Sinclare v. R., [1999] 2 CTC 2940

Bowman T . C.J.:

These appeals are from assessments for the appellant’s 1993 and 1994 taxation years. The issue is the appellant’s right to deduct payments made to his former spouse of $3,000 and $8,780 respectively.

The appellant and his former spouse married in 1977 and separated in May 1993. Between May of 1993 and December 1994 payments were made to his wife, generally at the rate of $400 per month for the maintenance of his children. These amounts varied from time to time depending upon whether any of the three children resided with him.

The payments were made out of the family trust, the C.R. Sinclare Family Trust.

On December 5, 1994 Mr. Justice McKenzie of the Supreme Court of British Columbia made an order relating to a number of financial matters between the spouses. The order was entered on May 25, 1995 at the Nanaimo Registry of the Court.

The order reads in part as follows:

AND THIS COURT FURTHER ORDERS AND CONFIRMS that the Petitioner, CHRISTOPHER ROSS SINCLARE, has paid to the Respondent, JULIE DIANNE ELIZABETH SINCLARE, for the children, SPENCER MACDONALD SINCLARE, born the 15th day of April, 1978, and KRISTEN ELIZABETH ANNE SINCLARE, born the 31st day of August, 1980, the following amounts as interim child maintenance: for the month of May, 1993, the sum of FIVE HUNDRED ($500.00) DOLLARS; for the month of June, 1993, the sum of EIGHT HUNDRED ($800.00) DOLLARS; for the month of August, 1993, the sum of FOUR HUNDRED ($400.00) DOLLARS; for the month of October, 1993, the sum of FIVE HUNDRED ($500.00) DOLLARS; for the month of November, 1993, the sum of FOUR HUNDRED ($400.00) DOLLARS; for the month of December, 1993, the sum of FOUR HUNDRED ($400.00) DOLLARS; for the month of February, 1994, the sum of FOUR HUNDRED AND EIGHTY ($480.00) DOLLARS; for the month of March, 1994, the sum of TWELVE HUNDRED ($1,200.00) DOLLARS; for the month of April, 1994, the sum of TWELVE HUNDRED ($1,200.00) DOLLARS; for the month of May, 1994, the sum of TWELVE HUNDRED ($1,200.00) DOLLARS; for the month of June, 1994, the sum of EIGHT HUNDRED ($800.00) DOLLARS; for the month of July, 1994, the sum of EIGHT HUNDRED ($800.00) DOLLARS; for the month of August, 1994, the sum of SEVEN HUNDRED ($700.00) DOLLARS; for the month of September, 1994, the sum of EIGHT HUNDRED ($800.00) DOLLARS; for the month of October, 1994, the sum of EIGHT HUNDRED ($800.00) DOLLARS; for the month of November, 1994, the sum of EIGHT HUNDRED ($800.00) DOLLARS, subject to any dispute by the Respondent as to the sums above;

AND THIS COURT FURTHER ORDERS that commencing the 1st day of December, 1994, and on the 1st day of each and every month thereafter the Petitioner, CHRISTOPHER ROSS SINCLARE, shall pay to the Respondent, JULIE DIANNE ELIZABETH SINCLARE, interim maintenance in the sum of FOUR HUNDRED ($400.00) DOLLARS per month per child for the children, SPENCER MACDONALD SINCLARE, born the 15th day of April, 1978, and KRISTEN ELIZABETH ANNE SINCLARE, born the 31 st day of August, 1980; AND THIS COURT FURTHER ORDERS that the FOUR HUNDRED ($400.00) DOLLARS per month to be paid to the Respondent, JULIE DIANNE ELIZABETH SINCLARE, for the child, SPENCER MACDONALD SIN- CLARE, born the 15th day of April, 1978, is to be paid to the Respondent on the basis that the Respondent will remit that amount to her parents, DONALD AND IRENE MACDONALD, for so long as Spencer Macdonald Sinclare continues to reside on a day-to-day basis with the Respondent’s parents, DONALD AND IRENE MACDONALD.

