The Chairman (orally: August 29, 1974):
1 These are appeals by Reuben A Rodney against reassessments of the Minister of National Revenue for each of the years 1968, 1969 and 1970. It is a question of whether certain payments made by the appellant husband are deductible as alimony payments under paragraph 11(1)(l) of the Income Tax Act, RSC 1952, c 148.
2 The case would probably not be before the Board at this time if it were not for the decision of Mr Justice Walsh in MNR v R E Hastie, [1974] F.C. 117, [1974] C.T.C. 131, 74 D.T.C. 6114, and of this Board in subsequent cases following the Hastie case, particularly J A C Belanger v Minister of National Revenue, [1974] C.T.C. 2170, 74 D.T.C. 1130.
3 The interpretation of the meaning of paragraph (l) of subsection 11(1) has been almost completely reversed as a result of the Hastie decision.
4 In the Belanger case I said that, in my view, Mr Justice Walsh had not taken an irresponsible approach to the interpretation but had, in my respectful view, merely brought the law up to current standards and in line with changing social conditions.
5 However, one must be careful that one does not fall into the area of irresponsibility when determining what is a deductible expense, pursuant to paragraph 11(1)(l), for the spouse making the claim.
6 This is an unusual case in that there was an order of the Supreme Court of Ontario dated May 21, 1968, which was entered in the records of the Supreme Court of Ontario on June 12, 1968.
7 In that order, which was an order of the Master, the appellant in this case was ordered to pay $100 a week plus certain other items.
8 This situation continued until June 16, 1969, I believe it was, when a separation agreement was entered into between the appellant and his spouse setting out in detail the respective obligations of each.
9 The appellant claims now that, in the light of the Hastie decision, he should be entitled to deduct all the items which he has been ordered to pay pursuant to the judgment of the Supreme Court of Ontario and which, except for the amounts, have been carried forward into the separation agreement of June 16, 1969, which is appellant's Exhibit No 2.
10 I think I said in the Belanger case (and I interpreted Mr Justice Walsh's decision in the Hastie case by looking at the order or the agreements as a whole to see what the husband was being ordered to pay) that it seemed to me that the decision really set out a mode of calculating the dollar-and-cent value of what the paying spouse was responsible for paying and deducting under paragraph 11(1)(l).
11 There is testimony in this case that the wife would not and did not make payments that were due on the former matrimonial home, and I think one of the comments that I made in referring to the Hastie decision was that the short-circuiting of payments from spouse to recipient for the benefit of the recipient spouse or children should not preclude the deduction to the spouse who was making the payments, because such a preclusion might work a hardship on the offspring of the marriage.
12 In this case, the evidence before me is that there were three children, the oldest being about ten and the youngest only about one or two years old at the time the order was entered into.
13 As I said in a recent case in Ottawa (the name of which escapes me) and as has been said by the appellant today, it is only in recent years, when incomes have surged ahead either by virtue of changing social conditions, inflation or be it what may, that persons who would ordinarily not have taken the trouble to question an assessment of the Taxation Division are now in a bracket where they will and do question their assessments.
14 I do not say this applies directly to this appellant, because he is a lawyer, but I think a great many respectable and highly competent legal firms have, over the years, drawn up documents without any real appreciation or concern for the tax consequences of the documents.
15 I think, also, with all due respect, that the same applies to my former colleagues on the Bench, and that a great many orders and judgments are or have been issued without any consideration as to the tax consequences to either or both of the litigants before them.
16 Therefore I do not find it unusual that the order of June 12, 1968, or May 21, 1968, as the case may be, should not contain, or does not contain, the precise wording that would fit the items enumerated therein clearly within the framework of paragraph 11(1)(l) of the Act. It is clear to me that the sum total of the appellant's responsibilities was to be as set out in that order, and an obligation was laid upon him just as clearly, in my view, as would have been the case if the exact wording of paragraph 11(1)(l) of the Act as it then was had been followed.
17 It is true (and I have had some difficulty with this aspect of it) that, taken individually, the items set out on page 2 of the order might not be expenses deductible from the income of either spouse. In fact I am certain that, in most instances, at least half of them would not be, but that is not the issue that is before me. The real issue is how much alimony this appellant was required to pay and whether he was required to pay it on a periodic basis, and I think there is no question whatsoever that each of the items enumerated in the order were inserted for the purpose of calculating what the appellant would be required to pay on a periodic basis, even though no amounts were specified.
18 I am therefore allowing the appeal with the caution to myself that there must be some close scrutiny of each of these documents in an effort to arrive at the happy medium that must have been intended when any deduction was allowed for such payments.
19 The question remaining to be determined is the date upon which the order became effective. There is again another decision of mine—I think unreported—which I rendered in Toronto, in which I held that the order speaks from the date that it is formally entered into the record.
20 There is a provision that the payments should become due or payable by the appellant as of the date of service of the writ. I do not think that one can retroactively bring oneself within paragraph 11(1)(l) of the Income Tax Act. My perhaps scanty recollection of the Rules of Practice of Ontario is that delivery of the document is serving and filing, and I think the date that this order is effective is the date on which it was entered into the records of the Supreme Court of Ontario, that is, on June 12, 1968.
21 Therefore, I allow the appeal and refer it back to the Minister for reconsideration and reassessment on the basis of the figures for the items designated as obligations in the order from June 12, 1968 until June 16, 1969, and thereafter on the basis of the amounts and obligations in the separation agreement of the latter date.
22 Is that intelligible enough?
23 MR BLUMENFELD: I just want to clarify this in my mind. That is, the payment in the new agreement, that he was required to pay the mortgage interest to bring the Whitelock house into good standing, is taken as being a periodic payment of $2,500 providing we can satisfy the Department that these amounts were paid?
24 THE CHAIRMAN: That is correct.
25 MR BLUMENFELD: And where we were also required to pay a bank loan in that agreement as well, which the wife had, would that be considered a periodic payment?
26 THE CHAIRMAN: I don't see anything about a bank loan.
27 MR BLUMENFELD: I did mention that, Mr Chairman. But, again, I am leaving that open to interpretation.
28 THE CHAIRMAN: I think the bank loan must be excluded.
29 MR BLUMENFELD: OK. Fine.
30 THE CHAIRMAN: Because I can't conceive of that as being a periodic ...
31 MR BLUMENFELD: I just wanted to make it clear so we wouldn't have a hassle with the treasurer.
32 THE CHAIRMAN: I'm sure you will anyway. The bank loan was in what year?
33 MR BLUMENFELD: It was in 1969, in the new agreement.
34 THE CHAIRMAN: Fine. So, briefly then, the judgment is that the appeals are allowed in part, and the assessments referred back to the Minister for reconsideration and reassessment on the basis of the figures for the obligations in the order of June 12, 1968, from that date until June 16, 1969, and thereafter on the basis of the amounts and obligations in the separation agreement. In respect of the 1969 taxation year the bank loan of $1,200 mentioned in clause 15 of the separation agreement is to be excluded from the allowable deductions. [Off-record discussion.]
35 THE CHAIRMAN: The bank loan of $1,200 is what I am excluding.
36 MR BLUMENFELD: The 27 or 28 then for the home improvement would be what was allowed?
37 THE CHAIRMAN: Yes.
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