Guy Tremblay:— This case was heard in Vancouver, BC, on February 21, 1979.
1. Point at Issue
The point is whether the appellant is correct in claiming in the computation of his income for the 1976 taxation year the amounts of $3,318 for a life insurance premium and $1,312 for dental expenses for his children, as part of alimony payments as provided in the written separation agreement. The Department of National Revenue refuses those expenses because, according to its contention, they were not paid on a period basis.
2. Burden of Proof
The burden is on the appellant to show that the respondent’s assessment is incorrect. This burden of proof results especially from several judicial decisions, one of which is including the judgment delivered by the Supreme Court of Canada in R W S Johnston v MNR, [1948] CTC 195; 3 DTC 1182.
3. The Facts
3.10 The appellant and his wife separated in October, 1973 and were divorced by way of decree nisi on May 12, 1975, which became absolute on October 17, 1975.
3.02 The decree nisi gave custody of the two children of the marriage to the appellant’s wife, Joan Helen Walley and ordered the appellant to pay $100 per month for the maintenance of each child.
3.03 On May 9, 1975, the appellant and his wife entered into a written separation agreement which provided, inter alia, that:
(a) the appellant would pay to his wife as maintenance for the children of the marriage the sum of $100 per month for each child;
(b) the appellant would maintain the existing insurance policies on his life, the beneficiaries of which policies were his children. Two policies were issued by Equitable Life no 096595 (exhibit A-4); 146334 (exhibit A-5); and one by Confederation Life 2539140 (exhibit A-6);
(c) the appellant would be responsible for the dental treatment of the children.
3.04 The payment of the Insurance premiums were on a monthly basis ($227.33 to Confederation Life) and on an annual basis ($42 and $17 to Equitable Life).
3.05 The payment for the dental treatment for each of the two children was $1,685 and payable by an initial payment of $385 and 26 monthly payments of $50, as provided in letters dated June 8,1976 and September 9,1976 written to the appellant by R N Hicks, specialist in Orthodontics.
3.06 In a return, dated April 26,1977, the appellant duly reported his income for 1976, claiming, inter alia, a deduction for alimony payments of $7,030. This sum included monthly payments of $2,400 made directly to his wife, life insurance premiums of $3,318 and dental expenses of $1,312.
3.07 The figures are not in dispute.
4. Law—Precedent Cases—Comments
4.1 Law
The two main sections of the Income Tax Act involved in the present case were 60(b) and 60.1 which read as follows:
60(b) Alimony payments.—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;
60.1 Maintenance payments.
Where, after May 6, 1974, a decree, order, judgment or written agreement described in paragraph 60(b) or (c), or any variation thereof, has ben made providing for the periodic payment of an amount by the taxpayer to or for the benefit of his spouse, former spouse or children of the marriage in the custody of the spouse or former spouse, the amount or any part thereof, when paid, shall be deemed to have been paid to and received by the spouse or former spouse if the taxpayer was living apart from the spouse or former spouse at the time the payment was received and throughout the remainder of the year in which the payment was received.
4.2 Precedent Cases and Doctrine
1. Her Majesty the Queen v Morton Pascoe, [1975] CTC 656; 75 DTC 5427;
2. Gerhard Hausmann v MNR, [1978] CTC 3038; 78 DTC 1757;
3. Gordon A Bryce v MNR, [1978] CTC 3144; 78 DTC 1833;
4. Dr W F Shaw v MNR, [1978] CTC 3230; 78 DTC 26;
5. N Golightly v MNR, [1970] Tax ABC 161; 70 DTC 1120.
4.3 Comments
4.3.1 Dental Expenses
According to the evidence, the payments of dental expenses for the benefit of the children were provided in the agreement (paragraph 3.03) and payable on a periodical basis (paragraph 3.04). This meets the wording of the legal sections quoted above. The appeal is allowed.
4.3.2 Insurance Policies
According to the evidence, the payments of the premiums of the insurance policies are payable on a periodical basis (paragraph 3.04). They were also provided in the agreement (paragraph 3.03). This meets the wording of the Act.
Can it be said, however, that the payments are made for the benefit of the two children even if they are the beneficiaries of the policy?
At first glance, it seems to the Board that being the beneficiary of the indemnity of an insurance policy is something very far from having the benefit of the payments of the same insurance policy. Indeed, between the payment of the premiums and the receipt of the indemnity, so many things can happen: the beneficiary can die before the insured; the insured could change the beneficiary of the policy (even if it is with the consent of the beneficiary); the insured can cash the redemption value (even if it is with the consent of the beneficiary).
The Board has a serious doubt that the intention of the legislator was to allow the deduction of such payments. The intention of the legislator, however, does not have to be considered in the interpretation of the Income Tax Act. The wording of the law must be considered. Indeed, what does the word “benefit” mean in section 60.1 quoted above?
According to the Living Webster Encyclopedic Dictionary 1973-1974 edition “benefit” means: “good done or received; a kindness or favour; anything that is for the good of a person or thing; advantage or profit;...”.
In its ordinary meaning, the word “benefit” does not necesarily seem to mean an immediate advantage. However, as the income tax (and premiums insurance) must be paid every year, what is the benefit for the beneficiaries (the two children) during the year of the payment of the premium? The benefit indeed is the possibility of receiving, the right to receive the insurance indemnity if the appellant died during the year. It is not always certain that beneficiaries will collect indemnity. However, the purpose of life insurance is to protect beneficiaries against the financial disadvantages of death. Who knows the date of a person’s death? Nobody. However, who can say, that it would not be in the current year? Therefore both death and the reception of the indemnity are possibilities. Is the possibility of receiving an indemnity, a benefit? The Board thinks that in insurance, the answer must be in the affirmative.
The Board admits that it is also an advantage for the appellant to deduct the premiums of his life insurance, an advantage he would not have if he were not separated or divorced. However, because it might include an advantage for the appellant, it does not affect the fact, that it remains a benefit for the children. Inasmuch it is a benefit for the children the Board thinks, the expense is deductible within the wording of section 60.1 of the new Act.
From another point of view, the Board knows that the deducted amount will be included in the income of his wife. Is it equitable? The Board does not have to answer that question. It has only to construe the Act within the wording of the legal section.
5. Conclusion
The appeal is allowed and the matter is referred back to the respondent for reassessment in accordance with the above reasons for judgment.
Appeal allowed.
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