Rene De La Roche v. Minister of National Revenue, [1980] CTC 2583, 80 DTC 1519

The Assistant Chairman:—Rene de la Roche (hereinafter called the “appellant”) has appealed to this Board from an assessment for income tax for each of the years 1973 and 1974. The appellant was divorced from his former wife, Isobel de la Roche (hereinafter called “Isobel”), by decree nisi of the Supreme Court of Ontario dated June 25,1968. When the appellant filed his 1973 income tax return, he claimed as an alimony deduction the sum of $13,773.58. For 1974 he claimed a similar deduction in the amount of $14,939. The respondent disallowed both claims. Following confirmation of both assessments, the appellant appealed to this Board.

There is no dispute between the parties as to the facts of the case, it is just a question as to whether or not all the requirements of paragraph 60(b) of the Income Tax Act after tax reform have been satisfied. The mother of the appellant, Mazo de la Roche (hereinafter called the “deceased”), died on or about the 12th day of July, 1961. Probate of her last Will and Testament was granted the three trustee/executors named therein, namely, her sister Caroline Clement (who died on or about August 2,1972), her son Rene (the appellant herein) and Daniel A. Lang.

In effect, without going into the Will of the deceased, the appellant had a three-quarter interest in the residue of the estate after the death of the life annuitant (the deceased’s sister, who as stated died August 2, 1972) and a three-quarter interest in the copyright remainder. Daniel A Lang (now Senator Lang) was the only person who gave evidence. The Senator stated that no one in his legal firm acted for any party to the divorce action although he knew the appellant and Isobel well. It was his belief that Isobel would not trust the appellant to pay to her such alimony as was awarded to her by the Court if a substantial source of his total income fell into his hands. With this as a background, he was approached by the solicitor for either the appellant or Isobel to act as a receiver/trustee under the decree nisi so that all monies which were to go to the appellant from the estate of the deceased would not be paid by the trustee/executors of the estate to the appellant but rather would be paid to the receiver who in turn would pay the money as stipulated in the proposed decree nisi. The Senator reluctantly agreed to so act. He believes he was approached because he was one of the trustee/executors of the estate. Paragraph 6 of the judgment nisi appoints the Senator as receiver, to receive the property, etc, payable to the appellant from the estate of the deceased. The appellant’s entitlement became vested on the death of the deceased and, what he was to receive, was to be paid on each anniversary date. Pursuant to an order in the decree nisi, the trustee/executors accounted annually on the 12th day of July, commencing on July 12, 1969, to the receiver and paid him the amount due to the appellant. He then, in the same month, paid the portion stipulated in the decree nisi to Isobel.

Following the death of the life annuitant (the sister) on August 2, 1972, the securities of the estate were liquidated, which took about eleven months. After this death, three-quarters of the residue (except royalties for the first ten years) went to the appellant of which, according to the decree nisi, 30% was to be invested and the net income therefrom was to be paid to Isobel “for the support and maintenance of the plaintiff and the children.” If the plaintiff was disentitled (which as far as the years under appeal are concerned did not happen) other provisions were made. The decree nisi also appointed the Senator as trustee for Isobel and the children of the royalties which the appellant was to receive under the Will of the deceased after the death of the life annuitant, 15% of which was to be paid to Isobel and 85% to the appellant. As to year-ends, it was explained that when the estate of the deceased was being considered the year-end was in July, the anniversary date of the death of the deceased. After the death of the life annuitant, the Senator became the trustee of an inter vivos trust and the year- end was the calendar year-end. For this reason one payment (April 1974 of $3,652.05) was late as it was Originally thought it could go until July 1974 when it should have been paid in 1973. That was, should one say, the year of the change-over due to the change in the type of trust.

The Senator stated his duty as receiver was solely to receive and pay out. According to the Will, the Senator stated the trustee/executors were to pay the annuitant monthly and the balance annually. Of course it was admitted that, if there were no investment income and/or proceeds from the copyright, it could be no amount would be paid to Isobel in a given year. By the same token, the inference clearly was that the likelihood, over a given number of years, of the total payment to Isobel in any two years being the same was highly unlikely. However the rate at which she would be paid was always constant.

The submission of counsel for the appellant was that, before the sums paid to Isobel could be deductible by the appellant in computing his income for the years, the several requirements in paragraph 60(b) had to be met. Paragraph 60(b) 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.

