Graser J.T.C.C.: - The parties were married on September 2, 1988. They separated October 8, 1994. There are two children aged six and four.
Both parties are employed full time. The applicant earns $28,000 - 35,000 gross per year and the respondent $36,000 per year.
Upon separation the respondent and children stayed in the marital home and the applicant paid the mortgage in lieu of child support until the sale of the home in December, 1994. Respondent provided applicant with a receipt for the payments for income tax purposes.
In January, 1995 the husband voluntarily paid $500.00 per month in child support for ten months, a total of $5,000. He received receipts from respondent for the payments which were filed with the Court.
On October 26, 1995 on a Consent Order the support was increased to $600.00 per month which he continues to pay.
There was no formal Order of the Court on written agreement prior to November 1, 1995.
The applicant now seeks an Order of the Court in order to claim the $5,000 in support on his 1995 tax return. The respondent takes objection arguing there was no agreement and she should not have to include the $5,000 in her 1995 income for tax purposes.
Issue
Should the Court grant an Order recognizing the $5,000 paid by the applicant to the respondent for child support from Janaury 1, 1995 - November 1, 1995.
The respondent argues that the parties never reached a verbal agreement or a written agreement with respect to the paymetn of maintenance at the rate of $500.00 per month although she accepted the money paid.
At issue here is whether the Court should make a retroactive order granting the husband a tax benefit with respect to the $500.00 a month payment for the support of the two children between Janaury and October, 1995 and as a corollary to that would it be appropriate to require the wife to include such payments as income thereby requiring her to pay tax on those moneys.
Section 56(1 )(b) of the Income Tax Act requires a party to include support payments as income only where those payments are made pursuant to a Court Order or a written agreement. Section 56(1 )(b) isthe relevant section.
Respondent refers to Jeans v. Jeans, [1994] W.D.F.L. 694 (N.S. Fam. Ct.). In that case the request was made for retroactive tax relief on support payments previously made. The Court denied the request on the basis that it was unable to determine or quantify the economic consequences for the parties of such a retroactive order and as a result was not prepared to grant such an order.
Respondent further submits that if the applicant is entitled to a retroactive order for a tax benefit the respondent must equally be entitled to a retroactive order for payment of maintenance in an amount which the respondent arguably should have paid over the period in question. This would require the Court to determine retroactively what amount should have been paid. I find that there is not merit in that argument.
In the Jeans case the Court stated (at paragraph 11):
The request for retroactive tax relief is denied. Aside from the lack of agreement relating to the amount, there is no evidence that has been led that allows me to balance the tax consequences to both. Absent that, and in recognition of the fact that I granted an adjournment so that issue could be addressed and counsel could quantify the economic consequences to the parties, this has not been done; and as a result, I have insufficient figures to determine the effect on the parties.
The applicant referred the Court to another Nova Scotia case Mclean v. Goddard (1994), 129 N.S.R. (2d) 43, 362 A.P.R. 43 and offers the following summary:
A husband paid $10,932.61 to support his wife and three children in 1992 — the payments predated court ordered support — the husband applied forthe court to retroactively declare the moneys to be maintenance — such a deduction would save the husband $5,000.00 in income taxes, but increase the wife’s tax liability by $1,200.00 — the Nova Scotia Family Court stated that it would declare the pre-order payments to be maintenance subject to the condition that the husband pay the wife’s increased tax liability.
In the present case I have given no indication as to what the additional income would mean with espect to the tax liability of the wife. However I do believe that the decision of the Nova Scotia Court in McLean v. Goddard case is a pragmatic approach to this kind of a situation even though this Court is without the details of the actual tax significance to either party.
Considering the foregoing I have concluded and declare that the moneys paid by Allan John Blanchard in the year 1995 in the amount of $5,000.00 are pre-order payments of maintenance subject to the condition that the husband pay the total increase in the wife’s tax liability which would result if she 1s obliged to take the payments into income.
Application granted.
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