Sarah Richter v. Minister of National Revenue, [1977] CTC 2261, 77 DTC 183

Delmer E Taylor:—This is an appeal from income tax reassessments by which the Minister of National Revenue increased the taxable income of the appellant by amounts of $3,128.50 and $3,137 respectively for the years 1971 and 1972. Both the appellant and the respondent rely on section 3 and paragraph 6(1)(da) of the Income Tax Act, RSC 1952, chapter 148 as amended, and section 3 and paragraph 56(1)(c) of the Income Tax Act, SC 1970-71-72, chapter 63, and amendments thereto.

Facts

During the years in question the appellant received the amounts which are disputed as an allowance on a periodic basis from Mr Richter for the support and maintenance of herself and the two children of the marriage. Mrs Richter is a lawyer but was not practising her profession at the time. She was at all material times living separately from her then spouse.

Contentions

The appellant claimed that during the years in question the amounts received were not “pursuant to an order of a competent tribunal”, stating simply that there was no court order in effect. An interim court order, which included support payments, had been obtained by the appellant in 1969 but it had been dismissed in connection with an action for divorce in 1970. No subsequent court order had been issued or taken out although the former spouse had continued to make certain payments having some mathematical relationship to the Original court order.

The respondent asserted that the amounts received were pursuant to an order of a competent tribunal.

Evidence

By agreement between the parties the following documents were submitted:

Exhibit A-1—Certified Copy of Order in the Supreme Court of Ontario, dated July 24, 1969, between Sarah Ann Richter and Manfred Martin Richter—Registrar’s File No D4496/69

Exhibit A-2—Draft of Motion presented to the Supreme Court of Ontario

Exhibit A-3—Certified Copy of Judgment dated May 5, 1970 re Sarah Ann Richter and Manfred Martin Richter—Registrar’s File No D4496/69

Exhibit A-4—Reasons for Judgment in Richter v Richter rendered by Mr Justice Parker at Kitchener, Ontario, on May 5, 1970

Exhibit A-5—Petition for Divorce (Registrar’s File No D35128-1974)— Affidavit of Service issued by the Supreme Court of Ontario on Manfred Martin Richter by Shirley E Lincoln, Deputy Sheriff, Kitchener, on 24 May 1974

Exhibit A-6—Answer by Respondent Manfred Martin Richter by Kruse & Lawson (Barristers) in Supreme Court of Ontario—No D35128/74

Exhibit A-7—Reasons for Judgment in S A Richter and M M Richter by Judge N Douglas Coo of the Supreme Court of Ontario dated October 25, 1976

Exhibit A-8—Decree Nisi (October 25, 1976) issued by Supreme Court of Ontario (D35128/74).

Responding to direct questions from the presiding member at the hearing, counsel for the respondent agreed that the original court order (Exhibit A-1) was legally not valid during the years in question and that the respondent based the income tax assessment on the document indexed as Exhibit A-2. That exhibit which is all handwritten, on plain paper, is reproduced:

IN THE SUPREME COURT OF ONTARIO

Richter

v

Richter

TAKE NOTICE that an application will be made by counsel on behalf of the [petitioner the] Sarah Ann Richter on Tuesday the 5th day of May 1970 at 12.00 o’clock noon for an order granting the applicant custody of Kirsten Richter and Heidi Richter as well as maintenance for the said infants.

AND TAKE NOTICE that in support of the application will be read the evidence taken during the hearing of an action for dissolution of marriage heard in The Supreme Court of Ontario on the 4th and 5th days of May 1970.

Custody to mother with access to father in terms of interim order, subject to father having access to elder child for 1 week during summer vacation. Maintenance for each child of $30 per week.

(Sgd.) N.D. Parker

J.

Argument

The appellant reiterated that the funds which she had received were not subject to income tax under any provisions of the Income Tax Act since Exhibit A-1 was not effective after the issue of the subsequent court order indexed as Exhibit A-3, and that Exhibit A-3 only dismissed an action for divorce brought by the appellant and made no further provision for maintenance.

Counsel for the respondent asserted that the evidence indicated that agreement between. the appellant and her then spouse had been reached at least at the level of counsel for the respective parties. In his view the documentary evidence supported such an agreement and, at the minimum, the existence of a court order could be implied from the reading of Exhibit A-4. Counsel submitted for the Board’s consideration the following cases [and statutes]:

Marsellus v Marsellus (1970), 11 DLR (3d) 146 (Ont CA)

Felix v Felix (1973), 34 DLR (3d) 48 (Ont HC)

Dinel v Dinel, [1971] 3 OR 641 (Ont HC, Chambers)

Pawelko v Pawelko (1970), 12 DLR (3d) 279 (Sask QB)

The Matrimonial Causes Act, RSO 1970, 265

The Infants Act, RSO 1970, c 222

Peace River Power Development Co Ltd v BC Electric Ltd (1964), 47 DLR (2d) 751 (BCSC)

Broad v Ellis, [1956] OWN 180 (Ont HC, Chambers)

Re McCurdy, [1954] OWN 117 (Ont CA)

Neil v McMillan (1868), 27 UCRQB 257 (CA)

Sterling Trusts Corp, Merry Estate v MNR, 10 Tax ABC 119; 54

DTC 122

Findings

Exhibit A-2 upon which the assessment is based appears to the Board to be a draft or series of notes regarding the divorce action. The handwriting in the heading and the first two paragraphs appears quite different from the handwriting in the third paragraph and the signature of the learned justice. Whatever it is, the document is most certainly not an “order of a competent tribunal”. There are indications in some of the other exhibits (notably A-4) that discussions between counsel for both parties and the justice at the divorce hearing had taken place regarding maintenance and support, and the following quote is taken from that document, which is, as the heading indicates, a written transcript of the “Reasons for Judgment” delivered orally as a result of the dismissal of the divorce action:

MR SALHANY: The final submission relates to maintenance. I was going to suggest that the husband pay the wife for support of the children the sum of $30 a week for each child.

HIS LORDSHIP: At the present time the order provides for payment of maintenance for the wife?

MR SALHANY: Yes.

HIS LORDSHIP: I will change the order in this regard that it now covers the maintenance of the children at $30 a week each and that again, as both understand, might be subject to change if the children are brought closer where he can see them more often.

Is there any further in respect of this motion?

MR OSBORNE: No. I think the motion and the trial have been disposed of my lord.

That a court order might have been taken out, indeed perhaps should have been taken out, the Board can agree. But this does not change the fact that none was taken out.

Decision

The Board finds that the appellant has supported her contention that the income received was not pursuant to an order of a competent tribunal and, therefore, the amounts in dispute for the years 1971 and 1972 are not taxable in her hands. The appeal is allowed and the matter referred back to the respondent for reconsideration and reassessment accordingly.

Appeal allowed.