Of the several requirements, three were either admitted or clearly established, namely: any amount paid was paid pursuant to a decree nisi', the appellant and Isobel were divorced; and, they were living separate and apart at all times. As to those requirements which were not admitted or clearly established, counsel submitted they too were now clearly established. They were:

1. Was an amount paid in the year?

2. Was it alimony or other allowance?

3. Was it payable on a periodic basis?

4. Was it for the maintenance of the recipient thereof and children?

There was one payment which was subject to ambiguity, namely, a cheque for $3,652.05 paid on April 24, 1974. It was to cover the period of August 3 to December 31, 1973. This was the year when the trust changed from an estate trust to an inter vivos trust and not only did the year-end change but assets had to be realized and converted. It was just a belated payment but, in any event, it was held by her trustee.

As to the amounts paid being an allowance, counsel submitted that, first of all, there is no case on percentage either in favour of or against the position of the appellant. Based on the definition in The Shorter Oxford English Dictionary, 3rd Edition, of “Allowance” (page 47, column 1, 3rd) clearly what was paid here was an allowance as what was paid was “a limited portion or sum, esp of money, or food.” A similar meaning was in The Intermediate Dictionary (page 24, column 1, 1st): “a limited share set apart; a definite portion or amount given out.” Counsel submitted that the rate was within the reasons for judgment of the case of Her Majesty the Queen v Morton Pascoe, [1975] CTC 656; 75 DTC 5427, in so far as it was the amount which Isobel had at her disposal to meet the expenses she would incur. It was not an amount paid to her to reimburse her for the expenses she had met. In this respect he referred to the following paragraph on pp 658 and 5428 respectively:

First, we are of opinion that the payment of those sums did not constitute the payment of an allowance within the meaning of section 11(1)(l). An allowance is, in our view, a limited pre-determined sum of money paid to enable the recipient to provide for certain kinds of expense; its amount is determined in advance and, once paid, it is at the complete disposition of the recipient who is not required to account for it. A payment in satisfaction of an obligation to indemnify or reimburse someone or to defray his or her actual expenses is not an allowance; it is not a sum allowed to the recipient to be applied in his or her discretion to certain kinds of expense.

This case is not like the case of The Attorney General of Canada v James C Weaver and Freda J Weaver, [1975] CTC 646; 75 DTC 5462, as, in that case, Weaver was trying to deduct payments he made on behalf of his wife to third parties, her creditors. All payments by the appellant in the instant case were payments to Isobel, not creditors of Isobel. Reference was made to a decision of my colleague, Mr Tremblay, in the case of Michel Fortin v MNR, [1979] CTC 2907; 79 DTC 751, which decision, counsel pointed out, was under appeal to the Federal Court. According to counsel for the appellant, this decision in effect allowed a variable amount to be deductible as alimony. Fortin was, initially by a separation agreement and later by a decree nisi, required to pay his wife a stated sum per period and “the taxes on this alimony.” The Board’s decision was that the appeal was to be allowed and the amount was deductible. As to the payments in the instant ap- peal being on a periodic basis, when the receiver collected from the estate he was to pay—he was not to hold, to invest or to do anything other than to pay to Isobel.

Throughout the decree nisi the amounts paid are referred to as “maintenance” in the main and the evidence of Senator Lang was that the sums paid to Isobel after the death of the annuitant were also for maintenance even though, in the clause referring to that period, the word “maintenance” is not used. The clause however uses the words “so long as she (Isobel) is entitled.” “Entitled” in the definition clause means “alive, chaste and not remarried” which is in effect a “dum casta clause” which, when interpreted, means entitled to maintenance.

Counsel for the Crown submitted that the payments were not within the ambit of paragraph 60(b) as:

1. There was not an amount being paid.

2. It was not paid by the appellant.

3. It was not an allowance.

4. It was not paid on a periodic basis.

5. It was not alimony.

The position was that the so-called “amount” in this case does not fit the definition of the word “amount” in section 248 of the Act, the relevant parts of which are:

“amount” means money, rights or things expressed in terms of the amount of money or the value in terms of money of the right or thing.

