allowance or other allowance payable on a periodic basis.

It is the position of the appellant that the amount is a lump sum payment and not so taxable. The history of the matter, very briefly, is (reading from the reply to notice of appeal):

The Appellant and her spouse were living separate and apart at all relevant times and, by court order dated May 15, 1974 Stephen William McGuire was ordered to pay the Appellant the sum of $15 per week for the support and maintenance of the child of their marriage.

By court order dated November 18, 1974 Stephen William McGuire was ordered to pay the Appellant the sum of $15 per week for the support and maintenance of the child of their marriage.

Stephen William McGuire did not comply with the terms of either order.

Pursuant to Minutes of Settlement negotiated between the Appellant and Stephen William McGuire, the Appeallant received $4,000 in respect of child support arrears.

And I emphasize the fact that the term “pursuant to Minutes of Settlement” is that used by the Minister in his reply. The minutes of settlement (Exhibit A-4), along with various other documents which deal with this matter, have been provided to the Board, and I read the critical paragraph, at least critical as it pertains to this appeal in my opinion. (In this case, in the order of the Supreme Court of Ontario, the respondent is Stephen William McGuire.)

The Respondent shall pay to the Petitioner a lump sum in the amount of FIVE THOUSAND DOLLARS ($5,000) of which FOUR THOUSAND DOLLARS ($4,000) shall be payable on or before June 15th, 1979 and ONE THOUSAND DOLLARS ($1,000) shall be payable on June 1, AD 1980, and such payment shall be in full and final settlement of any arrears and any future support in connection with the child, Loren Christine McGuire, born March 25, 1967.

In addition to the court documents, certain correspondence between the solicitors for the two parties during their separation and divorce was filed with the Board. There is some indication in that correspondence that the basis of negotiations between the appellant and her ex-husband was related to an attempt to receive payment for the arrears indicated and $15 per week in the previous court orders.

It has not been shown to my satisfaction in the proceedings today that the amount in question, the $4,000, can be divorced from its very likely relationship to the arrears in question. It has been the position of the Minister, as it has been the case in other similar matters, that arrears of alimony or allowance for maintenance or support such as this, even if paid in a lump sum, are nevertheless taxable in the hands of the recipient when received under paragraph 56(1 )(c) of the Act. Previous decisions of the Board, specifically Sills [1980] CTC 2500; 80. DTC 1436, and Bourdeau [1981] CTC 2440; 81 DTC 379, have touched on this point and a recent decision of Pisony [1982] CTC 2012; 82 DTC 1023, also in some way dealt with the same issue, but from the reverse side. It is noted that the decision in Sills (supra) is under appeal to the Federal Court and the decision in Pisony, to which reference has been made, is also under appeal to the Federal Court.

On the evidence and argument presented today I am not persuaded that there is any reason to change the views expressed by the Board in Sills and in Bourdeau which have been referenced. I do note, however, that counsel for the respondent has brought to the attention of the Board a. Supreme Court of Canada decision Jack Cewe Ltd v Jorgenson, [1980] CTC 314; 80 DTC 6233, in which the Supreme Court gave serious consideration to whether or not, in that matter, the damages at issue flowed out of the contract of employment. Counsel for the Minister has indicated that following that line of reasoning, one might quite logically deduce that the payments at issue here today also flowed from the original court orders which have been referenced. I would point out that in no way am I minimizing the potential that such a viewpoint may be correct and the decision in Cewe Ltd, in the final analysis, may have a bearing upon this matter. I do, however, point out that the wording of the comments of the Justices are as follows: “I fail to see how they can be said not to be paid as a benefit under the contract.” I would merely note that the matter at issue there was whether or not a benefit had been received by the appellant — not whether an allowance had been received by the appellant. I make those comments because this is very clearly a matter which may have some parallel reasoning and I want it understood that I have tried to take it into account as much as is possible.

Under the circumstances, basing my decision on the earlier judgments of the Board in Sills, Bourdeau and Pisony, and recognizing that two of them are under appeal, I do not believe that I have any alternative to allowing the appeal. And, in my view, it has not been made clear to me that payments of alimony, or allowance for maintenance paid in a manner other than precisely according to the contract, are income. Under the circumstances of this appeal the $4,000 at issue here cannot be said to have been payable pursuant to either one of the original court orders which have been filed with the Board. The appeal is allowed and the entire matter is referred back to the respondent for reconsideration and reassessment accordingly.

Appeal allowed.