Harry Goldenburg v. Minister of National Revenue, [1979] CTC 3082, 79 DTC 851

The President:—This is the appeal of Harry Goldenburg from an assessment dated August 1, 1978, by which the respondent, while allowing an amount of $5,200 as the total of monthly alimony payments paid by the appellant to his estranged wife during the 1977 taxation year, disallowed the deduction of $11,479.98 claimed by the appellant as payments made to discharge the mortgage on the matrimonial home which is the subject of this appeal.

Facts

The appellant was divorced from his wife by a decree of the Supreme Court of Ontario dated the 7th day of May, 1976 (Exhibit A-1). The decree read in part:

2. AND THIS COURT DOTH ORDER AND ADJUDGE that the Respondent and Petitioner by Counter-Petition, Harry Goldenburg, do pay to the Petitioner and Respondent by Counter-Petition, Wilma Christina Goldenburg for her own maintenance and support, the sum of $100 per week until the remarriage of Wilma Christina Goldenburg or she commences to live with a male person other than a relative.

3. AND THIS COURT DOTH FURTHER ORDER AND ADJUDGE that the Respondent and Petitioner by Counter-Petition, Harry Goldenburg, transfer and convey to the Petitioner and Respondent by Counter-Petition, Wilma Christina Goldenburg, all of his interest in 919 Plantation Road, London, Ontario.

4. AND THIS COURT DOTH FURTHER ORDER AND ADJUDGE that the Respondent and Petitioner by Counter-Petition, Harry Goldenburg, shall on behalf of the Petitioner and Respondent by Counter-Petition, Wilma Christina Goldenburg, make the mortgage payments on the existing first mortgage on 919 Plantation Road, London, Ontario, until same is retired and discharged.

The facts and the figures in this appeal are not in dispute. The evidence is that the appellant did in fact transfer to his former wife, the title to the matrimonial home situated at 919 Plantation Road, London, Ontario, and made the mortgage payments as required by the decree. From January 1977 to November 1977, the appellant testified that he paid monthly amounts of $122 in principal, interest and taxes in respect of the mortgage held by Canada Permanent Trust Company for a total amount of some $1220. The appellant stated that he was forced by the terms of the mortgage contract to pay taxes on property which he did not own and on November 7,1977, he decided to avoid paying such taxes by depositing an amount of $10,359.98 in a trust account (Exhibit A-2) for complete payment and retirement of the mortgage as calculated by the trust and as required by the decree. The mortgage discharge was registered.

The issue in respect of the deductibility or otherwise of $11,479.98 is twofold—(a) are the monthly mortgage payments of $122 from January to November, 1977, deductible under paragraphs 60(b) or (c) of the Income Tax Act, SC 1970-71-72, c 63; and (b) is the balance of the mortgage in the amount of $10,359.98 paid by the appellant in 1977 deductible?

Submissions

The appellant contended that the monthly payments as well as the “payment off” of the mortgage in one lump sum to retire the mortgage, were made pursuant to the divorce decree and constituted a benefit to his former wife.

The respondent submitted that the monthly mortgage payments of $122 were not deductible because they were not alimony payments or other allowances, and further, the amount of $10,359.98 was not deductible because it was, according to the decree, not payable on a periodic basis.

The cases cited by the respondent were as follows:

1. Andrew Willis Forsyth v MNR, 9 Tax ABC 220; 53 DTC 409;

2. Charles Edmund Brown v MNR, [1965] CTC 302; 65 DTC 5184;

3. Takis P Veliotis v Her Majesty The Queen, [1974] CTC 237; 74 DTC 6190;

4. Ronald Munro Helmer v MNR, 32 Tax ABC 250; 63 DTC 532.

All these cases establish clearly the principle that alimony or other maintenance allowances must be payable on a periodic basis and that lump sum payments are not alimony or maintenance allowances within the meaning of the Act.

However, the state of the law on that point, though it has not changed, has evolved and rightly did the respondent refer to the Federal Court of Appeal’s decisions in Her Majesty The Queen v Morton Pascoe, [1975] CTC 58; 75 DTC 5427, and The Attorney General of Canada v James C Weaver and Freda J Weaver, [1975] CTC 646; 75 DTC 5462. In the Pascoe case, the Federal Court of Appeal upheld the principle that an allowance must be payable on a periodic basis. However, Mr Justice Pratte defined an allowance as follows:

First, we are of opinion that the payment of those sums did not constitute the payment of an allowance within the meaning of section 11(1)(b). An allowance is, in our view, a limited predetermined sum of money paid to enable the recipient to provide for certain kinds of expenses; its amount is determined in advance and, once paid, it is at the complete disposition of the recipient who is not required to account for it. A payment in satisfaction of an obligation to indemnify or reimburse someone or to defray his or her actual expenses is not an allowance; it is not a sum allowed to the recipient to be applied in his or her discretion to certain kinds of expense.

In the Weaver case, the Federal Court of Appeal reaffirmed its decision in the Pascoe case and held that utility bills and mortgage payments were not alimony or other allowances since they were not received by the wife as alimony or other allowances payable on a periodic basis, but were paid to third parties to defray the wife’s actual expenses.

