Dorothy Beryl Bourdeau v. Minister of National Revenue, [1981] CTC 2440, 81 DTC 379

D E Taylor:—This is an appeal heard in the City of London, Ontario, on April 6, 1981, against an income tax assessment in which the Minister of National Revenue increased the income of the appellant for the year 1977 by an amount of $3,980.50, being the sum of $2,456 additional alimony or maintenance payments and $1,524.50 from a registered retirement savings plan (RRSP). An application to determine a question under section 174 of the Income Tax Act, SC 1970-71-72, c 63, as amended, common to both the appellant and William G Bourdeau, had been made by the Minister and an order was issued by the Board on January 22, 1981, which read in part:

It is ordered that the said William G Bourdeau be joined to the appeal of Dorothy Beryl Bourdeau, at the hearing of which appeal the said questions and the said appeal shall be determined;

William G Bourdeau appeared on his own behalf at the hearing of the appeal, and is referred to herein as the “Third Party”.

The only issues in the appeal of Dorothy Beryl Bourdeau were those raised in the questions to be determined under section 174 of the Act which were set out by the Minister. The determination of those questions will be dealt with by the Board as an integral part of the determination of this appeal.

The questions are:

A. Whether the whole or any part of the payment of $4,456 by William G Bourdeau

and received by Dorothy B Bourdeau in the 1977 taxation year was an amount paid as alimony or other allowance for the maintenance of Dorothy B Bourdeau, or the children of the marriage, within the meaning of paragraphs 60(b) and 56(1 )(b) of the Income Tax Act, and therefore it is to be deducted by William

G Bourdeau in the computation of his income for the 1977 taxation year and included by Dorothy B Bourdeau in the computation of her income for the 1977 taxation year.

B. Whether the payment by the National Trust Company to Dorothy B Bourdeau of $1,524.50 on the withdrawal of this amount from Registered Retirement Savings

Plan No. 1080290 is to be included in the computation of the income of Dorothy B Bourdeau in her 1977 taxation year pursuant to subsection 146(8) of the Income Tax Act, or whether it is to be included in the computation of the

income of William G Bourdeau in the 1977 taxation year pursuant to the provisions of subsection 146(8.3) of the Income Tax Act.

With regard to the appellant’s assessment of tax, the Minister relied upon

A. (a) During the 1977 taxation year, the said parties were husband and

wife;

(b) the said parties entered into a written separation agreement on April 15, 1977;

(c) the said parties lived apart from one another and were separated pursuant to a written separation agreement from the 15th day of April, 1977;

(d) the amount of $4,456 was paid by William G Bourdeau to Dorothy B Bourdeau between April 15, 1977 and December 31, 1977 as alimony or other allowance for the maintenance and support of Dorothy B Bourdeau and the children of the marriage.

B. (a) Registered Retirement Savings Plan No. 1080290 was opened by

Dorothy B Bourdeau on or about March 1, 1977, at which time Dorothy B Bourdeau contributed the sum of $1,500 to the plan;

(b) in computing her income for the 1976 taxation year, Dorothy B Bourdeau deducted the sum of $1,500 as a premium paid to Registered Retirement Savings Plan No. 1080290;

(c) the annuitant of Registered Retirement Savings Plan No. 1080290 was Dorothy B Bourdeau;

(d) no contributions were made by William G Bourdeau to Registered Retirement Savings Plan No. 1080290;

(e) during the 1977 taxation year, Dorothy B Bourdeau withdrew the amoung of $1,524.50 from Registered Retirement Savings Plan No. 1080290.

Evidence

In filing her 1977 income tax return, the appellant had included an amount of $2,000 as “separation allowance” income received from the third party. She testified that she had not received the amounts stipulated in the agreement during the year — several cheques received had been returned “not sufficient funds”, and:

— she had paid several accounts which were the responsibility of the third party;

— several different kinds of payments from Mr Bourdeau, required under the agreement, had not been met.

The appellant filed with the Board the “NSF” cheques which were in the following amounts:

Also, certain other cheques for amounts she had paid were introduced:

Picked up automobile (W G Bourdeau)

July 13, 1977	$88.24
Picked up automobile (W G Bourdeau)
May 27, 1977	28.67
Paid Chatham-Kent Woodworking for
cabinet (ordered by W G Bourdeau)
August 10, 1977	50.00
September 27, 1977	100.00
October 25, 1977	85.00
Paid Brother Plumbing for work
done previous to April, 1977	9.63
	50.00
	50.00
	$461.54

Mr Bourdeau introduced the cancelled cheques which supported the deduc- tions he had claimed

Mr Bourdeau noted that the irregular amounts involved had been the result of an attempt on his part to make up for some of the “NSF” cheques to repay the appellant for some of the accounts (above $461.54) she had paid, or on occasion simply that he did not have the funds available to make the proper payments, or any payment at all.

