Wayne Bruce Biles v. Minister of National Revenue, [1979] CTC 2411, 79 DTC 358

Delmer E Taylor:—This is an appeal heard in Toronto, Ontario, on March 1, 1979, against income tax assessments in which the Minister of National Revenue disallowed as deductions for alimony payments, the amounts of $6,978, $8,557.20, and $1,906.69 for the taxation years 1973, 1974, and 1975 respectively. The respondent relied, inter alia, upon sections 2, 3 and paragraph 60(b) of the Income Tax Act, SC 1970-71-72, c 63 as amended.

Facts

The appellant and his wife Barbara were living separate and apart during the relevant taxation years pursuant to a written separation agreement dated January 1, 1969. In computing his income for the 1973, 1974 and 1975 taxation years, the appellant attempted to claim a deduction for alimony payments to his spouse from whom he was living separate and apart pursuant to a written separation agreement, in the following amounts:

1973 taxation year — $11,046.16

1974 taxation year — $12,197.20

1975 taxation year — $11,136.69.

Contention

The position of the appellant was that:

—inter alia, the written separation agreement (hereinafter referred to as the “Agreement”) provided for the payment and provision to the taxpayer’s wife during their joint lives for her maintenance, benefit and support as follows:

(a) The sum of $25 per week;

(b) The use of a motor vehicle at a cost not to exceed $2,500;

(c) Automobile insurance including coverage for collision and public liability claims;

(d) A policly of insurance with Prudential Insurance Company of America through the taxpayer’s employers;

(e) Medical and hospital expenses insurance;

(f) All medical, dental and hospital bills other than for cosmetic treatment;

(g) Telephone account for local telephone calls;

(h) Daily newspaper account;

(i) Water and utility account for the said premises.

—The agreement further provided that the husband was to pay and provide to the children for their care, maintenance, benefit and support the following:

(a) The sum of $15 for each child per week so long as they were in the custody of the taxpayer’s wife and until each child attained the age of 18 years, or so long as each continued in regular attendance at a school, and in the case of Kimberley Nancy Biles, so long as she was unmarried and in such attendance, whichever is the later in each respective case;

(b) The tuition and other incidental fees payable to any school attended by the children;

(c) Policies of insurance, insuring the medical and hospital expenses of the children;

(d) All medical, dental and hospital bills not covered by insurance.

—Changes were made to the agreement during the ensuing years which provided as follows:

(a) The provision with respect to the telephone account was deleted, such deletion being signed by the taxpayer and his wife and stated to be effective “year of 1972 and 1973”.

(b) A like deletion was made for the newspaper account.

(c) A like deletion was made with respect to the reduction based on the taxpayer’s wife’s earnings.

(d) A like deletion was made with respect to the wife’s income tax.

—An amended written separation agreement (hereinafter referred to as the “Amended Agreement”) was signed on June 3, 1975.

—Inter alia, in the amended agreement, the taxpayer agreed:

(1) to pay and provide to the wife for her maintenance, benefit and support the sum of $240 per week, payable monthly, commencing the first week of July, 1975, with the final payment becoming due during the last week of June, 1976;

(2) to provide to his wife for the maintenance and benefit of the children the sum of $15 per week on the same basis as set forth in the written separation agreement. The said $15 per week was to be applied as follows:

(a) School tuition;

(b) Vacation and travel costs,

(c) Costs in relation to participation in athletics, arts and crafts and hobbies.

(3) that twice yearly on fixed dates, that is June 30 and December 31, in each and every year, the taxpayer was to pay to his wife a sum equal to the amount by which the expenses actually paid or incurred by his wife during the then immediately preceding six months for the children’s support, as set out above, exceed the payments made for the maintenance and benefit of his children by the taxpayer.

—The items set forth meet all of the criteria of paragraph 60(b) of the Act.

—Section 60.1 of the Act provides for the deduction of payments made to third parties provided certain pre-conditions are met.

The contentions of the respondent were that:

—the expenses disallowed included bills for hydro, heating, water, clothing, vacations, athletic activities, moving and storage expenses, hotel bills, arts, crafts and hobbies, mortgage payments, taxes, repairs, renovations and insurance.

—such expenses were not pre-determined fixed sums of money payable on a periodic basis and were therefore not alimony or other allowance within the meaning of paragraph 60(b) of the Income Tax Act.

Evidence

Counsel for the appellant provided the Board with copies of the “Agreement” and the “Amended Agreement”. As the Board understands it, there is no significant dispute between the parties regarding the facts which should be considered for the appeal.

