Kevin J Fowler v. Minister of National Revenue, 79 DTC 842, [1979] CTC 3069

Delmer E Taylor:—This is the appeal of Kevin J Fowler with respect to his 1975 income tax return in which the Minister of National Revenue disallowed an amount of $3,420 claimed by the appellant as alimony or maintenance.

Two documents were presented by counsel for the appellant, one cited as A-1, which was an agreement dated June 1, 1974 specifying that an amount of $285 per month would be the basis for the maintenance of the former spouse, Valerie Fowler, and of the children. The Board would refer, without reading, to Clauses 1, 2, 3 and 4 of that agreement which detail the basis upon which this arrangement was to proceed.

Exhibit A-2 was a document signed by the former spouse in 1978, agreeing that payments in this Order had been forthcoming during the interim period. The essence of the payments which are in dispute are covered in paragraph 3 of Exhibit A-1:

3. That it is further agreed that as long as the party of the second part (who would be Valerie Fowler) concurs, the party of the first part may pay the aforesaid expenses of the first mortgage payments, payments on secondary financing, municipal taxes, insurance, light and heat directly instead of making the aforementioned payment of $285 monthly to the party of the second part.

The Board notes also that in paragraph 4 of that same agreement there is provision for that procedure to cease as of January 1, 1975, and direct payments to be made to the spouse. For whatever reason, the procedure Outlined in paragraph 4 was not carried out from January 1975, and the issue before the Board relates to the continuation of payments claimed by the appellant to be $285 per month paid to third parties during the year 1975.

I would refer to one comment made by counsel for the respondent with respect to the application of section 60 of the Act, dealing with the fact that an allowance on one side effectively will be taxed by the recipient on the other side. The Board makes it clear that no decision whatsoever is being made with regard to the taxable status of the spouse, Valerie Fowler. No application was made under section 174 of the Act to join the parties in this matter.

I would also refer to two further recent decisions, Gordon A Bryce v MNR, [1978] CTC 3144; 78 DTC 1833, and Wayne Bruce Biles v MNR, [1979] CTC 2411; 79 DTC 358. Both these decisions deal in general terms with some portions of section 60 of the Income Tax Act, and in rather specific terms with the matter at issue here to-day—whether or not a benefit has been received by the spouse.

Details were provided by the appellant indicating that at least a total of $2,780.94 had been paid out directly to third parties in connection with the particular residence occupied by Valerie Fowler, owned by the appellant, in this instance Kevin Fowler. In addition, there was the replacement of an oil tank at something approaching $242.14 and evidence was given by the appellant that, in 1978, after Valerie Fowler had been evicted from the property, an amount of about $4,500 was paid for repairs and maintenance.

Counsel for the appellant proposes one of two things: one, that the amount of $285 be accepted and agreed as a benefit bestowed by Kevin Fowler on Valerie Fowler and therefore deductible under section 60.1 of the Income Tax Act; or alternatively, if that is not acceptable to the Board, that at minimum the amount of $2,780.94 should be accepted.

Counsel for the respondent has argued strongly that no benefit can be perceived in the amounts which have been recited which are in question.

The respondent has submitted as follows in his reply to notice of appeal:

The Respondent submits that the appellant did not pay any amount to or for the benefit of his former wife or the children of the marriage pursuant to a written agreement as alimony or other allowance payable on a periodic basis for her maintenance or the maintenance of the children of the marriage during his 1975 taxation year, pursuant to the provision of section 60(b) and 60.1 of the Income Tax Act.

I would be in agreement that the amounts in question do not fall within the provisions of paragraph 60(b) of the Income Tax Act and that point has been made and stressed very strongly in the Bryce decision to which reference has been made earlier. However, it is my view that it is the benefit involved that is at issue. In the Bryce decision the key word is “benefit”. The Board does note and is fully aware that the Bryce decision is under appeal. The benefit at issue in this matter has been agreed upon between the parties at $285 per month. Mathematically, that can be calculated by an examination of the specific items involved. Indeed, in a business sense, an allowance for depreciation of the property also could be made, in addition to the elements of expense already considered.

There is no question in my mind that such benefit can be estimated to be at least $285 a month. This amount was paid to third parties by the appellant, and the appeal is allowed.

Appeal allowed.