The Minister of National Revenue v. Elizabeth Woodworth and Reginald a Woodworth, Taxpayers., [1980] CTC 2520, 80 DTC 1461

The Assistant Chairman:—On the application of the Minister of National Revenue to this Board for the determination of questions, pursuant to section 174 of the Income Tax Act as amended by tax reform, with notice to Elizabeth Woodworth (called the “former wife’’) and Reginald A Woodworth (called the “former husband”) the application was set down for hearing at the City of Toronto, in the Province of Ontario, on May 16,1980. The application has a style of cause as above-noted in these reasons and the body of the application reads as follows:

1. The Minister of National Revenue is of the opinion that questions of mixed fact and law arising out of the same transaction or series of transactions are common to reassessments in respect of two or more taxpayers.

2. The Minister of National Revenue hereby applies to the Tax Review Board for a determination of the questions hereinafter set forth.

3. The transaction or series of transactions is as follows:

(a) pursuant to Minutes of Settlement entered into between Elizabeth May Woodworth and Reginald Arnold Woodworth in August 1976, Reginald Arnold Woodworth was required to pay maintenance for the child Ren Alexander Woodworth born November 27,1967 in the sum of $225 per month commencing September 1, 1976 and to pay maintenance for the child Wade Joseph Woodworth born April 28,1969 in the sum of $225 per month commencing September 1, 1976;

(b) Reginald Arnold Woodworth made payments in the amount of $600 in September 1976, $300 in October and November 1976 and $450 in December 1976; he made payments in the amount of $450 per month in each and every month in 1977.

4. The question in respect of which the Minister of National Revenue requests a determination is whether the whole or any part, and, if part what part, of the said payments totalling $7,050 thus paid by Reginald Arnold Woodworth and received by Elizabeth May Woodworth in 1976 and 1977 pursuant to the Minutes of Settlement constitute an allowance payable on a periodic basis for the maintenance of Elizabeth May Woodworth, the children of the marriage, or both Elizabeth May Woodworth and the children of the marriage from Reginald A Woodworth was living apart and to whom he was required to make the payments at the time and is therefore deductible by Reginald A Woodworth in the computation of his income for 1976 and 1977 pursuant to paragraph 60(b) of the Income Tax Act and to be included in the computation of Elizabeth May Woodworth’s income for 1976 and 1977 pursuant to paragraph 56(1)(b) of the Income Tax Act.

5. The Minister assessed Elizabeth May Woodworth for income tax in respect of her 1976 and 1977 taxation years on the basis that the said payments of $1,650 in 1976 and $5,400 in 1977 was an amount received by her in the years pursuant to a separation agreement as an allowance payable on a periodic basis for her maintenance or the maintenance of children of the marriage or both for the maintenance of her and the children of the marriage when she was living apart from Reginald A Woodworth, who was required to make paymens at the time the payments were made and throughout the remainder of the year.

6. The Minister assessed Reginald A Woodworth for income tax in respect of his 1976 and 1977 taxation years on the basis of the said amounts of $1,650 in 1976 and $5,400 in 1977 were not amounts paid by him in 1976 and 1977 pursuant to a separation agreement as an allowance payable on a periodic basis for the maintenance of the recipient thereof the children of the marriage or both the recipient and the children of the marriage from whom he was living apart and to whom he was required to make the payments at the time payments were made and throughout the remainder of the year.

7. The facts and reasons on which the Minister of National Revenue relies and on which he based assessments of tax for the 1976 and 1977 taxation years dated December 20, 1978 in respect of Reginald A Woodworth and dated September 1, 1978 in respect of Elizabeth May Woodworth are as follows:

(a) the amounts of $1,650 and $5,400 was not paid by Reginald A Woodworth in 1976 and 1977 respectively pursuant to a separation agreement as an allowance payable on a periodic basis for the maintenance of the recipient thereof, children of the marriage or both the recipient and the children of the marriage, from whom he was living apart and to whom he was required to make the payments at the time the payments were made and throughout the remainder of the year and is therefore not deductible in the computation of his income for 1976 and 1977 pursuant to paragraph 60(b) of the Income Tax Act', and