The appellant put in evidence, with the consent of counsel for the respondent, a transcript of the oral comments of Mr. Justice McKenzie, as well as the comments of counsel for the parties, Mr. Vining for the Appellant and Ms. Poles for his spouse. The transcript reads in part as follows:

THE COURT: I think there should be maintenance for the two children in the amount of $400.00 each that is being paid now. The amount for Kristen to be paid to the wife, to be disbursed by her in the normal course of household living expenses; the amount for Spencer to be paid to the wife on the basis that she will remit that amount to her parents for the support of Spencer while Spencer continues to reside with the parents.

MR. VINING: One other comment I have. Because he has been paying this maintenance payment now, I think they do agree he’s been paying since May of ’93, I wasn’t able over the weekend to get copies of all of the cancelled cheques but I do have them now, and an affidavit which I just brought to the Court with me, I’ve given my friend a copy. And I’m asking then that under the Divorce Act, section 16, that you are at liberty to make the order retroactive so he can get a tax deduction for all of those payments. They’ve all been listed. I suspect my friend will have to go through them to confirm that she did, in fact, receive those payments. So, I would ask that subject to any dispute as to those monies, that the order be made that he get the order retroactive to May of ’93 to get credit for these payments he has made.

The Court: Yes, that sounds reasonable.

MS. POLES: My lord, I have comments to make with respect to that. This is the first time I’ve seen these. And, those payments were made, as I understand, directly from the family trust, they do not attract tax.

MR. VINING: They’re out of his money from his earnings as a lawyer, so if he gets it out of the family trust or gets it out of his own pocket, it’s money that’s come out of his hide, as it were. I can realize that she’s not had a chance to look at it yet, that’s why I’ve allowed her liberty to apply if she didn’t agree.

The Court: I think it’s reasonable, Miss Poles, particularly as the husband is going to have to be making substantial cash payments on the mortgage that he’s not going to get a tax break.

On September 7, 1995 Mr. Justice Harvey made a further order relating to maintenance and custody of the children, as well as other financial matters between the spouses. The order reads in part as follows:

AND THIS COURT FURTHER ORDERS that both the Petitioner and the Respondent shall be solely liable and responsible for any personal income tax debt owing from the marriage, both prior to separation and since the separation of the parties, which occurred on or about the 7th day of May, 1993. The Respondent, Julie Dianne Elizabeth Sinclare, however, is responsible for any tax consequences arising from prior maintenance payments made by the Petitioner, Christopher Ross Sinclare, to the Respondent, Julie Dianne Elizabeth Sinclare, for the children pursuant to previous Orders of this Court.

The order was approved and consented to by the appellant’s lawyer and by Julie Sinclare personally. At that point she was having a dispute with her lawyer over fees, and presumably did not have the benefit of independent legal advice.

The appellant’s accountant applied, at some point after the court order of December 1994, to refile the appellant’s and the family trust’s return to show dividends received by the trust from the appellant’s law corporation as having been received personally by him. Reassessments were issued to give effect to this change. I presume the purpose of the refiling was to reverse the effect of the payments having been made to Mrs. Sinclare in 1993 and 1994 by the trust, and to permit them to be deducted by Mr. Sinclare. There is no evidence that at the time of refiling, the Department of National Revenue was told that this was the purpose, or that it ever agreed that it had that effect.

Mr. Sinclare contends that the payments set out in Mr. Justice McKenzie’s order of December 5, 1994 are deductible by him under paragraph 60(c) of the Income Tax Act which in 1993 and 1994 permitted a deduction as follows:

(c) maintenance — an amount paid by the taxpayer in the year as an allowance payable on a periodic basis for the maintenance of the recipient, children of the recipient or both the recipient and the children, if

(i) at the time the amount was paid and throughout the remainder of the year the taxpayer was living separate and apart from the recipient,

(ii) the taxpayer is the natural parent of a child of the recipient, and

(iii) the amount was received under an order made by a competent tribunal in accordance with the laws of a province.

