Borsellino v. R., [1997] 2 CTC 2923, 97 DTC 446

Dussault T.C J .:

These are appeals from assessments for the appellant’s 1988, 1989 and 1990 taxation years. In assessing the appellant for each of these years, the Minister of National Revenue (the “Minister”) added the amounts of $11,397, $11,427 and $57,235 to the appellant’s income for 1988, 1989 and 1990, respectively. These amounts correspond to the amounts claimed by Liborio Sciascia as deductions for alimony payments to his former spouse, Caterina Borsellino, during each of the years in issue.

In response to an application made in this regard by the respondent, Liborio Sciascia was joined with the appellant in respect of her appeals for the 1988, 1989 and 1990 taxation years by order of Chief Judge Couture of this Court dated June 23, 1993, pursuant to paragraph 174(3)(&) of the Income Tax Act (the “Act”).

The questions to be determined by the Court are as follows:

[TRANSLATION]

(a) whether the appellant must include the amounts set out in paragraph 2 of this application in her income for the 1988, 1989 and 1990 taxation years, as alimony, and consequently,

(b) whether Liborio Sciascia, the appellant’s former spouse, is entitled to deduct the same amounts from his income for the same taxation years, as alimony payments.

Based on the evidence adduced, Mr. Sciascia claimed a deduction of $11,397 in 1988, $11,427 in 1989 and $12,235 in 1990 (part of the $57,235 mentioned earlier) as alimony payments made in satisfaction of a judgment on an amended motion for interim relief rendered by Yves May rand J. of the Quebec Superior Court on February 2, 1987 (file No. 500-12-148257- 854). This judgment, in addition to ordering Mr. Sciascia to pay alimony of $700 per month to the appellant, indexed in accordance with article 638 of the Civil Code of Québec, contained the following authorization:

[TRANSLATION]

AUTHORIZES the applicant to continue to reside, to the exclusion of the respondent, with her child, in the marital home located at 9213 Lionel Groulx in St-Léonard, with all the household furniture therein, at the expense of the respondent, including heating, electricity and mortgage payments. [1]

A decree nisi of divorce granted by Jeanne L. Warren J. on May 16, 1988, ordered the parties to comply with the judgment of Yves Mayrand J. as it related to interim relief. [2] On August 25, 1988, Gilles Renaud J. pronounced the decree absolute of divorce without varying any of the terms respecting interim relief. [3]

The evidence showed that the $700 monthly alimony that Mr. Sciascia was ordered to pay to the appellant under the February 2, 1987 judgment (of Yves Mayrand J.) was never paid, so that by December 1990, when the former spouses signed an agreement to settle all of their differences, the arrears were apparently on the order of $45,000. This $45,000 represents the other part of the $57,235 claimed by Mr. Sciascia as alimony payments in 1990. I will return to this point later.

I will deal first with the amounts of $11,397, $11,427 and $12,235 (part of the $57,235) claimed by Mr. Sciascia as deductions for alimony payments in 1988, 1989 and 1990, respectively. In his testimony, Mr. Sciascia stated that these amounts were paid to cover the expenses associated with the residence located at 9213 Lionel Groulx, and specifically for mortgage payments and taxes, in compliance with the judgment of Yves May rand J. in this regard, the text of which was cited earlier. However, the evidence showed that these amounts were never paid to the appellant herself, but were paid to third parties, the creditors concerned. Moreover, these amounts were paid not by Mr. Sciascia himself but by his brother, Cristofaro Sciascia, the owner of the residence, according to Liborio Sciascia, on the understanding that Liborio Sciascia would eventually reimburse him for the amounts paid out.

There is no doubt that the amounts thus paid out cannot be considered, for the purposes of paragraphs 56(l)(i>), 56(1)(c), 60(b) and 60(c) of the Act, to be alimony or another allowance payable on a periodic basis paid by Mr. Sciascia to the appellant and received by her. Even if we could accept that Cristofaro Sciascia might have paid the amounts in question as Liborio Sciascia’s agent, those amounts were not fixed amounts payable on a periodic basis and they were never received by the appellant. Furthermore, by application of subsection 56(12), these amounts could not be considered to be alimony since the appellant had no discretion as to the use of the amounts paid out.

Nor do subsections 56.1(1) and 60.1(1) apply to the amounts paid out, because the order or judgment did not provide for the periodic payment of an amount in that regard. Lastly, subsections 56.1(2) and 60.1(2) cannot apply because there was no specific provision to that effect in the order or judgment as required by the concluding portion of those provisions.

What now of the additional $45,000 that was part of the $57,235 claimed by Liborio Sciascia as alimony payments in 1990?

The evidence showed that the non-payment of the indexed alimony of $700 per month ordered by Yves Mayrand J. on February 2, 1987 was not the only source of dispute between the former spouses. Another issue was the ownership of the residence at 9213 Lionel Groulx, since the appellant claimed that it belonged to her former spouse while he contended and continues to contend that it belonged to his brother, Cristofaro Sciascia. Two judges of the Quebec Superior Court rendered judgments on different appli

cations: the first was Yves Mayrand, in a second judgment dated February 2, 1987, on a motion by Cristofaro Sciascia for deletion of the registration of a statement of family residence by the appellant; the second was Gérald Ryan J., in a judgment dated May 11, 1989 (file No. 500-05-002092-888); they apparently came to different conclusions on this point. In any event, after numerous legal proceedings, including applications for seizure and an application to vary the corollary relief, the application for partition of the partnership of acquests that existed between the former spouses during their marriage was made and granted by judgment dated May 11, 1990.