(b) the amounts of $1,650 and $5,400 were amounts received by Elizabeth May Woodworth in 1976 and 1977 respectively pursuant to a separation agreement as an allowance payable on a periodic basis for the maintenance of Elizabeth May Woodworth, children of the marriage, or both Elizabeth May Woodworth and children of the marriage, when she was living apart from Reginald A Woodworth who was required to make the payments at the time the payments were made and throughout the remainder of the year and is therefore to be included in the computation of her income for 1976 and 1977 pursuant to paragraph 56(1 )(£>) of the Income Tax Act.

8. The names and last known addresses of the taxpayers that the Minister of National Revenue seeks to have bound by the determination of the questions hereinbefore set forth are:

Reginald A Woodworth

RR #1

LYNDEN, Ontario

LOR 1T0

Elizabeth M Woodworth

16 Helen Street

Apt 316

DUNDAS, Ontario

LOH 1N4

9. Both Reginald A Woodworth and Elizabeth M Woodworth have served notices of objection to the aforementioned assessments.

It should be noted that, in the above quotation, the italic “or”, “May” and “(b)” indicates that they are replacing the deleted “are”, “Ann” and “(c)” respectively. Likewise, the italic of the word “not” indicates that that word has been inserted. The effect of paragraph 5 is that the Minister of National Revenue, with respect to the former wife, assessed on the basis that the sums she received were within paragraph 56(1 )(b). While paragraph 56(1 )(c) was not mentioned, it is possible that the said sums could be within the ambit of that section. With respect to the former husband, the Minister assessed on the basis that the said sums were not within paragraph 60(b) and, while it was not mentioned, also not within paragraph 60(c). Those four subsections read as follows:

56.(1) Without restricting the generality of section 3, there shall be included in computing the income of a taxpayer for a taxation year,

(b) any amount received 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 the recipient was living apart from, and was separated pursuant to a divorce, judicial separation or written separation agreement from, the spouse or former spouse required to make the payment at the time the payment was received and throughout the remainder of the year;

(c) 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.

60. There may be deducted in computing the 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 to whom he was required to make the payment at the time the payment was made and throughout the remainder of the year;

(c) 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.

It is to be noted that the only document referred to in the application was “Minutes of Settlement” which are reproduced hereunder:

MINUTES OF SETTLEMENT

ON the 13th day of August, 1976 the above named parties agreed to terms of settlement as follows:

1. Custody in the Applicant.

2. Reasonable access to the Respondent.

3. Maintenance for the child Ren Alexander Woodworth, born the 27th day of November, 1967 in the sum of $225 per month commencing September 1, 1976, and to be made into the Family Court at 100 James Street South, Hamilton, Ontario.

4. Maintenance for the child Wade Joseph Woodworth, born the 28th day of April, 1969, in the sum of $225 per month commencing September 1, 1976, and to be made into the Family Court at 100 James Street South, Hamilton, Ontario.

5. Ontario Hospitalization Insurance Plan (or its equivilant) to be paid for by the Respondent in relation to both of the aforementioned children.

6. Dental needs will be paid for in full by the Respondent in relation to both of the aforementioned children providing the Respondent’s employer has a covering plan; otherwise the Respondent will pay up to a maximum of $100 per child per year in relation to dental bills of the aforementioned children.

