Markian George Tershakowec v. Minister of National Revenue, [1981] CTC 2104, 81 DTC 102

The Assistant Chairman:—The appellant appealed to this Board from an assessment for income tax for the 1977 taxation year. In his income tax return for that year, he claimed as a deduction on account of alimony payments the sum of $12,170 but the respondent, by his assessment, allowed only the sum of $503.22. There are none of the usual reasons for appealing this assessment; that is, there is no dispute as to the appropriate court order, or periodic payment, etc. Rather the question raised is whether or not, since the appellant left and became a non-resident of Canada on January 13, 1977, he is entitled to deduct as “alimony” from his Canadian income amounts paid as alimony after that date. The appeal proceeded on the basis of an agreed statement of facts.

That agreement (Exhibit A-1) reads as follows:

The parties hereby agree that for the purposes of the within appeal the following facts are true and correct.

1. The appellant is a medical doctor.

2. Prior to January 13, 1977, the appellant was a resident of Canada and carried on a medical practise in Canada.

3. On January 13, 1977 the appellant ceased to carry on his medical practise in Canada and emigrated to the United States of America.

4. Subsequent to January 13, 1977, the appellant was not a resident of Canada and was not employed in Canada and did not carry on business in Canada.

5. The appellant, at all material times, was separated from his wife, Tamara Tershakowec.

6. The appellant during the period January 1, 1977 to January 13, 1977, inclusive, paid the amount of $503.22 as alimony to Tamara Tershakowec pursuant to an order of the Supreme Court of Ontario dated October 12, 1976.

7. The appellant, during the period January 14, 1977 to December 31, 1977, inclusive, paid the amount of $8,700 as alimony to Tamara Tershakowec pursuant to the order of the Supreme Court of Ontario dated October 12, 1976.

According to the appellant’s counsel, the appellant’s taxable income for 1977 must be determined by the Income Tax Act in accordance with the noted facts. In this respect he commenced with subsection 2(2) of the Income Tax Act after tax reform which reads as follows:

The taxable income of a taxpayer for a taxation year is his income for the year minus the deductions permitted by Division C.

Division B of the Act (from section 3 to section 108) includes paragraph 60(b) which reads as follows:

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.

Counsel then continued and stated that, after computing income, to compute taxable income one turns to Division C (from section 109 to section 114.1) which includes section 114, which reads as follows:

114. Where an individual was resident in Canada during part of a taxation year, and during some other part of the year was not resident in Canada, was not employed in Canada and was not carrying on business in Canada for the purpose of this Part his taxable income for the taxation year is the aggregate of

(a) his income for the period or periods in the year during which he was resident in Canada, was employed in Canada or was carrying on business inCanada, computed as though such period or periods were the whole taxation year and as though any disposition of property deemed by subsection 48(1) to have been made by virtue of the taxpayers having ceased to be resident in Canada were made in such period or periods, and

(b) the amount that would be his taxable income earned in Canada for the year if at no time in the year he had been resident in Canada, computed as though the portion of the year that is not in the period or periods referred to in paragraph (a) were the whole taxation year,

minus the aggregate of such of the deductions from income permitted for the purpose of computing taxable income as may reasonably be considered wholly applicable to the period or periods referred to in paragraph (a) and of such part of any other of the said deductions as may reasonably be considered applicable to such period or periods.

Counsel’s submission was that section 114 was in Division C, and Division C has no application to Division B and so there is to be no apportionment or restriction on the deductions in Division B because of Division C (section 114). In addition, paragraph 60(b) uses the word “year”, in no way defined or restricted. Of course the Interpretation Act, RSC 1970, c I-23, applies and in that Act section 28 defines the word “year” as follows:

“year” means any period of twelve consecutive months, except that a reference to a “calendar year” means a period of twelve consecutive months commencing on the first day of January and a reference by number to a Dominical year means the period of twelve consecutive months commencing on the first day of January of that year.