With regard to the RRSP question, the appellant noted that it had not been her intention to terminate the Plan, and a bank error had occurred. Mr Bourdeau had reported the income in question ($1,524.50) as his income in 1977, on request from the appellant.

Argument

The position of the agent for the appellant was that even though Mrs Bourdeau had originally reported $2,000 as separation allowance income, this had only been an estimate since she did not have available the cancelled cheques presented at the hearing by Mr Bourdeau, and had not maintained a record of her own. In the view of the agent, the only amount for which the appellant should be liable for tax were the five cheques for $125 each included in the group filed by Mr Bourdeau. The other amounts did not meet the criteria detailed in the separation agreement in his view, but he could not present jurisprudence to support that opinion.

Counsel for the respondent cited the case of Her Majesty the Queen v Morton Pascoe, [1975] CTC 58 and 656; 75 DTC 5024 and 5427, and asserted that since the total of $4,456 had been received by the appellant during the year, it was not significant that amounts different from the specific weekly payments of the agreement had been received. The “allowance” under the agreement was “payable” — it was not critical how it had been “paid”. In answer to a specific question from the Board, counsel stated that it would be the Minister’s position that the entire amount of $4,456 was taxable in the hands of the recipient — even if received in one amount on the very last day of the year.

Findings

With regard to the RRSP amount, the Board is satisfied that it has been properly assessed as income of the appellant, and should not be income of the third party — no purpose therefore will be served by a review of the argument of either party. It is not relevant that the appellant did not intend to terminate the plan — it was terminated and it was income to her.

On the “maintenance” there is no question that the third party paid and the appellant received the gross amount of $4,456. However, I do not agree with counsel for the respondent regarding the flexibility permitted to the Minister either in allowing as a deduction, or considering as income, spe-

cific amounts which are not paid according to the terms of the separation agreement. In the instant case the only clause which is relevant is that dealing with the maintenance payments of $125 per week — Clauses 9 and 9(a):

9. The husband covenants and agrees to pay to the wife the sum of $75 per week such payment to commence on the 15th day of April, 1977 and to be payable on each and every Friday thereafter until her remarriage or until she cohabits with some other male person.

9a. The husband shall pay to the wife for the care, support and maintenance of each child of the marriage the sum of $25 per week commencing on the 15th of April 1977 and payable on each and every Friday thereafter until each child, while residing with the wife attains the age of 18 years, and thereafter so long as each child is at regular attendance at a school, college or university.

I would refer to a recent decision of the Board (Barbara Sills v MNR, [1980] CTC 2500, 80 DTC 1436) presently under appeal, and the comment made therein on this point at issue at 2501 and 1438 respectively:

In the instant matter, it is my view that the receipts in question as income are not caught under section 56(1 )(b) of the Act because they do not accord with a vital provision of that section — they were not received pursuant to an order which specifically calls for monthly payments in specified amounts. In my view, the term “pursuant to an order” qualifies the word “amount”, and I do not consider it adequate that the payor imply some relationship between the “amount” and the “order”. I understand “pursuant to an order” to mean “according to the terms of an order”, not simply “as a result of”, “after agreeing to”, or some other less specific phrase.

The Minister’s argument with regard to the “payable” or “paid” point might have some merit if “payable” qualified the earlier noun ‘amount’ in that section. However, in my view, it qualifies the noun “allowance”.

Summary

In my view, amounts to be included in income by virtue of paragraph 56(1 )(b) of the Act must be received exactly according to the terms in the relevant order or agreement, and such terms must include details of the regularized pattern of payment agreed upon.

It was the contention of the agent for Dorothy Bourdeau that only amounts paid specifically and as required under the separation agreement should be income to the appellant (possibly only five amounts of $125 each). However, the testimony of the third party is that some of the amounts paid which were greater than the agreed $125 contained not only that amount, but additional partial payments for arrears. While I would be prepared (based upon Sills (supra)) to rule that any “arrears” paid in this manner were not income to the appellant, I am not prepared to reject the contention of the third party that at least the basic $125 payments included in these greater amounts should be deductible to him. It is my view that this is the basis upon which the appellant originally arrived at the $2,000 she regarded as income, and I see no reason to alter that amount. The evidence and jurisprudence, as I interpret them, do not warrant the reduction of the claim of the third party below that $2,000 figure, which the appellant originally included as income in filing her 1977 tax return.

Determination of Questions

The questions posed by the Minister are determined so that the amount of $1,524.50 resulting from the withdrawal of RRSP funds shall be included in the income of the appellant, and not in the income of William Bourdeau; and that only the amount of $2,000 shall be income to the appellant and deductible by William Bourdeau, as alimony or other allowance payable.

Decision on Appeal

The appeal is allowed in part and the matter referred back to the respondent for reconsideration and reassessment in order that only an amount of $2,000 as alimony or other maintenance payment shall be included in the income of the appellant.

In all other respects, the appeal is dismissed.

Appeal allowed in part.