Anne H Sigglekow v. Minister of National Revenue, [1981] CTC 2830, 81 DTC 775

The Chairman:—The appeals of Anne H Sigglekow are from assessments with respect to her 1975, 1976 and 1977 taxation years.

The facts are not in dispute and are set out in the appellant’s statement of facts:

A. Statement of facts

1. The Appellant resides in the City of Toronto and Province of Ontario.

2. The Appellant is currently employed by Noranda Mines Limited as a secretary.

3. On September 13th, 1951, the Appellant married John Sigglekow in the City of Toronto and Province of Ontario.

4. The Appellant petitioned for a divorce. On the 30th of April, 1975, the Supreme Court of Ontario granted the Petition and the order of the Ontario Supreme Court provided that John Sigglekow pay to the Appellant, for the maintenance and support of the three children of the marriage, the sum of $20 each tax free so long as the child under the age of 16 years continues to reside with the Petitioner and so long as the said child while over the age of 16 years and under the age of 18 years continues to reside with the Petitioner and continues in regular attendances at a school, college or university.

5. In computing her income of the 1975 taxation year, the Appellant did not include $3,120 of tax free payments received.

6. On June 26th, 1979, the Minister of National Revenue reassessed the Appellant in respect of the 1975 taxation year and added to income the payments of $20 per week per child.

The appellant in her notice of appeal submits:

1. The Appellant relies, inter alia, on subsection 56(1) of the Income Tax Act of Canada.

2. The Appellant says that the monthly payments are tax free to the recipient and are not to be included in income as set out in the order of THE SUPREME COURT OF ONTARIO, which provided inter alia the said sums of money were ‘‘payable Tax Free” and that there was no provision in the said order for the payment by the Appellant’s former spouse for the payment of any additional monies.

3. The Appellant says that any monies received in accordance with the order of THE SUPREME COURT OF ONTARIO are not to be included in her income.

The respondent’s position, as indicated in his reply, is as follows:

2. The Respondent submits that the amounts of $2,100.00, $3,120.00 and $2,080.00 were received by the Appellant during the 1975, 1976 and 1977 taxation years respectively pursuant to a Judgment of a competent tribunal as an allowance payable on a periodic basis for the maintenance of both the Appellant and the children of the marriage and the Appellant was living apart from and was separated pursuant to a divorce from her former spouse who had required to make the payments and they were properly added to the computation of the Appellant’s income pursuant to paragraph 56(1 )(b) of the Income Tax Act, R.S.C. 1952, Chapter 148 as amended.

3. The Respondent further submits that the fact that the said decree nisi specifically states that the payments shall be tax free is irrelevant in that such a direction to the extent it purports to bind the Minister of National Revenue or comes to any conclusion as to taxability of such payments under the Income Tax Act is beyond the jurisdiction of the Supreme Court of Ontario.

The decree nisi of the Supreme Court of Ontario, granting the appellant’s divorce and fixing the amount of the periodic maintenance payments to be made, were filed as Exhibit A-1.

At paragraph 3 of the decree, the Honourable Mr Justice Donohue ordered:

3. AND THIS COURT DOTH FURTHER ORDER AND ADJUDGE that the Respondent, John Sigglekow, shall pay to the Petitioner, Anne Helena Sigglekow, for the care, maintenance and support of Jo-Anne Sigglekow the weekly sum of $20 payable tax free on the 1st day of esch and every week and such payments to be made so long as the said child while under the age of 16 years continues to reside with the Petitioner and so long as the said child while over the age of 16 years and under the age of 18 years continues to reside with the Petitioner and continues in regular attendances at a school, college or university.

(Paragraphs 4 and 5 of the decree contained an identical order with respect to the appellant’s two other children.)

The appellant admitted having received the maintenance payments in the amounts assessed but did not include them in income because of the word

The ground of petition for the appellant’s divorce was physical and mental cruelty. The appellant evidently feared her former husband, an alcoholic, who phoned each year to obtain receipts for the maintenance payments. The husband having agreed to the directions in the Court order, was aware that he was to pay more than $20 per child per week but, during the phone conversations, stated categorically that he would not pay nor would the appellant be able to collect from him an additional amount in maintenance payments.