The application of the said Interpretation Act is set forth in subsection 3(3) thereof as follows:

Nothing in this Act excludes the application to an enactment of a rule of construction applicable thereto and not inconsistent with this Act.

In conclusion, counsel’s sumission was that there is no apportionment of the alimony by section 114, with the result that the appellant may claim and deduct all alimony paid in the full calendar year. Counsel made reference to one case, William G Gray v MN Fl, [1969] Tax ABC 1113; 69 DTC 754, which he contended covers the issue. Since counsel for the respondent disagreed with that, consideration of that case will be deferred.

Counsel for the respondent’s submission was that in 1977 the appellant was a part-time resident of Canada, that is, he was resident until January 13, 1977, when he became a non-resident of Canada and remained in that status at least for the balance of that year, and therefore said section 114 applies. It divides the appellant’s income into two segments: one when he was a resident of Canada, and one when he was not. That section continues by stating that his total income was for the period while he was resident in Canada “for the purpose of this Part” (Part I of the Income Tax Act—Sections 1 to 180 inclusive). Counsel submitted that subsection (a) of section 114 considers that the period he was resident in Canada (13 days) was his “whole taxation year”. Counsel continued that insofar as “residence” is concerned, those thirteen days (as the subsection states) constitute the appellant’s whole year with the result that the deductions to which the appellant is entitled are those deductions allowed for that year (the 13-day year). The basis for this is a portion of the concluding phrase of section 114: “minus the aggregate of such of the deductions from income permitted for the purpose of computing taxable income as may reasonably be considered wholly applicable to the period or periods referred to in paragraph (a) . . This is, as he stressed, to compute not income but taxable income. His further submission was that the concluding portion of section 114, namely, “and of such part of any other of the said deductions as may reasonably be considered applicable to such period or periods”, refers to deductions from income to compute taxable income—Division C deductions. He continued that the year referred to in paragraph 60(b) is not the calendar year nor must it follow the Interpretation Act, but this is the “year” as defined in paragraph 114(a). His concluding submission was that the appellant is only entitled to deduct the alimony payments he made in his year, that is the thirteen days, and that amount is the amount which has been allowed. The other payments he made on account of alimony, assuming he made them, were not made in his year insofar as his Canadian income was concerned.

What does the William G Gray v MNR (supra) case decide? The appellant contended that Mr Weldon’s decision in that case covered the issue in this case, while counsel for the Minister said the issue in this case in principle was not involved in that case. In the Gray (supra) case the issue related to the first year of his residence in Canada, the appellant having emigrated to this country on about March 10, 1967. He was resident in Canada for ten months of that year. The appellant claimed personal exemptions relating to himself, his married status, his two children and his dependent father. He claimed an amount as though he and they were resident in Canada for the twelve months of 1967. The Minister allowed only 10/12ths of that amount as they were only resident in Canada for ten months. As Mr Weldon stated at 1114 and 755 respectively:

The disallowance . . . is the sole issue to be reviewed in this appeal.

Mr Weldon continued:

The appellant testified at the hearing of the appeal that he had also claimed deductions in respect of his professional fees (these are covered by paragraph 11 (10)(a) ) and charitable donations (these are dealt with in section 27 of Division

C) paid and made by him in his 1967 taxation year during his 10 months’ residence in Canada, and that those deductions had been wholly allowed by the Minister.

It is noted that he claimed as deductions that which he paid to maintain his professional position after he came to Canada and he claimed charitable donations made after he came to Canada. In that case the decision was that the appeal was dismissed. If that case decided anything which is relevant to the current appeal it was that his dues and charitable donations made after he was a resident in Canada were deductible in toto and inferentially, had they been made prior to that time, it could be they would not have been. In the result I cannot see that Mr Weldon’s decision applies in this appeal.

I am of the view that the year of the appellant commenced on January 1, 1977 and terminated, insofar as deductible alimony payments were concerned, at the time he left Canada and as such he may only deduct the amount paid in that year.

The result is the assessment of the respondent is correct and judgment will go dismissing the appellant’s appeal.

Appeal dismissed.