It should be pointed out that, at that time, the unpaid alimony allegedly totalled close to $40,000.

From that point on, the parties undertook, through their lawyers, to reach a definitive settlement of their differences; after a few months of negotiation and the involvement of a third party, this resulted in an agreement being signed on December 20, 1990. [4] The testimony of the former spouses and their lawyers at that time, as well as the correspondence between the lawyers adduced in evidence, [5] established that not only were the unpaid alimony and the ownership of the residence at 9213 Lionel Groulx the subject of negotiations, but the value of the property and of other immovables was also in issue in attempting to arrive at a partition of the partnership of acquests. In the agreement finally signed by the former spouses on December 20, 1990, the key points that had been in dispute between the former spouses for several years were listed as “whereases” and there was then a partition under the terms of which the appellant, through the intervention of Cristofaro Sciascia, was given ownership of the residence at 9213 Lionel Groulx and other property with a total value of approximately $185,000; no mention whatever was made of a specific figure or of some part of that amount (which was also not mentioned in the agreement itself but on which the parties appear to have been in accord) being paid as the alimony arrears that were still outstanding.

According to Mr. Sciascia and his lawyer at that time, $45,000, the amount of the alimony arrears that were outstanding at the time the agreement was signed on December 20, 1990, was allegedly included in the total value of $185,000 allocated to the appellant under the terms of the agreement. The appellant and her lawyer at that time challenged this contention and maintained that the $185,000 received related only to partition of the property in the partnership of acquests which, in their view, included the residence at 9213 Lionel Groulx. Obviously, this contention was denied by Liborio Sciascia.

The body of the agreement itself, which stipulates that [TRANSLATION] “THE PARTIES AGREE TO SETTLE THE COROLLARY RELIEF AND THE DIVISION OF THE PROPERTY IN THE PARTNERSHIP OF ACQUESTS WHICH EXISTED BETWEEN THEM”, does not contain any mention of the alimony arrears. The only clause relating to alimony is paragraph 3 on page 3, which reads:

[TRANSLATION]

Caterina Borsellino waives any claim to alimony for herself, either for the past or for the future; and Liborio Sciascia also waives any claim to past, present and future alimony.

On December 28, 1990, further to the agreement, the former spouses signed a release which reads as follows:

[TRANSLATION]

The parties hereto mutually grant complete and final release of any alimony that may have been owing on this day, by either of the parties, as well as of any lump sum and/or compensatory allowance for the past or the future.

Can we conclude from all of this that $45,000 was paid by Liborio Sciascia and received by the appellant in 1990 as alimony or as an allowance payable on a periodic basis for the purpose of inclusion and deduction as provided in paragraphs 56(1)(b) or 56(l)(c) and 60(b) or 60(c) of the Act? I do not believe so.

First of all, no amount was specified in the agreement between the former spouses as having been paid as outstanding alimony arrears. There was quite simply a comprehensive waiver by the appellant of any claim for alimony, for both the past and the future. The parties and their lawyers were certainly free to stipulate that a certain amount had been paid and received as arrears of the alimony initially ordered in the judgment of Yves Mayrand J. on February 2, 1987, and confirmed by the decree nisi and decree absolute of divorce. It would probably then have been possible to consider a specific amount representing arrears to have been paid and received under an order or a judgment of a competent tribunal and in satisfaction of such an order or judgment, so as to meet the requirements set forth in paragraph 56(l)(b) or 56(l)(c) and, at the same time, those of paragraph 60(b) or 60(c) of the Act (see R. v. Sills, (1984), 85 D.T.C. 5096 (Fed. C.A.)).

Moreover, the agreement refers to a waiver by the appellant of any allowance not only for the past but also for the future, so that Mr. Sciascia was given a full and final release of any obligation in this regard. In my view, this is one more factor which does not fulfil the requirement of periodic payment stipulated in the provisions mentioned earlier, while here again, no amount was specified in the agreement in this regard based on which any distinctions could be made. It should also be remembered that a payment made to secure a release of any future obligation is also not a payment made under an order or judgment providing for payment of alimony (see McKimmon v. Minister of National Revenue, (1989), 90 D.T.C. 6088 (Fed. C.A.) and Minister of National Revenue v. MacBurnie, (1995), 95 D.T.C. 686 (T.C.C.)).

In conclusion and in response to the questions raised:

(a) the appellant is not required to include the amounts of $11,397, $11,427 and $57,235 in her income for the 1988, 1989 and 1990 taxation years, respectively, as alimony;

(b) Liborio Sciascia may not deduct the same amounts from his income for the same taxation years, as alimony payments.

Accordingly, the appeals by Caterina Borsellino are allowed for each of the 1988, 1989 and 1990 taxation years and the assessments are referred back to the Minister for reconsideration and reassessment, with costs to the appellant.

Liborio Sciascia is bound by the determination made on the questions raised, in accordance with subsection 174(4) of the Act, subject to the rights he is entitled to exercise under subsection 174(4.1) of the Acct.

Appeal allowed.