Argument

Counsel for the appellant emphasized what he viewed as the remedial aspects of section 60.1 as they applied to paragraphs 60(b), (c). It was his opinion that section 60.1 applied to this taxpayer at least from the date of the amended agreement, probably from the effective date of section 60.1 (May 6, 1974), and possibly from the date of the original agreement. Reference was made to the decision of the Assistant Chairman of this Board, Mr Frank Dubrule, QC, in Gordon A Bryce v MNR, [1978] CTC 3144; 78 DTC 1833, particularly the following to be found at 3147 and 3148 and 1836 respectively:

Is not the key word in section 60.1 “benefit”? The deduction is not the value of the benefit to the former wife—it is the payment to a third party if such payment is, to any extent, to her benefit.

I am of the view that the position taken by the appellant is correct. He paid what he was required to pay by an Order of a court of competent jurisdiction. The taxes, mortgage payments, sewage and water rates and cablevision were paid as the court ordered them to be. (The fact that by contract he may have been required to pay them is irrelevant—the payment satisfies the court requirement.) As I view it, no one can suggest that it was not for the benefit of the former spouse as the substantial effect was that she had free rent, and, in addition, the greater sum paid on the mortgage—the greater the sum she would receive on sale of the property. I am satisfied that all payments claimed are within the ambit of section 60.1 and that those payments are deductible to the appellant.

The position of counsel for the respondent was based substantially on Interpretation Bulletin IT-118R dated August 30, 1976, which contains the following:

15. It should be noted that section 60.1 and 56.1 affect only the requirements set out in paragraphs 1(e) and 2(e) above. For amounts to qualify under paragraph 60(b), 60(c), 65(1)(b), or 56(1)(c), the other requirements in paragraphs 1(a) to (d) or 2(a) to (d) above, as applicable, must also be met. For example, in order to qualify under these provisions of the Act, an amount must be paid as an allowance (see paragraph 6 above). This means that payments made to creditors of the spouse in respect of specific living expenses (eg, medical, rent, or mortgage) in compliance with the court order or separation agreement and in addition to any maintenance allowance payments thereunder do not qualify.

The reference to “1(e) and 2(e) above’’ means that the only application of section 60.1 is whether or not the amount is paid directly to the spouse—all other conditions inherent in paragraphs 60(b) and (c) remain unchanged—particularly the requirement to fit under the definition for “allowance’’. Counsel also argued that section 60.1 was not a section which in itself provided for a deduction—that only came from paragraph 60(b) or (c).

Findings

The determination of this matter rests solely upon the deductibility of the amounts claimed under section 60.1 of the Act since they do not fall within the criteria for deductibility under paragraph 60(b) of the Act.

I note with interest the point made by counsel for the respondent that section 60.1, in itself, does not provide for deductibility, and the origin of any deductibility must be from paragraph 60(b) or (c). In addition to support for this addition to support for this opinion provided by counsel, I have noted that the separate clauses in section 60 of the text of the Act, from paragraphs (a) through (r), easily follow the preamble-

Other decuctions.

There may be deducted in computing a taxpayer’s income for a taxation year such of the following amounts as are applicable:

It is somewhat less certain that the same preamble may be attached as readily to section 60.1. However, I would not dismiss the appellant’s claim on the ground that no deduction (let alone the one in this appeal) can be claimed under section 60.1 alone.

With regard to the fundamental right to any such deduction, section 60.1 has been revealed in detail in Bryce (supra) and my learned colleague has emphasized therein the importance of the word “benefit”. While adopting his view for the purpose of the appeal, I would also underscore two other points made in his decision—first, that section 60.1 was added to the law while certain critical appeals were still before the Courts and second, that it may produce some confusion, at least in the short run.

With regard to this case, details were not provided to the Board regarding the individual components of the amounts disallowed—the hearing dealt only with the basic issues. On the evidence available it is my opinion that the appeal should succeed under the provisions of section 60.1 of the Act to the extent the payments in question were made by the taxpayer after June 3, 1975, the date of the amended agreement. Therefore, the appeal will not be allowed for the taxation years 1973 and 1974, and allowed in part for the taxation year 1975.

Decision

The appeal is dismissed for the years 1973 and 1974 and allowed in part for the year 1975 in order that any portion of the total amount of $1,906.69 disallowed by the Minister, which was paid after June 3, 1975, shall be permitted as a deduction to the taxpayer. The matter is referred back to the Minister of National Revenue for reconsideration and reassessment according to these reasons for judgment.

Appeal allowed in part.