The respondent then referred to section 60.1 which reads:

Where, after May 6, 1974, a decree, order, judgment or written agreement described in paragraph 60(b) or (c), or any variation thereof, has been 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.

All the conditions set out in paragraphs 60(b) and (c) (to which section 60.1 refers) in respect of alimony and maintenance payments and the principles and criteria set out by the Courts in determining the necessary elements of such payments have been retained and are, in my opinion, inherent in the words “payments of an amount by the taxpayer to or for the benefit of his spouse’’. The facts in this appeal provide, in my opinion, a valuable insight as to what payments fall within alimony and maintenance payments and which do not. There is no difficulty whatever with the $5,200 paid on a periodic basis, pursuant to a Court order, by the appellant to his spouse from whom he was divorced and living apart, and that amount was allowed by the respondent as being alimony or maintenance payments for the support and maintenance of the appellant’s wife and children. Even if the $5,200 had been paid to a third party for the support and maintenance of the spouse and the children, it would nevertheless have been in the nature of maintenance allowance and deemed to have been paid as a benefit to the spouse pursuant to section 60.1 of the Act.

The problem has continuously arisen when monthly mortgage payments form part of the order issued by a Court or by a written agreement between the taxpayer and his estranged spouse. If the taxpayer, living apart from his spouse and pursuant to a Court order or written separation agreement, is making monthly mortgage payments on the matrimonial home on which the taxpayer alone holds title, a benefit within the meaning of section 60.1 accrues to the spouse in the form of maintenance allowances not unlike in some respects monthly rental payments that would be made by the taxpayer under comparable circumstances for the maintenance of his spouse in some other residence. If, however, the taxpayer’s estranged spouse is joint owner of the matrimonial home, the mortgage payments made by the taxpayer are, in my opinion, alimony or maintenance payments as defined by the Courts, and as such, a benefit to the spouse only to the extent of and proportional to her non-ownership in the property (eg—50%).

In the instant appeal the Court ordered the transfer and the conveyance of all the taxpayer’s interest in the matrimonial home to his estranged wife and further ordered that the taxpayer make all the mortgage payments until the mortgage was completely retired and discharged (Exhibit A-1, para 3 & 4). The taxpayer made periodic mortgage payments of $122 for a period of some eleven months and one lump sum payment of $10,359.98 to retire the mortgage on a property to which the appellant’s spouse held legal title. Such payments are indeed a benefit to the spouse, but is the benefit conferred in the nature of alimony or maintenance allowances?

The concept of alimony and maintenance payments, as set out in paragraphs 60(b) and (c) and as interpreted by the Courts over the years, involves more than the periodicity of the payments ordered by the Courts or agreed to by the parties to a written separation agreement. The nature of the payments must be for the support and maintenance of the spouse as those words are generally understood. The nature of the “benefit” referred to in section 60.1, as I interpret that section, is related and limited to the support and maintenance of the spouse and would not include gifts or transfer of capital assets by the taxpayer to his spouse even though ordered by the Court or agreed to in a written separation agreement.

The Court order or a written separation agreement might well, as in the instant appeal, specify that payments, even periodic payments, be made by the taxpayer to his spouse which, though a benefit to the spouse, are not maintenance allowances but are in the nature of capital assets and, in my opinion, not meant by Parliament to fall within the meaning of paragraphs 60(b) and (c), and section 60.1. The transfer by the appellant of title to the matrimonial home to his spouse, the mortgage on which was subsequently totally discharged, is over and above what is generally understood by alimony and maintenance payments made for the support of the spouse and children. Such payments are, in my view, special provisions of a capital nature made by the parties, not for the maintenance of the spouse, but as the price of a settlement, or of damages or the conditions on which a legal separation would be agreed to.

The facts of this appeal can be distinguished from those in Gordon A Bryce v MNR, [1978] CTC 3144; 78 DTC 1833, on one important point. In the Bryce case, decided by my learned colleague, Mr Dubrule, the taxpayer was ordered by the Supreme Court of British Columbia to pay the mortgages, taxes, water, sewer and cablevision expenses of a duplex owned jointly by the taxpayer and his wife, and occupied by the taxpayer’s wife. In the instant appeal, the Court ordered that the title of the matrimonial home be transferred from the taxpayer to his spouse and that the taxpayer retire the mortgage. Although in both cases the mortgage payments were benefits to the estranged spouses, the transfer of title to a property to the appellant’s spouse in this appeal, and the subsequent mortgage payments, whether periodical or lump sum payments, are clearly capital assets and not allowances for the payment of certain kinds of expenses as defined by Mr Justice Pratte in the Pascoe case.

Decision

I hold, therefore, that both the periodical mortgage payments of $122 per month and the lump sum payment of $10,359.98 paid by the appellant in 1977 on the matrimonial home, title to which had been transferred to his spouse, are not allowances within the meaning of paragraphs 60(b) and (c) and are not deductible. The benefits received by the appellant’s spouse as a result of the payments were not alimony or maintenance allowances but were in the nature of capital assets not envisaged in the meaning and intent of section 60.1. For these reasons, the appeal is dismissed.

Appeal dismissed.