Alimony and maintenance payments received by the taxpayer are to be included in income under paragraphs 56(1 )(b) and (c) of the Income Tax Act.

Paragraph 56(1 )(c) reads as follows:

(c) Maintenance where recipient living apart from spouse. — any amount received by the taxpayer in the year, pursuant to an order of a competent tribunal, as an 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 the recipient was living apart from the spouse required to make the payment at the time the payment was received and throughout the remainder of the year;

The related paragraph 60(c) of the Act permitting the deduction of maintenance payments made by a taxpayer, states:

(c) Maintenance payments. — an amount paid by the taxpayer in the year, pursuant to an order of a competent tribunal, as an 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 his spouse to whom he was required to make the payment at the time the payment was made and throughout the remainder of the year;

The issue is whether the Supreme Court of Ontario had jurisdiction in a decree nisi to make the award for maintenance of the appellant’s children “tax free”?

There is to my knowledge, no case law exactly on point.

The determination of the issue depends largely on the interpretation given to the words “tax free”. If the learned judge meant that no tax would be payable by the appellant with respect to the receipt of maintenance payments, he would have had to completely ignore the clear wording of paragraph 56(1 )(c) of the Income Tax Act. He could then have been seen, not only as attempting to bind the Minister of National Revenue in an action in which the Minister was not a party but he also, as suggested by counsel for the respondent, would have usurped the jurisdiction of the Federal Court and the Tax Review Board in deciding that maintenance payments were not taxable.

I have no reason to assume that the learned judge was unaware that he had no power to override the provisions of paragraph 56(1 )(c) of the Income Tax Act nor in fact did he order that the appellant not pay taxes on maintenance payments received. The learned judge unquestionably had the right in his order to fix, on his own or by agreement of the parties, as is alleged in this appeal, the amount of the periodic payments necessary for the maintenance of the children. As a result of the order, the appellant was given the right to receive each week and for each of her children an amount of $20 net, clear of any encumbrances, including income tax. The direction that the payments be tax free did not exempt the appellant from paying tax on the maintenance payments received but was an order to the appellant’s husband to pay such amount greater than $20 so that the appellant would be in possession of $20 per week per child, after she had paid the tax liability consequent upon her receipt of the larger amount.

I question the wisdom and the practicality of the wording of the order in establishing as it did the amount of the award but I cannot conclude that, in so doing, the learned judge was deciding on the non-taxability of the maintenance payments in the hands of the recipient. Also, I do not find that the order bound the Minister of National Revenue or the Tax Review Board as to the taxability of maintenance payments in the hands of the appellant under paragraph 56(1 )(c) of the Act. I do not believe that the learned judge’s order was ultra vires in determining a fixed amount of $20 net as the amount that was to be paid weekly to the appellant for maintenance of each of her three children, as agreed to by counsel for the appellant’s former husband at the divorce trial.

I was unable to find any other case on point and the cases cited at the hearing had, in my opinion, little if any application to the facts of this appeal.

There can no longer be any doubt that, before maiantenance payments can be taxed in the hands of the recipient (paragraph 56(1 )(c) of the Act) or deducted by the payor (paragraph 60(c) of the Act), the amounts must have been paid and received pursuant to an order of a competent tribunal. Having already held that the order made was within the competence and jurisdiction of the Supreme Court of Ontario, the remaining question is whether the payments were made pursuant to and in conformity with the order of that Court.

On that point I find that the appellant’s former spouse deliberately and knowingly did not comply with the direction of the Court with respect to the quantum of the maintenance payments which had been arrived at by the agreement between the parties.

I must conclude that the amounts paid to the appellant by her former husband were not amounts paid and received pursuant to or in conformity with the Court order and are therefore not deductible by the appellant’s former spouse (paragraph 60(c) of the Act) and are not taxable in the appellant’s hands under paragraph 56(1 )(c) of the Act.

The appeal is therefore allowed and the matter referred back to the Minister for reassessment on the basis that the amounts received by the appellant in the pertinent taxation years were not maintenance payments received pursuant to an order of a competent tribunal, within the meaning of paragraph 56(1 )(c) of the Income Tax Act.

Appeal allowed.