He contends further that Mr. Justice McKenzie’s order and the transcript of his and counsel’s remarks, reproduced above, as well as Mr. Justice Harvey’s order, if read together, have the effect of causing the payments to fall within subsection 60.1(3) of the Act which read as follows in the years in question:

(3) For the purposes of this section and section 60, where a decree, order or judgment of a competent tribunal or a written agreement made at any time in a taxation year provides that an amount paid before that time and in the year or the preceding taxation year is to be considered to have been paid and received thereunder, the amount shall be deemed to have been paid thereunder.

There are a number of difficulties with this position. In the first place, the payments were made by the family trust, not by the appellant. Refiling the tax returns to treat the dividend income paid to the trust as the appellant’s income does not have the effect of converting payments made by the trust into payments made by the appellant. I recognize that the order of December 5, 1994 declares Mr. Sinclare to have made the payments. It would however be pushing the principle enunciated in Dale v. R. (1997), 97 D.T.C. 5252 (Fed. C.A.) far beyond what can reasonably be expected to be its ambit to hold that a declaration by a court that a taxpayer made payments which he demonstrably did not, can oblige this court to treat him as having made the payments for the purposes of paragraph 60(c) of the Act.

Even if that hurdle were overcome, the next problem is that I do not think the orders of Mr. Justice McKenzie and Mr. Justice Harvey, even if read with the transcript, can reasonably be read as implying that the prior payments are to be treated as having been made pursuant to the order of Mr. Justice McKenzie.

In Hay v. R., [1997] 2 C.T.C. 2305 (T.C.C.), I held that it was unnecessary that the precise wording of subsection 60.1(3) be referred to, or that the subsection be expressly mentioned, provided that the court could find, by necessary implication, that the parties clearly intended subsection 60.1(3) to apply.

No such clear intent is apparent here. The order of Mr. Justice McKenzie simply recites that the payments were made.

So far as the transcript of the remarks of Mr. Justice McKenzie and the two counsel is concerned, I have never before heard of extrinsic materials such as a transcript of the judge’s or counsel’s comments being used to interpret a court order. I recognize that there seems to be a trend recently to use extrinsic materials in the interpretation of legislation and there may be a few exceptions to the parol evidence rule in construing written contracts. However, it is a novel proposition that one may look to remarks made by a judge or counsel in construing a formal order, judgment or reasons for judgment rendered by that judge. Judges are presumed, rightly or wrongly, to know what they are saying, to mean what they say and to be capable of saying what they mean. I doubt that there is a judge in Canada who would want his or her formal pronouncements interpreted by comments that he or she made in the course of argument.

However, even if reference to the transcript were permissible, it does not help the appellant. Counsel asked that the order be made retroactive, the judge seemed to think it was a reasonable request, but counsel for Mrs. Sinclare certainly did not agree and observed that since the payments were made out of the family trust they did not attract tax. There was no meeting of minds between counsel, and, whatever the judge may have thought, it was not reflected in the formal order.

The order of Mr. Justice Harvey does not make the prior payments subject to subsection 60.1(3). It simply provides that Mrs. Sinclare is responsible for any income tax consequences arising from prior maintenance payments made by Christopher Ross Sinclare to her for the children “pursuant to previous orders of the Court.”

The payments in question in these appeals were not made pursuant to orders of the court at all. I observe that the order of Mr. Justice Harvey was approved personally by Mrs. Sinclare and not by counsel.

This is sufficient to dispose of the appeals. I do not therefore need to deal with the Crown’s position that the payments were not periodic beyond observing that they had a certain rough periodicity to them. The simple fact is they were not made pursuant to a court order or a written agreement, nor were they deemed to be by subsection 60.1(3).

The appeals are dismissed.

Appeal dismissed.