About January 1, 1975, the former wife and former husband separated. They had four children, two of whom at that time had reached the age of majority. The former wife wanted a separation agreement, a sharing of the property her husband owned for herself, custody of the two infant children and maintenance for her children and herself. She saw her solicitor in this respect. The solicitor prepared a draft separation agreement in June of 1975 and submitted it to the solicitor for the former husband. It was not returned. Subsequently the same solicitor, on behalf of the former wife, prepared two further draft separation agreements and submitted them to the solicitor for the former husband and they too were not returned. The solicitor then advised his client that the appropriate thing to do would be to institute an action pursuant to The Infants Act, RSO 1970, c 222 and amendments thereto, suing for custody of the children and maintenance for the children. Such an action was instituted and, in due course, discoveries were held of both the former wife and the former husband. Following discoveries, I believe on the day discoveries were finished, the two solicitors got together and the solicitor for the former wife thought that they had settled the matter. He prepared draft minutes of settlement, discussed them with his client and she signed those minutes of settlement. The minutes of settlement were submitted to the solicitor for the former husband. Insofar as the solicitor for the former wife was concerned, he heard nothing further with respect to those minutes of settlement. Insofar as the former wife was concerned, she was talking to her former husband in February 1977 and, according to her, he stated that at that time he had not signed the minutes of settlement. The former husband’s statement in that respect is different. He stated that, subsequent to August 13, 1976, but before the end of that year, in connection with some other matter he attended his solicitor’s office. While there the solicitor advised him that they had these minutes of settlement to sign and he stated that he signed them. It is to be noted in the application that there is no other document referred to other than the minutes of settlement. There is no reference to a court order, to a judgment, or to a written separation agreement whatsoever. Consequently it must be determined, to answer the questions which have been posed, whether or not the minutes of settlement are within paragraph 56(1)(b) or 56(1)(c) on the one hand and also within paragraph 60(b) or 60(c) on the other hand. If the answer to these questions is no, then the questions posed would be answered accordingly. If the answer however is yes, then it must be decided what is the effective date of the minutes of settlement.

For the amounts paid to be deductible to the former husband, they must be amounts paid by him “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 . . . if he was living apart from, and was separated pursuant to a divorce, judicial separation or written separation agreement from his spouse . . There was no decree of a competent tribunal, there was no order by a competent tribunal, nor was there any judgment of a competent tribunal in this action. It was just a settlement. However, the minutes of settlement could readily be construed as a written agreement as both the former wife and the former husband have Signed the document. However, was the former husband separated from his former wife pursuant to a divorce, judicial separation or written separation agreement? Since no other document was produced, the answer to that question must be “no”. Since it is essential, so that the payments are deductible by the former husband, that he be separated from his former spouse pursuant to a divorce, judicial separation or written separation agreement, and he was not so divorced or separated, then of course the payments are not within the ambit of paragraph 60(b).

Are the payments within the ambit of paragraph 60(c)? As mentioned, no reference was made to this in the application but, since it is a possibility, it should be considered. The introductory words in paragraph 60(c) are: “an amount paid by the taxpayer in the year pursuant to an order of a competent tribunal .. . That is a requirement of that subsection. There was no order of a competent tribunal in this matter. There was only minutes of settlement and consequently the payments are not within the ambit of paragraph 60(c).

The words in paragraph 56(1)(b) and 56(1)(c) are the same as those used in paragraph 60(b) and 60(c) respectively except of course that, in the one case, if the payments were within the ambit of paragraph 60(b) or 60(c) they are deductible to the former husband, and if they were within the ambit of paragraph 56(1)(b) or 56(1)(c) they are taxable to the former wife. For the same reasons as given with respect to paragraph 60(b) and 60(c), the payments received by the wife are not within the ambit of paragraph 56(1 )(b) or 56(1 )(c).

The result is, with respect to the questions posed, my determination is that:

(a) no part of the sums paid in the calendar years 1976 and 1977 by Reginald Arnold Woodworth to his former wife, Elizabeth Woodworth, is within the ambit of paragraph 60(b) or 60(c) of the Income Tax Act and the sums are not deductible by the said Reginald Arnold Woodworth in computing his income for each of the years 1976 and 1977; and

(b) no part of the sums received by Elizabeth Woodworth in the calendar years 1976 and 1977 from her former husband, Reginald Arnold Woodworth, is within the ambit of paragraph 56(1)(b) or 56(1)(c) of the Income Tax Act.

Application allowed.