Peter D L Roper v. Minister of National Revenue, [1977] CTC 602, 77 DTC 5408

Marceau, J:—These are income tax cases. By order of this Court, the two appeals* [1] were to be heard together, on common evidence, as they both related to the same facts.

The appellant in the first action, Peter D L Roper, and the respondent in the other, Agnes W Roper, were in 1964 and 1965 husband and wife, but living separate and apart. Their action and cross-demand for separation from bed and board were then pending in the Superior Court of the Province of Quebec. Their marriage was later dissolved by divorce.t [2] During the pendency of the separation suit, by an order of the court (Exhibit 3), the wife was “to receive the sum of $575 a month from [the husband], Peter D L Roper, the latter being ordered to pay the maintenance of the provisional domicile and the costs of the schooling of the children”. In compliance with the order, the husband, in addition to the $575 per month he remitted to his wife, paid in 1964 a total amount of $6,023.41, and in 1965 of $6,777 to cover the expenses incurred for the maintenance of the house and the schooling of the children. These payments were made directly to the creditors; they pertained to various expenses such as interest on mortgage, property taxes, heating, lighting, insurance, telephone, janitor services, tuition fees, school books, etc (see Exhibit 2).

In computing his income for the 1964 and 1965 taxation years, the husband purported to deduct, along with the amounts remitted to his wife, all those payments he had so made to creditors, relying on paragraph 11(1)(la) of the Income Tax Act, RSC 1952, then in force, but the Minister by reassessments dated April 3 and November 26, 1969 disallowed the deductions contending that the payments were not “allowances” within the meaning of the relevant paragraph which, for the purpose of convenience, I reproduce hereunder:

11. (1) Notwithstanding paragraphs (a), (b) and (h) of subsection (1) of section 12, the following amounts may be deducted in computing the income of a taxpayer for a taxation year:

(la) an amount paid by the taxpayer in the year, pursuant to an order of a competent tribunal, as an 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 his spouse to whom he was required to make the payment at the time the payment was made and throughout the remainder of the year;

The first appeal was launched by the husband against the decision of the Tax Appeal Board upholding the Minister’s contention.

Before the issuance of the reassessments wherein taxes were levied against the husband, the Minister had already issued a reassessment concerning the wife’s income for the taxation year 1964, on the basis that the payments so made by her husband for the maintenance of the house and the schooling of the children had to be taxed in her hands under paragraph 6(1)(da) of the Income Tax Act then in force, which paragraph read as follows:

6. (1) Without restricting the generality of section 3, there shall be included in computing the income of a taxpayer for a taxation year

(da) an amount received by the taxpayer in the year, pursuant to an order of a competent tribunal, as an 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 the recipient was living apart from the spouse required to make the payment at the time the payment was received and throughout the remainder of the year;

In the second appeal, the Minister challenges the decision of the Tax Appeal Board which held that the reassessment had no basis since the wife did not fall under said paragraph 6(1)(da).

As it can be seen, the two appeals do not exactly coincide since the husband’s appeal is against two reassessments in respect of two taxation years, while the wife’s appeal relates to one reassessment for her 1964 taxation year only. Counsel for the Minister was not aware of the reason for the discrepancy but, in any event, it did not have to be taken into account.

The appeals came on for hearing at Montreal, the two individual taxpayers acting on their own behalf. At the outset of the hearing, the husband-appellant moved the Court for leave to amend his declaration by adding to the statement of facts therein a paragraph reading as follows:

That the property 2 Belvedere Road was owned and maintained by the appellant. He was not able to rent the house as a result of the judgement of Mr Justice Puddicombe in 1963 nor in subsequent years until an eviction order forced the property to be vacated. During the years 1964 and 1965 therefore, as in subsequent years, the expenses of maintaining of this house should be allowable as a rental loss if they are not allowable as alimony payments.