It was not a payment by the appellant but rather a payment by the trustee/executors to a receiver who did the paying and so it was the trustee/executors who were paying the sum, not the appellant. Counsel made a strong submission that the payment was not an “allowance” as is required by the section and relied on the case of Takis P Veliotis v Her Majesty the Queen, [1974] CTC 237; 74 DTC 6190, a decision of the Trial Division of the Federal Court. In his reasons at 240 and 6192 respectively, Pratte, J states as follows:

An allowance is a specific sum of money paid to someone. An allowance is payable on a periodic basis when a specific sum of money is payable at regular intervals. A judgment does not create an obligation to pay an allowance on a periodic basis if it does not require the payer to pay the same sum of money at regular intervals. In the case at bar the divorce decree may impose on the plaintiff an obligation to make certain payments on a periodic basis; but it does not require him to make a periodic allowance to his spouse of $25,000.

In the present case the submission is that, while the percentage which was to be paid to Isobel was “specific”, the sum she was to be paid was never specified and so, based on this decision, it was not an allowance. This position was confirmed by the Federal Court of Appeal in the Pasco case (supra) where the Court stated: “an allowance is, in our view, a limited predetermined sum of money . . A set dollar figure counsel submitted is required and that figure must be set at the time the agreement is entered into or the decree nisi is granted. Counsel also submitted that the requirement of “periodic basis” as set forth in paragraph 60(b) is not satisfied as nowhere in the decree nisi is it stated when Isobel shall be paid the sums and in this respect counsel quoted again from the Pascoe case (supra):

Furthermore, even if the payment of the expenses here in question could be construed as the payment of an allowance, it was not, in our view, an allowance “payable on a periodic basis’’ as required by section 11(1)(l). The payment was not determined by the separation agreement and the decree nisi to be at fixed recurring intervals of time. Indeed, the agreement and decree said nothing about when payment of the expenses must be made, it is not relevant that the educational expenses may, in fact, have been paid on a periodic basis since the periodicity required by the statute refers to the manner in which the allowance is payable, not to the manner in which it is in fact paid.

As to whether or not the payments are an allowance for alimony or maintenance, attention was drawn to paragraph #12 in the decree nisi, which in part reads:

. . . the trustee shall not be bound to enquire into the entitlement of the plaintiff to the benefits hereunder specified . . .

Benefits are not maintenance or alimony. Clearly the amounts paid after the death of the life annuitant are not in any way stated to be alimony or maintenance.

In reply, the appellant’s counsel submitted that: what was paid was an amount; the Senator was a mere conduit pipe to ensure the payments were made to Isobel; insofar as the Veliotis (supra) case is concerned, it considered the question of periodicity not allowance and its remarks in this respect were obiter; the amount is a calculable amount; the obligation of the receiver was to receive and pay out and it was received twice a year; in paragraph #12 re benefit, the last five lines read as follows,

. . . or a certificate of her subsequent marriage, or an order of this Honourable Court declaring her to be no longer entitled under the terms hereof. Upon receipt of such certificate or order, the Trustee shall make no further payments for the maintenance of the plaintiff.

(Note especially the last sentence.)

In deciding this issue, one must remember that paragraph 60(b) is an exempting provision and so it must be strictly construed. By the same token, while the issue is not before me, it cannot be forgotten that if this sum is deductible by the appellant it is, pursuant to paragraph 56(1 )(b) of the said Act, taxable as income to Isobel. As I see this case, section 60.1 has no application as there was no amendment to the decree nisi after the effective date of that section nor was the decree nisi dated after the effective date of that section. I do believe that because of the decisions in the cases of Weaver (supra), Pascoe (supra) and Veliotis (supra) and the fact that the Fortin case (supra) is under appeal, I should not consider the Fortin case.

As I read the Veliotis case (supra) and the Pascoe case (supra), the effect is that the appeal of the appellant must fail. The payments here were not a specific sum of money payable on a regular basis. The decree nisi made no mention when any sum was to be paid to Isobel. As Pratte, J stated in the Pascoe case (Supra):

. . . The payment was not determined by the separation agreement and the decree nisi to be at fixed recurring intervals of time. Indeed, the agreement and decree said nothing about when payment of the expenses must be made.

The same applies in this case—the decree nisi said nothing about when the payments were to be made to Isobel.

Judgment will go dismissing the appeal.

Appeal dismissed.