When counsel for the Minister-respondent realized that by such an amendment the appellant was not only seeking to add an argument in support of his contention that the payments were deductible by application of paragraph 11(1)(la) of the Act, but was trying to raise an entirely new issue, he disputed the application, and, in my view, rightly so. These were appeals against Tax Appeal Board’s decisions, and they had been pending for years: it would have been an injustice to the other parties concerned if, at the very last moment, the husbandappellant were permitted to put into question an issue totally unforeseeable. (See Her Majesty the Queen v Alice Agnes Hall, [1958] Ex CR 110; Baydon Corp Ltd et al v duPont Glore Forgan Canada Ltd et al (1974), 4 OR (2d) 290; and Scott Maritimes Pulp Ltd v B F Goodrich Canada Ltd (1977), 72 DLR (3d) 680.) Moreover the paragraph sought to be added could be of no apparent avail: on the one hand, a claim for loss of rental in the circumstances described by the other allegations of the pleadings was obviously not allowable as it was only an estimated loss of revenue and not a payment made to or on behalf of the wife pursuant to the court order (The Queen v J Guay, [1977] CTC 266); on the other hand, there were no facts alleged that could support a claim for a business loss, the husband-appellant being unable to assert that, in the relevant years, he was in any way actively engaged in a business. The application to amend was therefore denied.

I turn now to the issues, as they are raised by the pleadings. I think a first remark to be made is that the Minister cannot succeed in both actions. The two provisions of the Act which come into play are obviously complementary: if a payment made by one of the spouses for the benefit of the other is not deductible in computing this spouse’s income under paragraph 11(1)(la), such payment is not to be brought into the computation of the other spouse’s income under paragraph 6(1)(da) and vice versa.

That being said, it must be remembered that the interpretation and construction of the two relevant provisions of the Act in force in 1964 and 1965 (or their counterparts in the new Act, 1970-71-72, c 63, paragraphs 56(1 )(c) and 60(c), which are identical) have been considered many times by this Court in recent years (The Queen v Pascoe, [1976] 1 FC 372; [1975] CTC 656; 75 DTC 5427; Attorney General of Canada v Weaver, [1975] CTC 646; 75 DTC 5462; C C Cotton v The Queen, [1976] CTC 406; 76 DTC 6232; The Queen v Guay, referred to above). In the leading Pascoe case, the Federal Court of Appeal held that payments on account of educational and medical expenses made pursuant to a court order were not “allowances” under paragraph 11 (1)(l) because they were not fixed, limited, predetermined amounts payable to the other spouse on a periodic basis. Pratte, J, speaking on behalf of the Court, said [p 658, 5428]:

First, we are of opinion that the payment of those sums did not constitute the payment of an allowance within the meaning of paragraph 11(1)(l). An allowance is, in our view, a limited predetermined sum of money paid to enable the recipient to provide for certain kinds of expense; 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.

Furthermore, even if the payment of the expenses here in question could be construed as the payment of an allowance, it was not, in our view, an allowance “payable on a periodic basis” as required by paragraph 11 (1 )(l). The payment was not determined by the separation agreement and the decree nisi to be at fixed recurring intervals of time. Indeed, the agreement and decree said nothing about when payment of the expenses must be made. It is not relevant that the educational expenses may, in fact, have been paid on a periodic basis since the periodicity required by the statute refers to the manner in which the allowance is payable, not to the manner in which it is in fact paid.

While it may appear at first sight that the interpretation of the Court of Appeal is somewhat narrow, it is in keeping with the basic principle that, taxation being the rule, an exemption is an exception which must be strictly construed, and, in any case, it is binding upon me. It follows that the only question I am called upon to answer here is simply whether the payments made by the husband-appellant to various creditors as aforesaid qualify as “allowances” in the meaning of the relevant provisions of the Act according to the test laid down by Pratte, J. It is obvious that they do not.

The husband-appellant contended in an allegation (which was only denied by the Minister) that he had not made the payments directly to his wife “because his former spouse was not able to manage properly her own affairs”. Not only was such an allegation not sustained by the evidence, it was, in my view, totally irrelevant. The order in pursuance of which the payments were made did not leave any choice: the payments were not to be made to the wife but directly to the creditors. Moreover, the payments, those pertaining to educational expenses as well as those pertaining to the maintenance of the house, were certainly not fixed, predetermined, and made on a periodic basis, as it can be seen by the statement produced by the husband-appellant as his Exhibit 2.

I am therefore of the view that the payments in question were not allowances within the meaning of paragraphs 11(1)(la) and 6(1)(da) of the Act. It follows that they were not deductible in computing the husband-appellant’s income nor could they be brought into the computation of the wife-respondent’s income.

Both appeals will accordingly be dismissed with costs.